UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

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

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2021

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

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

For transition period from to .

Commission File Number: 001-31918

IDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware		04-3072298
~~Delaware~~		~~04-3072298~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~167 Sidney Street~~505 Eagleview Blvd., Suite 212 ~~Cambridge, Massachusetts~~Exton, Pennsylvania (Address of principal executive offices)		~~02139~~19341 (Zip code)

~~(617) 679-5500~~(484) 348-1600

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	IDRA	Nasdaq 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☒☐
Non-accelerated filer
~~Non-accelerated filer~~	~~☐ (Do not check if a smaller reporting company)~~☒	Smaller reporting company	☐☒

		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


	Common Stock, par value $.001 per share		~~194,870,303~~50,033,297
Class		Outstanding as of ~~November 1, 2017~~April 29, 2021

Table of Contents

IDERA PHARMACEUTICALS, INC.

FORM 10-Q

~~INDEX~~TABLE OF CONTENTS


				Page
		~~Page~~
PART I — FINANCIAL INFORMATION
~~Item 1 — Financial Statements — Unaudited~~		1
Item 1.	Financial Statements		1
	Condensed Balance Sheets as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020		1
	Condensed Statements of Operations ~~and Comprehensive Loss~~ for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020		2
	Condensed Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020		3
	Condensed Statements of Redeemable Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2021 and 2020		4
	Notes to Condensed Financial Statements		4
		5
Item ~~2 —~~ 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15 22
Item ~~3 —~~ 3.	Quantitative and Qualitative Disclosures About Market Risk		26 34
Item ~~4 —~~ 4.	Controls and Procedures		26 34

PART II — OTHER INFORMATION
~~Item 1A — Risk Factors~~		27
Item ~~6 — Exhibits~~1A.	Risk Factors	27	35
~~Signatures~~Item 6.	Exhibits	28	37

	Signatures		38

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to “Idera,” the “Company,” “we,” “us,” and “our” refer to Idera Pharmaceuticals, Inc.

IMO^® and Idera^® are our trademarks. All other trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act.~~(the “Exchange Act”). All statements, other than statements of historical fact, included or incorporated in this report regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” ~~and~~“schedule,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These important factors include those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, which was filed with the Securities and Exchange Commission ~~or the SEC,~~(“SEC”) on March ~~15, 2017.~~1, 2021 (the “2020 Form 10-K), in this Quarterly Report on Form 10-Q, and in our other disclosures and filings with the SEC. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.

In addition, any forward-looking statements represent our estimates only as of the date that this Quarterly Report on Form 10-Q is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. All forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof, and are expressly qualified in their entirety by this cautionary notice. We do not assume any obligation to update any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or ~~otherwise.~~otherwise, except as may be required by law.

~~iii~~ii

Table of Contents

PART I — FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS.~~
Item 1.
Financial Statements.

IDERA PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(UNAUDITED)


	March 31,		December 31,
(In thousands)	2021		2020*
ASSETS
Current assets:
Cash and cash equivalents	$	44,541	$	33,229
Short-term investments		—		4,499
Prepaid expenses and other current assets		2,477		3,627
Total current assets		47,018		41,355
Property and equipment, net		38		44
Operating lease right-of-use assets		882		930
Other assets		70		70
Total assets	$	48,008	$	42,399

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	185	$	329
Accrued expenses		4,398		6,072
Operating lease liability		196		191
Other current liability		217		435
Total current liabilities		4,996		7,027
Warrant liability, long-term		—		6,983
Future tranche right liability, long-term		—		118,803
Operating lease liability, net of current portion		708		758
Total liabilities		5,704		133,571

Commitments and contingencies (Note 13)
Preferred stock, $0.01 par value, Authorized — 5,000 shares:
Series B1 redeemable convertible preferred stock (Note 7); Designated — 278 shares, Issued and outstanding — 10 and 24 shares at March 31, 2021 and December 31, 2020, respectively		—		—

Stockholders’ equity (deficit):
Preferred stock, $0.01 par value, Authorized — 5,000 shares:
Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share		—		—
Common stock, $0.001 par value, Authorized — 140,000 shares; Issued and outstanding — 46,537 and 38,291 at March 31, 2021 and December 31, 2020, respectively		46		38
Additional paid-in capital		760,072		742,342
Accumulated deficit		(717,814)		(833,552)
Total stockholders’ equity (deficit)		42,304		(91,172)
Total liabilities and stockholders’ equity (deficit)	$	48,008	$	42,399

The condensed balance sheet at December 31, 2020 has been derived from the audited financial statements at that date.

~~(UNAUDITED)~~

September 30,

December 31,

(In thousands, except per share amounts)

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$
63,941

$
80,667

Short-term investments

1,400

28,347

Prepaid expenses and other current assets

3,669

2,030

Total current assets

69,010

111,044

Property and equipment, net

1,412

1,853

Restricted cash and other assets

327

334

Total assets

$
70,749

$
113,231

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
849

$
556

Accrued expenses

6,119

7,394

Current portion of note payable

285

292

Current portion of deferred revenue

563

1,111

Total current liabilities

7,816

9,353

Deferred revenue, net of current portion

94

152

Note payable, net of current portion

—

209

Other liabilities

759

168

Total liabilities

8,669

9,882

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

  Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share

—

—

Common stock, $0.001 par value, Authorized — 280,000 shares; Issued and outstanding — 149,680 and 149,065 shares at September 30, 2017 and December 31, 2016, respectively

150

149

Additional paid-in capital

651,498

641,687

Accumulated deficit

(589,568)

(538,470)

Accumulated other comprehensive loss

—

(17)

Total stockholders’ equity

62,080

103,349

Total liabilities and stockholders’ equity

$
70,749

$
113,231

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

Table of Contents

IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS ~~AND COMPREHENSIVE LOSS~~

(UNAUDITED)


	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2021		2020
Operating expenses:
Research and development	$	6,871	$	9,510
General and administrative		3,156		3,642
Total operating expenses		10,027		13,152
Loss from operations		(10,027)		(13,152)
Other income (expense):
Interest income		3		125
Interest expense		(3)		—
Warrant revaluation gain		6,983		1,101
Future tranche right revaluation gain		118,803		20,711
Foreign currency exchange (loss) gain		(21)		32
Net income	$	115,738	$	8,817

Net income (loss) applicable to common stockholders (Note 12)
— Basic	$	109,606	$	8,178
— Diluted	$	(10,048)	$	7,199
Net income (loss) per share applicable to common stockholders (Note 12)
— Basic	$	2.66	$	0.27
— Diluted	$	(0.14)	$	0.22
Weighted-average number of common shares used in computing net income (loss) per share applicable to common stockholders
— Basic		41,193		30,300
— Diluted		70,980		33,010

~~(UNAUDITED)~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share amounts)

2017

2016

2017

2016

Alliance revenue

$
164

$
323

$
729

$
918

Operating expenses:

Research and development

10,912

9,393

40,288

28,817

General and administrative

3,919

3,907

11,888

11,601

Total operating expenses

14,831

13,300

52,176

40,418

Loss from operations

(14,667)

(12,977)

(51,447)

(39,500)

Other income (expense):

Interest income

159

90

456

320

Interest expense

(11)

(19)

(40)

(63)

Foreign currency exchange (loss) gain

(11)

3

(27)

32

Net loss

$
(14,530)

$
(12,903)

$
(51,058)

$
(39,211)

Basic and diluted net loss per common share (Note 14)

$
(0.10)

$
(0.10)

$
(0.34)

$
(0.32)

Shares used in computing basic and diluted net loss per common share

149,638

121,389

149,385

121,332

Net loss

$
(14,530)

$
(12,903)

$
(51,058)

$
(39,211)

Other comprehensive gain (loss):

Unrealized (loss) gain on available-for-sale securities

(1)

13

17

133

Comprehensive loss

$
(14,531)

$
(12,890)

$
(51,041)

$
(39,078)

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

Table of Contents

IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended
	March 31,
(In thousands)	2021		2020
Cash Flows from Operating Activities:
Net income	$	115,738	$	8,817
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		1,111		750
Warrant liability revaluation gain		(6,983)		(1,101)
Future tranche right liability revaluation gain		(118,803)		(20,711)
Issuance of common stock for services rendered		67		26
Accretion of discounts on short-term investments		(1)		(18)
Depreciation and amortization expense		6		24
Changes in operating assets and liabilities:
Prepaid expenses and other assets		1,150		1,313
Accounts payable, accrued expenses, and other liabilities		(1,879)		148
Other		3		4
Net cash used in operating activities		(9,591)		(10,748)

Cash Flows from Investing Activities:
Purchases of available-for-sale securities		—		(5,535)
Proceeds from maturity of available-for-sale securities		4,500		2,749
Purchases of property and equipment		—		(7)
Net cash provided by (used in) investing activities		4,500		(2,793)

Cash Flows from Financing Activities:
Proceeds from common stock financings, net		16,322		1,406
Proceeds from employee stock purchases		28		25
Proceeds from exercise of common stock options and warrants		271		—
Payments on seller-financed purchases		(218)		—
Net cash provided by financing activities		16,403		1,431
Net increase (decrease) in cash and cash equivalents		11,312		(12,110)
Cash and cash equivalent, beginning of period		33,229		40,019
Cash and cash equivalents, end of period	$	44,541	$	27,909

Supplemental disclosure of cash flow information:
Cash paid for interest	$	3	$	—
Supplemental disclosure of non-cash financing and investing activities:
Offering costs in accounts payable and accrued expenses	$	61	$	260

~~(UNAUDITED)~~

Nine Months Ended

September 30,

(In thousands)

2017

2016

Cash Flows from Operating Activities:

Net loss

$
(51,058)

$
(39,211)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

9,165

5,127

Issuance of common stock for services rendered

119

129

Accretion of discounts and premiums on investments

94

466

Depreciation and amortization expense

559

484

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(1,639)

(48)

Accounts payable, accrued expenses, and other liabilities

(393)

937

Deferred revenue

(606)

(833)

Net cash used in operating activities

(43,759)

(32,949)

Cash Flows from Investing Activities:

Purchases of available-for-sale securities

—

(2,946)

Proceeds from maturity of available-for-sale securities

26,870

29,946

Proceeds from sale of available-for-sale securities

—

1,974

Purchases of property and equipment

(100)

(369)

Net cash provided by investing activities

26,770

28,605

Cash Flows from Financing Activities:

Proceeds from exercise of common stock warrants and options and employee stock purchases

488

111

Payments on note payable

(216)

(193)

Payments on capital lease

(9)

(6)

Net cash provided by (used in) financing activities

263

(88)

Net decrease in cash and cash equivalents

(16,726)

(4,432)

Cash and cash equivalents, beginning of period

80,667

26,586

Cash and cash equivalents, end of period

$
63,941

$
22,154

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

Table of Contents

IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(UNAUDITED)


	For the Three Months Ended March 31, 2020

	Series B1 Preferred			Common Stock			Additional				Total
	Number of	$0.01 Par		Number of	$0.001 Par		Paid-In		Accumulated		Stockholders’
(In thousands)	Shares	Value		Shares	Value		Capital		Deficit		Deficit
Balance, December 31, 2019	24	$	—	29,672	$	30	$	709,692	$	(720,890)	$	(11,168)
Sale of common stock, net of issuance costs	—		—	854		1		1,405		—		1,406
Issuance of common stock under employee stock purchase plan	—		—	19		—		25		—		25
Issuance of common stock under equity incentive plan (vesting of restricted stock units)	—		—	48		—		—		—		—
Issuance of common stock for services rendered	—		—	14		—		26		—		26
Stock-based compensation	—		—	—		—		750		—		750
Net income	—		—	—		—	��	—		8,817		8,817
Balance, March 31, 2020	24	$	—	30,607	$	31	$	711,898	$	(712,073)	$	(144)


	For the Three Months Ended March 31, 2021

	Series B1 Preferred			Common Stock			Additional				Total
	Number of	$0.01 Par		Number of	$0.001 Par		Paid-In		Accumulated		Stockholders’
(In thousands)	Shares	Value		Shares	Value		Capital		Deficit		Equity (Deficit)
Balance, December 31, 2020	24	$	—	38,291	$	38	$	742,342	$	(833,552)	$	(91,172)
Sale of common stock, net of issuance costs	—		—	3,195		3		16,258		—		16,261
Conversion of Series B1 preferred stock	(14)		—	1,415		1		(1)		—		—
Issuance of common stock under employee stock purchase plan	—		—	8		—		28		—		28
Issuance of common stock under equity incentive plan (vesting of restricted stock units)	—		—	237		—		—		—		—
Issuance of common stock upon exercise of common stock options and warrants	—		—	3,375		4		267		—		271
Issuance of common stock for services rendered	—		—	16		—		67		—		67
Stock-based compensation	—		—	—		—		1,111		—		1,111
Net income	—		—	—		—		—		115,738		115,738
Balance, March 31, 2021	10	$	—	46,537	$	46	$	760,072	$	(717,814)	$	42,304

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

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IDERA PHARMACEUTICALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

Note 1. Business and Organization

~~September 30, 2017~~

~~(UNAUDITED)~~

~~(1) Organization~~

Business Overview

Idera Pharmaceuticals, Inc. (“Idera” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel oligonucleotide therapeutics for oncology and rare diseases. The Company uses two distinct proprietary drug discovery technology platforms to design and develop drug candidates: its Toll-like receptor (“TLR”) targeting technology and its third-generation antisense (“3GA”) technology. The Company developed these platforms based on its scientific expertise and pioneering work with synthetic oligonucleotides as therapeutic agents. Using its TLR targeting technology, the Company designs synthetic oligonucleotide-based drug candidates to modulate the activity of specific TLRs. In addition, using its 3GA technology, the Company is developing drug candidates to turn off the messenger RNA (“mRNA”) associated with disease causing genes. The Company believes its 3GA technology may potentially reduce the immunotoxicity and increase the potency of earlier generation antisense and RNA interference (“RNAi”) technologies.

~~Idera is~~a business strategy focused on the clinical development, and ultimately the commercialization, of drug candidates for both oncology and rare ~~diseases~~disease indications characterized by small, well-defined patient populations with serious unmet medical needs. The Company’s current focus is on its Toll-like receptor (“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. The Company ~~believes it can~~is currently seeking to develop and commercialize ~~these~~ targeted therapies on its own. To the extent the Company seeks to develop drug candidates for broader disease indications, it has entered into and may explore additional collaborative alliances to support development and commercialization.

~~The Company’s pipeline of drug candidates includes IMO-2125, IMO-8400 and IDRA-008.~~

~~Toll-Like Receptors~~

TLRs are key receptors of the immune system and play a role in innate and adaptive immunity. As a result, the Company believes TLRs are potential therapeutic targets for the treatment of a broad range of diseases. Using its chemistry-based platform, the Company has designed TLR agonists and antagonists to act by modulating the activity of targeted TLRs. A TLR agonist is a compound that stimulates an immune response through the targeted TLR. A TLR antagonist is a compound that inhibits an immune response by blocking the targeted TLR.

The Company’s TLR agonist lead drug candidate IMO-2125 is an agonist of TLR9. The Company is developing IMO-2125 for the treatment by intra-tumoral injection of multiple oncology indications both in combination with checkpoint inhibitors and as monotherapy. The Company is currently developing IMO-2125 for use in combination with checkpoint inhibitors for the treatment of patients with anti-PD1 refractory metastatic melanoma and for administration as a single agent intra-tumorally in multiple tumor types.

The Company’s TLR antagonist lead drug candidate is IMO-8400, which is an antagonist of TLR7, TLR8 and TLR9. The Company is developing IMO-8400 for the treatment of rare diseases and has selected dermatomyositis as its lead clinical target. The Company selected this indication for development based on the reported increase in TLR expression in this disease state, expression of cytokines indicative of key TLR-mediated pathways and the presence of auto-antibodies that can induce TLR-mediated immune responses.

~~Third-Generation Antisense~~

The Company is developing its 3GA technology to “turn off” the mRNA associated with disease causing genes. The Company has designed 3GA oligonucleotides to specifically address challenges associated with earlier generation antisense and RNAi technologies.

~~Table of Contents~~

The Company has selected IDRA-008 as its first 3GA candidate to enter clinical development. The Company is planning to develop IDRA-008 for a well-established liver target with available pre-clinical animal models and well-known clinical endpoints.

Liquidity and Financial Condition

~~At September 30, 2017,~~As of March 31, 2021, the Company had an accumulated deficit of ~~$589.6~~$717.8 million and a cash and cash equivalents balance of $44.5 million. The Company expects to incur substantial operating losses in future ~~periods.~~periods and will require additional capital as it seeks to advance tilsotolimod and/or any future drug candidates through development to commercialization. The Company does not expect to generate product revenue, sales-based milestones or royalties until the Company ~~or its collaborators~~ successfully ~~complete~~completes development of and ~~obtain~~obtains marketing approval for ~~the Company’s~~tilsotolimod or other future drug candidates, either alone or in collaboration with third parties, which the Company expects will take a number of ~~years.~~years, if at all. In order to commercialize ~~its~~tilsotolimod and any future drug candidates, the Company needs to complete clinical development and comply with comprehensive regulatory requirements.

The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.

The Company ~~believes, based on its current operating plan,~~follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management currently anticipates that ~~its existing~~the Company’s balance of cash and cash equivalents ~~and investments, together with the net proceeds from its common stock offering and the exercise~~on hand as of ~~common stock warrants in October 2017 as more fully described in Note 18, will~~March 31, 2021 is sufficient to enable the Company to ~~fund its operations into~~continue as a going concern through the ~~second quarter~~one-year period subsequent to the filing date of ~~2019.~~this Quarterly Report on Form 10-Q. The Company has and will continue to evaluate available alternatives to extend its operations beyond this date, which include raising additional capital through the ~~second quarter~~LPC Agreement (Note 8) and ATM Agreement (Note 8) or additional financing or strategic transactions. Additionally, management’s plans, which include the implementation of ~~2019.~~

~~(2) New Accounting Pronouncements~~

~~Recently Adopted Accounting Pronouncements~~

~~In March 2016,~~a reduction-in-force as more fully described in Note 13, may also include the ~~Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718)~~,possible deferral of certain operating expenses unless additional capital is received. Management’s operating plan, which ~~is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. As of January 1, 2017,~~underlies the Company adopted this standard, which had the following impacts on its financial statements. (1) ASU 2016-09 requires organizations to recognize all income tax effects of awards in the statement of operations when the awards vest or are settled. The Company’s net operating loss deferred tax assets increased by $1.4 million and were offset by a corresponding increase in the valuation allowance given the Company’s continued loss position. Accordingly, the adoption of this portion of ASU 2016-09 had no impact on the Company’s Accumulated deficit. (2) ASU 2016-09 allows organizations to repurchase more shares from employees than they could previously purchase for tax withholding purposes without triggering liability accounting. The adoption of this portion of ASU 2016-09 had no impact on the Company’s financial statements. (3) ASU 2016-09 allows companies to make a policy election to account for forfeitures as they occur. The Company has made the policy election to account for forfeitures as they occur and has used the modified retrospective transition method, resulting in less than a $0.1 million reduction in Additional paid-in capital and an increase in Accumulated deficit as of January 1, 2017, to reflect the cumulative effect of previously estimated forfeitures.

