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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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: 001-37449
ALPINE IMMUNE SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8969493
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
188 East Blaine Street, Suite 200
Seattle, WA  98102
(206) 788-4545
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
ALPN
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 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 filer
 
 
Accelerated filer
 
 
 
 
 
Non-accelerated Filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of August 3, 2020, the registrant had 23,784,850 shares of common stock, $0.001 par value per share, outstanding.




ALPINE IMMUNE SCIENCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30,2020
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In this report, unless otherwise stated or as the context otherwise requires, references to “Alpine,” “the Company,” “we,” “us,” “our” and similar references refer to Alpine Immune Sciences, Inc. “Variant Immunoglobulin Domain”, “vIgD”, “Transmembrane Immunomodulatory Protein”, “TIP”, “Secreted Immunomodulatory Protein”, and “SIP” are registered trademarks of Alpine Immune Sciences, Inc. All rights reserved. This report also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks, and trade names appearing in this report are the property of their respective holders. 





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
 
 
June 30, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
88,220

 
$
16,123

Short-term investments
 
1,998

 
24,397

Restricted cash, current
 

 
132

Prepaid expenses and other current assets
 
1,018

 
1,650

Total current assets
 
91,236

 
42,302

Restricted cash, noncurrent
 
254

 
254

Property and equipment, net
 
1,531

 
1,552

Operating lease, right-of-use asset
 
9,674

 
9,985

Total assets
 
$
102,695

 
$
54,093

Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
548

 
$
1,543

Accrued liabilities
 
3,824

 
5,285

Deferred revenue, current
 
23,688

 
1,435

Current portion of long-term debt
 
119

 
418

Total current liabilities
 
28,179

 
8,681

Deferred revenue, noncurrent
 
36,468

 

Operating lease liability, noncurrent
 
11,947

 
11,429

Long-term debt
 
9,873

 
4,509

Total liabilities
 
86,467

 
24,619

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value per share; 200,000,000 shares authorized at June 30, 2020 and December 31, 2019; 18,641,698 shares issued and 18,591,231 shares outstanding at June 30, 2020; 18,638,359 shares issued and 18,587,892 shares outstanding at December 31, 2019
 
19

 
19

Treasury stock, at cost; 50,467 shares at June 30, 2020 and December 31, 2019
 

 

Additional paid-in capital
 
119,651

 
117,371

Accumulated other comprehensive gain (loss)
 
(55
)
 
10

Accumulated deficit
 
(103,387
)
 
(87,926
)
Total stockholders’ equity
 
16,228

 
29,474

Total liabilities and stockholders’ equity
 
$
102,695

 
$
54,093

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

1



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share amounts)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
 
(unaudited)
Collaboration revenue
$
688

 
$
567

 
$
1,779

 
$
567

Operating expenses:
 
 
 
 
 
 
 
Research and development
7,096

 
10,166

 
11,974

 
20,516

General and administrative
3,344

 
2,553

 
5,122

 
4,898

Total operating expenses
10,440

 
12,719

 
17,096

 
25,414

Loss from operations
(9,752
)
 
(12,152
)
 
(15,317
)
 
(24,847
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(226
)
 
(61
)
 
(346
)
 
(131
)
Interest income
44

 
357

 
196

 
741

Loss before taxes
(9,934
)
 
(11,856
)
 
(15,467
)
 
(24,237
)
Income tax benefit
6

 

 
6

 

Net loss
$
(9,928
)
 
$
(11,856
)
 
$
(15,461
)
 
$
(24,237
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized (loss) gain on investments
(1
)
 
17

 
(16
)
 
32

Unrealized gain (loss) on foreign currency translation
64

 
4

 
(49
)
 
(10
)
Comprehensive loss
$
(9,865
)
 
$
(11,835
)
 
$
(15,526
)
 
$
(24,215
)
Weighted-average shares used to compute basic and diluted net loss per share
18,588,993

 
18,576,199

 
18,588,442

 
18,126,556

Basic and diluted net loss per share
$
(0.53
)
 
$
(0.64
)
 
(0.83
)
 
$
(1.34
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


2



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except share amounts)
 
Common Stock
 
Treasury
 
Additional
Paid-in Capital
 
Accumulated
Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2018
13,854,205

 
$
14

 
50,467

 
$

 
$
90,664

 
$
(13
)
 
$
(46,074
)
 
$
44,591

Issuance of Units in Private Placement, net of offering costs
4,706,700

 
5

 

 

 
23,613

 

 

 
23,618

Exercise of stock options
124

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 
754

 

 

 
754

Unrealized gain on investments

 

 

 

 

 
15

 

 
15

Unrealized loss on foreign currency translation

 

 

 

 

 
(14
)
 

 
(14
)
Net loss

 

 

 

 

 

 
(12,381
)
 
(12,381
)
Balance, March 31, 2019
18,561,029

 
19

 
50,467

 

 
115,031

 
(12
)
 
(58,455
)
 
56,583

Offering costs associated with Private Placement

 

 

 

 
(20
)
 

 

 
(20
)
Exercise of stock options
23,701

 

 

 

 
11

 

 

 
11

Stock-based compensation

 

 

 

 
682

 

 

 
682

Unrealized gain on investments

 

 

 

 

 
17

 

 
17

Unrealized gain on foreign currency translation

 

 

 

 

 
4

 

 
4

Net loss

 

 

 

 

 

 
(11,856
)
 
(11,856
)
Balance June 30, 2019
18,584,730

 
$
19

 
50,467

 
$

 
$
115,704

 
$
9

 
$
(70,311
)
 
$
45,421

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
18,587,892

 
$
19

 
50,467

 
$

 
$
117,371

 
$
10

 
$
(87,926
)
 
$
29,474

Stock-based compensation

 

 

 

 
986

 

 

 
986

Issuance of warrants

 

 

 

 
60

 

 

 
60

Unrealized loss on investments

 

 

 

 

 
(15
)
 

 
(15
)
Unrealized loss on foreign currency translation

 

 

 

 

 
(113
)
 

 
(113
)
Net loss

 

 

 

 

 

 
(5,533
)
 
(5,533
)
Balance, March 31, 2020
18,587,892

 
19

 
50,467

 

 
118,417

 
(118
)
 
(93,459
)
 
24,859

Exercise of stock options
3,339

 

 

 

 
2

 

 

 
2

Stock-based compensation

 

 

 

 
1,232

 

 

 
1,232

Unrealized loss on investments

 

 

 

 

 
(1
)
 

 
(1
)
Unrealized gain on foreign currency translation

 

 

 

 

 
64

 

 
64

Net loss

 

 

 

 

 

 
(9,928
)
 
(9,928
)
Balance, June 30, 2020
18,591,231

 
$
19

 
50,467

 
$

 
$
119,651

 
$
(55
)
 
$
(103,387
)
 
$
16,228


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

3



ALPINE IMMUNE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended
June 30,
 
2020
 
2019
 
(unaudited)
Operating activities
 

 
 

Net loss
$
(15,461
)
 
$
(24,237
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation expense
279

 
229

Amortization of premium/discount on investments
(58
)
 
(185
)
Non-cash interest expense
125

 
67

Stock-based compensation expense
2,218

 
1,436

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other current assets
632

 
(415
)
Right-of-use asset
318

 
454

Accounts payable and accrued liabilities
(2,467
)
 
1,829

Deferred revenue
58,721

 
2,108

Lease liabilities
518

 
(386
)
Net cash provided by (used in) operating activities
44,825

 
(19,100
)
Investing activities
 
 
 
Purchases of property and equipment
(254
)
 
(200
)
Purchase of short-term investments
(4,871
)
 
(39,804
)
Maturities of short-term investments
27,312

 
40,125

Proceeds from the sale of short-term investments

 
1,391

Net cash provided by investing activities
22,187

 
1,512

Financing activities
 
 
 
Proceeds from borrowings, net of issuance costs
5,000

 

Proceeds from sale of common stock, net of offering costs

 
23,598

Repayment of debt

 
(1,000
)
Proceeds from exercise of stock options
2

 
11

Net cash provided by financing activities
5,002

 
22,609

Effect of exchange rate on cash, cash equivalents and restricted cash
(49
)
 
(10
)
Net increase in cash and cash equivalents and restricted cash
71,965

 
5,011

Cash and cash equivalents and restricted cash, beginning of period
16,509

 
10,843

Cash and cash equivalents and restricted cash, end of period
$
88,474

 
$
15,854

Supplemental Information
 
 
 
Discount in connection with issuance of debt
$
335

 
$

Cash paid for interest
$
198

 
$
67

Recognition of right-of-use asset
$

 
$
11,757

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

4



ALPINE IMMUNE SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 is unaudited)

