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

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.:

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 Rule 12b-2)~~Act) Yes ☐ No ☒

As of ~~October 30, 2017,~~May 5, 2020, the number of outstanding shares of the registrant’s common stock was ~~28,930,241.~~36,635,444.

In this report, unless otherwise stated or the context otherwise indicates, references to “Five Prime,” “the company,” “we,” “us,” “our” and similar references refer to Five Prime Therapeutics, Inc. The Five Prime logo ~~and RIPPS~~^® ~~are~~is our registered ~~trademarks.~~trademark. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

This Quarterly Report on Form 10-Q, or this report, contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

These forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by ~~the forward-looking~~such statements. We discuss many of these risks ~~in this report~~ in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

We obtained the industry, market and competitive position data in this ~~quarterly~~ report from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that the information in each of these ~~studies~~publications, surveys and ~~publications~~studies is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal ~~company~~estimates and research isare reliable and the market definitions we use are appropriate, ~~neither~~ such estimates, research ~~nor these~~and definitions have not been verified by any independent source.

							March 31,			December 31,
	September 30,			December 31,			2020			2019
	2017			2016			(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	36,448		$	7,653		$	67,692		$	55,800
Marketable securities		284,310			414,095			73,436			100,580
Receivables from collaborative partners		4,356			3,959			2,166			4,097
Income tax receivable		—			4,670
Assets held for sale								3,155			—
Prepaid and other current assets		8,240			9,748			3,840			6,243
Total current assets		333,354			440,125			150,289			166,720
Restricted cash		1,543			1,543			1,543			1,543
Property and equipment, net		22,497			6,207			18,276			22,534
Operating lease, right-of-use assets								30,303			30,934
Other long-term assets		23			406			2,560			2,411
Total assets	$	357,417		$	448,281		$	202,971		$	224,142

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,889		$	334		$	767		$	1,184
Accrued personnel-related expenses		6,202			7,957			4,126			6,805
Other accrued liabilities		22,414			15,435			9,980			9,659
Operating lease obligations, current portion								4,218			4,080
Deferred revenue, current portion		12,572			14,150			119			1,296
Deferred rent, current portion		1,646			865
Total current liabilities		45,723			38,741			19,210			23,024
Deferred revenue, long-term portion		9,437			17,856			4,810			5,113
Deferred rent, long-term portion		16,168			—
Other long-term liabilities		—			109
Commitments
Operating lease obligations, long-term portion								44,408			45,532
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 28,882,490 issued and 28,072,486 outstanding at September 30, 2017. 28,550,006 issued and 27,509,077 outstanding at December 31, 2016		28			27
Common stock, $0.001 par value; 100,000,000 shares authorized, 36,617,663 issued and 35,324,056 outstanding at March 31, 2020; 36,280,368 issued and 35,219,791 outstanding at December 31, 2019.								35			35
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding								—			—
Additional paid-in capital		412,678			396,635			586,448			582,243
Accumulated other comprehensive loss		(221	)		(39	)
Accumulated other comprehensive income								59			78
Accumulated deficit		(126,396	)		(5,048	)		(451,999	)		(431,883	)
Total stockholders' equity		286,089			391,575			134,543			150,473
Total liabilities and stockholders' equity	$	357,417		$	448,281		$	202,971		$	224,142

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

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2017			2016			2017			2016			2020			2019
Revenue:
Collaboration revenue	$	8,333		$	6,680		$	26,290		$	22,429		$	3,414		$	5,347
License revenue														5,000			—
Total revenue														8,414			5,347
Operating expenses:
Research and development		42,733			23,890			118,237			64,923			18,556			31,753
General and administrative		9,674			9,146			29,523			25,309			10,491			10,510
Total operating expenses		52,407			33,036			147,760			90,232			29,047			42,263
Loss from operations		(44,074	)		(26,356	)		(121,470	)		(67,803	)		(20,633	)		(36,916	)
Interest and other income, net		792			639			2,162			1,821
Interest income														517			1,533
Other expense, net														—			(2	)
Loss before income tax		(43,282	)		(25,717	)		(119,308	)		(65,982	)		(20,116	)		(35,385	)
Income tax (provision) benefit		—			6,303			(1,703	)		20,391
Income tax provision														—			—
Net loss	$	(43,282	)	$	(19,414	)	$	(121,011	)	$	(45,591	)	$	(20,116	)	$	(35,385	)
Basic and diluted net loss per common share	$	(1.54	)	$	(0.72	)	$	(4.34	)	$	(1.70	)	$	(0.57	)	$	(1.02	)
Weighted-average shares used to compute basic and diluted net loss per common share		28,020			27,139			27,883			26,794			35,263			34,794

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

Nine Months Ended

September 30,

2017

2016

Operating activities

Net loss
$
(121,011
)

$
(45,591
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

1,731

1,233

Stock-based compensation expense

26,712

22,838

Excess tax benefits from employee equity incentive plans

—

(662
)
Deferred income taxes

—

9,744

Amortization of premiums and discounts on marketable securities

1,467

3,339

Loss on disposal of property and equipment

2

9

Changes in operating assets and liabilities:

Receivables from collaborative partners

(397
)

1,747

Income tax receivable

4,670

(3,193
)
Prepaid, other current assets, and other long-term assets

1,891

(1,028
)
Accounts payable

2,555

(1,366
)
Accrued personnel-related expenses

(1,755
)

(947
)
Deferred revenue

(9,997
)

(12,554
)
Deferred rent

2,516

(576
)
Income tax payable

—

(41,530
)
Other accrued liabilities and other long-term liabilities

6,895

3,707

Net cash used in operating activities

(84,721
)

(64,830
)
Investing activities

Purchases of marketable securities

(318,864
)

(410,955
)
Maturities of marketable securities

447,000

391,000

Purchases of property and equipment

(3,627
)

(2,121
)
Proceeds from disposal of property and equipment

12

—

Net cash provided by (used in) investing activities

124,521

(22,076
)
Financing activities

Proceeds from issuance of common stock under equity incentive plans

2,579

6,702

Repurchase of shares to satisfy tax withholding obligations

(13,584
)

(14,054
)
Excess tax benefits from employee equity incentive plans

—

662

Net cash used in financing activities

(11,005
)

(6,690
)
Net increase (decrease) in cash and cash equivalents

28,795

(93,596
)
Cash and cash equivalents at beginning of period

7,653

149,971

Cash and cash equivalents at end of period
$
36,448

$
56,375

Supplemental cash flow information

Cash paid for income taxes
$
—

$
14,701

Non-cash investing activities

Unpaid property and equipment purchases included in accrued liabilities
$
1,213

$
—

Tenant improvements provided by the landlord
$
14,324

$
—

									Accumulated
						Additional			Other						Total
	Common Stock					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares			Amount		Capital			Income (Loss)			Deficit			Equity
Balances at December 31, 2019		35,219,791		$	35	$	582,243		$	78		$	(431,883	)	$	150,473
Issuance of common stock under equity incentive plans		169,324			—		—			—			—			—
Repurchase of shares to satisfy tax withholding obligations		(65,059	)		—		(277	)		—			—			(277	)
Stock-based compensation expense		—			—		4,482			—			—			4,482
Other comprehensive loss		—			—		—			(19	)		—			(19	)
Net loss		—			—		—			—			(20,116	)		(20,116	)
Balances at March 31, 2020		35,324,056		$	35	$	586,448		$	59		$	(451,999	)	$	134,543

									Accumulated
						Additional			Other						Total
	Common Stock					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares			Amount		Capital			Income (Loss)			Deficit			Equity
Balances at December 31, 2018		34,745,721		$	34	$	559,892		$	(106	)	$	(294,681	)	$	265,139
Issuance of common stock under equity incentive plans		150,666			—		222			—			—			222
Repurchase of shares to satisfy tax withholding obligations		(57,703	)		—		(670	)		—			—			(670	)
Stock-based compensation expense		—			—		4,872			—			—			4,872
Other comprehensive gain		—			—		—			148			—			148
Net loss		—			—		—			—			(35,385	)		(35,385	)
Balances at March 31, 2019		34,838,684		$	34	$	564,316		$	42		$	(330,066	)	$	234,326

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

	Three Months Ended
	March 31,
	2020			2019
Operating activities
Net loss	$	(20,116	)	$	(35,385	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,292			1,331
Impairment of fixed assets		(190	)		—
Stock-based compensation expense		4,482			4,872
Amortization of discounts and premiums on marketable securities		(145	)		(778	)
Non-cash operating lease expense		631			563
Changes in operating assets and liabilities:
Receivables from collaborative partners		1,931			1,733
Prepaid, other current assets and other long-term assets		2,254			2,421
Accounts payable		(388	)		3,180
Accrued personnel-related expenses		(2,679	)		(3,918	)
Deferred revenue		(1,480	)		(3,129	)
Other accrued liabilities, and other long-term liabilities		322			(3,349	)
Operating lease liabilities		(986	)		(217	)
Net cash used in operating activities		(15,072	)		(32,676	)
Investing activities
Purchases of marketable securities		(25,335	)		(59,714	)
Maturities of marketable securities		52,605			79,500
Purchases of property and equipment		(29	)		(983	)
Net cash provided by investing activities		27,241			18,803
Financing activities
Proceeds from issuance of common stock under equity incentive plans		—			222
Repurchase of shares to satisfy tax withholding obligations		(277	)		(670	)
Net cash used in financing activities		(277	)		(448	)

Net increase (decrease) in cash and cash equivalents and restricted cash		11,892			(14,321	)
Cash, cash equivalents and restricted cash at beginning of period		57,343			45,496
Cash, cash equivalents and restricted cash at end of period	$	69,235		$	31,175

Supplemental disclosure
Property and equipment purchases included in accrued liabilities	$	—		$	492

Supplemental cash flow information
Cash and cash equivalents at beginning of period	$	55,800		$	43,953
Restricted cash at beginning of period		1,543			1,543
Cash, cash equivalents and restricted cash at beginning of period	$	57,343		$	45,496

Cash and cash equivalents at end of period	$	67,692		$	29,632
Restricted cash at end of period		1,543			1,543
Cash, cash equivalents and restricted cash at end of period	$	69,235		$	31,175

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

Five Prime Therapeutics, Inc. (we, us, our, or the ~~Company)~~company) is a clinical-stage biotechnology company focused on ~~discovering~~developing immune modulators and ~~developing innovative protein therapeutics.~~precision therapies to improve the lives of patients with solid tumor cancers. We were incorporated in December 2001 in Delaware. Our operations are based in South San Francisco, California and we operate in ~~one~~1 segment.

The accompanying financial information as of ~~September 30, 2017~~March 31, 2020 is unaudited. The ~~condensed~~ financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of ~~the~~our financial condition ~~of the Company~~ at the date of the interim balance sheet. The accompanying unaudited ~~condensed consolidated~~ financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying ~~condensed~~ financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019, filed with the U.S. Securities and Exchange ~~Commission.~~Commission, or the SEC, on February 27, 2020, or our Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions ~~about future events~~ that affect the amounts reported in the financial statements and accompanying ~~notes.~~ notes as of the date of the financial statements. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable. Actual results could differ materially from those estimates.

The COVID-19 pandemic may have an impact on the clinical and preclinical development timelines for our clinical and preclinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Restricted cash consists of a certificate of deposit held by our bank as collateral for a standby letter of credit in the same notional amount by our landlord to secure our obligations under our corporate office and laboratory facility lease that we entered into in December 2016. We are required to maintain this restricted cash balance, the amount of which is subject to reduction starting on January 1, 2023 if certain conditions are met, for the duration of this lease.

We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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

We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. We review trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data. ~~There were no transfers between Level 1 and Level 2 securities in the periods presented.~~

In certain cases where there is limited activity or less transparency around inputs to valuation, we classify securities as Level 3 within the valuation hierarchy. We do not have any assets or liabilities measured using Level 3 inputs as of ~~September 30, 2017.~~March 31, 2020.

The following table summarizes our financial instruments that were measured at fair value on a recurring basis by level of input within the fair value hierarchy defined above (in thousands):

	September 30, 2017								March 31, 2020
			Basis of Fair Value								Basis of Fair Value
			Measurements								Measurements
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	15,697	$	15,697	$	—	$	—	$	31,544	$	31,544	$	—	$	—
U.S. Treasury securities		284,310		284,310		—		—		21,044		21,044		—		—
Agency bonds										26,333		26,333		—		—
Corporate bonds										9,606		—		9,606		—
Commercial paper										16,453		—		16,453		—
Certificate of deposit		1,543		—		1,543		—		1,543		—		1,543		—
Total cash equivalents and marketable securities	$	301,550	$	300,007	$	1,543	$	—
Total									$	106,523	$	78,921	$	27,602	$	—

	December 31, 2019
			Basis of Fair Value
			Measurements
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	21,706	$	21,706	$	—	$	—
U.S. Treasury securities		35,498		35,498		—		—
Agency bonds		48,834		48,834		—		—
Corporate bonds		1,800		—		1,800		—
Commercial paper		19,195		—		19,195		—
Certificate of deposit		1,543		—		1,543		—
Total	$	128,576	$	106,038	$	22,538	$	—

We determine revenue recognition for arrangements within the scope of Financial Accounting Standards Board, or FASB, Accounting Standard Update, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, and those applying Topic 606 by analogy, by performing the following five steps: (i) identifying the contract; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract; and (v) recognizing revenue when, or as, the company satisfies a performance obligation.

The terms of our license and collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. We record research and development funding payable to us as accounts receivable when our right to consideration is unconditional. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Given the high degree of uncertainty around occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting in Topic 606. A contract’s transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the applicable performance obligation is satisfied. Under Topic 606, we elected to use the practical expedient permitted related to adoption, which does not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period prior to the initial date of adoption. Additionally, we elected the practical expedient for certain research and development funding which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration is an amount that corresponds directly to the value of our performance completed to date. As a result, we effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation.

We compute basic net loss per common share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effect of potentially dilutive securities is antidilutive.

We excluded the following securities from the calculation of ~~diluted~~basic net loss per share ~~as the effect would have been antidilutive~~ (in thousands):

We account for costs related to our restructuring activities in accordance with ASC 420, Exit or Disposal Cost Obligations. Under ASC 420, one-time termination costs communicated to employees are accrued on the communication date, whereas termination costs that require employees to render future service beyond a minimum retention period are recognized ratably over the future service period.

We recognize other restructuring costs, including lease or other contract termination costs incurred in connection with terminating a contract before the end of its term, when we terminate the contract in accordance with its terms. See Note 7 for additional information regarding charges related to our corporate restructurings.

In ~~March 2016,~~ ~~the Financial Accounting Standards Board, or~~November 2018, FASB issued ~~Accounting Standards Update,~~ASU No. 2018-18, Collaborative Arrangements (Topic 808), or ASU ~~2016-09,~~ ~~Improvements~~ ~~to Employee Share-Based Payment Accounting, to simplify~~2018-18, which clarifies when certain ~~aspects of the accounting for share-based payment~~ transactions to employees. The new standard requires excess tax benefits and tax deficiencies to be recorded as a component of the provision for income taxes in a company’s statements of income when stock awards vest or are settled. In addition, it eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The standard also provides an accounting policy election to account for forfeitures as they occur, allowing a company to withhold more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld sharesbetween collaborative arrangement participants should be ~~presented as a financing activity on a company’s cash flows statement.~~accounted for under Topic 606 and incorporates unit-of-account guidance consistent with Topic 606 to aid in this determination. We adopted ASU ~~2016-09 as of~~2018-18, effective January 1, ~~2017. Starting in~~2020, to be applied retrospectively to the ~~first quarter~~date of ~~2017, we reflected excess tax benefits or deficiencies from share-based award activity in the consolidated statements~~initial application of ~~income as a component~~Topic 606. The adoption of the provision for income taxes, whereas we previously recognized them in equity. We have not adjusted prior periods. In addition, we adopted the aspects of the standard affecting the cash flow presentation prospectively. We will include the cash flow related to excess tax benefits within the operating activities. The presentation requirements for cash flows related to employee taxes paid for withheld shares hasASU 2018-18 had no ~~impact~~effect on our ~~consolidated~~financial statements and disclosures.

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement–Disclosure Framework (Topic 820), or ASU 2018-13. The updated guidance enhances the disclosure requirements on fair value measurements. We adopted ASU 2018-13, effective January 1, 2020. The adoption of ~~cash flows since such cash flows have historically been presented as~~ASU 2018-13 had no effect on our financial statements and disclosures.

In June 2016, FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326), or ASU 2016-13. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and requires consideration of a ~~financing activity. Finally, we elected~~broader range of information to ~~account for forfeitures as they occur, rather than~~ estimate ~~expected forfeitures, on~~credit losses. We adopted ASU 2016-13, effective January 1, 2020, using a modified retrospective ~~basis. Our~~approach, with certain exceptions. The impact of the adoption had no effect on our financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

In April 2015, FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Topic 350), or ASU 2018-15. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance to determine which implementation costs to defer and recognize as an asset. We adopted ASU 2018-15, effective January 1, 2020, to be applied prospectively to all implementation costs incurred after the date of adoption. The adoption of ASU ~~2016-09 resulted in a $337,000 decrease to retained earnings as of January 1, 2017 to record the additional stock compensation expense due to the elimination of the estimated forfeiture rate~~2018-15 had no effect on our financial statements and a $3.1 million increase to deferred tax assets which is fully offset by a valuation allowance because we determined that it is more likely than not that the deferred tax asset will not be fully realized.disclosures.

In ~~May 2014,~~December 2019, FASB issued ASU ~~2014-09,~~ ~~Revenue from Contracts with Customers:~~2019-12, Income Taxes–Simplifying the Accounting for Income Taxes (Topic 740), or ASU 2019-12. The updated guidance simplifies the accounting for income taxes by removing certain exceptions in Topic ~~606, that supersedes nearly all~~740 and clarifying and amending existing ~~revenue recognition guidance under GAAP.~~guidance. The ~~core principle of ASU 2014-09 is to recognize revenues when promised goods or services~~amendments are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 will become effective for ~~us in our first quarter of 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented~~fiscal years ending after December 15, 2020, with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) modified retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. ~~In March, April, May and December 2016, the FASB issued ASU 2016-08,~~ ~~Revenue from Contracts with Customers: Principal versus Agent Considerations, ASU 2016-10,~~ ~~Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, ASU 2016-12,~~ ~~Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients to provide supplemental~~early adoption ~~guidance and clarification to ASU 2014-09~~ ~~and ASU 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~, respectively. The effective date for these new standards is the same as the effective date and transition requirements for ASU 2014-09. We expect to adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective method.

Our adoption of ASU 2014-09 may have a material effect on our financial statements. To date, we have derived our revenues from license and collaboration agreements. The consideration we are eligible to receive under these agreements includes upfront payments, research and development funding, milestone payments and royalties. Each license and collaboration agreement is unique and will need to be assessed separately under the five-step process set forth under the new standard.permitted. We are currently assessing ~~our active license~~the timing and ~~collaboration agreements. We expect that our evaluation~~impact of adopting the ~~accounting for license~~updated provisions.

3.Cash Equivalents and collaboration agreements under the new revenue standard could identify material changes from the current accounting treatment. ASU 2014-09 differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments. Under our current accounting policy, we recognize milestone revenue using the milestone method specified in ASC 605-28, which generally results in the recognition of the milestone payment as revenue in the period that the milestone is achieved. However, under the new accounting standard, it is possible to start to recognize milestone revenue before the milestone is achieved, subject to management’s assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In addition, the current accounting standards include a presumption that revenue from up-front non-refundable fees would be recognized ratably over the performance period, unless another attribution method was determined to more closely approximate the delivery of the goods or services to the customer. The new accounting standard does not have a presumption that entities would default to a ratable attribution approach and will require entities to determine an appropriate attribution method using either output or input methods. As such, the amount and timing of revenue recognition for our license and collaboration agreements may change under the new revenue standard.Marketable Securities

~~In February 2016, FASB issued ASU 2016-02,~~ ~~Leases~~, which amends existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-02 will become effective for our interim and annual reporting periods during the year ending December 31, 2019 and will apply to ~~all annual and interim reporting periods thereafter. E~~arly adoption is permitted. Under the new standard, we expect to record a right-to-use lease asset and a lease liability on our balance sheet. Under the new standard, we expect to recognize expense on our statement of operations in a manner similar to the current accounting standard.

~~In May 2017, FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) – Scope of Modification Accounting~~, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. We will adopt the standard effective January 1, 2018. We do not expect the adoption to have a material impact on our consolidated financial statements.

The following table summarizes our cash equivalents and marketable securities aggregated by investment category (in thousands):

	September 30, 2017											March 31, 2020
	Amortized			Unrealized		Unrealized			Estimated			Amortized			Unrealized		Unrealized			Estimated
	Cost Basis			Gains		Losses			Fair Value			Cost Basis			Gains		Losses			Fair Value
Money market funds	$	15,697		$	—	$	—		$	15,697		$	31,544		$	—	$	—		$	31,544
U.S. Treasury securities		284,532			—		(222	)		284,310			20,996			48		—			21,044
		300,229			—		(222	)		300,007
Agency bonds													26,281			52		—			26,333
Corporate bonds													9,655			—		(49	)		9,606
Commercial paper													16,445			8		—			16,453
Total cash equivalents and marketable securities													104,921			108		(49	)		104,980
Less: cash equivalents		(15,697	)		—		—			(15,697	)		(31,544	)		—		—			(31,544	)
Total marketable securities	$	284,532		$	—	$	(222	)	$	284,310		$	73,377		$	108	$	(49	)	$	73,436

	December 31, 2019
	Amortized			Unrealized		Unrealized		Estimated
	Cost Basis			Gains		Losses		Fair Value
Money market funds	$	21,706		$	—	$	—	$	21,706
U.S. Treasury securities		35,471			27		—		35,498
Agency bonds		48,790			44		—		48,834
Corporate bonds		1,800			—		—		1,800
Commercial paper		19,188			7		—		19,195
Total cash equivalents and marketable securities		126,955			78		—		127,033
Less: cash equivalents		(26,453	)		—		—		(26,453	)
Total marketable securities	$	100,502		$	78	$	—	$	100,580

The following table summarizes our marketable securities in a continuous unrealized loss position (in thousands):

December 31, 2016

Amortized

Unrealized

Unrealized

Estimated

Cost Basis

Gains

Losses

Fair Value

Money market funds
$
432

$
—

$
—

$
432

U.S. Treasury securities

414,134

54

(93
)

414,095

414,566

54

(93
)

414,527

Less: cash equivalents

(432
)

—

—

(432
)
Total marketable securities
$
414,134

$
54

$
(93
)

$
414,095

	March 31, 2020
	Less than 12 months
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Gains		Losses			Fair Value
Corporate bonds	$	9,655	$	—	$	(49	)	$	9,606
Total unrealized losses	$	9,655	$	—	$	(49	)	$	9,606

There were 0 marketable securities in a continuous unrealized loss position as of December 31, 2019.

As of ~~September 30, 2017,~~March 31, 2020, the amortized cost and estimated fair value of our available-for-sale securities by contractual maturity are shown below (in thousands):

WeAs of March 31, 2020, a total of 4 individual corporate bonds had been in an unrealized loss position for 12 months or less, and the losses were determined ~~that the gross unrealized losses on our marketable securities as of September 30, 2017 were~~to be temporary in nature. We currently do not intend to sell these securities prior to maturity and do not consider these investments to be other-than-temporarily impaired at ~~September 30, 2017.~~March 31, 2020. It is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases. There were no0 sales of available-for-sale securities in any of the periods presented. As such, 0 allowance for credit losses was necessary.