~~Recently Issued Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which was amended by ASU No. 2015-14 (as amended, “ASU 2014-09”). ASU No. 2014-09 requires an entity to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In particular, this ASU addresses contracts with more than one performance obligation, as well as the accounting for some costs to obtain or fulfill a contract with a customer, and provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within that fiscal year. Early adoption of this ASU is permitted only for fiscal years beginning after December 15, 2016, including interim periods within that fiscal year. This guidance is applicable to the Company's fiscal year beginning January 1, 2018 and the Company expects to adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective transition method. To date, the Company has derived its revenues from a limited number of license and collaboration agreements. The consideration the Company is eligible to receive under these

~~Table of Contents~~

~~agreements includes upfront payments, research and development funding, contingent revenues in the form of commercial and development milestones and option payments and royalties. Each~~analysis of the Company’s ~~license and collaboration agreements has unique terms that need~~ability to ~~be evaluated separately under~~continue as a going concern, involves the ~~new standard. The Company is substantially complete with its initial assessment of its two active license and collaboration agreements, and currently does not expect the adoption~~estimation of the ASU to have a material impact on its financial statements but is expected to result in expanded footnote disclosures. The Company will continue to monitor additional changes, modifications, clarifications or interpretations being undertaken byamount and timing of future cash inflows and outflows. Actual results could vary from the ~~FASB, which may impact our current conclusion.~~operating plan.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASU 2016-02”). ASU 2016-02 requires organizations that lease assets, with lease terms~~

Table of ~~more than 12 months, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Consistent with current U.S. Generally Accepted~~Contents

Note 2. Summary of Significant Accounting ~~Principles (“U.S. GAAP”), the recognition, measurement, and presentation~~Policies

Basis of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP which requires only capital leases to be recognized on the balance sheet, ASU No. 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. This guidance is applicable to the Company's fiscal year beginning January 1, 2019. The Company is currently evaluating the effect that the adoption of ASU 2016-02 will have on its financial statements.Presentation

~~(3) Unaudited Interim Financial Statements~~

The accompanying unaudited financial statements included herein have been prepared by the Company in accordance with U.S. ~~GAAP~~generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the ~~Securities and Exchange Commission (the “SEC”).~~SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~U.S.~~ GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation of interim period results have been included. Interim results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2017.~~2021. For further information, refer to the financial statements and footnotes thereto included in the Company’s ~~Annual Report on~~2020 Form ~~10-K for the fiscal year ended~~10-K.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at March 31, 2021 and December 31, ~~2016, which was filed with the SEC on March 15, 2017.~~ 2020 consisted of cash and money market funds.

~~(4)~~ Financial Instruments

The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note ~~6, “Fair Value of Assets and Liabilities.”~~3. The Company is required to disclose the estimated fair values of its financial instruments. ~~The~~As of March 31, 2021, the Company’s financial instruments ~~consist~~consisted of cash and cash equivalents. As of December 31, 2020, the Company’s financial instruments consisted of cash, cash equivalents, ~~available-for-sale~~short-term investments, receivables and ~~a note payable.~~warrant and future tranche right liabilities. The estimated fair values of these financial instruments approximate their carrying ~~values as of September 30, 2017 and December 31, 2016.~~values. As of ~~September 30, 2017 and December~~March 31, ~~2016,~~2021, the Company did not have any derivatives, hedging instruments or other similar financial instruments.

Concentration of Credit Risk

Financial instruments ~~except for~~that subject the ~~note issued under the~~Company to credit risk primarily consist of cash, cash equivalents, and short-term investments. The Company’s ~~loan and security agreement, which~~credit risk is ~~discussed~~managed by investing in ~~Note 5(a)~~highly rated money market instruments, U.S. treasury bills, corporate bonds, commercial paper and/or other debt securities. Due to ~~the financial statements included~~these factors, no significant additional credit risk is believed by management to be inherent in the Company’s ~~Annual Report on Form 10-K~~assets. As of March 31, 2021, all of the Company’s cash and cash equivalents were held at 2 financial institutions.

Operating Lease Right-of-use Asset and Lease Liability

The Company accounts for leases under ASC 842, Leases. Operating leases are included in “Operating lease right-of-use assets” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the ~~year ended~~lease term. The Company’s related obligation to make lease payments are included in “Operating lease liability” and “Operating lease liability, net of current portion” within the Company’s balance sheets. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at 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 its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The ROU assets are tested for impairment according to ASC 360, Property, Plant, and Equipment (“ASC 360”). Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.

As of March 31, 2021 and December 31, ~~2016, including put~~2020, the Company’s operating lease ROU assets and ~~call features~~corresponding short-term and long-term lease liabilities primarily relate to its existing Exton, PA facility operating lease whichexpires on May 31, 2025.

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Note 2. Summary of Significant Accounting Policies (Continued)

Warrant Liability

The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and/or ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant agreement. Freestanding warrants for shares that are potentially redeemable, whereby the Company may be required to transfer assets (e.g. cash or other assets) outside of its control, are classified as liabilities. Liability-classified warrants are recorded at their estimated fair values at each reporting period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-classified warrants are recorded in Warrant Revaluation Gain (Loss) in the Company’s condensed statements of operations. Equity classified warrants are recorded within additional paid-in capital at the time of issuance and not subject to remeasurement. During the three months ended March 31, 2021, all of the Company’s liability-classified warrants terminated. For additional discussion on warrants, see Note 8.

Future Tranche Right Liability

On December 23, 2019, the Company entered into a Securities Purchase Agreement (the “December 2019 Securities Purchase Agreement”) with institutional investors affiliated with Baker Brothers, an existing stockholder (see Note 11). As more fully described in Note 7, the December 2019 Securities Purchase Agreement contained call options on redeemable preferred shares with warrants (conditionally exercisable for shares that are puttable). The Company determined ~~are clearly~~that these call options represented freestanding financial instruments and ~~closely associated with~~accounted for the ~~debt host~~options as liabilities (“Future Tranche Right Liability”) under ASC 480, which requires the measurement and ~~do not require bifurcation as a derivative liability, or~~recognition of the fair value of the ~~feature~~liability at the time of issuance and at each reporting period. Any change in fair value is ~~immaterial.~~recognized in Future Tranche Right Liability Revaluation Gain (Loss) in the Company’s condensed statements of operations. During the three months ended March 31, 2021, the liability-classified call options provided for under the December 2019 Securities Purchase Agreement terminated and, accordingly, the liability balance was derecognized.

~~(5) Cash and Cash Equivalents~~Preferred Stock

The Company ~~considers~~applies ASC 480 when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all ~~highly liquid investments~~other times, preferred shares are classified as stockholders’ equity.

Accretion of redeemable convertible preferred stock includes the accretion of the Company's Series B redeemable convertible preferred stock to its stated value. The carrying value of the Series B redeemable convertible preferred stock is being accreted to redemption value using the effective interest method, from the date of issuance to the earliest date the holders can demand redemption.

Income Taxes

In accordance with ~~maturities~~ASC 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required at the end of ~~90 days~~each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three months ended March 31, 2021 and 2020, the Company recorded 0 tax expense or ~~less when purchased~~benefit due to ~~be cash equivalents. Cash~~the expected current year loss and ~~cash equivalents at September 30, 2017~~its historical losses. The Company has not recorded its net deferred tax asset as of either March 31, 2021 or December 31, 2020 because it maintained a full valuation allowance against all deferred tax assets as of these dates as management has determined that it is not more likely than not that the Company will realize these future tax benefits. As of March 31, 2021 and December 31, ~~2016 consisted of cash and money market funds.~~2020, the Company had 0 uncertain tax positions.

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Note 2. Summary of Significant Accounting Policies (Continued)

~~(6)~~

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that the Company has or will adopt as of a specified date. Unless otherwise noted, management does not believe that any other recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have, a material impact on the Company’s present or future financial statements.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the guidance on an issuer’s accounting for convertible instruments and contracts in its own equity. The Company adopted ASU 2020-06 in the first quarter of 2021. The adoption of this ASU did not have a material effect on the Company’s financial statements.

COVID-19

While the Company is not aware of a material impact from the novel coronavirus disease ("COVID-19") pandemic through March 31, 2021, the full extent to which COVID-19 will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses and manufacturing, clinical trials and research and development costs, depends on future developments that are highly uncertain at this time.

Note 3. Fair Value of Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company applies the guidance in ~~FASB Accounting Standards Codification (ASC) Topic~~ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis. Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement ~~date using~~date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

●

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

●

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability

●

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability ~~(the “inputs”) into a three-tier fair value hierarchy. This fair value~~falls within the hierarchy ~~gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities~~requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were notransfersbetweenLevel 1, 2 and 3duringthe ~~lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria~~ three months ended March 31, 2021.

Table of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect the Company’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable Level 3 inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain. Contents

Note 3. Fair Value Measurements

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 categorized by the level of inputs used in the valuation of each asset and liability.

Quoted Prices




in Active

Markets

Significant

for Identical

Other

Significant

Assets or

Observable

Unobservable

Liabilities

Inputs

Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

September 30, 2017

Assets

Money market funds

$
49,637

$
49,637

$
—

$
—

Short-term investments – municipal bonds

1,400

—

1,400

—

Total Assets

$
51,037

$
49,637

$
1,400

$
—

Total Liabilities

$
—

$
—

$
—

$
—

December 31, 2016

Assets

Money market funds

$
67,580

$
67,580

$
—

$
—

Short-term investments –  corporate bonds

19,729

—

19,729

—

Short-term investments – municipal bonds

8,618

—

8,618

—

Total Assets

$
95,927

$
67,580

$
28,347

$
—

Total Liabilities

$
—

$
—

$
—

$
—



	March 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	250	$	250	$	—	$	—
Cash equivalents – money market funds		44,291		44,291		—		—
Total assets	$	44,541	$	44,541	$	—	$	—


	December 31, 2020
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	250	$	250	$	—	$	—
Cash equivalents – money market funds		32,979		32,979		—		—
Short-term investments – commercial paper		3,499		—		3,499		—
Short-term investments – US treasury bills		1,000		—		1,000		—
Total assets	$	37,728	$	33,229	$	4,499	$	—
Liabilities
Warrant liability	$	6,983	$	—	$	—	$	6,983
Future tranche right liability		118,803		—		—		118,803
Total liabilities	$	125,786	$	—	$	—	$	125,786

The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of ~~corporate bond~~commercial paper and ~~municipal bond investments, the~~US treasury bills whose fair value ~~of which~~ may not represent actual transactions of identical securities. The fair value of ~~corporate and municipal bonds~~commercial paper is generally determined ~~from quoted~~based on the relationship between the investment’s discount rate and the discount rates of the same issuer’s commercial paper available in the market ~~prices received from pricing services based upon quoted prices from active markets and/or other significant observable market transactions at fair value.~~which may not be actively traded daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as Level 2. ~~Since all investments are classified as available-for-sale securities, any unrealized gains or losses are recorded~~

Changes in ~~accumulated other comprehensive income or loss within stockholders’ equity~~Level 3 Liabilities Measured at Fair Value on a Recurring Basis

Warrant Liability and Future Tranche Right Liability

The reconciliation of the ~~Company’s balance sheet. The Company did not elect to measure any other financial assets or liabilities~~Company's warrant and future tranche right liability measured at fair value ~~at September 30, 2017 or December 31, 2016.~~on a recurring basis using unobservable inputs (Level 3) is as follows:


			Future
	Warrant		Tranche Right
(In thousands)	Liability		Liability
Balance, December 31, 2020	$	6,983	$	118,803
Change in the fair value of liability ⁽¹⁾		(6,983)		(118,803)
Balance, March 31, 2021	$	—	$	—

(1)

During the three months ended March 31, 2021, the Company’s liability-classified warrants and future tranche rights terminated, and accordingly, the liabilities were derecognized.

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Note 4. Investments

~~(7) Investments~~

The Company’s available-for-sale investments at fair value consisted of the following ~~at September 30, 2017 and~~as of December 31, ~~2016:~~2020:

September 30, 2017




Gross

Gross

Estimated

Unrealized

Unrealized

Fair

Cost

(Losses)

Gains

Value

(In thousands)

Short-term investments – municipal bonds

$
1,400

$
—

$
—

$
1,400

Total short-term investments

1,400

—

—

1,400

Total investments

$
1,400

$
—

$
—

$
1,400


	December 31, 2020
			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
(In thousands)	Cost		(Losses)		Gains		Value
Short-term investments – commercial paper	$	3,499	$	—	$	—	$	3,499
Short-term investments – US treasury bills		1,000		—		—		1,000
Total short-term investments	$	4,499	$	—	$	—	$	4,499

December 31, 2016

Gross

Gross

Estimated

Unrealized

Unrealized

Fair


Cost

(Losses)

Gains

Value

(In thousands)

Short-term investments – corporate bonds

$
19,740

$
(11)

$
—

$
19,729

Short-term investments – municipal bonds

8,624

(6)

—

8,618

Total short-term investments

28,364

(17)

—

28,347

Total investments

$
28,364

$
(17)

$
—

$
28,347

The Company had no0 realized gains or losses from the sale of investments in available-for-sale securities ~~during~~for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020. In accordance with ASU 2016-13, if the fair value of the Company’s investments in available-for-sale debt securities is less than the amortized cost, the Company records (i) an allowance for credit losses with a corresponding charge to net income (loss) for any credit-related impairment, with subsequent improvements in expected credit losses recognized as a reversal of the allowance, and/or (ii) any non-credit impairment loss to other comprehensive income (loss).

As of December 31, 2020, the Company had 0 allowance for credit losses pertaining to the Company’s investments in available-for-sale debt securities. Additionally, there were ~~no losses~~0 impairment charges or ~~other-than-temporary declines in value included in~~recoveries recorded during each of the ~~Company’s statements of operations and comprehensive loss for any securities for both the nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016.~~2020.

~~See~~

Note ~~4, “Financial Instruments,” and Note 6, “Fair Value of Assets and Liabilities” for additional information related to the Company’s investments.~~

~~(8)~~5. Property and Equipment

At ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016, net~~2020, property and equipment, at cost, consisted of the following:


	September 30,		December 31,

					March 31,		December 31,
(In thousands)	2017		2016		2021		2020
Leasehold improvements	$	671	$	671	$	107	$	107
Laboratory equipment and other		5,158		5,127
Equipment and other						727		770
Total property and equipment, at cost		5,829		5,798	$	834	$	877
Less: Accumulated depreciation and amortization		4,417		3,945		796		833
Property and equipment, net	$	1,412	$	1,853	$	38	$	44

Depreciation and amortization expense on property and equipment was ~~$0.2~~less than $0.1 million for ~~both~~ the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, and $0.6 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively. There~~2020. Additionally, there were ~~less than $0.1 million in~~0 non-cash property additions or impairment-related charges recognized during ~~both the three months and nine months ended September 30, 2017 and 2016.~~

~~(9) Restricted Cash~~

~~As part~~each of the Company’s lease arrangement for its office and laboratory facility in Cambridge, Massachusetts, the Company is required to restrict cash held in a certificate of deposit securing a line of credit for the lessor. As of September 30, 2017respective time periods.

Note 6. Accrued Expenses

At March 31, 2021 and December 31, ~~2016, the restricted cash amounted to $0.3 million held in certificates of deposit securing a line of credit for the lessor. The lease expires August 2022.~~

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~~(10) Accrued Expenses~~

~~At September 30, 2017 and December 31, 2016,~~2020, accrued expenses consisted of the following:

September 30,

December 31,

(In thousands)

2017

2016

Payroll and related costs

$
2,704

$
2,498

Clinical and nonclinical trial expenses

2,838

3,577

Professional and consulting fees

476

840

Equipment purchase

—

368

Other

101

111

$
6,119

$
7,394


	March 31,		December 31,
(In thousands)	2021		2020
Payroll and related costs	$	642	$	2,133
Clinical and nonclinical trial expenses		3,123		3,229
Professional and consulting fees		500		584
Other		133		126
Total accrued expenses	$	4,398	$	6,072

~~Included~~

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Note 7. Redeemable Convertible Preferred Stock

December 2019 Private Placement

On December 23, 2019, the Company entered into the December 2019 Securities Purchase Agreement under which the Company sold 23,684 shares of Series B1 convertible preferred stock (“Series B1 Preferred Stock”) and warrants to purchase 2,368,400 shares of the Company’s common stock at an exercise price of $1.52 per share (or, if the holder elects to exercise the warrants for shares of Series B1 Preferred Stock, 23,684 shares of Series B1 Preferred Stock at an exercise price of $152 per share) for aggregate gross proceeds of $3.9 million (the “Initial Closing”).

In addition, the Company agreed to sell to the purchasers, at their option and subject to certain conditions, (i) 98,685 shares of Series B2 convertible preferred stock (“Series B2 Preferred Stock”) and 9,868,500 warrants to purchase common stock at an exercise price of $1.52 per share (or, at the election of the holder, 98,685 shares of Series B2 Preferred Stock at an price of $152 per share), for aggregate gross proceeds of $15 million (the “Series B2 Tranche”), (ii) 82,418 shares of Series B3 convertible preferred stock (“Series B3 Preferred Stock”) and 6,593,440 warrants to purchase common stock at an exercise price of $1.82 per share (or, at the election of the holder, 65,934 shares of Series B3 Preferred Stock at a price of $182 per share), for aggregate gross proceeds of $15 million (the “Series B3 Tranche”), and (iii) 82,418 shares of Series B4 convertible preferred stock (“Series B4 Preferred Stock”) and 6,593,440 warrants to purchase common stock at an exercise price of $1.82 per share (or, at the election of the holder, 65,934 shares of Series B3 Preferred Stock at a price of $182 per share), for aggregate gross proceeds of $15 million (the “Series B4 Tranche”) over a period of up to 21-months following the Company’s 2020 Annual Meeting of Stockholders held on May 12, 2020, where stockholders of the Company voted to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock to 140,000,000. As consideration for the future tranche rights, the Company received aggregate gross proceeds of $6.2 million in ~~accrued payroll~~December 2019.

