UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20192020
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: 001-36289
 _______________________________________________________
genocealogosmalla06.jpg
Genocea Biosciences, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 51-0596811
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
100 Acorn Park Drive  
Cambridge, Massachusetts 02140
(Address of Principal Executive Offices) (Zip Code)
(617) 876-8191
(Registrant’s Telephone Number, Including Area Code)Code: (617) 876-8191

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareGNCANASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  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 x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):
Large accelerated filer¨    Accelerated filer¨x
Non-accelerated filer¨    Smaller reporting companyx
      Emerging growth companyx¨
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. x¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x
As of April 26, 2019,28, 2020, there were 112,400,73627,643,773 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.
 


FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “anticipate”, “believe”, “contemplate”, “continue”, “could”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “will”, “would”, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
 
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in our Annual Report on Form 10-K and other filings with the Securities Exchange Commission (the “SEC”), including the following:

our estimates regarding the timing and amount of funds we require to conduct clinical trials for GEN-009, to continue preclinical studies and file an investigational new drug ("IND"(“IND”) application for GEN-011, to continue preclinical studies for our other product candidates including GEN-010 and GEN-011, and to continue our investments in immuno-oncology;
our plans to commercialize GEN-009 and our other product candidates, including GEN-010 and GEN-011;
the timing of, and our ability to, obtain and maintain regulatory approvals for our product candidates;
the rate and degree of market acceptance and clinical utility of any approved product candidate;
the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;
our ability to quickly and efficiently identify and develop product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and rights; and
our estimates regarding expenses, future revenues, capital requirements, the sufficiency of our current and expected cash resources and our need for additional financingfinancing;
the timing of, and our ability to, obtain and maintain regulatory approvals for our product candidates;
the availability of materials and equipment, and the timing thereof.potential disruptions in supply chains resulting from the international public health emergency associated with the novel coronavirus (COVID-19);
the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;
our intellectual property position;
the rate and degree of market acceptance and clinical utility of any approved product candidate;
our ability to quickly and efficiently identify and develop product candidates; and
our commercialization, marketing and manufacturing capabilities and strategies.
 
Given these uncertainties,We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on theseour forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
    
Information in thisThis Quarterly Report on Form 10-Q that is based on estimates, forecasts, projections,includes statistical and other industry and market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated,data that we obtained anyfrom industry business, market or other data from reports,publications and research, surveys and studies conducted by third parties. Industry publications and similar data prepared by marketthird-party research, firmssurveys and other third parties,studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry medicalpublications and general publications, government datathird-party research, surveys and similar sources.

studies are reliable, we have not independently verified such data.


Genocea Biosciences, Inc.
Form 10-Q
For the Quarter Ended March 31, 20192020
 
TABLE OF CONTENTS
 
  Page
PART I. FINANCIAL INFORMATION
4
Item 1.
 
Financial Statements (unaudited)
4
  
Condensed Consolidated Balance Sheets as of March 31, 20192020 and December 31, 20182019
4
  
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 20192020 and 20182019
5
  
Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 20192020 and 20182019
6
  
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20192020 and 20182019
7
  
Notes to Unaudited Condensed Consolidated Financial Statements
8
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1918
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
2524
Item 4.
 
Controls and Procedures
2524
    
PART II. OTHER INFORMATION
2725
Item 11.
 
Legal Proceedings
2725
Item 1A.
 
Risk Factors
2725
Item 6.
 
Exhibits
2726



PART I. FINANCIAL INFORMATION
Item 1.                   Financial Statements
 
Genocea Biosciences, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
 
March 31,
2019		 
December 31,
2018
March 31,
2020		 
December 31,
2019
Assets

  


  
Current assets:

  


  
Cash and cash equivalents$29,038
 $26,361
$26,509
 $40,127
Prepaid expenses and other current assets1,537
 696
2,562
 1,457
Restricted cash316
 —
Total current assets30,891
 27,057
29,071
 41,584
Property and equipment, net2,531
 2,582
2,474
 2,617
Operating lease right-of-use asset1,342
 —
Right of use assets11,782
 6,306
Restricted cash—
 316
631
 631
Other non-current assets1,060
 1,160
1,234
 1,473
Total assets$35,824
 $31,115
$45,192
 $52,611



 



 

Liabilities and stockholders’ equity

  


  
Current liabilities:

  


  
Accounts payable$1,811
 $1,659
$860
 $553
Accrued expenses and other current liabilities2,965
 3,816
4,077
 4,611
Operating lease liabilities1,432
 —
Lease liabilities2,028
 1,117
Current portion of long-term debt6,115
 5,257
7,700
 —
Total current liabilities12,323
 10,732
14,665
 6,281
Non-current liabilities:

  


  
Long-term debt, net of current portion5,815
 13,407
Warrant liability9,259
 3,472
1,705
 2,486
Long-term debt, net of current portion and discount8,007
 9,565
Other non-current liabilities—
 11
Lease liabilities, net of current portion9,994
 5,395
Total liabilities29,589
 23,780
32,179
 27,569
Commitments and contingencies (Note 9)

 

Commitments and contingencies (Note 5)

 

Stockholders’ equity:

 



 

Preferred stock701
 701
Common stock112
 87
Preferred stock, $0.001 par value; (shares authorized of 25,000,000 at March 31, 2020 and December 31, 2019; 1,635 shares issued and outstanding at March 31, 2020 and December 31, 2019)701
 701
Common stock, $0.001 par value; (shares authorized of 85,000,000 at March 31, 2020 and December 31, 2019, 27,643,773 shares issued and outstanding at March 31, 2020 and 27,452,900 shares issued and outstanding at December 31, 2019)28
 27
Additional paid-in capital312,993
 298,551
356,091
 355,268
Accumulated deficit(307,571) (292,004)(343,807) (330,954)
Total stockholders’ equity6,235
 7,335
13,013
 25,042
Total liabilities and stockholders’ equity$35,824
 $31,115
$45,192
 $52,611
 
See accompanying notes to unaudited condensed consolidated financial statements.


Genocea Biosciences, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except per share data)
 
Three Months Ended
March 31,		Three Months Ended
March 31,
2019 20182020 2019
Operating expenses:      
Research and development$6,460
 $7,275
$9,987
 $6,460
General and administrative3,017
 3,109
3,388
 3,017
Total operating expenses9,477
 10,384
13,375
 9,477
Loss from operations(9,477) (10,384)(13,375) (9,477)
Other expense:

 

Other income (expense):

 

Change in fair value of warrants(5,787) (5,298)781
 (5,787)
Interest expense, net(302) (201)(259) (302)
Other expense(1) (7)
Total other expense(6,090) (5,506)
Other income (expense)—
 (1)
Total other income (expense)522
 (6,090)
Net loss$(15,567) $(15,890)$(12,853) $(15,567)
      
Comprehensive loss$(15,567) $(15,890)$(12,853) $(15,567)
Net loss per share - basic and diluted$(0.15) $(0.22)$(0.46) $(1.22)
Weighted-average number of common shares used in computing net loss per share101,700
 71,238
28,141
 12,713
 
See accompanying notes to unaudited condensed consolidated financial statements.




Genocea Biosciences, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(unaudited)
(in thousands)

      Preferred Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity
  Common Shares    
  Shares Amount    
Balance at December 31, 2018 86,771
 $87
 $701
 $298,551
 $(292,004) $7,335
Issuance of common stock, net of issuance costs 25,600
 25
 —
 14,001
 —
 14,026
Exercise of stock options 22
 —
 —
 12
 —
 12
Stock-based compensation expense —
 —
 —
 429
 —
 429
Net loss —
 —
 —
 —
 (15,567) (15,567)
Balance at March 31, 2019 112,393
 $112
 $701
 $312,993
 $(307,571) $6,235
      Preferred Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity
  Common Shares    
  Shares Amount    
Balance at December 31, 2019 27,453
 $27
 $701
 $355,268
 $(330,954) $25,042
Issuance of common stock, net 187
 1
 —
 439
 —
 440
Stock-based compensation expense —
 —
 —
 384
 —
 384
Issuance of common stock under employee benefit plans 4
 —
 —
 —
 —
 —
Net loss —
 —
 —
 —
 (12,853) (12,853)
Balance at March 31, 2020 27,644
 $28
 $701
 $356,091
 $(343,807) $13,013

      Preferred Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity (Deficit)
  Common Shares    
  Shares Amount    
Balance at December 31, 2017 28,735
 $29
 $—
 $258,114
 $(264,193) $(6,050)
Issuance of common stock, net of issuance costs 54,323
 54
 701
 35,109
 —
 35,864
Stock-based compensation expense —
 —
 —
 644
 —
 644
Net loss —
 —
 —
 —
 (15,890) (15,890)
Balance at March 31, 2018 83,058
 $83
 $701
 $293,867
 $(280,083) $14,568
      Preferred Shares Amount Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity
  Common Shares    
  Shares Amount    
Balance at December 31, 2018 10,847
 $11
 $701
 $298,627
 $(292,004) $7,335
Issuance of common stock, net 3,200
 3
 —
 14,023
 —
 14,026
Exercise of stock options 3
 —
 —
 12
 —
 12
Stock-based compensation expense —
 —
 —
 429
 —
 429
Net loss —
 —
 —
 —
 (15,567) (15,567)
Balance at March 31, 2019 14,050
 $14
 $701
 $313,091
 $(307,571) $6,235

See accompanying notes to unaudited condensed consolidated financial statements.



Genocea Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,		Three Months Ended
March 31,
2019 20182020 2019
Operating activities 
  
 
  
Net loss$(15,567) $(15,890)$(12,853) $(15,567)
Adjustments to reconcile net loss to net cash used in operating activities   
   
Depreciation and amortization272
 270
276
 272
Stock-based compensation429
 644
384
 429
Allocation of proceeds to transaction expenses—
 2,115
Change in fair value of warrant liability5,787
 3,183
(781) 5,787
Gain on sale of equipment—
 (38)(13) —
Non-cash interest expense162
 98
109
 162
Asset impairment97
 —
Changes in operating assets and liabilities(1,382) (3,515)(1,015) (1,382)
Net cash used in operating activities(10,299) (13,133)(13,796) (10,299)
Investing activities   
   
Purchases of property and equipment(221) —
(233) (221)
Proceeds from sale of equipment—
 56
16
 —
Net cash (used in) provided by investing activities(221) 56
Net cash used in investing activities(217) (221)
Financing activities 
  
 
  
Proceeds from issuance of common stock, net of issuance costs14,026
 52,538
Payment of deferred financing costs—
 (20)
Proceeds from issuance of common stock, net440
 —
Payments on finance lease(45) —
Proceeds from equity offerings, net of issuance costs—
 14,026
Repayment of long-term debt(841) (535)—
 (841)
Proceeds from exercise of stock options12
 —
—
 12
Net cash provided by financing activities13,197
 51,983
395
 13,197
Net increase in cash and cash equivalents$2,677
 $38,906
Net (decrease) increase in cash, cash equivalents and restricted cash$(13,618) $2,677
Cash, cash equivalents and restricted cash at beginning of period26,677
 12,589
40,758
 26,677
Cash, cash equivalents and restricted cash at end of period$29,354
 $51,495
$27,140
 $29,354
Supplemental cash flow information 
  
Non-cash financing activities and supplemental cash flow information 
  
Right-of-use asset obtained in exchange for lease liabilities$5,931
 $1,686
Cash paid in connection with operating lease liabilities$394
 $406
Cash paid for interest$289
 $242
$261
 $289
 
See accompanying notes to unaudited condensed consolidated financial statements.



Genocea Biosciences, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
1. Organization and operations
 
The Company
 
Genocea Biosciences, Inc. (the “Company”) is a biopharmaceutical company that was incorporated in Delaware on August 16, 2006 and has a principal place of business in Cambridge, Massachusetts. The Company discoversseeks to discover and developsdevelop novel cancer immunotherapies using its ATLASTM proprietary discovery platform. The ATLAS platform profiles each patient's CD4+ and CD8+ T cell immune responses to every potential target or "antigen." Genocea“antigen” in that patient's tumor. The Company believes that this approach optimizes antigen selection for immunotherapies such as cancer vaccines and cellular therapies, because it identifies antigens to which a patient’s T cells already mount anti-tumor responses. Thetherapies. Consequently, the Company believes that ATLAS could lead to more immunogenic and efficacious cancer immunotherapies.