1. Description of Business
Alpine Immune Sciences, Inc. (the “Company”, “Alpine”, “we”, “us”, or “our”), together with its consolidated subsidiaries, is a clinical-stage immunotherapy company committed to leading a new wave of immune therapeutics, creating potentially powerful multifunctional immunotherapies to improve patients’ lives via unique protein engineering technologies. Our approach includes a proprietary scientific platform that uses a process known as directed evolution to convert native immune system proteins into multi-targeted therapeutics potentially capable of modulating the human immune system. We were incorporated under the laws of the State of Delaware and are headquartered in Seattle, Washington.
A novel strain of coronavirus, SARS-CoV-2 (“COVID-19”), was first reported in December 2019, and subsequently declared a global pandemic by the World Health Organization in March 2020. As a result of the COVID-19 outbreak, many companies have experienced disruptions in their operations and in markets served.  We have implemented some and may take additional temporary precautionary measures intended to help ensure the well-being of our employees and minimize business disruption. We considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts to our results of operations and financial position at June 30, 2020. The full extent of the future impacts of the COVID-19 outbreak on our operations is uncertain. A prolonged outbreak may adversely impact our business, including our clinical trials.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include those used for revenue recognition, accruals for clinical trial activities and other accruals, and the estimated fair value of equity-based awards. We base our estimates and assumptions on historical experience when available and on various factors we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates.
The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all normal recurring adjustments necessary for a fair statement of our financial position for the interim periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the years December 31, 2019 and 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020 (“Annual Report”). The results of our operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
Our unaudited condensed consolidated financial statements include the financial position and results of operations of Alpine Immune Sciences, Inc. and our wholly owned operating company and subsidiary, AIS Operating Co., Inc., and our wholly-owned subsidiary, Alpine Immune Sciences Australia PTY LTD. All inter-company balances and transactions have been eliminated in consolidation. 
Cash and Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking and interest-bearing accounts, and highly liquid money market funds.

5



Restricted cash represents cash drawn on lines of credit used to establish collateral to support the security deposit on our operating leases to rent office and laboratory space in Seattle, Washington.
Periodically, we maintain deposits in financial institutions in excess of government insured limits. We believe we are not exposed to significant credit risk as our deposits, which are held at financial institutions, are high credit quality securities such as money market funds, U.S. Treasury securities, and commercial paper. To date, we have not realized any losses on these deposits.
Short-Term Investments
Our short-term investments include funds invested in highly liquid money market funds, U.S. Treasury securities, commercial paper, and corporate debt securities with a final maturity of each security of less than one year. These investments are classified as available-for-sale debt securities, which are recorded at fair value based on quoted prices in active markets.
If the estimated fair value of a debt security is below its amortized cost basis, we evaluate whether it is more likely than not that we will sell the security before its anticipated recovery in market value. If an impairment exists, the security is written down to its estimated fair value and we consider whether credit losses exist for the related securities. A credit loss exists if the present value of expected cash flows is less than the amortized cost basis of the security. Credit-related losses are recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to earnings. Unrealized gains and losses that are unrelated to credit deterioration are reported in other comprehensive income (loss). Purchase premiums and discounts are recognized as interest income using the interest method over the terms of the securities. Realized gains and losses and declines in fair value deemed to be other than temporary are reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) using the specific-identification method.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our steps for recognizing revenue consist of; (1) identifying the contract, (2) identifying the performance obligations as either distinct or bundled goods and services, (3) determining the transaction price associated with each performance obligation for which we expect to be entitled in exchange for transferring such goods and services, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue upon satisfaction of performance obligations.
Our collaboration agreements principally contain multiple performance obligations, which may include (1) grants of, or options to obtain, intellectual property licenses; (2) research and development services; and/or (3) manufacturing or supply services. Payments typically received under these arrangements include one or more of the following: non-refundable upfront license fees, option exercise fees, payment for research and/or development efforts, amounts due upon the achievement of specified objectives, and/or royalties on future product sales. Our revenue is primarily derived from our collaboration agreements with Adaptimmune Therapeutics plc (“Adaptimmune”) and AbbVie Ireland Unlimited Company (“AbbVie”). See further discussion of our collaboration agreements in Note 8.
We allocate revenue to each performance obligation based on its relative stand-alone selling price. We generally determine stand-alone selling prices at the inception of the contract based on our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis. Payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying Condensed Consolidated Balance Sheets and recognized as revenue when the related revenue recognition criteria are met. We recognize revenue under our collaboration agreements based on employee hours contributed to each performance obligation, or by using a cost-based input method to measure progress toward completion of the performance obligation and to calculate the corresponding revenue to recognize each period.
Our collaboration agreements provide for non-refundable milestone payments. We recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to us for such milestone (1) is consistent with our performance necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance; (2) relates solely to our past performance; and (3) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial, and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
We review the contributed employee hours and progress towards completion for each performance obligation under our collaboration agreements, and adjust the revenue recognized to reflect changes in assumptions relating to the estimated

6



satisfaction of the performance obligation. We could accelerate revenue recognition in the event of early termination of programs or if our expectations change. Alternatively, we could decelerate revenue recognition if programs are extended or delayed. While such changes to our estimates have no impact on our reported cash flows, the timing of revenue recorded in future periods could be materially impacted.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740, Income Taxes, and clarifying existing guidance to facilitate consistent application. The standard will become effective for us beginning on January 1, 2021. We are currently evaluating the new standard to determine the potential impact on our financial condition, results of operations, cash flows, and financial statement disclosures.
Recently Adopted Accounting Pronouncements
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606. This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Credit Losses, as clarified in ASU 2019-04 and ASU 2019-05. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures. We will continue to monitor the impact of the COVID-19 outbreak on expected credit losses.
3. 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 period. The common stock issuable upon the conversion or exercise of the following dilutive securities has been excluded from the diluted net loss per share calculation because their effect would have been anti-dilutive. Diluted net loss per share, therefore, does not differ from basic net loss per share for the periods presented.
 
June 30,
 
2020
 
2019
 
(unaudited)
Warrants to purchase common stock
1,894,455

 
1,859,733

Stock options and restricted stock units outstanding
4,040,935

 
3,266,572

Total
5,935,390

 
5,126,305


4. Cash Equivalents and Short-Term Investments
The amortized cost and fair value of our cash equivalents and short-term investments are as follows (in thousands):
 
June 30, 2020
Assets:
(unaudited)
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair market value
Money market funds
$
27,053

 
$

 
$

 
$
27,053

Corporate debt securities and commercial paper
1,998

 

 

 
1,998

Total
$
29,051

 
$

 
$

 
$
29,051


7



 
December 31, 2019
Assets:
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair market value
Money market funds
$
9,995

 
$

 
$

 
$
9,995

U.S. treasury bills
5,019

 
2

 

 
5,021

Corporate debt securities and commercial paper
21,862

 
14

 

 
21,876

Total
$
36,876

 
$
16

 
$

 
$
36,892


All short-term investments held as of June 30, 2020 and December 31, 2019 were classified as available-for-sale securities and had contractual maturities of less than one year. There were no realized gains and losses on these securities for the periods presented.
5. Fair Value Measurements
Cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, which are recorded at invoiced amount or cost, approximate fair value based on the short-term nature of these financial instruments. Fair value is defined as the exchange price received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, is as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, 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 supported by little or no market activity and significant to the fair value of the assets or liabilities.
As of June 30, 2020, and December 31, 2019, cash of $61.2 million and $3.6 million, respectively, is excluded from the fair value table below. The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
June 30, 2020
 
(unaudited)
Assets:
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds
$
27,053

 
$

 
$

 
$
27,053

Corporate debt securities and commercial paper

 
1,998

 

 
1,998

Total
$
27,053

 
$
1,998

 
$

 
$
29,051

 
December 31, 2019
Assets:
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds
$
9,995

 
$

 
$

 
$
9,995

U.S. treasury bills
5,021

 

 

 
5,021

Corporate debt securities and commercial paper

 
21,876

 

 
21,876

Total
$
15,016

 
$
21,876

 
$

 
$
36,892


Our Level 2 assets consist of commercial paper and corporate debt securities. We review trading activity and pricing for our available-for-sale securities as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data.