The purchase and sale of the securities issuable under the Series B2, B3, and B4 tranches described above were subject to three separate closings, each to be conducted at the purchasers’ discretion. The right of the purchasers to purchase Series B2, Series B3 and Series B4 Preferred Stock was set to expire on the 10^th business day following the Company’s ORR Data Announcement, as defined in the December 2019 Securities Purchase Agreement, for its ILLUMINATE-301 study. As a result of the purchasers not exercising the Series B2 Tranche prior to expiration, all future tranche rights and outstanding warrants previously issued pursuant to the December 2019 Securities Purchase Agreement were terminated during the three months ended March 31, 2021. Accordingly, the Company is no longer eligible to receive additional proceeds pursuant to the December 2019 Securities Purchase Agreement and the related ~~costs~~warrant liability and future tranche right liability were derecognized during the period.

Accounting Considerations

The Company determined that the Series B1 Preferred Stock, the accompanying Series B1 warrants, and each of the future tranche rights represent freestanding financial instruments. The Series B1 warrants and the future tranche rights were classified as liabilities until their termination in March 2021 as the underlying shares were potentially redeemable and such redemption was deemed to be outside of the Company’s control.

Due to the redeemable nature of the Series B1 Preferred Stock, the Series B1 Preferred Stock is classified as temporary equity. While the Series B1 Preferred Stock is not currently redeemable, it will become redeemable either on (i) the fifth anniversary of the initial issue date, or December 23, 2024, provided that certain events (the “Redemption Loss Events”) do not occur first or (ii) upon a liquidation or deemed liquidation event, provided that certain events (the “Liquidation Loss Events”) do not occur first. The Company cannot assess the probability of whether the Redemption Loss Events will occur prior to the fifth anniversary of the initial issue date, if ever, as certain factors triggering such events are outside the control of the Company. Accordingly, the carrying value of the Series B1 Preferred Stock is currently being accreted to its redemption value. In the event the holders of the Series B1 Preferred Stock lose their right to request redemption, the Series B Preferred Stock will no longer be accreted to its redemption value until redemption upon a liquidation event is deemed probable. For the three months ended March 31, 2021 and 2020, accretion was de minimis.

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Note 7. Redeemable Convertible Preferred Stock (Continued)

During the three months ended March 31, 2021, 14,150 shares Series B1 Preferred Stock were converted into shares of the Company’s common stock. Subsequent to March 31, 2021, the Company’s remaining outstanding Series B1 Preferred Stock were converted into shares of the Company’s common stock. See Note 11 for details.

Note 8. Stockholders’ Equity

Common Stock Purchase Agreement

On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which was amended on September ~~30, 2017~~2, 2020 (as amended to date, the “LPC Purchase Agreement”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the Company’s sole discretion over a 36-month period. As consideration for entering into the LPC Purchase Agreement, the Company issued 269,749 shares of Company common stock to Lincoln Park as a commitment fee (the “Commitment Shares”). The closing price of the Company’s common stock on March 4, 2019 was $2.84 and the Company did not receive any cash proceeds from the issuance of the Commitment Shares.

During the three months ended March 31, 2021 and 2020, the Company sold 800,000 and 450,000 shares, respectively, pursuant to the LPC Purchase Agreement, resulting in net proceeds of $4.2 million and $0.8 million, respectively. As of March 31, 2021, the Company may sell up to an additional $25.3 million of shares under the LPC Purchase Agreement, subject to certain limitations.

"At-The-Market" Equity Program

In November 2018, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million (the “Shares”) through JMP as its agent. Subject to the terms and conditions of the ATM Agreement, JMP will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions, by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or if specified by the Company, by any other method permitted by law, including but not limited to in negotiated transactions. The Company has no obligation to sell any of the Shares, and the Company or JMP may at any time suspend sales under the ATM Agreement or terminate the ATM Agreement. JMP is entitled to a fixed commission of 3.0% of the ~~current portion, or~~gross proceeds from Shares sold.

During the three months ended March 31, 2021 and 2020, the Company sold 2,394,956 and 403,983 shares of common stock, respectively, pursuant to the ATM Agreement resulting in net proceeds, after deduction of commissions and other offering expenses, of $12.1 million and $0.6 million, respectively. As of March 31, 2021, the Company may sell up to an additional $22.9 million of shares under the ATM Agreement.

July 2020 Private Placement

On July 13, 2020, the Company entered into a Securities Purchase Agreement (the “July 2020 Securities Purchase Agreement”) with Pillar Partners Foundation, L.P. (“Pillar Partners”), Pillar Pharmaceuticals 6, L.P. (“Pillar 6”), and Pillar Pharmaceuticals 7 L.P. (“Pillar 7”) (collectively, the “July 2020 Purchasers”), each a related party as more fully described in Note 11, pursuant to which, among other things, provided the July Purchasers the option to purchase, at their sole discretion, pre-funded warrants to purchase up to 784,615 shares of the ~~remaining $1.0~~Company’s common stock, at an exercise price of $0.01 per share, and warrants to purchase up to 274,615 shares of the Company’s common stock, at an exercise price of $9.75, for aggregate gross proceeds of $5.1 million ~~of salary continuation severance benefits~~(the “July 2020 Private Placement Second Closing”). During the three months ended March 31, 2021, the option to ~~be paid in equal installments through May 31, 2019 to a former executive. The long-term portion of $0.4 million is included within Other liabilities~~purchase securities in the July 2020 Private Placement Second Closing terminated. As a result, the Company is no longer eligible to receive additional proceeds from the sale of additional securities pursuant to the July 2020 Securities Purchase Agreement. However, the July 2020 Purchasers still hold outstanding warrants previously issued under the July 2020 Securities Purchase Agreement, as detailed below under the heading “Common Stock Warrants”.

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Note 8. Stockholders’ Equity (Continued)

Common Stock Warrants

In connection with various financing transactions, the Company has issued warrants to purchase shares of the Company’s ~~balance sheet~~common stock and preferred stock. The Company accounts for common and preferred stock warrants as ~~of September 30, 2017.~~

~~(11) Comprehensive Income (Loss)~~

~~Comprehensive income (loss) is defined as the change in~~ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss for the nine months ended September 30, 2017 and 2016 is comprised of reported net loss and any change in net unrealized gains and losses on investments during each period, which is included in accumulated other comprehensive income (loss)instruments or liabilities, depending on the ~~accompanying balance sheets.~~specific terms of the warrant agreement.

The following table ~~includes the changes in the accumulated balance~~summarizes outstanding warrants to purchase shares of the ~~component~~Company’s common stock and/or preferred stock as of ~~other comprehensive income (loss)~~March 31, 2021 and December 31, 2020:


	Number of Shares
	March 31,	December 31,	Weighted-Average		Contractual
Description	2021	2020	Exercise Price		Expiration Date
Liability-classified Warrants
December 2019 Series B1 warrants ⁽¹⁾	—	2,368,400		$ 1.52	Dec 2026
	—	2,368,400
Equity-classified Warrants
May 2013 warrants	15,437	1,949,754		$ 0.08	None
September 2013 warrants	4,096	514,756		$ 0.08	None
February 2014 warrants	2,171	266,006		$ 0.08	None
April 2020 Private Placement first closing warrants	3,039,514	3,039,514		$ 2.28	Apr 2023
April 2020 Private Placement second closing warrants	1,373,626	1,373,626		$ 2.71	Dec 2023
April 2020 Private Placement second closing warrants	2,033,786	2,677,311		$ 0.01	None
July 2020 Private Placement first closing warrants	2,014,234	2,014,234		$ 0.01	None
July 2020 Private Placement first closing warrants	2,764,227	2,764,227		$ 2.58	Jul 2023
	11,247,091	14,599,428
Total outstanding	11,247,091	16,967,828

(1)

The Series B1 warrants were exercisable for either common stock (exercise price of $1.52) or Series B1 Convertible Preferred Stock (exercise price of $152), at the discretion of the warrant holder. However, as more fully disclosed in Note 7, the December 2019 Series B1 warrants were terminated during the three months ended March 31, 2021 contemporaneously with the termination of the future tranche rights.

The table below is a summary of the Company’s warrant activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021.


	Number of	Weighted-Average
	Warrants	Exercise Price
Outstanding at December 31, 2020	16,967,828	$	1.28
Issued	—		—
Exercised ⁽¹⁾	(3,352,337)		0.07
Expired	(2,368,400)		1.52
Outstanding at March 31, 2021	11,247,091	$	1.58

(1)

During the three months ended March 31, 2021, certain related parties exercised warrants as more fully described in Note 11.

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Note 9. Collaboration and ~~2016:~~ License Agreements

Nine Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

Accumulated unrealized loss on available-for-sale securities at beginning of period

$
(17)

$
(134)

Change during the period

17

133

Accumulated unrealized loss on available-for-sale securities at end of period

$
—

$
(1)

Scriptr Collaboration and Option Agreement

~~(12) Collaboration with GlaxoSmithKline Intellectual Property Development Limited~~

~~Collaboration Overview~~

In ~~November 2015,~~February 2021, the Company entered into a collaboration and ~~license~~option agreement with ~~GlaxoSmithKline Intellectual Property Development Limited~~Scriptr Global, Inc. (“~~GSK”~~Scriptr”), pursuant to which (i) the Company and Scriptr will conduct a research collaboration utilizing Scriptr Platform Technology (“SPT”) to ~~license,~~identify, research and develop ~~and commercialize pharmaceutical compounds from the Company’s 3GA technology~~gene therapy candidates (each, a “Collaboration Candidate”) for the treatment, palliation, diagnosis or prevention of ~~selected targets in renal disease (the “GSK Agreement”~~(a) myotonic dystrophy type 1 (“DM1 Field”)~~. The initial collaboration term is currently anticipated to last between two~~ and ~~four years. In connection with the GSK Agreement, GSK identified an initial target for~~(b) Friedreich’s Ataxia (“FA Field”) on a Research Program-by-Research Program basis, as applicable, and (ii) the Company to attempt to identify a potential population of development candidates to address such target under a mutually agreed upon research plan, currently estimated to take 36 months to complete. From the population of identified development candidates, GSK may designate one development candidatewas granted an exclusive option, in its sole discretion, to ~~move forward into clinical development. Once GSK designates a development candidate, GSK would be solely responsible for~~make effective the ~~development and commercialization activities for that designated development candidate.~~

~~Table of Contents~~

~~At any time during the first two years of the GSK~~Scriptr License Agreement, GSK has the option to select up to two additional targets, for further research under mutually agreed upon research plans. GSK may then designate one development candidate for each additional target, at which time GSK would have sole responsibility to develop and commercialize each such designated development candidate. To date, GSK has not selected any additional targets for research.

In accordance with the GSK Agreement, a Joint Steering Committee (“JSC”) was formed with equal representation from Idera and GSK. The responsibilities of the JSC, include, but are not limited to monitoring the progress of the collaboration, reviewing research plans and dealing with disputes that may arise between the parties. If a dispute cannot be resolved by the JSC, GSK has final decision making authority.

Under the terms of the GSK Agreement, the Company received a $2.5 million upfront, non-refundable, non-creditable cash payment upon the execution of the GSK Agreement. The Company is eligible to receive up to approximately $100 million in license, research, clinical development and commercialization milestone payments. Approximately $9 million of these milestone payments are payable by GSK upon the identification of the additional targets, the completion of current and future research plans and the designation of development candidates. Approximately $89 million is payable by GSK upon the achievement of clinical milestones and commercial milestones. In addition, the Company is eligible to receive royalty payments on sales upon commercialization at varying rates of up to five percent on annual net sales, as defined inbelow, for a given Research Program, as defined below, to make use of Collaboration Candidates and related intellectual property (collectively, the ~~GSK Agreement.~~“Scriptr Agreement”).

~~Accounting Analysis~~

~~The Company evaluated~~Pursuant to the ~~GSK~~Scriptr Agreement, Scriptr will use commercially reasonable efforts to carry out research activities set forth in accordance with the ~~provisions~~applicable DM1 Field and FA Field research plans, including certain pre-clinical proof of ~~ASC 605-25. The GSK Agreement contains~~concept studies, to identify research Collaboration Candidates utilizing SPT (each, a “Research Program”). Following the ~~following initial deliverables: (i)~~completion of activities under a ~~collaboration license for Idera’s proprietary technology related~~given Research Program, Scriptr will prepare and submit to ~~the initial target (the “Collaboration License”~~Idera a comprehensive data package (each, a “Data Package”)~~, (ii) research services (the “Research Services”), and (iii) participation in the JSC (the “JSC Deliverable”).~~

~~The Company has determined~~ that GSK’s options to choose up to two additional targets and to purchase additional collaboration licenses for the Company’s proprietary technology related to each additional target are substantive options. GSK is not contractually obligated to exercise the options. Moreover, assummarizes, on a ~~result of the uncertain outcome of the research activities, there is significant uncertainty as to whether GSK will decide to exercise its options for~~Program-by-Program basis, any additional targets. Consequently, the Company is at risk with regard to whether GSK will exercise the options. To date, no such options have been exercised. The Company has determined that GSK’s options to choose up to two additional targets and to purchase additional collaboration licenses for the Company’s proprietary technology related to each additional target are not priced at a significant and incremental discount.

~~The Company has concluded that the~~ Collaboration ~~License does not qualify for separation from~~Candidates researched under the Research ~~Services. As it relates to the assessment~~Program, including any data and results. Upon receipt of ~~standalone value,~~a Data Package, the Company has, ~~determined that GSK cannot fully exploit~~in its sole discretion, up to two-hundred seventy (270) calendar days to make effective the ~~value~~exclusive license agreement entered into by and between the Company and Scriptr, pursuant to which, among other things, grants Idera exclusive rights and licenses with respect to the development, manufacture and commercialization of licensed candidates and products, subject to certain conditions and limitations (the “Scriptr License Agreement”), for a given Research Program (each licensed Research Program, a “Licensed Program”). The Scriptr License Agreement provides for customary development milestones on candidates developed under a Licensed Program and royalties on licensed products, if any.

In partial consideration of the ~~Collaboration License without receipt~~rights granted by Scriptr to the Company under the Scriptr Agreement, the Company made a one-time, non-creditable and non-refundable payment to Scriptr during the first quarter of 2021. In order to fund conduct of the Research Services from the Company. The Research Services involve unique skills and specialized expertise, particularly as it relates to the Company’s proprietary technology, which is not available in the marketplace. Accordingly, GSK must obtain the Research Services fromPrograms, the Company ~~which significantly limits the ability~~shall reimburse Scriptr for ~~GSK to utilize the Collaboration License for its intended purpose~~costs incurred by or on a standalone basis. Therefore, the Collaboration License does not have standalone value from the Research Services. As a result, the Collaboration License and the Research Services have been combined as a single unitbehalf of accounting (the “R&D Services Unit of Accounting”). The Company has concluded that the JSC Deliverable identified at the inception of the arrangement has standalone value from the other deliverables noted based on its nature. Factors considered in this determination included, among other things, the capabilities of the collaborator, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement.

~~Therefore, the Company has identified two units of accounting~~Scriptr in connection with ~~its initial deliverables~~the conduct of each Research Program during the Research Term in accordance with the applicable Research Program budget and payment schedule. The Company incurred approximately $0.7 million in research and development expenses under the ~~GSK Agreement as follows: (i) the R&D Services Unit of Accounting, and (ii) the JSC Deliverable.~~

~~Table of Contents~~

Allocable arrangement consideration at inception of the GSK Agreement is comprised of the up-front payment of $2.5 million, which was allocated to the R&D Services Unit of Accounting. No amount was allocated to the JSC Deliverable because the related best estimate of selling price was determined to be de minimis. The $2.5 million was recorded as deferred revenue in the Company’s balance sheet and is being recognized as revenue on a straight-line basis over the Company’s estimate of the period over which the Research Services are delivered. In the second quarter of 2017, the Company revised its estimate of the research period from 27 months to 36 months, which is being accounted for on a prospective basis.

Payments to be received in connection with GSK’s identification of additional targets and designation of development candidates are considered substantive options as a result of the uncertainties related to the research, development and commercialization activities, and the uncertainty as to whether GSK will exercise the options. The substantive options are not priced at a significant incremental discount. Accordingly, the substantive options are not considered deliverables at the inception of the arrangement and the associated option exercise payments are not accounted for at inception of the agreement. To date, no such options have been exercised.

The clinical and commercial milestones provided for in the GSK Agreement are all performance obligations of GSK occurring after the Company has completed its obligations. As a result, they represent contingent revenue to the Company and will be accounted for at the time the contingencies are resolved.

The Company will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.

~~The Company recognized as revenue $0.1 million and $0.3 million of deferred revenue related to the GSK~~Scriptr Agreement during the three months ended ~~September 30,~~March 31, 2021.

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Note 10. Stock-Based Compensation

As of March 31, 2021, the only equity compensation plans from which the Company may currently issue new awards are the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock Purchase Plan (the “2017 ESPP”), each as more fully described below.

Equity Incentive and ~~2016, respectively, and $0.6 million and $0.8 million of deferred revenue~~Employee Stock Purchase Plans

2013 Stock Incentive Plan

The 2013 Plan allows for the ~~nine~~issuance of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), other stock-based awards and performance awards. The total number of shares of common stock authorized for issuance under the 2013 Plan is 5,653,057 shares of the Company’s common stock, plus such additional number of shares of common stock (up to 868,372 shares) as is equal to the number of shares of common stock subject to awards granted under the Company’s 2005 Stock Incentive Plan or 2008 Stock Incentive Plan (the “2008 Plan”), to the extent such awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

As of March 31, 2021, options to purchase a total of 4,462,125 shares of common stock and 618,456 restricted stock units were outstanding and up to 420,222 shares of common stock remained available for grant under the 2013 Plan.

Other Awards and Inducement Grants

The Company has not made any awards pursuant to other equity incentive plans, including the 2008 Plan, since the Company’s stockholders approved the 2013 Plan. As of March 31, 2021, options to purchase a total of 220,408 shares of common stock were outstanding under the 2008 Plan. In addition, as of March 31, 2021, non-statutory stock options to purchase an aggregate of 325,000 shares of common stock were outstanding that were issued outside of the 2013 Plan to certain employees in 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of new hires’ employment compensation.

2017 Employee Stock Purchase Plan

The 2017 ESPP is intended to qualify as an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code,and is intended to encourage our employees to become stockholders of ours, to stimulate increased interest in our affairs and success, to afford employees the opportunity to share in our earnings and growth and to promote systematic savings by them. The total number of shares of common stock authorized for issuance under the 2017 ESPP is 412,500 shares of common stock, subject to adjustment as described in the 2017 ESPP. As of March 31, 2021, 237,694 shares remained available for issuance under the 2017 ESPP.