We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

The following table summarizes option activity under our equity incentive plans and related information:

	Options Outstanding							Options Outstanding
						Weighted							Weighted
				Weighted		Average					Weighted		Average
				Average		Remaining					Average		Remaining
	Number of			Exercise Price		Contractual		Number of			Exercise Price		Contractual
	Shares			Per Share		Term (years)		Shares			Per Share		Term (years)
Balance at December 31, 2016		3,454,339		$	26.80
Balance at December 31, 2019									3,314,722		$	20.50
Options granted		803,050		$	40.87				1,254,325			5.07
Options exercised		(149,079	)	$	12.14				—			—
Options forfeited		(245,829	)	$	38.44				(85,874	)		14.48
Options expired		(4,160	)	$	34.67				(441	)		5.06
Balance at September 30, 2017		3,858,321		$	29.55
Options exercisable as of September 30, 2017		1,901,281		$	21.41		5.86
Balance at March 31, 2020									4,482,732			16.30	6.73
Options exercisable at March 31, 2020									2,556,371			22.03		4.94

We have granted restricted stock awards, or RSAs, ~~to certain of our employees,~~ some of which are subject to performance conditions and/or market conditions. RSAs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting and are not forfeitable once fully vested. We ~~based~~base the fair value of RSAs on the closing sale price of our common stock on the grant date. For RSAs subject to market conditions, we based the fair value of the awards on a Monte Carlo simulation model. For RSAs subject to performance conditions, we recognize stock-based compensation expense using the accelerated attribution recognition method when it is probable that the performance condition will be ~~achieved.~~achieved and, for RSAs subject to market conditions, we recognize stock-based compensation expense commencing at the grant date over the derived service period.

The following table summarizes RSA activity under our 2013 Omnibus Incentive Plan and related information:

As of ~~September 30, 2017,~~March 31, 2020, there were ~~1,461,211~~2,823,835 shares of common stock available for future issuance under our 2013 Omnibus Incentive Plan.

Total stock-based compensation expense recognized was as follows (in thousands):

We estimated the fair value of stock options using the Black-Scholes ~~option-pricing~~option pricing model based on the date of grant of ~~such~~the applicable stock option with the following assumptions:

As of ~~September 30, 2017,~~March 31, 2020, we had ~~$42.3~~$9.4 million of total unrecognized compensation expense related to unvested ~~employee and director~~ stock options that we expect to recognize over a weighted-average period of ~~2.6~~2.8 years. Additionally, we had ~~$25.5~~$5.3 million of total unrecognized compensation expense related to employee and director RSAs that we expect to recognize over a weighted-average period of ~~2.1~~2.0 years.

On July 1, 2019, we commenced a tender offer to our employees, excluding executive officers, to exchange eligible stock options for replacement stock options with modified terms, or our exchange offer. Pursuant to the exchange offer, we offered employees who held outstanding stock options granted on or before June 6, 2018 with an exercise price equal to or greater than $18.00 per share, or eligible options, the opportunity to tender each eligible option in exchange for a new stock option with modified terms, or new options.

The exchange offer expired at 6:00 p.m., Pacific time, on July 29, 2019. As of the expiration of the exchange offer, there were 510,932 shares of our common stock underlying the eligible options. Pursuant to the exchange offer, 55 employees elected to exchange outstanding stock options, and we accepted for cancellation stock options to purchase an aggregate of 436,648 shares of common stock, representing approximately 85% of the total shares of common stock underlying the eligible options. On July 29, 2019, immediately following the expiration of the exchange offer, we granted new options to purchase 235,419 shares of common stock, each with an exercise price of $5.06 per share, which was the closing price per share of our common stock on Nasdaq on the grant date. As a result, 201,229 shares of common stock returned to the 2013 Omnibus Incentive Plan reserve and became available for future issuance. Each new option vests in equal monthly amounts over either one or three years, depending on whether the tendered eligible option was fully vested as of July 29, 2019, has a maximum term of seven years and was granted as a nonqualified stock option under our 2013 Omnibus Incentive Plan.

The exchange of stock options was treated as a modification for accounting purposes. We are recognizing the unamortized incremental expense remaining on the new options of $0.1 million as of March 31, 2020 using the Black-Scholes option pricing model over the new service period that began on the modification date of July 29, 2019. We are recognizing the unamortized expense remaining on the tendered options of $0.8 million as of March 31, 2020 over the remainder of the original requisite service period.

We ~~recorded~~identified one performance obligation under the immuno-oncology research collaboration for the research license to access our technology, the exclusive commercial license and research activities. BMS’s option to select additional collaboration targets is not priced at a ~~provision~~discount and therefore does not represent one or more performance obligations for ~~income taxes~~which the transaction price would be allocated. The transaction price of $36.1 million includes the $20.0 million non-refundable upfront fee, $13.7 million of research funding and $2.4 million of equity premium. We concluded that the transaction price should not include the variable consideration related to maintenance fees and unachieved clinical and regulatory development milestones as this consideration was considered to be constrained since it is probable that the inclusion of such variable consideration could result in a significant reversal in revenue in the future. For the three months ended March 31, 2020, 0 milestone payments were triggered under the immuno-oncology research collaboration. We will recognize any consideration related to sales-based payments (including milestones and royalties) when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the occurrence of the related sales.We will re-evaluate the transaction price at each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2020, 0 adjustments were made to the transaction price.

Under the input method, we recognize revenue on the basis of our efforts or inputs applicable to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs applicable to the satisfaction of that performance obligation. We concluded that we will recognize revenue based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligation. As the performance obligation was fully satisfied through March 31, 2019, the transaction price of $36.1 million was fully recognized as collaboration revenue. Revenue recognized from the performance obligation was $0 and ~~$1.7~~$1.4 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, respectively. In

On October 14, 2015, we entered into a license and collaboration agreement, or the cabiralizumab collaboration agreement, with BMS. The cabiralizumab collaboration agreement supersedes the clinical trial collaboration agreement we entered into with BMS in November 2014, or the original collaboration agreement. We assessed the two agreements separately as standalone agreements under Topic 606.

Under the original collaboration agreement, we identified one performance obligation for the execution of a Phase 1a/1b clinical trial of cabiralizumab in combination with Opdivo^®. The transaction price consists of the $30.0 million non-refundable upfront fee under the original collaboration agreement. We will re-evaluate the transaction price at each reporting period. For the three months ended ~~June 30,~~March 31, 2020, 0 adjustments were made to the transaction price.

We used the input method to measure progress toward completion of the performance obligation and concluded that we will recognize revenue based on actual costs incurred by our clinical research organization, or CRO, as a percentage of total budgeted costs as we complete our performance obligation. We will recognize revenue from reimbursements when we have the right to invoice BMS. We recognized $0.7 million and $1.9 million of the transaction price as revenue for the three months ended March 31, 2020 and 2019, respectively. Total revenue recognized for reimbursements for the three months ended March 31, 2020 and 2019 was $1.5 million and $1.4 million, respectively. Through March 31, 2020, we recognized $29.9 million of the transaction price as collaboration revenue under the original collaboration agreement. The remaining transaction price of $0.1 million is recorded as deferred revenue as of March 31, 2020 and will be recognized as revenue under the input method over the estimated performance period.

Under the cabiralizumab collaboration agreement, we identified the following performance obligations: (1) the license grant to BMS and (2) the transfer of licensed know-how to BMS. The transaction price consisted of the $350.0 million non-refundable up-front fee. As the performance obligations were fully satisfied in 2015, the transaction price of $350.0 million was fully recognized as revenue concurrent with the transfer of the license and know-how in prior years. We concluded that the transaction price should not yet include milestone payments that may become due, as they are fully constrained. For the three months ended March 31, 2020, 0 milestone payments were triggered under the cabiralizumab collaboration agreement. We will recognize any consideration related to royalties when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized upon the occurrence of the related sales. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2020, 0 adjustments were made to the transaction price.

In December 2017, we ~~recorded~~entered into a license and collaboration agreement, or the China collaboration agreement, with Zai Lab (Shanghai) Co., Ltd., or Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan.

We identified the following performance obligations: (1) the license grant to Zai Lab together with the transfer of licensed know-how, development drug supply and global development activities, or the license grant, and (2) the development of companion diagnostics. Zai Lab has the option to purchase commercial drug supply from us pursuant to a separate commercial supply agreement to be negotiated in the future. The commercial drug supply will be accounted for as a separate contract when Zai Lab exercises this option. The transaction price of $14.7 million consists of the $8.8 million of expected reimbursement from Zai Lab for global development activities, $4.2 million non-refundable upfront fee and $1.7 million ~~provision for income taxes~~clinical development milestone payment. We estimated the $8.8 million of expected reimbursements from Zai Lab based on the probability-weighted amounts of a range of possible consideration amounts. We have not included the regulatory milestone payments in the transaction price, as all such milestone amounts are fully constrained. For the three months ended March 31, 2020, 0 milestone payments were triggered under the China collaboration agreement. We will recognize any consideration related to royalties when the related sales occur, as we determined that these amounts relate predominantly to the license granted and therefore will be recognized upon the occurrence of the related sales. We concluded that the reimbursement of costs incurred for the development of companion diagnostics qualifies for the practical expedient under Topic 606, which allows us to recognize revenue in the amount for which we have a right to invoice if our ~~ongoing discussions with~~right to consideration is an amount that corresponds directly to the ~~Internal Revenue Service~~value to Zai Lab of our performance completed to date. We therefore effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2020, 0 adjustments were made to the transaction price.

We use the input method to measure progress toward completion of the performance obligation for the license. We concluded that revenue will be recognized based on actual costs incurred by our ~~tentative net operating loss carryback refund claim filed in~~CRO as a percentage of total budgeted costs as we complete our performance obligation. We will recognize revenue from reimbursements for the development of companion diagnostics when we have the right to invoice Zai Lab.

For the three months ended March ~~2017. We realized an income tax benefit of $6.3~~31, 2020 and 2019, revenue recognized for the license grant performance obligation was $0.6 million and ~~$20.4~~$0.1 million, respectively. Total revenue recognized for the companion diagnostics development performance obligation was $0.7 million and $0.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively. Of the remaining transaction price of $11.1 million, we recorded $4.8 million in deferred revenue, which we will recognize over the estimated performance period for satisfaction of the performance obligations. The remaining $6.3 million of the transaction price will be recorded in deferred revenue when invoiced as we complete global development activities.

In February 2020, we entered into a global license agreement, or the Seattle Genetics license agreement, with Seattle Genetics, Inc., or Seattle Genetics, pursuant to which we granted Seattle Genetics an exclusive worldwide license to a family of monoclonal antibodies that are directed to a single target and Seattle Genetics will be responsible for research, development, manufacturing and commercialization of novel antibody-drug conjugate products based on these antibodies.

Pursuant to the Seattle Genetics license agreement, Seattle Genetics paid us an upfront fee of $5.0 million. Additionally, we are eligible to receive up to (i) $132.0 million in specified developmental and regulatory milestone payments for the first achievement by the first licensed product, (ii) $68.0 million in specified developmental and regulatory milestone payments for the first achievement by the second licensed product, and (iii) $19.0 million in specified developmental and regulatory milestone payments for each achievement by a subsequent licensed product. We are also eligible to receive up to $162.5 million in sales-based contingent payments per licensed product. Seattle Genetics will also be obligated pay us an additional mid-single-digit percentage royalty on net sales of each licensed product in a region until the latest of: (i) 11 years after the first commercial sale of such licensed product in such region; (ii) the expiration of certain patents covering such licensed product in such region; and (iii) the date on which any applicable regulatory exclusivities with respect to such licensed product expires in such region. We are also eligible to receive annual maintenance fees of $0.2 million.

Unless earlier terminated by either party, the Seattle Genetics agreement will expireon a licensed product-by-licensed product and region-by-region basis upon the expiration of Seattle Genetics’s payment obligations with respect to each licensed product under the agreement. Seattle Genetics may terminate the agreement in its entirety at any time with advance written notice. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach. We may terminate the agreement in its entirety with written notice for Seattle Genetics’s material breach of its diligence obligations with respect to development and obtaining regulatory approval, and may terminate the agreement on a region-by-region basis for Seattle Genetics’s breach of its diligence obligations with respect to timely commercialization of a licensed product in a region following regulatory approval. We may terminate the agreement in its entirety if Seattle Genetics or its affiliates or sublicensees commences a legal action challenging the validity, enforceability or scope of any of our patents in the region. Either party also may terminate the agreement in its entirety upon certain insolvency events involving the other party.

Under the Seattle Genetics license agreement, we identified one performance obligation for the license grant. The transaction price consists of the $5.0 million non-refundable upfront fee. As the performance obligation was fully satisfied as of March 31, 2020, the transaction price of $5.0 million was fully recognized. We concluded that the transaction price should not include the variable consideration related to maintenance fees and unachieved clinical and regulatory development milestones as this consideration was considered to be constrained as it is probable that the inclusion of such variable consideration could result in a significant reversal in revenue in the future. For the three months ended March 31, 2020, 0 milestone payments were triggered under the Seattle Genetics license agreement. We will recognize any consideration related to sales-based payments (including milestones and royalties) when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the occurrence of the related sales. For the three months ended March 31, 2020, 0 revenue was recognized for consulting support. We will re-evaluate the transaction price for the Seattle Genetics license agreement in each reporting period as uncertain events are resolved and other changes in circumstances occur.

We adopted ASU 2016-02, effective January 1, 2019, using the updated modified retrospective transition method, in which the new standard is applied as of the date of initial adoption. We recognized and measured agreements executed prior to the date of initial adoption that were considered leases on January 1, 2019. NaN cumulative effect adjustment of initially applying the standard to the opening balance of retained earnings was made upon adoption. We elected the package of practical expedients permitted under the transition guidance that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. We have not reassessed whether any contracts entered into prior to adoption are leases. In addition, we elected the accounting policy of not recording short-term leases with a lease term at the commencement date of twelve months or less on the balance sheet as permitted by the new standard.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

We entered into a lease agreement for our corporate office and laboratory facility in December 2016, which we refer to as the facility lease. We moved into our new corporate office and laboratory facility in December 2017. The facility lease has an initial term of 10 years, beginning on the rent commencement date, with an option to extend the lease for an additional period of five years. We did not have to pay rent until the rent commencement date of January 1, 2018, and rent was reduced by 50% for the first six months. The facility lease contains scheduled rent increases over the lease term. We received lease incentives from our landlord for a portion of the costs of leasehold improvements we made to the premises. In addition, the facility lease required us to deliver an irrevocable standby letter of credit in an amount of $1.5 million to the landlord for the period commencing on the effective date of the facility lease until at least 60 days after the expiration of the lease, subject to 50% reduction on January 1, 2023 if certain conditions are met. In October 2019, we commenced a corporate restructuring to extend our cash runway and ensure long-term sustainability. As part of the restructuring, we are engaged in activities to reduce our corporate facilities footprint by either subletting a significant portion of our current leased space or subletting our current building and relocating to smaller facilities.

In July 2018, we entered into a lease agreement for the installation, operational qualifications and performance qualifications of 4 sequencing instruments to support our bemarituzumab program, which we refer to as the instruments lease. The instruments lease has 2 three-year terms based on delivery dates for the first three instruments in July 2018 and the fourth instrument in February 2019. The instruments lease contains consistent rent payments over the term of the lease.

We have evaluated our leases and determined that, effective upon the adoption of ASU 2016-02, they were all operating leases. The classification of our leases is consistent with our determination under the previous accounting standard. The balance sheet classification of our lease assets and liabilities is presented on our balance sheet. We recognize operating lease cost as a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. Variable lease payments that are not included in the lease liability are recognized on the statement of operations in the period in which the obligation for those payments is incurred. For the three months ended March 31, 2020 and 2019, we recognized operating lease cost of $1.5 million and $1.5 million, respectively, and variable lease cost of $0.5 million and $0.4 million, respectively. ~~This~~Cash paid for amounts included in the measurement of operating lease liabilities was $1.9 million and $1.2 million for the three months ended March 31, 2020 and 2019, respectively.

The weighted-average discount rate of our operating leases is 7%, and the weighted-average remaining lease term of our operating leases is eight years as of March 31, 2020.

The table below reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years to the operating lease labilities recorded on the balance sheet (in thousands):

In January 2019, we implemented a corporate restructuring, or the January restructuring, to focus our resources on clinical development and late-stage research programs. Pursuant to the January restructuring, 41 employee positions were eliminated, representing approximately 20% of our then-current headcount, primarily in areas relating to research, pathology and manufacturing. Restructuring charges related to the January 2019 restructuring were incurred primarily during the first quarter of 2019 and amounted to approximately $1.8 million for severance and other benefit costs related to the restructuring.

In conjunction with our corporate restructurings, we evaluated our laboratory equipment and determined that the carrying value was no longer recoverable. An impairment loss of $1.9 million was recorded in our research and development costs within our statement of operations, primarily during the fourth quarter of 2019.

The following table summarizes management’s estimates of costs that are expected to be incurred that are probable and can be estimated as of March 31, 2020 and the actual costs incurred to date through the three months ended March 31, 2020 (in thousands):

The following table presents the components of restructuring and other related costs for the three months ended March 31, 2020 and their location within our income ~~tax benefit represented~~statement (in thousands):

The following table presents the activity in the accrued personnel-related expense liability associated with the restructurings for the three months ended March 31, 2020 (in thousands):

As part of our October restructuring, we have reduced our focus on research activities and, as such, sold the majority of the lab equipment we owned through an auction conducted by a third-party vendor in April 2020. Actual proceeds have not yet been received. We expect to record a gain against our research and development costs in operating expenses within our statement of operations in the second quarter of 2020.

In 2019, we announced that we planned to conduct an early futility analysis in our global double-blind trial of bemarituzumab in combination with mFOLFOX6 as front-line treatment of patients with advanced gastric or GEJ cancer that overexpresses FGFR2b, which we refer to as our FIGHT trial, after the occurrence of a pre-specified number of events in the trial. The outcome of the futility analysis would lead to a recommendation from the independent Data Monitoring Committee in the FIGHT trial to continue the trial as a Phase 3 trial as originally designed, stop the trial or amend the trial. However, even if we passed the futility analysis, given the significant cost of running the FIGHT trial as a Phase 3 trial and our current resources and priorities, our ability to ~~recover taxes accrued in 2015 based~~restart and continue the FIGHT trial as originally designed would depend on existing tax law that allowed us to carryback our 2016 tax losses and/or credits to recover prior taxes. The income tax benefit was based on the annual effective tax rate method and considered our forecasted 2016 pre-tax losses reduced by non-deductible stock based compensation expenses and other immaterial non-deductible permanent items. In addition, as a result of the forecasted loss, the income tax benefit was decreased by a valuation allowance recorded against certain deferred tax assets due to the uncertainty surrounding the realization of such assets in the future.

~~After the carryback of our full year 2016 net operating losses to 2015, we maximized~~ our ability to ~~obtain~~secure a ~~refund~~partner that would pay for all or substantially all of ~~prior income taxes paid.~~any future development and commercialization expenses for our bemarituzumab program. Based on feedback we have received from potential partners, we believe that it will be difficult to secure a partner for our bemarituzumab program on reasonable terms or at all without data showing the safety and efficacy of the combination of bemarituzumab and mFOLFOX6 in previously untreated patients with advanced gastric or GEJ cancer that overexpresses FGFR2b. Accordingly, we are beginning the process of amending the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial. We expect the FIGHT study as a Phase 2 trial to have a sufficient number of progression-free survival (PFS) and overall survival (OS) events to generate clinically meaningful data by the end of 2020 or early 2021.

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

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited ~~condensed~~ financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our audited financial statements and related notes thereto for the year ended December 31, ~~2016~~2019 included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, or the SEC, on February ~~24, 2017~~,27, 2020, or our Annual Report.

We are a clinical-stage biotechnology company focused on ~~discovering~~developing immune modulators and ~~developing innovative protein therapeutics~~precision therapies to improve the lives of patients with ~~serious diseases.~~solid tumor cancers. Our primary focus is on developing immuno-oncology and targeted cancer therapies. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are ~~still~~ needed. ~~We have an emphasis in immuno-oncology, an area in which we have clinical, preclinical and discovery programs and product and discovery collaborations.~~ In addition, we ~~plan to~~ use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates. ~~Our~~The most advanced product candidates that we or our partners are developing are identified below.

~~We have a~~meaningfully differentiated target discovery platform and library of more than 5,700 human transmembrane and extracellular soluble proteins that we believe encompasses substantially all the body’s medically important targets for proteinfrom other in-class therapeutics. We ~~have identified approximately 700 of these proteins, which~~generally look for single-agent activity or clear activity in, for example, tumor types that are rarely sensitive to checkpoint inhibitors.

Historically, we ~~refer~~leveraged our differentiated discovery capabilities and protein therapeutic generation and engineering capabilities to ~~as the immunome, that we believe modulate immune cell interactions~~identify and may be important in understanding and treating cancer in patients using immuno-oncology therapeutics. Our target discovery platform and capabilities uniquely position us to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and the focus of our research activities. ~~We are applying all aspects of our biologics discovery platform, including cell-based screening, immunome-by-immunome screening,~~ ~~in vivo~~ ~~screening, receptor-ligand matching technologies and bioinformatics, in our immuno-oncology research programs. We have identified several~~validate targets that we ~~believe~~believed could be useful in ~~immuno-oncology that we are actively validating,~~oncology, and we ~~are also conducting research to discover additional targets.~~ ~~We generate~~generated and preclinically ~~test~~tested therapeutic proteins, including antibodies and fusion proteins, ~~containing~~directed to or ~~directed to~~containing the targets we ~~identify.~~identified and validated. In October 2019, we began a corporate restructuring pursuant to which we eliminated our in-house target discovery and validation and protein therapeutic generation and engineering capabilities by the first quarter of 2020. We currently have three late-stage research programs that arose from our work with our discovery capabilities. We plan to advance ~~selected~~lead therapeutic antibodies for one of these programs into IND-enabling studies in 2020. Due to our significantly reduced scope of in-house research and preclinical capabilities following our October 2019 restructuring, we expect to advance each of our late-stage research programs through preclinical development relying mostly on out-sourced and contracted capabilities. In addition, as part of our corporate restructuring, we shifted our focus from in-house discovery and research to supplementing our development pipeline by looking to selectively acquire or license, on an exclusive basis, rights to product candidates ~~into clinical development.~~from biotechnology and pharmaceutical companies.

We have no products approved for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development expenses related to our three late-stage research programs and our clinical product candidatesand other expenses related to our ongoing operations. We expect that, if we do not partner our programs, our expenses will increase as we advance our product candidates into later stages of clinical development and increase the number of product candidates in clinical development. We have incurred losses in each period since ~~our~~ inception of operations in 2002, with the exception of the fiscal year ended December 31, 2015, due primarily to the $350.0 million ~~upfront~~up-front payment we received from BMS under our ~~cabiralizumab~~license and collaboration agreement for cabiralizumab, and the fiscal year ended December 31, 2011, due primarily to the $50.0 million upfront payment we received from ~~GlaxoSmithKline, or~~ ~~GSK,~~Human Genome Sciences, Inc. from ~~our~~a license and collaboration agreement for ~~FP-1039.~~FP-1039, a product candidate we were developing at the time. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, we reported a net loss of ~~$121.0~~$20.1 million and ~~$45.6~~$35.4 million, respectively.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited ~~consolidated~~ financial statements included in this Quarterly Report ~~on Form 10-Q,~~ which we prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.

The following table shows the stage of development of ~~our~~the most advanced product ~~candidates:~~candidates that we are developing or that have come from our pipeline and are being developed or supported by our collaborators:

~~Cabiralizumab~~* Partnered with Zai Lab – see “Part I—Item 1. Collaborations” of our Annual Report for a description of our China collaboration agreement with Zai Lab.

** Partnered with BMS – see “Part I—Item 1. Collaborations” of our Annual Report for a description of our collaboration agreement with BMS.

^‡ We are beginning the process of amending the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial. For additional information, see the description of our bemarituzumab program below.

We are currently dosing patients in ~~Immuno-Oncology~~a global double-blind clinical trial of bemarituzumab in combination with mFOLFOX6 as front-line treatment of patients with advanced gastric or GEJ cancer that overexpresses FGFR2b, which we refer to as our FIGHT trial. We are conducting the trial in China in collaboration with Zai Lab. We paused enrollment in the FIGHT trial in the fourth quarter of 2019, except for sites in Japan where we plan to enroll up to six patients while the remainder of the FIGHT trial remains closed for enrollment.

