0001739614-21-000083.txt : 20210809 0001739614-21-000083.hdr.sgml : 20210809 20210809160832 ACCESSION NUMBER: 0001739614-21-000083 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210809 DATE AS OF CHANGE: 20210809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Inhibrx, Inc. CENTRAL INDEX KEY: 0001739614 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 824257312 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39452 FILM NUMBER: 211156520 BUSINESS ADDRESS: STREET 1: 11025 N. TORREY PINES ROAD, SUITE 200 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: (858) 795-4220 MAIL ADDRESS: STREET 1: 11025 N. TORREY PINES ROAD, SUITE 200 CITY: LA JOLLA STATE: CA ZIP: 92037 10-Q 1 inhibrx-20210630.htm 10-Q inhibrx-20210630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to      
Commission File Number: 001-39452
INHIBRX, INC.
(Exact name of registrant as specified in its charter)  
Delaware82-4257312
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
11025 N. Torrey Pines Road, Suite 200
La Jolla, California
92037
(Address of principal executive offices)(Zip Code)
(858) 795-4220
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001INBXThe Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                               Yes  ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                           Yes  ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No ☒
As of July 31, 2021, the registrant had 37,892,204 shares of common stock outstanding.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Quarterly Report, of Inhibrx, Inc., or Inhibrx, or the Company, (also referred to as “we,” “us,” and “our”) contains forward-looking statements that involve risks and uncertainties. Except as otherwise indicated by the context, references in this Quarterly Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “design,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
the initiation, timing, progress and results of our research and development programs as well as our preclinical studies and clinical trials;
our ability to advance therapeutic candidates into, and successfully complete, clinical trials;
our interpretation of initial, interim or preliminary data from our clinical trials, including interpretations regarding disease control and disease response;
the timing or likelihood of regulatory filings and approvals;
the commercialization of our therapeutic candidates, if approved;
the pricing, coverage and reimbursement of our therapeutic candidates, if approved;
our ability to utilize our technology platform to generate and advance additional therapeutic candidates;
the implementation of our business model, strategic plans for our business and therapeutic candidates;
our ability to successfully manufacture our therapeutic candidates for clinical trials and commercial use, if approved;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates;
our ability to enter into strategic partnerships and the potential benefits of such partnerships;
our estimates regarding expenses, capital requirements and needs for additional financing;
our financial performance;
our expectations regarding the impact of the COVID-19 pandemic on our business;
our and our third party partners and service providers’ ability to continue operations and advance our therapeutic candidates through clinical trials and the ability of our third party manufacturers to provide the required raw materials, antibodies and other biologics for our preclinical research and clinical trials in light of the COVID-19 pandemic and the ongoing political unrest in Hong Kong;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; and
developments relating to our competitors and our industry.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
1

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to new information, actual results or to changes in our expectations, except as required by law.
You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission, or the SEC, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
This Quarterly Report includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.
2

TABLE OF CONTENTS
PAGE

3

Part I — Financial Information
Item 1. Financial Statements.
Inhibrx, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data and par value)
JUNE 30,DECEMBER 31,
20212020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$125,728 $128,664 
Accounts receivable217 82 
Receivables from related parties311 533 
Prepaid expenses and other current assets5,023 2,893 
Total current assets131,279 132,172 
Property and equipment, net3,263 3,492 
Right-of-use asset7,100 7,831 
Other non-current assets245 245 
Total assets$141,887 $143,740 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$9,864 $13,458 
Accrued expenses6,984 13,357 
Current portion of deferred revenue3,237 3,081 
Current portion of lease liability1,587 1,503 
Total current liabilities21,672 31,399 
Non-current portion of deferred revenue150 737 
Long-term debt, net of current portion and including final payment fee69,670 29,244 
Non-current portion of lease liability5,896 6,707 
Other non-current liabilities180 180 
Total liabilities97,568 68,267 
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.0001 par value; 15,000,000 shares authorized as of June 30, 2021 and December 31, 2020; no shares issued or outstanding as of June 30, 2021 and December 31, 2020.
  
Common stock, $0.0001 par value; 120,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 37,849,025 and 37,712,390 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
4 4 
Additional paid-in-capital229,693 220,848 
Accumulated deficit(185,378)(145,379)
Total stockholders’ equity44,319 75,473 
Total liabilities and stockholders’ equity$141,887 $143,740 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Inhibrx, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
SIX MONTHS ENDED
JUNE 30,
2021202020212020
Revenue:
License fee revenue$918 $3,334 $1,781 $4,206 
Grant revenue36 5 62 5 
Total revenue954 3,339 1,843 4,211 
Operating expenses:
Research and development17,902 18,974 34,340 35,990 
General and administrative2,853 1,532 5,862 2,999 
Total operating expenses20,755 20,506 40,202 38,989 
Loss from operations(19,801)(17,167)(38,359)(34,778)
Other income (expense):
Interest expense, net(914)(3,405)(1,659)(5,856)
Other income (expense), net5 (5)21 5 
Change in fair value of derivative liabilities 2,692  2,651 
Total other expense(909)(718)(1,638)(3,200)
Loss before income tax expense(20,710)(17,885)(39,997)(37,978)
Provision for income taxes  2  
Net loss(20,710)(17,885)(39,999)(37,978)
Net loss per share, basic and diluted$(0.55)$(0.99)$(1.06)$(2.09)
Weighted-average shares of common stock outstanding, basic and diluted37,824 18,154 37,780 18,154 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Inhibrx, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands)
(Unaudited)
Convertible Preferred Stock
(Shares)
Convertible Preferred Stock
(Amount)
Common Stock
(Shares)
Common Stock (Amount)Additional Paid-In CapitalAccumulated DeficitTotal Stockholders’ Equity
(Deficit)
Balance as of December 31, 2020 $ 37,712 $4 $220,848 $(145,379)$75,473 
Stock-based compensation expense— — — — 3,421 — 3,421 
Issuance of shares upon exercise of stock options— — 93 — 988 — 988 
Net loss— — — — — (19,289)(19,289)
Balance as of March 31, 2021 $ 37,805 $4 $225,257 $(164,668)$60,593 
Stock-based compensation expense— — — — 3,951 — 3,951 
Issuance of shares upon exercise of stock options— — 44 — 485 — 485 
Net loss— — — — — (20,710)(20,710)
Balance as of June 30, 2021 $ 37,849 $4 $229,693 $(185,378)$44,319 

Convertible Preferred Stock
(Shares)
Convertible Preferred Stock
(Amount)
Common Stock
(Shares)
Common Stock (Amount)Additional Paid-In CapitalAccumulated DeficitTotal Stockholders’ Equity
(Deficit)
Balance as of December 31, 201912,534 $59,507 18,154 $2 $(24,316)$(69,255)$(93,569)
Stock-based compensation expense— — — — 1,088 — 1,088 
Net loss— — — — — (20,093)(20,093)
Balance as of March 31, 202012,534 $59,507 18,154 $2 $(23,228)$(89,348)$(112,574)
Stock-based compensation expense— — — — 1,259 — 1,259 
2020 Notes - beneficial conversion feature— — — — 2,656 — 2,656 
Net loss— — — — — (17,885)(17,885)
Balance as of June 30, 202012,534 $59,507 18,154 $2 $(19,313)$(107,233)$(126,544)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Inhibrx, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
20212020
Cash flows from operating activities
Net loss$(39,999)$(37,978)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization589 505 
Accretion of debt discount and non-cash interest expense434 5,824 
Stock-based compensation expense7,372 2,347 
Non-cash lease expense731 675 
Change in fair value of derivative liabilities (2,651)
Gain on disposal of fixed assets(9) 
Changes in operating assets and liabilities:
Accounts receivable(135)194 
Receivables from related parties222 122 
Prepaid expenses and other current assets(2,130)539 
Accounts payable(3,572)5,677 
Accrued expenses and other current liabilities(6,373)10,505 
Operating lease liability(727)(650)
Deferred revenue, current portion156 (4,216)
Deferred revenue, non-current portion(587)410 
Net cash used in operating activities(44,028)(18,697)
Cash flows from investing activities
Purchase of fixed assets(428)(453)
Proceeds from the sale of property and equipment55  
Net cash used in investing activities(373)(453)
Cash flows from financing activities
Proceeds from the issuance of convertible notes 15,000 
Proceeds from the issuance of debt39,992  
Payment of fees associated with debt (50)
Proceeds from the Paycheck Protection Program loan 1,875 
Repayment of principal on debt (2,183)
Final payment on debt (1,400)
Proceeds from the exercise of stock options1,473  
Net cash provided by financing activities 41,465 13,242 
Net decrease in cash and cash equivalents(2,936)(5,908)
Cash and cash equivalents at beginning of period128,664 11,540 
Cash and cash equivalents at end of period $125,728 $5,632 
Supplemental disclosure of cash flow information
Cash paid for interest$1,322 $39 
Cash paid for income taxes$2 $ 
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Supplemental schedule of non-cash investing and financing activities
Debt discount arising from convertible note beneficial conversion features and reversal of beneficial conversion features$ $2,656 
Operating lease liabilities arising from obtaining right-of-use assets $ $1,752 
Derivative liabilities$ $735 
Initial public offering costs included in accounts payable and accrued expenses$ $476 
Payable for purchase of fixed assets$(22)$(24)
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Inhibrx, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Inhibrx, Inc., or the Company, or Inhibrx, is a clinical-stage biotechnology company focused on developing a broad pipeline of novel biologic therapeutic candidates. The Company combines a deep understanding of target biology with innovative protein engineering, proprietary discovery technologies, and an integrative approach to research and development to design highly differentiated therapeutic candidates. The Company’s current pipeline is focused on oncology and orphan diseases.