For the three months ended ~~September 30,~~March 31, 2021 and 2020, the Company issued 7,648 and 18,848 shares of common stock, respectively, under the 2017 ESPP and ~~2016, respectively. This revenue is classified as alliance revenue in the accompanying statements~~received proceeds of ~~operations and comprehensive loss.~~

~~There was $0.7 million of deferred revenue related to the GSK Agreement at September 30, 2017, of which $0.6 million is reflected in current portion of deferred revenue and~~less than $0.1 million ~~is reflected~~during each period, as ~~long-term deferred revenue in the accompanying balance sheet.~~a result of employee stock purchases.

~~(13)~~

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Note 10. Stock-Based Compensation (Continued)

Accounting for Stock-based Compensation

The Company recognizes ~~all stock-based payments to employees and directors as expense in the statements of operations and comprehensive loss based on their fair values. The Company records~~non-cash compensation expense ~~over an award’s requisite service period, or vesting period, based on~~for stock-based awards under the ~~award’s fair value at~~Company’s equity incentive plans and employee stock purchases under the ~~date of grant. The~~ Company’s ~~policy is to charge the fair value of stock options~~2017 ESPP as an expense on a straight-line basis over the vesting period, which is generally four years for employees and three years for directors. The Company accounts for forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.follows:

•

Stock Options: Compensation cost is recognized over an award’s requisite service period, or vesting period, using the straight-line attribution method, based on the grant date fair value determined using the Black-Scholes option-pricing model.

•

RSUs: Compensation cost for time-based RSUs, which vest over time based only on continued service, is recognized on a straight-line basis over the requisite service period based on the fair value of the Company’s common stock on the date of grant. Compensation cost for awards that are subject to market considerations is recognized on a straight-line basis over the implied requisite service period, based on the grant date fair value estimated using a Monte Carlo simulation. Compensation cost for awards that are subject to performance conditions is recognized over the period of time commencing when the performance condition is deemed probable of achievement based on the fair value of the Company’s common stock on the date of grant.

•

Employee Stock Purchases: Compensation cost is recognized over each plan period based on the fair value of the look-back provision, calculated using the Black-Scholes option-pricing model, considering the 15% discount on shares purchased.

Total stock-based compensation expense ~~recognized using the straight-line attribution method~~attributable to stock-based awards made to employees and directors and employee stock purchases included in operating expenses in the ~~Company’s~~Company's condensed statements of operations ~~and comprehensive loss was $1.6 million~~ for ~~both~~ the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, and $9.2 million and $5.1 million for~~2020 were as follows:


	Three Months Ended
	March 31,
(in thousands)	2021		2020
Stock-based compensation:
Research and development
Employee Stock Purchase Plan	$	12	$	11
Equity Incentive Plan		368		193
	$	380	$	204
General and administrative
Employee Stock Purchase Plan	$	2	$	1
Equity Incentive Plan		729		545
	$	731	$	546
Total stock-based compensation expense	$	1,111	$	750

During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively. Included in~~2020, the ~~$9.2 million recognized during the nine months ended September 30, 2017 is $4.3 million~~weighted average fair market value of stock-based compensation resulting from modifications to previously issued stock option awards in connection with the resignation of an executive in the second quarter of 2017, which is recorded in Research and development expense. Additionally, as of September 30, 2017, there was approximately $10.9 million of unrecognized compensation expense related to non-vested stock options ~~which is expected to be recognized over a weighted-average period of 2.2 years.~~granted was $2.53 and $1.07, respectively.

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Note 10. Stock-Based Compensation (Continued)

~~The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.~~

The following weighted average assumptions apply to the options to purchase ~~4,166,500~~677,500 and ~~3,281,000~~643,629 shares of common stock granted to employees ~~and directors~~ during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively:


	Nine Months Ended
	September 30,
	2017		2016
Average risk free interest rate		1.7%		1.4%

					2021		2020
Average risk-free interest rate						0.3%		1.0%
Expected dividend yield		—		—		—		—
Expected lives (years)		4.0		4.2		3.9		3.9
Expected volatility		86.5%		92.8%		85%		84%
Weighted average grant date fair value (per share)	$	1.01	$	1.77
Weighted average exercise price (per share)	$	1.61	$	2.65	$	4.20	$	2.08

~~The expected lives and the expected volatility of the options granted during the nine months ended September 30, 2017 and 2016 are based on historical experience.~~ All options granted during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 were granted at exercise prices equal to the fair market value of the Company’s common stock on the ~~dates~~date of grant.

~~(14) Net Loss per Common Share~~

~~For~~ As further described below, the vesting of certain options granted to employees during the three ~~and nine~~ months ended ~~September 30, 2017 and 2016, basic and diluted net loss per common share is computed using the weighted average number of shares of common stock outstanding~~March 31, 2021 were accelerated during the period. ~~Diluted net loss per common share~~

Stock Option Activity

The following table summarizes stock option activity for the three months ended March 31, 2021:


($ in thousands, except per share data)	Stock Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2020	4,614,323	$	9.78	6.8	$	2,949
Granted	677,500		4.20
Exercised	(22,500)		2.11
Forfeited	(219,564)		4.09
Expired	(42,226)		11.72
Outstanding at March 31, 2021 ⁽¹⁾	5,007,533	$	9.29	6.6	$	—
Exercisable at March 31, 2021	4,234,391	$	10.12	6.3	$	—

(1)

Includes both vested stock options as well as unvested stock options for which the requisite service period has not been rendered but that are expected to vest based on achievement of a service condition.

During the three months ended March 31, 2021, the Company accelerated the vesting of 1,535,578 options, which were previously granted from 2019 through 2021. As of March 31, 2021, there was $1.8 million of unrecognized compensation cost related to unvested options, which the Company expects to recognize over a weighted average period of 1.8 years.

Restricted Stock Activity

The following table summarizes restricted stock activity for the three months ended March 31, 2021:


	Time-based Awards			Market/Performance-based Awards
($ in thousands, except per share data)	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested shares at December 31, 2020	354,003	$	2.27	549,318	$	1.54
Granted	—		—	—		—
Cancelled	(48,100)		2.30	—		—
Vested	(236,765)		2.25	—		—
Nonvested shares at March 31, 2021	69,138	$	2.31	549,318	$	1.54

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Note 10. Stock-Based Compensation (Continued)

Time-based Restricted Stock Units

During the three months ended March 31, 2021, the Company accelerated the vesting of 137,872 unvested time-based restricted stock units which were previously granted in 2019 and 2020. As of March 31, 2021, there was $0.1 million of unrecognized compensation expense related to the Company’s time-based RSUs, which is expected to be recognized over a weighted-average period of 2.3 years.

Market/Performance-based Restricted Stock Units

In July 2020, the ~~same~~Company granted RSUs to certain employees, including executive officers, under the 2013 Plan, with vesting that may occur upon a combination of specific performance and/or market conditions. Accordingly, the Company views these RSUs as ~~basic net loss per common share~~two separate awards: (i) an award that vests if the market condition is achieved, and (ii) an award that vests whether or not the market condition is achieved, so long as the ~~effects~~performance condition is achieved. The Company is currently recognizing compensation expense for these awards over the estimated requisite service period of 2.36 years based on the estimated fair value when considering the market condition of the award, which was determined using a Monte Carlo simulation. During the three months ended March 31, 2021, the Company recognized $0.1 million of compensation expense related to these awards. As of March 31, 2021, the remaining unrecognized compensation cost for the market-based component of these awards, which is expected to be recognized over a weighted-average period of 1.7 years, is $0.6 million. In addition, should the performance condition be achieved, the Company would recognize an additional $0.3 million of compensation expense.

Note 11. Related Party Transactions

Baker Brothers

Julian C. Baker, a member of the Company’s ~~potential~~Board until his resignation in September 2018, is a principal of Baker Bros. Advisors, LP. Additionally, Kelvin M. Neu, a member of Company’s Board until his resignation in June 2019, is an employee of Baker Bros. Advisors, LP. At December 31, 2020, Baker Bros. Advisors, LP and certain of its affiliated funds (collectively, “Baker Brothers”) held sole voting power with respect to an aggregate of 4,608,786 shares of the Company’s common stock, ~~equivalents are antidilutive. Total antidilutive securities were 72,981,524 and 73,115,102 for~~representing approximately 12% of the ~~nine~~Company's then outstanding common stock.

During the three months ended ~~September 30, 2017 and 2016, respectively, and consist~~March 31, 2021, Baker Brothers exercised warrants to purchase 2,708,812 shares of ~~stock options, convertible preferred stock and warrants.~~

~~(15) Stockholders’ Equity~~

~~Common Stock Warrant Exercises, Stock Option Exercises and Employee Stock Purchases~~

~~The Company issued~~the Company’s common stock asat an exercise price of $0.08 per share for a ~~result~~total exercise price of ~~warrant exercises, stock option exercises and employee stock purchases as follows~~approximately $0.2 million. Additionally, during the ~~nine~~three months ended ~~September 30, 2017 and 2016:~~March 31, 2021, Baker Brothers converted 14,150 shares Series B1 Preferred Stock into 1,415,000 shares of the Company’s common stock. As of March 31, 2021, Baker Brokers held approximately 4% of the Company’s outstanding stock.

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

(In thousands)

Shares

Proceeds

Shares

Proceeds

Warrant exercises

409

$
287

—

$
—

Stock option exercises

7

17

—

—

Employee stock purchases

132

184

79

111

Total

548

$
488

79

$
111

~~Subsequent to September 30, 2017, entities affiliated with a related party exercised~~As of March 31, 2021, Baker Brothers held 9,534 shares of the Company’s Series B1 Preferred Stock, which were subsequently converted into 953,400 shares of the Company’s common stock in April 2021. See Note 13.

Pillar Investment Entities

Youssef El Zein, a member of the Company’s board of directors until his resignation in October 2017, is a director and controlling stockholder of Pillar Invest Corporation (“Pillar Invest”), which is the general partner of Pillar Pharmaceuticals I, L.P., Pillar Pharmaceuticals II, L.P., Pillar Pharmaceuticals III, L.P., Pillar Pharmaceuticals IV, L.P., Pillar Pharmaceuticals V, L.P., Pillar 6, Pillar 7, and Pillar Partners (collectively, the “Pillar Investment Entities”). As of March 31, 2021, the Pillar Investment Entities own approximately 13% of the Company's common stock.

During the three months ended March 31, 2021, Pillar 6 exercised warrants ~~as more fully described in Note 18.~~

~~Common Stock – 2017 Follow-on Public Offering~~

~~Subsequent~~ to ~~September 30, 2017, the Company sold~~ ~~38,333,334~~purchase 643,525 shares of ~~its~~the Company’s common stock ~~par value $0.001~~at an exercise price of $0.01 per share ~~in an underwritten public offering, including shares sold in the overallotment, at~~for a total exercise price ~~per share~~ of ~~$1.50 as more fully described in Note 18.~~less than $0.1 million.

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~~(16)~~Note 11. Related Party Transactions (Continued)

~~The Company issued 66,954 and 66,915~~As of March 31, 2021, the Pillar Investment Entities held (i) prefunded warrants to purchase up to 4,048,020 shares of the Company’s common stock ~~during~~at an exercise price of $0.01 per share, (ii) warrants to purchase up to 3,039,514 shares of the ~~nine months ended September 30, 2017~~Company’s common stock at an exercise price of $2.28 per share, (iii) warrants to purchase up to 2,764,227 shares of the Company’s common stock at an exercise price of $2.58 per share, and ~~2016, respectively,~~(iv) warrants to purchase up to 1,373,626 shares of the Company’s common stock at an exercise price of $2.71 per share.

Subsequent to March 31, 2021, in April 2021, certain of the Pillar Investment Entities exercised prefunded warrants to purchase 2,514,861 shares of the Company’s common stock at an exercise price of $0.01 per share. See Note 13.

Board Fees Paid in Stock

Pursuant to the Company’s director compensation program, in lieu of director board and committee fees of less than $0.1 million ~~for~~during each ~~nine-month period, pursuant~~of the three months ended March 31, 2021 and 2020, the Company issued 47,400 and 56,014 shares of common stock, respectively, to certain of its directors. Director board and committee fees are paid in arrears and the ~~Company’s director compensation program. The~~ number of shares issued was calculated based on the market closing price of the Company’s common stock on the issuance date.

~~Subsequent~~

Note 12. Net Income per Common Share

The Company uses the two-class method to ~~September 30, 2017, entities affiliated~~compute net income per common share during periods the Company realizes net income and has securities outstanding (redeemable convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company. In addition, the Company analyzes the potential dilutive effect of outstanding redeemable convertible preferred stock under the "if-converted" method when calculating diluted earnings per share and reports the more dilutive of the approaches (two class or "if-converted"). The two-class method is not applicable during periods with a net loss, as the holders of the redeemable convertible preferred stock have no obligation to fund losses.

The Company also analyzes the potential dilutive effect of stock options, restricted stock units, warrants and shares underlying future tranche rights under the treasury stock method (as applicable), during periods of income, or during periods in which income is recognized related ~~party exercised~~to changes in fair value of its liability-classified securities.

For each of the three months ended March 31, 2021 and 2020, the Company used the two-class method to compute net income per common share. Under this method, net income is reduced by the amount of any dividends earned and the accretion of redeemable convertible preferred stock to its redemption value, if any, during the period. The remaining earnings (undistributed earnings) are allocated to common stock ~~warrants as more fully described in Note 18. Additionally, subsequent to September 30, 2017, entities affiliated with a related party participated in an underwritten public offering~~and each series of ~~shares of the Company’s common~~redeemable convertible preferred stock ~~as more fully described in Note 18. See Notes 9(d), 14 and 15~~ to the ~~financial statements included~~extent that each preferred security may share in ~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion of related parties.~~

~~(17) Deferred Tax Assets~~

The Company’s deferred tax assets are determined based on temporary differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded against deferred tax assetsearnings as if ~~it is more likely than not that some portion or~~ all of the ~~deferred tax assets will not be realized. For~~earnings for the ~~nine~~period had been distributed. The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share.

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Note 12. Net Income per Common Share (Continued)

Details in the computation of basic and diluted net income per common share were as follows:


	Three Months Ended
	March 31,
($ in thousands except per share data)		2021		2020
Net income per share — Basic:
Net income	$	115,738	$	8,817
Less: Undistributed earnings to preferred stockholders		(6,132)		(639)
Net income applicable to common stockholders - basic	$	109,606	$	8,178

Net income applicable to common stockholders	$	109,606	$	8,178
Denominator for basic net income per share		41,193		30,300
Basic net income per common share	$	2.66	$	0.27

Net (loss) income per share — Diluted:
Net income	$	115,738	$	8,817
Less: Warrant revaluation gain applicable to dilutive warrants		(6,983)		(1,101)
Less: Future tranche right revaluation gain applicable to dilutive future tranche rights		(118,803)		—
Less: Undistributed earnings to preferred stockholders		—		(517)
Numerator for diluted net (loss) income per share	$	(10,048)	$	7,199

Denominator for basic net income per share		41,193		30,300
Plus: Incremental shares underlying “in the money” warrants outstanding		1,449		2,710
Plus: Incremental shares underlying “in the money” future tranche rights outstanding		28,338		—
Denominator for diluted net (loss) income per share		70,980		33,010
Diluted net (loss) income per common share	$	(0.14)	$	0.22

Total antidilutive securities excluded from the calculation of diluted net income per share for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, the Company did not record any current or deferred income tax provisions or benefits. Due to the uncertainty surrounding the future realization~~2020 were as follows:


(in thousands)	2021	2020
Stock options	5,008	4,705
Restricted stock units	618	376
Common stock warrants	11,247	—
Convertible preferred stock	954	—
Future tranche rights	—	49,407
Total	17,827	54,488

Table of ~~the deferred tax assets, the Company has recorded full valuation allowances against its otherwise recognizable deferred tax assets at September 30, 2017 and December 31, 2016.~~Contents

~~(18)~~Note 13. Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

~~2017 Follow-on Public Offering~~

Common Stock Issuance

~~On October 30, 2017,~~

Subsequent to March 31, 2021, in April 2021, the Company ~~completed a follow-on underwritten public offering, in which it sold 33,333,334~~(i) issued 953,400 shares of its common stock ~~at a price to~~upon the public of $1.50 per share for aggregate gross proceeds of $50.0 million (“2017 Offering”). On November 1, 2017, the Company sold an additional 5,000,000 shares of common stock pursuant to the exercise in fullconversion of the ~~underwriters’ 30-day option to purchase additional~~Company’s remaining outstanding Series B1 Preferred Stock and (ii) issued 2,495,809 shares of the Company’s common stock atupon the ~~public offering price~~exercise of certain prefunded warrants for aggregate gross proceeds of less ~~underwriting discount. The estimated net proceeds to~~than $0.1 million, each as more fully described in Note 11.

Reduction-in-Force

In April 2021, following the announcement that the Company’s ILLUMINATE-301 trial did not meet its primary endpoint of objective response rate (ORR), the Company ~~from~~decided to implement a reduction in force which is expected to affect approximately 50% of its workforce by May 31, 2021. The decision was made in order to align the ~~2017 Offering, including~~Company’s workforce to its needs in light of the ~~exercise by~~outcome of ILLUMINATE-301’s ORR endpoint as the ~~underwriters~~Company evaluates next steps regarding continuation of ~~their option to purchase additional shares and after deducting underwriters’ discounts and commissions~~the trial toward its overall survival (OS) endpoint and other ~~offering~~business development activities.In connection with these actions, the Company incurred one-time termination costs in connection with the reduction in workforce, which includes severance, benefits and ~~expenses, were~~related costs, of approximately ~~$53.8 million.~~

~~Baker Bros. Advisors LP,~~$0.7 million in April 2021 and ~~certain of its affiliated funds (collectively, “Baker Brothers”), entities affiliated with two~~currently expects to incur an additional $0.2 million during the balance of the ~~Company’s directors, participated in the 2017 Offering and purchased 8,000,000 shares~~second quarter of the Company’s common stock at the price offered to the public. As of October 30, 2017 Baker Brothers held 18,306,757 shares of the Company’s common stock, warrants to purchase up to 20,316,327 shares of the Company’s common stock at an exercise price of $0.47 per share and pre-funded warrants to purchase up to 22,151,052 shares of the Company’s common stock at an exercise price of $0.01 per share.2021.