The Company’s most advanced program is GEN-009, a personalized neoantigen (or personalized) cancer vaccine, for which it is conducting a Phase 1/2a clinical trial. The GEN-009 program uses ATLAS to identify neoantigens, or newly formedimmunogenic tumor mutations unique to each patient, for inclusion in each patient's GEN-009 vaccine. The Company is also advancing GEN-011, a neoantigen-specific adoptive T cell therapy program as well as GEN-010, a next-generation neoantigen vaccine program. The Company continuesthat also relies on ATLAS, and expects to consider strategic alternatives for GEN-003, its Phase 3-ready investigational immunotherapy forfile an IND in the treatmentsecond quarter of genital herpes.2020.

The Company is devoting substantially all of its efforts to product research and development, initial market development, and raising capital. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similarand uncertainties common to those of other early clinical stage companies, including dependence on key individuals, competition from other companies, the need and related uncertainty associated to the development of commercially viable products, and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the life sciencesbiotech and pharmaceutical industry, including, but not limited to, the risks associated with the uncertainty of success of its preclinical and clinical trials,trials; the challenges associated with gaining regulatory approval of product candidates; the risks associated with commercializing pharmaceutical products, if approved for marketing and sale; the potential for development by third parties of new technological innovations that may compete with the Company’s products; the dependence on third parties,key personnel; the challenges of protecting proprietary technology; the need to obtain additional financing, dependence on key individuals, regulatory approvalcomply with government regulations; the high cost of products, uncertainty of market acceptance of products, competition from companies with greater financial, technological and other resources,drug development; compliance with government regulations, protectioncompetition from other companies; the uncertainty of proprietary technology,being able to secure additional capital when needed to fund operations; and product liability. The Company has historical losses fromthe challenges and uncertainty associated with the recent outbreak of the coronavirus, or referred to as COVID-19, that have arisen in the global economy, that could adversely impact the Company's operations, supply chain, preclinical development work, clinical trials and anticipates that it will continueability to incur significant operating losses for the next several years as it continues to develop its product candidates.raise capital.

Operating Capital Requirements

Under Accounting Standards Update ("ASU"(“ASU”), 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), also referred to as Accounting Standards Codification ("ASC"(“ASC”) 205-40 (“ASC 205-40”), requires the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As of March 31, 2020, the Company had an accumulated deficit of $343.8 million and anticipates that it will continue to incur significant operating losses for the foreseeable future as it continues to develop its product candidates. Until such time, if ever, as the Company can generate substantial product revenue and achieve profitability, the Company expects to finance its cash needs through a combination of equity offerings, strategic transactions, and other sources of funding. If the Company is unable to raise additional funds when needed, the Company may be required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effectsto implement further cost reduction strategies, including ceasing development of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.GEN-009, GEN-011, or other corporate programs and activities.

As reflected in the condensed consolidated financial statements, the Company had available cash and cash equivalents of $29.0$26.5 million at March 31, 2019.2020. In addition, the Company had a loss from operations of approximately $9.5 million and cash used in operating activities of $10.3$13.8 million for the three months ended March 31, 2019.2020. These factors, combined with the Company’s forecast of cash required to fund operations for a period of at least one year from the date of issuance of these condensed consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern.
The Company plans to continue to fund its operations through public or private equity offerings, strategic transactions, proceeds from sales of its common stock under its at-the-market equity offering program, its loan and security agreement with Hercules Capital, Inc. ("Hercules"), or by other means. However, adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed, or on attractive terms, it may be forced to implement cost reduction strategies, including ceasing development of GEN-009 and other corporate programs and activities.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.



2. Summary of significant accounting policies

BasisThe following is a summary of presentation
Insignificant accounting policies followed in the opinionpreparation of management, the accompanying unauditedthese condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP).statements.  

We operate as one operating segment, which is discovering, researching and developing novel cancer immunotherapies.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with ourthe Company's audited consolidated financial statements and the accompanying notes included in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2018 ("20182019 (“2019 Form 10-K"10-K”). OurThe Company's accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2018the Company's 2019 Form 10-K and updated, as necessary, in ourthe Company's Quarterly Reports on Form 10-Q. The December 31, 20182019 condensed consolidated balance sheet data presented for comparative purposes waswere derived from ourthe Company's audited financial statements but doesdo not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 20192020 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements include those accounts of the Company and a wholly owned subsidiary after elimination of all intercompany accounts and transactions. The Company operates as one segment, which is discovering, researching, developing and commercializing novel cancer immunotherapies.

Use of Estimatesestimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to clinical trial accruals, estimates related to prepaid and accrued research and development expenses, stock-based compensation expense, and warrants to purchase redeemable securities. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Summary of Significant Accounting Policiesaccounting policies

There were no changes to significant accounting policies during the three months ended March 31, 2019,2020, as compared to the those identifieddisclosed in the 20182019 Form 10-K, except for10-K.

New Accounting Pronouncements

The following new accounting pronouncements were adopted by the Company's adoption of ASC Topic 842, Leases Company on January 1, 2019. The following is the Company's new accounting policy for leases.2020:

LeasesIn 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The Company early adopted the standard on January 1, 2020. Based on the composition of the Company's investment portfolio, which includes only money market funds, and the insignificance of the Company's other financial assets, current market conditions, and historical credit loss activity, the adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

In 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The new standard requires public entities to disclose certain new information and modifies some disclosure requirements. The Company determines if an arrangement isadopted the standard on the required effective date of January 1, 2020. This standard did not have a lease at inception ifmaterial impact on the lease term is greater than 12 months. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment and other current liabilities in our consolidated balance sheets.  Company's disclosures.

ROU assets representIn 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the standard on the required effective date of January 1, 2020. This standard did not have a material impact on the Company's right to use an underlying asset for the lease termconsolidated financial statements and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset is reduced by deferred lease payments and unamortized lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The non-lease components generally consist of common area maintenance that is expensed as incurred.related disclosures.





The following new accounting pronouncements have been issued but are not yet effective:


In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes and will be effective beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2019-12 in the consolidated financial statements, including accounting policies, processes, and systems.




Recently adoptedOther accounting standards
StandardDescriptionEffect on the financial statements
ASU No. 2016-02,
 Leases (Topic 842)

In February 2016, the FASB established ASC Topic 842, Leases, (ASC 842) by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted ASC 842 effective January 1, 2019.

The adoption of ASC 842 resulted in the Company recognizing ROU assets and related operating lease liabilities of $1.3 million and $1.4 million, respectively, in our condensed consolidated balance sheet as of March 31, 2019.

The Company used the modified retrospective method of adoption, with January 1, 2019 as the effective date of initial application. The Company elected the short-term lease recognition exemption for all leases that qualify. The Company elected the package of practical expedients for leases that commenced prior to January 1, 2019, allowing it not to reassess (i) whether any expired or existing contracts contain leases, (ii) the lease classification for any expired or existing leases and (iii) the initial indirect costs for any existing leases.
ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new standard largely aligns the accounting for share-based payment awards issued to employees and nonemployees by expanding the scope of ASC 718 to apply to nonemployee share-based transactions, as long as the transaction is not effectively a form of financing.

The Company adopted ASU No. 2018-07 effective January 1, 2019.
The adoption of ASU No. 2018-07 did not have a material impact on the Company's condensed consolidated financial statements.

Recently that have been issued accounting standards

StandardDescriptionEffect on the financial statements
ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which requires public entities to disclose certain new information and modifies some disclosure requirements.

The new guidance will be effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.

The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset.

The new guidance will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019.
The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.


or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

3. Fair value of financial instruments

The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 - 1—Fair values are determined by utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access;

Level 2 - 2—Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves and foreign currency spot rates; and

Level 3 - 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The Company's financial assets consist of cash equivalents and the Company's financial liabilities consist of a warrant liability.

The fair value of the Company’s cash equivalents is determined using quoted prices in active markets. OurThe Company's cash equivalents consist of money market funds. The Company’s cash equivalents have beenfunds that are classified as Level 1.

The fair value of the Company’s warrant liability (Note 7) is determined using a Monte Carlo simulation. TheSee Note 8. Warrants for assumptions used and methodologies utilized in calculating the estimated fair value of the warrants represent the Company’s best estimates and include probabilities of settlement scenarios, future changes in the Company’s stock price, risk-free interest rates, volatility and probability of the Company being acquired. The estimates are based, in part, on subjective assumptions and could differ materially in the future.value. The Company’s warrant liability has beenis classified as Level 3.

The following table sets forth the Company's assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):
  Quoted prices in active markets Significant other observable inputs Significant unobservable inputs  Quoted prices in active markets Significant other observable inputs Significant unobservable inputs

Total (Level 1) (Level 2) (Level 3)Total (Level 1) (Level 2) (Level 3)
March 31, 2019
 
 
 
March 31, 2020
 
 
 
Assets:              
Cash equivalents$28,834
 $28,834
 $—
 $—
$25,985
 $25,985
 $—
 $—
Total assets$28,834
 $28,834
 $—
 $—
$25,985
 $25,985
 $—
 $—
              
Liabilities:              
Warrant liability$9,259
 $—
 $—
 $9,259
$1,705
 $—
 $—
 $1,705
Total liabilities$9,259
 $—
 $—
 $9,259
$1,705
 $—
 $—
 $1,705


 
 
 

 
 
 
December 31, 2018
 
 
 
December 31, 2019
 
 
 
Assets:              
Cash equivalents$24,651
 $24,651
 $—
 $—
$39,971
 $39,971
 $—
 $—
Total assets$24,651
 $24,651
 $—
 $—
$39,971
 $39,971
 $—
 $—
              
Liabilities:              
Warrant liability$3,472
 $—
 $—
 $3,472
$2,486
 $—
 $—
 $2,486
Total liabilities$3,472
 $—
 $—
 $3,472
$2,486
 $—
 $—
 $2,486


The following table reflects the change in the Company’s Level 3 warrant liabilities from December 31, 2018 through March 31, 2019:


liability (in thousands):

  Warrant Liability
Balance at December 31, 2018 $3,472
Issuance of Warrants —
Change in fair value 5,787
Warrants exercised —
Balance at March 31, 2019 $9,259
  Warrant Liability
Balance at December 31, 2019 $2,486
Change in fair value (781)
Balance at March 31, 2020 $1,705

4. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):
March 31, December 31,March 31, December 31,
2019 20182020 2019
Research and development costs$1,186
 $759
$2,507
 $1,607
Payroll and employee-related costs1,047
 2,147
730
 2,245
Other current liabilities732
 910
840
 759
Total$2,965
 $3,816
$4,077
 $4,611

5. Commitments and contingencies
Operating leases

As of March 31, 2020, the Company has leases for three floors of lab and office space in a multi-tenant building in Cambridge, Massachusetts.

In July 2019, the Company exercised an option for additional office and lab space from March 2020 through February 2025. The Company's right to use and control the space began in March 2020. As a result of the Company's right to use and control the space, the Company recognized an increase in the right of use (“ROU”) assets of $5.9 million and associated lease liabilities of $5.8 million in March 2020. The Company has the option to extend the lease term for an additional five years, which is not included in the Company's ROU assets and associated lease liabilities as of March 31, 2020.

In May 2019, the Company entered into a lease extension for office and lab space through February 2025. As a result of the lease term extension, the Company recognized an increase in the ROU assets of $5.4 million and associated lease liabilities of $5.3 million. The associated lease obligation for the extension is included in the Company’s ROU assets and associated lease liabilities as of March 31, 2020. The Company has the option to extend the lease terms for an additional five years, which is not included in the Company's ROU assets and associated lease liabilities as of March 31, 2020. 

For the three months ended March 31, 2020 and 2019 lease expense, net of sublease income, was $0.5 million and $0.4 million, respectively.

The weighted average remaining lease term and weighted average discount rate of the Company's operating leases are as follows:
  March 31, 2020 March 31, 2019
Weighted average remaining lease term in years 4.92
 0.92
Weighted average discount rate 8.13% 10.00%

Finance lease

In December 2019, the Company entered into an agreement to lease lab equipment for a term of 15 months. The Company determined that the agreement qualifies as a finance lease based on the criteria that the Company holds the option to purchase the asset and is reasonably certain to exercise at the end of the lease term. The ROU asset and lease liability were calculated using an incremental borrowing rate of 7.95%. Lease payments on this lease began in January 2020.