Impact of COVID-19 Pandemic
In response to the global outbreak of COVID-19 and the World Health Organization’s classification of the outbreak as a pandemic, the Company continues to take the necessary precautions to ensure the safety of its employees and to minimize interruptions to its operations. The full impact of the COVID-19 outbreak continues to evolve as of the date of these financial statements. While the pandemic has not yet had a material effect on the Company’s financial results, it is uncertain as to the full magnitude of impact the pandemic will have on the Company’s financial condition, liquidity and future results of operations. Management is actively monitoring the risks to public health and the impact of overall global business activity on its financial condition, liquidity, operations, suppliers, industry, and workforce.
The U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which, among a number varied provisions aimed to ease tax burdens on companies during the COVID pandemic, permitted employers to defer the payment of the employer share of social security taxes due for the period beginning March 27, 2020 and ending December 31, 2020. Of the amounts deferred, 50% is required to be paid by December 31, 2021 and the remaining 50% is required to be paid by December 31, 2022. The Company began deferring payment of the employer share of social security taxes in April 2020. As of June 30, 2021 and December 31, 2020, the Company had deferred payment of $0.4 million of such taxes, $0.2 million of which are classified as accrued expenses and $0.2 million of which are classified as other non-current liabilities in the Company’s condensed consolidated balance sheets.
The CARES Act also includes a provision for a Paycheck Protection Program, or PPP, administered by the U.S. Small Business Administration, or SBA, and further amended by the Paycheck Protection Program Flexibility Act of 2020, or PPP Flexibility Act, which was enacted on June 5, 2020. The Company was approved for a loan pursuant to the PPP, or PPP Loan, in the amount of $1.9 million and received the funds on May 11, 2020. The application for these funds required the Company to certify in good faith that current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. The Company was also required to certify that the loan funds would be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. The PPP Loan had a two-year term and bore interest at a rate of 1.0% per annum. Under the terms of the CARES Act, the Company was eligible to apply for and be granted forgiveness for all or a portion of the PPP Loan. Subsequent to its IPO in August 2020, the Company determined that it would not seek forgiveness of the PPP Loan, and on October 2, 2020 repaid the loan in full plus all interest accrued during the period outstanding. There was no interest expense related to the PPP Loan for the three and six months ended June 30, 2021. Interest expense related to the PPP Loan for the three and six months ended June 30, 2020 was approximately $3,000. Interest expense was calculated using the effective interest method.
The Company will continue to examine and evaluate any impacts the CARES Act and associated subsequent legislation may have on its business and taxes.    
Reverse Stock Split
On August 11, 2020 the Company effected a one-for-1.7382 reverse stock split of the Company’s common stock, or the Reverse Stock Split. The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock and the conversion prices of the convertible
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preferred stock and convertible notes have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, related to an interim report on the Form 10-Q.
The unaudited interim condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The operating results presented in these unaudited interim condensed financial statements are not necessarily indicative of the results that may be expected for any future periods.
Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, the accompanying unaudited interim financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K filed with the SEC.
Liquidity
On August 21, 2020, the Company completed its initial public offering, or IPO, in which it sold 8,050,000 shares of common stock at an offering price of $17.00 per share. Net proceeds from the IPO were $125.9 million, net of underwriting discounts, commissions, and offering costs.
As of June 30, 2021, the Company had an accumulated deficit of $185.4 million and cash and cash equivalents of $125.7 million. From its inception and through June 30, 2021, the Company has devoted substantially all of its efforts to therapeutic drug discovery and development, conducting preclinical studies and clinical trials, enabling manufacturing activities in support of its therapeutic candidates, organizing and staffing the Company, establishing its intellectual property portfolio and raising capital to support and expand these activities.
The Company believes that its existing cash and cash equivalents will be sufficient to fund the Company’s operations for at least 12 months from the date these condensed consolidated financial statements are issued. The Company plans to finance its future cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements.
If the Company does raise additional capital through public or private equity or convertible debt offerings, the ownership interests of its existing stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If the Company raises capital through additional debt financings, it may be subject to covenants limiting or restricting its ability to take specific actions, such as incurring additional debt or making certain capital expenditures. To the extent that the Company raises additional capital through strategic licensing, collaboration or other similar agreement, it may have to relinquish valuable rights to its therapeutic candidates, future revenue streams or research programs at an earlier stage of development or on less favorable terms than it would otherwise choose, or to grant licenses on terms that may not be favorable to the Company. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure adequate additional funding, it will need to reevaluate its operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of its development programs, or relinquish rights to its technology on less favorable terms than it would otherwise choose. These actions could materially impact its business, financial condition, results of operations and prospects.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The Company’s most significant estimates relate to evaluation of embedded derivative instruments and beneficial conversion features within its previously issued and outstanding convertible notes,
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whether revenue recognition criteria have been met, accounting for development work and preclinical studies and clinical trials, determining the assumptions used in measuring stock-based compensation, the incremental borrowing rate estimated in relation to the Company’s operating lease, and valuation allowances for the Company’s deferred tax assets. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. The Company’s actual results may differ from these estimates under different assumptions or conditions.
Concentrations of Credit Risk
The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial condition of the depository institutions in which those deposits are held.
Fair Value Measurements
The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. These tiers include:
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.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The 2019 Note and the 2020 Notes contained embedded derivative liabilities (see Note 4). The 2020 Loan Agreement contained warrant liabilities (see Note 3). Prior to the completion of the IPO in August 2020, these were classified within Level 3 of the hierarchy, since they were valued by using inputs that were unobservable in the market. Upon the consummation of the IPO in August 2020 and as of June 30, 2021 and December 31, 2020, the derivative liabilities and warrant liabilities no longer existed.