We are identifying patients for inclusion in the FIGHT trial using both an immunohistochemistry, or IHC, test, which allows us to detect FGFR2b overexpression on the tumor tissue in a biopsy specimen, and a ctDNA blood-based test, which allows us to detectFGFR2 gene amplification from DNA shed by tumor cells in blood plasma. FGFR2 gene amplification is a cause of FGFR2b overexpression, and measuring FGFR2 gene amplification in the blood is an indirect way of identifying tumors that overexpress FGFR2b that we may otherwise not identify using an IHC test. We designed the FIGHT trial to enroll patients that test positive for (a) FGFR2b overexpression, as detected by the IHC test alone, (b) FGFR2 gene amplification, as detected by the ctDNA test alone, and (c) both FGFR2b overexpression, as detected by the IHC test, and FGFR2 gene amplification, as detected by the ctDNA test. We believe that patients with tumors that meet the criteria in any of these subgroups may benefit from the addition of bemarituzumab to front-line chemotherapy.

Initially, we expected that approximately 10% of the previously untreated, advanced gastric and GEJ cancer patients that we pre-screened in the FIGHT trial would test positive for FGFR2b overexpression or FGFR2 gene amplification, as detected by the IHC and ctDNA tests we developed to identify patients eligible for enrollment in the trial. We also expected that the majority of patients that test positive for FGFR2b overexpression by IHC would also test positive for FGFR2 gene amplification by ctDNA.

As of the time we paused enrollment in the trial, approximately 30% of the patients that we pre-screened for possible enrollment in the trial tested positive for FGFR2b overexpression, as measured by the IHC test alone. This was significantly higher than we expected at the time we started the trial. In addition, contrary to our initial expectations, the vast majority of patients that tested positive for FGFR2b overexpression did not test positive for FGFR2 gene amplification. These results suggest that the FIGHT trial may enroll a greater proportion of patients whose tumors overexpress FGFR2b due to a reason other than FGFR2 gene amplification. We believe all patients enrolled in the FIGHT trial may benefit from the addition of bemarituzumab to front-line chemotherapy, as bemarituzumab targets FGFR2b that is overexpressed on the cell surface regardless of the cause of overexpression. However, the composition of the patient population in our FIGHT trial differs from the composition of the patient population for which we designed the FIGHT trial. This represents an additional unknown because we have limited clinical data from patients who overexpress FGFR2b in the absence of FGFR2 gene amplification, and these patients represent the vast majority of the patients we have enrolled. These patients may be less responsive to the combination of bemarituzumab and mFOLFOX6 than the population of patients we originally sought to enroll, which increases the risk that we would not achieve the overall survival primary endpoint of the FIGHT trial with statistical significance and increases the risk that the FIGHT trial would not enable registration of bemarituzumab in combination with mFOLFOX6 as front-line treatment for patients with advanced gastric or GEJ cancer that overexpresses FGFR2b.

Accordingly, we had planned to conduct an early futility analysis in mid-2020 after the occurrence of a pre-specified number of events in the trial to ensure that the FIGHT trial is adequately powered for a Phase 3 trial to detect an overall survival benefit at full enrollment in previously untreated, advanced gastric and GEJ cancer patients whose tumors test positive for FGFR2b overexpression. The outcome of the futility analysis would lead to a recommendation from the independent Data Monitoring Committee in the FIGHT trial to continue the trial as a Phase 3 trial as originally designed, stop the trial or amend the trial.

We are in the process of completing a Phase 1a/1b clinical trial in which we were evaluating the safety, tolerability and preliminary efficacy of FPA150 as a potential therapy in patients with a variety of cancers. We continue to dose the remaining patients in the Phase 1b expansion portion of the trial testing FPA150 as a monotherapy in HR+/HER2- and triple-negative breast cancer, ovarian cancer and endometrial cancer patients whose tumors overexpress B7-H4 and FPA150 in combination with Keytruda^® (pembrolizumab) in patients with advanced ovarian cancer that overexpresses B7-H4 who have not received prior therapy with an anti-PD1 or PD-L1-directed agent.

Based on the efficacy data that we have observed in our Phase 1a/1b clinical trial, we do not currently plan to advance the development of FPA150 as a monotherapy. In addition, although we continue to evaluate FPA150 in combination with Keytruda in a Phase 1b cohort of patients with ovarian cancer that overexpresses B7-H4, given the costs of advancing this combination through clinical development and our current resources and priorities, we do not plan to advance the clinical development of the combination independently. Because of the lack of observed off-target toxicity in our clinical trial and the extent of overexpression of B7-H4 in several tumors, we believe that developing our B7-H4 antibodies in other formats, including in a re-directed T-cell bi-specific format or as a chimeric antigen receptor (CAR) T-cell therapy, may benefit patients. We plan to evaluate business development opportunities that would allow us to advance the clinical development of FPA150 or our other B7-H4 antibodies in combination with a PD-L1 antibody or in other formats.

We are conducting a Phase 1a/1b clinical trial of FPT155 in patients with ~~BMS~~solid tumors. We are currently in the Phase 1a dose escalation and exploration portion of the trial. As of April 2020, we had tested FPT155 in ten dose escalation cohorts (up to ~~evaluate the safety, tolerability~~280 mg flat dosing every three weeks) without any observed dose-limiting toxicities and ~~preliminary efficacy of combining cabiralizumab with~~ ~~Opdivo~~ ~~as a potential treatment for a variety of cancers.~~ ~~We expect to enroll approximately 280~~are currently treating patients in the ~~overall~~eleventh dose cohort at the 560 mg dose level. We have not observed any evidence of cytokine-release syndrome in patients enrolled in the trial. ~~In October 2016, we initiated~~ We have observed pharmacodynamic biomarker data in the Phase 1b1a dose escalation portion of the trial ~~to evaluate the safety, tolerability and preliminary efficacy~~that show expansion of ~~the selected dose of cabiralizumab in combination with~~ ~~Opdivo~~central memory T cells in the ~~following tumor settings:~~

~~We have completed enrollment~~action of FPT155 that has been observed in ~~most of the Phase 1b cohorts and expect to complete enrollment in the Phase 1b portion of the trial in the fourth quarter of 2017.~~preclinical studies.

~~We continue to enroll patients in the expansion~~As part of the Phase 1a portion of the trial, we are also testing FPT155 as monotherapy in an exploratory cohort at dose levels at which we have not observed any dose-limiting toxicities and at which we have observed efficacy in preclinical models, with the objective of gaining additional data on safety, pharmacokinetics and potential preliminary single-agent clinical activity of FPT155. In the Phase 1b expansion portion of the trial, we plan to evaluate FPT155 in patients with tumors likely to have T cell infiltration, which are commonly referred to as “warm” or “hot” tumors.

While enrollment in the Phase 1a portion of the trial is currently progressing in accordance with our timelines, the COVID-19 pandemic has impacted certain sites participating in our clinical trial and those sites’ ability to enroll new patients in the trial. As such, we expect that we may experience slower than anticipated enrollment as we progress through the Phase 1a and into the Phase 1b portions of the trial if the COVID-19 pandemic continues to adversely impact these sites’ ability to enroll new patients, which may affect our ability to conduct and complete the trial in accordance with our timelines.

Although we anticipate single-agent activity of FPT155, the early pharmacodynamic and safety data we have observed in the trial and preclinical data suggest that the combination of FPT155 and an anti-PD-1 therapy will be synergistic. Accordingly, we are adding a dose escalation cohort to the Phase 1a portion of the trial to evaluate the combination of FPT155 and pembrolizumab in patients with PD-1 treated non-small cell lung cancer, which we plan to follow with an expansion cohort evaluating a selected dose of FPT155 in combination with pembrolizumab in the same patient population. We expect to begin enrolling patients in this cohort in the third quarter of 2020.

In March 2020, the U.S. Food and Drug Administration, or FDA, cleared our investigational new drug application for FPT155, which will enable us to ~~study the highest dose of cabiralizumab as monotherapy and as combination therapy with~~ ~~Opdivo. We are conducting these additional Phase 1a activities in parallel with our conduct of the Phase 1b portion of the trial.~~

~~Our and BMS’s abstract featuring data from the Phase 1a/1b clinical trial evaluating the immunotherapy combination of cabiralizumab with~~ ~~Opdivo~~ has been selected for a late-breaking oral presentation at the Society for Immunotherapy of Cancer, or SITC, 32nd Annual Meeting. The presentation, titled “First in Human Phase I Dose Escalation and Expansion of a novel combination, anti-CSF1-receptor (cabiralizumab) plus anti-PD-1 (nivolumab) in patients with advanced solid tumors,” will be presentedbegin enrollment in the ~~Clinical Trials and Novel Combinations session on Saturday, November 11, 2017.~~United States.

~~We are~~BMS is conducting a Phase 1/2 clinical trial of ~~cabiralizumab as a potential treatment for diffuse PVNS. During the Phase 2 expansion portion of the trial, we are evaluating tumor response rate~~BMS-986258 in combination with Opdivo and ~~duration and measures of pain and joint function~~ in ~~PVNS patients.~~

~~We completed patient enrollment in the initially-planned 30-patient cohort of the Phase 2 portion of the trial in April 2017. We amended the study to enroll up to 30 additional patients~~combination with diffuse PVNS in the Phase 2 portion of the trial to refine the dosing schedule and optimize the therapeutic index of cabiralizumab in PVNS. Data from these additional patients are intended to support the design of our planned pivotal trial of cabiralizumab in PVNS. We expect to complete enrollment of these additional patients in 2018.

In June 2017, we presented a clinical poster at the 2017 American Society of Clinical Oncology, or ASCO, Annual Meeting with updated pharmacokinetics, or PK, pharmacodynamics, or PD, and safety data from 21 patients treated with cabiralizumab and efficacy data from 11 patients treated with cabiralizumab in our ongoing Phase 1/2 clinical trial.

Based on the data, we concluded that the PK and PD of cabiralizumab support dosing of up to 4 mg/kg. We did not observe any dose-limiting toxicities at doses up to 4 mg/kg. The most common treatment-related adverse events were periorbital and eyelid edema, rash and pruritis, which are all class effects for compounds targeting the CSF1R pathway.

~~We observed clinical benefit~~Halozyme Therapeutics, Inc.’s rHuPH20 in patients with ~~diffuse PVNS in doses up to 4mg/kg. Based on radiographic assessments by RECIST 1.1 of anti-tumor activity~~advanced malignant tumors (NCT03446040). In light of the ~~11 patients treated with cabiralizumab at~~COVID-19 pandemic, we are withdrawing our guidance that this trial may advance from Phase 1 to Phase 2 in 2020.

In response to the ~~4mg/kg dose, we observed, as~~global spread of the ~~March 7, 2017 data cut-off date:~~

~~We are conducting a Phase 1 clinical trial of FPA144 to evaluate the safety, PK, and efficacy of FPA144 in patients with metastatic gastric and GEJ cancer and bladder cancer~~ ~~whose tumors overexpress the FGFR2b protein. In September 2017, we closed enrollment~~ongoing COVID-19 pandemic in the ~~expansion cohorts~~first quarter of ~~metastatic gastric~~2020, we implemented business continuity plans designed to address and ~~GEJ cancer in~~mitigate the impact of the pandemic on our employees and our business. While we are not experiencing any material financial impacts at this ~~trial to focus efforts on preparing for~~time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our ~~registration-enabling pivotal trial testing FPA144 in combination with chemotherapy.~~business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to ~~enroll patients in~~closely monitor the ~~bladder cancer expansion cohort in our Phase 1 trial.~~

In June 2017, we presented a clinical poster at the 2017 ASCO Annual Meeting presenting updated safety and efficacy data from 64 patients from this Phase 1 clinical trial. In the trial, we tested FPA144 in advanced solid tumors up to 15 mg/kg, including in patients with gastric or GEJ cancer and one patient with bladder cancer. Aseffects of the COVID-19 pandemic as we evolve our business continuity plans and response strategy. In March ~~20, 2017 data cut-off~~2020, our entire workforce, other than those whose job responsibilities require them to be physically present at our offices, transitioned to working remotely. To date, ~~we did~~our remote working arrangements have not observe any dose-limiting toxicities or a maximum-tolerated dose. In addition, unlike small molecule FGF receptor kinase inhibitors, which block signaling through a broad number of FGF receptors and can leadsignificantly impacted our ability to hyperphosphatemia, we did not observe any treatment-related hyperphosphatemia in patients treated with FPA144. All treatment-related adverse events were Grades 1, 2 or 3. All treatment-related ocular adverse events were Grades 1 or 2, and no retinal toxicity was reported.maintain our business operations.

~~We observed preliminary anti-tumor activity with FPA144 monotherapy in late-line patients with gastric or~~ ~~GEJ~~ cancer who had had a median of three prior therapies and whose tumors overexpress the FGFR2b protein. Based on radiographic assessments by RECIST 1.1 of anti-tumor activity in the 21 patients who had high FGFR2b+ overexpressing gastric or ~~GEJ~~ ~~cancer, we observed, as of the March 20, 2017 data cut-off date:~~

~~In addition,~~ we observed anti-tumor activity with FPA144 monotherapy in a patient with urothelial bladder cancer with FGFR2b overexpression, as determined by an IHC assay, who enrolled in the dose escalation portion of the Phase 1 clinical trial. Based on radiographic assessments by RECIST 1.1 of anti-tumor activity in the patient with urothelial bladder cancer, we observed that the patient had a complete response at a dose of 3 mg/kg. To better understand the potential utility of FPA144 for the treatment of patients with urothelial bladder cancer that overexpress FGFR2b, we analyzed 387 archival primary urothelial bladder cancer samples with an immunohistochemistry, or IHC, assay for FGFR2b overexpressionClinical Development and determined that 11.6% of the primary tumor samples (n=342) overexpressed FGFR2b at a level of at least 1+ in at least 10% of the primary tumor sample and that 14.2% of the metastatic tumor samples (n=30) overexpressed FGFR2b at a level of at least 1+ in at least 10% of the metastatic tumor sample.Preclinical Activities

We continue to ~~discuss~~support our active clinical sites and provide investigational drug supply for patients enrolled in our ongoing clinical trials. In response to the COVID-19 pandemic, we and our contract research organizations, or CROs, have taken measures to implement remote and virtual approaches, including remote patient monitoring, where appropriate and possible, to maintain patient safety and trial continuity and to preserve the integrity of our clinical trials. As disclosed elsewhere in this Quarterly Report, we expect that we may experience slower than anticipated enrollment as we progress through the Phase 1a and into the Phase 1b portions of our clinical trial evaluating FPT155 if the COVID-19 pandemic continues to adversely affect certain clinical trial sites’ ability to enroll new patients, and we may experience similar delays in enrollment in future clinical trials if the pandemic continues to affect sites in countries in which we conduct those clinical trials. The COVID-19 pandemic may also negatively impact our and our CROs’ ability to report clinical trial results or interact with ethics committees or other regulatory authorities due to limitations in ~~multiple jurisdictions~~employee resources or otherwise.

We rely on CROs to perform most of the activities related to the conduct of our ~~plans~~clinical trials, and as a result of our October 2019 restructuring, we expect to advance ~~FPA144 in combination with chemotherapy to a Phase 1/3 clinical trial in front-line gastric~~our late-stage research programs through preclinical development relying mostly on out-sourced and ~~GEJ cancer patients whose tumors overexpress FGFR2b. Study start-up activities for this trial are underway. We plan to begin dosing patients by the end of 2017 in the Phase 1 safety run-in portion~~contracted capabilities. The impact of the ~~trial,~~COVID-19 pandemic increases the risk that the CROs or other service providers we engage will not be able to perform their contractual obligations relating to our clinical trials or preclinical studies in a timely or satisfactory manner. For example, resource limitations and social distancing requirements may affect the ability of our service providers to timely perform preclinical studies of our product candidates, which would delay our timelines and our potential clinical development of those product candidates.

If the COVID-19 pandemic persists for an extended period of time, we ~~plan~~could experience significant disruptions to ~~follow with the global (including China~~ and ~~Japan) randomized, controlled Phase 3 portion of the trial~~delays in ~~mid-2018.~~

~~We estimate that approximately 10% of patients with gastric or GEJ cancer have tumors that either have~~ ~~FGFR2~~ ~~gene amplification or overexpress the FGFR2b protein. Accordingly, in the Phase 3 portion of the trial, we will select for enrollment those patients whose tumors have~~ ~~FGFR2~~ ~~gene amplification or FGFR2b protein overexpression. We plan to identify~~ ~~FGFR2~~ ~~gene amplification using a circulating tumor DNA, or ctDNA, blood-based test, which~~ ~~will allow us to detect~~ ~~DNA shed from tumors that circulates in blood plasma outside of cells. We plan to identify FGFR2b overexpression using an IHC test, which~~ ~~will allow us to determine FGFR2b overexpression in tumor tissue samples. We are developing these IHC and ctDNA tests in parallel with~~ our clinical development and preclinical activities, which would adversely affect our business, financial condition, results of ~~FPA144 in collaboration with diagnostic development partners~~operations and ~~plan to use both companion diagnostics concurrently to more effectively identify eligible patients.~~growth prospects.

We ~~plan~~are working closely with our contract manufacturing organizations, or CMOs, and other suppliers to ~~pursue regulatory approval of each companion diagnostic contemporaneously with regulatory approval of FPA144.~~

~~Because the observed incidence of gastric~~manage our supply chain activities and ~~GEJ cancer is higher in Asian populations than in other populations, in July 2017, we initiated dosing in a Phase 1 clinical trial in Japan evaluating FPA144~~mitigate potential disruptions to our drug product supplies as a ~~monotherapy to treat patients with gastric or GEJ cancer.~~result of the COVID-19 pandemic. We currently expect to ~~complete enrollment in this trial in 2018. This trial is intended~~have adequate supply of our product candidates and any third-party drug products that may be used to ~~enable~~conduct our current and planned preclinical and clinical activities. However, if the ~~inclusion~~COVID-19 pandemic persists for an extended period of ~~Japanese patients~~time and impacts these CMOs or other suppliers, or if the pandemic impacts essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the ~~global Phase 3 clinical trial that we are planning. In addition, we are actively evaluating the initiation~~manufacturing and supply of ~~clinical development of FPA144 to potentially treat patients with gastric cancer in China. As part of this effort,~~ our ~~business development team is exploring a potential China-focused development collaboration for FPA144. We believe that working with a China-based development partner~~product candidates or third-party drug products, which would ~~allow us to expedite our efforts to initiate the Phase 3 trial at clinical sites in China and enhance~~adversely impact our ability to ~~enroll patients~~conduct and complete our preclinical studies and clinical trials in accordance with our timelines or at all.

While we do not anticipate needing to seek additional funding to support our operating plans in the near term, our operating plans may change as a result of factors currently unknown to us, and we may need or desire to seek additional funds sooner than planned through public or private equity or debt financings, collaborations, or strategic alliances and licensing arrangements. The COVID-19 pandemic is rapidly evolving and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, and if we need or desire to access additional capital in the future, we may be unable to do so and our operations may be negatively impacted.

The extent of the impact of the COVID-19 pandemic on our business, including on our clinical ~~sites~~and preclinical programs, and the value of and market for our common stock is highly uncertain and will depend on future developments that cannot be predicted with confidence at this time, such as the ultimate duration, spread and severity of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in ~~China,~~the countries in which ~~should~~we and our collaborators, partners and service providers operate, the effectiveness of actions taken globally to contain and treat the disease, andhow quickly and to what extent normal economic and operating conditions resume. For example, if remote working arrangements for our business, or those of our partners or service providers, are extended for longer than we currently expect, we may need to reassess our priorities and our corporate objectives for the year. Additionally, the extension of business closures may delay or otherwise negatively impact our ability to reduce ~~the overall time to fully enroll the Phase 3~~our corporate facilities footprint by either subletting a significant portion of our current leased space or subletting our current building and relocating to smaller facilities.

We continue to assess the ~~trial. In addition, we expect that such a development collaboration would reduce~~potential scope of the impact of the COVID-19 pandemic on our ~~overall spend~~business and operations. For additional information on the ~~Phase 3 portion~~risks posed to our business by the COVID-19 pandemic, see Part II, Item 1A. Risk Factors of ~~the trial as we plan to negotiate that the development partner share in the costs of the Phase 3 trial.~~

In March 2011, we licensed to Human Genome Sciences, Inc., or HGS, rights to develop and commercialize FP-1039 in the United States, the European Union and Canada. In August 2012, GSK acquired HGS and HGS is now a wholly-owned subsidiary of GSK. ~~HGS/GSK terminated its license to FP-1039 for convenience effective September 5, 2016.~~

~~Prior to GSK’s termination of the FP-1039 license, GSK had initiated~~ ~~a Phase 1b clinical trial of FP-1039 to evaluate the safety, tolerability, dosage, response rate and duration of response of FP-1039~~ ~~in combination with front-line pemetrexed and cisplatin in malignant pleural mesothelioma, or MPM, patients.~~ ~~In October 2016, GSK completed treatment of MPM patients in~~ this ~~trial.~~

GSK presented updated response rate, duration of response and progression-free survival data from the Phase 1b clinical trial at the European Society for Medical Oncology’s 2017 Congress in September 2017.

~~We currently plan to seek a partner to support the potential future development of FP-1039 in mesothelioma.~~

We are currently conducting IND-enabling activities in each of our FPA150 (B7-H4 antibody) and FPT155 (CD80 fusion protein) programs. We plan to file an IND application for the FPA150 program in the fourth quarter of 2017 and begin a Phase 1 trial of FPA150 in the first half of 2018. We plan to file an IND application for the FPT155 program in mid-2018 and begin a Phase 1 trial of FPT155 in the second half of 2018.Quarterly Report.

We are currently focusing our internal research efforts in immuno-oncology. Cancers grow and spread because tumor cells have developed ways to evade elimination by the immune system. For example, cancer cells make proteins that apply the “brakes” to immune cells and prevent the immune cells from killing the tumor cells. One of the more meaningful recent discoveries in cancer therapy has been the identification of ways to release these “brakes” and allow the immune cells to once again kill tumor cells. This new approach has the potential to not only reduce tumor growth like traditional therapies, but potentially to eliminate the cancer entirely in some patients. In addition to releasing the “brakes” on immune cells, other recent discoveries in cancer therapy have focused on identifying ways to “press on the gas” to amplify the anti-tumor immune response. This second approach targets stimulatory pathways on immune cells. Agents that agonize stimulatory pathways can help immune cells overcome inhibitory signals in the tumor microenvironment and kill tumor cells.

While checkpoint inhibitor therapies have been validated in the clinic with agents targeting the PD-1/PD-L1 and CTLA-4 pathways to release the “brakes,” a significant proportion of patients do not respond to these treatments. New targets and combinations for immuno-oncology are needed to address those patients who do not respond to or cannot tolerate traditional therapies or agents currently in development. ~~We are applying all aspects of our biologics discovery platform to~~ ~~identify protein partners for molecules known to be involved in the anti-tumor immune response~~. ~~We believe we have identified promising new antibody targets and fusion proteins and are actively screening for and validating additional targets.~~

We have not generated any revenue from product sales. We have derived our revenue to date from upfront payments, research and development funding and milestone payments under ~~collaboration and license~~ agreements with our collaboration partners and licensees. We currently have an active ~~immuno-oncology research collaboration and~~ cabiralizumab license and collaboration agreement with ~~BMS.~~BMS, an active collaboration and license agreement with Zai Lab and a license agreement with Seattle Genetics. We completed the research ~~term~~terms of our ~~research collaboration in respiratory diseases with GSK and our fibrosis and CNS~~immuno-oncology research collaboration with ~~UCB Pharma S.A., or UCB,~~BMS in ~~July 2016 and~~ March ~~2016, respectively.~~2019. In February 2020, we entered into a global license agreement with Seattle Genetics.