The following table summarizes the presentation in the Company's consolidated balance sheets:
Leases (in thousands) Classification March 31, 2020 December 31, 2019
Assets      
Operating Lease ROU asset $11,663
 $6,156
Finance Lease ROU asset 119
 150
Total lease assets   $11,782
 $6,306
Liabilities      
Current      
   Operating Lease liabilities $1,921
 $990
   Finance Lease liabilities 107
 127
Non-current      
   Operating Lease liabilities, net of current portion 9,994
 5,373
   Finance Lease liabilities, net of current portion —
 22
Total lease liabilities   $12,022
 $6,512

The minimum lease payments related to the Company's operating and finance leases in accordance with ASC 842 as of March 31, 2020 were as follows (in thousands):
 Operating leases Finance lease Total
2020$2,110
 $89
 $2,199
20212,871
 23
 2,894
20222,943
 —
 2,943
20233,017
 —
 3,017
2024 and thereafter3,609
 —
 3,609
Total lease payments$14,550
 $112
 $14,662
Less imputed interest(2,635) (5) (2,640)
Total$11,915
 $107
 $12,022

At March 31, 2020 and December 31, 2019, the Company has an outstanding letter of credit of $0.6 million, with a financial institution related to a security deposit for the office and lab space lease, which is secured by cash on deposit and expires on February 28, 2025.

Contractual obligations

The Company has entered into certain agreements with various contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), which generally include cancellation clauses.

Harvard University License Agreement

              The Company has an exclusive license agreement with Harvard University (“Harvard”), granting the Company an exclusive, worldwide, royalty-bearing, sublicensable license to three patent families, to develop, make, have made, use, market, offer for sale, sell, have sold and import licensed products and to perform licensed services related to the ATLAS discovery platform. The Company is also obligated to pay Harvard milestone payments up to $1.6 million in the aggregate upon the achievement of certain development and regulatory milestones. As of March 31, 2020, the Company has paid $0.3 million in aggregate milestone payments. The Company is obligated under this license agreement to use commercially reasonable efforts to develop, market and sell licensed products in compliance with an agreed upon development plan. In addition, the Company is obligated to achieve specified development milestones and in the event the Company is unable to meet its development milestones for any type of product or service, absent any reasonable proposed extension or amendment thereof, Harvard has the right, depending on the type of product or service, to terminate this agreement with respect to such products or to convert the license to a non-exclusive, non-sublicensable license with respect to such products and services.

Upon commercialization of our products covered by the licensed patent rights or discovered using the licensed methods, the Company is obligated to pay Harvard royalties on the net sales of such products and services sold by the Company, the Company's


affiliates, and the Company's sublicensees. This royalty varies depending on the type of product or service but is in the low single digits. The sales-based royalty due by the Company’s sublicensees is the greater of the applicable royalty rate or a percentage in the high single digits or the low double digits of the royalties the Company receives from such sublicensee, depending on the type of product. Based on the type of commercialized product or service, royalties are payable until the expiration of the last-to-expire valid claim under the licensed patent rights or for a period of 10 years from first commercial sale of such product or service. The royalties payable to Harvard are subject to reduction, capped at a specified percentage, for any third-party payments required to be made. In addition to the royalty payments, if the Company receives any additional revenue (cash or non-cash) under any sublicense, the Company must pay Harvard a percentage of such revenue, excluding certain categories of payments, varying from the low single digits to up to the low double digits depending on the scope of the license that includes the sublicense.

This license agreement with Harvard will expire on a product-by-product or service-by-service and country-by-country basis until the expiration of the last-to-expire valid claim under the licensed patent rights. The Company may terminate the agreement at any time by giving Harvard advance written notice. Harvard may also terminate the agreement in the event of a material breach by the Company that remains uncured; in the event of our insolvency, bankruptcy, or similar circumstances; or if the Company challenges the validity of any patents licensed to us.

Oncovir License and Supply Agreement

In January 2018, the Company entered into a License and Supply Agreement with Oncovir, Inc. (“Oncovir”). The agreement provides the terms and conditions under which Oncovir will manufacture and supply an immunomodulator and vaccine adjuvant, Hiltonol® (poly-ICLC) (“Hiltonol”), to the Company for use in connection with the research, development, use, sale, manufacture, commercialization and marketing of products combining Hiltonol with the Company's technology (the “Combination Product”). Hiltonol is the adjuvant component of GEN-009, which will consist of synthetic long peptides or neoantigens identified using the Company's proprietary ATLAS platform, formulated with Hiltonol. 
Oncovir granted the Company a non-exclusive, assignable, royalty-bearing worldwide license, with the right to grant sublicenses through one tier, to certain of Oncovir’s intellectual property in connection with the research, development, or commercialization of Combination Products, including the use of Hiltonol, but not the use of Hiltonol for manufacturing or the use or sale of Hiltonol alone. The license will become perpetual, fully paid-up, and royalty-free on the later of January 25, 2028 or the date on which the last valid claim of any patent licensed to the Company under the agreement expires.

Under this agreement, the Company is obligated to pay Oncovir low to mid six figure milestone payments upon the achievement of certain clinical trial milestones for each Combination Product and the first marketing approval for each Combination Product in certain territories, as well as tiered royalties in the low-single digits on a product-by-product basis based on the net sales of Combination Products.

The Company may terminate the agreement upon a decision to discontinue the development of the Combination Product or upon a determination by the Company or an applicable regulatory authority that Hiltonol or a Combination Product is not clinically safe or effective. The agreement may also be terminated by either party due to a material uncured breach by the other party, or due to the other party’s bankruptcy, insolvency, or dissolution.

6.  Long-term debt

OnIn April 24, 2018, (the “Closing Date”), the Company entered into an amended and restated loan and security agreement (the “2018 Loan Agreement”) with Hercules Capital, Inc. (f/k/a Hercules Technology Growth Capital, Inc.) (“Hercules”), which provided up to $14.0 millionwas subsequently amended in debt financing inNovember 2019 (as amended, the form of a term loan funded on the Closing Date (the “2018 Term Loan”). The 2018 Term Loan Agreement amended and restated the Company’s loan and security agreement (as amended, the “2014 Loan Agreement”) with Hercules, which had provided up to $27.0provides a $14.0 million in debt financing (the “2014 Term Loan”). The Company accounted for the amendment as a modification to theterm loan.



The 2018 Term Loan will maturematures on May 1, 2021 and accrues interest at a floating rate per annum equal to the greater of (i) 7.75%8.00%, or (ii) the sum of 2.75%3.00% plus the prime rate. The 2018 Loan Agreement provides for interest-only payments until JuneJanuary 1, 2019, which may be extended to December 1, 2019 if certain performance milestones are met before May 31, 2019 and no event of default has occurred or is continuing. Interest-only payments may be further extended to June 1, 2020 if certain additional performance milestones are met before November 30, 2019.2021. Thereafter, amortization payments will be payable monthly ininclude equal installments of principal and interest (subject to recalculation upon a change in prime rates) upon expiration of the interest only period through maturity. 

The 2018 Term Loan may be prepaid in whole or in part upon seven business days’ prior written notice to Hercules, subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve months following the Closing Date, 2.0%, if such advance is prepaid after twelve months following the Closing Date but on or prior to 24 months following the Closing Date, and 1.0% thereafter.charge. The Company paid an end-of-term charge of $0.8 million in connection with the 2014 Loan Agreement on January 1, 2019, and is obligated to pay an additional end of term charge of 6.7% of the Term Loan when the Term Loan is repaid (the “End of Term Charges”).$1.0 million at maturity.

The 2018 Term Loan is secured by a lien on substantially all assets of the Company, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property. The 2018 Loan Agreement contains non-financial covenants and representations, including a financial reporting covenant, and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. There are no financial covenants. As of March 31, 2019, the Company was in compliance with all covenants of the 2018 Loan Agreement.

Under the provisions of the 2018 Loan Agreement, the CompanyHercules has also entered into account control agreements ("ACAs") with Hercules and certain of the Company's financial institutions in which cash, cash equivalents, and investments are held. These ACAs grant Hercules a perfected first-priority security interest in the subject accounts. The ACAs do not restrict the Company's ability to utilizecertain cash, cash equivalents or investments to fund operations and capital expenditures unless there is an event of default and Hercules activates its rights under the ACAs.

Events of default under the Loan Agreement include failure to make any payments of principal or interest as due on any outstanding indebtedness, breach of any covenant, any false or misleading representations or warranties, insolvency or bankruptcy, any attachment or judgment on the Company’s assets of at least $100,000, or the occurrence of any material default of the Company involving indebtedness in excess of $100,000. If an event of default occurs, repayment of all amounts due under the 2018 Loan Agreement may be accelerated by Hercules, including the applicable prepayment charge.

investment accounts. The 2018 Term Loan Agreement contains a material adverse effect ("Material Adverse Effect") provision that requires all material adverse effects to be reported under the financial reporting covenant. Loan advances are subject to a representation that no event that has had, or could reasonably be expected to have,non-financial covenants, representations and a Material Adverse Effect has occurred and is continuing. Under the 2018 Loan Agreement, a Materialprovision, as defined herein. There are no financial covenants. A “Material Adverse EffectEffect” means a material adverse effect upon: (i) the business, operations, properties, assets or condition (financial or otherwise) of the Company; or (ii) the ability of the Company to perform the secured obligations in accordance with the terms of the loan documents, or the ability of agent or lender to enforce any of its rights or remedies with respect to the secured obligations; or (iii) the collateral or agent’s liens on the collateral or the priority of such liens. Any event that has a Material Adverse Effect or would reasonably be expected to have a Material Adverse Effect is an event of default under the Loan Agreement and repayment of amounts


due under the Loan Agreement may be accelerated by Hercules under the same terms as an event of default.

As of March 31, 2020, the Company was in compliance with all covenants of the 2018 Term Loan. The 2018 Term Loan is automatically redeemable upon a change in control. The Company must prepay the outstanding principal and any accrued and unpaid interest through the prepayment date and the applicable prepayment charge. If a change in control occurs, repayment of amounts due under the Loan Agreement may be accelerated by Hercules. The Company believes acceleration of the repayment of amounts outstanding under the loan is remote, and therefore, the debt balance is classified according to the contractual payment terms at March 31, 2019.2020.

In connection with the 20142018 Term Loan, the Company issued a common stock warrantwarrants to Hercules on November 20, 2014 (the “First“Hercules Warrant”). See Note 8. Warrants.

As of March 31, 2020 and December 31, 2019, the Company had outstanding borrowings of $13.5 million and $13.4 million, respectively. Interest expense was $0.4 million for each of the three months ended March 31, 2020 and 2019.

Future principal payments, including the End of Term Charges, are as follows (in thousands):
 March 31, 2020
2020$—
202113,960
Total$13,960

7. Stockholders' equity

Agreement with Lincoln Park Capital

In October 2019, the Company entered into a purchase agreement with Lincoln Park Capital (“LPC”) pursuant to which LPC purchased $2.5 million of shares of the Company's common stock at a purchase price of $2.587 per share. In addition, for a period of thirty months, the Company has the right, at its sole discretion, to sell up to an additional $27.5 million of the Company's common stock based on prevailing market prices of its common stock at the time of each sale. In consideration for entering into the purchase agreement, the Company issued 289,966 shares of its common stock to LPC as a commitment fee. The First Warrant is exercisable for 73,725purchase agreement limits the Company's sales of shares of common stock to LPC to 5,227,323 shares of common stock, representing 19.99% of the shares of common stock outstanding on the date of the purchase agreement. The purchase agreement also prohibits the Company from directing LPC to purchase any shares of common stock if those shares, when aggregated with all other shares of the Company's common stock then beneficially owned by LPC and its affiliates, would result in LPC and its affiliates having beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of the Company's common stock.

In January 2020, the Company sold 186,986 shares of common stock to LPC, and received net proceeds of approximately $0.4 million.

2019 Public Offering

In June 2019, the Company entered into an underwriting agreement relating to the public offering of 10,500,000 shares of the Company’s common stock, (equalat a price of $3.50 per share, for gross proceeds of approximately $36.8 million (the “2019 Public Offering”). The Company also granted the underwriters an option to $607,500 dividedpurchase up to an additional 1,575,000 shares of common stock (“Overallotment Option”). On June 26, 2019, the underwriters exercised this option in full. The Company received approximately $5.5 million in gross proceeds from the underwriter’s exercise of the Overallotment Option. In connection with the 2019 Public Offering, inclusive of the Overallotment Option, the Company received net proceeds of $38.4 million.