~~Common Stock Warrants~~

~~In October 2017, entities affiliated with Pillar Invest Corporation, a related party,~~ ~~exercised warrants to purchase 6,842,844 shares of common stock at a total exercise price of $4.8 million.~~

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~~Proposed Reverse Stock Split Common Stock Offering~~

In October 2017, the Company’s board of directors (the “Board”) adopted, subject to stockholder approval, an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of our common stock by a whole number ratio of not less than 1-for-4 and not more than 1-for-8, and in connection therewith to set the authorized number of shares of common stock at the number determined by calculating the product of 280,000,000 and two times the actual reverse stock split ratio. Also in October 2017, the Board submitted a proposal to its stockholders to approve the amendment to the Company’s Certificate of Incorporation at a special meeting of stockholders expected to be held in January 2018. If approved, the Board would have the authority to set the ratio and timing of the reverse stock split and implement the reverse stock split.

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Item 2.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with:

●

our unaudited condensed financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q; and

●

our audited financial statements and accompanying notes included in the 2020 Form 10-K, as well as the information contained under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K.

In addition to historical information, this discussion and analysis contains forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those discussed in the section titled “Risk Factors,” set forth in Item 1A of our 2020 Form 10-K and this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from historical results or anticipated results.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

Overview

~~Overview~~

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel oligonucleotide therapeutics for oncology and rare diseases. We use two distinct proprietary drug discovery technology platforms to design and develop drug candidates: our Toll-like receptor, or TLR, targeting technology and our third-generation antisense, or 3GA, technology. We developed these platforms based on our scientific expertise and pioneering work with synthetic oligonucleotides as therapeutic agents. Using our TLR targeting technology, we design synthetic oligonucleotide-based drug candidates to modulate the activity of specific TLRs. In addition, using our 3GA technology, we are developing drug candidates to turn off the messenger RNA, or mRNA, associated with disease causing genes. We believe our 3GA technology may potentially reduce the immunotoxicity and increase the potency of earlier generation antisense and RNA interference, or RNAi, technologies.

~~Our~~a business strategy is focused on the clinical development, and ultimately the commercialization, of drug candidates for both oncology and rare ~~diseases~~disease indications characterized by small, well-defined patient populations with serious unmet medical needs. Our current focus is on our Toll-like receptor (“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. We ~~believe we can~~are currently seeking to develop and commercialize ~~these~~ targeted therapies on our own. To the extent we seek to develop drug candidates for broader disease indications, we have entered into and may explore additional collaborative alliances to support development and commercialization.

~~TLR Modulation Technology Platform~~

TLRs are key receptors of the immune system and play a role in innate and adaptive immunity. As a result, we believe TLRs are potential therapeutic targets for the treatment of a broad range of diseases. Using our chemistry-based platform, we ~~have~~ designed both TLR agonists and antagonists to act by modulating the activity of targeted TLRs. A TLR agonist is a compound that stimulates an immune response through the targeted TLR. A TLR antagonist is a compound that inhibits an immune response by blocking the targeted TLR.

Our ~~TLR agonist lead~~current TLR-targeted clinical-stage drug candidate, ~~IMO-2125~~tilsotolimod, is an agonist of TLR9. ~~Our TLR antagonist lead drug candidate is IMO-8400, which is an antagonist of TLR7, TLR8 and TLR9.~~

We are currently developing ~~IMO-2125 for the treatment by intra-tumoral~~tilsotolimod, via intratumoral injection, ~~of multiple oncology indications both in combination with checkpoint inhibitors and as monotherapy. We are developing IMO-8400~~ for the treatment of ~~rare diseases and have selected dermatomyositis~~anti-PD1 refractory metastatic melanoma in combination with ipilimumab, an anti-CTLA4 antibody marketed as ~~our lead clinical target.~~

~~Intra-tumoral IMO-2125 Development Program~~Yervoy® by Bristol Myers Squibb Company (“BMS”) in ~~Immuno-oncology~~

~~Advancements~~a Phase 3 registration trial. During the first quarter of 2021, we announced that ILLUMINATE-301, the Company’s pivotal registration trial of tilsotolimod in cancer immunotherapy have included the approval and late-stage development of multiple checkpoint inhibitors, which are therapies that target mechanisms by which tumor cells evade detection by the immune system. Despite these advancements, many patients fail to respond to these therapies. For instance, approximately 50% ofcombination with ipilimumab versus ipilimumab alone in patients with anti-PD-1 refractory advanced melanoma, ~~fail to respond to therapy with approved checkpoint inhibitors. Current published data suggests that the lack~~did not meet its primary endpoint of objective response to checkpoint inhibition is related to a non-immunogenic tumor micro environment. Because TLR9 agonists stimulate the immune system, we believe there is a scientific rationale to evaluate the combination of intra-tumoral injection ofrate (“ORR”).We are evaluating our ~~TLR9 agonists with checkpoint inhibitors. Specifically, we believe intra-tumoral injection of our TLR9 agonists activates a local immune response in the injected tumor, which may complement the effect~~next steps regarding continuation of the ~~systemically administered checkpoint inhibitors. In studies~~trial toward its overall survival (“OS”) endpoint, which includes evaluating the full data set when it is available. Although the primary endpoint of ORR was not met, if the study continues and reaches a positive OS outcome, we would expect to discuss with regulatory authorities a potential path forward in ~~preclinical cancer models conducted~~this indication.

We are also evaluating intratumoral tilsotolimod in our laboratories, intra-tumoral injection of TLR9 agonists has potentiated the anti-tumor activity of multiple checkpoint inhibitors in multiple tumor models. These data have been presented at several scientificcombination with nivolumab, an anti-PD1 antibody marketed as Opdivo® by BMS, and ~~medical conferences from 2014 through 2017. We believe these data support evaluation of combination regimens including the combination of a TLR9 agonist and a checkpoint inhibitor~~ipilimumab for the treatment of ~~cancer.~~multiple solid tumors in a multicohort Phase 2 trial.

Recent Developments

In April 2021, following the announcement that ILLUMINATE-301 did not meet its primary endpoint of ORR, we decided to implement a reduction in force, which is expected to affect approximately 50% of our workforce by May 31, 2021. The decision was made in order to align our workforce to our needs in light of the topline data results from ILLUMINATE-301’s ORR endpoint as we evaluate next steps regarding continuation of the trial toward its OS endpoint and explore other business development activities.In connection with these actions, we incurred one-time termination costs in connection with the reduction in workforce during April 2021, which includes

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severance, benefits and related costs, of approximately $0.7 million. We currently expect to incur an additional $0.2 million in such costs through the balance of the second quarter of 2021.

In addition to evaluating a potential path forward for tilsotolimod for the treatment of anti-PD1 refractory metastatic melanoma, we are actively evaluating other novel therapeutic assets, including developmental and potentially commercial-stage assets, which may represent an opportunity to expand our pipeline.

Clinical Development

Tilsotolimod (IMO-2125)

Tilsotolimod is a synthetic phosphorothioate oligonucleotide that acts as a direct agonist of TLR9 to stimulate the innate and adaptive immune systems. Tilsotolimod is being developed for administration via intratumoral injection in combination with systemically administered checkpoint inhibitors and costimulation therapies for the treatment of various solid tumors, including (i) anti-PD1 refractory metastatic melanoma in combination with ipilimumab, (ii) microsatellite stable (“MSS”) colorectal cancer (“CRC”) in combination with nivolumab and ipilimumab, and (iii) squamous cell carcinoma of the head and neck (“HNSCC”) in combination with ABBV-368 and other combinations. We refer to our tilsotolimod development program as the ILLUMINATE development program. See additional information under the heading “Collaborative Alliances” for information on the development of tilsotolimod in collaboration with AbbVie Inc. (“AbbVie”) for patients with HNSCC.

Melanoma

Melanoma is a cancer that begins in a type of skin cell called melanocytes. While melanoma is one of the least common types of skin cancer, it has a poor prognosis when not detected and treated early. As is the case in many forms of cancer, melanoma becomes more difficult to treat once the disease has spread, or metastasized, beyond the skin to other parts of the body. Immunotherapies known as checkpoint inhibitors have changed the treatment of advanced melanoma and have become the standard of care, with anti-PD-1 agents being the most commonly used immunotherapy in the first-line setting. These agents work by increasing the ability of the body’s immune system to help detect and fight cancer cells. However, due to primary or acquired resistance mechanisms that exclude or inhibit anti-tumor immune cells, as many as 60% of patients do not benefit from this type of therapy, and up to one-third of initial responders develop resistance to the therapy and ultimately experience disease progression. Today, these refractory patients are left with few options for further treatment, paving the way for novel investigational therapies such as tilsotolimod.

We are currently developing ~~IMO-2125~~tilsotolimod for use in combination with checkpoint inhibitors for the treatment of patients with anti-PD1 refractory metastatic melanoma. ~~We believe, based on internally conducted commercial research, that in~~Tilsotolimod has received Orphan Drug Designation for the ~~United States, by 2025, approximately 20,000 people will have~~treatment of melanoma Stages IIb to IV and Fast Track designation for the treatment of anti-PD1 refractory metastatic melanoma in combination with ipilimumab therapy from the U.S. Food and ~~over 50% will have failed first-line anti-PD1 therapy. We also believe TLR9 agonists may be useful~~Drug Administration (“FDA”).

ILLUMINATE-301 - Phase 3 Trial of Tilsotolimod (IMO-2125) in ~~other solid tumor types that~~

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~~are refractory to anti-PD1 treatment due~~Combination with Ipilimumab in part to low mutation load and low dendritic cell infiltration. We believe, based on internally conducted commercial research, that in the United States, by 2025, approximately 160,000 people will have tumor types that are addressablePatients with ~~current immunotherapy and approximately 70,000 of those people will have tumor types that are anti-PD1 refractory.~~Anti-PD1 Refractory Metastatic Melanoma

In ~~December 2015,~~the first quarter of 2018, we initiated a Phase ~~1/2 clinical~~3 trial of the tilsotolimod–ipilimumab combination in patients with anti-PD-1 refractory metastatic melanoma, which we refer to ~~assess~~as ILLUMINATE-301. This trial, which completed target enrollment of 454 patients in March 2020, will compare the ~~safety~~results of the tilsotolimod–ipilimumab combination to those of ipilimumab alone in a 1:1 randomization. The family of primary endpoints of the trial consists of ORR by blinded independent central review using Response Evaluation Criteria in Solid Tumors (“RECIST v1.1”) and median OS. Key secondary endpoints include durable response rate, duration of response, median time to response, median progression free survival (“PFS”) and patient-reported outcomes using a validated scale.

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In March 2021, we reported that ILLUMINATE-301 did not meet its primary endpoint of ORR. Key findings of the study, which compared the efficacy of ~~IMO-2125,~~8 mg intratumoral tilsotolimod in combination with 3 mg/kg ipilimumab versus 3 mg/kg ipilimumab alone in 481 patients with anti-PD-1 refractory advanced melanoma, include:

●

ORR of 8.8% for the combination arm and 8.6% for ipilimumab alone.

●

Disease control rate (DCR, defined as stable disease or better) of 34.5% for the combination and 27.2% for ipilimumab alone.

●

Treatment-emergent adverse events (TEAEs) (Grade 3 and above) occurred in 61.1% of patients who received the combination vs. 55.1% of patients who received ipilimumab alone. Immune-related TEAEs (Grade 3 and above) were reported in 37.6% vs. 30.1%, respectively.

Although the primary endpoint of ORR was not met, if the study continues and reaches a positive OS outcome, the Company expects to discuss with regulatory authorities a potential path forward in this indication as we believe positive results in the OS endpoint could lead to approval in the United States. We are currently evaluating next steps regarding continuation of the trial toward its OS endpoint, which includes evaluating the full data set.

Other Solid Tumors

Advancements in cancer immunotherapy have included the approval and late-stage development of multiple checkpoint inhibitors, as single agents or in combination, for other solid tumors including, among others, microsatellite instability high/deficient mismatch repair (“MSI-H/dMMR”) CRC and HNSCC.

In patients with CRC, nivolumab administered ~~intra-tumorally,~~as monotherapy or in combination with ipilimumab has demonstrated benefit and is approved for the treatment of MSI-H/dMMR mCRC. However, in a previously treated microsatellite stable (“MSS”) CRC patient population, nivolumab + ipilimumab combination therapy did not produce objective responses. MSS-CRC has been shown to be highly immunosuppressive. Moreover, the tumor microenvironment in MSS-CRC has been shown to keep dendritic cells in an ~~anti-CTLA4 antibody marketed as Yervoy® by Bristol-Myers Squibb Company, in~~immature state. Given tilsotolimod’s mechanism of action of activating dendritic cells, it may serve a complementary function to nivolumab and ipilimumab within the immunosuppressive tumor microenvironment (“TME”) of MSS-CRC patients.

In patients with relapsed or metastatic ~~melanoma (refractory~~HNSCC (“RM-HNSCC”), results from prospectively conducted trials employing the immune-modulating antibodies nivolumab and pembrolizumab following chemotherapy heralded a new era of treatment for patients with RM-HNSCC. Patients responding to these agents have seen durable responses, and in controlled studies, an overall survival benefit has been demonstrated for the anti-PD-1 antibodies versus standard of care chemotherapy. The challenge remains to increase the percentage of patients responding to these treatments, which currently ranges from 13% to 23%, depending on the line of therapy.

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ILLUMINATE-206 - Phase 2 Trial of Tilsotolimod (IMO-2125) in Combination with Nivolumab and Ipilimumab for the treatment of Solid Tumors

In September 2019, we initiated a Phase 2, open-label, global, multicohort study to evaluate the safety and effectiveness of tilsotolimod administered intratumorally in combination with ~~a PD1 inhibitor, also referred~~nivolumab and ipilimumab for the treatment of solid tumors. We refer to this study as ~~anti-PD1 refractory)~~ILLUMINATE-206.

Currently, we are evaluating relapsed/refractory MSS-CRC in immunotherapy-naïve patients treated with tilsotolimod in combination with nivolumab and ipilimumab (the “MSS-CRC Study”). ~~We subsequently amended~~An initial group of ten patients was enrolled to evaluate the ~~trial protocol to enable an additional arm to study~~safety of administering the combination of ~~IMO-2125~~tilsotolimod, nivolumab and ipilimumab. To investigate the safety profile of this triplet combination, ILLUMINATE-206 was designed with ~~pembrolizumab, an anti-PD1 antibody marketed as Keytruda® by Merck & Co.,~~a stepwise approach to Yervoy® dosage. Patients in ~~the same patient population. In~~ this clinical trial, IMO-2125 is administered intra-tumorally into a selected tumor lesion at weeks 1, 2, 3, 5, 8 and 11, together with the standard dosing regimen of ipilimumab or pembrolizumab, administered intravenously. IMO-2125 is being administered via deep injection (using interventional radiology guidance) in patients lacking superficially accessible disease for injection.

~~In the Phase 1 portion~~initial safety cohort of the ~~ipilimumab arm~~MSS-CRC Study, many of ~~this clinical trial, escalating doses of IMO-2125 ranging from 4 mg through 32 mg in the ipilimumab arm~~whom were ~~evaluated. In the Phase 1 portion of the pembrolizumab arm of this clinical trial, escalating doses of IMO-2125 ranging from~~heavily pre-treated and rapidly progressing, received 8 mg ~~through 32 mg in the pembrolizumab arm are being evaluated. The trial~~of intratumoral tilsotolimod and 3 mg/kg of intravenous (IV)

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Opdivo® every two weeks, along with 1 mg/kg of IV Yervoy® every eight weeks (the “Low-Dose, Low-Frequency Cohort”). This regimen was ~~initiated at the University of Texas, MD Anderson Cancer Center,~~generally well tolerated; no patients discontinued treatment due to adverse events (AEs) and none experienced Grade 4 or MD Anderson, under the strategic research alliance we entered into with MD Anderson in June 2015, and additional sites have been added during 2017. We anticipate that more sites will be added, to bring the total number of participating sites for the trial to ten. The primary objectives of the Phase 1 portion of the trial include characterizing the safety of the combinations and determining the recommended Phase 2 dose. A secondary objective of the Phase 1 portion of the trial is describing the anti-tumor activity of IMO-2125 when administered intra-tumorally in combination with ipilimumab or pembrolizumab. The primary objectives of the Phase 2 portion of the trial are to characterize the safety of the combinations and determine the activity of the combinations utilizing immune-related response criteria. Additionally, a secondary objective of the Phase 2 portion of the trial is to assess treatment response using RECIST v1.1 criteria. In the Phase 1 portion of the trial, serial biopsies are being taken of selected injected and non-injected tumor lesions pre- and post-24 hours of the first dose of IMO-2125, as well as at 8 and 13 weeks, to assess immune changes and response assessments. In the Phase 2 portion of the trial, biopsies are optional.

In April 2017, we completed the dose escalation phase in the ipilimumab arm of the trial, and based on the safety and efficacy data and data from translational immune parameters, selected the 8 mg dose level as the recommended dose level for the Phase 2 expansion phase of the ipilimumab combination.

In September 2017, we disclosed at the 2017 European Society for Medical Oncology Congress final results from the 18 patients that were evaluated with the IMO-2125–ipilimumab combination in the Phase 1 dose escalation portion of the trial. Each of these patients but one had progressed on nivolumab or pembrolizumab prior to enrollment in the trial.5 AEs. As of May 31, 2017, the safety data cutoff date for the presentation, the combination of IMO-2125 and ipilimumab had been well tolerated. No dose-limiting toxicities had been observed and the maximum tolerated dose was not reached. As of August 7, 2017, the response data cutoff date for the presentation, of the nine patients that had been treated at the 8 mg dose of IMO-2125, four had a complete response or partial response under RECIST v.1.1 criteria, with the one patient who had a complete response continuing off active treatment for more than one year, and remaining disease free. Additionally, two other patients that were treated at the 8 mg dose experienced stable disease for at least 24 weeks, which is considered to represent meaningful clinical benefit. Additionally, as of the response data cutoff date, one patient ~~who was treated at~~experienced stable disease per RECIST v1.1 criteria and nine patients progressed as defined by RECIST v1.1. Investigators reported that six of the ~~4 mg dose~~progressing patients had ~~an ongoing partial response~~stability or reduction in size of injected lesions and six had ~~been off active treatment for more than one year.~~stability or reduction in overall size of uninjected lesions.