The following is a comparison of collaboration revenue and license revenue for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019 (in millions):

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in millions)
2017

2016

2017

2016

R&D Funding

Cabiralizumab Collaboration - BMS
$
3.8

$
1.8

$
13.4

$
4.6

Immuno-oncology Research Collaboration - BMS

0.5

1.0

2.0

2.4

Respiratory Diseases Collaboration - GSK

—

0.1

—

2.4

Fibrosis and CNS Collaboration - UCB

—

—

—

0.1

Ratable Revenue Recognition

Cabiralizumab Collaboration - BMS

1.4

1.5

4.4

4.4

Immuno-oncology Research Collaboration - BMS

1.2

1.1

3.4

3.3

Respiratory Diseases Collaboration - GSK

—

0.1

—

0.8

Fibrosis and CNS Collaboration - UCB

0.8

0.8

2.3

2.3

Milestone and Contingent Payments

Respiratory Diseases Collaboration - GSK

0.5

0.3

0.5

1.8

Fibrosis and CNS Collaboration - UCB

0.1

—

0.3

0.2

Other License Revenue

bluebird bio License Agreement

—

—

—

0.1

Total
$
8.3

$
6.7

$
26.3

$
22.4

	Three Months Ended
	March 31,
	2020		2019

China Collaboration - Zai Lab		1.2		0.6
Cabiralizumab Collaboration - BMS		2.2		3.3
Immuno-oncology Research Collaboration - BMS		—		1.4
License Agreement - Seattle Genetics		5.0		—
Total revenue	$	8.4	$	5.3

We expect that ~~any~~the level of revenue we generate will fluctuate from period to period as a result of the timing and amount of ~~milestones~~milestone, reimbursable expenses and other payments ~~from~~we receive in the course of our existing collaborations and licenses and as a result of the deferred revenue that we recognize, including due to revisions to estimates related to reimbursable activities or estimates of actual or estimated costs as a percentage of total budgeted costs, or as a result of entry into any new collaborations and license agreements.

Research and development expenses consist of costs we incur ~~for our own and for sponsored~~in performing internal and collaborative research and development activities. Expenses ~~we incur~~incurred related to ~~our discovery~~collaborative research and ~~product collaboration~~development agreements generally approximate the revenue ~~we recognize~~recognized under these agreements. ~~We expense research and development costs as we incur them.~~ Research and development costs consist of salaries and benefits, including associated stock-based compensation, ~~laboratory~~lab supplies and facility costs, as well as fees ~~we pay~~paid to other entities that conduct certain research and development activities, including manufacturing, on our behalf.

We ~~estimate~~are conducting research and development activities on several disease targets and product candidates.

We have a research and development team that designs, manages and evaluates the results of all our research and development activities. Historically, we conducted most of our core target discovery and early research and preclinical ~~study~~activities internally and ~~clinical trial expenses based~~relied more heavily on ~~the services performed pursuant to contracts with research institutions and contract research organizations, or~~third parties, such as CROs and CMOs, for the execution of our IND-enabling and development activities, such as current Good Laboratory Practices, or GLP, toxicology studies, drug substance and drug product manufacturing, lab-developed test and companion diagnostic development, and the conduct of our clinical trials. In connection with our corporate restructurings, we have eliminated our in-house target discovery and validation and protein therapeutics generation and engineering capabilities. Because we now have a significantly reduced scope of in-house and preclinical capabilities, we expect to advance our three late-stage research programs and any future programs through preclinical development relying mostly on out-sourced and contracted capabilities. In addition, we expect to increasingly rely on third-party service providers with respect to manufacturing, ~~organizations,~~and we may in the foreseeable future outsource all or ~~CMOs, that conduct~~a portion of our cell line and manage preclinical studies and clinical trials on our behalf based on actual time and expenses incurred by them. Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity contemplated by the applicable agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly. If we do not identify costsprocess development activities that we ~~have begun to incur or if we underestimate or overestimate~~currently conduct, as well as the ~~level~~manufacturing of ~~services performed or the costs~~quantities of ~~these services,~~ our ~~actual expenses could differ from our estimates. To date, we have not experienced significant changes~~product candidates for use in ~~our estimates of~~ preclinical ~~studies and clinical trial accruals.~~studies.

We ~~expense payments~~account for ~~the acquisition and development of technology as~~ research and development costs ~~if, at~~on a program-by-program basis. In the ~~time~~early phases of ~~payment, the technology: is under development; is~~research and discovery, historically, our costs have often been related to conducting target screening, evaluation and validation activities and conducting research activities with respect to selected targets and target pathways and have not ~~approved by the U.S. Food~~necessarily been allocable to a specific program. We assign costs for such activities to a distinct non-program related project code. We allocate research and ~~Drug Administration or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable alternative future use.~~development management, overhead, common usage laboratory supplies and facility costs on a full-time equivalent basis.

The following is a comparison of our research and development expenses for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019 (in millions):

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in millions)	2017		2016		2017		2016
									2020		2019
Development programs:
Cabiralizumab	$	6.4	$	5.6	$	22.9	$	13.0	$	1.8	$	3.0
FPA144		12.2		4.0		25.7		13.0
FP-1039		0.7		0.1		1.4		0.2
Bemarituzumab										6.8		9.4
FPA150										2.6		8.2
FPT155										4.1		3.4
Subtotal development programs		19.3		9.7		50.0		26.2		15.3		24.0
Preclinical programs		15.9		5.4		42.5		12.6		—		—
Discovery collaborations										—		0.5
Early research and discovery		6.8		7.1		22.5		18.7		3.3		7.3
Discovery collaborations		0.7		1.7		3.2		7.4
Total research and development expenses	$	42.7	$	23.9	$	118.2	$	64.9	$	18.6	$	31.8

We expect that most of the research and development expenses we incur will continue to relate to activities to support our clinical development programs and our three late-stage research programs. Our research and development expenses may increase as we advance our current product candidates through clinical development and our three late-stage research programs into preclinical and clinical development and if we add to our development pipeline through strategic or licensing of product candidates from other biotechnology or pharmaceutical companies. In particular, our research and development expenses ~~to continue to~~may increase ~~as we advance our development programs further and advance additional drug candidates into preclinical and clinical development, in particular as~~if we increase the number and size of our clinical trials, including by advancing into registrational trials.

In January 2019, we implemented a corporate restructuring, or the January restructuring, to focus our resources on our clinical development and aslate-stage research programs. Pursuant to the restructuring, we ~~expand~~eliminated 41 employee positions, representing approximately 20% of our ~~internal immuno-oncology preclinical,~~then-current headcount, primarily in areas relating to research, pathology and ~~discovery efforts.~~manufacturing. Restructuring charges related to the January restructuring were incurred primarily during the first quarter of 2019 and amounted to approximately $1.8 million for severance and other benefit costs related to the restructuring.

On October 10, 2019, we announced a second corporate restructuring, or the October restructuring, to extend our cash runway and ensure long-term sustainability. As part of the October restructuring, we are reducing our workforce by 63 positions across all functions through the second quarter of 2020. In addition, we are engaged in activities to reduce our corporate facilities footprint by either subletting a significant portion of our current leased space or subletting our current building and relocating to smaller facilities. Furthermore, due to our reduced focus on research activities, we have sold the majority of the lab equipment we owned through an auction conducted by a third-party vendor in April 2020. We expect ~~that~~the October restructuring to be completed by the end of 2017, and for the foreseeable future thereafter, a majority of the research and development expenses we incur will relate to activities to support our clinical development programs, in particular our cabiralizumab and FPA144 programs. We expect the growth of our preclinical program-related expenses to taper over the medium term as we complete preclinical activities for our FPA150 and FPT155 programs and that our clinical development program expenses would correspondingly increase as FPA150 and FPT155 enter clinical development. We expect that increases in our cabiralizumab and FPA144 development-related expenses will increase by a greater amount than our other development program-, preclinical program- and early research and discovery-related expenses as our cabiralizumab and FPA144 programs advance towards and into pivotal trials.2020.

The process to obtain marketing approval of ~~conducting~~a drug candidate, including preclinical ~~studies~~ and clinical ~~trials necessary to obtain regulatory approval~~development and the development of manufacturing processes, is costly and time-consuming. We or our partners may never succeed in achieving marketing approval for any of our drug candidates. Numerous factors may affect the probability of success for each drug candidate, including preclinical ~~data,~~and clinical ~~data,~~results, competition, manufacturing capability and commercial viability.

The successful development of our drug candidates is highly uncertain and may not result in products that are approved ~~products. Completion dates~~for marketing by the FDA or any comparable foreign regulatory authority. The costs and ~~completion costs can vary significantly~~duration of the processes necessary to achieve marketing approval for each drug candidate can vary significantly and are difficult to ~~predict for each product.~~predict. Given the uncertainty associated with clinical trial ~~enrollments~~patient enrollment and the risks inherent in the development process, ~~we are unable to determine~~estimating the duration and completion costs of ~~the~~ current or future clinical trials of our drug candidates or if, or to what extent, we will generate revenues from the commercialization and sale of any of our approved drug ~~candidates.~~candidates is difficult and uncertain. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the outcome of research, ~~nonclinical~~preclinical and clinical activities ofwith respect to each drug candidate, as well as ongoing assessments as to each drug candidate’s commercial potential. We will need to raise additional capital orand may seek to enter into additional ~~product~~ collaborations in the future to advance and complete the development and commercialization of our current and future drug candidates.

General and administrative expenses consist primarily of salaries and related benefits, including associated stock-based compensation, related to our executive, finance, legal, business development, human resource and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing and tax and legal services, including intellectual property-related legal services.

~~We expect our~~Our general and administrative expenses may increase in the event that we need to ~~increase due to expanded~~expand operations to support ~~our increased~~future potential increases in research and development ~~activities, increased stock-based compensation, and increased facility costs resulting from our relocation to a larger facility.~~activities. Also, we expect our intellectual property-related legal expenses, including those related to preparing, filing and prosecuting patent applications and maintaining patents, ~~and opposing or otherwise challenging the intellectual property rights of others,~~ to increase as ~~the number of~~ our ~~preclinical and clinical programs increases and these programs advance.~~intellectual property portfolio expands.

Interest income consists of interest income earned on our cash and cash equivalents and marketable securities.

Other expense, net consists primarily of the gain or loss on the disposal of property and equipment, if any.

We based our management’s discussion and analysis of financial condition and results of operations upon our unaudited ~~condensed~~ financial statements, which we prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our critical accounting policies and estimates on an ~~on-going~~ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, ~~the results of which~~and these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results under different assumptions and conditions may differ from these ~~estimates under different assumptions and conditions.~~estimates. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited ~~condensed~~ financial statements and in Note 2 of our audited financial statements contained in our Annual Report. There have been no significant or material changes in our critical accounting policies during the nine months ended September 30, 2017 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates” in our Annual Report.

Comparison for the Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019

Collaboration revenue and license revenue increased by ~~$1.6~~$3.1 million, or ~~24%~~57%, to ~~$8.3~~$8.4 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$6.7~~$5.3 million for the three months ended ~~September 30, 2016.~~ March 31, 2019. This increase was ~~primarily~~ due to a ~~$1.9~~$5.0 million increase in license revenue ~~recognized~~from our license agreement with Seattle Genetics executed in February 2020 and a $0.7 million increase in collaboration revenue from our collaboration with Zai Lab. The increase was offset by a $1.4 million decrease as we completed the research terms of our immuno-oncology research collaboration with BMS, and a $1.2 million decrease from progress made towards satisfying our performance obligation under our ~~cabiralizumab~~original collaboration with BMS.

Our research and development expenses ~~increased~~decreased by ~~$18.8~~$13.2 million, or ~~79%~~42%, to ~~$42.7~~$18.6 million for the three months ended ~~September 30, 2017~~March 31, 2020 from ~~$23.9~~$31.8 million for the three months ended ~~September 30, 2016.~~March 31, 2019. This ~~increase~~decrease was ~~primarily~~ due to ~~an increase of $10.5~~ a $5.9 million decrease in compensation costs, a $3.8 million decrease in manufacturing costs directed towards our FPA150 program, a $1.2 million decrease in costs related to ~~advance~~ our preclinical programs, a $0.8 million decrease in allocated costs, a $0.5 million decrease in expenses for clinical services and specialty lab services related to our cabiralizumab and FPA150 clinical studies, a $0.3 million decrease in companion diagnostic expenses directed towards ~~filing IND applications. There was also an increase of $8.2 million to advance~~ our ~~FPA144~~bemarituzumab development program, ~~through~~and a $1.4 million decrease in miscellaneous research and development expenses. The decrease was offset by $0.7 million increase in clinical ~~trials.~~trial expenses primarily related to bemarituzumab.

Our general and administrative expenses ~~increased by $0.6 million, or 7%, to $9.7 million~~were consistent for the three months ended ~~September 30, 2017 from $9.1~~March 31, 2020 and March 31, 2019. There was a $0.8 million ~~for the three months ended September 30, 2016, primarily due~~increase in allocated costs. The increase was offset by a $0.5 million decrease in expenses related to a reduction in use of temporary resources, and a $0.3 million ~~increase~~decrease in ~~rent related to our new corporate office and laboratory facility lease agreement executed in December 2016.~~compensation costs.

~~After the carryback of our full 2016 net operating losses to 2015, we maximized our ability to obtain a refund of prior income taxes paid. Accordingly, we~~We did not record an income tax ~~benefit~~provision for the three months ended ~~September 30, 2017.~~March 31, 2020 and March 31, 2019 as the Company expected to be in a taxable loss position in respective years and the net deferred tax assets are fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was signed into law in response to the COVID-19 pandemic. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefit business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for businesses include a five-year net operating loss carryback, suspension of the annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, technical corrections on net operating loss carryforwards for fiscal year taxpayers and acceleration of depreciation for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. We ~~realized an~~evaluated the impact of the CARES Act and determined that there is no material impact to the income tax ~~benefit of $6.3 million~~provision for the three months ended September 30, 2016. The income tax benefit represented our ability to recover taxes accrued in 2015 based on existing tax law that allowed us to carry back our 2016 tax losses and/or credits to recover prior taxes. The income tax benefit is based on the annual effective tax rate method and considers our forecasted 2016 pre-tax losses reduced by non-deductible stock-based compensation expenses and other immaterial non-deductible permanent items. In addition, as a result of the forecasted loss, the income tax benefit was decreased by a valuation allowance recorded against certain deferred tax assets due to the uncertainty surrounding the realization of such assets in the future.

Collaboration and license revenue increased by $3.9 million, or 17%, to $26.3 million for the nine months ended September 30, 2017 from $22.4 million for the nine months ended September 30, 2016. This increase was primarily due to a $8.8 million increase in revenue from our cabiralizumab collaboration agreement with BMS, offset by a $4.5 million decrease in revenue recognized under the respiratory diseases collaboration with GSK, as the research term ended in July 2016.

Our research and development expenses increased by $53.3 million, or 82%, to $118.2 million for the nine months ended September 30, 2017 from $64.9 million for the nine months ended September 30, 2016. This increase was primarily due to an increase of $29.9 million to further advance our preclinical programs toward filing IND applications. There was also an increase of $12.7 million to advance our FPA144 development program and a $9.9 million increase to advance cabiralizumab in our Phase 2 clinical trial in PVNS and our Phase 1a/1b clinical trial in immuno-oncology.

Our general and administrative expenses increased by $4.2 million, or 17%, to $29.5 million for the nine months ended September 30, 2017 from $25.3 million for the nine months ended September 30, 2016, primarily due to a $2.2 million increase in payroll and stock-based compensation costs, a $0.8 million increase due to spending associated with the development of our commercialization strategy and a $0.6 million increase in rent related to our new corporate office and laboratory facility lease agreement executed in December 2016.

After the carryback of our full 2016 net operating losses to 2015, we maximized our ability to obtain a refund of prior income taxes paid. We did, however, record a provision for income tax of $1.7 million for the nine months ended September 30, 2017 based on our ongoing discussions with the Internal Revenue Service as to our tentative net operating loss carryback refund claim filed in March 2017. We realized an income tax benefit of $20.4 million for the nine months ended September 30, 2016. The income tax benefit represented our ability to recover taxes accrued in 2015 based on existing tax law that allowed us to carry back our 2016 tax losses and/or credits to recover prior taxes. The income tax benefit is based on the annual effective tax rate method and considers our forecasted 2016 pre-tax losses reduced by non-deductible stock-based compensation expenses and other immaterial non-deductible permanent items. In addition, as a result of the forecasted loss, the income tax benefit was decreased by a valuation allowance recorded against certain deferred tax assets due to the uncertainty surrounding the realization of such assets in the future. 31, 2020.

As of ~~September 30, 2017,~~March 31, 2020, we had ~~$320.8~~$141.1 million in cash, ~~and~~ cash equivalents and marketable securities invested in a U.S. Treasury money market fund, ~~and~~ U.S. Treasury securities, agency bonds, corporate bonds and commercial paper with maturities of 15eleven months or less.

In addition to our existing cash and cash equivalents, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain nonclinical, clinical, regulatory and sales-based events and royalty payments under our collaboration and license agreements. Our ability to earn these milestone and contingent payments and the timing of ~~achieving these milestones~~receiving any such payments is primarily dependent upon the outcome of our collaborators’ and licensees’ research and development activities and ~~remain~~remains uncertain. Our rights to payment under our collaboration and license agreements are our only committed external sources of funds.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, ~~third party~~third-party clinical and preclinical research and development services, including clinical trial, manufacturing, laboratory and related services and supplies, legal, patent and other regulatory expenses and general overhead costs. We believe our use of CROs and ~~contract manufacturers~~CMOs provides us with flexibility in managing our spending and limits our cost commitments at any point in time.

Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot ~~estimate~~predict the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether or when we may achieve profitability. Until such time ~~if ever,~~ that we can generate substantial product revenues, if ever, we expect to finance our cash needs through collaboration arrangements and, if necessary, equity or debt financings. Except for any obligations of our collaborators or licensees to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external sources of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Additionally, the COVID-19 pandemic is rapidly evolving and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, and if we need or desire to access additional capital in the future, we may be unable to do so and our operations may be negatively impacted. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of ~~September 30, 2017~~March 31, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12twelve months.

The following is a summary of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:

Net cash used in operating activities was ~~$84.7~~$15.1 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and consisted of ~~our~~ net loss of ~~$121.0~~$20.1 million ~~offset by $29.9 million in net non-cash charges~~ and ~~$6.4~~$1.0 million from changes in operating assets and ~~liabilities.~~liabilities, offset by $6.1 million in net non-cash charges. Net non-cash charges included ~~$1.7~~$4.5 million for stock-based compensation expense, $1.3 million of depreciation and amortization expenses ~~$26.7~~and $0.6 million ~~for stock-based compensation~~of non-cash operating lease expense, offset by a $0.2 million impairment of fixed assets and ~~$1.5~~$0.1 million for amortization of premiums ~~and discounts~~ on marketable securities.

Net cash used in operating activities was ~~$64.8~~$32.7 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019 and consisted of net loss of ~~$45.6~~$35.4 million ~~offset by $36.5 million in net non-cash charges,~~ and ~~$55.7~~$3.3 million from changes in operating assets and ~~liabilities.~~liabilities, offset by $6.0 million in net non-cash charges. Net non-cash charges included ~~$1.2~~$4.9 million for stock-based compensation expense, $1.3 million of depreciation and amortization expenses ~~$22.8~~and $0.6 million ~~for stock-based compensation~~of non-cash operating lease expense, ~~$9.7 million for deferred income taxes and $3.3~~offset by $0.8 million for amortization of ~~premium~~premiums on marketable securities. The change in operating assets and liabilities was primarily due to a $41.5 million reduction in income tax payable due to a $14.7 million income tax payment during the period and tax benefits from the carryback of the first nine months of 2016 net operating loss, and a $12.6 million reduction in deferred revenue from the recognition of revenue in the current period for cash received from collaboration partners in prior periods.securities.

Net cash provided by ~~(used in)~~ investing activities was ~~$124.5 million and $(22.1)~~$27.2 million for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2020. Net cash provided by investing activities ~~for the periods presented~~ primarily relates to the ~~purchases and~~ maturities of marketable ~~securities. Payments~~securities of $52.6 million partially offset by the purchase of marketable securities of $25.3 million.

Net cash provided by investing activities was $18.8 million for the three months ended March 31, 2019. Net cash provided by investing activities primarily relates to the maturities of marketable securities exceeding the purchase of such marketable securities by $19.8 million. This was offset by payments for the purchases of property and equipment ~~were $3.6 million and $2.1 million during the nine months ended September 30, 2017 and 2016, respectively. The property and equipment purchases consisted primarily~~ of ~~purchases of laboratory equipment to support our research and development activities.~~$1.0 million.

Net cash used in financing activities was ~~$11.0~~$0.3 million for the ~~nine~~three months ended ~~September 30, 2017, and consisted primarily of $13.6 million~~March 31, 2020, which was paid to satisfy tax withholding obligations from the net share issuance of ~~RSAs offset by $2.6 million received from employee~~restricted stock ~~option exercises.~~awards.

Net cash used in financing activities was ~~$6.7~~$0.5 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2019, which consisted primarily ~~related to $14.1~~of $0.7 million paid to satisfy tax withholding obligations from the net share issuance of restricted stock awards, offset by ~~$6.7~~$0.2 million received from employee stock option ~~exercises and $0.7 million from excess tax benefits from employee equity incentive plans.~~

During the nine months ended September 30, 2017, we recorded leasehold improvements totaling $14.3 million that were paid for by our landlord under the terms of our new corporate office and laboratory lease agreement executed in December 2016.exercises.

During the three months ended ~~September 30, 2017,~~March 31, 2020, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

The market risk inherent in our financial instruments and in our financial position reflects the potential losses arising from adverse changes in interest rates and concentration of credit risk. As of ~~September 30, 2017,~~March 31, 2020, we had cash and cash equivalents and marketable securities of ~~$320.8~~$141.1 million, consisting of bank deposits, interest-bearing money market accounts, ~~and~~a U.S. Treasury ~~securities.~~money market fund, U.S. Treasury securities, agency bonds, corporate bonds and commercial paper. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents and marketable securities have an average maturity of approximately ~~seven~~four months and the longest maturity is ~~fifteen~~eight months. Due to the short-term maturities of our cash equivalents and marketable securities and the low risk profile of our marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. We can hold our marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operating results or cash flows to any significant degree.

Evaluation of disclosure controls and procedures. Management, including our ~~President and~~ Chief Executive Officer ~~and Senior Vice President~~ and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, our ~~President and~~ Chief Executive Officer ~~and Senior Vice President~~ and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our ~~President and~~ Chief Executive Officer ~~and Senior Vice President~~ and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in internal control over financial reporting. There have been no ~~significant~~ changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the effects of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking information based on our current expectations. Because our business is subject to many risks and our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our business, operating results, financial condition and the trading price of our common stock. You should carefully consider these risk factors, together with all of the other information included in this Quarterly Report ~~on Form 10-Q~~ as well as our other ~~publicly-available~~publicly available filings with the ~~SEC.~~

We are a clinical-stage biotechnology company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effectExchange Commission, or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2001, with the exception of the fiscal year ended December 31, 2015, due primarily to the $350.0 million upfront payment we received from BMS from our license and collaboration agreement for cabiralizumab, and the fiscal year ended December 31, 2011, due primarily to the $50.0 million upfront payment we received from GSK from our license and collaboration agreement for FP-1039. For the nine months ended September 30, 2017, we reported a net loss of $121.0 million.