Private Placement

In February 2019, the Company completed a private placement financing transaction (the “Private Placement”). The Company issued 3,199,998 shares of common stock, prefunded warrants (the “Pre-Funded Warrants”) to purchase 531,250 shares of common stock (the “Pre-Funded Warrant Shares”), and warrants (the “Private Placement Warrants”) to purchase up to 932,812 shares of common stock (the “Warrant Shares”). The shares, Pre-Funded Warrants and Private Placement Warrants (collectively, the “Units”) were sold at a purchase price of $4.02 per Unit. The Company received net cash proceeds of approximately $13.8 million for the purchase of the shares, Pre-Funded Warrant Shares and Warrant Shares. See Note 8. Warrants.

The Company had the option to issue additional shares of common stock in a second closing (the “Second Closing”) for gross proceeds of up to $24.2 million. The occurrence of the Second Closing was conditioned on top-line results from Part A of the Company's Phase 1/2a clinical trial for GEN-009 and a decision by the Company's board of directors to proceed with the Second


Closing. In June 2019, the Company announced top-line results from this trial but elected not to proceed with the Second Closing. In lieu of the Second Closing, the Company proceeded with the 2019 Public Offering.

At-the-market equity offering program
In 2015, the Company entered into an agreement, as amended, with Cowen and Company, LLC to establish an at-the-market equity offering program (“ATM”) pursuant to which it was able to offer and sell shares of its common stock at prevailing market prices from time to time. Through March 31, 2020, the Company has sold an aggregate of 463,887 shares under the ATM and received approximately $4.0 million in net proceeds.

8. Warrants

As of March 31, 2020, the Company had the following potentially issuable shares of common stock related to unexercised warrants outstanding:

  Shares Exercise price Expiration date Classification
Hercules Warrant 41,177
 $6.80
 Q2 2023 Equity
2018 Public Offering Warrants 3,616,944
 $9.60
 Q1 2023 Liability
Private Placement Warrants 932,812
 $4.52
 Q1 2024 Equity
Pre-Funded Warrants 531,250
 $0.08
 Q1 2039 Equity
  5,122,183
      

Hercules Warrant

The exercise price and the number of $8.24)shares are subject to adjustment upon a merger event, reclassification of the shares of common stock, subdivision or combination of the shares of common stock or certain dividends payments. The Company determined that the Hercules Warrant should be equity classified in accordance with ASC 480, Distinguishing Liabilities from Equity ("ASC 480") for all periods presented.

2018 Public Offering Warrants

In January 2018, the Company entered into two underwriting agreements, the first relating to the public offering of 6,670,625 shares of the Company’s common stock, par value $0.001 per share, and accompanying warrants to purchase up to 3,335,313 shares of common stock (“2018 Public Offering Warrants”). The exercise price and the number of shares are subject to adjustment upon a merger event, reclassification of the shares of common stock, subdivision or combination of the shares of common stock or certain dividends payments. The First Warrant is exercisable until November 20, 2019 and will be exercised automatically on a net issuance basis if not exercised prior to the expiration date and if the then-current fair market value of one share of common stock is greater than the exercise price then in effect. The First Warrant has been classified as equity for all periods it has been outstanding.



In connection with the 2018 Loan Agreement, the Company issued a common stock warrant to Hercules on April 24, 2018 (the "Second Warrant"). The Second Warrant is exercisable for 329,411 shares of the Company’s common stock at an initial excise price of $0.85 per share. The exercise price and the number of shares are subject to adjustment upon a merger event, reclassification of the shares of common stock, subdivision or combination of the shares of common stock or certain dividends payments. The Second Warrant is exercisable until April 24, 2023 and will be exercised automatically on a net issuance basis if not exercised prior to the expiration date and if the then-current fair market value of one share of common stock is greater than the exercise price then in effect. The Second Warrant has been classified as equity for all periods it has been outstanding.

In connection with the 2018 Loan Agreement, on April 24, 2018, the Company also entered into an amendment to the equity rights letter agreement, dated November 20, 2014 (the “Amended Equity Rights Letter Agreement”). Pursuant to the Amended Equity Rights Letter Agreement, the Company had already issued to Hercules 223,463 shares (the “Shares”) of the Company’s common stock for an aggregate purchase price of approximately $2.0 million on November 20, 2014 at a price per share equal to the closing price of the Company’s common stock as reported on The Nasdaq Global Market on November 19, 2014. The Shares were issued pursuant to an exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, the Shares will be subject to resale limitations and may be resold only pursuant to an effective registration statement or an exemption from registration.

Additionally, under the Amended Equity Rights Letter Agreement, Hercules has the right to participate in any one or more subsequent private placement equity financings of up to $2.0 million on the same terms and conditions as purchases by the other investors in each subsequent equity financing. The Amended Equity Rights Letter Agreement, and all rights and obligations thereunder, will terminate upon the earlier of (1) such time when Hercules has purchased $2.0 million of subsequent equity financing securities in the aggregate, and (2) the later of (a) the repayment of all indebtedness under the Loan Agreement, or (b) the expiration or termination of the exercise period for the warrant issued in connection with the Loan Agreement.

The Company accounted for the April 2018 amendment to the Term Loan as a modification pursuant to ASC 470-50. The remaining balance of unamortized debt financing costs of $0.3 million and $0.1 million of fees associated with the 2018 Term Loan that met the criteria to be capitalized are being amortized through the maturity date of the 2018 Term Loan. The End of Term Charges from the 2014 Term Loan are being amortized to interest expense over the life of the 2018 Term Loan using the effective interest method. At March 31, 2019, the 2018 Term Loan bears an effective interest rate of 12.4%.

As of March 31, 2019 and December 31, 2018, the Company had outstanding borrowings of $14.1 million and $14.8 million, respectively. Interest expense was $0.4 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively.

Future principal payments, including the End of Term Charges, are as follows (in thousands):
 March 31, 2019
2019$3,836
20207,031
20214,071
Total$14,938

6. Stockholders' equity

As of March 31, 2019, the Company has authorized 250,000,000 shares of common stock at $0.001 par value per share and 25,000,000 shares of preferred stock at $0.001 par value per share. As of March 31, 2019, 112,393,445 shares of common stock and 1,635 shares of preferred stock were issued and outstanding. As of December 31, 2018, 86,771,175 shares of common stock were issued and outstanding and 1,635 shares of preferred stock were issued and outstanding.

Private Placement

In February 2019, the Company completed a private placement financing transaction (the “Initial Closing”). Pursuant to a Subscription Agreement (the “Subscription Agreement”), the Company issued 25,599,979 shares (the “Shares”) of common stock, prefunded warrants (the “Pre-Funded Warrants”) to purchase 4,250,000 shares of common stock (the “Pre-Funded Warrant Shares”), and warrants (the “Private Placement Warrants”) to purchase up to 7,462,494 shares of common stock (the “Warrant Shares”). The Shares, Pre-Funded Warrants and Private Placement Warrants (collectively, the “Units”) were sold at a purchase price of $0.5026 per Unit. The Company received net cash proceeds of approximately $14.0 million including transactions costs for the purchase of the Shares, Pre-Funded Warrant Shares and Warrant Shares.



The Company has the option to issue up to 51,352,857 Shares in a second closing (the “Second Closing”). The optional Second Closing is conditioned upon a decision by a majority of the Company’s board of directors that, from a scientific or medical perspective, the top-line results from Part A of the Phase 1/2a clinical trial for GEN-009 warrant further clinical study (the “Data”). The Company will have fourteen (14) business days after receiving the Data to exercise its option to proceed with the Second Closing. The per share price for the Shares in the Second Closing will be equal to the greater of (i) $0.4713 or (ii) 0.80 multiplied by the applicable volume weighted average price (which shall run from the date the Company announces the Data through the date the Company exercises its option to proceed with the Second Closing). The purchasers of the Shares, Pre-Funded Warrants and Private Placement Warrants named (the “Purchasers”) in the Initial Closing are eligible to participate in the Second Closing. If a Purchaser does not purchase at least 50% of the shares of common stock that it specified to purchase in the Second Closing (each such Purchaser, a “Non-Participating Purchaser”), it will forfeit any unexercised Private Placement Warrants purchased in the Initial Closing as the Company’s sole remedy for such failure. The other Purchasers that are not Non-Participating Purchasers will have the option, but not the obligation, to purchase the shares of common stock allocated to the Non-Participating Purchasers in the Second Closing.

The holder may exercise the Private Placement Warrants and Pre-Funded Warrants at any time or from time to time through February 14, 2024 and February 14, 2039, respectively, unless the holder becomes a Non-Participating Purchaser, in which case it will forfeit any unexercised Private Placement Warrants. Certain holders will be prohibited from exercising such warrants into shares of our common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than a specific percentage of the total number of shares of our common stock then issued and outstanding. The Private Placement Warrants and Pre- Funded Warrants are exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below). The exercise price upon exercise of each Private Placement Warrant is $0.5656 per share of common stock and the exercise price of each Pre-Funded Warrants is $0.01 per share of common stock, of which $0.5025 per share was paid by the holder at the Initial Closing. The exercise price of the warrants is subject to appropriate adjustment in the event of stock dividends, subdivisions, stock splits, stock combinations, reclassifications or reorganizations affecting our common stock. If, at any time while the Private Placement Warrant or Pre-Funded Warrant is outstanding, there is a Change of Control, which generally includes a merger or consolidation resulting in the sale of 50% or more of the voting securities of the Company, the sale of all or substantially all of the assets or voting securities of the Company, or other change of control transaction, then the holder has the right thereafter to receive, upon exercise of the Private Placement Warrant or Pre-Funded Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Change of Control if it had been, immediately prior to such Change of Control, the holder of the number of Warrant Shares then issuable upon exercise in full of the Private Placement Warrant or Pre-Funded Warrant (the “Alternate Consideration”). If holders of common stock are given any choice as to the securities, cash or property to be received in a Change of Control, then the holder will be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Change of Control. Except for the right to participate in certain dividends and distributions and as otherwise provided in the Private Placement Warrants and the Pre-Funded Warrants or by virtue of a holder’s ownership of our common stock, the holders of the Warrants and Pre-Funded Warrants do not have the rights or privileges of holders of our common stock, including any voting rights, until they exercise their warrants.

The Company determined that the Second Closing requires separate accounting, but the value is insignificant, and that the Private Placement Warrants and the Pre-Funded Warrants should be equity classified in accordance with ASC 480, Distinguishing Liabilities from Equity ("ASC 480") for the period ended March 31, 2019. The Company also determined that the Pre-Funded Warrants should be included in the determination of basic earnings per share in accordance with ASC 260, Earnings per Share.

Underwritten public offering

In January 2018, the Company entered into two underwriting agreements, the first relating to the underwritten public offering of 53,365,000 shares of the Company’s common stock, par value $0.001 per share, and accompanying warrants to purchase up to 26,682,500 shares of common stock ("Public Offering Warrants"), at a combined price to the public of $1.00 per share, for gross proceeds of approximately $53.4 million (the “Common Stock Offering”) and the second relating to the underwritten public offering of 1,635 shares of the Company’s Series A convertible preferred stock, par value $0.001 per share, which are convertible into 1,635,000 shares of common stock, and accompanying warrants to purchase up to 817,500 shares of common stock for gross proceeds of approximately $1.6 million (the “Preferred Stock Offering,” and together with the Common Stock Offering, the “January 2018 Financing”). The Company also granted the underwriters an Overallotment Option ("Overallotment Option") to purchase up to an additional 8,004,750 shares of common stock and/or additional warrants to purchase up to 4,002,375 shares of common stock. The underwriters exercised their Overallotment Option and acquired additional warrants to purchase up to 2,395,795 shares of common stock.






Preferred Stock

Each share of preferred stock is convertible at any time at the option of the holder, provided that the holder will be prohibited from converting the preferred stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of common stock then issued and outstanding. Each share of preferred stock is initially convertible into 1,000 shares of common stock, subject to certain adjustments upon stock dividends and stock splits.

The preferred stock ranks pari passu on an as-converted to common stock basis with the common stock as to distributions of assets upon the Company’s liquidation, dissolution or winding up, whether voluntarily or involuntarily, or a “Fundamental Transaction,” as defined in the Certificate of Designation. Shares of preferred stock have no voting rights, except as required by law and except that the consent of the holders of a majority of the outstanding preferred stock is required to amend the terms of the preferred stock. The holders of preferred stock shall be entitled to receive dividends in the same form as dividends actually paid on shares of common stock when, as and if such dividends are declared and paid on shares of the common stock, on an as-if-converted-to-common stock basis.