~~In April 2017,~~Based on these results, we ~~initiated enrollment~~are actively enrolling patients in a second MSS-CRC Study cohort. Changes in the ~~Phase 2 IMO-2125–ipilimumab portion of the trial with the 8 mg dose of intratumoral IMO-2125. The Phase 2 portion of the trial utilizes a Simon two-stage~~study design intended to ~~evaluate the objective response rate of IMO-2125 in combination with ipilimumab, compared to historical data for ipilimumab alone~~improve potential outcomes in the ~~anti-PD1 refractory metastatic melanoma population. With~~targeted patient population included increasing the ~~responses noted above,~~frequency of Yervoy® dosing to every three weeks and limiting the ~~trial has met the pre-specified futility assessment and advanced into the second stage~~number of ~~the Phase 2 portion. We anticipate that the Phase 2 portion~~allowed prior lines of ~~the trial will include a total of up~~treatment to ~~60 patients dosed at the 8 mg dose, including the nine ipilimumab-experienced patients from the Phase 1 dose escalation portion, and that these patients may be fully accrued by the end of 2018.~~

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~~We have completed enrollment in the 8 mg and 16 mg dosing cohorts in the Phase 1 dose escalation portion of the pembrolizumab arm of the trial and are continuing to enroll~~two. Accordingly, patients in the ~~32 mg dosing cohort. One patient who was treated at the 16 mg dose has an ongoing partial response by RECIST v1.1 criteria.~~

We have begun and plan to continue to engage in discussions with regulatory authorities regarding the paths to registration for IMO-2125 in combination with ipilimumab in anti-PD1 refractory metastatic melanoma patients, including potentially through an accelerated approval process based on an interim analysissecond group of the Phase 3 trial with the final analysis providing the confirmatory data for full approval. We plan to initiate a Phase 3 trial of the IMO-2125–ipilimumab combination in patients with anti-PD1 refractory metastatic melanoma in the first quarter of 2018. We expect that this trial comparing the results of the IMO-2125–ipilimumab combination to those of ipilimumab alone will have a sample size of approximately 300 patients and will be conducted at approximately 70 sites worldwide, with primary endpoints consisting of overall response rate and overall survivial rate.

In March 2017, we initiated a Phase 1 trial with IMO-2125 administered as a single agent intra-tumorally in multiple tumor types. We are also planning to initiate a Phase 2 clinical trial with IMO-2125 administered intra-tumorally together with other checkpoint inhibitors in multiple tumor types in the second half of 2018.

~~In June 2017, the U.S. Food and Drug Administration, or FDA, granted Orphan Drug Designation for IMO-2125 for the treatment of melanoma Stages IIb to IV.~~

~~IMO-8400 in Rare Diseases~~

We have initiated clinical development of IMO-8400 for the treatment of rare diseases and have selected dermatomyositis as our lead clinical target for which we are developing IMO-8400. We selected this indication for development based on the reported increase in TLR expression in this disease state, expression of cytokines indicative of key TLR-mediated pathways and the presence of auto-antibodies that can induce TLR-mediated immune responses.

We considered that multiple independent research studies across a broad range of autoimmune diseases, including both dermatomyositis and psoriasis, have demonstrated that the over-activation of TLRs plays a critical role in disease maintenance and progression. In autoimmune diseases, endogenous nucleic acids released from damaged or dying cells initiate signaling cascades through TLRs, leading to the induction of multiple pro-inflammatory cytokines. This inflammation causes further damage to the body’s own tissues and organs and the release of more self-nucleic acids, creating a self-sustaining autoinflammatory cycle that contributes to chronic inflammation in the affected tissue, promoting disease progression.

We believe we demonstrated proof of concept for our approach of using TLRs to inhibit the over-activation of specific TLRs for the treatment of psoriasis and potentially other autoimmune diseases in a randomized, double-blind, placebo-controlled Phase 2 clinical trial of IMO-8400 that we conducted in patients with moderate to severe plaque psoriasis, a well-characterized autoimmune disease. In this trial, we evaluated IMO-8400 at four subcutaneous dose levels of 0.075 mg/kg, 0.15 mg/kg, 0.3 mg/kg, and 0.6 mg/kg, versus placebo, administered once weekly for 12 weeks in 46 patients. The trial met its primary objective as IMO-8400 was well tolerated at all dose levels with no treatment-related discontinuations, treatment-related serious adverse events or dose reductions. The trial also met its secondary objective of demonstrating clinical activity in psoriasis patients, as assessed by the Psoriasis Area Severity Index.

Dermatomyositis is a rare, debilitating, inflammatory muscle and skin disease associated with significant morbidity, decreased quality of life and an increased risk of premature death. While the cause of dermatomyositis is not well understood, the disease process involves immune system attacks against muscle and skin that lead to inflammation and tissue damage. Major symptoms can include progressive muscle weakness, severe skin rash, calcium deposits under the skin (calcinosis), difficulty swallowing (dysphagia) and interstitial lung disease. We believe, based on internally conducted commercial research, that dermatomyositis affects approximately 25,000 people in the United States, and is about twice as common in women as men, with a typical age of onset between 45 and 65 years in adults. Dermatomyositis represents one form of myositis, a spectrum of inflammatory muscle diseases that also includes juvenile dermatomyositis, polymyositis and inclusion body myositis.

In December 2015, we initiated a Phase 2, randomized, double-blind, placebo-controlled clinical trial designed to assess the safety, tolerability and treatment effect of IMO-8400 in adult patients with dermatomyositis. Eligibility criteria included evidence of active skin involvement. The 30 patients10 enrolled in the ~~trial were randomized to one~~MSS-CRC Study will receive 8 mg of

~~Table~~ intratumoral tilsotolimod (total of ~~Contents~~

~~three groups to receive once weekly subcutaneous injections of: placebo, 0.6~~9 doses over approximately 28 weeks) and 3 mg/kg of ~~IMO-8400 or 1.8~~intravenous (IV) Opdivo® every three weeks followed by 480 mg of IV Opdivo® every four weeks, along with 1 mg/kg of ~~IMO-8400, in each case,~~IV Yervoy® every three weeks for ~~a period of 24 weeks. The trial is being conducted at 21 centers in~~four doses (the “Low-Dose, High-Frequency Cohort”). Based on data from these patients, the ~~United States,~~MSS-CRC Study may be expanded further and/or provide rationale to explore additional tumor types.

As further discussed, under the United Kingdom and Hungary. We concluded enrollment in the trial at 30 patients and expect topline data in the second quarter of 2018. The primary efficacy endpoint is the change from baseline in the Cutaneous Dermatomyositis Disease Area and Severity Index (CDASI), a validated outcome measure of skin disease. Additional exploratory endpoints include muscle strength and function (which are among the International Myositis Assessment & Clinical Studies Group (IMACS) core set measures), patient-reported quality of life and biochemical markers of disease activity.

~~Third-generation Antisense (3GA)~~

~~Third-generation Antisense (3GA) Technology to Target mRNA~~

We are developing our 3GA technology to “turn off” the mRNA associated with disease causing genes. We have designed 3GA oligonucleotides to specifically address challenges associated with earlier generation antisense and RNAi technologies.

~~Our focus is on creating 3GA candidates targeted to specific genes to treat cancer and rare diseases. Our key considerations in identifying disease indications and gene targets~~caption “Item 1. Business - Collaborative Alliances” in our 3GA program include: strong evidence that the disease is caused by a specific protein; clear criteria to identify a target patient population; biomarkers for early assessment of clinical proof of concept; a targeted therapeutic mechanism of action; unmet medical need to allow for a rapid development path to approval and commercial opportunity. To date, we have created 22 novel 3GA compounds for specific gene targets that are potentially applicable across a wide variety of therapeutic areas. These areas include rare diseases, oncology, autoimmune disorders, metabolic conditions, single point mutations and others. Our current activities with respect to these compounds range from cell culture through investigational new drug, or IND, application-enabling toxicology.

In January 2017, we announced that we had selected IDRA-008 as our first candidate to enter clinical development. We are planning to develop IDRA-008 for a well-established liver target with available pre-clinical animal models and well-known clinical endpoints. We anticipate submitting an IND for IDRA-0082020 Form 10K, in ~~the first half of 2018.~~

~~In November 2015,~~March 2019, we entered into a clinical trial collaboration and ~~license~~supply agreement with ~~GlaxoSmithKline Intellectual Property Development Limited, or GSK,~~BMS, under which BMS has agreed to ~~license, research, develop~~manufacture and ~~commercialize pharmaceutical compounds from our 3GA technology~~supply YERVOY® (ipilimumab) and OPDIVO® (nivolumab), at its cost and for ~~the treatment of selected targets in renal disease, which agreement we refer~~no charge to as the GSK Agreement. Under this collaboration, we are creating multiple development candidates to address the target designated by GSK in connection with entering into the GSK Agreement. From the population of identified development candidates, GSK may designate one development candidate in its sole discretion to move forward into clinical development. We expect GSK to select a development candidate in the second half of 2018. Once GSK designates a development candidate, GSK would be solely responsibleus, for ~~the development and commercialization activities for that designated development candidate. We do not expect GSK to select any additional targets pursuant to this collaboration.~~

~~Additional Programs~~

~~IMO-9200 for Autoimmune Disease.~~ ~~We have developed a second novel synthetic oligonucleotide antagonist of TLR7, TLR8, and TLR9, IMO-9200, as a drug candidate for potential~~ use in ~~selected autoimmune disease indications. In 2015, we completed a Phase 1 clinical trial of IMO-9200~~ILLUMINATE-206.

Collaborative Alliances

Our current alliances include collaborations with Scriptr, described below, and AbbVie and BMS, each described under the caption “Item 1. Business — Collaborative Alliances” in healthy subjects as well as additional preclinical studies of IMO-9200 for autoimmune diseases. In 2015, we determined not to proceed with the development of IMO-9200 because the large autoimmune disease indications for which IMO-9200 had been developed did not fit within the strategic focus of our company. In November 2016, we entered into an exclusive license and collaboration agreement with Vivelix Pharmaceuticals, Ltd., or Vivelix, granting Vivelix worldwide rights to develop and market IMO-9200 for non-malignant gastrointestinal disorders, which agreement we refer to as the Vivelix Agreement.

~~Collaborative Alliances~~

2020 Form 10-K. In addition to our current alliances, we may ~~explore potential~~seek to enter into additional collaborative alliances to support development and commercialization of our TLR agonists and ~~antagonists. We may also seek~~antagonists and/or research additional drug candidates.

Collaboration with Scriptr

In February 2021, we entered into a collaboration and option agreement with Scriptr Global, Inc. (“Scriptr”), pursuant to ~~enter~~which (i) Scriptr and us will conduct a research collaboration utilizing Scriptr Platform Technology (“SPT”) to identify, research and develop gene therapy candidates (each, a “Collaboration Candidate”) for the treatment, palliation, diagnosis or prevention of (a) myotonic dystrophy type 1 (“DM1 Field”) and (b) Friedreich’s Ataxia (“FA Field”) on a Research Program-by-Research Program basis, as applicable, and (ii) we were granted an exclusive option, in our sole discretion, to make effective the Scriptr License Agreement, as defined below, for a given Research Program, as defined below, to make use of Collaboration Candidates and related intellectual property (collectively, the “Scriptr Agreement”).

Pursuant to the Scriptr Agreement, Scriptr will use commercially reasonable efforts to carry out research activities set forth in accordance with the applicable DM1 Field and FA Field research plans, including certain pre-clinical proof of concept studies, to identify research Collaboration Candidates utilizing SPT (each, a “Research Program”). Following the completion of activities under a given Research Program, Scriptr will prepare and submit to us a comprehensive data package (each, a “Data Package”) that summarizes, on a Program-by-Program basis, any Collaboration Candidates researched under the Research Program, including any data and results. Upon receipt of a Data Package, we have, in our sole discretion, up to two-hundred seventy (270) calendar days to make effective the exclusive license agreement entered into ~~additional collaborative~~

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~~alliances with pharmaceutical companies~~by and between Scriptr and us, pursuant to which, among other things, grants us exclusive rights and licenses with respect to ~~applications~~the development, manufacture and commercialization of ~~our 3GA program. We are currently party~~licensed candidates and products, subject to ~~collaborations with Vivelix, GSK, Abbott Molecular,~~certain conditions and ~~Merck & Co.~~limitations (the “Scriptr License Agreement”), for a given Research Program (each licensed Research Program, a “Licensed Program”). The Scriptr License Agreement provides for customary development milestones on candidates developed under a Licensed Program and royalties on licensed products, if any.

~~Accumulated Deficit~~

AsTable of ~~September 30, 2017,~~Contents

In partial consideration of the rights granted by Scriptr to us under the Scriptr Agreement, we ~~had an accumulated deficit~~made a one-time, non-creditable and non-refundable payment to Scriptr during the first quarter of $589.6 million. We expect to incur substantial operating losses in future periods. We do not expect to generate product revenue, sales-based milestones or royalties from our development programs until we successfully complete development and obtain marketing approval for drug candidates, either alone or in collaborations with third parties, which we expect will take a number of years.2021. In order to ~~commercialize our drug candidates,~~fund conduct of the Research Programs, we ~~need to complete clinical~~shall reimburse Scriptr for costs incurred by or on behalf of Scriptr in connection with the conduct of each Research Program during the Research Term in accordance with the applicable Research Program budget and payment schedule, provided that, any such cost reimbursement payments shall initially be deducted from the Initial Research Program Payment. We incurred approximately $0.7 million in research and development expenses under the Scriptr Agreement during the three months ended March 31, 2021.

Critical Accounting Policies and ~~comply with comprehensive regulatory requirements.~~Estimates

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~

This management’s discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and ~~judgments.~~ judgments which are affected by the application of our accounting policies

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be ~~reasonable~~appropriate under the ~~circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.~~circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We regard an accounting estimate or assumption underlying our financial statements as a “critical accounting estimate” where:

(i)

the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

(ii)

the impact of the estimates and assumptions on financial condition or operating performance is material.

Our significant accounting policies are described in Note 2 of the notes to our financial statements included in our ~~Annual~~2020 Form 10-K. However, please refer to Note 2 in the accompanying notes to the condensed financial statements contained in this Quarterly Report on Form ~~10-K~~10-Q for ~~the year ended December 31, 2016.~~updated policies and estimates, if applicable, that could impact our results of operations, financial position, and cash flows. Not all of these significant policies, however, fit the definition of critical accounting policies and estimates. We believe that our accounting policies relating to ~~revenue recognition, stock-based compensation~~(i) warrant and future tranche right liabilities and related revaluation gain (loss), (ii) research and development prepayments, accruals and related expenses, and (iii) stock-based compensation, as described under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our ~~Annual Report on~~2020 Form 10-K, ~~for the year ended December 31, 2016,~~ fit the description of critical accounting estimates and judgments. ~~There were no changes~~

New Accounting Pronouncements

New accounting pronouncements are discussed in ~~these policies during~~Note 2 in the ~~nine months ended September 30, 2017.~~notes to the condensed financial statements in this Quarterly Report on Form 10-Q.

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Financial Condition, Liquidity and Capital Resources

~~RESULTS OF OPERATIONS~~

Financial Condition

~~Three~~

As of March 31, 2021, we had an accumulated deficit of $717.8 million. To date, substantially all of our revenues have been from collaboration and ~~Nine Months Ended September 30, 2017~~license agreements and ~~2016~~

~~Alliance Revenue~~

~~Alliance~~we have received no revenues from the sale of commercial products. We generated no revenue for the ~~three months~~quarter ended September 30, 2017 and 2016 was $0.2 million and $0.3 million, respectively. Alliance revenue for the nine months ended September 30, 2017 and 2016 was $0.7 million and $0.9 million, respectively. Alliance revenue forMarch 31, 2021.

We have devoted substantially all ~~periods reported primarily relates~~of our efforts to ~~the recognition of deferred revenue on our collaboration with GSK. In November 2015, in connection with~~ ~~the execution of the GSK Agreement, we received a $2.5 million upfront payment that we recorded as~~ deferred revenue. We are recognizing this deferred revenue as revenue on a straight line basis over the anticipated performance period under the GSK Agreement. In the second quarter of 2017, we revised our estimate of the anticipated performance period from the original estimate of 27 months to an updated estimate of 36 months. This change in estimate is being accounted for on a prospective basis.

~~Research and Development Expenses~~

~~In the table below,~~ research and development, ~~expenses are set forth in the following categories which are discussed beneath the table:~~

Three months ended

Nine months ended

September 30,

Percentage

September 30,

Percentage

(in thousands)

Increase

(in thousands)

Increase


2017

2016

(Decrease)

2017

2016

(Decrease)

IMO-2125 external development expense

$
1,788

$
723

147%

$
7,620

$
2,330

227%

IMO-8400 external development expense

1,824

2,771

(34%)

7,505

8,814

(15%)

IMO-9200 external development expense

1

185

(99%)

7

471

(99%)

Other drug development expense

5,092

3,246

57%

12,932

9,668

34%

Basic discovery expense

2,207

2,468

(11%)

6,647

7,534

(12%)

Severance and option modification expense

—

—

0%

5,577

—

100%

$
10,912

$
9,393

16%

$
40,288

$
28,817

40%

~~IMO-2125 External Development Expenses.~~ These expenses include external expenses that we have incurred in connection with the development of IMO-2125 as part of our immuno-oncology program. These external expenses include payments to independent contractors and vendors for drug development activities conducted after the initiation of IMO-2125 clinical development in immuno-oncology, but exclude internal costs such as payroll and overhead expenses. We commenced clinical development of IMO-2125 as part of our immuno-oncology program in July 2015 and from July 2015 through September 30, 2017 we incurred approximately $13.0 million in IMO-2125 external development expenses as part of our immuno-oncology program, including costs associated with the preparation for and conduct of the ongoing Phase 1/2 clinical trial to assess the safety and efficacy of IMO-2125 in combination with ipilimumab and with pembrolizumab in patients with metastatic melanoma, the manufacture of additional drug substance for use in our clinical trials, and ~~additional nonclinical studies. The $13.0 million~~we have not completed development of any commercial products. Our research and development activities, together with our general and administrative expenses, are expected to continue to result in ~~IMO-2125 external development expenses excludes costs incurred prior to July 2015 with respect to IMO-2125, including costs incurred~~substantial operating losses for the ~~development of IMO-2125 for the treatment of patients with chronic hepatitis C virus which we discontinued in the third quarter of 2011.~~

~~The increases in our IMO-2125 external development expenses during both the three~~foreseeable future. These losses, among other things, have had and nine months ended September 30, 2017, as compared to the 2016 periods, were primarily due to increases in costs associated with the design and planning for additional clinical trials of IMO-2125 and increased clinical activity under our Phase 1/2 clinical trial, including costs incurred with contract research organizations and drug manufacturing costs.

~~We anticipate our IMO-2125 external development expenses~~ will continue to increase during the fourth quarter of 2017, as compared to the fourth quarter of 2016, as we plan to continue our Phase 1/2 clinical trial to assess the safety and efficacy of IMO-2125 in combination with ipilimumab and with pembrolizumab in patients with metastatic melanoma, plan for the Phase 3 trial of IMO-2125 in combination with ipilimumab, develop our strategy to optimize IMO-2125, and continue manufacturing activities and nonclinical studies.