~~Although we~~SEC. Such risks may from time to time report profitable results, we generally expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We expect our operating expenses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown circumstances that may adversely affect our business. 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 revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

~~We currently have no source of product revenue and may never become consistently profitable.~~

To date, we have not generated any revenue from commercialization of our product candidates. Our ability to generate product revenue and ultimately become profitable depends upon our ability, alone or with our partners, to successfully commercialize products, including any of our current product candidates or other product candidates that we may develop, in-license or acquire in the future. We do not anticipate generating revenue from the sale of products for the foreseeable future. Our ability to generate future product revenue from our current or future product candidates also depends on additional factors, including our or our partners’ ability to:

In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond our current expectations if we decide to or are requiredbe amplified by the ~~FDA or foreign regulatory authorities to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development~~COVID-19 pandemic and ~~regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing our products.~~

Even if we generate revenue from the sale of any of our products that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or do not sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

We will require additional capital to finance our operations, which may not be available to us on acceptable terms or at all. As a result, we may not complete the development and commercialization of our product candidates or develop new product candidates.

As a research and development company, our operations have consumed substantial amounts of cash since inception. Although we have sufficient cash and cash equivalents to fund our projected operating expenses and capital expenditure requirements for at least the next 12 months, we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates further into clinical development, advance additional product candidates into clinical trials and increase the number and size of our clinical trials. In addition, circumstances may cause us to consume capital more rapidly than we currently anticipate. For example, as we move our product candidates through preclinical studies and into clinical development, we may have adverse results requiring us to acquire or develop new product candidates, or our product collaboration partners may not elect to pursue the development and commercialization of any of our product candidates that are subject to our respective agreements with them. Any of these events may increase our development costs more than we expect. We may need to raise additional funds or otherwise obtain funding through product collaborations if we choose to initiate additional clinical trials for product candidates beyond the programs we have currently partnered. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, future product candidates.

If we need to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we do not raise additional capital when required or on acceptable terms, we may need to:

If we need to conduct additional fundraising activities and we do not raise additional capital in sufficient amounts or on terms acceptable to us, we may be prevented from pursuing development and commercialization efforts, which could have a material adverse effectits potential impact on our business ~~operating results~~ and ~~prospects.~~

~~Our forecast of~~ the time through which our financial resources will adequately support our operations could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. Our future funding requirements, both short- and long-term, will depend on many factors, including:

If a lack of available capital means that we cannot expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.

~~Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.~~

Until we generate sufficient product revenue, if ever, we expect to finance our future cash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. Raising additional funds through the issuance of additional debt or equity securities could dilute our existing stockholders or increase fixed payment obligations. Furthermore, these securities may have rights senior to those of our common stock and could contain covenants that restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.global economy.

The COVID-19 pandemic, and efforts to reduce its spread, could adversely impact our business and operations, including our clinical trials.

In late 2019, a novel strain of coronavirus, SARS-CoV-2, causing the disease known as COVID-19, was initially reported and has since been declared a pandemic by the World Health Organization. In response to the COVID-19 pandemic and in an effort to control the spread of COVID-19, state and local authorities have mandated travel and other restrictions and issued “shelter-in-place” and similar orders, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and require cessation of non-essential travel. In response to these public health directives and orders, in March 2020, our entire workforce, other than those whose job responsibilities require them to be physically present at our offices, transitioned to working remotely. The effects of the government orders and directives, together with our remote working arrangements, may negatively impact productivity, disrupt our business, delay the progress of our clinical and preclinical programs, and exacerbate other risks to our business, including an increased risk of cybersecurity incidents and unauthorized dissemination of confidential or other sensitive information relating to us or third parties. The magnitude of each of these risks will depend, in part, on the duration and severity of the pandemic itself and the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and other similar, and perhaps more severe, disruptions in our operations could result from the pandemic and may negatively impact our business, operating results and financial condition.

These government orders and restrictions may also adversely impact the business operations of our collaborators, partners and service providers, including contract research organizations, or CROs, that conduct most of the activities related to the conduct of our clinical trials and our contract manufacturing organizations, or CMOs, that may produce our supply of drug product for use in our preclinical studies and clinical trials. If any of these third parties experience disruptions in their operations as a result of COVID-19, such as temporary facilities closures or suspension of services, the conduct of our preclinical studies or clinical trials could be delayed.

We do not currently expect that COVID-19 and the resulting government orders and restrictions will have a material impact on the supply of any of our product candidates or third-party drug products that may be used in our preclinical studies or clinical trials. However, if the COVID-19 pandemic persists for an extended period of time and impacts our CMOs or other suppliers, or if the pandemic impacts essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates or third-party drug products, which would adversely impact our ability to conduct and complete our preclinical studies and clinical trials in accordance with our timelines or at all.

In addition, the COVID-19 pandemic may affect the initiation and conduct of our or our partners’ current and planned clinical trials. For example, as disclosed elsewhere in this Quarterly Report, we expect that we may experience slower than anticipated enrollment as we progress through the Phase 1a and into the Phase 1b portions of our clinical trial evaluating FPT155 if the COVID-19 pandemic continues to adversely affect certain clinical trial sites’ ability to enroll new patients, and we may experience similar delays in enrollment in future clinical trials if the pandemic continues to affect sites in countries in which we conduct those clinical trials. Additionally, clinical site initiation may also be delayed due to prioritization of hospital resources toward the COVID-19 pandemic, and patients enrolled in our clinical trials may not ~~advance additional product candidates into~~be able to receive treatment in accordance with the relevant clinical ~~development~~trial protocol if, for example, quarantines impede patient movement or ~~identify~~interrupt healthcare services. Similarly, COVID-19 may negatively impact our ability to recruit and retain patients for participation in our clinical trials, and principal investigators and clinical site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be unable to participate in or ~~validate additional drug targets. If we do not advance additional product candidates into~~continue participating in our clinical ~~development or identify or validate additional drug targets, or~~trials, each of which would adversely impact our clinical trials and our ability to conduct our trials in accordance with our timelines.

Additionally, ongoing clinical trials may be negatively affected by the COVID-19 pandemic if we ~~experience significant~~or our partners are required to delay or pause dosing or data collection, including due to delays in ~~doing any~~completing or inability to complete site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, trial monitoring or data analysis. Even if we are able to collect clinical data throughout the duration of the ~~foregoing,~~pandemic, the quality, completeness or interpretability of that data may be negatively affected as a result of deviations from the clinical trial protocol, disruptions in patient screening or dosing or disruptions in patient evaluations. As a result, we may be unable to conduct and complete our ongoing and planned clinical trials in a timely manner or at all, which may increase our costs and prevent us from completing development of and obtaining approval for and commercializing our product candidates.

The spread of COVID-19, which has had a significant global impact, may materially affect us economically. While the duration of the COVID-19 pandemic and the magnitude and scope of the potential economic impact are difficult to predict, the COVID-19 pandemic is rapidly evolving and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, and if we need or desire to access additional capital in the future, we may be unable to do so and our operations may be negatively impacted. In addition, a recession or market correction resulting from the COVID-19 pandemic could materially adversely affect our business and the value of our common stock.

The global effects of the COVID-19 pandemic are rapidly evolving. The extent of the impact of the COVID-19 pandemic on our business, including on our clinical and preclinical programs, and the value of and market for our common stock is highly uncertain and will depend on future developments that cannot be ~~materially harmed.~~

~~We have invested~~predicted with confidence at this time, such as the ultimate duration, spread and severity of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the countries in which we and our collaborators, partners and service providers operate, the effectiveness of actions taken globally to contain and treat the disease, andhow quickly and to what extent normal economic and operating conditions resume. For example, if remote working arrangements for our business, or those of our partners or service providers, are extended for longer than we currently expect, we may need to reassess our priorities and our corporate objectives for the year. Additionally, the extension of business closures may delay or otherwise negatively impact our ability to reduce our corporate facilities footprint by either subletting a significant portion of our ~~efforts~~current leased space or subletting our current building and ~~financial resources in the identification and validation of new targets for protein therapeutics and the identification and preclinical development of product candidates~~relocating to these targets. We have two product candidates, cabiralizumab and FPA144, that we are clinically developing and two pre-clinical programs in IND-enabling studies, FPA150 and FPT155. Our ability to generate product revenues, whichsmaller facilities. Accordingly, we do not ~~expect will occur for many years, if ever, will depend heavily~~yet know the full extent of potential delays or other effects on our ~~ability~~business, healthcare systems or the global economy as a whole. However, these impacts, or any combination of them, could adversely affect our business, financial condition, results of operations and growth prospects.

In addition, to ~~identify~~the extent the COVID-19 pandemic adversely affects our business and ~~validate new targets~~results of operations, it may heighten the other risks and identify and advance preclinical product candidates into and through clinical development. The outcome of preclinical studies of our product candidates may not predict the success of clinical trials. Moreover, preclinical data are often susceptible to varying interpretations and analyses and many companies that have believed their product candidates performed satisfactorilyuncertainties described in preclinical studies have nonetheless failed in clinical development. Our inability to successfully complete preclinical development of our product candidates could result in additional costs to us, impair our ability to generate product revenues or receive development, regulatory, commercialization and sales milestone payments and royalties on product sales from our partners and collaborators.this “Risk Factors” section.

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce meaningfully positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Before obtaining marketing approval from regulatory authorities ~~for the sale of~~to sell our product candidates, we or our partners must conduct extensive clinical trials to demonstrate the safety and efficacy of ~~the~~such product candidates in humans. Clinical testing is expensive and difficult to design and implement, ~~can take~~generally takes many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not predict the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles of their product candidates, notwithstanding promising results in earlier trials. ~~Despite the~~Even though we have already generated results ~~reported~~ from ~~our~~certain preclinical studies and clinical trials ~~and preclinical studies for~~of our product candidates, we do not know whether the clinical trials of our product candidates that we or our partners may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of ~~our~~these product candidates in any particular jurisdiction or jurisdictions. If later-stage clinical trials for one or more of our product candidates do not produce favorable results, ~~our~~we or our ~~partners’ ability~~partners may be unable to ~~achieve~~obtain regulatory approval for such product candidates.

For example, in October 2015, we entered into an exclusive license and collaboration agreement, or our cabiralizumab collaboration agreement, with Bristol-Myers Squibb Company, or BMS, pursuant to which we granted BMS an exclusive worldwide license to develop and commercialize cabiralizumab. Based on data from our Phase 1a/1b clinical trial testing the combination of cabiralizumab with Opdivo^® in patients with late-line pancreatic cancer, BMS advanced the development of cabiralizumab in combination with Opdivo, with and without chemotherapy, in second-line patients with pancreatic cancerin a randomized, controlled multi-arm Phase 2 clinical trial (NCT03336216). In February 2020, BMS informed us that the trial did not meet its primary endpoint. BMS informed us that while it has no near-term plans for additional sponsored development of cabiralizumab, it will continue to support the evaluation of cabiralizumab in select, ongoing investigator-sponsored trials and may continue to assess future development opportunities for cabiralizumab. If BMS elects not to pursue further development opportunities for cabiralizumab, we may be unable to complete development of and obtain regulatory approval for cabiralizumab.

If the patients we enroll in our FIGHT trial are less responsive to the combination of bemarituzumab and mFOLFOX6 than the population of patients we originally expected to enroll, we may not achieve the endpoints of the FIGHT trial.

We are identifying patients for inclusion in our clinical trial evaluating bemarituzumab in combination with 5-fluorouracil, or 5-FU, leucovorin, and oxaliplatin, a standard of care chemotherapy regimen known as mFOLFOX6, as front-line treatment for patients with gastric or gastroesophageal junction, or GEJ, cancer with tumors that overexpress FGFR2b, or our FIGHT trial, using both an immunohistochemistry, or IHC, test, which allows us to detect FGFR2b overexpression on the tumor tissue in a biopsy specimen, and a circulating tumor DNA, or ctDNA, blood-based test, which allows us to detect FGFR2 gene amplification from DNA shed by tumor cells in blood plasma. FGFR2 gene amplification is a cause of FGFR2b overexpression, and measuring FGFR2 gene amplification in the blood is an indirect way of identifying tumors that overexpress FGFR2b that we may otherwise not identify using an IHC test. We designed the FIGHT trial to enroll patients that test positive for (a) FGFR2b overexpression, as detected by the IHC test alone, (b) FGFR2 gene amplification, as detected by the ctDNA test alone, and (c) both FGFR2b overexpression, as detected by the IHC test, and FGFR2 gene amplification, as detected by the ctDNA test. We believe that patients with tumors that meet the criteria in any of these subgroups may benefit from the addition of bemarituzumab to front-line chemotherapy.

We paused enrollment in the FIGHT trial in the fourth quarter of 2019, except for sites in Japan where we plan to enroll up to six patients while the remainder of the FIGHT trial remains closed for enrollment. As of the time we paused enrollment in the trial, approximately 30% of the patients that we pre-screened for possible enrollment in the trial tested positive for FGFR2b overexpression, as measured by the IHC test alone. This was significantly higher than we expected at the time we started the trial. In addition, contrary to our ~~product candidates~~initial expectations, the vast majority of patients that tested positive for FGFR2b overexpression did not test positive for FGFR2 gene amplification. These results suggest that the FIGHT trial may be ~~adversely impacted.~~enrolling a greater proportion of patients whose tumors overexpress FGFR2b due to a reason other than FGFR2 gene amplification. We believe all patients being enrolled in the FIGHT trial may benefit from the addition of bemarituzumab to front-line chemotherapy, as bemarituzumab targets FGFR2b that is overexpressed on the cell surface regardless of the cause of overexpression. However, the composition of the patient population in our FIGHT trial differs from the composition of the patient population for which we designed the FIGHT trial. This represents an additional unknown because we have limited clinical data from patients who overexpress FGFR2b in the absence of FGFR2 gene amplification, and these patients represent the vast majority of the patients we have enrolled. These patients may be less responsive to the combination of bemarituzumab and mFOLFOX6 than the population of patients we originally sought to enroll, which increases the risk that we do not achieve the endpoints of the FIGHT trial.

However, even if we passed the futility analysis, given the significant cost of running the FIGHT trial as a Phase 3 trial and our current resources and priorities, our ability to restart and continue the FIGHT trial as originally designed would depend on our ability to secure a partner that would pay for all or substantially all of any future development and commercialization expenses for our bemarituzumab program. Based on feedback we have received from potential partners, we believe that it will be difficult to secure a partner for our bemarituzumab program on reasonable terms or at all without data showing the efficacy of the combination of bemarituzumab and mFOLFOX6 in patients with advanced gastric or GEJ cancer that overexpresses FGFR2b. Accordingly, we are beginning the process of amending the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial. We expect the FIGHT study as a Phase 2 trial to have a sufficient number of progression-free survival (PFS) and overall survival (OS) events to generate clinically meaningful data by the end of 2020 or early 2021. Amending the FIGHT trial from a Phase 3 design to a Phase 2 trial will further delay our development of bemarituzumab in combination with mFOLFOX6 as a treatment for patients with advanced gastric or GEJ cancer that overexpress FGFR2b and may prevent us from obtaining approval for and commercializing bemarituzumab in a timely manner or at all. Additionally, if we are unable to secure a partner for our bemarituzumab program in accordance with our desired timeframes or at all, we may not be able to obtain approval for and commercialize bemarituzumab.

Delays in clinical testing will delay the commercialization of our product candidates, ~~potentially~~ increase our costs and harm our business.

We do not know whether any of our clinical trials will begin as and when planned, will need to be amended or restructured or will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or could allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects. Events which may result in a delay in or unsuccessful completion of clinical development include:

For example, for the reasons described in the foregoing risk factor in this “Risk Factors” section and elsewhere in this Quarterly Report, we are beginning the process of amending the FIGHT trial from a Phase 3 design to a randomized Phase 2 trial. We expect the FIGHT study as a Phase 2 trial to have a sufficient number of progression-free survival (PFS) and overall survival (OS) events to generate clinically meaningful data by the end of 2020 or early 2021. Amending the FIGHT trial from a Phase 3 design to a Phase 2 trial will further delay our development of bemarituzumab in combination with mFOLFOX6 as a treatment for patients with advanced gastric or GEJ cancer that overexpress FGFR2b and may prevent us from obtaining approval for and commercializing bemarituzumab in a timely manner or at all.

Moreover, we are conducting the FIGHT trial in China in collaboration with Zai Lab (Shanghai) Co., Ltd., or Zai Lab. Zai Lab’s ability to conduct the FIGHT trial in China depends on Zai Lab’s and our ability to comply with the government policies, laws and regulations applicable to conducting clinical trials in China. The government policies, laws and regulations in China are evolving rapidly and changes to these policies, laws and regulations are difficult to predict. If any such government policies, laws or regulations in China evolve in a way that makes it more difficult or inefficient for us or Zai Lab to conduct our FIGHT trial in China, we may experience delays in ~~reaching an agreement with or failure in obtaining authorization from the FDA or other regulatory authorities and institutional review boards, or IRBs;~~

~~Our or any of~~ our ~~partners’ inability~~partners are unable to timely complete clinical development ~~could result in~~for any of our product candidates, we may incur additional costs ~~to us or impair~~and our ability to ~~generate product revenue or to receive~~achieve development, regulatory, commercialization or sales ~~milestone payments~~milestones or to generate and receive royalties on ~~our~~ product ~~sales.~~sales and product revenues for any such product candidate may be impaired.

If we or our partners are unable to timely enroll patients in our clinical trials, we will be unable to complete these trials on a timely basis.

The timely completion of clinical trials largely depends on the rate of patient enrollment. Many factors affect the rate of patient enrollment, including:

~~For example, we are conducting a Phase 2 clinical trial of cabiralizumab in patients with diffuse PVNS. Very little data regarding the incidence~~We currently face and prevalence of diffuse PVNS exist, but data we have gathered suggest that the prevalence of diffuse PVNS in the United States may be approximately 28,000 patients. We expect that the limited size of the diffuse PVNS patient population will limit patient enrollment rates. Also, Daiichi Sankyo Co., Ltd./Plexxikon Inc., or Daiichi Sankyo, has recently conducted a Phase 3 clinical trial (ENLIVEN) of pexidartinib (PLX3397) in PVNS, Novartis AG is enrolling patients in its Phase 2 clinical trial of its MCS110 CSF1 monoclonal antibody in PVNS, and F. Hoffmann-La Roche AG, or Roche, has clinically tested its emactuzumab (RO5509554, RG7155) antibody in PVNS patients. If Novartis AG or Roche continue the clinical development of their products in PVNS, we would potentially compete with them for patient enrollment in this rare patient population, which may adversely impact the rate of patient enrollment in and the timely completion of our Phase 2 clinical trial of cabiralizumab in PVNS. If Daiichi Sankyo should gain approval in any region where we are conducting clinical trials of cabiralizumab in PVNS, it may impact our ability to ~~enroll and timely complete those trials.~~

~~Additionally, although we believe selecting patients with gastric cancer whose tumors overexpress FGFR2b or amplify the~~ ~~FGFR2~~ gene using an IHC- or ctDNA blood-based companion diagnostic should increase the percentage of patients eligible for and the probability of success in our clinical trial of FPA144 in gastric cancer, these selection criteria limit the number of patients eligible for enrollment.

~~There is~~face significant competition ~~for~~in recruiting patients ~~in the~~for our and our partners’ current and future clinical trials, ~~we and our partners are conducting and plan to conduct,~~ and we or our partners may be unable to timely enroll the patients necessary to complete clinical trials on a timely basis or at all.

In addition, enrollment in and the conduct of our clinical trials may be affected by the COVID-19 pandemic. For example, clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic, and patients enrolled in our clinical trials may not be able to receive treatment in accordance with the relevant clinical trial protocol if, for example, quarantines impede patient movement or interrupt healthcare services. Similarly, COVID-19 may negatively impact our ability to recruit and retain patients for participation in our clinical trials, and principal investigators and clinical site staff who, as healthcare providers, may have heightened exposure to COVID-19, may be unable to participate in or continue participating in our clinical trials. Additionally, we may experience interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal, state or local authorities, employers and others in connection with the COVID-19 pandemic. As a result, we may face delays in meeting our anticipated timelines for our ongoing and planned clinical trials. For example, while enrollment in the Phase 1a portion of our clinical trial evaluating FPT155 is currently progressing in accordance with our timelines, the COVID-19 pandemic has impacted certain sites participating in our clinical trial and those sites’ ability to enroll new patients in the trial. As such, we expect that we may experience slower than anticipated enrollment as we progress through the Phase 1a and into the Phase 1b portions of the trial if the COVID-19 pandemic continues to adversely impact these sites’ ability to enroll new patients, which may affect our ability to conduct and complete the trial in accordance with our timelines.

We may not successfully ~~identify, test,~~ develop or commercialize ~~potential~~our current or future product candidates, which mayforce us to ~~abandon~~terminate our development efforts for one or more programs.

The success of our business depends primarily upon our ability to ~~identify and validate new protein therapeutic targets, including through the use of our discovery platform, and discover, test,~~ develop and commercialize protein ~~therapeutics,~~therapeutics. Historically,we leveraged our differentiated discovery capabilities and protein therapeutic generation and engineering capabilities to identify and validate targets that we believed could be useful in oncology, and we generated and preclinically tested therapeutic proteins, including antibodies and fusion proteins, directed to or containing the targets we identified and validated. In October 2019, we began a corporate restructuring pursuant to which we ~~may~~eliminated our in-house target discovery and validation and protein therapeutic generation and engineering capabilities by the first quarter of 2020. We currently have three late-stage research programs that arose from our work with our discovery capabilities. We plan to advance lead therapeutic antibodies for one of these programs into IND-enabling studies in 2020. In addition, as part of our corporate restructuring, we shifted our focus from in-house discovery and research to supplementing our development pipeline by looking to selectively acquire or license, on an exclusive basis, rights to product candidates from biotechnology and pharmaceutical companies.

Our efforts to preclinically develop ~~ourselves or in-license from others. Our research efforts~~potential new protein therapeutic candidates may initially show promise, ~~in discovering potential new protein therapeutic targets or candidates,~~ yet fail to yield product candidates for clinical development or candidates that we successfully clinically develop and ultimately commercialize for numerous reasons, ~~including:~~including the following:

~~our research methodology, including our screening technology,~~For example, in February 2020, BMS informed us that its randomized, controlled multi-arm Phase 2 trial testing cabiralizumab with Opdivo,with and without chemotherapy, in second-line patients with pancreatic cancer did not meet its primary endpoint. BMS informed us that while it has no near-term plans for additional sponsored development of cabiralizumab, it will continue to support the evaluation of cabiralizumab in select, ongoing investigator-sponsored trials and may continue to assess future development opportunities for cabiralizumab. If BMS elects not ~~successfully identify medically relevant protein therapeutic targets or potential product candidates;~~

The occurrence of any of these events may force us to abandon our development efforts for one or more programs, which would have a material adverse effect on our business, operating results and prospects and could potentially ~~cause~~require us to cease operations. ~~Research~~

If we are unable to advance our three late-stage research programs and any future product candidates into and through clinical development, or if we experience significant delays in doing so, our business may be materially harmed.

Our ability to ~~identify new~~generate product ~~targets~~revenues, which we do not expect to occur for many years, if ever, will depend heavily on our and our partners’ ability to successfully advance our three late-stage research programs and any future product candidates ~~require substantial technical, financial~~into and ~~human resources. We~~through clinical development. The outcome of preclinical studies of any of our future product candidates may ~~focus~~not predict the success of such product candidates in clinical trials. Moreover, preclinical results regarding a product candidate are often susceptible to varying interpretations and analyses and may not translate into similar results when the product candidate is tested clinically in humans. Many companies have believed their product candidates performed satisfactorily in preclinical and early clinical studies, but such product candidates have nonetheless failed during clinical development. Our inability to successfully complete preclinical or clinical development of any of our ~~efforts~~future product candidates could cause us to incur additional costs, delay or prevent our ability to advance these product candidates into clinical development or commercialization, or impair our ability to receive development, regulatory, commercialization or sales milestone payments from our current or future collaboration partners or to generate and ~~resources~~receive royalties on ~~potential discovery efforts, programs~~product sales or product ~~candidates that ultimately prove to be unsuccessful.~~revenues from our current or future collaboration partners.

We and our product candidates are subject to a multitude of manufacturing risks, the occurrence of any of which could substantially increase our costs and limit supply of ~~our products.~~such product candidates.