Revenue Recognition
The Company has generated revenue from its license and collaboration agreements with partners, as well as from grants from government agencies and private not-for-profit organizations. Payments received from customers are included in deferred revenue, allocated between current and non-current on the condensed consolidated balance sheet until all revenue recognition criteria are met. In accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, the Company recognizes revenue when, or as, the promised goods or services are transferred to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services. To determine revenue recognition for arrangements the Company concludes are within the scope of ASC Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied. At contract inception, the Company assesses the goods or services promised within each contract, assesses whether each promised good or service is distinct and identifies those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied.
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Collaborative Research, Development, and License Agreements
The Company enters into collaborative agreements with partners that typically include one or more of the following: (1) license fees; (2) nonrefundable up-front fees; (3) payments for reimbursement of research costs; (4) payments associated with achieving specific development, regulatory, or commercial milestones; and (5) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company analyzes whether each unit of account results in a contract with a customer under ASC Topic 606 or in an arrangement with a collaborator subject to guidance under ASC Topic 808, Collaborative Arrangements, or ASC Topic 808. The Company’s licensing arrangements are typically for functional intellectual property as it exists at a point in time, being the time that the license agreement is executed. The Company typically does not have an ongoing performance obligation to support or maintain the licensed intellectual property.
The Company considers a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the elements are distinct performance obligations, whether there are observable stand-alone prices, and whether any licenses are functional or symbolic. The Company evaluates each performance obligation to determine if it can be satisfied and recognized as revenue at a point in time or over time. Typically, license fees, non-refundable upfront fees, and funding of research activities are considered fixed, while milestone payments are identified as variable consideration which must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. The Company estimates the amount of variable consideration using the most likely amount, as milestone payments typically only have two possible outcomes. The Company recognizes revenue for sales-based royalty promised in exchange for the license of intellectual property only when the subsequent sale occurs. In the case of an agreement which provides the partner with an option to license a therapeutic or therapeutic candidate in the future, the Company evaluates whether this option represents a material right at the inception of the agreement. If determined to be a material right, the Company will consider the option a separate performance obligation. The Company has historically concluded that the option to grant a license in the future are not material rights as they are contingent upon future events which may not occur. When an option is exercised, the Company will identify any separate performance obligations.
The Company may allocate transaction price using a number of methods including estimating standalone selling price of performance obligations and using the residual approach when the standalone selling price of the license is highly variable or uncertain, and observable standalone selling prices exist for the other goods or services promised in the contract.
Research and Development and Clinical Trial Accruals
Research and development costs are expensed as incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct research and development on the Company’s behalf, pursuant to development and consulting agreements in place. The Company’s preclinical studies and clinical trials are performed internally, by third party contract research organizations, or CROs, and/or clinical investigators. The Company also engages with contract development and manufacturing organizations, or CDMOs, for clinical supplies and manufacturing scale-up activities related to its therapeutic candidates. Invoicing from these third parties may be monthly based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of the status of each clinical trial and the work completed, and upon information obtained from the CROs and CDMOs. The Company’s estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CDMOs regarding the status and cost of the studies. Costs incurred related to the Company’s purchases of in-process research and development for early-stage products or products that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred. Costs incurred related to the licensing of products that have not yet received regulatory approval to be marketed, or that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the
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differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the same period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common and common equivalent shares outstanding during the same period. The Company excludes common stock equivalents from the calculation of diluted net loss per share when the effect is anti-dilutive.
For purposes of the diluted net loss per share calculation, the convertible preferred stock, convertible notes, warrants for purchase of common stock, and stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two class method required for participating securities as the convertible preferred stock is considered a participating security for the six months ended June 30, 2020. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Accordingly, for the six months ended June 30, 2021 and 2020, there is no difference in the number of shares used to calculate basic and diluted shares outstanding.
The following securities that could potentially decrease net loss per share were not included in the determination of diluted loss per share as their effect is anti-dilutive (in thousands):
AS OF JUNE 30,
2021
2020 (1)
Shares issuable upon conversion of convertible preferred stock 7,211 
Outstanding stock options4,211 2,313 
Convertible notes 4,204 
Warrants to purchase common stock7  
4,218 13,728 
(1) The conversion of the convertible notes into common stock assumed a conversion price of $14.35 per share for the 2019 Note and $12.56 per share for the 2020 Notes, and included the conversion of the principal balance and all accrued interest as of the stated date (see Note 4).
Segment Information
The Company operates under one segment which develops biologic therapeutic candidates. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. The Company believes that the impact of the recently issued accounting pronouncements that are not yet effective will not have a material impact on its condensed consolidated financial condition or results of operations upon adoption. The Company has irrevocably elected not to take advantage of the extended transition period afforded by the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, for the implementation of new or revised accounting standards and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Adoption of New Accounting Pronouncements
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities, or Topic 321, Investments-Equity Method and Joint Ventures, or Topic 323, and Derivatives and Hedging, or Topic 815, - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which addresses the accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The amendments clarify that:
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(a) an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method; and (b) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. The provisions of this guidance are to be applied prospectively upon their effective date. ASU 2020-01 was effective for fiscal years beginning after December 15, 2020, and interim periods within those years. Early adoption was permitted, but required simultaneous adoption of all provisions of this guidance. The Company adopted this guidance as of January 1, 2021, which did not result in a material impact on its condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, or Topic 740, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves consistent application and simplification of other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 was effective for fiscal years beginning after December 15, 2020. The Company adopted this guidance as of January 1, 2021, which did not result in a material impact on its condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options, or Subtopic 470-20 and Derivatives and Hedging—Contracts in Entity’s Own Equity, or Subtopic 815-40: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, ASU 2020-06 simplifies accounting for the issuance of convertible instruments by removing major separation models required under current GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share, or EPS, calculation in certain areas. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, beginning in fiscal years which begin after December 15, 2020, including interim periods within those fiscal years. The Company early adopted ASU 2020-06 under a modified retrospective approach as of January 1, 2021. As a result of the adoption, there was no impact on retained earnings or other components of equity or to earnings per share in the Company’s condensed consolidated financial statements.
2. OTHER FINANCIAL INFORMATION
Prepaid Expense and Other Current Assets
Prepaid expense and other current assets were comprised of the following (in thousands):
AS OFAS OF
JUNE 30, 2021DECEMBER 31, 2020
Outside research and development services$4,402 $2,204 
Other621 689 
Prepaid expense and other current assets$5,023 $2,893 
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Property and Equipment, Net
Property and equipment, net were comprised of the following (in thousands):
AS OFAS OF
JUNE 30, 2021DECEMBER 31, 2020
Machinery and equipment$6,084 $5,652 
Leasehold improvements441 441 
Furniture and fixtures507 507 
Construction in process35 257 
Total property and equipment7,067 6,857 
Less: accumulated depreciation and amortization(3,804)(3,365)
Property and equipment, net$3,263 $3,492 
Depreciation and amortization expense totaled $0.3 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively, and $0.6 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.
Accrued Expenses
Accrued expenses were comprised of the following (in thousands):
AS OFAS OF
JUNE 30, 2021DECEMBER 31, 2020
Accrued research and development$5,340 $11,529 
Accrued compensation expense902 1,165 
Accrued professional fees347 282 
Other395 381 
Accrued expenses$6,984 $13,357 
The amount accrued for research and development expense relates primarily to the Company’s usage of third-party CROs and CDMOs for clinical and development efforts as its therapeutic candidates progress. See Note 1 for further discussion of the components of research and development.
3. DEBT
2020 Loan Agreement
On July 15, 2020, the Company entered into a loan and security agreement, or the 2020 Loan Agreement, with Oxford Finance LLC, or Oxford, pursuant to which it received $10.0 million in gross proceeds, net of $0.1 million of debt issuance costs.