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~~IMO-8400 External Development Expenses.~~ ~~These expenses include external expenses that we~~ have incurred in connection with IMO-8400 since October 2012, when we commenced clinical development of IMO-8400. These external expenses include payments to independent contractors and vendors for drug development activities conducted after the initiation of IMO-8400 clinical development but exclude internal costs such as payroll and overhead expenses. Since October 2012, we have incurred approximately $41.7 million in IMO-8400 external development expenses through September 30, 2017, including costs associated with our Phase 1 clinical trial in healthy subjects, our Phase 2 clinical trial in patients with psoriasis, our Phase 1/2 clinical trial in patients with Waldenström’s macroglobulinemia and our Phase 1/2 clinical trial in patients with diffuse large B-cell lymphoma, or DLBCL, harboring the MYD88 L265P oncogenic mutation, which we discontinued in September 2016, the preparation for and conduct of our ongoing Phase 2 clinical trial in patients with dermatomyositis, the manufacture of additional drug substance for use in our clinical trials, and expenses associated with our collaboration with Abbott Molecular for the development of a companion diagnostic for identification of patients with DLBCL harboring the MYD88 L265P oncogenic mutation.

The decreases in our IMO-8400 external development expenses during both the three and nine months ended September 30, 2017, as compared to the 2016 periods, were due primarily to lower costs incurred on clinical development of IMO-8400 for B-cell lymphomas, including our trials in Waldenström’s macroglobulinemia and DLBCL in the 2017 periods, offset partially by spendingan adverse effect on our ~~ongoing Phase 2 clinical trial~~stockholders’ equity, total assets and working capital. Because of ~~IMO-8400 in patients with dermatomyositis.~~

~~We anticipate our IMO-8400 external development expenses will continue to decrease during~~ the fourth quarter of 2017, as compared to the fourth quarter of 2016. In September 2016, we announced that we had suspended the internal clinical development of IMO-8400 for B-cell lymphomas, including our trials in Waldenström’s macroglobulinemia and DLBCL. We are exploring strategic alternatives for IMO-8400 in these indications. We expect to continue to incur costs associated with IMO-8400 as we continue our ongoing Phase 2 clinical trial of IMO-8400 in patients with dermatomyositis and finish treating enrolled patients in our clinical trial of IMO-8400 in Waldenström’s macroglobulinemia.

~~IMO-9200 External Development Expenses.~~ These expenses include external expenses that we have incurred in connection with IMO-9200 since October 2014, when we commenced clinical development of IMO-9200. These external expenses include payments to independent contractors and vendors for drug development activities conducted after the initiation of IMO-9200 clinical development but exclude internal costs such as payroll and overhead expenses. We have incurred approximately $4.6 million in IMO-9200 external development expenses from October 2014 through September 30, 2017 including costs associated with our Phase 1 clinical trial in healthy subjects, the manufacture of additional drug substance for use in our clinical and nonclinical trials and additional nonclinical studies.

The decreases in IMO-9200 external development expenses during both the three and nine months ended September 30, 2017, as compared to the 2016 periods, reflect lower spending on manufacturing and nonclinical toxicology. We anticipate our IMO-9200 external development expenses will be nominal going forward, as in September 2016 we determined not to proceed with the development of IMO-9200 and, in November 2016, we entered into the Vivelix Agreement, granting Vivelix worldwide rights to develop and market IMO-9200 for non-malignant gastrointestinal disorders.

~~Other Drug Development Expenses.~~ These expenses include external expenses associated with preclinical development of identified compounds in anticipation of advancing these compounds into clinical development. In addition, these expenses include internal costs, such as payroll and overhead expenses, associated with preclinical development and products in clinical development. The external expenses associated with preclinical compounds include payments to contract vendors for manufacturing and the related stability studies, preclinical studies, including animal toxicology and pharmacology studies, and professional fees. Other drug development expenses also include costs associated with compounds that were previously being developed but are not currently being developed.

The increases in other drug development expenses during both the three and nine months ended September 30, 2017, as compared to the 2016 periods, were primarily due to increases in external costs of preclinical programs, including toxicology studies, storage fees and awareness and education programs, in addition to higher payroll and overhead costs.

~~Basic Discovery Expenses.~~ ~~These expenses include our internal and external expenses relating to our discovery efforts with respect to our TLR-targeted programs, including agonists and antagonists of TLR3, TLR7, TLR8~~

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~~and TLR9, and our 3GA program. These expenses primarily reflect charges for laboratory supplies, external research, and professional fees, as well as payroll and overhead expenses.~~

The decreases in basic discovery expenses during both the three and nine months ended September 30, 2017, as compared to the 2016 periods, were primarily due to lower compensation related expenses, including salaries and non-cash stock-based compensation resulting from the retirement of our President of Research in May 2017 (see discussion of Severance and Option Modification Expenses below) as well as lower facility related charges, including overhead expenses.

We do not know if we will be successful in developing any drug candidate from our research and development programs. At this time, and without knowing the results from our ongoing clinical trials of IMO-2125, our ongoing clinical trial of IMO-8400, and our ongoing development of compounds in our 3GA program, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from, any drug candidate from our research and development programs. Moreover, the clinical development of any drug candidate from our research and development programs is subject to numerous risks and uncertainties associated with developing drug candidates, and if approved, commercial products, we are unable to predict the ~~duration and cost~~extent of ~~clinical trials, which vary significantly over the life of a project as a result of unanticipated events arising during clinical development.~~

~~Severance and Option Modification Expenses.~~ ~~These expenses include charges for severance benefits provided pursuant to a separation agreement entered into in April 2017 in connection with the resignation~~any future losses, whether or when any of our ~~former President of Research, effective May 31, 2017. Of the $5.6 million incurred, $1.3 million relates to severance pay in the form of salary continuation payments which~~drug candidates will be paid over a two-year period through May 31, 2019 and a pro-rated 2017 bonus payment, and $4.3 million relates to non-cash stock-based compensation expense resulting from modifications to previously issued stock option awards.become commercially available or when we will become profitable, if at all.

~~General and Administrative Expenses~~

General and administrative expenses totaled $3.9 million for both the three months ended September 30, 2017 and 2016. General and administrative expenses increased by $0.3 million, or 3%, from $11.6 million in the nine months ended September 30, 2016 to $11.9 million in the nine months ended September 30, 2017. We anticipate general and administrative expenses during the fourth quarter of 2017 will remain comparable to the fourth quarter of 2016.

~~Interest Income~~

Interest income for the three months ended September 30, 2017 and 2016 was $0.2 million and $0.1 million, respectively. Interest income for the nine months ended September 30, 2017 and 2016 was $0.5 million and $0.3 million, respectively. The increases during both the three and nine months ended September 30, 2017 over the 2016 period were primarily the result of an increase in average investment balances during the 2017 period resulting from our follow-on underwritten public offering in October 2016.

~~Net Loss~~

As a result of the factors discussed above, our net loss was $14.5 million for the three months ended September 30, 2017, compared to $12.9 million for the three months ended September 30, 2016, and was $51.1 million for the nine months ended September 30, 2017, compared to $39.2 million for the nine months ended September 30, 2016. Since January 1, 2001,Specifically, we have ~~primarily been involved~~invested and intend to continue to invest a significant portion of our time and financial resources in the development and commercialization of tilsotolimod. Accordingly, our ~~TLR pipeline. From January 1, 2001 through September 30, 2017,~~ability to generate product revenues will depend heavily on our ability to successfully develop, obtain regulatory approval for and commercialize tilsotolimod. Developing, obtaining regulatory approval, and commercializing a drug candidate requires substantial time, effort and financial resources and is uncertain. Even if tilsotolimod receives approval from the FDA, European Medicines Agency (“EMA”) or other regulatory authorities for one or more indications, we ~~incurred losses~~will incur significant expenses to support the commercialization and launch of ~~$329.4 million. We also incurred net losses of $260.2 million prior to December 31, 2000 during~~tilsotolimod, which time we were primarily involved in the development of earlier generation antisense technology. Since our inception, we had an accumulated deficit of $589.6 million through September 30, 2017. We expect to continue to incur substantial operating losses in the future.investment may never be realized if sales are insufficient.

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~~LIQUIDITY AND CAPITAL RESOURCES~~Liquidity and Capital Resources

~~Sources of Liquidity~~Overview

We require cash to fund our operating expenses and to make capital expenditures. Historically, we have funded our cash requirements primarily through the following:

(i)

sale of common stock, preferred stock and warrants;

(ii)

exercise of warrants;

(iii)

debt financing, including capital leases;

(iv)

license fees, research funding and milestone payments under collaborative and license agreements; and

(v)

interest income.

We filed a shelf registration statement on Form S-3 on August ~~10, 2017,~~4, 2020, which was declared effective on September ~~8, 2017. We may sell,~~2, 2020, relating to the sale, from time to time, in one or more transactions, up to ~~$250.0~~$150.0 million of common stock, preferred stock, depository shares and ~~warrants~~warrants. As of April 29, 2021, approximately $73.2 million remained available for issuance under this registration ~~statement.~~statement, assuming the full contractual amounts provided for under the LPC Purchase Agreement and the ATM Agreement (each as defined below) were to be sold.

LPC Purchase Agreement

On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the Company’s sole discretion (the “LPC Purchase Agreement”).

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million, respectively. As of ~~November 1, 2017, subsequent to~~March 31, 2021, the ~~closing of our October 2017 follow-on public offering, we~~Company may sell up to an additional ~~$192.5~~$25.3 million of ~~securities~~shares under ~~this registration statement.~~the LPC Purchase Agreement, subject to certain limitations.

~~Cash Flows~~ATM Agreement

~~Nine Months Ended September 30, 2017~~In November 2018, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million through JMP as its agent.

~~As of September 30, 2017, we had $65.3 million in cash, cash equivalents and investments, a net decrease of $43.7 million from December 31, 2016.~~

~~Net cash used in operating activities totaled $43.8 million during~~During the ~~nine~~ months ended ~~September 30, 2017, reflecting our $51.1 million net loss for~~March 31, 2021 and 2020, the ~~period, as adjusted for non-cash income~~Company sold 2,394,956 and expenses, including stock-based compensation, depreciation and amortization expense and accretion of investment premiums. Net cash used in operating activities also reflects changes in our prepaid expenses, accounts payable, accrued expenses and other liabilities and403,983 Shares, respectively, pursuant to the ~~recognition of deferred revenue.~~

~~The $26.8 million net cash provided by investing activities during the nine months ended September 30, 2017 reflects proceeds from the maturity of $26.9 million of available-for-sale securities, partially offset by payments for the purchase of $0.1 million in property and equipment.~~

~~The $0.3 million net cash provided by financing activities during the nine months ended September 30, 2017 reflects~~ ~~$0.5 million~~ATM Agreement resulting in net proceeds, ~~from~~after deduction of commissions and other offering expenses, of $12.1 million and $0.6 million, respectively. As of March 31, 2021, the Company may sell up to an additional $22.9 million of shares under the ATM Agreement.

The LPC Purchase Agreement and ATM Agreement are more fully described in Note 8 of the Notes to Condensed Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Private Placements

As previously disclosed in our 2020 Form 10-K, between December 2019 and July 2020, the Company entered into three private placement financings with certain investors which, collectively, provided for up to $138.4 million in total funding, of which $25.2 million had been received through December 31, 2020. However, as a result of Baker Brothers not exercising their right to purchase convertible preferred stock or exercise warrants in connection with the December 2019 Securities Purchase Agreement and the Pillar Investment Entities not exercising their right to purchase shares of common stock (or pre-funded warrants) and common warrants ~~and options and employee stock purchases under~~in connection with the July 2020 Securities Purchase Agreement prior to expiration, as of March 31, 2021, potential additional funding related to our ~~1995 Employee Stock Purchase Plan, or ESPP, partially offset by payments on our note payable and capital leases payable totaling $0.2 million.~~

~~Nine Months Ended September 30, 2016~~

~~As of September 30, 2016, we had~~private placement transactions is limited to approximately ~~$53.4~~$17.8 million ~~in cash, cash equivalents and investments, a net decrease of approximately $33.7 million from December 31, 2015. Net cash used in operating activities totaled $32.9 million during~~upon the ~~nine months ended September 30, 2016, reflecting our $39.2 million net loss for~~exercise, at the period, as adjusted for noncash income and expenses, including stock-based compensation, depreciation and amortization expense and accretion of investment premiums. Net cash used in operating activities also reflects changes in our prepaid expenses, accounts payable, accrued expenses and other liabilities and the recognition of deferred revenue.

The $28.6 million net cash provided by investing activities during the nine months ended September 30, 2016 reflects proceeds from the maturity of $29.9 million of available-for-sale securities and proceeds from the sale of $2.0

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~~million of available-for-sale securities, partially offset by the purchase of $2.9 million of available-for-sale securities and payments for the purchase of $0.4 million in property and equipment.~~

The $0.1 million net cash used in financing activities during the nine months ended September 30, 2016 reflects $0.2 million in payments on our note payable, partially offset by $0.1 million in net proceeds from employee stock purchases under our ESPP.

~~Funding Requirements~~

We have incurred operating losses in all fiscal years since our inception except 2002, 2008 and 2009, and we had an accumulated deficit of $589.6 million at September 30, 2017. We expect to incur substantial operating losses in future periods. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity, total assets and working capital. To date, we have received no revenues from the sale of drugs and substantially all of our revenues have been from collaboration and license agreements. We have devoted substantially all of our efforts to research and development, including clinical trials, and we have not completed development of any drugs. Becausesole discretion of the ~~numerous risks~~Pillar Investment Entities, of outstanding warrants issued in connection with the April 2020 and ~~uncertainties associated with developing drugs, we are unable~~July 2020 Securities Purchase Agreements. See Note 8 of the Notes to ~~predict~~Condensed Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for details related to the ~~extent of any future losses, whether or when any of our products will become commercially available or when we will become profitable, if at all.~~Company’s outstanding warrants.

We do not expect to generate significant additional funds internally until we successfully complete development and obtain marketing approval for products, either alone or in collaboration with third parties, which we expect will take a number of years. In addition, we have no committed external sources of funds.Funding Requirements

We had cash, cash equivalents and investments of approximately ~~$65.3~~$44.5 million at ~~September 30, 2017. Based~~March 31, 2021. We believe based on our current operating plan, ~~we believe that~~ our existing cash and cash equivalents ~~and investments, together with the net proceeds from our October 2017 follow-on public offering and the exercise~~on hand as of ~~common stock warrants in October 2017,~~March 31, 2021, will enable ~~the Company~~us to fund ~~its~~our operations ~~into~~through the ~~second quarter~~one-year period subsequent to the filing date of ~~2019.~~this Quarterly Report on Form 10-Q. Specifically, we believe our available funds will be sufficient to enable us ~~to:~~to perform the following:

(i)

~~complete the dose-finding portion of~~continue to execute on our ongoing ~~Phase 1/2 clinical trial in IMO-2125 in combination with ipilimumab or pembrolizumab in anti-PD1 refractory metastatic melanoma and continue enrollment in the Phase 2 portion of this trial;~~

~~initiate a~~ Phase 3 clinical trial of ~~IMO-2125~~tilsotolimod in combination with ~~a checkpoint inhibitor~~ipilimumab for the treatment of anti-PD1 refractory metastatic ~~melanoma;~~

melanoma (ILLUMINATE-301);

(ii)

continue ~~to enroll patients~~enrollment in the current Low-Dose, High-Frequency Cohort of our Phase ~~1 intra-tumoral monotherapy~~2 study of tilsotolimod in combination with nivolumab and ipilimumab for the treatment of MSS-CRC (ILLUMINATE-206);

(iii)

fund certain research including investigator initiated clinical ~~trial~~trials of ~~IMO-2125~~tilsotolimod and the Scriptr Agreement; and

(iv)

maintain our current level of general and administrative expenses in ~~multiple refractory tumor types;~~

order to support the business.

~~complete our ongoing Phase 2 clinical trial of IMO-8400 in patients with dermatomyositis; and~~

~~submit an IND and initiate a Phase 1 human clinical proof-of-concept trial of IDRA-008.~~

~~We expect that~~In addition, we will need to raise additional funds in order to conduct any other clinical development of our TLR drug candidates or to conduct any other development of our 3GA technology, and to fund our operations. We are seeking and expect to continue to seek additional funding through collaborations, the sale or license of assets or financings of equity or debt securities. We believe that the key factors that will affect our ability to obtain funding are:

(i)

the results of our clinical ~~and preclinical~~ development activities in our ~~rare disease~~tilsotolimod program ~~our immuno-oncology program and our 3GA program, and our ability to advance our~~or any other drug candidates ~~and 3GA technology~~we develop on the timelines anticipated;

(ii)

the cost, timing, and outcome of regulatory reviews;

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(iii)

competitive and potentially competitive products and technologies and investors' receptivity to ~~our~~tilsotolimod or any other drug candidates we develop and the technology underlying them in light of competitive products and technologies;

(iv)

the receptivity of the capital markets to financings by biotechnology companies generally and companies with drug candidates and technologies ~~such as~~similar to ours specifically; ~~and~~

(v)

the receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter into;

(vi)

our ability to enter into additional collaborations with biotechnology and pharmaceutical companies and the success of such ~~collaborations.~~

collaborations; and

(vii)

the impact of the novel coronavirus disease, COVID-19, to global economy and capital markets, and to our business and our financial results.

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In addition, increases in expenses or delays in clinical development may adversely impact our cash position and require additional funds or cost reductions.

Financing may not be available to us when we need it or may not be available to us on favorable or acceptable terms or at all. We could be required to seek funds through collaborative alliances or through other means that may require us to relinquish rights to some of our technologies, drug candidates or drugs that we would otherwise pursue on our own. In addition, if we raise additional funds by issuing equity securities, our then existing stockholders ~~will~~may experience dilution. The terms of any financing may adversely affect the holdings or the rights of existing stockholders. An equity financing that involves existing stockholders may cause a concentration of ownership. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and are likely to include rights that are senior to the holders of our common stock. Any additional debt or equity financing may contain terms which are not favorable to us or to our stockholders, such as liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 1014 to the financial statements ~~appearing~~included in our ~~Annual Report on~~2020 Form 10-K, ~~for the year ended December 31, 2016,~~ additional equity financings may also result in cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net operating loss and tax credit carryforwards that we may utilize in any one year.