The Company determined that the preferred stock should be equity classified in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) for the periods ended March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2018, the Company recorded $0.3 million in additional paid in capital as a result of the preferred stock’s beneficial conversion feature.

Public Offering Warrants

The Public Offering Warrants are exercisable at any time, or from time-to-time during the period beginning on the date of issuance and expiring on the five-year anniversary of such issuance date, at an exercise price of $1.20 per share.

In the event of an “Acquisition,” defined generally to include a merger or consolidation resulting in the sale of 50% or more of the voting securities of the Company, the sale of all, or substantially all, of the assets or voting securities of the Company, or other change of control transaction, as defined in the 2018 Public Offering Warrants, the Company will be obligated to use its best efforts to ensure that the holders of the 2018 Public Offering Warrants receive new warrants from the surviving or acquiring entity (the “Acquirer”). The new warrants to purchase shares in the Acquirer shall have the same expiration date as the 2018 Public Offering Warrants and a strike price that is based on the proportion of the value of the Acquirer’s stock to the Company’s common stock. If the Company is unable, despite its best efforts, to cause the Acquirer to issue new warrants in the Acquisition as described above, then, if the Company’s stockholders are to receive cash in the Acquisition, the Company will settle the 2018 Public Offering Warrants in cash and if the Company’s stockholders are to receive stock in the Acquisition, the Company will issue shares of its common stock to each Warrant holder.

The Company determined that the 2018 Public Offering Warrants should be liability classified in accordance with ASC 480. As the 2018 Public Offering Warrants are liability-classified, the Company remeasures the fair value of the Warrants at each reporting date. The Company initially recorded the 2018 Public Offering Warrants at their estimated fair value of approximately $18.2 million. In connection with the Company's remeasurement of the 2018 Public Offering Warrants to the fair value, the Company recorded income of approximately $0.8 million and expense of approximately $5.8 million and $3.2 million infor the quartersthree months ended March 31, 20192020 and 2018,2019, respectively. The fair value of the warrant liability is approximately $9.3$1.7 million and $3.5$2.5 million as of March 31, 20192020 and December 31, 2018, respectively (see Note 3).

Issuance Costs

In connection with the January 2018 Financing, the Company incurred approximately $4.0 million of issuance costs. The Company allocated approximately $2.6 million of the issuance costs to the common and preferred stock, and recorded these amounts within additional paid in capital, and approximately $1.4 million of the issuance costs to the Public Offering Warrants. As the Public Offering Warrants were classified as liabilities, the Company immediately expensed the issuance costs allocated to the Public Offering Warrants in the three months ended March 31, 2018.

At-the-market equity offering program
On March 2, 2015, the Company entered into a Sales Agreement with Cowen and Company, LLC (the "Sales Agreement") to establish an at-the-market equity offering program (“ATM”) pursuant to which it was able to offer and sell up to $40 million of its common stock at prevailing market prices from time to time. On May 8, 2015, the Sales Agreement was amended to increase the offering amount under the ATM to $50 million of its common stock. Through March 31, 2019, the Company has sold an aggregate of approximately 3.7 million shares under the ATM and received approximately $4.0 million in net proceeds after deducting commissions.respectively.



7. Warrants

As of March 31, 2019, the Company had the following shares of common stock outstanding related to outstanding warrants:

  Shares Exercise price Expiration date Classification
First Warrants 73,725
 $8.24
 Q4 2019 Equity
Second Warrants 329,411
 $0.85
 Q2 2023 Equity
Public Offering Warrants 28,935,550
 $1.20
 Q1 2023 Liability
Initial Closing Private Placement Warrants 7,462,494
 $0.57
 Q1 2024 Equity
Initial Closing Pre-Funded Warrants 4,250,000
 $0.01
 Q1 2039 Equity
  41,051,180
      

The following table details the assumptions used in the Monte Carlo simulation models used to estimate the fair value of the Warrant Liability as of March 31, 20192020 and December 31, 2018,2019, respectively:

 March 31, 2019 December 31, 2018 March 31, 2020 December 31, 2019
Stock price $0.59
 $0.29
 $1.72
 $2.07
Volatility 117.7% 111.3% 50.0% - 124.5%
 50.0% - 116.6%
Remaining term (years) 3.8
 4.1
 2.8
 3.1
Expected dividend yield —
 —
 —
 —
Risk-free rate 2.2% 2.4%-2.5%
 0.3% 1.6%
Range of annual acquisition event probability 15.0%-30.0%
 0.0%-30.0%
Annual acquisition event probability 30.0% 20.0%

Private Placement and Prefunded Warrants

The exercise price of the warrants is subject to appropriate adjustment in the event of stock dividends, subdivisions, stock splits, stock combinations, reclassifications, reorganizations or a change of control affecting our common stock. The Company determined that the Private Placement Warrants and the Pre-Funded Warrants should be equity classified in accordance with ASC 480 for the period ended March 31, 2020. The Company also determined that the Pre-Funded Warrants should be included in the determination of basic earnings per share in accordance with ASC 260, Earnings per Share.

8.9. Stock and employee benefit plans
 
The Company issues stock options and restricted stock units (“RSUs”) to employees, which generally vest ratably over a four year service period. The Company measures the fair value of stock options on the date of grant using the Black-Scholes option pricing model. The Company measures the fair value of RSUs on the date of grant using the underlying common stock fair value.

Stock-based compensation expense
 
Total stock-based compensation expense is recognized for stock options and restricted stock awards granted to employees and non-employees and has been reported in the Company’s condensed consolidated statements of operationsRSUs is as follows (in thousands):

Three Months Ended March 31,Three Months Ended March 31,

2019 20182020 2019
Research and development$182
 $141
160
 182
General and administrative247
 503
$224
 $247
Total$429
 $644
$384
 $429

Stock options
 
The following table summarizes stock option activity for employees and non-employees (shares in thousands):
Shares Weighted-
Average
Exercise
Price		 Weighted-
Average
Remaining
Contractual
Term (years)		 Aggregate
Intrinsic
Value		Shares Weighted-Average
Exercise Price		 Weighted-Average
Remaining Contractual
Term (years)		 Aggregate
Intrinsic Value
Outstanding at December 31, 20187,139
 $2.35
 7.80 $—
Outstanding at December 31, 20191,323
 $11.65
 
 $—
Granted3,830
 $0.58
    
66
 $1.99
    
Exercised(22) $0.54
    
—
 $—
    
Cancelled(556) $4.10
    
(19) $4.85
    
Outstanding at March 31, 201910,391
 $1.61
 8.62 $201,625
Exercisable at March 31, 20192,538
 $3.73
 6.19 $2,323
Outstanding at March 31, 20201,370
 $11.28
 7.90 $—
Exercisable at March 31, 2020585
 $18.90
 6.72 $—



Performance-based awards






RSUs

The Company granted stock awards to certain employees, executive officers and consultants, which contain performance-based vesting criteria. Milestone events are specific to the Company’s corporate goals, which include, but are not limited to, certain clinical development milestones, business development agreements, and capital fundraising events. Stock-based compensation expense associated with these performance-based stock options is recognized if the performance conditions are considered probable of being achieved, using management’s best estimates. The Company determined that none of the performance-based milestones were probable of achievement during the three months ended March 31, 2019, and did not recognize stock-based compensation expense for this period. As of March 31, 2019, there were 56,336 performance-based common stock awards outstanding for which the probability of achievement was not deemed probable.following table summarizes RSU activity (shares in thousands):
  Shares Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2019 —
 $—
Granted 45
 $1.98
Vested —
 $—
Forfeited/cancelled —
 $—
Outstanding as of March 31, 2020 45
 $1.98

Employee stock purchase plan

OnIn February 10, 2014, the Company’s board of directors adopted the 2014 Employee Stock Purchase Plan and subsequently amended the plan in June 2018 (the “2014 ESPP”“ESPP”). The 2014 ESPP authorizes the initial issuance of up to 200,776337,597 shares of common stock to participating eligible employees. The 2014 ESPPemployees and provides for two six-month option periods commencing on January 1 and ending June 30, and commencing July 1 and ending December 31 of each calendar year.

In June 2018, 2,500,000 additional shares were authorized under the 2014 ESPP.offering periods. As of March 31, 2019, 2,312,6752020, there were 217,985 shares remain availableremaining for future issuance. The stock-based compensation expense related to the 2014 ESPP was insignificant for the three months ended March 31, 2019 and 2018, respectively.

9. Commitments and contingencies
Lease commitments

In May 2016, the Company entered into a lease amendment (the "2016 Lease") for office and laboratory space occupied under an original lease that commenced in March 2014 and was set to expire in February 2017 (the "2014 Lease"). The 2016 Lease extended the 2014 Lease to February 2020. In June 2015, the Company signed a second operating lease (the "2015 Lease") for office space in the same building as the 2014 Lease. In August 2016, the Company exercised a three-year renewal option extending the 2015 Lease to February 2020. Both the 2015 Lease and the 2016 Lease are classified as operating leases and have remaining lease terms of 11 months at March 31, 2019. The right of use asset and lease liability were calculated using an estimated incremental borrowing rate of 10% for both the 2015 and 2016 Leases. For both the three months ended March 31, 2019 and March 31, 2018, rent expense was $0.4 million.

In March 2019, the Company entered into an agreement to sublease a portion of the leased spaceissuance under the 2015 Lease, through the end of the lease term in February 2020. Since the Company retained its obligations under the sublease, it did not adjust the lease liability and instead is accounting for the sublease payments as rental income.

Maturities of lease liabilities for both the 2016 Lease and the 2015 Lease are as follows (in thousands):
 March 31, 2019
2019$1,231
2020274
Total lease payments1,505
Less imputed interest(73)
Total$1,432

At March 31, 2019 and December 31, 2018, the Company has an outstanding letter of credit of $0.3 million with a financial institution related to a security deposit for the 2016 Lease, which is secured by cash on deposit and expires on February 29, 2020.

Litigation

Beginning on October 31, 2017, three putative class action complaints were filed in the U.S. District Court for the District of Massachusetts (the “District of Massachusetts” or the “Court”), naming the Company, Chief Executive Officer William D. Clark, and former Chief Financial Officer Jonathan Poole as defendants. The Court consolidated the three actions into one case, captioned Emerson et al. v. Genocea Biosciences, Inc., et al., Civil Action No. 17-cv-12137-PBS (D. Mass.), and appointed the Genocea Investor


Group (a group of five purported shareholders) as lead plaintiff. On March 29, 2018, counsel for the lead plaintiff filed an amended complaint in the District of Massachusetts that alleged violations of the Securities Exchange Act of 1934 and Rule 10b-5 in connection with the Company’s disclosures from March 31, 2016 to September 25, 2017 concerning the development of GEN-003. The amended complaint added Seth V. Hetherington, former Chief Medical Officer, to the original named defendants, and sought unspecified damages and costs. On December 6, 2018, the District of Massachusetts granted defendants’ motion to dismiss the amended complaint for failure to state a claim. On January 7, 2019, the lead plaintiff filed a notice of appeal in the District of Massachusetts regarding the Court order dismissing the amended complaint. The appeal has been docketed in the First Circuit under the caption Yuksel, et al. v. Genocea Biosciences, et al., Civil Action No. 19-1036 (1st Cir.). The Company is unable at this time to determine whether the outcome of the securities action litigation would have a material impact on its results of operations, financial condition or cash flow.

Beginning on January 31, 2018, two putative shareholder derivative actions were filed in the U.S. District Court for the District of Delaware, naming certain of the Company’s officers and directors (including certain former directors and officers) as defendants, and naming the Company as a nominal defendant. On August 24, 2018, the court consolidated the two actions into one case, captioned In re Genocea Biosciences, Inc. Derivative Litigation, Civil Action No. 18-cv-00186-MN (D. Del.). The operative complaint in the now-consolidated action alleges violations of the Securities Exchange Act of 1934 and Rule 14a-9 in connection with disclosures made in the Company’s Schedule 14A Proxy Statement, filed with the SEC on April 21, 2017. The complaint also alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets. On August 10, 2018, the parties filed a joint stipulation and proposed order agreeing to stay the consolidated action until, inter alia, the entry of an order granting or denying any motion to dismiss the action in the District of Massachusetts, and on August 24, 2018, the court entered the joint stipulation agreeing to stay the consolidated action. In light of the December 6, 2018 order granting defendants’ motion to dismiss in the District of Massachusetts, the Company and the plaintiffs in the derivative action entered into joint stipulation on February 5, 2019 to stay the derivative action through the duration of the appeal in the securities action. The Company is unable at this time to determine whether the outcome of the derivative litigation would have a material impact on our results of operations, financial condition or cash flows.plan.