On November 12, 2020, the Company entered into an amendment to the 2020 Loan Agreement, or the November 2020 Amendment, and received $20.0 million in additional gross proceeds, net of $0.02 million of debt issuance costs and $0.7 million of a one-time first amendment fee. The November 2020 Amendment provided for two additional tranches of term loans, in addition to the first $10.0 million tranche, or Term A, for an aggregate principal amount of up to $50.0 million, as follows: (a) the second tranche in an aggregate principal amount of $20.0 million, funded upon the closing of the November 2020 Amendment, or Term B, and (b) the third tranche in an aggregate principal amount of $20.0 million to fund on or before September 30, 2021, subject to the initiation of a potentially registration-enabling trial for the Company’s therapeutic candidate, INBRX-109, in unresectable or metastatic conventional chondrosarcoma, pursuant to the terms of the November 2020 Amendment, or Term C. The terms of Term A under the 2020 Loan Agreement were modified to align with Term B pursuant to the November 2020 Amendment.
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On June 18, 2021, the Company entered into an additional amendment to the 2020 Loan Agreement, or the June 2021 Amendment (collectively with the November 2020 Amendment, the Amended 2020 Loan Agreement). Pursuant to the June 2021 Amendment, the principal amount of the Term C Loan was increased from $20.0 million to $40.0 million. All terms of the Term C Loan align with the existing terms of the Term A and Term B Loans. Upon execution of the June 2021 Amendment and based on the initiation of a potentially registration-enabling trial in unresectable or metastatic conventional chondrosarcoma, the Company drew the Term C Loan and received $40.0 million in gross proceeds, net of $0.01 million of debt issuance costs.
As of June 30, 2021, the Company has $70.0 million in gross principal outstanding in term loans under the Amended 2020 Loan Agreement. The outstanding term loans will mature on November 1, 2025, or the Amended Maturity Date, and bear interest at a floating per annum rate equal to the greater of (1) 7.96% and (2) the sum of (i) the 30 day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (ii) 7.80%. The repayment schedule provides for interest-only payments until January 1, 2025. The interest-only period is followed by 11 months of equal payments of principal and interest. Upon the Amended Maturity Date, a final payment of 9.0% of the original principal amount will be due to Oxford. This final payment of $6.3 million is being accreted over the life of the Amended 2020 Loan Agreement using the effective interest method. The Company has the option to prepay the outstanding balance of the term loans in full prior to the Maturity Date, subject to a prepayment fee ranging from 1.0% to 3.0%, depending upon the timing of the prepayment. All other terms of the original 2020 Loan Agreement remain outstanding.
The Company’s outstanding debt balance under the Amended 2020 Loan Agreement consisted of the following (in thousands).
AS OFAS OF
JUNE 30, 2021DECEMBER 31, 2020
Term A$10,900 $10,900 
Term B21,800 21,800 
Term C43,600  
Less: debt discount(6,630)(3,456)
Total debt69,670 29,244 
Less: Current portion, including debt discount  
Long-term debt, including debt discount$69,670 $29,244 
In November 2020 and June 2021, the Company evaluated the amendments and determined they should be treated as modifications of the original 2020 Loan Agreement since the terms and resulting cash flow were not substantially changed in either the November 2020 Amendment or the June 2021 Amendment. The Company will continue to amortize the existing debt discounts prior to modification through the Amended Maturity Date.
The Company’s obligations under the Amended 2020 Loan Agreement are secured by a first priority security interest of substantially all of the Company’s assets, other than its intellectual property. The Amended 2020 Loan Agreement includes customary events of default, including instances of a material adverse change in the Company’s operations, that may require prepayment of the outstanding term loans. Additionally, following the June 2021 Amendment, the Amended 2020 Loan Agreement requires a minimum cash balance of $20.0 million to be maintained in a collateral account. As of June 30, 2021, the Company is in compliance with all covenants under the Amended 2020 Loan Agreement and has not received any notification or indication from Oxford of an intent to declare the loan due prior to maturity.
Concurrently with the debt issuance in July 2020, the Company issued to Oxford warrants to purchase shares of the Company’s capital stock equal to 1.25% of the funded amount, or $125,000. Upon issuance, the warrants were exercisable for preferred stock and were classified as liabilities pursuant to Topic ASC 480 at their fair value of $0.12 million. Upon the consummation of the Company’s IPO in August 2020, the Company remeasured the warrants and determined a fair value of approximately $0.14 million. The change in fair value was recorded as a change in fair value of warrant liabilities within other income in the Company’s condensed consolidated statements
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of operations during the third quarter of 2020. As of June 30, 2021, the warrants are equity-classified and are exercisable for 7,354 shares of common stock of the Company at a strike price of $17.00 per share.
Interest Expense
Interest expense is calculated using the effective interest method and is inclusive of non-cash amortization of the debt discount and accretion of the final payment. Interest expense was approximately $1.0 million and $1.7 million for the three and six months ended June 30, 2021, respectively, as related to the Amended 2020 Loan Agreement. Interest expense related to the Company’s previous loan and security agreement, as amended, or the 2015 Loan Agreement, with Oxford, was approximately $44,000 for the six months ended June 30, 2020. The Company recorded no interest expense for the three months ended June 30, 2020 related to the 2015 Loan Agreement since it was paid in full in March 2020.
4. CONVERTIBLE PROMISSORY NOTES
In May 2019, the Company issued a convertible promissory note, or the 2019 Note, in the aggregate principal amount of $40.0 million to DRAGSA 50, LLC, an entity affiliated with Viking Global Investors LP, or Viking, in a private placement transaction. The 2019 Note began to accrue interest in February 2020 at a rate of 1.5% per month. In April 2020, the Company issued convertible promissory notes, or the 2020 Notes, in the aggregate principal amount of $15.0 million to Viking and certain other investors in a private placement transaction. Upon issuance, the 2020 Notes accrued interest at a rate of 1.0% per month.
Conversion Upon IPO
On August 21, 2020, the Company completed its IPO. The aggregate total balance of the 2019 Note, or $43.7 million, converted at the fixed price of $14.35 per share, resulting in the issuance of 3,046,467 shares of common stock to the holder. The aggregate total balance of the 2020 Notes, or $15.7 million, converted at a fixed price of $12.56 per share, resulting in the issuance of 1,248,136 shares of common stock to the holders.
Debt Discount and Derivative Liabilities
Upon issuance of the 2019 Note and the 2020 Notes, the Company recorded debt discounts related to beneficial conversion features, or BCFs, as well as derivative liabilities and debt issuance costs.
Upon conversion of the 2019 Note and the 2020 Notes, the Company remeasured the intrinsic value of the BCFs which resulted in a reversal of the remaining unamortized discounts associated with the BCFs, resulting in a $7.4 million impact to additional paid-in-capital. Additionally, the Company accelerated the unamortized debt discounts related to the debt issuance costs and the derivative liabilities, resulting in a $2.2 million charge to interest expense during the third quarter of 2020.
5. STOCKHOLDERS’ EQUITY
Amended and Restated Certificate of Incorporation
On August 21, 2020, upon completion of the IPO, the Company’s certificate of incorporation was amended and restated to authorize 120,000,000 shares of common stock and 15,000,000 shares of preferred stock, each with a par value of $0.0001 per share.
Convertible Preferred Stock
In connection with the completion of the Company’s IPO in August 2020, all of the outstanding shares of convertible preferred stock were converted into 7,211,086 shares of the Company’s common stock. Prior to its conversion to common stock, the convertible preferred stock was classified as temporary, or mezzanine, equity on the accompanying condensed consolidated balance sheets since the shares contained certain redemption features that were not solely within the control of the Company. The Company had not previously accreted the convertible
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preferred stock to its redemption value since the shares were not currently redeemable and redemption was not deemed to be probable.
No convertible preferred stock was authorized or issued as of June 30, 2021 and December 31, 2020.