8



6. Additional Balance Sheet Information
Prepaid expenses and other current assets consist of the following (in thousands):
 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
Prepaid research and development
$
580

 
$
574

Tenant improvement allowance receivable
42

 
586

Prepaid insurance
90

 
301

Prepaid other
285

 
89

Other receivables
21

 
100

Prepaid expenses and other current assets
$
1,018

 
$
1,650



Accrued liabilities consist of the following (in thousands):
 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
Research and development services
$
1,970

 
$
2,543

Employee compensation
1,073

 
1,761

Legal and professional fees
687

 
515

Accrued other
94

 
466

Accrued Liabilities
$
3,824

 
$
5,285


7. Long-term Debt
In December 2016, we entered into a Loan and Security Agreement (the “Original Agreement”), with Silicon Valley Bank (“SVB”), under which we borrowed $5.0 million. The Original Agreement accrued interest at a floating per annum rate equal to the lender’s prime rate minus 1.75%. The Original Agreement had an interest-only period through July 2018.
In August 2019 (the “Effective Date”), we entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with SVB, pursuant to which SVB agreed to extend term loans to us with an aggregate principal amount of up to $15.0 million (the “Term Loans”). Borrowings under the Loan Agreement consist of up to three separate tranches. The initial tranche of $5.0 million was funded in August 2019, $3.0 million of which was used to repay amounts owing under our Original Agreement. In March 2020, the second tranche of $5.0 million was funded to us. We did not draw down the final tranche of $5.0 million, which expired on July 31, 2020. We intend to use the debt proceeds for working capital and other general corporate purposes, including the advancement of our development programs.
The Term Loans accrue interest at a floating per annum rate of 0.25% above the prime rate, subject to a floor of 5.75%, which interest is payable monthly commencing in September 2019. Upon the occurrence and during the continuance of an event of default, a default interest rate will apply that is 4.0% above the otherwise applicable interest rate. The Term Loans are interest only until September 30, 2020, however, under the Loan Agreement our interest only period automatically extends to June 30, 2021 if we receive aggregate new capital of at least $40.0 million no later than June 30, 2020. We met this milestone in June 2020 in conjunction with the AbbVie agreement, discussed in detail in Note 8. As a result of the interest only extension, the Term Loans will be payable in 25 equal monthly installments of principal plus interest, with the final installment due and payable on July 1, 2023.
We may prepay all of the Term Loans subject to a prepayment fee equal to $75,000, which represents the deferred portion of the final payment due under the Original Agreement, plus the outstanding principal balance under the Term Loans at the time of such prepayment multiplied by a prepayment fee of 2.0% in the first year, 1.0% in the second year, and 0% in the third year and thereafter. Additionally, a final payment in the amount of 5.5% of the funded Term Loans is payable to SVB on the date on which the Term Loans are prepaid, paid or become due and payable in full. The final payment fees are recorded in long-term debt with an offsetting reduction to debt discount on our accompanying Condensed Consolidated Balance Sheets.
The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity,

9



make investments, dispose of assets, engage in any new lines of business, and enter into certain transactions with affiliates, in each case subject to certain exceptions. We assessed the likelihood of the lender accelerating payment of the loan due to a material adverse change in our business, operations, financial, or other condition as remote. We were in compliance with our covenants as of June 30, 2020. As such, as of June 30, 2020, the classification of the loan is split between current and noncurrent based on the timing of payment obligations. As security for its obligations under the Loan Agreement, we granted SVB a first priority security interest on substantially all of our assets, except intellectual property, and subject to certain other exceptions.
In connection with the Loan Agreement, we issued a warrant to SVB to purchase up to 52,083 shares of our common stock at a price of $4.32 per share, 17,361 shares of which became exercisable in August 2019 after we drew down the initial tranche. In March 2020, after we drew down the second tranche of our Term Loan, an additional 17,361 shares became exercisable. The remaining warrants did not vest and expired on July 31, 2020, upon the expiration of the third tranche of our Term Loan. The fair value of the warrants on the date of issuance for the initial tranche and second tranche was $60,000 and $60,000, respectively, determined using the Black-Scholes option-pricing model, and was recorded as a component of equity and as a debt discount on our accompanying Condensed Consolidated Balance Sheets. In connection with Original Agreement, SVB also holds 7,069 fully vested common stock warrants at an exercise price of $12.38 per share.
The Term Loan was accounted for as a debt modification in a non-troubled debt restructuring, rather than a debt extinguishment, based on a comparison of the present value of the cash flows under the terms of the debt immediately before and after the Effective Date of the Term Loan, which resulted in a change of less than 10%. As a result, the remaining unamortized debt discount recorded in connection with the Original Agreement will be amortized to interest expense over the repayment term of Loan Agreement. In connection with the initial and second tranches of the Loan Agreement, we recorded a total debt discount of $812,000, which is being amortized to interest expense using the effective interest method over the repayment term of the loan. Non-cash interest expense associated with the amortization of the discount was $81,000 and $31,000 for the three months ended June 30, 2020 and 2019, respectively, and $125,000 and $67,000 for the six months ended June 30, 2020 and 2019, respectively. The unamortized discount was $632,000 as of June 30, 2020.  
Scheduled principal payments on our outstanding debt as of June 30, 2020 under our Loan Agreement, excluding final fee amounts, are as follows (in thousands):
Year ending December 31,
 
Total
2020 (remainder of year)
 
$

2021
 
2,400

2022
 
4,800

2023
 
2,800

Total future principal payments
 
$
10,000


8. License and Collaboration Agreements
AbbVie
In June 2020, we entered into an option and license agreement with AbbVie (the “AbbVie Agreement”) for the development of ALPN-101. The AbbVie Agreement grants AbbVie the exclusive option to purchase an exclusive worldwide license to ALPN-101 (the “License Option”). The License Option is exercisable by AbbVie at any time and will expire 90 days from the achievement of certain development milestones. If AbbVie exercises the License Option, AbbVie will take over the future development and commercialization. Prior to the exercise of the License Option, we will perform research and development services, including conducting a Phase 2 study in systemic lupus erythematosus, based on an agreed-upon development plan (the “Development Plan”). We will be fully responsible for all costs incurred to conduct the activities under the Development Plan, provided that, AbbVie may be responsible for increased costs under the Development Plan in connection with certain material amendments proposed by AbbVie. We will also be solely responsible, at our sole cost and expense, for manufacturing and regulatory filings for ALPN-101 necessary to complete activities under the Development Plan.
In June 2020, in connection with the execution of the AbbVie Agreement, AbbVie paid us a nonrefundable upfront payment of $60.0 million. Prior to the exercise of the License Option, AbbVie has agreed to make cash payments upon our achievement of certain predefined pre-option development milestones (the “Alpine Development Milestones”) up to an aggregate amount of $75.0 million. If AbbVie exercises the License Option, they will pay a one-time cash payment of $75.0 million. Following the exercise of the License Option, AbbVie has also agreed to make aggregate cash payments of up to $205.0 million upon AbbVie’s achievement of certain development and commercial milestones and additional aggregate cash payments of up to $450.0 million upon AbbVie’s achievement of certain sales-based cash milestones, collectively referred to as

10



(the “AbbVie Milestones”). Subsequent to commercialization, we are also eligible to receive high single-digit to low double-digit percentage royalties on worldwide net sales of licensed products.
For revenue recognition purposes, we determined that our contractual promises in the AbbVie Agreement are not distinct and are interdependent with our performance obligation to provide research and development services under the Development Plan. Thus, all contractual promises related to the upfront payment and Alpine’s Development Milestones were combined into a single performance obligation. We determined the Alpine Development Milestone payments are probable of significant revenue reversal as the achievement is highly dependent on factors outside our control. Therefore, these milestone payments are fully constrained and were not included in the transaction price. We will re-evaluate the transaction price each reporting period and update as uncertain events are resolved or other changes in circumstances occur.
The License Option and the AbbVie Milestones were not determined to be performance obligations at the inception of the contract as they did not represent material rights. If exercised, the License Option and AbbVie Milestones will be accounted for as a separate contract and will be recognized as revenue if and when triggered. Any consideration related to sales-based royalties and profit-sharing payments will be recognized when the related sales occur.
We use a cost-based input method to measure progress toward completion of the performance obligation and to calculate the corresponding revenue to recognize each period. In applying the cost-based input, we use actual costs incurred relative to budgeted costs for the combined performance obligation. These costs consist primarily of internal personnel efforts and third-party contract costs relative to the level of patient enrollment in the study. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligation. A cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligation. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.
We recognized revenue from the AbbVie Agreement of $86,000 for the three and six months ended June 30, 2020. As of June 30, 2020 the remaining balance of the transaction price is $59.9 million and is recorded as current and noncurrent deferred revenue on our accompanying Condensed Consolidated Balance Sheets. We expect to recognize the remaining deferred revenue over the remainder of our Development Plan, which began in June 2020 and ends upon the later of the exercise or expiration of the option.
Adaptimmune
In May 2019, we entered into a collaboration and licensing agreement with Adaptimmune (the “Adaptimmune Collaboration”) to develop next-generation SPEAR T-cell products. Under the Adaptimmune Collaboration, we are to perform certain research services and grant Adaptimmune an exclusive license to programs from our secreted immunomodulatory protein (“SIP”) and transmembrane immunomodulatory protein (“TIP”) technologies. In June 2019, under the terms of the Adaptimmune Collaboration, we received an upfront license payment of $2.0 million, and through June 30, 2020 we have received an additional $1.3 million in research support payments to fund ongoing programs. These payments are recorded as deferred revenue upon receipt and are recognized to revenue based on employee hours contributed to each performance obligation. Under the Adaptimmune Collaboration we have recognized revenue of $602,000 and $142,000 for the three months ended June 30, 2020, and 2019, respectively and $1.7 million and $142,000 for the for the six months ended June 30, 2020 and 2019, respectively. In addition, we are eligible for additional research support payments, one-time payments and downstream development and commercialization milestones of up to $288.0 million, if all pre-specified milestones for each program are achieved. We are also eligible to receive low-single digit percentage royalties on worldwide net sales of the applicable products. As of June 30, 2020, we have $242,000 remaining in current deferred revenue on our Condensed Consolidated Balance Sheets.
9. Stockholders’ Equity
Securities Offerings
In July 2020, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) for a private placement with a select group of institutional investors, pursuant to which we sold 5,139,610 units (the “Common Units”) and 790,710 units (the “Prefunded Warrant Units”), for an aggregate purchase price of $60.0 million. Each Common Unit consists of one share of our common stock plus a warrant to purchase 0.3 shares of common stock (the “Common Stock Warrants”), and each Prefunded Warrant Unit consists of one prefunded warrant to purchase one share of common stock (the “Prefunded Warrants”) plus 0.3 Common Stock Warrants. The Prefunded Warrant Units and the Common Units are collectively referred to