If we are unable to obtain adequate funding on a timely basis or at all, we will be required to terminate, modify or delay ~~preclinical or~~our clinical trials of ~~one or more of our drug candidates, significantly curtail or terminate discovery or development programs for new drug candidates~~tilsotolimod, or relinquish rights to portions of our technology, drug candidates and/or products.

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Cash Flows

The following table presents a summary of the primary sources and uses of cash for the three months ended March 31, 2021 and 2020:


	Three Months Ended
	March 31,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	(9,591)	$	(10,748)
Investing activities		4,500		(2,793)
Financing activities		16,403		1,431
Increase (decrease) in cash and cash equivalents	$	11,312	$	(12,110)

Operating Activities. The net cash used in operating activities for all periods presented consists primarily of our net income adjusted for non-cash charges and changes in components of working capital. The decrease in cash used in operating activities for the three months ended March 31, 2021, as compared to 2020, was primarily due to timing of cash outflows related to our current IMO-2125 development program, including payments to contract research organizations.

Investing Activities. Cash provided by (used in) investing activities primarily consisted of the following amounts relating to our investments in available-for-sale securities:

●

for the three months ended March 31, 2021, $4.5 million in proceeds received from the maturity of available-for-sale securities; and

●

for the three months ended March 31, 2020, purchases of $5.5 million in available-for-sale securities, partially offset by $2.7 million in proceeds received from the maturity of available-for-sale securities.

Financing Activities. Net cash provided by financing activities primarily consisted of the following amounts received in connection with the following transactions:

●

for the three months ended March 31, 2021, $16.3 million in aggregate net proceeds from financing arrangements consisting of $12.1 million received pursuant to the ATM Agreement and $4.2 million received under the LPC Purchase Agreement and $0.3 million received from the exercise of stock options and warrants, partially offset by $0.2 million in payments related to our short-term insurance premium financing arrangement; and

●

for the three months ended March 31, 2020, $1.4 million in aggregate net proceeds from financing arrangements consisting of $0.8 million received pursuant to the LPC Purchase Agreement and $0.6 million received under the ATM Agreement.

Contractual Obligations

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, there were no material changes outside the ordinary course of our business to our contractual obligations as disclosed in our ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2016.~~10-K.

Off-Balance Sheet Arrangements

As of ~~September 30, 2017,~~March 31, 2021, we had no off-balance sheet arrangements.

~~New Accounting Pronouncements~~

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Results of Operations

~~New accounting pronouncements~~

Three Months Ended March 31, 2021 and 2020

Overview

During the three months ended March 31, 2021, our loss from operations totaled $10.0 million, a 24% decrease compared to a loss from operations of $13.2 for the three months ended March 31, 2020. Research and development expenses comprise the majority of our total operating expenses, as shown in the table below.


	Three months ended
	March 31,				%
($ in thousands)	2021		2020		Change
Operating expenses:
Research and development	$	6,871	$	9,510	(28)%
General and administrative		3,156		3,642	(13)%
Total operating expenses	$	10,027	$	13,152	(24)%
Loss from operations	$	(10,027)	$	(13,152)	(24)%

Research and Development Expenses

For each of our research and development programs, we incur both direct and indirect expenses. We track direct research and development expenses by program, which include third party costs such as contract research, consulting and clinical trial and manufacturing costs. We do not allocate indirect research and development expenses, which may include regulatory, laboratory (equipment and supplies), personnel, facility and other overhead costs (including depreciation and amortization), to specific programs.

During the three months ended March 31, 2021, our overall research and development expenses declined by 28% as compared to the same period in 2020, primarily due to decreases in external development costs associated with tilsotolimod (IMO-2125). Specifically, this decrease is primarily related to costs incurred with contract research organizations during the three months ended March 31, 2021 to support: (i) our ongoing ILLUMINATE-301 trial, which we initiated in the first quarter of 2018 and completed enrollment in the first quarter of 2020, primarily due to decreased levels of clinical site activity following full enrollment and (ii) our ILLUMINATE-204 trial, which was substantially completed by the end of the first quarter of 2020. The decrease in external development costs associated with tilsotolimod (IMO-2125) was partially offset by increases in other drug development expenses in 2021, as compared to 2020, primarily due to expenses incurred in connection with the Scriptr Agreement, as more fully described under the heading “Collaborative Alliances” above.

Tilsotolimod (IMO-2125) external development expenses will continue to be a significant portion of our total research and development spend as we continue the clinical development of tilsotolimod.

In the table below, research and development expenses are ~~discussed~~set forth in the following categories: Tilsotolimod (IMO-2125) and other drug development expenses.


	Three months ended
	March 31,				%
($ in thousands)	2021		2020		Change
Tilsotolimod (IMO-2125) external development expense	$	3,896	$	7,071	(45)%
Other drug development expense		2,975		2,439	22%
Total research and development expenses	$	6,871	$	9,510	(28)%

Tilsotolimod (IMO-2125) External Development Expenses

These expenses include external expenses that we have incurred in connection with the development of tilsotolimod as part of our immuno-oncology program. These external expenses include payments to independent contractors and vendors for drug development activities conducted after the initiation of tilsotolimod clinical development in immuno-oncology, but exclude internal costs such as payroll and overhead expenses.

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We commenced clinical development of tilsotolimod as part of our immuno-oncology program in July 2015, and from July 2015 through March 31, 2021, we incurred approximately $85.8 million in tilsotolimod external development expenses, including costs associated with the preparation for and conduct of ILLUMINATE-204, ILLUMINATE-101, ILLUMINATE-301, ILLUMINATE-206, and the manufacture of additional drug substance for use in our clinical trials and additional nonclinical studies.

Other Drug Development Expenses

These expenses include internal costs, such as payroll and overhead expenses, associated with all of our clinical development programs. In addition, these expenses include external expenses, such as payments to contract vendors, associated with compounds that were previously being developed but are not currently being developed.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll, stock-based compensation expense, consulting fees and professional legal fees associated with our patent applications and maintenance, our corporate regulatory filing requirements, our corporate legal matters, and our business development initiatives. For the three months ended March 31, 2021 and 2020, general and administrative expenses totaled $3.2 million and $3.6 million, respectively. The decrease in general and administrative expenses during the three months ended March 31, 2021, as compared to the 2020 period, was primarily due to lower severance expense for former executives incurred during the 2021 period.

Interest Income

We recognized nominal interest income for the three months ended March 31, 2021. Interest income for the three months ended March 31, 2020 totaled approximately $0.1 million. The period-over-period decrease was primarily due to lower interest rates. Amounts may fluctuate from period to period due to changes in average investment balances, including commercial paper and money market funds classified as cash equivalents, and composition of investments.

Warrant Revaluation Gain

During the three months ended March 31, 2021 and 2020, we recorded a non-cash warrant revaluation gain of approximately $7.0 million and $1.1 million, respectively. The non-cash gain for the three months ended March 31, 2021 relates to the derecognition of the warrant liability (as stated at the beginning of the period) associated with our liability-classified warrants issued in connection with the December 2019 Private Placement, as more fully described in Note 27 of the Notes to Condensed Financial Statements appearing elsewhere in this Form 10-Q, due to the termination of such liability-classified warrants during the quarter. The non-cash gain for the 2020 period relates to the change in fair value of our liability-classified warrants. Due to the nature of and inputs in the ~~notes~~model used to assess the fair value of our outstanding warrants, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the remaining life of the warrants. Changes in the fair value of the warrant liability and resulting warrant revaluation gain for 2020 was driven primarily by a decrease in our stock price during the period.

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Future Tranche Right Revaluation Gain

During the three months ended March 31, 2021 and 2020, we recorded a non-cash future tranche right revaluation gain of approximately $118.8 million and $20.7 million, respectively. The non-cash gain for the three months ended March 31, 2021 relates to the ~~financial statements~~derecognition of the future tranche right liability (as stated at the beginning of the period) associated with the future tranche rights issued in connection with the December 2019 Private Placement, as more fully described in Note 7 of the Notes to Condensed Financial Statements appearing elsewhere in this ~~Quarterly Report on~~ Form ~~10-Q.~~10-Q, due to the termination of the future tranche rights during the quarter. The non-cash gain for the 2020 period relates to the change in fair value of the future tranche rights. Due to the nature of and inputs in the model used to assess the fair value of our outstanding warrants, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the remaining estimated lives of the future tranche rights. Changes in the fair value of the future tranche right liability and resulting future tranche right revaluation gain for 2020 was driven primarily by a decrease in our stock price during the period.

Net Income Applicable to Common Stockholders

As a result of the factors discussed above, our net income for the three months ended March 31, 2021 was $115.7 million, compared to net income of $8.8 million for the three months ended March 31, 2020. Net income applicable to common stockholders for the three months ended March 31, 2021 was $109.6 million, compared to net income applicable to common stockholders of $8.2 million for the three months ended March 31, 2020. Excluding the non-cash warrant revaluation gain of $7.0 million and future tranche right revaluation gain of $118.8 million, for the three months ended March 31, 2021, net loss applicable to common stockholders was $10.0 million. Excluding warrant revaluation income of $1.1 million and future tranche right revaluation income of $20.7 million, for the three months ended March 31, 2020, net loss applicable to common stockholders was $13.0 million.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

AsThere were no material changes in our exposure to market risk from December 31, 2020. Our market risk profile as of ~~September 30, 2017, all~~December 31, 2020 is disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our ~~material assets and liabilities are in U.S. dollars, which is our functional currency.~~2020 Form 10-K.

We maintain investments in accordance with our investment policy. The primary objectives of our investment activities are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. We regularly review our investment holdings in light of the then current economic environment. At September 30, 2017, all of our invested funds were invested in a money market fund, classified in cash and cash equivalents on the accompanying balance sheet, and a municipal bond, classified in short-term investments on the accompanying balance sheet.

Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair value of risk sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis.

Item 4.

Controls and Procedures.

~~ITEM 4. CONTROLS AND PROCEDURES.~~

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September 30, 2017.~~March 31, 2021. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of ~~September 30, 2017,~~March 31, 2021, our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our principal executive officer and principal financial officer by others, particularly during the period in which this report was prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Controls. During the fiscal quarter ended September 30, 2017, the Company implemented a new general ledger and accounting system to support its accounting activities and enhance business information. As a result, the Company revised certain processes and procedures related to the recording of financial transactions. The Company completed testing of the implemented system prior to its launch, continues to monitor impacted financial and business processes and believes that an effective control environment has been maintained post-implementation.

There were no ~~other~~ changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended ~~September 30, 2017~~March 31, 2021 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1A.

Risk Factors.

~~ITEM 1A. RISK FACTORS.~~

~~Investing in our securities involves a high degree of risk. In addition to the other information contained elsewhere in this report, you should carefully consider the~~Risk factors ~~discussed in “Part I, Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2016, which could materially~~that may affect our business and financial ~~condition~~ results are discussed within Item 1A “Risk Factors” of our 2020 Form 10-K and below. Except as set forth below, there have been no material changes to the disclosures relating to this item from those set forth in our 2020 Form 10-K.

We expect that we will continue to incur substantial and increasing net losses in the foreseeable future.

As of March 31, 2021, we had an accumulated deficit of $717.8 million and a cash and cash equivalents balance of $44.5 million. We expect to incur substantial operating losses in future periods and will require additional capital as we seek to advance tilsotolimod and/or any future ~~results.~~drug candidates through development to commercialization. We do not expect to generate product revenue, sales-based milestones or royalties until we successfully complete development of and obtain marketing approval for tilsotolimod or other future drug candidates, either alone or in collaboration with third parties, which may not occur or may take a number of years. In order to commercialize tilsotolimod and any future drug candidates, we need to complete clinical development and comply with comprehensive regulatory requirements. We are subject to numerous risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.

Even if we succeed in receiving marketing approval for and commercializing tilsotolimod or any other product candidate, we will continue to incur substantial research and development and other expenditures to develop and market additional potential indications or products. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Our stock price has been and may continue to be volatile, and the value of an investment in our common stock may decline.

We historically have experienced significant volatility in our stock price. Since December 31, 2020, our common stock has traded as low as $1.00 per share. The realization of any of the risks described in these risk factors or other unforeseen risks could have an adverse effect on the market price of our common stock. The trading price of our common stock is likely to continue to be highly volatile and could be subject to declines in response to numerous factors, including disappointing results in a clinical program, as was the case following the announcement of topline results for ILLUMINATE-301. Other risk factors include results from ongoing clinical trials; our ability to successfully commercialize tilsotolimod; FDA regulatory actions; announcements by us or our competitors of acquisitions, regulatory approvals, clinical milestones, new products, significant contracts, commercial relationships or capital commitments; additions or departures of key personnel; commencement of, or our involvement in, litigation; and any major change in our board of directors or management.

From time to time, we estimate the timing of the potential accomplishment of clinical and other development goals or milestones. These estimated milestones may include the commencement or completion of clinical trials. Also, from time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these estimated milestones are based on numerous assumptions. These milestones may change and the actual timing of meeting these milestones may vary dramatically from our estimates, in some cases for reasons beyond our control. If we do not meet these estimated milestones as publicly announced, our stock price may decline.

Our recent organizational changes and cost cutting measures may not be successful.

In April 2021, following the announcement that ILLUMINATE-301 did not meet its primary endpoint of ORR, we decided to implement a reduction in force affecting approximately 50% of our workforce by May 31, 2021. The decision was made in order to align our workforce with our needs in light of the outcome of ILLUMINATE-301’s ORR endpoint as we evaluate potential next steps regarding continuation of the trial toward its OS endpoint, which includes evaluating the full data set.In connection with these actions, we have incurred one-time termination costs in connection with the reduction in workforce, which includes severance, benefits and related costs, of

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approximately $0.7 million in April 2021 and currently expect to incur an additional $0.2 million through the balance of the second quarter of 2021.

We believe these changes are needed to streamline our organization and reallocate our resources to better align with our current strategic goals. However, these restructuring and cost cutting activities may yield unintended consequences and costs, such the loss of institutional knowledge and expertise, attrition beyond our intended reduction in force, a reduction in morale among our remaining employees, and the risk that we may not achieve the anticipated benefits, all of which may have an adverse effect on our results of operations or financial condition. In addition, while positions have been eliminated certain functions necessary to our reduced operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees. We may also discover that the reductions in force and cost cutting measures will make it difficult for us to pursue new opportunities and initiatives, requiring us to hire qualified replacement personnel, which may require us to incur additional and unanticipated costs and expenses.

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~~ITEM 6.EXHIBITS.~~

Item 6.

Exhibits.


Exhibit No.		Description

10.1†		Severance and Change of Control Agreement, dated February 19, 2021, by and between the Company and Daniel Soland(Incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K filed on March 1, 2021)
~~Exhibit No.~~		~~Description~~

*31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of ~~2002.~~2002

*31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of ~~2002.~~2002

*32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

*32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104
* Filed or furnished,	Cover Page Interactive Data File (formatted as inline XBRL with applicable ~~herewith.~~taxonomy extension information contained in Exhibits 101)

†

Management contract or compensatory plan or arrangement.

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	IDERA PHARMACEUTICALS, INC.
	~~IDERA PHARMACEUTICALS, INC.~~

Date: ~~November 6, 2017~~April 29, 2021	/s/ Vincent J. Milano
	Vincent J. Milano
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: ~~November 6, 2017~~April 29, 2021	/s/ ~~Louis~~John J. ~~Arcudi, III~~Kirby
	~~Louis~~John J. ~~Arcudi, III~~Kirby
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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	September 30,		December 31,
(In thousands, except per share amounts)	2017		2016
ASSETS
Current assets:
Cash and cash equivalents	$	63,941	$	80,667
Short-term investments		1,400		28,347
Prepaid expenses and other current assets		3,669		2,030
Total current assets		69,010		111,044
Property and equipment, net		1,412		1,853
Restricted cash and other assets		327		334
Total assets	$	70,749	$	113,231

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	849	$	556
Accrued expenses		6,119		7,394
Current portion of note payable		285		292
Current portion of deferred revenue		563		1,111
Total current liabilities		7,816		9,353
Deferred revenue, net of current portion		94		152
Note payable, net of current portion		—		209
Other liabilities		759		168
Total liabilities		8,669		9,882
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, Authorized — 5,000 shares:
Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share		—		—
Common stock, $0.001 par value, Authorized — 280,000 shares; Issued and outstanding — 149,680 and 149,065 shares at September 30, 2017 and December 31, 2016, respectively		150		149
Additional paid-in capital		651,498		641,687
Accumulated deficit		(589,568)		(538,470)
Accumulated other comprehensive loss		—		(17)
Total stockholders’ equity		62,080		103,349
Total liabilities and stockholders’ equity	$	70,749	$	113,231


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share amounts)	2017		2016		2017		2016
Alliance revenue	$	164	$	323	$	729	$	918
Operating expenses:
Research and development		10,912		9,393		40,288		28,817
General and administrative		3,919		3,907		11,888		11,601
Total operating expenses		14,831		13,300		52,176		40,418
Loss from operations		(14,667)		(12,977)		(51,447)		(39,500)
Other income (expense):
Interest income		159		90		456		320
Interest expense		(11)		(19)		(40)		(63)
Foreign currency exchange (loss) gain		(11)		3		(27)		32
Net loss	$	(14,530)	$	(12,903)	$	(51,058)	$	(39,211)
Basic and diluted net loss per common share (Note 14)	$	(0.10)	$	(0.10)	$	(0.34)	$	(0.32)
Shares used in computing basic and diluted net loss per common share		149,638		121,389		149,385		121,332
Net loss	$	(14,530)	$	(12,903)	$	(51,058)	$	(39,211)
Other comprehensive gain (loss):
Unrealized (loss) gain on available-for-sale securities		(1)		13		17		133
Comprehensive loss	$	(14,531)	$	(12,890)	$	(51,041)	$	(39,078)


			Quoted Prices
			in Active
			Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
September 30, 2017
Assets
Money market funds	$	49,637	$	49,637	$	—	$	—
Short-term investments – municipal bonds		1,400		—		1,400		—
Total Assets	$	51,037	$	49,637	$	1,400	$	—
Total Liabilities	$	—	$	—	$	—	$	—

December 31, 2016
Assets
Money market funds	$	67,580	$	67,580	$	—	$	—
Short-term investments – corporate bonds		19,729		—		19,729		—
Short-term investments – municipal bonds		8,618		—		8,618		—
Total Assets	$	95,927	$	67,580	$	28,347	$	—
Total Liabilities	$	—	$	—	$	—	$	—


	September 30, 2017
			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
	Cost		(Losses)		Gains		Value
	(In thousands)
Short-term investments – municipal bonds	$	1,400	$	—	$	—	$	1,400
Total short-term investments		1,400		—		—		1,400
Total investments	$	1,400	$	—	$	—	$	1,400