Common Stock Warrants
As discussed in Note 3, the Company issued warrants to Oxford concurrently with the 2020 Loan Agreement. Upon the consummation of the Company’s IPO in August 2020, the warrants became exercisable for 7,354 shares of common stock of the Company at $17.00 per share. As of June 30, 2021, the warrants are equity-classified and reflected in additional paid-in-capital at $0.14 million. The fair value of the warrants was determined using the Black-Scholes model on the date of reclassification. No subsequent remeasurement is required for equity-classified warrants.
6. EQUITY COMPENSATION PLAN
Stock Incentive Plan
The Company’s share-based compensation plan, the Amended and Restated 2017 Employee, Director and Consultant Equity Incentive Plan, or the 2017 Plan, provides for the issuance of incentive stock options, restricted and unrestricted stock awards, and other stock-based awards. As of June 30, 2021, an aggregate of 4.5 million shares of common stock were reserved for issuance under the 2017 Plan, of which 0.3 million were available.
Stock Option Activity
The Company recognizes compensation costs related to stock-based awards, including stock options, based on the estimated fair value of the awards on the date of grant. The Company grants options with an exercise price equal to the fair market value of the Company’s stock on the date of the option grant. The options are subject to four-year vesting with a one-year cliff and have a contractual term of 10 years.
A summary of the Company’s stock option activity under its 2017 Plan for the six months ended June 30, 2021 is as follows (in thousands, except for per share data and years):
Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term
(In Years)
Aggregate Intrinsic Value
Outstanding as of December 31, 20202,525 $11.80 8.2$53,481 
Granted1,954 $32.03 9.6$1,391 
Exercised(137)$10.78 — $1,731 
Forfeited(131)$18.35 
Outstanding as of June 30, 20214,211 $21.02 8.6$37,432 
Vested and exercisable as of June 30, 20211,185 $10.98 7.4$19,592 
Aggregate intrinsic value of stock options outstanding as of June 30, 2021 and December 31, 2020 is calculated using the fair value of common stock at each respective date.
Stock-Based Compensation Expense
The weighted-average assumptions used by the Company to estimate the fair value of stock option grants using the Black-Scholes option pricing model, as well as the resulting weighted-average fair value for the six months ended June 30, 2021 and 2020 were as follows:
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 SIX MONTHS ENDED JUNE 30,
20212020
Risk-free interest rate0.65 %0.42 %
Expected volatility93.62 %98.04 %
Expected dividend yield % %
Expected term6.086.08
Weighted average fair value$24.23 $8.73 
Stock-based compensation expense for stock options consisted of the following (in thousands):
 THREE MONTHS ENDED
JUNE 30,
SIX MONTHS ENDED
JUNE 30,
2021202020212020
Research and development$3,209 $1,092 $5,983 $2,046 
General and administrative742 167 1,389 301 
Total stock-based compensation expense$3,951 $1,259 $7,372 $2,347 
As of June 30, 2021, the Company had $51.4 million of total unrecognized stock-based compensation expense related to its stock options, which is expected to be recognized over a weighted-average period of 3.33 years.
7. LICENSE AND GRANT REVENUES
The following table summarizes the total revenue recorded in the Company’s condensed consolidated statements of operations (in thousands):
THREE MONTHS ENDED
JUNE 30,
SIX MONTHS ENDED
JUNE 30,
2021202020212020
License fee revenue 
Phylaxis BioScience, LLC$737 $ $1,378 $ 
bluebird bio, Inc.100 400 100 400 
Chiesi Farmaceutici S.p.A.81 2,934 303 3,806 
Total license fee revenue918 3,334 1,781 4,206 
 
Grant revenue36 5 62 5 
Total revenue$954 $3,339 $1,843 $4,211 
License and Collaboration Agreements
Phylaxis Agreements
In July 2020, the Company entered into a joint venture with an entity affiliated with ArrowMark Partners, Phylaxis BioScience, LLC, or Phylaxis. In connection with the joint venture, the Company entered into the following agreements: Contribution Agreement, License Agreement, Limited Liability Company Agreement, and Master Services Agreement, or collectively the Phylaxis Agreements, pursuant to which the Company licensed certain intellectual property and know-how to Phylaxis and agreed to provide services to develop certain compounds. Upon closing, the Company received a $2.5 million nonrefundable, upfront payment from Phylaxis under the Master Services Agreement, or MSA. The Company has also received an additional $2.5 million, which was payable within 180 days from closing under the MSA, in two payments of $1.25 million each, received in October 2020 and January 2021. Upon closing, the Company received a 10% equity interest in Phylaxis as consideration for the contribution of the license of the Company’s intellectual property and know-how and is entitled to receive an additional 5% based on the achievement of certain milestones. Under the License Agreement, the Company is also
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entitled to specified development and commercialization milestone payments of up to an aggregate of $225.0 million and $175.0 million, respectively. The Company is also entitled to share in a percentage of the profits of Phylaxis under the Limited Liability Company Agreement.
In order to determine the fair value of the equity interest in Phylaxis, the Company engaged a third-party valuation specialist. The valuation report utilized a market approach to establish the total equity value of Phylaxis using inputs not observable in the market, including the discount rate. The fair value of the equity interest was $0.5 million, which has been accounted for under the equity method. The fair value of the equity interest upon the execution of the agreements has been included in the transaction price, along with the $5.0 million of payments due pursuant to the MSA.
The Company identified the transfer of the exclusive licenses for, and performance of, development services to modify the first and second compounds as one performance obligation and allocated the transaction price evenly between the two compounds. Revenue related to the performance obligation will be recognized over time as services are performed, based on the Company’s progress to satisfy the performance obligation.
During the three and six months ended June 30, 2021, the Company recognized $0.7 million and $1.4 million, respectively, of revenue related to this performance obligation. As of June 30, 2021, deferred revenue related to this agreement was $2.1 million, all of which was classified as current. As of December 31, 2020, current and non-current deferred revenue related to this agreement were $1.6 million and $0.6 million, respectively. The Company expects to complete all work related to this contract and recognize revenue in its entirety by the first half of 2022.
bluebird
In June 2020, the Company entered into an Option and License Agreement, or the 2020 bluebird Agreement, with bluebird bio, Inc., or bluebird, pursuant to which the Company granted to bluebird exclusive worldwide development licenses to develop binders and cell therapy products containing single domain antibodies, or sdAbs, directed to specified targets, consisting of two initial programs and up to an additional 8 programs. The Company retains all rights to the specific sdAbs outside of the cell therapy field.
In June 2020, the Company received a non-refundable upfront option fee of $0.2 million in connection with each of the two initial programs, or $0.4 million in aggregate, and is entitled to an upfront option fee for each additional program, on a program-by-program basis. The Company also granted to bluebird an option to acquire an exclusive license with respect to all binders and cell therapy products developed under this agreement, which entitles the Company to additional fees upon exercise of the option. In connection with each program for which bluebird exercises its option, bluebird will be required to pay the Company a one-time, non-refundable, non-creditable fee in the low-single-digit millions for each option bluebird chooses to exercise. The Company is also entitled to receive certain developmental milestone payments of up to an aggregate of $51.5 million per therapeutic, as well as percentage tiered royalties on future product sales with rates in the mid-single-digits. Due to the uncertainty in the achievement of the developmental milestones and future sales, the variable consideration associated with the future milestone payments has been fully constrained (excluded) from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period.
As of the effective date of the agreement, the Company identified one performance obligation, which was the transfer of the exclusive development license to bluebird for the two initial programs. The Company determined that the option granted for an exclusive license in the future was not a material right. For the eight programs not identified upon execution of the contract, the Company evaluated the customer option for additional purchases and determined that those options for additional programs did not constitute material rights nor variable consideration. As additional programs are identified, the Company will re-assess its performance obligations and transaction price accordingly.
The Company determined the total transaction price of the contract at execution was $0.4 million for the transfer of the two exclusive development licenses. The Company recognized $0.4 million of revenue related to this agreement at the point in time in which the exclusive development licenses were transferred to bluebird, which occurred upon execution of the agreement in June 2020.