11



as the “Units” and each Unit has a purchase price of $10.1175. The Common Stock Warrants have an exercise price of $12.74 and a term of 3.5 years. The Prefunded Warrants became fully exercisable upon the closing date and have an exercise price of $0.001 per share.
The issuance of the securities sold under the Securities Purchase Agreement have not been registered under the Securities Act of 1933, as amended, or state securities laws and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements. We have agreed to file a registration statement with the SEC covering the resale of the shares of common stock issuable in connection with the Securities Purchase Agreement and upon exercise of the warrants.
In June 2018, we entered into an equity distribution agreement, (“Equity Distribution Agreement”), with Piper Jaffray & Co., (“Piper Jaffray”), pursuant to which we may sell shares of our common stock through an “at the market” equity offering program for up to $50.0 million in gross cash proceeds. Under the Equity Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. We will be unable to sell shares under the Equity Distribution Agreement until a prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC. As of June 30, 2020, no sales under our Equity Distribution Agreement have occurred.
Equity Incentive Plans
On January 1, 2020, in connection with our 2018 Equity Incentive Plan (the “2018 Plan”) annual increase provision, a total of 929,394 additional shares were automatically added to the shares authorized under the 2018 Plan. In June 2020, in conjunction with our annual meeting of stockholders, our stockholders approved an additional increase of 743,515 shares authorized under our 2018 Plan.
In January 2020, annual stock option grants totaling 1,026,950 shares with a weighted average exercise price of $3.25 per share were issued to eligible employees and board members.
Also in January 2020, we issued 156,328 shares of RSUs at a grant date fair value of $3.23 per share to certain employees in lieu of cash incentive compensation. Half of the shares underlying each RSU vested on June 30, 2020, with the remaining half scheduled to vest on December 31, 2020, subject to each grantee’s continued employment or service to the Company on the applicable vesting dates. In addition, upon a change in control as defined in the 2018 Plan, any unvested shares underlying the RSU will immediately vest.
Stock-Based Compensation Expense 
We use the Black-Scholes option pricing model to estimate the fair value of stock options granted at the grant date. The fair value of RSUs is equal to the closing stock price on the date of grant. We recognize the fair value of stock-based compensation as compensation expense over the requisite service period, which is the vesting period. Stock-based compensation is classified in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) as follows (in thousands): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
 
(unaudited)
Employee:
 
 
 
 
 
 
 
Research and development
$
716

 
$
422

 
$
1,225

 
$
762

General and administrative
507

 
248

 
972

 
631

Non-Employee:
 
 
 
 
 
 
 
Research and development
7

 
11

 
18

 
40

General and administrative
2

 
1

 
3

 
3

Total stock-based compensation expense
$
1,232

 
$
682

 
$
2,218

 
$
1,436


10. Income Taxes
We are subject to income taxes in the United States and Australia and our effective tax rate is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. Each

12



quarter an estimate of the annual effective tax rate is updated should we revise our forecast of earnings based upon our operating results. If there is a change in the estimated effective annual tax rate, a cumulative adjustment is made. Our effective tax rate for the six months ended June 30, 2020 and 2019 was (0.04)% and 0.00%, respectively. The difference between the effective tax rate of (0.04)% for the six months ended June 30, 2020, the effective tax rate of 0.00% for the six months ended June 30, 2019, and the U.S. federal statutory rate of 21% was primarily due to recognizing a full valuation allowance on deferred tax assets.  
As of June 30, 2020, we determined that, based on an evaluation of the four sources of income and all available evidence, both positive and negative, including our latest forecasts and cumulative losses in recent years, it was more likely than not that none of our deferred tax assets would be realized and therefore we continued to record a full valuation allowance. No current tax liability or expense has been recorded in the financial statements, with the exception of a minimal amount of state income tax refunded during the three-month period ended June 30, 2020.

13



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2019, included in our Annual Report on Form 10-K, or the “Annual Report”, filed with the SEC on March 30, 2020.
Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
 
our ability to identify, develop and commercialize additional products or product candidates;
our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing;
our ability to obtain funding for our operations;
the implementation of our business model and strategic plans for our business and technology;
the timing of the commencement, progress and receipt of data from any of our preclinical and clinical trials;
the expected results of any preclinical or clinical trial and the impact on the likelihood or timing of any regulatory approval;
the scope of protection we are able to establish and maintain for intellectual property rights covering our technology and product candidates;
the anticipated impact of the COVID-19 pandemic on our business, research and clinical development plans and timeliness and results of operations;
the timing or likelihood of regulatory filings and approvals;
the therapeutic benefits, effectiveness and safety of our product candidates;
the rate and degree of market acceptance and clinical utility of any future products;
our ability to maintain and establish collaborations;
our ability to achieve milestones in our current and any future collaborations;
our expectations regarding market risk, including interest rate changes;
our expectations regarding the sufficiency of our cash and cash equivalents to fund operations for at least the next 12 months;
developments relating to our competitors and our industry; and
our expectations regarding licensing, acquisitions and strategic operations.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — Risk Factors, and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.

