UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended ~~March 31, 2018~~

September 30, 2021

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

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

For the transition period from ________________ to ________________.

Commission File Number: 001-38459

SURFACE ONCOLOGY, INC.

(Exact Name of Registrant as Specified in its Charter)

~~Delaware~~	~~46-5543980~~


Delaware			46-5543980
( State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
50 Hampshire Street, 8th Floor Cambridge, MA			02139
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (617) 714-4096

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


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common stock, $0.0001	SURF	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

~~(Do not check if a small reporting company)~~

Small reporting company

☐

☒

Emerging growth Company

☒

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

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

As of ~~May 25, 2018,~~November 1, 2021, the registrant had ~~27,597,315~~46,135,245 shares of common stock $0.0001 par value per share, outstanding.

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our ~~forward-looking~~forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

•the timing, progress and results of preclinical studies and clinical trials for ~~SRF231~~our current product candidates and other product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

•the timing, scope or likelihood of regulatory filings and approvals, including timing of Investigational New Drug application and Biological Licensing Application filings for, and final U.S. Food and Drug Administration approval of, ~~SRF231~~our current product candidates and any other future product candidates;

•the timing, scope or likelihood of foreign regulatory filings and approvals;

•our ability to use our understanding of the tumor microenvironment to identify product candidates and to match immunotherapies to select patient subsets;

•our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

•our ability to develop combination therapies, whether on our own or in collaboration with ~~Novartis~~ ~~Institutes for Biomedical Research, Inc., or Novartis,~~ ~~and other~~ third parties;

•the impact of COVID-19 on our business operations and that of our third-party manufacturers and suppliers;

•our manufacturing, commercialization and marketing capabilities and strategy;

•the pricing and reimbursement of ~~SRF231~~our current product candidates and other product candidates we may develop, if approved;

•the rate and degree of market acceptance and clinical utility of ~~SRF231~~our current product candidates and other product candidates we may develop;

•the potential benefits of and our ability to maintain our ~~collaboration~~collaborations with Novartis and GSK, and establish or maintain future collaborations or strategic relationships or obtain additional funding;

•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

•our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering ~~SRF231~~our current product candidates and other product candidates we may develop, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

•our competitive position, and developments and projections relating to our competitors and our industry;

•our expectations related to the use of our existing cash, cash equivalents and marketable ~~securities and the proceeds from this offering and the concurrent private placement;~~

securities;

•our ability to raise capital to fund operations;

•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

•the impact of laws and regulations.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

Table of Contents

		~~Page~~
				Page
PART I.			FINANCIAL INFORMATION	3
Item 1.			Financial Statements ~~(Unaudited)~~(unaudited)	3
			Condensed Consolidated Balance Sheets ~~as of March 31, 2018 and December 31, 2017~~	3
			Condensed Consolidated Statements of Operations ~~for the Three Months Ended March 31, 2018~~ and ~~2017~~Comprehensive Loss	4
			Condensed Consolidated Statements of ~~Comprehensive Income (Loss)~~Stockholders’ Equity	4 5
			~~Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit~~	5
	Condensed Consolidated Statements of Cash Flows	6 7
			Notes to Condensed Consolidated Financial Statements (unaudited)	7 8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 24
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	27 36
Item 4.			Controls and Procedures	27 36
PART II.			OTHER INFORMATION	28 37
Item 1.			Legal Proceedings	28 37
Item 1A.			Risk Factors	28 37
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	59 37
Item 3.			Defaults Upon Senior Securities	60 37
Item 4.			Mine Safety Disclosures	60 37
Item 5.			Other Information	60 37
Item 6.			Exhibits	61 38
Signatures				62 39

Table of Contents

PART I—~~FINANCI~~ALFINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements.~~

Item 1. Financial Statements.