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In May 2021, pursuant to the option extension terms in the 2020 bluebird Agreement, bluebird requested to extend the option term for one of the initial programs by an additional six months in exchange for an option extension fee of $0.1 million. The Company recognized the $0.1 million of revenue related to this extension in May 2021, the point in time in which the extension was granted.
Chiesi
In May 2019, the Company entered into an Option Agreement, as amended by the First Amendment to Option Agreement, dated August 19, 2019, or the Chiesi Option Agreement, with Chiesi Farmaceutici S.p.A., or Chiesi, pursuant to which the Company granted to Chiesi an exclusive option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada. Under the terms of the Chiesi Option Agreement, the Company received a one-time, non-refundable option initiation payment of $10.0 million in August 2019. If Chiesi chooses to exercise its option under the Chiesi Option Agreement, then Chiesi must pay the Company a one-time, non-refundable fee of $12.5 million upon the effective date of the definitive agreement granting Chiesi the exclusive license. If the option is exercised, under the license agreement, the Company may be entitled to receive specified milestone payments of up to $122.5 million, as well as royalties on future product sales.
The Company has identified one performance obligation as of the effective date of the Chiesi Option Agreement, which is to perform research and development services for Chiesi during the option period, which will continue (unless the Chiesi Option Agreement is terminated earlier by Chiesi or the Company) until 60 days following the last to occur of (i) the Company’s delivery to Chiesi of the trial phase data for the first Phase I Clinical Trial, (ii) the Company’s delivery to Chiesi of the finalized minutes from the definitive U.S. Food and Drug Administration, or FDA, scientific advice meeting conducted following completion of such Phase I Clinical Trial, and (iii) the Company’s delivery to Chiesi of the finalized minutes from the definitive parallel EMA-HTA scientific advice meeting conducted following completion of such Phase I Clinical Trial. The Company has determined that the option to grant a license in the future is not a material right.
The $10.0 million upfront payment has been allocated to the single performance obligation. Revenue is recognized over time as services are performed during the option period, based on the Company’s effort to satisfy the performance obligation relative to the total expense estimated to be incurred during the option period. During the three months ended June 30, 2021 and 2020, the Company recognized $0.1 million and $2.9 million in revenue related to this agreement, respectively. During the six months ended June 30, 2021 and 2020, the Company recognized $0.3 million and $3.8 million in revenue related to this agreement, respectively. As of June 30, 2021, the Company has $1.1 million and $0.2 million of current and non-current deferred revenue related to this agreement, respectively. As of December 31, 2020, the Company had $1.4 million and $0.1 million of current and non-current deferred revenue related to this agreement, respectively. The Company expects to complete all work related to this contract and recognize revenue in its entirety during the second half of 2022.
8. RELATED PARTY TRANSACTIONS
From time to time, the Company will enter into an agreement with a related party in the ordinary course of its business. These agreements are ratified by the Company’s Board of Directors or a committee thereof pursuant to policy.
LAV Summit Limited
LAV Summit Limited, or LAV SL, a limited company, is a principal shareholder owning more than 5% of the Company’s outstanding equity interest as of June 30, 2021 and December 31, 2020. Due to this equity ownership, LAV SL is considered a related party. LAV, through one of its funds, holds a significant equity ownership position in Elpiscience Biopharmaceuticals, Inc., or Elpiscience, and the Venture Partner of LAV is the CEO, Founder, and Director at Elpiscience. Accordingly, the Company identifies Elpiscience as a related party.
Elpiscience
In April 2018, the Company entered into a License Agreement, or the OX40 License Agreement, with Elpiscience, whereby the Company granted Elpiscience an exclusive license to the Company’s multivalent protein therapeutic directed to the biological target OX40, or INBRX-106. Under this agreement, the Company is entitled to reimbursement for certain CMC and toxicology expenses incurred for which Elpiscience has paid the Company
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approximately $5.2 million to date as of June 30, 2021. As of June 30, 2021, the Company has $0.2 million recorded as receivables from related parties from Elpiscience for expenses incurred which have not yet been reimbursed. Additional reimbursements of approximately $45,000 related to multi-year stability studies are expected to be recognized and paid upon completion. During the three and six months ended June 30, 2021, the Company received no reimbursements for expenses already incurred. During the three months ended June 30, 2020, the Company received no reimbursements for expenses already incurred. During the six months ended June 30, 2020, the Company received reimbursements of $0.2 million for expenses already incurred. During the three and six months ended June 30, 2021, the Company derecognized approximately $5,000 of expenses related to these reimbursements under the OX40 License Agreement. During the three and six months ended June 30, 2020, the Company derecognized approximately $50,000 and $0.1 million of expenses related to these reimbursements under the OX40 License Agreement, respectively.
In July 2020, the Company entered into an additional cost sharing agreement with Elpiscience related to OX40. Under this agreement, the Company is entitled to reimbursement for certain formulation development costs. Through June 30, 2021, the Company has received $0.2 million of reimbursements for expenses already incurred under this agreement. As of June 30, 2021, the Company has approximately $0.1 million recorded as receivables from related parties from Elpiscience for expenses incurred which have not yet been reimbursed. During the three months ended June 30, 2021, the Company received no reimbursements. During the six months ended June 30, 2021, the Company received reimbursements of $0.2 million for expenses already incurred. During the three and six months ended June 30, 2021, the Company did not derecognize any expenses related to this agreement.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
In September 2017, the Company entered into a seven-year lease agreement for approximately 34,000 square feet as its sole location in La Jolla, California. The lease expires in June 2025 with an option to extend the lease an additional five years. The lease contained an initial base rent of approximately $0.1 million per month with 2% annual escalations, plus a percentage of taxes and operating expenses incurred by the lessor in connection with the ownership and management of the property, the latter of which to be determined annually.
In May 2019, the Company executed an amendment to its lease agreement to expand its facilities by approximately 9,000 square feet and began occupying this space in January 2020. The amended lease terminates coterminously with the initial lease agreement and contains an initial base rent of approximately $30,000 per month with 2% annual escalations, plus a percentage of taxes and operating expenses incurred by the lessor in connection with the ownership and management of the property, the latter of which is to be determined annually.
The right-of-use asset and operating lease liability as of June 30, 2021 and December 31, 2020 are as follows (in thousands):
AS OFAS OF
JUNE 30, 2021DECEMBER 31, 2020
Right-of-use asset$7,100 $7,831 
Operating lease liability
Current$1,587 $1,503 
Non-current$5,896 $6,707 
Total operating lease liability$7,483 $8,210 
During the three and six months ended June 30, 2021, the Company recognized operating lease expense of $0.8 million and $1.5 million, respectively. During the three and six months ended June 30, 2020, the Company recognized operating lease expense of $0.8 million and $1.5 million, respectively. As of June 30, 2021 and December 31, 2020, the Company’s operating lease had a remaining term of 4.0 and 4.5 years, respectively.
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The Company discounts its lease payments using its incremental borrowing rate as of the commencement of the lease. The Company has determined a weighted-average discount rate of 8.2% as of June 30, 2021 and December 31, 2020.
Future minimum rental payments under operating leases are as follows (in thousands):
AS OF
JUNE 30, 2021
2021 (6 months)$1,068 
20222,161 
20232,203 
20242,247 
20251,137 
Thereafter 
Total future minimum lease payments$8,816 
Less: imputed interest(1,333)
Present value of operating lease liability7,483 
Less: current portion of operating lease liability(1,587)
Non-current portion of operating lease liability$5,896 
Litigation
The Company is not party to any material legal proceedings. From time to time, it may be involved in legal proceedings or subject to claims incident to the ordinary course of business. Regardless of the outcome, such proceedings or claims can have an adverse impact on the Company because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
10. SUBSEQUENT EVENTS
For the unaudited interim condensed consolidated financial statements as of June 30, 2021, the Company evaluated subsequent events to assess the need for potential recognition or disclosure in these financial statements. Based upon this evaluation, it was determined that no additional subsequent events required recognition or disclosure in these condensed consolidated financial statements, other than disclosures related to those outlined below.