14



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 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.
Overview
We are a clinical-stage biopharmaceutical company dedicated to discovering and developing innovative, protein-based immunotherapies to treat cancer and autoimmune and inflammatory diseases. Our approach includes a proprietary scientific platform that converts native immune system proteins into differentiated, multi-targeted therapeutics. We believe our strategies are capable of meaningfully modulating the human immune system and significantly improving outcomes in patients with serious diseases.
In June 2020, we entered into an Option and License Agreement with AbbVie Ireland Unlimited Company, or AbbVie, which grants AbbVie an exclusive option to take an exclusive license to our clinical candidate ALPN-101, a dual ICOS and CD28 antagonist intended for the treatment of autoimmune and inflammatory diseases. Preclinical studies with ALPN-101 have demonstrated efficacy in models of systemic lupus erythematosus, or SLE, graft versus host disease, or GVHD, arthritis, inflammatory bowel disease, multiple sclerosis, type 1 diabetes, and Sjögren’s syndrome. We have evaluated ALPN-101 in a Phase 1 healthy volunteer trial. We initiated a Phase 1b/2 study of ALPN-101 in patients with steroid-resistant or steroid-refractory active acute graft-versus-host disease, but terminated this study in June 2020.
Our lead oncology program is ALPN-202, a conditional CD28 costimulator and dual checkpoint inhibitor intended for the treatment of cancer. Preclinical in vivo data have demonstrated monotherapy efficacy in tumor models superior to approved therapies. In addition, ALPN-202 has a unique immuno-modulatory profile and has demonstrated evidence of anti-tumor immunity in preclinical models. Based on ALPN-202’s efficacy in preclinical models and favorable nonclinical safety and development profile, we have initiated NEON-1, a Phase 1 dose escalation and expansion study in patients with advanced malignancies. We intend to continue patient enrollment throughout 2020 and into 2021.
Our third development program is ALPN-303, a dual B-cell cytokine antagonist, designed for the treatment of B-cell mediated diseases. We are currently conducting additional pre-clinical studies and manufacturing activities for ALPN-303 in anticipation of enabling clinical trials by the end of 2021.
Our scientific platform has also generated immune modulatory proteins with the potential of improving engineered cellular therapies, or ECT, such as chimeric antigen receptor T cells, or CAR-T, T cell receptor-engineered T cells, or TCR-T, and tumor infiltrating lymphocytes, or TILs. In May 2019, we signed a collaboration and license agreement with Adaptimmune Therapeutics plc, or Adaptimmune, to develop next-generation SPEAR™ T-cell products which incorporate our secreted and transmembrane immunomodulatory protein (termed SIP™ and TIP™) technology. We intend to continue to leverage our existing pipeline and platform to actively explore and evaluate potential value-creating partnering opportunities.
Our goal is to discover and develop modern therapies to treat patients with serious conditions such as cancer and inflammatory diseases. To achieve our goals, we intend to: 
aggressively move our lead inflammation/autoimmune program ALPN-101 through its development plan including a Phase 2 study for the treatment of SLE;
aggressively move our lead oncology program ALPN-202 through clinical development for the treatment of cancer;
aggressively move ALPN-303 through preclinical development and into clinical studies for the treatment of B-cell mediated diseases; and
maximize the value of our pipeline and platform via potential partnering activities.
Our operations to date have been limited to business planning, raising capital, developing our platform technology, identifying potential immunotherapy candidates, clinical development, and other research and development activities. To date, we have financed operations primarily through private placements of common stock and convertible preferred stock, funds received from license and research agreements, debt financing and assets acquired upon the close of our merger with Nivalis Therapeutics Inc., or Nivalis. We do not have any products approved for sale and have not generated any product sales. Since inception and through June 30, 2020, excluding amounts borrowed through debt financing, we have raised an aggregate of $185.7 million to fund operations, of which $23.6 million was from the sale of common stock, $49.2 million was from the sale of convertible preferred stock, $68.9 million was through our license and collaboration agreements, and $44.1 million in cash, cash equivalents, and marketable securities acquired through the merger with Nivalis. Additionally, in July 2020, we received

15



gross proceeds of $60.0 million related to a securities purchase agreement with a select group of institutional investors. See Note 8 for additional information. As of June 30, 2020, we had cash, cash equivalents, restricted cash, and short-term investments totaling $90.5 million.
Our net loss was $9.9 million and $11.9 million for the three months ended June 30, 2020 and 2019, respectively, and $15.5 million and $24.2 million for the six months ended June 30, 2020 and 2019, respectively. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:
 
initiate and complete clinical trials for product candidates, including ALPN-101, a dual ICOS/CD28 antagonist program targeting autoimmune/inflammatory disorders, ALPN-202, a CD80 vIgD-Fc that mediates PD-L1-dependent CD28 costimulation and inhibits the PD-L1 and CTLA-4 checkpoints targeting cancer and ALPN-303, B-Cell Modulatory Variant TNF Receptor Domains, or vTDs designed to inhibit BAFF and APRIL. BAFF and APRIL are tumor necrosis factor (TNF) superfamily cytokines which play key roles in B cell development, differentiation, and survival, contributing to the pathogenesis of B cell-related autoimmune diseases like systemic lupus erythematosus (SLE);
contract to manufacture and perform additional process development for our product candidates; 
continue research and development efforts to build our pipeline beyond the current product candidates; 
maintain, expand, and protect our intellectual property portfolio; 
hire additional clinical, quality control, scientific, and management personnel; and 
add operational and financial personnel to support our product development efforts and operational capabilities applicable to operating as a public company.
We do not expect to generate product revenue unless and until we successfully complete development of, obtain marketing approval for and commercialize our product candidates, either alone or in collaboration with third parties. We expect these activities will take a number of years and our success in these efforts is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the regulatory approval and commercialization of any of our product candidates. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operating activities through equity or debt financings, collaborations or licenses, capital lease transactions, or other available financing transactions. However, additional capital may not be available on reasonable terms, if at all, and if we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders and increased fixed payment obligations.
Financial Overview
Collaboration Revenue
We derive our collaboration revenue primarily from our collaboration and licensing agreements. We may generate revenue in the future from research support or milestone payments received pursuant to our collaboration and licensing agreement with Adaptimmune, or the Adaptimmune Collaboration Agreement, or from our collaboration and license option agreement with AbbVie, or the AbbVie Agreement, or from payments from future license or collaboration agreements, product sales, or government contracts and grants. We expect any revenue we generate, if any, will fluctuate from quarter to quarter.
AbbVie Ireland Unlimited Company
In June 2020, we entered into the AbbVie Agreement for the development of ALPN-101. The AbbVie Agreement grants AbbVie the exclusive option to purchase an exclusive worldwide license to ALPN-101, or the License Option. The License Option is exercisable by AbbVie at any time and will expire 90 days from the achievement of certain development milestones. If AbbVie exercises the License Option, AbbVie will take over the future development and commercialization. Prior to the exercise of the License Option, we will perform research and development services, including conducting a Phase 2 study in SLE, based on an agreed-upon development plan, or the Development Plan. We will be fully responsible for all costs incurred to conduct the activities under the Development Plan, provided that, AbbVie may be responsible for increased costs under the Development Plan in connection with certain material amendments proposed by AbbVie. We will also be solely responsible, at our sole cost and expense, for manufacturing and regulatory filings for ALPN-101 necessary to complete activities under the Development Plan.
In June 2020, in connection with the execution of the AbbVie Agreement, AbbVie paid us a nonrefundable upfront payment of $60.0 million. Prior to the exercise of the License Option, AbbVie has agreed to make cash payments upon our achievement of certain predefined pre-option development milestones, or the Alpine Development Milestones, up to an

16



aggregate amount of $75.0 million. If AbbVie exercises the License Option, they will pay a one-time cash payment of $75.0 million. Following the exercise of the License Option, AbbVie has also agreed to make aggregate cash payments of up to $205.0 million upon AbbVie’s achievement of certain development and commercial milestones and additional aggregate cash payments of up to $450.0 million upon AbbVie’s achievement of certain sales-based cash milestones, collectively referred to as the AbbVie Milestones. Subsequent to commercialization, we are also eligible to receive high single-digit to low double-digit percentage royalties on worldwide net sales of licensed products.
For revenue recognition purposes, we determined that our contractual promises in the AbbVie Agreement are not distinct and are interdependent with our performance obligation to provide research and development services under the Development Plan. Thus, all contractual promises related to the upfront payment and Alpine’s Development Milestones were combined into a single performance obligation. We determined the Alpine Development Milestone payments are probable of significant revenue reversal as the achievement is highly dependent on factors outside our control. Therefore, these milestone payments are fully constrained and were not included in the transaction price. We will re-evaluate the transaction price each reporting period and update as uncertain events are resolved or other changes in circumstances occur.
The License Option and the AbbVie Milestones were not determined to be performance obligations at the inception of the contract as they did not represent material rights. If exercised, the License Option and AbbVie Milestones will be accounted for as a separate contract and will be recognized as revenue if and when triggered. Any consideration related to sales-based royalties and profit-sharing payments will be recognized when the related sales occur.
We use a cost-based input method to measure progress toward completion of the performance obligation and to calculate the corresponding revenue to recognize each period. In applying the cost-based input, we use actual costs incurred relative to budgeted costs for the combined performance obligation. These costs consist primarily of internal personnel efforts and third-party contract costs relative to the level of patient enrollment in the study. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligation. A cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligation. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.
We recognized revenue from the AbbVie Agreement of $86,000 for the three and six months ended June 30, 2020. As of June 30, 2020, the remaining balance of the transaction price is $59.9 million and is recorded as current and noncurrent deferred revenue on our accompanying Condensed Consolidated Balance Sheets. We expect to recognize the remaining deferred revenue over the remainder of our Development Plan, which began in June 2020 and ends upon the later of the exercise or expiration of the option.
Adaptimmune Therapeutics plc
In May 2019, we entered into the Adaptimmune Collaboration Agreement with Adaptimmune, a clinical-stage biopharmaceutical company primarily focused on providing novel cell therapies to patients, particularly for the treatment of solid tumors, to develop next-generation SPEAR T-cell products which incorporate our secreted and transmembrane immunomodulatory protein (termed SIP™ and TIP™) technology. Under the Adaptimmune Collaboration Agreement, we are to perform certain research services and grant Adaptimmune an exclusive license to programs from our SIP and TIP technologies. In June 2019, under the terms of the Adaptimmune Collaboration Agreement, we received an upfront license payment of $2.0 million and as of June 30, 2020 we have received an additional $1.3 million in research support payments to fund ongoing programs. These payments were recorded as deferred revenue and will be recognized to revenue based on employee hours contributed to each performance obligation. We have recognized a total of $3.0 million in revenue through June 30, 2020 related to the Adaptimmune Collaboration Agreement. In addition, we are eligible for additional research support payments, one-time payments and downstream development and commercialization milestones of up to $288.0 million, if all pre-specified milestones for each program are achieved. We are also eligible to receive low-single digit royalties on worldwide net sales of the applicable products.
Research and Development Expenses
We focus our resources on research and development activities, including the conduct of preclinical and clinical studies and product development and expense such costs as they are incurred. Our research and development expenses consist of:
employee-related expenses, including salaries, benefits, taxes, travel, and stock-based compensation expense for personnel in research and development functions;