10. Net loss per share

The Company computes basicBasic and diluted net loss per share using a methodology that gives effect towas calculated as follows for the impact of outstanding participating securities (the “two-class method”). For both the three-month periodsthree months ended March 31, 20192020 and 2018, respectively, there is no income allocation required under the two-class method or dilution attributed to weighted average shares outstanding in the calculation of diluted loss per share.2019:

  Three months ended March 31,
  2020 2019
Basic net loss per share:    
Numerator:    
Net loss (in thousands) $(12,853) $(15,567)
Denominator:    
Weighted average common stock outstanding - basic (in thousands) 28,141
 12,713
Dilutive effect of shares of common stock equivalents resulting from common stock options and restricted stock units —
 —
Weighted average common stock outstanding - diluted 28,141
 12,713
Net loss per share - basic and diluted $(0.46) $(1.22)

The following common stock equivalents outstanding as of March 31, 2020 and 2019, presented on an as converted basis, were excluded from the calculation of net loss per share for the periods presented, due to their anti-dilutive effect (in thousands):
 
Three Months Ended March 31,Three Months Ended March 31,
2019 20182020 2019
Warrants4,591
 4,600
Stock options10,391
 5,192
1,370
 1,299
Warrants36,801
 29,016
ESPP2,313
 —
RSUs45
 —
Total49,505
 34,208
6,006
 5,899



Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the unaudited consolidated financial information and the notes thereto included in this Quarterly Report on Form 10-Q. The following disclosure contains forward-looking statements that involve risk and uncertainties. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in our Annual Report on Form 10-K.
 
Overview

We are a biopharmaceutical company that discoversseeks to discover and developsdevelop novel cancer immunotherapies using our ATLASTM proprietary discovery platform. The ATLAS platform profiles each patient's CD4+and CD8+ T cell immune responses to every potential target or "antigen." Genocea believes“antigen” in that patient's tumor. We believe that this approach optimizes antigen selection for immunotherapies such as cancer vaccines and cellular therapies because it identifiesby identifying the antigens to which a patient’s T cells already mount anti-tumor responses. The Company believesthe patient can respond. Consequently, we believe that ATLAS could lead to more immunogenic and efficacious cancer immunotherapies.



Our most advanced program is GEN-009, a personalized neoantigen (or personalized) cancer vaccine, for which we are conducting a Phase 1/2a clinical trial. The GEN-009 program uses ATLAS to identify neoantigens, or immunogenic tumor mutations unique to each patient, for inclusion in each patient's GEN-009 vaccine. We are also advancing GEN-011, a neoantigen-specific adoptive T cell therapy program as well as GEN-010, a next-generation neoantigen vaccine program. The Company continues to consider strategic alternatives for GEN-003, its Phase 3-ready investigational immunotherapy for the treatment of genital herpes.

Key Development Highlights

GEN-009 First Patients Dosed - In January 2019, we announced that we had commenced dosing patients and completed enrollment in this first part of the trial.also relies on ATLAS. We expect to report immunogenicity results fromfile an IND for GEN-011 in the initial patient cohort in mid-2019.second quarter of 2020.

ATLAS Platform

Harnessing and directing the T cell arm of the immune system to kill tumor cells is increasingly viewed as having potential in the treatment of many cancers, and thiscancers. This approach has clearly shown efficacy inbeen effective against hematologic malignancies.malignancies and, more recently, certain solid tumors. Vaccines or cellular therapies employing this approach must target specific differences from normal tissue present in a tumor, such as antigens arising from genetic mutations. However, the discovery of optimal antigens for such targets, or "antigens,"immunotherapies has been particularly challenging for two reasons. First, the genetic diversity of human T cell responses means that effective antigens vary from person to person. Second, the number of candidate antigens can be very large, with up to thousands of candidates per patient in some cancers. An effective antigen selection system must therefore account both for each patient's tumor and for their T cell repertoire.

We have designed the ATLAS platform to overcome theseachieves effective antigen discovery challenges. We believe that ATLAS represents the most comprehensive, accurate, and high-throughput system for T cell immune response profiling in the biopharmaceutical industry. ATLAS employsselection by employing components of the T cell arm of the human immune system from each patient that it profiles in a laboratory setting.patient. Using ATLAS, we can measure thateach patient's T cell responses to the entirea comprehensive set of potentialcandidate neoantigens, tumor-associated antigens and tumor-associated viral antigens for their own cancer, allowing us to select those targets associated with the anti-tumor T cell responses that individual’smay kill that individual's cancer. We therefore identify the antigens to which that patient has made anti-tumor responses.

We believe that ATLAS represents the most comprehensive and accurate system for antigen discovery. Further, we believe ATLAS identifies a novel candidate antigen profile, that of inhibitory T cell responses. Previously, all candidate antigens were thought either to be targets of effective anti-tumor responses (stimulatory), or irrelevant. However, using ATLAS, we have identified inhibitory antigens we call InhibigensTM, which are shown to promote tumor progression in preclinical studies. We have also discovered that an antigen can be stimulatory in one patient and inhibitory in another, reinforcing the importance of selecting each patient's potentially immunogenic antigens.

The ATLAS portfolio comprises three patent families. The first two families comprise issued U.S. patents, with patent terms until at least 2031 and 2030, respectively, as well as granted foreign patents and pending U.S. and foreign applications. The third family is directed to ATLAS-based methods for cancer diagnosis, prognosis and patient selection, as well as related compositions. This patent family currently comprises pending applications in eleven foreign jurisdictions and a leader in the field of T cell-related immunotherapy discovery and development. Our management and scientific teams possess considerable experience in oncology, immunology, and vaccinology spanning research, manufacturing, clinical development and regulatory affairs.pending U.S. application. Patents issuing from these applications are expected to have a patent term until at least March 2038.

Our Immuno-Oncology Programs

Our cancer immunotherapies areinclude a vaccine that is designed to educate T cells to recognize and attack specific cancer targets, (vaccines) - orand a cellular therapy intended to introduce T cells alreadythat have been educated to attack these targets (cellular therapies) - and thereby kill cancer cells.targets. We are first developing personalized cancer vaccines by applying ATLAS to identify patient neoantigensbelieve that are associated with that individual's pre-existing immune responses to a tumor.

Neoantigens are personalized tumor mutations that are seen as “foreign” by an individual’s immune system. Data published in recent years have indicated that an individual’s response to neoantigens drives immune checkpoint inhibitor ("ICI") efficacy and that it is possible to vaccinate an individual against their own neoantigens. If approved, neoantigen vaccines could be used in combination with existing treatment approaches for cancer including ICIs, to potentially direct and enhance an individual’s T cell response to theirhis or her cancer, thereby potentially effecting better clinical outcomes. DataWe also support the potential ofbelieve that isolating and expanding T cell populations targeting specific neoantigens for therapeuticthrough adoptive cell therapy could provide meaningful clinical benefit.








The following describes our active immuno-oncology programs in development:

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Our lead immuno-oncology program, GEN-009, is an adjuvanted neoantigen peptide vaccine candidate designedcandidate. Using ATLAS to direct a patient’s immune system to attack their tumor. GEN-009’sidentify specific neoantigens, are identified by our proprietary ATLAS platform. Following ATLAS neoantigen identification, we manufacture a personalized vaccine for each patient using only those neoantigens determined by ATLAS to be stimulatory to thethat patient's anti-tumor immune system by ATLAS.

The following table describes our active immuno-oncology programs in development:
Vaccine
Candidate
ProgramStage of DevelopmentNext MilestoneAnticipated Timeline
GEN-009First generation neoantigen cancer vaccinePhase 1/2a
Immunogenicity data from the first patient cohort

Mid-2019
GEN-010Second generation neoantigen cancer vaccinePre-clinicalSelect delivery technology platformOngoing
GEN-011Adoptive T cell therapyPre-clinicalIND filingFirst half of 2020



responses. We initiatedare currently conducting a Phase 1/2a clinical trial for GEN-009 inacross a range of solid tumor typestypes:

Part A of the trial is assessing the safety and immunogenicity of GEN-009 as monotherapy in subjectscertain cancer patients with no evidence of diseasedisease; and
Part B of the trial, for which we have commenced dosing patients, is designed to assess the safety, immunogenicity, and preliminary antitumor activity of GEN-009 in combination with ICI therapy in patients with advanced or metastatic tumors.

The patients in Part A of the trial had little to no detectable tumor at the time of vaccination with GEN-009, but were still at high risk of relapse. Behind In the data from the eight dosed patients we observed the following:

•
100% of patients had measurable CD4+ and CD8+ T cell responses to their GEN-009 vaccine;
Responses were detected against 99% of the administered vaccine neoantigens (N=88 administered antigens), a response rate in excess of that which has been reported previously in response to candidate neoantigen vaccines;
•
GEN-009 elicited CD8+ T cell responses ex vivo, which is a measure of T cell effector function, for 41% of vaccine neoantigens and CD4+ T cell responses to 51% of neoantigens;
•
GEN-009 elicited broad immune responses using an in vitro stimulation assay, which is a measure of central memory responses, with 87% of neoantigens eliciting a CD4+ response and 57% of neoantigens eliciting a CD8+ response;
GEN-009 was well tolerated, with no dose-limiting toxicities observed; and
Through April 8, 2020, only one of the eight vaccinated patients has developed a recurrent tumor.
We believe the above data confirms the potential antigen selection advantages of ATLAS.

In the fourth quarter of 2019, we began dosing patients for Part B of our GEN-009 study. We anticipate reporting these preliminary clinical results in the third quarter of 2020. We believe that the current patients enrolled are sufficient to determine whether a preliminary clinical signal can be seen, therefore, we have paused enrollment in our GEN-009 Part B trial. Upon review of the preliminary clinical results, we will consider whether it is appropriate to continue the study.

We also continue to explore GEN-010, our vaccine candidate employing next-generation antigen delivery technology, which we may advance to provide an opportunity for even better immunogenicity and/or efficiency of production. We have also initiated pre-clinical work onare advancing GEN-011, an adoptive T cell therapy tospecific for neoantigens identified by ATLAS. Adoptive T cell therapies offer an alternative treatment in solid tumors. GEN-011 extracts and specifically expands ATLAS-identified neoantigen-specific T cells from each patient's peripheral blood. We expect to file an IND application for GEN-011 with the U.S. Food and Drug Administration (“FDA”) in the second quarter of 2020, with preliminary clinical results anticipated in the first half of 2021.

We arecontinue to conduct research, principally to explore InhibigenTM biology and ways to further strengthen ATLAS. We also using ATLAScontinue to pursue discovery of novel candidate antigensexplore additional program opportunities. The COVID-19 pandemic has materially affected our ability to continue such efforts, however, so we cannot provide specific timelines for these efforts to translate into new clinical candidates, which might include


non-personalized cancer immunotherapies. Such programs would targetimmunotherapies targeting shared neoantigens, non-mutated shared tumor-associated antigens, and cancers of viral origin (e.g.,such as cancers driven by Epstein-Barr Virus infection)virus infection and InhibigensTM.

Financing and business operations

We commenced business operations in August 2006. We have financed our operations primarily through the issuance of our equity securities, debt financings, and amounts received through grants. As of March 31, 2019,2020, we had received an aggregate of $354.5$399.7 million in gross proceeds from the issuance of equity securities and gross proceeds from debt facilities and an aggregate of $7.9 million from grants. At March 31, 2019,2020, our cash and cash equivalents were $29.0$26.5 million.
 
Since inception, we have incurred significant operating losses. Our net losses were $15.6 million for the three months ended March 31, 2019, and our accumulated deficit was $307.6 million as of March 31, 2019. We expect to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year. We will need to generate significant revenue to achieve profitability, and we may never do so.