In August 2021, the Company received a $2.0 million milestone payment under a license agreement with bluebird, which was entered into on December 20, 2018, or the 2018 bluebird Agreement. Under the 2018 bluebird Agreement, the Company granted to bluebird the exclusive, worldwide rights to develop, manufacture, and commercialize certain cell therapy products containing binders. Under the terms of the 2018 bluebird Agreement, the Company is entitled to receive certain developmental milestone payments of up to an aggregate of $51.5 million per therapeutic.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the section of this Quarterly Report titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biotechnology company with a pipeline of novel biologic therapeutic candidates, developed using our protein engineering expertise and proprietary single domain antibody, or sdAb, platform. Our sdAb platform allows us to pursue validated targets with clinical promise, but where other antibody and biologic based approaches have failed. Highly modular, our sdAbs can be combined with precise valencies and multiple specificities, creating therapeutic candidates designed to be capable of enhanced cell signaling, conditional activation or combined synergistic functions.
We currently have four programs in ongoing clinical trials. Three of these programs are for the treatment of various cancers, and one for the treatment of Alpha-1 Antitrypsin Deficiency, or AATD. Our most advanced therapeutic candidate, INBRX-109, is a tetravalent death receptor 5, or DR5, agonist currently being evaluated in patients diagnosed with difficult-to-treat cancers, such as chondrosarcoma, mesothelioma and pancreatic adenocarcinoma. We submitted an amended Investigational New Drug Application, or IND, to the U.S. Food and Drug Administration, or FDA, for INBRX-109 in April 2021 and initiated a potentially registration-enabling trial evaluating INBRX-109 in patients diagnosed with conventional chondrosarcoma in June 2021. INBRX-106 is a hexavalent OX40 agonist, currently being investigated as a single agent and in combination with Keytruda, a PD-1 blocking checkpoint inhibitor, in patients with locally advanced or metastatic solid tumors. Both of the INBRX-109 and INBRX-106 programs are designed to achieve target agonism through precise control of therapeutic valency. INBRX-105 is a conditional 4-1BB agonist that is currently being investigated as a single agent in patients with locally advanced or metastatic solid tumors and is expected to initiate in combination with Keytruda during the fourth quarter of 2021. Our fourth program, INBRX-101, is an optimized, recombinant alpha 1 antitrypsin, or AAT, augmentation therapy for AATD. We anticipate additional data releases from all four of our clinical programs over the next year.
We have developed a diverse pipeline of therapeutic candidates that are specifically designed to leverage the power of our core sdAb platform and protein engineering expertise, as shown below:
inhibrx-20210630_g1.jpg
INBRX-109INBRX-106INBRX-105INBRX-101
Tetravalent DR5 agonistHexavalent OX40 agonistPD-L1x4-1BB tetravalent conditional agonistAAT-Fc fusion protein
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ProgramTherapeutic AreaTarget(s)/FormatSTAGE OF DEVELOPMENT
PreclinicalPhase 1Phase 2Phase 3
INBRX-109*OncologyDR5
Tetravalent Agonist
INBRX-106**OncologyOX40
Hexavalent Agonist
INBRX-105**OncologyPD-L1 x 4-1BB
Tetravalent Conditional Agonist
INBRX-101***Orphan/RespiratoryNeutrophil Elastase
AAT-Fusion Protein
__________________
*    Third party partnership with Chinese biotechnology company, Transcenta Holding, Ltd. (formerly Hangzhou Just Biotherapeutics Co., Ltd.), or Transcenta, currently in place for development and commercialization in China, Hong Kong, Macau and/or Taiwan.
**    Third party partnership with Chinese biotechnology company, Elpiscience Biopharmaceuticals, Inc, or Elpiscience, currently in place for development and commercialization in China, Hong Kong, Macau and/or Taiwan.
***    Commercialization and development rights outside of the United States and Canada, subject to an option agreement with Chiesi Farmaceutici S.p.A., or Chiesi

Liquidity, Capital Resources and Financial Condition
Sources of Liquidity
In August 2020, we completed our initial public offering, or IPO, of 8,050,000 shares of our common stock at a price to the public of $17.00 per share, which included the exercise in full by the underwriters of their option to purchase 1,050,000 additional shares of our common stock. Our aggregate net proceeds from the offering were $125.9 million, net of underwriting discounts, commissions and offering costs.
Other sources of capital raised to fund our operations have been comprised of the sale of equity securities, payments received from commercial partners for licensing rights to our therapeutic candidates under development and grants, borrowings under loan and security agreements, or the 2020 Loan Agreement with Oxford Finance LLC, or Oxford, including $10.0 million of gross proceeds borrowed in July 2020, and proceeds from the sale and issuance of convertible promissory notes in May 2019 and April 2020, or the 2019 Note and the 2020 Notes, respectively. In November 2020 and June 2021, we amended the 2020 Loan Agreement which provided for two additional tranches of term loans, including $20.0 million of gross proceeds received in November 2020, and an additional $40.0 million of gross proceeds in June 2021.
Funding Requirements
Since our inception, we have devoted substantially all of our efforts to therapeutic drug discovery and development, conducting preclinical studies and clinical trials, enabling manufacturing activities in support of our therapeutic candidates, hiring to support our research and development activities and financial reporting capabilities, establishing our intellectual property portfolio, and raising capital to support and expand these activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
Our net loss for the six months ended June 30, 2021 and 2020 was $40.0 million and $38.0 million, respectively. As of June 30, 2021, we had an accumulated deficit of $185.4 million and cash and cash equivalents of $125.7 million. Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months from the date these condensed consolidated financial statements
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are issued. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
The process of conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses to increase as we continue our development of, and seek regulatory approvals for, our therapeutic candidates (especially as we move more candidates from preclinical to clinical development as well as study candidates in later stages of clinical development), and begin to commercialize any approved products, if ever. If we elect to proceed with the commercialization of any of our product candidates, we would incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We also expect our general and administrative expenses and losses to increase as we hire additional personnel and incur increased accounting, audit, legal, regulatory, and compliance costs, and as we incur increased costs from investor and public relations expenses associated with operating as a public company.
Until such time, if ever, we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including strategic licensing and collaboration or other similar agreements. However, there can be no assurance as to the availability or terms upon which such finances or capital might be available in the future. If we are unable to secure adequate additional funding, we will need to reevaluate our operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of our development programs, or relinquish rights to our intellectual property on less favorable terms than we would otherwise choose. These actions could materially impact our business, results of operations, financial condition, and prospects.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
the outcome, costs and timing of preclinical studies and clinical trials for our current or future therapeutic candidates;
whether and when we are able to obtain regulatory approval to market any of our therapeutic candidates;
our ability to successfully commercialize any therapeutic candidates that receive regulatory approval;
the emergence and effect of competing or complementary therapeutics or therapeutic candidates;
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel;
the terms and timing of any strategic licensing, collaboration or other similar agreement that we have or may establish;
our ability to repay, refinance or restructure our indebtedness when payment is due, including in the event such indebtedness is accelerated;
the valuation of our capital stock; and
the continuing or future effects of the COVID-19 pandemic and related uncertainties on capital and financial markets.
We do not own or operate manufacturing facilities for the production of any of our therapeutic candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, antibodies, and other biologics for our preclinical research, clinical trials, and if and when applicable, commercial product, and employ internal resources to manage our manufacturing relationships with these third parties.