The process of manufacturing our ~~products~~product candidates is complex and subject to ~~several~~a number of risks, including the following:

Certain raw materials necessary for the manufacture of our products, such as growth media, resins and filters, are sourced from a single supplier. We do not have agreements in place that guarantee our supply or the price of these raw materials. Any significant delay in the acquisition, or decrease in the availability or increase in the price of these raw materials could considerably delay the manufacture of our product candidates, which could adversely impact the timing of any planned clinical trials or the regulatory approval of ~~that~~those product ~~candidate.~~candidates.

We currently have process development capabilities. Historically, we generally performed cell line and ~~small-scale pre-clinical~~process development for our product candidates and manufactured quantities of our product candidates necessary to conduct preclinical studies of those product candidates. We expect to increasingly rely on third-party service providers and may in the foreseeable future outsource all or a portion of the cell line and process development activities that we currently conduct, as well as the manufacturing ~~capabilities.~~of quantities of our product candidates for use in preclinical studies. We do not have, and we do not ~~currently plan~~have current plans to acquire or develop, the facilities or capabilities to manufacture bulk drug substance or filled drug product for use in human clinical trials or commercialization. ~~In the past we have engaged, and we expect in the future~~We rely on third-party manufacturers to ~~engage, third-party CMOs for the manufacture of~~produce bulk drug substance ~~and drug product for our products~~required for our clinical trials and expect to continue to rely on third parties to manufacture clinical trial drug supplies for the foreseeable future. We also contract with additional third parties for ~~our supply chain. Any problems we experience with any~~the filling, labeling, packaging, storage and distribution of ~~these third parties could delay the manufacturing of our product candidates, which could harm our results of operations.~~

For example, BMS has the exclusive right to manufacture cabiralizumab. Under our cabiralizumab collaboration agreement with BMS, BMS will supply us with cabiralizumab, at its cost and expense, for our use in the conduct of ~~our clinical trial evaluating cabiralizumab in combination with~~ ~~Opdivo~~ ~~in multiple tumor types and our~~ Phase 2 clinical trial of cabiralizumab in patients with PVNS and will supply us with cabiralizumab, in exchange for a service fee, for our conduct of our independent development activities with respect to cabiralizumab.investigational drug products.

We have not contracted with alternate suppliers in the event ~~the current organizations~~that our third-party manufacturers or other third parties on whom we ~~utilize~~rely to provide us with clinical trial drug supplies are unable to scale production or if we otherwise experience any problems with ~~them. If~~these manufacturers or such other third parties. For example, public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide, may impact the ability of our existing or future manufacturers to perform their obligations under our manufacturing agreements with such parties. Any problems we experience with our current manufacturers or these third parties could delay the manufacturing of our product candidates or the progress of our preclinical studies or clinical trials, which could increase our costs and harm our results of operations. In addition, if we are unable to arrange for alternative third-party manufacturing sources, or are unable to do so on commercially reasonable terms or in a timely manner, ~~we may be delayed in~~ the development of our product ~~candidates.~~candidates may be delayed.

Our reliance on third-party manufacturers subjects us to risks to which we would not be subject if we manufactured product candidates internally, including potential failure of ~~the~~any such third party to abide by regulatory and quality assurance requirements, ~~the possibility of~~ breach of the manufacturing agreement by ~~the~~such third party due to factors beyond our control (including the third party’s failure to manufacture our product candidates or any products we may eventually commercialize in accordance with our specifications) and ~~the possibility~~termination of ~~termination~~ or ~~nonrenewal of the~~a decision not to renew such agreement by ~~the~~such third party, based on its own business priorities, at a time ~~that is~~when our finding and retaining a replacement manufacturer may be costly or damaging to our business.

The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable. ~~Our inability~~Failure to obtain regulatory approval for our product candidates would substantially harm our business.

The ~~time required~~FDA and comparable foreign regulatory authorities extensively and rigorously regulate and evaluate the manufacture, testing, distribution, advertising and marketing of drug products prior to ~~obtain~~granting marketing approvals with respect to such products. This approval process generally requires, at minimum, testing of any product candidate in preclinical studies and clinical trials to establish its safety and effectiveness, and confirmation by the FDA and comparable foreign regulatory authorities that any such product candidate, and any parties involved in its manufacturing, testing and development, complied with current Good Manufacturing Practices, or GMP, current Good Laboratory Practices, or GLP, and current Good Clinical Practices, or GCP, regulations, standards and guidelines during such manufacturing, testing and development. The time required to obtain approval to market a product candidate from the FDA or any comparable foreign regulatory authority is unpredictable but typically takes many years following the commencement of clinical trials and depends ~~upon~~on numerous factors, including the conduct of manufacturing, testing and development activities with respect to such product candidate and the substantial discretion of the applicable regulatory authorities. In addition, approval policies, regulations, or the type ~~and~~or amount of preclinical and clinical data necessary to ~~gain~~obtain approval may change ~~during~~over the course of a product candidate’s ~~clinical~~ development and may vary among jurisdictions. We have not obtained regulatory approval for any of our product candidates and it is possible that none of our existing ~~product candidates~~ or ~~any~~potential future product candidates will ever obtain regulatory approval.

~~Our~~Any of our product candidates could fail to receive regulatory approval from the FDA or a comparable foreign regulatory authority for many reasons, including:

The FDA or a comparable foreign regulatory authority may require ~~more~~additional information, including preclinical or clinical data, to support approval ~~including additional preclinical or clinical data,~~of a product candidate, which may delay or prevent approval and our commercialization plans, or ~~we may decide~~result in our decision to abandon the development ~~program.~~program with respect to such product candidate. For example, given the greater potential patient population in Asia, a substantial number of the patients in our FIGHT trial come from clinical trial sites in Asia. However, we are currently unable to provide regulatory authorities with data that demonstrate that patients participating in the FIGHT trial at clinical trial sites in Asia are representative of the general patient population and will respond to bemarituzumab in the same way as other patient populations. If we obtain a significant portion of any positive clinical data from clinical trial sites in Asia as compared to data from clinical trial sites located elsewhere in the world, and an analysis of the data from Asian patients suggest that other patient populations may not have similar outcomes, the FDA and comparable foreign regulatory authorities may determine that the positive data we observe in Asian patients are not sufficient to support regulatory approval for bemarituzumab for the general patient population and may require more clinical data from other patient populations to support regulatory approval for bemarituzumab. This could prevent us from obtaining approval for and commercializing bemarituzumab on a timely basis or at all.

In addition, if we were to obtain approval for any of our product candidates, regulatory authorities may approve any ~~of our~~such product ~~candidates~~candidate for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials or establishment of risk evaluation and mitigation strategy, or REMS, drug safety programs, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.

Our product candidates may cause undesirable side effects ~~or have other properties~~ that could delay or prevent their regulatory approval, limit ~~the~~their commercial ~~profile of an~~profiles, if approved, ~~label,~~ or result in significant negative consequences following any marketing approval.

~~Undesirable~~Our product candidates may cause undesirable side effects ~~caused by our product candidates~~in patients, which could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority or otherwise limit the commercial potential of any such product ~~candidates. Results of our~~candidate. Our clinical ~~trials~~trial results could reveal ~~a high and~~an unacceptable severity or prevalence of side ~~effects or unexpected characteristics. In such an event,~~effects. If this were to occur, we ~~could~~may elect to suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease our clinical trials or deny approval of our product candidates for any or all targeted indications. Drug-related side effects could negatively affect patient recruitment, ~~or the ability~~cause enrolled patients to drop out of ~~enrolled subjects to complete the~~a clinical trial ~~or could~~and result in ~~potential~~ product liability claims. Any of these occurrences may significantly harm our business, financial condition and ~~prospects significantly.~~prospects.

Additionally, if one or more of our ~~products~~product candidates receives marketing approval, and we or others later identify undesirable side effects caused by any such product, numerous potentially significant negative consequences could result, including:

Any of these events could prevent us from achieving or maintaining ~~market~~marketing approval for or acceptance ~~for~~of a product candidate or otherwise materially harm the commercial prospects for such product, ~~candidate,~~ if approved, and could significantly harm our business, results of operations and prospects.

Certain of our product candidates, including bemarituzumab, are expected to be effective only in certain selected patient populations. If we are unable to successfully develop and obtain FDA approval for companion diagnostics for ~~FPA144,~~these product candidates, or experience significant delays in doing so, we may not ~~achieve~~obtain marketing approval for such product candidates or realize ~~the~~their full commercial ~~potential~~potential.

We have collaborated with third-party diagnostic development partners to develop both an IHC- and a ctDNA blood-based assay to use as companion diagnostics for FPA144 to identify patients with gastric cancer whose tumors overexpress FGFR2b or amplify the ~~FGFR2~~ ~~gene. We~~our current product candidates, including bemarituzumab, may be effective only in selected patient populations. For any such product candidate, we expect that the FDA and comparable foreign regulatory authorities may require the development and regulatory approval of at least one companion diagnostic as a condition to approving ~~FPA144~~such product candidate for use in patients ~~that overexpress~~within the FGFR2b protein. We are initially seeking to develop FPA144 to treat a subset of patients with gastric (stomach) cancer whose tumors overexpress the FGFR2b protein. Because the IHC-based companion diagnostic will allow us to determine FGFR2b overexpression in tumor tissue samples from patients with gastric cancer and the blood-based companion diagnostic will allow us to detect FGFR2 amplification by ctDNA ~~from~~ ~~patients with~~ ~~gastric cancer,~~ we plan to use both companion diagnostics concurrently to more effectively identify patients with gastric cancer whose tumors overexpress the FGFR2b protein, both during our clinical trials and commercialization of FPA144.

selected patient population. We do not have experience in or capabilities infor developing or commercializing companion diagnostics and have depended and will continue to depend on the sustained cooperation and effort of our third-party diagnostic development collaborators to perform these functions.

IfFor example, we are developing bemarituzumab to treat a subset of patients with front-line gastric or ~~our~~GEJ cancer whose tumors overexpress FGFR2b. We have developed, in collaboration with third-party ~~collaborators are unable~~diagnostic development partners, both an IHC-based assay and a ctDNA blood-based assay to ~~successfully develop companion diagnostics~~identify gastric and GEJ cancer patients with FGFR2b overexpression or FGFR2 gene amplification who may benefit from treatment with bemarituzumab in combination with mFOLFOX6.

We initially expected that approximately 10% of the previously untreated, advanced gastric and GEJ cancer patients that we pre-screened for ~~FPA144~~the FIGHT trial would test positive for FGFR2b overexpression or ~~experience delays in doing so,~~ FGFR2 gene amplification, as detected by the IHC and ctDNA tests we ~~may suffer significant negative consequences, including:~~

~~If any of these events were to occur,~~obtain regulatory approval for such companion diagnostic, which could delay their development and harm our ~~business would be harmed, possibly materially.~~business.

Companion diagnostics are ~~also~~ subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and may require separate regulatory approval prior to ~~commercialization, which~~commercialization. For any companion diagnostic that we develop for use with one of our product candidates, we or our collaboration partners may ~~cause~~experience delays in ~~developing the~~obtaining or may fail to obtain regulatory approval for such companion ~~diagnostics~~diagnostic, which could delay its development and harm our business. If we or our collaboration partners are unable to obtain necessary regulatory approvals for our companion diagnostics, including for bemarituzumab, or experience delays in doing so, we may suffer significant negative consequences, including:

The occurrence of any of these events would harm our business, possibly materially.

Even if our product candidates receive regulatory approval, they may ~~still~~ face future development and regulatory difficulties, which may ~~inhibit our ability to commercialize~~prevent us from commercializing our products and ~~generate~~generating revenue.

Even if we obtain regulatory approval for a product candidate in a particular jurisdiction, the product would be subject to ongoing requirements by the FDA ~~and~~or applicable comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market ~~information.~~information of or with respect to such product. The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product ~~even~~ after approval. If the FDA or any comparable foreign regulatory ~~authorities become~~authority becomes aware of new safety information after approval of any of our product candidates, ~~they~~it may require labeling changes or establishment of a REMS or similar ~~strategy,~~program, impose significant restrictions on the product’s indicated uses or marketing, or impose ongoing requirements for costly post-approval studies or post-market ~~surveillance, which may be costly.~~surveillance.

In addition, drug product manufacturers and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities ~~for~~to evaluate compliance with ~~current Good Manufacturing Practices, or cGMP,~~GMP and GLP regulations, standards and ~~standards.~~guidelines. If we or a regulatory authority discover previously unknown problems with one of our product candidates, such as side effects or adverse events of unanticipated severity or frequency, or problems with the facility where such product candidate is manufactured, a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of such product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory authority may:

The occurrence of any event or penalty described above may ~~inhibit~~limit or prevent our ability to commercialize our products and generate revenue.

Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. Violations of applicable laws and regulations, including promotion of our products for unapproved or off-label uses, may be subject us to enforcement letters, inquiries, investigations and civil and criminal sanctions by the government. ~~Additionally,~~Similarly, comparable foreign regulatory authorities will heavily scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.

In the United States, engaging in the impermissible promotion of products for off-label uses can also subject a company to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which such company promotes or distributes drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or that such company caused another entity or individual to present such false or fraudulent claims for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will receive a portion of any fines or settlement funds. Since 2004, ~~these~~ False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements involving fines exceeding $1.0 billion based on certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend aagainst false claims ~~action,~~actions, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote any of our ~~approved~~ products that may receive marketing approval, we may become subject to such litigation and ~~if we do not~~our inability to successfully defend ~~against~~the company in such ~~actions, such actions~~litigation may ~~have a~~ material ~~adverse effect on~~adversely affect our business, financial condition and results of operations.

The policies of the FDA or any comparable foreign regulatory authority may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or ~~the adoption of~~policies or new requirements or policies that may be adopted, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside the United States.

In order to market and sell our products in other jurisdictions, we or our collaboration partners must obtain separate marketing approvals and comply with numerous and varying regulatory ~~requirements.~~requirements in those jurisdictions. The approval procedures vary among countries and can involve additional testing. The time required to obtain approval outside of the United States may differ substantially from that required to obtain FDA approval. The regulatory approval ~~process~~processes outside the United States generally ~~includes~~include all the risks associated with obtaining FDA ~~approval.~~approval and may include additional risks that we cannot predict. In addition, in many countries outside the United States, we or our collaboration partners must secure product reimbursement approvals before regulatory authorities will approve a product for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant ~~delays,~~ difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. We may not obtain foreign regulatory approvals for our product candidates on a timely basis, if at all.

We are conducting certain of our clinical trials in countries outside of the United States and will need to obtain marketing approval for our product candidates in each such country before we can sell our products there. For example, we are conducting our FIGHT trial for bemarituzumab in China in collaboration with Zai Lab and are relying on Zai Lab’s ability to obtain approval for bemarituzumab in China, Taiwan, Hong Kong and Macau, or collectively, Greater China, from the China Food and Drug Administration. However, Zai Lab’s ability to obtain approval in Greater China depends on Zai Lab’s and our ability to comply with the government policies, laws and regulations applicable to conducting clinical trials and obtaining approval for and commercializing drug products in Greater China. The government policies, laws and regulations in China are evolving rapidly and future changes are difficult to predict. If any such government policies, laws or regulations evolve in a way that make it more difficult or inefficient for Zai Lab or us to clinically develop, obtain approval for or commercialize bemarituzumab in China, the conduct of our FIGHT trial may be delayed, which will delay our ability to obtain approval for and commercialize bemarituzumab.

Further, ~~results~~data and ~~data~~results from clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country or by one regulatory authority outside the United States does not ensure approval by regulatory authorities in any other country or jurisdiction or by the FDA, while a failure or delay in obtaining regulatory approval for any of our product candidates in one country or by one regulatory authority may have a negative effect on the regulatory approval process in other countries or jurisdictions and may significantly diminish the commercial prospects of that product candidate, ~~and~~which may cause our business prospects ~~could~~to decline. Also, regulatory approval for any of our product candidates may be ~~withdrawn.~~withdrawn in any country or jurisdiction. If we fail to comply with the regulatory requirements in international ~~markets and~~jurisdictions, we may not receive ~~applicable~~the necessary marketing approvals for our product candidates in these jurisdictions, our target market for ~~our~~these product candidates will be reduced, ~~our ability~~we may be unable to realize the full market potential of ~~our~~these product candidates ~~will be harmed~~ and our business will be adversely affected.

The withdrawal of the United Kingdom from the EU, commonly referred to as Brexit, may adversely impact our ability to obtain regulatory approvals for our product candidates in the EU, result in restrictions or imposition of taxes and duties for importing our product candidates into the EU and may require us to incur additional expenses in order to develop, manufacture and commercialize our product candidates in the EU.

Following the result of a referendum in 2016, the United Kingdom left the EU on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the EU, the United Kingdom will be subject to a transition period until December 31, 2020, or the Transition Period, during which EU rules will continue to apply. Negotiations between the United Kingdom and the EU are expected to continue in relation to the customs and trading relationship between the United Kingdom and the EU following the expiry of the Transition Period.

Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from EU directives and regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the EU. For example, as a result of the uncertainty surrounding Brexit, the European Medicines Agency, or EMA, relocated to Amsterdam from London. Following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products, including our product candidates, will be required in the United Kingdom, the potential process for which is currently unclear. Any delay in obtaining, or inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the EU and restrict our ability to generate revenue and achieve and sustain profitability. In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the EU, or we may incur expenses in establishing a manufacturing facility in the EU in order to circumvent such hurdles. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the EU for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may subject us to unexpected duty costs or other non-tariff barriers. These developments, or the perception that any of these developments could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom.

We face substantial competition ~~which~~from third parties that may ~~result in others discovering, developing~~develop or ~~commercializing~~commercialize products before or more successfully than we do.

The biotechnology industry is intensely competitive and subject to rapid and significant technological change. We face worldwide competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies with respect to our current product candidates and will face such competition with respect to ~~any of~~ our future product ~~candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.~~candidates. Many of our competitors have significantly greater financial, technical and human resources than we do. Smaller and early-stage companies may also prove to be significant competitors, particularly through their collaborative arrangements with large and established companies.

Our competitors may obtain regulatory approval offor their products more rapidly than we ~~may~~do or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop, ~~drugs~~acquire or license on an exclusive basis products that are more effective, more convenient, more widely ~~used and~~accepted or less costly or have better safety profiles than our ~~products~~product candidates and ~~these competitors~~ may also be more successful ~~than us~~ in manufacturing and marketing ~~their products.~~such products than we are with respect to our product candidates.

~~Our competitors~~We also currently and will in the future compete with usother companies in recruiting and retaining qualified ~~scientific, management and commercial~~ personnel, establishing clinical trial sites and enrolling patients ~~for~~in clinical trials, as well as in acquiring technologies complementary to, or necessary for, our research and development programs.

In addition, as part of our corporate restructuring, we shifted our focus from in-house discovery and research to supplementing our development pipeline by looking to selectively acquire or license, on an exclusive basis, rights to develop product candidates from biotechnology and pharmaceutical companies. We plan to evaluate for potential acquisition or licensing assets that are IND-ready or in early clinical development and that we can leverage our in-house development capabilities to develop to data read-outs in the near- to medium-term. Our primary focus remains on oncology therapeutics. The acquisition and licensing of pharmaceutical product candidates is very competitive, and we expect to compete with third parties seeking to acquire or license product candidates in which we are interested, including more established companies that have strategies to license or acquire products and may have competitive advantages over us, as well as other emerging companies that take similar or different approaches to product acquisitions and licensing.

Although there are no approved therapies that specifically target the signaling pathways that our current product candidates are designed to modulate or inhibit, there are numerous ~~currently-approved therapies for treating~~drugs that are currently approved to treat the same diseases or indications for which our current product candidates may be useful and many of these currently-approved therapies act through mechanisms similar to those of our current product candidates. Many of these approved drugs are well-established therapies or products and are widely accepted by physicians, patients and third-party payors. Some of these drugs are branded and subject to patent protection and others are available on a generic basis. Insurers and other third-party payors may also encourage the use of generic products or specific branded products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic, including branded generic, products. This may make it difficult for us to differentiate our products from currently-approved therapies, which may adversely impact our business strategy. In addition, many companies are developing new therapeutics and we cannot predict ~~what~~if and how the ~~standard~~applicable standards of care will bechange as our product candidates progress through clinical development.

If ~~cabiralizumab~~bemarituzumab were approved for the treatment of ~~cancer~~previously untreated, advanced gastric or PVNS, it could face competition from products currently in development as single agents or in combination with anti-PD1/PD-L1 agents or other immuno-oncology agents, including Roche’s emactuzumab (RO5509554, RG7155) anti-CSF1R antibody, Eli Lilly and Company’s IMC-CS4/LY3022855 anti-CSF1R antibody, Amgen Inc.’s AMG 820 anti-CSF1R antibody, Syndax Pharmaceuticals Inc.’s SNDX6352 anti-CSF1R monoclonal antibody, Pfizer Inc.’s PD-0360324 CSF1 monoclonal antibody, Novartis Pharmaceuticals Corporation’s BLZ945 CSF1R-directed small molecule and MCS110 CSF1 monoclonal antibody, Daiichi Sankyo’s pexidartinib (PLX3397), PLX73086 and PLX7486 small molecule tyrosine kinase inhibitors, or TKIs, Array Biopharma Inc.’s ARRY-382 CSF1R small molecule TKI or Deciphera Pharmaceuticals LLC’s DCC-3014 CSF1R small molecule TKI, with respect to immuno-oncology, and Daiichi Sankyo’s pexidartinib (PLX3397) and PLX73086 small molecule TKIs or Novartis Pharmaceuticals Corporation’s MCS110 CSF1 monoclonal antibody, with respect to PVNS, each of which act in the same pathway as cabiralizumab.

~~If FPA144 were approved for the treatment of gastric~~GEJ cancer, it could face competition from currently-approved and marketed products, including 5-fluorouracil, S-1, capecitabine, doxorubicin, cisplatin, oxaliplatin, carboplatin, paclitaxel, irinotecan, ~~docetaxel~~ and ~~Cyramza~~^TM (ramucirumab), and from products currently in early development, including AstraZeneca plc’s AZD-4547 and erdafitinib (JNJ-42756493) pan-FGFR small molecules and Daiichi Sankyo’s DS-1123 FGFR2 non isoform specific antibody,docetaxel, as well as antibodies that bind to PD-1/PD-L1, including ~~BMS’s~~ BMS/Ono Pharmaceutical Co., Ltd.’s, or Ono’s, Opdivo monotherapy and Opdivo in combination with ~~BMS’s~~ BMS/Ono’s Yervoy^®(ipilimumab) anti-CTLA-4 antibody, Merck & Co., Inc.’s Keytruda^®(pembrolizumab)~~, Merck KGaA, Darmstadt, Germany/Pfizer Inc.’s~~ ~~Bavencio~~^®~~(avelumab), Roche’s~~ ~~Tecentriq~~^®~~(atezolizumab)~~, AstraZeneca UK Limited/MedImmune, LLC’s Imfinzi^TM®(durvalumab) anti-PD-L1 antibody, BeiGene Ltd.’s tislelizumab, Innovent Biologics Inc.’s Tyvyt^® (sintilimab), Incyte Corporation, or Incyte/MacroGenics, Inc./Zai Lab’s INCMGA0012 (MGA012), Jiangsu Hengrui Medicine Co., Ltd.’s camrelizumab (SHR-1210), Fudan University Shanghai Cancer Center’s apatinib, Astellas Pharma Inc.’s ~~claudiximab (IMAB362)~~zolbetuximab anti-Claudin 18.2 antibody and AstraZeneca UK Limited/MedImmune, LLC’s tremelimumab anti-CTLA4 antibody.