17



expenses related to process development and production of product candidates paid to contract manufacturing organizations;
costs associated with preclinical activities and regulatory operations, including the cost of acquiring, developing, and manufacturing research material;
clinical trials and activities related to regulatory filings for our product candidates; and
allocation of facilities, overhead, depreciation, and amortization of laboratory equipment and other expenses.
We incurred $7.1 million and $10.2 million in research and development expenses for three months ended June 30, 2020 and 2019, respectively, and $12.0 million and $20.5 million for the six months ended June 30, 2020 and 2019, respectively. We expect our research and development expenses to increase for the foreseeable future as we continue to develop our platform and product candidates.
The successful development of our platform and product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing, or costs of the efforts necessary to finish developing any of our product candidates or the period in which material net cash, if any, from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of:
the scope, rate of progress, expense, and results of clinical trials;
the scope, rate of progress, and expense of process development and manufacturing;
preclinical and other research activities; and
the timing of regulatory approvals.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, business development, finance, and administrative functions. Other significant general and administrative expenses include professional fees for accounting and legal services, expenses associated with obtaining and maintaining patents and other intellectual property, and allocation of facility and overhead costs.
We expect general and administrative expenses to increase as we expand infrastructure and continue to prosecute our patents and other intellectual property. Other increases could potentially include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel, and increased fees for directors, outside consultants, lawyers, and accountants. We expect to incur significant costs to comply with corporate governance, internal controls, and similar requirements applicable to public companies.
Interest Expense
Interest expense consists primarily of interest associated with our term loan with Silicon Valley Bank and the amortization of the related debt discount.  
Interest Income
Interest income consists of interest earned on our cash, cash equivalents, and short-term investments.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, for so long as we are an “emerging growth company,” which is until as late as December 31, 2020, we will, among other things not be required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. After we cease to be an “emerging growth company” and for so long as we are not classified as an “accelerated filer” or “large accelerated filer” pursuant to SEC rules, we will continue to be exempt from the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.

18



Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed consolidated financial statements and in Note 2 to the audited financial statements contained in our Annual Report on Form 10-K. There have been no significant or material changes in our significant accounting policies during the six months ended June 30, 2020, as compared to those disclosed in our Annual Report except the following:
Recently Adopted Accounting Pronouncements
In November 2018, the FASB issued Accounting Standards Update, or ASU, No. 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606. This ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Credit Losses, as clarified in ASU 2019-04 and ASU 2019-05. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. We adopted this ASU effective January 1, 2020 and it did not have a material impact on our financial statements and related disclosures. We will continue to monitor the impact of the COVID-19 outbreak on expected credit losses.
For information regarding recent accounting pronouncements, see Note 2 of the Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this report.
Results of Operations

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Comparison of Three Months Ended June 30, 2020 and 2019
The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019 (in thousands):
 
Three Months Ended
June 30,
 
Increase/
(Decrease)
 
2020
 
2019
 
 
(unaudited)
 
 
Collaboration revenue
$
688

 
$
567

 
$
121

Operating expenses:
 
 
 
 
 

Research and development
7,096

 
10,166

 
(3,070
)
General and administrative
3,344

 
2,553

 
791

Total operating expenses
10,440

 
12,719

 
(2,279
)
Loss from operations
(9,752
)
 
(12,152
)
 
2,400

Other income (expense):
 
 
 
 
 
Interest expense
(226
)
 
(61
)
 
(165
)
Interest income
44

 
357

 
(313
)
Loss before taxes
(9,934
)
 
(11,856
)
 
1,922

Income tax benefit
6

 

 
6

Net loss
$
(9,928
)
 
$
(11,856
)
 
$
1,928

Collaboration Revenue
Revenue for the three months ended June 30, 2020 consists of $0.6 million related to the Adaptimmune Collaboration Agreement and $0.1 million related to the AbbVie Agreement. Revenue for the three months ended June 30, 2019 consists of $0.1 million related to the Adaptimmune Collaboration agreement and $0.4 million related to the milestone payment from Laurel from the sale of certain assets.
Research and Development Expenses
The $3.1 million decrease in research and development expenses was primarily attributable to a decrease of $2.1 million in contract manufacturing and process development of our product candidates and a decrease of $1.6 million in direct research activities. These decreases were partially offset by increases of $0.3 million in stock-based compensation, $0.2 million in clinical trial activities, and $0.1 million in allocated overhead and facilities.
General and Administrative Expenses
The $0.8 million increase in general and administrative expenses was primarily attributable to increases of $0.7 million in intellectual property and professional legal services, $0.3 million related to stock-based compensation and $0.1 million in allocated overhead and facilities. These increases were partially offset by a decrease of $0.3 million in personnel-related expenses.

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Comparison of Six Months Ended June 30, 2020 and 2019
The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019 (in thousands):
 
Six Months Ended
June 30,
 
Increase/
(Decrease)
 
2020
 
2019
 
 
(unaudited)
 
 
Collaboration revenue
$
1,779

 
$
567

 
$
1,212

Operating expenses:
 
 
 
 
 
Research and development
11,974

 
20,516

 
(8,542
)
General and administrative
5,122

 
4,898

 
224

Total operating expenses
17,096

 
25,414

 
(8,318
)
Loss from operations
(15,317
)
 
(24,847
)
 
9,530

Other income (expense):
 
 
 
 
 
Interest expense
(346
)
 
(131
)
 
(215
)
Interest income
196

 
741

 
(545
)
Loss before taxes
(15,467
)
 
(24,237
)
 
8,770

Income tax benefit
6

 

 
6

Net loss
$
(15,461
)
 
$
(24,237
)
 
$
8,776

Collaboration Revenue
Revenue for the six months ended June 30, 2020 consists of $1.7 million related to the Adaptimmune Collaboration Agreement and $0.1 million related to the AbbVie Agreement. Revenue for the six months ended June 30, 2019 consists of $0.1 million related to the Adaptimmune Collaboration Agreement and $0.4 million related to the milestone payment from Laurel from the sale of certain assets.
Research and Development Expenses
The $8.5 million decrease in research and development expenses was primarily attributable to decreases of $6.4 million in contract manufacturing and process development of our product candidates, $2.9 million in direct research activities, and $0.1 million in personnel-related expenses. These decreases were partially offset by increases of $0.4 million in stock-based compensation, $0.2 million in clinical trial activity and $0.3 million in allocated overhead and facilities.
General and Administrative Expenses
The $0.2 million increase in general and administrative expenses was primarily attributable to increases of $0.6 million in intellectual property and professional legal services, $0.3 million in stock-based compensation, and $0.1 million in facility costs. These increases were partially offset by a decrease of $0.8 million in personnel-related expenses.
Liquidity and Capital Resources
As of June 30, 2020, we had cash, cash equivalents, restricted cash, and short-term investments totaling $90.5 million. Excluding amounts borrowed through debt financing, as of June 30, 2020, we have raised an aggregate of $185.7 million to fund operations, of which $23.6 million was from the sale of common stock, $49.2 million was from the sale of convertible preferred stock, $68.9 million was through our license and collaboration agreements, and $44.1 million in cash, cash equivalents, and marketable securities acquired through the merger with Nivalis. Additionally, in July 2020, we received gross proceeds of $60.0 million related to a securities purchase agreement with a select group of institutional investors, which gross proceeds are not reflected in the amounts above, as discussed below. In June 2017, August 2019, and March 2020, we drew down term loans from Silicon Valley Bank, or SVB, as discussed below. In addition to our existing cash, cash equivalents, and marketable securities, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain development and regulatory milestones and royalty payments under our collaborations with Adaptimmune and AbbVie; however, our ability to earn these milestone and contingent payments and the timing of achieving these milestones is uncertain.