In October 2019, we entered into a purchase agreement with Lincoln Park Capital (“LPC”) pursuant to which LPC purchased $2.5 million of shares of our common stock at a purchase price of $2.587 per share. In addition, for a period of 30 months, we have the right, at our sole discretion, to sell up to an additional $27.5 million of our common stock based on prevailing market prices of our common stock at the time of each sale. In consideration for entering into the purchase agreement, we issued 289,966 shares of our common stock to LPC as a commitment fee. The purchase agreement limits our sales of shares of common stock to LPC to 5,227,323 shares of common stock, representing 19.99% of the shares of common stock outstanding on the date of the purchase agreement. The purchase agreement also prohibits us from directing LPC to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by LPC and its affiliates, would result in LPC and its affiliates having beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of our common stock. In January 2020, we sold 186,986 shares of common stock to LPC, for net proceeds of approximately $0.4 million.

In June 2019, we completed an underwritten public offering in which we sold 10,500,000 shares of our common stock at a price of $3.50 per share, for gross proceeds of approximately $36.8 million. This underwritten public offering also included an overallotment option for the underwriters for 1,575,000 shares, which they exercised in full on June 26, 2019. This generated additional gross proceeds of $5.5 million. We incurred approximately $3.9 million of offering-related expenses, resulting in total net proceeds of $38.4 million.

In February 2019, we completed a private placement financing transaction. As detailedtransaction in Note 6, Stockholders' Equity,which we issued Shares, Pre-funded Warrant Sharesshares of our common stock, pre-funded warrants to purchase shares of our common stock, and Warrantswarrants to purchase shares of our common stock for netgross cash proceeds of $15.0 million. We incurred $1.2 million of offering-related expenses, resulting in total net proceeds of approximately $14.0 million including transactions costs, fees and expenses. We have the option to issue up to approximately 51.4 million Shares in a Second Closing. The optional Second Closing is conditioned upon a decision by a majority of the Company’s board of directors that, from a scientific or medical perspective, the top-line results from Part A of the Phase 1/2a clinical trial for GEN-009 warrant further clinical study.$13.8 million.
 
As reflected in our consolidated financial statements, we used cash to fund operating activities of $13.8 million for the three months ended March 31, 2020 and had $26.5 million available in cash and cash equivalents at March 31, 2020. In addition, our net losses were $12.9 million for the three months ended March 31, 2020, and we had an accumulated deficit of $343.8 million. We anticipate that we will continue to incur significant operating losses for the foreseeable future as we continue to develop our product candidates. Until such time, if ever, as we attempt to generate substantial product revenue and achieve profitability, we expect to finance our cash needs through a combination of equity offerings and strategic transactions, and other sources of funding. If we are unable to raise additional funds when needed, we may be required to implement further cost reduction strategies, including ceasing development of GEN-009, GEN-011, and other corporate programs and activities. These factors, combined with our forecast of cash required to fund operations for a period of at least one year from the date of issuance of these consolidated financial statements, raise substantial doubt about our ability to continue as a going concern.

We believe that our cash and cash equivalents at March 31, 2020 are sufficient to support our operating expenses and capital expenditure requirements into the first quarter of 2021.

Costs related to clinical trials can be unpredictable and there can be no guarantee that our current balances of cash and cash equivalents combined with proceeds received from other sources, will be sufficient to fund our trials or operations through this period. These funds will not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for, or commercially launch GEN-009, GEN-011 or any other product candidate. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements, or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failureall, which could result in a decision to raise capital when needed would have a negative effect onpause or delay development or advancement of clinical trials for one or more of our financial condition andproduct candidates. Similarly, we may decide to pause or delay development or advancement of clinical trials for one or more of our ability to pursue our business strategy.product candidates if we believe that such development or advancement is imprudent or impractical.

Financial Overview
 
Research and development expenses
 
Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include:

personnel-related expenses, including salaries, benefits, stock-based compensation expense,salary and travel;related expenses;
expenses incurred under agreements with contract research organizations ("CROs"(“CROs”), contract manufacturing organizations ("CMOs"(“CMOs”), consultants, and other vendors that conduct our clinical trials and preclinical activities;
costs of acquiring, developing, and manufacturing clinical trial materials and lab supplies; and
facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
 
We expense internal research and development costs to operations as incurred. Nonrefundable advanced payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

The following table identifies research and development expenses for our product candidates as follows (in thousands):

 Three Months Ended March 31,
 2020 2019
Phase 1/2a programs$4,793
 $4,720
Discovery and pre-IND3,809
 788
Other research and development1,385
 952
Total research and development$9,987
 $6,460

 Three Months Ended March 31,
 2019 2018
Discovery and Pre-IND$788
 $6,059
Phase 1/2a programs4,720
 —
Other research and development952
 1,216
Total research and development$6,460
 $7,275

Phase 1/2a programs are Phase 1 or Phase 2 development activities. Discovery and Pre-INDpre-IND includes costs incurred to support our discovery research and translational science efforts up to the initiation of Phase 1 development. Phase 1/2a programs are Phase 1 or Phase 2 development activities. Pivotal programs are in Phase 3 development or in registration stage. Other research and development includesinclude costs that are not specifically allocated to active product candidates, including facilities costs, depreciation expense, and other costs.

We expect that our overall research and development expenses will increase due to our continued development of our clinical operations and our supply chain capabilities for our GEN-009 program, as well as our advancement of GEN-011 through preparation and submission of an IND and subsequent initiation of a clinical trial.
 
General and administrative expenses
 
General and administrative expenses consist principallyprimarily of salaries and related costsexpenses for personnel including stock-based compensation and travel expenses, in executive and other administrative functions. Other general and administrative expenses include facility-relatedfacility costs, communication expenses, and professional fees associated with consulting, corporate and intellectual property legal expenses, consulting, and accounting services.

We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates and to operate as a public company. Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase costs in preparation for commercial operations.
Other expenseincome (expense)

Other expenseincome (expense) consists of the change in warrantywarrant liability, interest expense, net of interest income, and other expense for miscellaneous items, such as the transaction expenses.

Critical Accounting Policies and Significant Judgments and Estimates
 
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include prepaid and accrued research and development expenses stock-based compensation expense, and the fair value of our warrant liability. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.
 
There were no changes to our critical accounting policies during the three months ended March 31, 2019,2020, as compared to the those identified in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019. It is important that the


discussion of our operating results that follow be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form 10-K, as filed with the SEC on February 28, 2019.13, 2020.
 



Results of Operations
 
Comparison of the three months ended March 31, 20192020 and March 31, 20182019
  

Three Months Ended March 31, IncreaseThree Months Ended March 31, Increase
(in thousands)2019 2018 (Decrease)2020 2019 (Decrease)
Operating expenses:

 

 



 

 

Research and development$6,460
 $7,275
 $(815)$9,987
 $6,460
 $3,527
General and administrative3,017
 3,109
 (92)3,388
 3,017
 371
Total operating expenses9,477
 10,384
 (907)13,375
 9,477
 3,898
Loss from operations(9,477) (10,384) (907)(13,375) (9,477) 3,898
Other expense:

 

 

Other income (expense):

 

 

Change in fair value of warrants(5,787) (5,298) 489
781
 (5,787) 6,568
Interest expense, net(302) (201) 101
(259) (302) 43
Other income (expense)(1) (7) (6)—
 (1) 1
Total other expense(6,090) (5,506) 584
Total other income522
 (6,090) 6,612
Net loss$(15,567) $(15,890) $(323)$(12,853) $(15,567) $(2,714)
 
Research and development expenses
 
Research and development ("R&D") expenses decreased $0.8increased $3.5 million in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018.2019. The decreaseincrease was primarilylargely due to lowerincreased external manufacturing costs associated with manufacturing start up activitiesof approximately $2.3 million, increased headcount-related costs of approximately $0.5 million, increased clinical trial costs of approximately $0.3 million, and deprioritized programs partially offset byincreased lab supplies costs associated with the GEN-009 Phase 1/2a clinical trial.of approximately $0.2 million.

General and administrative expenses
 
General and administrative expenses decreased $0.1increased $0.4 million in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018.2019. The decreaseincrease was primarily due to decreasedincreased legal costs of approximately $0.2 million, increased consulting and professional services fess partially offset bycosts of approximately $0.1 million, and increased headcount.rent expense of approximately $0.1 million.

Change in fair value of warrants

Change in fair value of warrants reflects the non-cash change in the fair value of Common Stockthe 2018 Public Offering Warrants. The warrantsWarrants, which were recorded at their fair value on the date of issuance and are remeasured as of any warrant exercise date and at the end of each reporting period. The increase in the change in the fair value of warrants was primarily the result of a decrease in our stock price in the three months ended March 31, 2020 as compared to an increase in our stock price in the three months ended March 31, 2019.

Interest expense, net

Interest expense, net, consists primarily of interest expense on our long-term debt facilities, and non-cash interest related to the amortization of debt discount and issuance costs, offset by interest earned on our cash equivalents. The increase of $0.1 million for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, reflects the increased interest expense related to our long-term debt.

Liquidity and Capital Resources
 
Overview
 
Since our inception in 2006, we have funded operations primarily through proceeds from public issuances of common stock, our long-term debt and the private placement of our common stock.

As of March 31, 2020, we had approximately $26.5 million in cash and cash equivalents.

In April 2018, we entered into an amended and restated loan and security agreement with Hercules Capital, Inc. ("Hercules"), which was subsequently amended in November 2019 (as amended, the “2018 Term Loan”). The 2018 Term Loan provides a $14.0 million term loan. The 2018 Term Loan will mature on May 1, 2021 and accrues interest at a floating rate per annum equal to the greater of (i) 8.00% or (ii) the sum of 3.00% plus the prime rate. The 2018 Term Loan provides for interest-only payments until January


1, 2021. Thereafter, payments will include equal installments of principal and interest through maturity. The 2018 Term Loan may be prepaid subject to a prepayment charge. We are also obligated to pay an end of term charge of $1.0 million at maturity. As of March 31, 2020, the Company had outstanding borrowings of $13.5 million.

In October 2019, we entered into a purchase agreement with LPC pursuant to which LPC purchased $2.5 million of shares of our common stock at a purchase price of $2.587 per share. In addition, for a period of 30 months, we have the right, at our sole discretion, to sell up to an additional $27.5 million of our common stock based on prevailing market prices of our common stock at the time of each sale. In consideration for entering into the purchase agreement, we issued 289,966 shares of our common stock to LPC as a commitment fee. The purchase agreement limits our sales of shares of common stock to LPC to 5,227,323 shares of common stock, representing 19.99% of the shares of common stock outstanding on the date of the purchase agreement. The purchase agreement also prohibits us from directing LPC to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by LPC and its affiliates, would result in LPC and its affiliates having beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of our common stock. In January 2020, the Company sold 186,986 shares of common stock to LPC, for net proceeds of approximately $0.4 million.

In June 2019, we entered into an underwriting agreement relating to the underwritten public offering of 10,500,000 shares of our common stock, par value $0.001 per share, at a price to the public of $3.50 per share, for gross proceeds of approximately $36.8 million (the “2019 Public Offering”). We also granted the underwriters an option to purchase up to an additional 1,575,000 shares of common stock (“Overallotment Option”). In June 2019, the underwriters exercised this option in full. We received an aggregate of $354.5approximately $5.5 million in gross proceeds from the issuanceunderwriter’s exercise of equity securitiesthe Overallotment Option. In connection with the 2019 Public Offering, inclusive of the Overallotment Option, we incurred approximately $3.9 million of offering-related expenses, resulting in total net proceeds of $38.4 million.

In February 2019, we completed a private placement financing transaction (the “Private Placement”). We issued 3,199,998 shares (the “Shares”) of common stock, prefunded warrants (the “Pre-Funded Warrants”) to purchase 531,250 shares of common stock (the “Pre-Funded Warrant Shares”), and grosswarrants (the “Private Placement Warrants”) to purchase up to 932,812 shares of common stock (the “Warrant Shares”). The Shares, Pre-Funded Warrants and Private Placement Warrants (collectively, the “Units”) were sold at a purchase price of $4.02 per Unit. We received net cash proceeds from debt facilitiesof approximately $13.8 million for the purchase of the Shares, Pre-Funded Warrant Shares and an aggregateWarrant Shares.

Cash Flows
The following table summarizes our sources and uses of $7.9cash for the three months ended March 31, 2020 and 2019 (in thousands):

 Three Months Ended March 31,
 2020 2019
Net cash used in operating activities$(13,796) $(10,299)
Net cash used in investing activities(217) (221)
Net cash provided by financing activities395
 13,197
Net (decrease) increase in cash and cash equivalents$(13,618) $2,677
Operating Activities
Net cash used in operating activities increased $3.5 million from grants. Atfor the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The cash used in operations for the three months ended March 31, 2020 was primarily related to the development of our preclinical and clinical candidates.
Investing activities

Net cash used by investing activities was for the purchases of property and equipment in both periods ending March 31, 2020 and 2019, respectively.