We believe that our ability to successfully compete will depend on, among other things:

Our product candidates may not achieve ~~adequate~~the level of market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

Even if our product candidates receive regulatory approval, they may not gain ~~adequate~~the level of market acceptance among physicians, patients, healthcare payors and others in the medical ~~community. Our~~community necessary for commercial success. Whether and the extent to which our product candidates achieve commercial success will also ~~depends~~depend on coverage of and adequate reimbursement ~~of our~~for these product candidates by third-party payors, including government payors, ~~generally,~~ which may be difficult or time-consuming to obtain, may be limited in scope and may not be available or otherwise obtained in all jurisdictions in which we may seek to market our ~~products.~~approved product candidates. The degree of market acceptance of any of our approved product candidates will depend on numerous factors, including:

If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, we may not generate or derive sufficient revenue from that product candidate ~~and may not become~~to enable us to achieve or ~~remain profitable.~~sustain profitability.

Even if we commercialize ~~any~~one or more of our product candidates, ~~our~~these product candidates may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices or healthcare reform initiatives, which could harm our business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, even if we ~~might~~ obtain marketing approval for a product in a particular country, ~~but then~~we may be subject to price regulations that delay ~~our~~the commercial launch of ~~the~~such product, possibly for lengthy time periods, which could negatively impact the revenues we generate from the sale of ~~the~~such product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if ~~those~~such product candidates obtain marketing approval.

Our ability to successfully commercialize any products ~~successfully~~ will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover, ~~and~~ establish reimbursement ~~levels. Government authorities~~levels for medications and ~~other third-party payors have attempted~~attempt to control costs by limiting such coverage and reimbursement ~~of medications.~~levels. Increasingly, third-party payors are requiring that pharmaceutical companies provide ~~them~~such third-party payors with predetermined discounts from list prices and are challenging the prices charged for ~~medical products.~~medications. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement for any product candidate for which we obtain marketing approval are not available or reimbursement is available only toat limited levels, we may ~~not~~be unable to successfully commercialize any such product ~~candidate for which we obtain marketing approval.~~candidate.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or any comparable foreign regulatory ~~authorities.~~authority. Moreover, eligibility for coverage and reimbursement does not ~~imply~~guarantee that a drug will be paid for in all cases or at a rate that covers our costs, including with respect to research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be ~~temporary.~~provided on a temporary basis. Reimbursement rates may vary depending on the ~~use of~~approved uses for the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Additionally, companion diagnostic tests that we or our collaborators may develop require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biologics products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biologics products, will apply to companion diagnostic tests. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any of our approved products or companion diagnostic tests that we or our collaborators may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Enacted and future legislation may increase the difficulty and cost ~~for us to commercialize~~of commercialization of our product candidates and affect the prices we may charge for such product candidates.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval.

In March 2010, Congress enacted the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, ~~was enacted,~~ which includes measures that have ~~significantly~~ changed the way ~~health care~~healthcare is financed by both governmental and private insurers. ~~Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been~~There remain judicial and congressional challenges to certain aspects of the Affordable Care Act. InSince January 2017, President Trump has signed antwo Executive ~~Order directing federal agencies with authorities~~Orders and ~~responsibilities~~other directives designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The federal Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision that became effective on January 1, 2019 and repealed the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to ~~waive, defer, grant exemptions~~maintain qualifying health coverage for all or part of a year, which payment is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In December 2018, the Centers for Medicare & Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from ~~or delay~~certain Affordable Care Act-qualified health plans and health insurance issuers under the ~~implementation~~Affordable Care Act risk adjustment program in response to the outcome of ~~any provision~~federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court judge ruled that the Affordable Care Act is unconstitutional in its entirety because the individual mandate was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act ~~that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers~~are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of ~~pharmaceuticals or medical devices. The U.S. House of Representatives passed legislation known as~~certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the ~~American Health Care Act of 2017 in May 2017. More recently, the Senate Republicans introduced~~fall. It is unclear how such litigation and ~~then updated a bill~~other efforts to repeal and replace the Affordable Care Act known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the Affordable Care Act without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of 2017. Each of these measures was rejected by the full Senate. Congress will ~~likely consider other legislation to replace elements of the Affordable Care Act. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on~~impact our business.

~~In addition, other~~Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, in August 2011, then-President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation’s automatic reduction to several government programs. This includes aggregate reductions toin Medicare payments to providers of, on average, 2% per fiscal year through ~~2025~~2030 unless Congress takes additional action. ~~Recently, there~~The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, there has been increasing legislative and enforcement interest in the United States with respect to ~~specialty~~ drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed ~~bills~~and enacted federal legislation designed to, among other things, ~~bring more~~increase transparency toin drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses and place limits on pharmaceutical price increases. Moreover, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out-of-pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislative, administrative or executive action. We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product, ~~and~~which could ~~seriously~~materially harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain or maintain profitability or successfully commercialize our products.

It is possible that additional governmental action will be taken to address the COVID-19 pandemic. For example, on April 18, 2020, CMS announced that Qualified Health Plan issuers under the Affordable Care Act may suspend activities related to the collection and reporting of quality data that would have otherwise been reported between May and June 2020 given the challenges healthcare providers are facing responding to the COVID-19 pandemic.

We may become subject to product liability lawsuits, which could cause us to incur substantial liabilities and ~~may~~ limit commercialization of any products we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that ~~we may develop.~~receive marketing approval. Product liability claims may be brought against us by ~~subjects~~patients, including those enrolled in our clinical trials, ~~patients,~~ healthcare providers or others ~~using, administering~~that use, administer or ~~selling~~sell our products. If we cannot successfully defend ourselves against claims that our product candidates or products that we may develop caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

We currently hold ~~$10~~$10.0 million in clinical trial liability insurance coverage, which may not adequately cover all liabilities that we may incur. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for one or more of our product candidates, ~~in development,~~ but we may be unable to obtain such product liability insurance on commercially reasonable ~~terms for any of our products that have been approved for marketing.~~terms. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Our relationships with ~~customers~~healthcare providers, third-party payors and ~~third-party payors~~customers will be subject to applicable anti-kickback, fraud and abuse, transparency, privacy and other healthcare laws and regulations, violation of which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare providers, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any of our products ~~for which we obtain~~that have received marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of our operations. If any physician or other healthcare provider or entity with whom we expect to do business is found ~~not~~ to ~~be in compliance with~~have violated applicable laws, that person or entity may be subject to significant criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.

We are experiencing significant growth in our operations as we expand the scope of our research and clinical activities, including our conduct of a Phase 2 clinical trial of cabiralizumab in PVNS, a Phase 1a/1b clinical trial of cabiralizumab in combination with ~~Opdivo~~ in multiple cancers, clinical trials, including planning for a pivotal trial, of FPA144 in gastric cancer and bladder cancer and our preclinical development and immuno-oncology research activities. Our success will depend in part on our ability to manage our growth, including increases to our headcount, effectively. To succeed, we must ~~continue to~~ recruit, develop, retain, manage and motivate qualified clinical, scientific, technical, general and administrative and management personnel ~~and we face~~while facing significant competition for experienced personnel. IfIn January 2019, we ~~do not~~announced our implementation of a corporate restructuring, or the January restructuring, to focus our resources on our clinical development and late-stage research programs. In connection with the January restructuring, we eliminated 41 positions, representing approximately 20% of our then-current headcount. In October 2019, we implemented a second corporate restructuring, or the October restructuring, to extend our cash runway and ensure our long-term sustainability. In connection with the October restructuring, we are reducing our workforce by 63 positions across all functions through the second quarter of 2020. Seventy percent of these eliminations occurred by December 31, 2019, and the remainder are occurring in 2020. We believe the restructurings have harmed our ability to attract and retain qualified personnel and resulted in reduced morale among our remaining personnel. Our inability or failure to successfully attract and retain qualified personnel, particularly at the management level, it could adversely affect our ability to execute our business plan and harm our operating results. In particular, the loss of one or more of our executive officers could be detrimental ~~to us~~ if we cannot recruit suitable replacements in a timely manner. The competition for qualified personnel in the pharmaceutical field is intense and we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

Many of the other pharmaceutical companies ~~against~~with which we compete for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we ~~do. They~~have. These companies may also ~~may~~ provide more diverse opportunities and better or more chances for development or career advancement. Some of these characteristics may appeal more to high-quality candidates than what we offer. If we are unable to continue to attract and retain ~~high-quality~~ personnel, the rate ~~and success~~ at which we can ~~discover~~develop and ~~develop~~advance current and future product candidates, and our ~~business~~success in doing so, will be ~~limited.~~limited and our business may be harmed.

Our operations are vulnerable to interruption by natural disasters, including fire and earthquake, ~~power loss,~~ telecommunications failure, ~~terrorist activity,~~geo-political actions, including war and terrorism, political and economic instability ~~in the countries in which we operate~~ and other events beyond our control, which could harm our business.

Our computer and other systems, or those of our partners, CROs or other service providers, may fail or be interrupted, including due to ~~fire, earthquake or other~~geo-political actions, including war and terrorism, natural disasters, including earthquakes, typhoons, floods, and fires, public health epidemics, such as the COVID-19 pandemic currently impacting countries worldwide, hardware, software, telecommunication or electrical failures or ~~terrorism, or suffer security breaches, including due to computer viruses or unauthorized access,~~political and economic instability, which could significantly disrupt or harm our business or operations. For example, a computing system failure could result in the loss of research or preclinical or clinical data important to our ~~discovery,~~ research or development programs, interrupt the conduct of ongoing ~~experiments~~research or otherwise impair our ability to operate, which could result in delays in the advancement of our programs or cause us to incur costs to recover or reproduce lost data. Our facility is in a seismically-active region. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major earthquake, fire, power loss, terrorist activity or other disaster and do not have a recovery plan for such disasters. In addition, we do not carry sufficient insurance to compensate us for actual losses that may occur from interruption of our business ~~that may occur~~ and any losses or damages incurred by us could harm our business. ~~We maintain multiple copies of each~~

Our business operations depend significantly on information technology systems, and a cyber-attack or other significant disruption or breach of our ~~protein libraries, most~~information technology systems, or those of third parties on whom we may rely or with whom we share confidential information, could cause us significant financial, legal, regulatory, business and reputational harm.

We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit sensitive information, including intellectual property, proprietary business information, personal information and other confidential information belonging to us and to third parties. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We also outsource elements of our operations, including elements of our information technology infrastructure, to third-party vendors, and as a result, these vendors may have access to our computer networks or our confidential information. In addition, many of those vendors subcontract or outsource to other third parties some of their responsibilities under our agreements with such vendors. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the nature of the sensitive information stored on these systems, make such systems particularly vulnerable to internal and external attacks, both unintentional and malicious. In addition, as disclosed elsewhere in this Quarterly Report, including in this “Risk Factors” section, in response to the current COVID-19 pandemic, state and local authorities have issued shelter-in-place orders and implemented other restrictions to control the spread of COVID-19. These restrictions have resulted in office closures and travel restrictions that have required our and our vendors’ and business partners’ personnel to transition to remote working arrangements, which increases the risk that our systems, or those of our vendors or business partners, and any confidential or sensitive information contained in such systems may be subject to a security breach, incident, attack or other exposure. Potential vulnerabilities can be exploited through inadvertent or intentional actions of our employees, third-party vendors, and business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity and are being conducted by sophisticated and organized groups and individuals, including organized criminal groups, “hacktivists,” nation-states and others, with a wide range of motives, including industrial espionage, and expertise. In addition to the extraction of sensitive information, such attacks could involve the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of such information. In addition, the prevalent use of mobile devices increases the risk of the occurrence of data security incidents.

Data security incidents or other significant disruptions affecting our, our vendors’ or our business partners’ information technology systems could adversely affect our business operations and result in loss or misappropriation of, or unauthorized access to, use or disclosure of, or the prevention of access to, sensitive information, which could cause us financial, legal, regulatory, business and reputational harm. In addition, disruptions to our information technology systems could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, current or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce such data.

There is no way to know with certainty whether we have experienced any data security incidents that we have not yet discovered. While we have no reason to believe this to be the case, attackers have become sophisticated with respect to concealing their access to systems, and many companies whose information security systems have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including personal information of our employees or patients or investigators in our clinical trials, could disrupt our business, harm our reputation, compel us to comply with applicable federal, state or foreign breach notification laws, subject us to time-consuming, distracting and expensive litigation, regulatory investigations and oversight or mandatory corrective action, require us to verify the correctness of certain stored information, or otherwise subject us to liability under applicable laws, regulations and our contracts with third parties, including those that require us to protect the privacy and security of personal information. This could cause us to incur significant costs and expose us to significant legal and financial liability and reputational harm. In addition, if there is any failure or perceived failure by us or our vendors or business partners to comply with our or their privacy, confidentiality or data security-related legal or other obligations to third parties, or if there are any security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, including personally identifiable information, we may be the subject of governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, third parties, including clinical trial sites, regulators or current and potential business partners, may lose trust in us, and we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other unauthorized access can be difficult to detect, and any delay in identifying such incidents or unauthorized access may lead to increased harm of the types described above. While we have implemented technical and organizational measures designed to ensure a level of security appropriate to the risks involved, there can be no assurance that such measures have prevented or will prevent service interruptions or security incidents.

Our employees, consultants, collaborators and other third parties may engage in misconduct or other improper activities, including insider trading and activities that violate regulatory standards and requirements.

Our employees, consultants, collaborators and other third parties with whom we interact may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct that violates United States and international laws and regulations, including laws requiring the true, complete and accurate reporting of financial and other information or data, drug manufacturing standards and healthcare fraud and abuse laws and regulations. In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of pharmaceutical products, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Such laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. It is not always possible to detect, identify and deter misconduct by our employees or third parties, and the precautions we take to detect and prevent this activity may not be effective to control risks or losses or protect us from governmental investigations or other actions or lawsuits stemming from an actual or perceived failure to comply with such laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, such actions could result in the imposition of significant monetary fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which ~~we maintain at our headquarters. We maintain one copy of each of our protein libraries offsite in Central California. If both facilities were impacted by the same event, we~~ could ~~lose all our protein libraries, which would have a material adverse effect on~~adversely affect our ability to ~~discover new targets.~~operate our business and our results of operations. Whether or not we are successful in defending against such actions or investigations, this could cause us to incur substantial costs, including legal fees, and divert the attention of management in our defending against any such actions or responding to related investigations.

~~BMS~~Zai Lab has exclusive ~~global~~ rights ~~for the development~~to develop and ~~commercialization of cabiralizumab. BMS’s~~commercialize bemarituzumab in Greater China. Zai Lab’s failure to timely develop or commercialize ~~cabiralizumab~~bemarituzumab would ~~result in~~have a material adverse effect on our business and operating results.

We granted ~~BMS~~Zai Lab an exclusive ~~global~~ license to develop and commercialize ~~cabiralizumab,~~bemarituzumab in Greater China, subject to certain rights that we ~~retained.~~retained in that territory. Our ~~development~~bemarituzumab collaboration with ~~BMS on cabiralizumab~~Zai Lab may not be successful ~~due to several factors,~~for various reasons, including the following:

~~Any~~The occurrence of any of the foregoing could adversely impact the likelihood and timing of any milestone payments we are eligible to receive ~~and~~under our collaboration agreement with Zai Lab, could ~~result in~~have a material adverse effect on our business, results of operations and prospects and would likely cause our stock price to decline. In addition, reimbursement for our research and development expenses and other payments we may receive from Zai Lab may fluctuate from period to period, which may adversely affect our stock price.

~~BMS~~Zai Lab has the right to terminate ~~our~~its collaboration agreement with us without cause as well as upon the existence of certain conditions and, in some cases, ~~BMS~~Zai Lab may terminate on short notice. ~~BMS~~Zai Lab could also ~~separately~~ pursue alternative potentially competitive products, therapeutic approaches or technologies as a means of developing treatments for the diseases targeted by ~~cabiralizumab.~~bemarituzumab during the course of our collaboration.

We may not succeed in establishing and maintaining additional ~~development~~ collaborations with strategic partners, which could adversely affect our ability to develop and commercialize product candidates.

A part of our strategy is to ~~enter into additional product development~~establish collaborations with strategic partners, including ~~collaborations with~~ major biotechnology or pharmaceutical companies.These collaborations allow us to supplement our development, manufacturing, regulatory and commercialization capabilities to broaden and accelerate clinical development and commercialization of our product candidates, provide us with significant funding to advance our pipeline and validate our technology. We face significant competition in seeking appropriate ~~development~~ partners for additional collaborations and the negotiation process is time-consuming and complex. Moreover, we may not succeed in our efforts to establish a ~~development~~ collaboration or other alternative ~~arrangements~~arrangement for any of our other existing or future product candidates and programs because ~~our research and~~ development ~~pipeline may be insufficient,~~of our product candidates and programs may be deemed to be too early in development for collaborative efforts or third parties may not view our product candidates ~~and programs~~ as having the requisite potential to demonstrate safety and ~~efficacy.~~efficacy or otherwise become marketable products if approved. Even if we are successful in our efforts to establish new development collaborations, the terms that we agree upon may not be favorable to us and we may not be able to maintain such development collaborations if, for example, development or approval of athe applicable product candidate is delayed or sales of ~~an approved~~such product candidate, once approved, are disappointing. Any delay in entering into new development collaboration agreements related to our product candidates could delay the development and commercialization of ~~our~~such product candidates and reduce their competitiveness if they reach the market.

Moreover, if we fail to establish and maintain additional ~~development~~ collaborations related to our product candidates:

We rely on ~~third-party~~ CROs to conduct our clinical trials, and ~~if those~~the unsatisfactory performance by such CROs ~~perform in an unsatisfactory manner, it~~ may harm our business.

We rely on CROs to perform most of the activities related to the conduct of our clinical trials, including site identification, screening, preparation, training, initiation and monitoring, document preparation and coordination, program management and data management. ~~However,~~Our CROs and other third parties we engage in connection with the conduct of our clinical trials may experience business interruptions as a result of shelter-in-place or similar orders or other effects of the ongoing COVID-19 pandemic. We do not directly control the conduct, timing, expense or quality of the performance of these activities. The performance of our CROs will impact the quality and validity of ~~the results of~~ our clinical ~~trials,~~trial results, which we rely on for business planning purposes and include in submissions to regulatory authorities. Although we contract with CROs to conduct most clinical trial-related activities, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable clinical protocol and legal and regulatory requirements. Our reliance on CROs does not relieve us of our legal and regulatory ~~responsibilities.~~responsibilities with respect to our clinical trials.

We and our CROs are required to comply with ~~current Good Clinical Practices, or~~ GCP, which are regulations, standards and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities, for all of our ~~products~~product candidates in clinical development. Regulatory authorities enforce GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot ensure that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials ~~comply~~are being conducted in accordance with GCP requirements. In addition, we must conduct our clinical trials ~~with~~using drug product produced ~~under cGMP~~and developed in accordance with GMP and GLP requirements. ~~Failure~~Our failure, or the failure of our clinical trial sites or CROs or CMOs, to comply with ~~these regulations~~applicable GCP, GMP and GLP may require us to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.

Our CROs and their representatives that perform services for us are not our employees. Except for remedies available to us ~~under~~in connection with our agreements with such CROs, we cannot control whether they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. AsIn such a ~~result,~~case, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be ~~delayed.~~delayed or significantly limited.

If we are unable to obtain, maintain or protect intellectual property rights, we may not be able to compete effectively in our market.

Our success depends in significant part on our ability and the ability of our licensors and collaborators to obtain, maintain and defend patents and other intellectual property rights and to operate without infringing the intellectual property rights of others. We have filed numerous patent applications both in the United States and in foreign jurisdictions to obtain patent rights to inventions we have discovered. We have also licensed patent and other intellectual property rights to and from our ~~partners. Some~~partners and other third parties. Pursuant to some of these licenses, ~~give us~~we have the right to prepare, file and prosecute patent applications and maintain and enforce the patents wethat are the subject of these licenses, whereas our partners or other third parties have ~~licensed, whereas~~such rights under other ~~licenses may not give us such rights.~~licenses.

In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications or to maintain the patents covering technology that we license to or from third parties, including our ~~partners,~~collaborators, and we may have to rely on ~~our partners~~such third parties to fulfill these responsibilities. Consequently, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaborators are not fully cooperative or disagree with us as to the strategy for prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

The patent prosecution process is expensive and time-consuming. We and our current or future licensors, licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors, licensees or collaborators will fail to file patent applications covering inventions made in the course of development and commercialization activities before a competitor or ~~another~~other third party files a patent application covering or publishes information disclosing a similar, independently-developed invention. Such competitor’s or third party’s patent application or other publication may ~~pose obstacles to~~hinder our or our licensors’, licensees’ or collaborators’ ability to obtain patent protection for these inventions or may limit the scope of patent protection we or our licensors, licensees or collaborators may obtain.

The patent position of biotechnology and pharmaceutical companies generally is uncertain, involves complex legal and factual questions and is the subject of much litigation. As a result, the ~~issuance,~~ scope, validity, enforceability and commercial value of our and our current or future licensors’, licensees’ or collaborators’ patent rights, as well as whether any patents will ever be issued based on applications claiming such patent rights, are uncertain. Our and our current or future licensors’, licensees’ or collaborators’ pending and future patent applications may not result in issued patents ~~being issued~~ that protect our technology or products, in whole or in part, or ~~which~~that effectively exclude others from commercializing similar or otherwise competitive technologies and products. ~~The~~During the patent ~~examination~~prosecution process, ~~may require us~~we or our licensors, licensees or collaborators may be required to narrow the scope of the claims of ~~our~~ pending and future patent applications, which may limit the scope of protection if patents issue from such applications. Our and our licensors’, licensees’ or collaborators’ rights in the technology claimed in patent applications cannot be enforced against third parties ~~practicing the~~using such technology ~~claimed in such applications~~ unless and until a patent issues from such applications, and then only to the extent the issued claims effectively cover such technology.

Furthermore, ~~given~~because the amount of time required for the development, testing and regulatory review of new product candidates is lengthy, patents protecting such candidates might expire before or shortly after such candidates are ~~commercialized.~~approved for commercialization. As a result, our owned and licensed patent portfolios may not provide us with adequate protection against third parties seeking to commercialize products similar or identical to ours. We expect to request extensions of patent terms to the extent available in countries where we obtain issued patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits, in certain cases, a patent term extension of up to five years beyond the expiration of the patent. However, there are no assurances that the FDA or any comparable foreign regulatory authority will grant such extensions, in whole or in part. ~~In such case,~~If we fail to obtain patent term extensions for any reason, our competitors may launch their products earlier than might otherwise be anticipated.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, enforcing and defending patents oncovering our product candidates in all countries throughout the world would be prohibitively expensive, and our or our licensors’ or collaborators’ intellectual property rights in some countries outside the United States ~~can~~may be less extensive than those in the United States. Moreover, the requirements for patentability ~~may differ~~ in certain foreign countries, particularly developing countries, differ materially from those of the United States and such requirements also vary among foreign countries. For example, ~~China has a heightened requirement for~~compared to the United States, China’s patentability requirements are more stringent and ~~specifically requires a detailed description of medical uses~~may limit the scope of a ~~claimed drug.~~patent’s claims solely to the specific examples described in the patent. Therefore, it may be more difficult to obtain patent protection in certain countries relative to others.

The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors or collaborators may not be able to prevent third parties from ~~practicing~~using our and our licensors’ or collaborators’ inventions in certain countries outside the United States. ~~Competitors~~In jurisdictions where we have not obtained patent protection, competitors may use our and our licensors’ or collaborators’ technologies ~~in jurisdictions where we have not obtained patent protection~~ to develop their own ~~products and further,~~products. Competitors may also export ~~otherwise~~ infringing products to territories where we and our licensors or collaborators have patent protection but enforcement is not as strong or effective as ~~that~~ in the United States. These products may compete with our product candidates and our and our licensors’ or collaborators’ patents or other intellectual property rights may not be ~~effective or~~ sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems ofin certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biopharmaceuticals, which could make it difficult for us and our licensors or collaborators to stop the infringement of our and our licensors’ or collaborators’ patents or marketing of competing products in violation of our and our licensors’ or collaborators’ proprietary rights generally. Proceedings to enforce our and our licensors’ or collaborators’ patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensors’ or collaborators’ efforts and attention from other aspects of our business and could provoke third parties to assert counterclaims against us or our licensors or collaborators, which could put our and our licensors’ or collaborators’ patents at risk of being invalidated or interpreted ~~narrowly or not issuing and could provoke third parties to assert counterclaims against us or our licensors or collaborators.~~narrowly. We or our licensors or collaborators may not prevail in any lawsuits that we or our licensors or collaborators initiate and, even if we or our licensors or collaborators prevail, the damages or other remedies awarded, if any, may not be commercially ~~meaningful.~~meaningful, particularly in light of any expenses incurred in connection with the initiation and conduct of such lawsuits.