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We have incurred operating losses since inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue our research and preclinical and clinical development of our product candidates; expand the scope of our current studies for our product candidates; initiate additional preclinical, clinical or other studies for our product candidates, including under any collaboration agreements; change or add additional manufacturers or suppliers; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; seek to identify, evaluate and validate additional product candidates; acquire or in-license other product candidates and technologies; maintain, protect and expand our intellectual property portfolio; attract and retain skilled personnel; and experience any delays or encounter issues with any of the above.
Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of equity or debt financings and collaboration agreements. Except for any obligations of our collaborators to make milestone payments under our agreements with them, we do not have any committed external sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through collaboration agreements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
the number and characteristics of the future product candidates we pursue either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;
the scope, progress, results and costs of independently researching and developing any of our future product candidates, including conducting preclinical research and clinical trials;
whether our existing collaborations generate substantial milestone payments and, ultimately, royalties on future approved products for us;
the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;
the cost of future commercialization activities, if any;
the cost of manufacturing our future product candidates and products, if any;
our ability to maintain our existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such arrangements;
the costs of preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation; and
the timing, receipt and amount of sales of, or royalties on, our current or future collaborators’ product candidates, and our future products, if any.
We have considered that our long-term operations anticipate continuing net losses and the need for potential equity or debt financing. We have also considered that new collaborations or selectively partnering our technology or programs may provide other sources of capital. However, there can be no assurances that additional funding or other sources of capital will be available on terms acceptable to us, or at all. Based on our current operating plan, we believe our available cash and cash equivalents and short-term investments, will be sufficient to fund our planned level of operations for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing drug candidates in preclinical and clinical studies is costly, and the timing of progress in these studies remains uncertain.

Financing Agreements
In July 2020, we entered into a securities purchase agreement, or the Securities Purchase Agreement, for a private placement with a select group of institutional investors, pursuant to which we sold 5,139,610 units, or the Common Units, and 790,710 units, or the Prefunded Warrant Units, for an aggregate purchase price of $60.0 million. Each Common Unit consists of one share of our common stock plus a warrant to purchase 0.3 shares of common stock, or the Common Stock Warrants, and each Prefunded Warrant Unit consists of one prefunded warrant to purchase one share of common stock, or the Prefunded Warrants, plus one Common Stock Warrant to purchase 0.3 shares of common stock. The Prefunded Warrant Units and the Common Units are collectively referred to as the Units and each Unit has a purchase price of $10.1175. The Common Stock

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Warrants have an exercise price of $12.74 and a term of 3.5 years. The Prefunded Warrants became fully exercisable upon the closing date and have an exercise price of $0.001 per share.
In January 2019, we entered into a securities purchase agreement, or the Purchase Agreement, with a limited number of accredited investors, pursuant to which we sold approximately 4.7 million units, or the Units, for an aggregate purchase price of $25.3 million in a private placement, which we refer to as the Private Placement. Each Unit has a purchase price of $5.37 per Unit and consists of one share of our common stock and a warrant to purchase 0.39 shares of common stock. Pursuant to the terms of the Purchase Agreement, we issued approximately 4.7 million shares of common stock and warrants to purchase an aggregate of approximately 1.8 million shares of common stock. The warrants have an exercise price of $12.74 and have a term of five years.
In June 2018, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with Piper Jaffray & Co., or Piper Jaffray, pursuant to which we may sell shares of our common stock through an “at the market” equity offering program for up to $50.0 million in gross cash proceeds.
Under the Equity Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. As of June 30, 2020, we have made no sales under the Equity Distribution Agreement. We will be unable to sell shares under the Equity Distribution Agreement until a prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC.
Long-Term Financing
In August 2019, we entered into an Amended and Restated Loan and Security Agreement, or the Loan Agreement, with SVB, pursuant to which SVB agreed to extend term loans to us with an aggregate principal amount of up to $15.0 million, or the Term Loans. Borrowings under the Loan Agreement consist of up to three separate tranches. The initial tranche of $5.0 million was funded in August 2019, $3.0 million of which was used to repay amounts owing under a previous agreement. In March 2020, the second tranche of $5.0 million was funded to us. We did not draw down the third and final tranche of $5.0 million, which expired on July 31, 2020. We intend to use the debt proceeds for working capital and other general corporate purposes, including the advancement of our development programs. Each term loan advance, other than the final term loan advance, must be in the amount of not less than $0.5 million and, after repayment, no term loan advance may be re-borrowed. The Term Loans were interest only until September 30, 2020, however, under the Loan Agreement our interest only period automatically extends to June 30, 2021 if we receive aggregate new capital of at least $40.0 million no later than June 30, 2020. We met this milestone in June 2020 in conjunction with the AbbVie agreement, discussed in detail in Note 8. As a result of the interest only extension, the Term Loans will be payable in 25 equal monthly installments of principal plus interest, with the final installment due and payable on July 1, 2023.
See Note 7 for further discussion of our Term Loans.
Cash Flows
The following is a summary of our cash flows (in thousands):
 
Six Months Ended
June 30,
 
2020
 
2019
 
(unaudited)
Net cash provided by (used in) operating activities
$
44,825

 
$
(19,100
)
Net cash provided by investing activities
22,187

 
1,512

Net cash provided by financing activities
5,002

 
22,609

Net Cash Provided by (Used in) Operating Activities:
Net cash provided by operating activities was $44.8 million during the six months ended June 30, 2020 and consisted of an increase of $57.7 million in our net operating assets and liabilities. This increase was primarily driven by the receipt of a $60.0 million upfront payment from AbbVie, which was recorded as current and noncurrent deferred revenue on our accompanying Condensed Consolidated Balance Sheets. Additionally, we had a $2.6 million increase in our net non-cash adjustments, which primarily relate to stock-based compensation, depreciation and amortization. These increases were partially offset by our net loss of $15.5 million.

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Net cash used in operating activities was $19.1 million during the six months ended June 30, 2019, and consisted primarily of our net loss of $24.2 million. This was offset by increases of $3.1 million in our net operating assets and liabilities and $2.0 million in our net non-cash adjustments, which primarily relate to stock-based compensation, depreciation and amortization.
Net Cash Provided by Investing Activities:
Cash flows from investing activities primarily reflect cash used to purchase short-term investments and proceeds from the maturities and sales of short-term investments, thus causing a shift between our cash and cash equivalents, and short-term investment balances. We manage our cash usage with respect to our total cash, cash equivalents and short-term investments.
Net cash provided by investing activities was $22.2 million during the six months ended June 30, 2020 and consisted primarily of our net purchases and maturities of short-term investments in U.S. Treasury securities, commercial paper, and corporate debt securities as well as purchases of property and equipment, primarily lab equipment, to support our research and development efforts.
Net cash provided by investing activities was $1.5 million during the six months ended June 30, 2019 and consisted primarily of our net purchases, maturities and sales of short-term investments in U.S. Treasury securities, commercial paper, and corporate debt securities as well as the purchases of property and equipment, primarily lab equipment, to support research and development efforts.
Net Cash Provided by Financing Activities:
Net cash provided by financing activities was $5.0 million during the six months ended June 30, 2020 and consisted primarily of the proceeds received from the draw down of the second tranche of our Loan Agreement in March 2020.
Net cash provided by financing activities was $22.6 million during the six months ended June 30, 2019 and consisted primarily of the net proceeds of $23.6 million related to the sale of approximately 4.7 million Units under our Purchase Agreement, partially offset by $1.0 million related to principal payments on our debt.
Contractual Obligations and Contingent Liabilities
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide additional information on our contractual obligations and contingent liabilities pursuant to Item 303 of Regulation S-K.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective, in design and operation, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated any changes in our internal control over financial reporting during the period ended June 30, 2020, and has concluded that there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitation on the Effectiveness of Internal Control
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2, and our condensed consolidated financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
Risks Related to Our Financial Position, Capital Needs and Business
We will need to raise substantial additional funds to advance development of our therapeutic candidates, and we cannot guarantee we will have sufficient funds available in the future to develop and commercialize our current or future therapeutic candidates.
We will need to raise substantial additional funds to expand our development, regulatory, manufacturing, marketing, and sales capabilities or contract with other organizations to provide these capabilities to us. We have used substantial funds to develop our therapeutic candidates and will require significant funds to conduct further research and development, preclinical testing, and clinical trials of our therapeutic candidates, to seek regulatory approvals for our therapeutic candidates, and to manufacture and market products, if any are approved for commercial sale. As of June 30, 2020, we had $90.5 million in cash and cash equivalents, restricted cash, and short-term investments. Based on our current operating plan, we believe our available cash and cash equivalents, will be sufficient to fund our planned level of operations for at least the next 12 months. Our future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with successful development of our therapeutic candidates are highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. To execute our business plan, we will need, among other things:
to obtain the human and financial resources necessary to develop, test, obtain regulatory approval for, manufacture, and market our therapeutic candidates;
to build and maintain a strong intellectual property portfolio and avoid infringing intellectual property of third parties;
to establish and maintain successful licenses, collaborations, and alliances;
to satisfy the requirements of clinical trial protocols, including patient enrollment;
to establish and demonstrate the clinical efficacy and safety of our therapeutic candidates;
to obtain regulatory approvals;
to manage our spending as costs and expenses increase due to preclinical studies, clinical trials, regulatory approvals, manufacturing scale-up, and commercialization;
to obtain additional capital to support and expand our operations; and
to market our products to achieve acceptance and use by the medical community in general.
If we are unable to obtain necessary funding on a timely basis or on acceptable terms, we may have to delay, reduce, or terminate our research and development programs, preclinical studies, or clinical trials, if any, limit strategic opportunities, or undergo reductions in our workforce or other corporate restructuring activities. We also could be required to seek funds through arrangements with collaborators or others requiring us to relinquish rights to some of our technologies or therapeutic