Financing Activities
Net cash provided by financing activities decreased $12.8 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. In the three months ended March 31, 2020, the Company sold shares of common stock to


LPC, for net proceeds of approximately $0.4 million. In the three months ended March 31, 2019, our cash and cash equivalents were $29.0the Private Placement generated net proceeds of $13.8 million.

There were no sales under our ATM program during the first quarter of 2019.

Operating Capital Requirements


 
Our primary uses of capital are for compensation and related expenses, manufacturing costs for pre-clinicalpreclinical and clinical materials, third-party clinical trial R&D services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, and general overhead costs. We expect these costs will continue to be the primary operating capital requirements for the near future.

We expect that our existing cash and cash equivalents as of March 31, 2019, are sufficient to support our operations into the first quarter of 2020. We2021. As reflected in the consolidated financial statements, we had available cash and cash equivalents of $29.0$26.5 million at March 31, 2019.2020. In addition, we had a loss from operations of $9.5 million and cash used in operating activities of $10.3$13.8 million for the three months ended March 31, 2019.2020. These factors, combined with our forecast of cash required to fund operations for a period of at least one year from the date of issuance of these financial statements, raise substantial doubt about our ability to continue as a going concern.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products coupled with the global economic uncertainty that has arisen with the recent outbreak of the coronavirus, or referred to as COVID-19, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

the timing and costs of our planned clinical trials for GEN-009;
the progress, timing, and costs of manufacturing GEN-009 for planned clinical trials;
the outcome, timing, and costs of seeking regulatory approvals, including an IND application for GEN-011;
the initiation, progress, timing, costs, and results of preclinical studies and clinical trials for our other product candidates and potential product candidates;
the outcome, timing, and costs of seeking regulatory approvals, including an IND for GEN-011;
the costs of commercialization activities for GEN-009 and other product candidates, if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution, and manufacturing capabilities;
the receipt of marketing approval;
revenue received from commercial sales of our product candidates;
the terms and timing of any future collaborations, grants, licensing, consulting, or other arrangements that we may establish;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone payments, royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;
the costs of preparing, filing, and prosecuting patent applications, maintaining and protecting our intellectual property rights, and defending against intellectual property related claims; and
the extent to which we in-license or acquire other products and technologies.technologies;
the receipt of marketing approval;
the costs of commercialization activities for GEN-009 and other product candidates, if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution, and manufacturing capabilities; and
revenue received from commercial sales of our product candidates.

We will need to obtain substantial additional funding in order to complete clinical trials and receive regulatory approval for GEN-009, GEN-011 and our other product candidates. To the extent that we raise additional capital through the sale of our common stock, convertible securities, or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back, or discontinue the development of GEN-009, GEN-011 or our other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to GEN-009, GEN-011 or our other product candidates that we otherwise would seek to develop or commercialize ourselves.

Cash Flows
The following table summarizes our sources and uses of cash for each of the periods below (in thousands):


 Three Months Ended March 31,
 2019 2018
Net cash used in operating activities$(10,299) $(13,133)
Net cash provided by (used in) investing activities(221) 56
Net cash provided by financing activities13,197
 51,983
Net increase in cash and cash equivalents$2,677
 $38,906
Operating Activities
Net cash used in operations decreased $2.8 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease in net cash used was due primarily to a decrease in accounts payable and accrued expenses partially offset by an increase in prepaid expenses.

Investing Activities

Net cash used in investing increased $0.3 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in net cash used was primarily due to capitalized software costs.
Financing Activities
Net cash provided by financing activities decreased $38.8 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. In the three months ended March 31, 2018, the Underwritten Public Offering generated gross proceeds of $56.0 million, whereas in the three months ended March 31, 2019, the Private Placement generated gross proceeds of $15.0 million.
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
Item 3.                          Quantitative and Qualitative Disclosures about Market RisksRisk
 
We are exposed to market risk related to changes in interest rates. As of March 31, 2019, we had cash and cash equivalents of $29.0approximately $26.5 million consisting primarilyas of money market funds.March 31, 2020. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk isrelates to fluctuations in interest rate sensitivity,rates, which isare affected by changes in the general level of U.S. interest rates. SinceGiven the short-term nature of our investments are limited to money market funds, an immediate 100 basis pointcash and cash equivalents, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations. We do not own any derivative financial instruments.

We do not believe that our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash, cash equivalents and marketable securities at one or more financial institutions that are in excess of federally insured limits.

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our results of operations during the fair market value of our portfolio.
We are also exposed to market risk related to change in foreign currency exchange rates. We contract with certain vendors that are located in Europe which have contracts denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these agreements. We do not currently hedge our foreign exchange rate risk. As ofthree months ended March 31, 2019, we had minimal liabilities denominated in foreign currencies.2020.
 
Item 4.                          Controls and Procedures
 
Management’s Evaluation of our Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 20192020 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934)1934, as amended). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of March 31, 2019,2020, our disclosure controls and procedures were effective at the reasonable assurance level.



Changes in Internal Control Over Financial Reporting
 
During the three months ended March 31, 2019,2020, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, as amended, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In our Annual Report on Form 10-K for the year ending December 31, 2019, our independent registered public accounting firm may be required to provide an assessment as to the effectiveness of our internal control over financial reporting.




PART II. OTHER INFORMATION
 
Item 1.                          Legal Proceedings
 
In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters. Except as discussed below, weWe do not believe we are currently party to any pending legal action, arbitration proceeding or governmental proceeding, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business or operating results. We are not a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.
Beginning on October 31, 2017, three putative class action complaints were filed in the U.S. District Court for the District of Massachusetts (the “District of Massachusetts” or the “Court”), naming the Company, Chief Executive Officer William D. Clark, and former Chief Financial Officer Jonathan Poole as defendants. The Court consolidated the three actions into one case, captioned Emerson et al. v. Genocea Biosciences, Inc., et al., Civil Action No. 17-cv-12137-PBS (D. Mass.), and appointed the Genocea Investor Group (a group of five purported shareholders) as lead plaintiff. On March 29, 2018, counsel for the lead plaintiff filed an amended complaint in the District of Massachusetts that alleged violations of the Securities Exchange Act of 1934 and Rule 10b-5 in connection with the Company’s disclosures from March 31, 2016 to September 25, 2017 concerning the development of GEN-003. The amended complaint added Seth V. Hetherington, former Chief Medical Officer, to the original named defendants, and sought unspecified damages and costs. On December 6, 2018, the District of Massachusetts granted defendants’ motion to dismiss the amended complaint for failure to state a claim. On January 7, 2019, the lead plaintiff filed a notice of appeal in the District of Massachusetts regarding the Court order dismissing the amended complaint. The appeal has been docketed in the First Circuit under the caption Yuksel, et al. v. Genocea Biosciences, et al., Civil Action No. 19-1036 (1st Cir.). The Company is unable at this time to determine whether the outcome of the securities action litigation would have a material impact on its results of operations, financial condition or cash flow.

Beginning on January 31, 2018, two putative shareholder derivative actions were filed in the U.S. District Court for the District of Delaware, naming certain of the Company’s officers and directors (including certain former directors and officers) as defendants, and naming the Company as a nominal defendant. On August 24, 2018, the court consolidated the two actions into one case, captioned In re Genocea Biosciences, Inc. Derivative Litigation, Civil Action No. 18-cv-00186-MN (D. Del.). The operative complaint in the now-consolidated action alleges violations of the Securities Exchange Act of 1934 and Rule 14a-9 in connection with disclosures made in the Company’s Schedule 14A Proxy Statement, filed with the SEC on April 21, 2017. The complaint also alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets. On August 10, 2018, the parties filed a joint stipulation and proposed order agreeing to stay the consolidated action until, inter alia, the entry of an order granting or denying any motion to dismiss the action in the District of Massachusetts, and on August 24, 2018, the court entered the joint stipulation agreeing to stay the consolidated action. In light of the December 6, 2018 order granting defendants’ motion to dismiss in the District of Massachusetts, the Company and the plaintiffs in the derivative action entered into joint stipulation on February 5, 2019 to stay the derivative action through the duration of the appeal in the securities action. The Company is unable at this time to determine whether the outcome of the derivative litigation would have a material impact on our results of operations, financial condition or cash flows.

The Company does not have contingency reserves established for any litigation liabilities.

Item 1A.                          Risk Factors

There have been no material changes from the risk factors set forth in the Company's Annual Report Form 10-K for the year ended December 31, 2018.2019, except as set forth below.

A pandemic, epidemic or outbreak of an infectious disease, such as the novel coronavirus, or COVID-19, has and may in the future adversely affect our business.

                An outbreak of COVID-19 occurred in China in December 2019 and has spread around the world. The Center for Disease Control (CDC) has recognized this outbreak as a pandemic which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence, and business sentiment. The situation is ever evolving and its effects both short-term and long-term remain unknown. The spread of COVID-19 has resulted in certain disruptions to our business and may result in future additional disruptions to our business. Examples of both include without limitation the following:

•
The COVID-19 pandemic has materially affected our ability to conduct research, principally to explore InhibigenTM biology and ways to further strengthen ATLAS and other program opportunities. 
The health and wellbeing of our employees and suppliers is at risk- if a critical threshold of our personnel, or the personnel of our suppliers, were to be diagnosed with COVID-19, placed in quarantine due to potential exposure to COVID-19, or need to care for family members diagnosed with COVID-19, it may result in significant manufacturing and business disruption.
Our clinical sites may no longer be able to continue with the GEN-009 clinical trial or limit patient enrollment which could have a material impact on our milestones and timelines. Further, clinical sites may not be engaging in new clinical programs which could have a material impact on our GEN-011 program.
We have asked most employees who are not directly involved in our GEN-009 and GEN-011 clinical programs to work from home, which could impact our ability to effectively plan, execute, communicate and maintain our corporate culture. The increase in working remotely could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.
Stay at home orders have significantly limited the ability of individuals from traveling outside the home which may limit our ability to hire new employees or backfill terminated employees.
Equity and debt markets have experienced significant volatility since the spread of COVID-19 into the United States. Should significant volatility continue or they experience declines due to the economic impact of COVID-19, we may not be able to raise capital at a reasonable valuation or at all.

The full extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to treat or contain COVID-19 or to otherwise limit its impact, among others.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared or approved, or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions


at the FDA and other agencies may also slow the time necessary for marketing applications, clinical trial authorizations or other regulatory submissions to drug candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.

Separately, in response to the global pandemic of COVID-19, on March 10, 2020, the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020, and subsequently, on March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our marketing applications, clinical trial authorizations, or other regulatory submissions, which could have a material adverse effect on our business.

Item 6.                          Exhibits
 


Exhibit
Number
 Exhibit
10.1* 
SubscriptionEmployment Letter Agreement dated as of February 11, 2019, amongbetween Girish Aakalu and Genocea Biosciences, Inc., dated December 6, 2018
10.2*
Employment Letter Agreement between Thomas Davis and Genocea Biosciences, Inc., dated October 1, 2018
10.3*†
Form of Restricted Stock Unit Award Agreement under the purchasers party theretoGenocea Biosciences, Inc. 2014 Equity Incentive Plan
   
31.1 
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
   
31.2 
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
   
32.1 
Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002 by Chief Executive Officer
   
32.2 
Certification of periodic financial report pursuant to Section 906 of Sarbanes Oxley Act of 2002 by Chief Financial Officer
   
101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019,2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 20192020 and December 31, 2018,2019, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 20192020 and 2018,2019, (iii) Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 20192020 and 2018,2019, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20192020 and 20182019 and (v) Notes to Unaudited Condensed Consolidated Financial Statements

*
* Filed herewith.


† Indicates a compensatory plan.



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 Genocea Biosciences, Inc.
  
Date: April 30, 20192020By:/s/ WILLIAM D. CLARK
  William D. Clark
  President and Chief Executive Officer and Director
  (Principal Executive Officer)
   
Date: April 30, 20192020By:/s/ DIANTHA DUVALL
  Diantha Duvall
  Chief Financial Officer
  (Principal Financial and Accounting Officer)


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