Biosimilar drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ or collaborators’ foreign patents, ~~in countries outside the United States,~~ requiring us or our licensors or collaborators to engage in complex, lengthy and costly litigation or other ~~proceedings.~~proceedings outside of the United States. Biosimilar drug manufacturers may develop, seek approval for and launch biosimilar versions of our products. ~~In addition to~~ India, certain countries in Europe and certain developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors or collaborators may have limited remedies if ~~we or our licensors or collaborators are~~ compelled to grant a license to a third party, which could materially diminish the value of ~~our patents. This could~~the applicable patents and limit our potential revenue opportunities. Accordingly, we may be unable to derive a significant commercial advantage from our and our licensors’ or collaborators’ ~~efforts to enforce~~ intellectual property rights ~~around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own~~ or ~~license.~~our enforcement of those rights.

Changes into patent ~~law~~laws could diminish the value of patents in general, thereby impairing our ability to protect our rights in our product candidates.

~~Obtaining~~The ability of a party to obtain and ~~enforcing~~enforce patents in the biopharmaceutical industry is inherently uncertain, due in part to ongoing changes ~~in the~~to applicable patent laws. Depending on decisions by Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and regulations governing patents could change in unpredictable ways ~~that~~and could weaken our and our licensors’ or collaborators’ ability to obtain new patents or to enforce existing or future patents.

For example, several of the Supreme ~~Court has ruled on several~~Court’s rulings in patent cases in recent years have either ~~narrowing~~narrowed the scope of patent protection available inunder certain circumstances or ~~weakening~~weakened the rights of patent owners in certain situations. Therefore, there is increased uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents in the future, as well as uncertainty with respect to the value that any of our patents may have once ~~obtained.~~

~~Recent~~they have issued. Additionally, significant changes to the patent ~~reform legislation could increase~~laws under the ~~uncertainties~~Leahy-Smith America Invents Act of 2011, or the Leahy-Smith Act, have affected how patent applications are prosecuted and challenged in the U.S. Those changes include implementation of a “first-to-file” system, effective in 2013, for determining entitlement to inventions claimed by more than one party, as well as creation of new administrative proceedings for challenging issued patents. As such, there is increased uncertainty with respect to both outcome and costs ~~surrounding~~associated with the prosecution of ~~our and our licensors’ or collaborators’~~ patent applications and the enforcement or defense of ~~our~~issued patents controlled by us or our ~~licensors’~~licensors or collaborators’ issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes numerous significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and, in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ or collaborators’ patent applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents, all ofcollaborators, which could have a material adverse effect on our business and financial condition.

Obtaining and maintaining ~~our~~ patent protection ~~depends on~~requires compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements.

~~Periodic~~Patent holders are required to pay periodic maintenance and annuity fees ~~on any issued patent are required to be paid~~ to the USPTO and foreign patent agencies ~~in several stages~~ over the lifetime of ~~the~~any issued patent. The USPTO and various foreign patent agencies also require compliance with ~~a number of~~various procedural, documentary, fee payment and other similar requirements during the patent application and prosecution process. ~~Noncompliance~~Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official communications within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. ~~While~~In many cases, an inadvertent lapse can ~~in many cases~~ be cured by payment of a late fee or by other means in accordance with the applicable ~~rules,~~rules. However, there are situations in which non-compliance can result in irrevocable abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we or our licensors or collaborators fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market and compete with such product candidates, which would have a material adverse effect on our business.

We may ~~become involved in lawsuits~~need to protect or enforce our intellectual property through litigation or other proceedings, which could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our business.

Third parties may infringe our or our licensors’ or collaborators’ patents or misappropriate or otherwise violate our or our licensors’ or collaborators’ intellectual property rights. In the future, we or our licensors or collaborators may initiate legal proceedings to enforce or defend our or our licensors’ or collaborators’ intellectual property rights or to protect our or our licensors’ or collaborators’ trade secrets. The outcome of such proceedings may determine or alter the validity or scope of intellectual property rights we own or control. Also, third parties may initiate legal proceedings, including litigation or administrative proceedings, against us or our licensors or collaborators to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time-consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can. Accordingly, despite our or our licensors’ or collaborators’ efforts and the legitimacy of our or our licensors’ or collaborators’ arguments and positions in these proceedings, we or our licensors or collaborators may not be able to prevent third parties from infringing or misappropriating intellectual property rights we or our licensors or collaborators own or control, particularly in countries where the laws may not protect those rights as fully as in the United States. Litigation or administrative proceedings could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in a patent infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to impose monetary damages or enjoin the ~~other~~infringing party from using the technology at issue on the grounds that our or our licensors’ or collaborators’ patents do not cover the technology in question. ~~An adverse result in any litigation~~Any legal proceeding ~~could put~~involving one or more of our or our licensors’ or collaborators’ patents could put such patents at risk of being invalidated, held unenforceable or interpreted narrowly.

Derivation or interference proceedings in the United States or ~~equivalent~~similar proceedings in other jurisdictions may be necessary to determine the priority of inventions with respect to our or our licensors’ or collaborators’ patents or patent applications. An unfavorable outcome in these proceedings could require us or our licensors or collaborators to cease using the ~~related~~ technology covered by the applicable patents or patent applications and commercializing our product candidates or to attempt to license rights to itsuch technology from the prevailing party. Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license or offers a license on terms that are not on commercially ~~reasonable.~~reasonable or are otherwise unfavorable to us. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, ~~thereby giving~~allowing our competitors to gain access to the same technologies licensed to us or our licensors or collaborators. In addition, if the breadth or strength of protection provided by our or our licensors’ or collaborators’ patents and patent applications is threatened, ~~it could dissuade companies~~potential collaborators may be dissuaded from ~~collaborating~~partnering with us with respect to ~~license, develop~~the development or ~~commercialize~~commercialization of our affected current or future product candidates. Even if we prevail in such a proceeding, wesuch a proceeding may cause us to incur substantial costs and ~~it may~~ distract our management and other ~~employees.~~employees from our business and operations.

Furthermore, because intellectual property litigation and certain other legal proceedings require discovery, which may in some cases be substantial, there is a risk that our confidential information could be compromised by disclosure during the course of such proceedings. There could also be public announcements of the results of hearings, motions or other interim rulings or developments in the proceedings, and if securities analysts or investors perceive these results to be negative, the price of shares of our common stock may be materially adversely affected.

If we breach the agreements under which third parties have licensed intellectual property rights to us, we could lose the ability to use certain of our technologies or continue the development and commercialization of our product candidates.

Our commercial success depends upon our ability, and the ability of our licensors and collaborators, to ~~discover and validate protein therapeutic targets and to identify, test,~~ develop, manufacture, market and sell product candidates without infringing the proprietary rights of third parties. ~~A third party~~Third parties currently, and may in the future, hold intellectual property rights, including patent rights, that are important or necessary tofor the development or commercialization of our ~~products.~~product candidates. As a result, we are a party to a number of licenses that are important to our business and expect to enter into additional licenses in the future. For example, we have entered into a non-exclusive ~~license~~licenses with third parties, including BioWa, Inc. and Lonza Sales AG, to use their ~~Potelligent~~^® ~~CHOK1SV technology,~~proprietary protein expression and cell line technologies, which isare necessary to produce our FPA144 antibody and non-exclusive licenses with each of the National Research Council of Canada and the Board of Trustees of the Leland Stanford Junior University to use materials and technologies that we use in the production of our protein library.product candidates. If we fail to comply with the obligations under these license agreements, including payment and diligence terms, our licensors may have the right to terminate these agreements, in which event we may not be able to develop, manufacture, market or sell any product candidate that, or the development or manufacturing of which, is covered by the rights licensed under these agreements orand may face other ~~penalties under the agreements.~~contractual penalties. Such an occurrence could materially adversely affect the value of ~~the~~any product candidate being developed using technology licensed under any such agreement. Termination of, ~~these agreements~~ or reduction or elimination of our rights under, these agreements may ~~result in our having~~require us to negotiate new or reinstated agreements, which may not be available to us on equally favorable or otherwise commercially reasonable terms, or at all, or cause us to lose our rights we had under ~~these~~the original agreements, including our rights to intellectual property or technology important to or necessary for our development programs.

Third parties may initiate legal proceedings against us alleging that we infringe their intellectual property rights or we may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by such third ~~parties, the~~parties. The outcome of ~~which~~any of these proceedings would be uncertain and could have a material adverse effect on the success of our business.

Third parties may initiate legal proceedings against us or our licensors or collaborators alleging that we or our licensors or collaborators infringe ~~their~~the intellectual property rights controlled by these third parties, or we or our licensors or collaborators may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by ~~such~~these third parties, including in oppositions, interferences, reexaminations, inter partes reviews, post-grant reviews or derivation proceedings in the United States or comparable proceedings in other jurisdictions. These proceedings can be expensive and time-consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can.

An unfavorable outcome in any of these proceedings could require us or our licensors or collaborators to cease using the ~~related~~relevant technology or developing or commercializing our product candidates, or to attempt to license any necessary rights to such technology from the prevailing party. Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license, or otherwise offers a license on terms that are not commercially ~~reasonable.~~reasonable or are otherwise unfavorable to us. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators. In addition, we could be found liable for monetary damages if we are found to have infringed a patent, including treble damages and attorneys’ fees if ~~we are found to have willfully infringed a patent.~~such infringement was willful. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.

Furthermore, because of ~~the substantial amount of discovery required in~~ intellectual property litigation and certain other legal proceedings require discovery, which may in some cases be substantial, there is a risk that ~~some of~~ our confidential information could be compromised by disclosure during ~~this type~~the course of ~~litigation.~~such proceedings involving third party intellectual property rights. There could also be public announcements of the results of hearings, motions or other interim rulings or developments in the proceedings, ~~or developments. If~~and if securities analysts or investors perceive these results to be negative, ~~it could have a material adverse effect on~~ the price of shares of our common ~~stock.~~stock may be materially adversely affected.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.

Many of our employees, including members of our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential ~~competitors. Some of these employees~~competitors, and executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we ~~try~~work to ensure that our employees do not use the proprietary information or know-how of others in their work for us, including through written contractual obligations, we may be subject to claims that we or our employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of a former employer of any such ~~employee’s former employer.~~employee. Litigation may be necessary to defend against these claims.

If we ~~fail in defending~~are unable to successfully defend against any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or ~~personnel or sustain damages.~~personnel. Such intellectual property rights could be determined to be owned by a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available orto us at all, may not be available to us on commercially reasonable ~~terms.~~terms or may include obligations that are otherwise unfavorable for us. Even if we successfully defend against such claims, litigation could result in substantial costs and distract ~~management.~~management from our day-to-day operations.

Our inability to protect our confidential information and trade secrets would harm our business and competitive position.

In addition to seeking patents ~~for some of~~covering our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into ~~non-disclosure and~~ confidentiality agreements with parties who have access to them, ~~such as~~including our employees, corporate collaborators, ~~outside~~ scientific collaborators, contract manufacturers, ~~consultants,~~ advisors and other third parties. We also enter into confidentiality and ~~invention,~~intellectual property, including patent, assignment agreements with our employees and consultants. Despite these efforts, any of these parties, including ~~their~~our current or former employees or consultants and those of our service providers or collaborators, may breach the applicable agreements and disclose our ~~proprietary~~confidential information, including our trade secrets, and we may not be able to obtain adequate remedies for any such ~~breaches. However, enforcing~~breach. Bringing a claim ~~that~~against a party for illegally ~~disclosed~~disclosing or ~~misappropriated~~misappropriating a trade secret is difficult, expensive and time-consuming and the outcome of any resulting litigation or other proceeding is unpredictable. ~~In addition,~~Additionally, litigation involving our trade secrets puts us at significant risk that such trade secrets will be publicly disclosed, thereby significantly reducing or eliminating their value and potentially increasing competition and otherwise harming our business. Further, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using ~~that technology or information~~any such trade secret to compete with us, which could harm our competitive position.

As a research and development company, our operations have consumed substantial amounts of cash since inception. We have sufficient cash and cash equivalents to fund our projected operating expenses and capital expenditure requirements for at least the next 12 months and, as a result of the restructurings and other cost control measures, we expect our expenses to decrease in the short term. However, we expect our research and development expenses will increase substantially in connection with our ongoing activities, particularly if we advance our product candidates further into clinical development, advance additional product candidates into clinical trials and increase the number and size of our clinical trials. In addition, circumstances may cause us to consume capital more rapidly than we currently anticipate, including as a result of the COVID-19 pandemic. For example, as we move our product candidates through preclinical studies and into clinical development, we may observe adverse results that require us or one of our collaboration partners to terminate the program for a product candidate. Alternatively, we may be required to conduct additional research or development activities or studies for a product candidate or substantially redesign a product candidate, each of which could lengthen the development process and increase our development costs for such product candidate. If we initiate additional clinical trials for certain product candidates, we may need to raise additional funds or otherwise obtain funding through product collaborations beyond the collaborations we currently have in place. In any event, we will require additional capital to develop, obtain regulatory approval for and to commercialize our current and future product candidates.

If we need to secure additional financing, fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize current and future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. The COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens and global economic conditions worsen, we could experience an inability to access additional capital or engage in strategic transactions on terms reasonable to us, or at all. If we are unable to or otherwise do not raise additional capital when required or on acceptable terms, we may need to:

If we need to conduct additional fundraising activities and we do not raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to halt or delay our ongoing development efforts and may be prevented from pursuing further development and commercialization efforts, and we may be required to halt or delay any acquisition or in-licensing of new product candidates or may be prevented from pursuing further acquisition or in-licensing efforts, each of which could have a material adverse effect on our business, operating results and prospects.

The time through which our financial resources will adequately support our operations could vary as a result of numerous factors, including factors discussed elsewhere in this “Risk Factors” section. Our future funding requirements, both short- and long-term, will depend on many factors, including:

We are a clinical-stage biotechnology company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy with an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale, have not generated any revenue from product sales to date and continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2001, with the exception of the fiscal year ended December 31, 2015, due primarily to the $350.0 million up-front payment we received from BMS under our cabiralizumab collaboration agreement, and the fiscal year ended December 31, 2011, due primarily to an upfront payment we received from a collaboration partner. For the quarter ended March 31, 2020, we reported a net loss of $20.1 million.

Although we may from time to time report profitable results, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We expect our operating expenses to increase as we advance our research and development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown circumstances that may adversely affect our business. 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 revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We currently have no source of product revenue and may never become consistently profitable.

To date, we have not generated any revenue from commercialization of our product candidates. Our ability to generate product revenue and ultimately become profitable depends upon our ability, alone or with our partners, to successfully commercialize products, including our current product candidates and other product candidates that we may develop, in-license or acquire in the future. We do not anticipate that we will generate revenue from the sale of products for the foreseeable future. Our ability to generate future product revenue from our current or future product candidates also depends on additional factors, including our or our partners’ ability to:

In addition, because of the numerous risks and uncertainties generally associated with development of pharmaceutical products, including that they may not advance through clinical development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of expenses associated with development of our product candidates, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond our current expectations if we decide to or are required by the FDA or any comparable foreign regulatory authority to perform studies or trials in addition to those that we currently anticipate. Even if we successfully complete the development and regulatory processes described above, we expect that we will incur significant costs in connection with launching and commercializing our products.

Raising additional capital may dilute our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.

Until we generate sufficient product revenue, if ever, we expect to finance our future cash needs through public or private equity or debt offerings, collaborations, strategic alliances and other similar licensing transactions. Additional capital may not be available on reasonable terms, if at all. Raising additional funds through the issuance of additional debt or equity securities could increase fixed payment obligations or dilute our existing stockholders. Furthermore, these securities may have rights senior to those of our common stock and could contain covenants that restrict our operations and potentially impair our competitiveness, including limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

Changes in tax laws or regulations that are applied adversely to us may have a material adverse effect on our business, financial condition or results of operations.

New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, modified or applied in a manner that is adverse to us, which could adversely affect our business and financial condition. For example, Tax Act resulted in many significant changes to the U.S. tax laws, including changes in corporate tax rates, the utilization of our net operating loss carryforwards, or NOLs, and other deferred tax assets, the deductibility of expenses, and the taxation of foreign earnings. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified by future legislation. For example, the CARES Act modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act, or any newly enacted federal tax legislation. The impact of changes under the Tax Act, the CARES Act, or future reform legislation could increase our future U.S. tax expense and could have a material adverse impact on our business and financial condition.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Our NOLs could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our NOLs generated in tax years ending on or prior to December 31, 2017 are permitted to be carried forward for only 20 years under applicable U.S. tax law. Our federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning after December 31, 2020 is subject to certain limitations. It is uncertain if and to what extent various states will conform to these provisions of U.S. tax law.

In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points (by value) over their lowest ownership percentage over a rolling three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our NOLs and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

The trading price of our common stock has been and is likely to continue to be volatile. Since shares of our common stock were sold in our ~~IPO~~initial public offering in September 2013, our closing stock price as reported on The ~~NASDAQ~~Nasdaq Global Market and The ~~NASDAQ~~Nasdaq Global Select Market has ranged from ~~$8.49~~$1.86 to ~~$60.98~~$60.89 through ~~November 3, 2017.~~May 6, 2020. The following factors, in addition to other risk factors described in this “Risk Factors” section and elsewhere in this ~~report,~~Quarterly Report, may have a significant impact on the market price of our common stock:

In addition, the stock market in general, and The ~~NASDAQ~~Nasdaq Global Select Market and biotechnology companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of ~~these companies.~~ the relevant companies, including very recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a dramatic and material adverse impact on the market price of our common stock.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. We have only limited research coverage by equity research analysts. Equity research analysts may elect not to initiate research coverage of our common stock or may discontinue research coverage, and a lack of research coverage may adversely affect the market price of our common stock. We do not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade our shares or issue other unfavorable commentary or research about us. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause the trading price or trading volume of our common stock to decline.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock has declined over the last few years and may continue to be ~~volatile, and in~~volatile. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action ~~litigation. We~~litigation and we may ~~be the~~become a target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our principal stockholders and management own a significant percentage of our stock and may be able to exert significant control over matters subject to stockholder approval.

As of ~~September 30, 2017,~~March 31, 2020, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately ~~54%~~32% of our common stock. This concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, these stockholders, acting together, could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Some of the holders of our securities are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended, or the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would benefit our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult or costly for a third party to acquire us, even if doing so would benefit our stockholders, and could make it more difficult to remove our current management. These provisions include:

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth ~~on the Exhibit Index, which~~below and are incorporated herein by reference.

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.


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	FPRX	The Nasdaq Stock Market LLC

PART I.	FINANCIAL INFORMATION		4
	Item 1.	Unaudited Financial Statements	4
		~~Condensed~~ Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019	4
		~~Condensed~~ Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~March 31, 2019	5
		~~Condensed~~ Statements of Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~March 31, 2019	6
		~~Condensed~~ Statements of ~~Cash Flows~~Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019	7
		~~Notes to Condensed Financial~~ Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	8
		Notes to Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1421
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2432
	Item 4.	Controls and Procedures	2432
PART II.	OTHER INFORMATION		2533
	Item 1.	Legal Proceedings	2533
	Item 1A.	Risk Factors	2533
	Item 6.	Exhibits	4865
Signatures			4966

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2020		2019
Options to purchase common stock		3,848		3,100		3,813		2,815		3,804		3,868
Restricted stock awards (RSAs)		850		1,250		909		1,358		1,225		977
		4,698		4,350		4,722		4,173		5,029		4,845

	RSAs Outstanding					RSAs Outstanding
				Weighted-Average					Weighted-Average
	Number			Grant-Date		Number			Grant-Date
	of Shares			Fair Value		of Shares			Fair Value
Unvested balance at December 31, 2016		1,040,929		$	28.84
Unvested balance at December 31, 2019							1,060,577		$	11.24
RSAs granted		581,505		$	41.05		513,950			5.20
RSAs vested		(697,719	)	$	23.13		(169,324	)		20.89
RSAs forfeited		(113,111	)	$	43.13		(111,596	)		14.38
Unvested balance at September 30, 2017		811,604		$	40.51
Unvested balance at March 31, 2020							1,293,607			7.31


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


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

	December 31, 2016
			Basis of Fair Value
			Measurements
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	432	$	432	$	—	$	—
U.S. Treasury securities		414,095		414,095		—		—
Certificate of deposit		1,543		—		1,543		—
Total cash equivalents and marketable securities	$	416,070	$	414,527	$	1,543	$	—

	Operating Leases
Remainder of 2020	$	5,723
Years ending December 31,
2021		7,705
2022		7,793
2023		8,064
2024		8,341
2025 and beyond		26,825
Total minimum lease payments	$	64,451
Less: amount of lease payments representing interest		(15,825	)
Present value of future minimum lease payments	$	48,626
Less: operating lease obligations, current portion		(4,218	)
Operating lease obligations, long-term portion	$	44,408


	Total Estimated Restructuring		Total Restructuring Cost Incurred
	Costs		To Date
Employee retention, severance and termination benefits	$	7,480	$	5,722
Asset impairments and other costs		1,897		1,897
	$	9,377	$	7,619

	For the Three Months Ended
	March 31,
	2020		2019
Research and development	$	981	$	1,893
General and administrative		23		—
Total	$	1,004	$	1,893


	Total Severance and
	Retention Costs
Accrued balance as of December 31, 2019	$	1,182
Charges		1,194
Cash payments		(464	)
Accrued balance as of March 31, 2020	$	1,912

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the ~~Company’s~~company’s Current Report on Form 8-K (File No. 001-36070), as filed with the SEC on September 23, 2013).

3.2		Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.4 to the ~~Company’s~~company’s Registration Statement on Form S-1 (File No. 333-190194), as filed with the SEC on July 26, 2013).

~~10.1~~10.1+		~~Annual Bonus Plan.~~Letter Agreement by and between the company and William R. Ringo, dated as of March 6, 2020.

~~10.2~~	~~Offer Letter by and between the Company and Aron Knickerbocker, dated as of October 18, 2017.~~

~~10.3~~	~~Amendment No. 2 to the Executive Severance Benefits Agreement by and between the Company and Aron Knickerbocker, dated as of October 18, 2017.~~

~~10.4~~	~~Amendment No. 1 to the 2013 Omnibus Incentive Plan.~~

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

32.1**		~~Certifications~~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.

32.2**		~~Certifications~~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.

~~101~~101.INS		~~Financial statements from~~XBRL Instance Document – The instance document does not appear in the ~~Quarterly Report on Form 10-Q of~~interactive data file because its XBRL tags are embedded within the ~~Company for the quarter ended September 30, 2017, formatted~~Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) the Condensed Balance Sheets; (ii) the Condensed Statements of Operations; (iii) the Condensed Statements of Comprehensive Loss; (iv) the Condensed Statements of Cash Flows; and (v) Notes to Condensed Financial Statements.Exhibits 101.*)

		Five Prime Therapeutics, Inc.
		(Registrant)

		/s/ ~~Lewis T. Williams~~Thomas Civik
Date: ~~November 6, 2017~~May 7, 2020		~~Lewis T. Williams~~Thomas Civik
		President and Chief Executive Officer ~~and Chairman of the Board~~
		(Principal Executive Officer)

		/s/ ~~Marc L. Belsky~~David V. Smith
Date: ~~November 6, 2017~~May 7, 2020		~~Marc L. Belsky~~David V. Smith
		~~Senior~~Executive Vice President and Chief Financial Officer
		(Principal Financial ~~and Accounting~~ Officer)

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