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License and Collaboration Agreements
Celgene Agreement
On July 1, 2013, we entered into a license agreement with Celgene Corporation, a Bristol-Myers Squibb Company, or Celgene, as amended on November 23, 2018, or the Celgene Agreement, pursuant to which we granted Celgene an exclusive, global license for the development, manufacture and commercialization of our proprietary CD47 binding domain, or the Celgene Licensed Intellectual Property. Per the terms of the Celgene Agreement, Celgene is operationally and financially responsible for the development, manufacturing and commercialization activities of Celgene Licensed Intellectual Property and any additional related antibodies covered by the Celgene Agreement.
As payment for the license granted in the Celgene Agreement, we may be eligible to receive development and regulatory milestones of an aggregate of $934.1 million, assuming the achievement of all potential milestones in the Celgene Agreement, as well as percentage tiered royalties based on future worldwide sales, with rates ranging between the high single-digits and low teens, subject to potential reduction when and if comparable third party products attain certain levels of competitive market share (on a country-by-country basis) and, subject to certain limitations, payments to third parties for third-party intellectual property rights. We are obligated to pay 2% of future amounts received under the Celgene Agreement to advisors who assisted us with the negotiations and other matters in connection with the Celgene Agreement.
WuXi Agreement
On August 28, 2018, we entered into the Amended and Restated Master Services Agreement, as amended by Amendment No. 1 to Amended and Restated Master Services Agreement dated December 11, 2019, or the WuXi Agreement, with WuXi Biologics (Hong Kong) Limited, or WuXi, pursuant to which we agreed, for three years and subject to certain conditions, to exclusively use WuXi to manufacture our therapeutic candidates for which we plan to first initiate clinical studies outside of China. Under the WuXi Agreement, WuXi and certain of its affiliates will provide biologics development and manufacturing services on a project-by-project basis.
Per the terms of the WuXi Agreement, we will own all intellectual property created, developed or reduced to practice by WuXi in the course of providing services to us; provided that, certain intellectual property created or developed by WuXi may be owned exclusively by WuXi if this intellectual property (i) relates to generally applicable experimental methods, (ii) relates to generally applicable manufacturing processes, developed solely at WuXi’s expense, or (iii) is derivative of WuXi’s pre-existing intellectual property.
Per the terms of the WuXi Agreement, fees will be mutually agreed upon on a project-by-project basis. We also may be eligible to receive discounts in the low- to mid-single digits for certain projects and services per the terms of the WuXi Agreement.
bluebird bio Agreements
On December 20, 2018, we entered into an exclusive license agreement with bluebird bio, Inc., or bluebird, to research, develop and commercialize chimeric antigen receptor, or CAR, T-cell therapies using our proprietary sdAb platform. Under the terms of this license agreement we will provide bluebird the exclusive worldwide rights to develop, manufacture and commercialize certain cell therapy products containing sdAbs directed to various cancer targets. In January 2019, we received a $7.0 million payment and pursuant to the license agreement, we are entitled to receive developmental milestone payments of up to an aggregate of $51.5 million per therapeutic, as well as percentage tiered royalties on future product sales with rates in the mid-single digits.
On June 9, 2020, we entered into an option and license agreement, or the 2020 bluebird Agreement, with bluebird, pursuant to which we granted to bluebird exclusive worldwide rights to develop binders and cell therapy products containing sdAbs directed to specified targets, consisting of two initial programs and up to an additional 8 programs. Inhibrx retains all rights to the specific sdAbs outside of the cell therapy field. We received a non-refundable upfront option fee of $0.2 million in connection with each of the two initial programs, or $0.4 million in aggregate, and we are entitled to an upfront option fee for each additional program. We also granted to bluebird an option to acquire an exclusive license with respect to all binders and cell therapy products developed under the 2020 bluebird Agreement, which entitles us to additional fees upon exercise of the option. We are also entitled to receive certain
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developmental milestone payments of up to an aggregate of $51.5 million per therapeutic, as well as percentage tiered royalties on future product sales with rates in the mid-single-digits.
In May 2021, pursuant to the option extension terms in the 2020 bluebird Agreement, bluebird requested to extend the option term for one of the initial programs by an additional six months in exchange for an option extension fee of $0.1 million.
Other Collaboration Agreements
In addition to these contracts, we have entered into strategic collaborations with other third parties, such as Chiesi, Phylaxis BioScience, LLC, or Phylaxis, Transcenta, and Elpiscience. For more information regarding these agreements, refer to Note 7 to the condensed consolidated financial statements.
Components of Results of Operations
Revenue
To date, all of our revenue has been derived from licenses with collaboration partners and grant awards. We have not generated any revenue from the commercial sale of approved therapeutic products, and we expect our revenue for the next several years will be derived primarily from payments under our current and any future grant awards and agreements with our collaboration partners.
Operating Expenses
Research and Development
To date, our research and development expenses have related primarily to research activities, including our discovery efforts, and preclinical and clinical development and the manufacturing of our therapeutic candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel, early research and consumable costs, which are deployed across multiple projects under development.
Research and development expenses consist primarily of:
External expenses, consisting of:
expenses incurred in connection with the preclinical development of our programs;
clinical trials of our therapeutic candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
expenses associated with manufacturing our contract development and manufacturing therapeutic candidates including under agreements with contract development and manufacturing organizations, or CDMOs; and
other external expenses, such as laboratory services related to our discovery and development programs and other shared services, and
Internal expenses, consisting of:
salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in research and development functions;
facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities; and
other internal expenses, such as laboratory supplies and other shared research and development costs.
We expect that research and development expense will continue to increase over the next several years as we continue development of our therapeutic candidates currently in clinical stage development, support our preclinical programs, and continue to discover new therapeutic candidates, as well as increase our headcount. In particular, clinical development of our therapeutic candidates, as opposed to preclinical development, generally has higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Moreover, the costs associated with our CDMOs to manufacture our therapeutic candidates and future commercial products is also much
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more costly as compared to early stage preclinical development. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our therapeutic candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each therapeutic candidate’s commercial potential. We will need substantial additional capital in the future to support these efforts. In addition, we cannot forecast which therapeutic candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our clinical development costs may vary significantly based on factors such as:
per patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted
the length of time required to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the cost and timing of manufacturing of our therapeutic candidates;
the phase and development of our therapeutic candidates;
the efficacy and safety profile of our therapeutic candidates; and
uncertainties related to the COVID-19 pandemic.
General and Administrative
G&A expenses consist primarily of:
salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in G&A functions;
expenses incurred in connection with accounting and audit services, legal services, business development and investor relations as well as consulting expense under agreements with third parties, such as consultants and contractors; and
facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities, insurance and supplies.
We expect our G&A expenses will continue to increase over the next several years as we continue to increase our headcount and incur increased accounting, audit, legal, regulatory, and compliance costs as well as investor and public relations expenses associated with operating as a public company.
Other Income (Expense)
Other income (expense) consists primarily of interest expense on our debt from Oxford and, prior to conversion, interest expense related to the amortization of the debt discount related to the 2019 Note and the 2020 Notes. Other income (expense) also consists of gains or losses on the change in fair value of derivative liabilities, and gains or losses on the change in fair value of warrant liabilities.
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Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
The following table summarizes our condensed consolidated results of operations for each of the periods indicated (in thousands, except percentages):
THREE MONTHS ENDED JUNE 30,CHANGE
20212020($)(%)
Revenue:
License fee revenue$918 $3,334 $(2,416)(72)%
Grant revenue36 31 620 %
Total revenue954 3,339 (2,385)(71)%
Operating expense:
Research and development17,902 18,974 (1,072)(6)%
General and administrative2,853 1,532 1,321 86 %
Total operating expense20,755 20,506 249 %
Loss from operations(19,801)(17,167)(2,634)15 %
Other expense
Interest expense, net(914)(3,405)2,491 (73)%
Other income, net