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candidates we would otherwise pursue on our own. We do not expect to realize revenue from product sales, or royalties in the foreseeable future, if at all. Our revenue sources are, and will remain, extremely limited unless and until our therapeutic candidates are clinically tested, approved for commercialization, and successfully marketed.
To date, we have financed our operations primarily through the sale of equity securities, debt, and payments received under our collaboration agreements, including our June 2020 option and license agreement with AbbVie. We will be required to seek additional funding in the future and intend to do so through a combination of public or private equity offerings, debt financings, credit and loan facilities, research collaborations, and license agreements. Our ability to raise additional funds from these or other sources will depend on financial, economic, and other factors, many of which are beyond our control. Additional funds may not be available to us on acceptable terms or at all.
If we raise additional funds by issuing equity securities, our stockholders will suffer dilution, and the terms of any financing may adversely affect the rights of our stockholders. For example, in January 2019, we issued in a private placement 4,706,700 shares of common stock and warrants to purchase an additional 1,835,610 shares of common stock for gross proceeds of approximately $25.3 million. In July 2020, we issued in a private placement 5,139,610 shares of common stock, prefunded warrants to purchase 790,710 shares of common stock and warrants to purchase an additional 1,779,096 shares of common stock for gross proceeds of approximately $60.0 million. We also have an Equity Distribution Agreement in place with Piper Jaffray to sell up to $50.0 million of our common stock, from time to time, through an “at the market” equity offering program under which Piper Jaffray acts as sales agent; however, until a new prospectus supplement relating to any sales under the Equity Distribution Agreement is filed with the SEC, the equity offering program will not be available to us.
In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of a liquidation or insolvency, debt holders would be repaid before holders of equity securities receive any distribution of corporate assets. Our failure to raise capital or enter into such other arrangements within a reasonable timeframe would have a negative impact on our financial condition, and we may have to delay, reduce, or terminate our research and development programs, preclinical or clinical trials, or undergo reductions in our workforce or other corporate restructuring activities.
We are an early stage biopharmaceutical company with a history of losses, we expect to continue to incur significant losses for the foreseeable future, we may never achieve or maintain profitability, and we have a limited operating history that may make it difficult for investors to evaluate the potential success of our business.
We are a clinical-stage immunotherapy company, with a limited operating history, focused on developing treatments for autoimmune/inflammatory diseases and cancer. Since inception, we have devoted our resources to developing novel protein-based immunotherapies primarily using our proprietary directed evolution platform, which converts native immune system proteins into potential differentiated, multi-targeted therapeutics designed to modulate the immune system. We have had significant operating losses since inception. For the six months ended June 30, 2020, our net loss was $15.5 million. Substantially all of our losses have resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations. Our technologies and therapeutic candidates are in early stages of development, and we are subject to the risks of failure inherent in the development of therapeutic candidates based on novel technologies.
We have historically generated revenue primarily from the receipt of research funding and upfront payments under our collaboration agreements, including our option and license agreement with AbbVie. We have not generated, and do not expect to generate, any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies, clinical trials, and the regulatory approval process for therapeutic candidates. The amount of future losses is uncertain. Our ability to achieve profitability, if ever, will depend on, among other things, our or our existing collaborators, or any future collaborators, successfully developing therapeutic candidates, obtaining regulatory approvals to market and commercialize therapeutic candidates, manufacturing any approved products on commercially reasonable terms, establishing a sales and marketing organization or suitable third party alternatives for any approved product, and raising sufficient funds to finance business activities. If we or our existing collaborators, or any future collaborators, are unable to develop and commercialize one or more of our therapeutic candidates or if sales revenue from any therapeutic candidate receiving approval is insufficient, we will not achieve profitability, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

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Our approach to the discovery and development of innovative therapeutic treatments based on our technology is unproven and may not result in marketable products.
We plan to develop novel protein-based immunotherapies in part via our proprietary directed evolution platform for the treatment of cancer and autoimmune/inflammatory diseases. The potential to create therapies capable of working within and/or modulating an immune synapse, forcing a synapse to occur, or preventing a synapse from occurring is an important, novel attribute of the majority of our approaches. However, the scientific research forming the basis of our efforts to develop therapeutic candidates based on our platform is relatively new. Further, the scientific evidence to support the feasibility of developing therapeutic treatments based on our platform is both preliminary and limited.
Relatively few therapeutic candidates based on immunoglobulin superfamily, or IgSF, domains, or tumor necrosis factor receptor super family, or TNFRSF, domains, have been tested in animals or humans, and a number of clinical trials conducted by other companies using IgSF or TNFRSF domain technologies have not been successful. We may discover the therapeutic candidates developed using our scientific platform do not possess certain properties required for the therapeutic candidate to be effective, such as the ability to remain stable or active in the human body for the period of time required for the therapeutic candidate to reach the target tissue and/or cell. We currently have only limited data, and no conclusive evidence, to suggest we can introduce these necessary therapeutic properties into variant Ig domain, or vIgD or variant TNF(R) domain, or vTD, based therapeutic candidates. We may spend substantial funds attempting to introduce these properties and may never succeed in doing so. In addition, vIgDs or vTDs may demonstrate different chemical and pharmacological properties in human subjects or patients than they do in laboratory studies. Even if our programs have successful results in animal studies, they may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective, or harmful ways. For example, in the context of immunotherapies, in a Phase 1 clinical trial of TeGenero AG’s product candidate TGN1412, healthy volunteer subjects receiving the product candidate experienced a systemic inflammatory response resulting in renal and pulmonary failure requiring interventions such as dialysis and critical care support. Following this experience, regulatory agencies now ask for evaluation of immunomodulatory antibodies with a number of in vitro assays with human cells. While we continue to evaluate our vIgDs and vTDs preclinically and clinically, the risk profile in humans is still being fully assessed. Undesirable side effects that may be caused by our therapeutic candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete clinical trials or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. As a result, we may never succeed in developing a marketable therapeutic, we may not become profitable, and the value of our common stock will decline.
Further, we believe that the FDA has no prior experience with vIgDs or vTDs and no regulatory authority has granted approval to any person or entity, including our company, to market and commercialize therapeutics using vIgDs or vTDs, which may increase the complexity, uncertainty, and length of the regulatory approval process for our therapeutic candidates. Our company and our current collaborators, or any future collaborators, may never receive approval to market and commercialize any therapeutic candidate. Even if our company or a collaborator obtains regulatory approval, the approval may be for disease indications or patient populations not as broad as we intended or desired or may require labeling, including significant use or distribution restrictions or safety warnings. Our company or a collaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If therapeutic candidates we develop using our scientific platform prove to be ineffective, unsafe, or commercially unviable, our entire platform and pipeline would have little, if any, value, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
The market may not be receptive to our therapeutic products based on a novel therapeutic modality, and we may not generate any future revenue from the sale or licensing of therapeutic products.
Even if approval is obtained for a therapeutic candidate, we may not generate or sustain revenue from sales of the therapeutic product due to factors such as whether the therapeutic product can be sold at a competitive price and otherwise accepted in the market. Therefore, any revenue from sales of the therapeutic product may not offset the costs of development. The therapeutic candidates we are developing are based on new technologies and therapeutic approaches. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt a treatment based on our therapeutic products, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable coverage or reimbursement for, any therapeutic products developed by our company, our existing collaborator, or any future collaborators. Market acceptance of our therapeutic products will depend on, among other factors:
the timing of our receipt of any marketing and commercialization approvals;

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the terms of any approvals and the countries in which approvals are obtained;
the safety and efficacy of our therapeutic products;
the prevalence and severity of any adverse side effects associated with our therapeutic products;
the prevalence and severity of any adverse side effects associated with therapeutics of the same type or class as our therapeutic products;
limitations or warnings contained in any labeling approved by the FDA or other