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Inin thousands, except share and per share data)

March 31,

December 31,

2018

2017

Assets

Current assets:

Cash and cash equivalents

$
59,288

$
22,455

Marketable securities

34,534

40,854

Restricted cash

85

85

Prepaid expenses and other current assets

7,323

7,936

Total current assets

101,230

71,330

Property and equipment, net

7,072

7,326

Restricted cash

1,000

1,000

Deferred offering costs

2,705

1,784

Other assets

9

14

Total assets

$
112,016

$
81,454

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit

Current liabilities:

Accounts payable

$
6,793

$
3,215

Accrued expenses and other current liabilities

4,771

9,843

Deferred revenue - related party

12,127

9,837

Deferred rent

485

489

Total current liabilities

24,176

23,384

Deferred revenue - related party, non-current

55,747

72,268

Deferred rent, non-current

4,544

4,599

Total liabilities

84,467

100,251

Commitments and contingencies (Note 11)

Redeemable convertible preferred stock (Series A and A-1), $0.0001 par
   value; 37,100,000 shares authorized, issued and outstanding at
   March 31, 2018 and December 31, 2017; aggregate liquidation preference of
   $48,600 at March 31, 2018 and December 31, 2017

48,528

48,517

Stockholders’ deficit:

Common stock, $0.0001 par value; 53,000,000 shares authorized at
   March 31, 2018 and December 31, 2017; 2,767,025 and 2,686,350 shares
   issued and outstanding at March 31, 2018 and December 31, 2017,
   respectively

—

—

Additional paid-in capital

8,314

6,877

Accumulated other comprehensive loss

(296
)

(246
)
Accumulated deficit

(28,997
)

(73,945
)
Total stockholders’ deficit

(20,979
)

(67,314
)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

$
112,016

$
81,454


	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	60,848	$	175,141
Marketable securities	88,850		—
Prepaid expenses and other current assets	5,059		5,368
Total current assets	154,757		180,509
Property and equipment, net	5,522		6,664
Operating lease right-of-use asset	26,394		27,911
Restricted cash	1,595		1,595
Other assets	344		459
Total assets	$	188,612	$	217,138
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	440	$	1,674
Accrued expenses and other current liabilities	9,923		10,448
Operating lease liability	5,440		5,529
Total current liabilities	15,803		17,651
Operating lease liability, non-current	27,426		28,981
Convertible note payable, non-current	14,186		14,759
Total liabilities	57,415		61,391
Commitments and contingencies (Note 12)	0		0
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock, $0.0001 par value; 150,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 45,503,061 and 40,707,047 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	5		4
Additional paid-in capital	247,888		218,001
Accumulated other comprehensive loss	(3)		—
Accumulated deficit	(116,693)		(62,258)
Total stockholders’ equity	131,197		155,747
Total liabilities and stockholders’ equity	$	188,612	$	217,138

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

Table of Contents

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME (LOSS)~~LOSS (UNAUDITED)

(Inin thousands, except share and per share data)

Three months ended March 31,

2018

2017

Collaboration revenue - related party

$
45,495

$
1,672

Operating expenses:

Research and development

11,090

8,680

General and administrative

3,362

1,546

Total operating expenses

14,452

10,226

Income (loss) from operations

31,043

(8,554
)
Interest and other income (expense), net

169

142

Net income (loss) before income taxes

31,212

(8,412
)
Provision for income taxes

—

(214
)
Net income (loss)

31,212

(8,626
)
Accretion of redeemable convertible preferred stock to redemption value

(11
)

(10
)
Net income attributable to redeemable convertible preferred stockholders

(26,866
)

—

Net income (loss) attributable to common stockholders

$
4,335

$
(8,636
)
Net income (loss) per share attributable to common stockholders—basic

$
1.59

$
(3.60
)
Weighted average common shares outstanding—basic and diluted

2,727,606

2,399,265

Net income (loss) per share attributable to common stockholders—diluted

$
1.05

$
(3.60
)
Weighted average common shares outstanding—diluted

4,134,644

2,399,265

Comprehensive income (loss):

Net income (loss)

$
31,212

$
(8,626
)
Other comprehensive (loss) income:

Unrealized (loss) gain on marketable securities, net of tax of $0

(50
)

93

Comprehensive income (loss)

$
31,162

$
(8,533
)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Collaboration revenue - related party	$	—	$	—	$	—	$	38,592
License related revenue	392		—		2,532		—
Total revenue	$	392	$	—	$	2,532	$	38,592
Operating expenses:
Research and development	14,037		9,454		37,250		30,290
General and administrative	5,847		4,904		17,923		14,686
Total operating expenses	19,884		14,358		55,173		44,976
Loss from operations	(19,492)		(14,358)		(52,641)		(6,384)
Interest expense	(421)		(1,469)		(1,861)		(2,237)
Other income (expense), net	20		53		67		610
Net loss	(19,893)		(15,774)		(54,435)		(8,011)
Net loss per share attributable to common stockholders— basic and diluted	$	(0.44)	$	(0.39)	$	(1.25)	$	(0.24)
Weighted average common shares outstanding— basic and diluted	45,236,775		40,004,555		43,510,078		33,822,682
Comprehensive loss:
Net loss	$	(19,893)	$	(15,774)	$	(54,435)	$	(8,011)
Other comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax of $0	6		(50)		(3)		(99)
Comprehensive loss	$	(19,887)	$	(15,824)	$	(54,438)	$	(8,110)

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

Table of Contents

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~REDEEMABLE CONVERTIBLE PREFERRED STOCK AND~~ STOCKHOLDERS’ ~~DEFICIT~~ EQUITY (UNAUDITED)

(Inin thousands, except share amounts)

Series A and A-1
Redeemable
Convertible
Preferred
Stock

Common Stock

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Loss

Deficit

Deficit

Balances at December 31, 2017

37,100,000

$
48,517

2,686,350

—

$
6,877

$
(246
)

$
(73,945
)

$
(67,314
)
Issuance of common stock upon exercise
of stock options

—

—

80,675

—

157

—

—

157

Stock-based compensation expense

—

—

—

—

1,291

—

—

1,291

Accretion of redeemable convertible
preferred stock to redemption value

—

11

—

—

(11
)

—

—

(11
)
Adjustment due to the adoption of ASC 606

—

—

—

—

—

—

13,736

13,736

Unrealized loss on marketable securities

—

—

—

—

—

(50
)

—

(50
)
Net income

—

—

—

—

—

—

31,212

31,212

Balances at March 31, 2018

37,100,000

$
48,528

2,767,025

$
—

$
8,314

$
(296
)

$
(28,997
)

$
(20,979
)


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2020	40,707,047	$	4	$	218,001	$	—	$	(62,258)	$	155,747
Issuance of common stock upon exercise of stock options	55,761	—		148		—		—		148
Issuance of common stock under stock purchase plan	19,377	—		118		—		—		118
Issuance of common stock upon public offering, net of issuance costs	1,677,118	1		14,715		—		—		14,716
Issuance of common stock upon conversion of convertible note payable	961,538	—		1,500		—		—		1,500
Stock-based compensation expense	—	—		2,380		—		—		2,380
Unrealized loss on marketable securities	—	—		—		(1)		—		(1)
Net loss	—	—		—		—		(15,561)		(15,561)
Balances at March 31, 2021	43,420,841	$	5	$	236,862	$	(1)	$	(77,819)	$	159,047
Issuance of common stock upon exercise of stock options	358,126	—		1,486		—		—		1,486
Issuance of common stock upon public offering, net of issuance costs	556,642	—		4,266		—		—		4,266
Stock-based compensation expense	—	—		2,279		—		—		2,279
Unrealized loss on marketable securities	—	—		—		(8)		—		(8)
Net loss	—	—		—		—		(18,981)		(18,981)
Balances at June 30, 2021	44,335,609	$	5	$	244,893	$	(9)	$	(96,800)	$	148,089
Issuance of common stock upon exercise of stock options	72,745	—		305		—		—		305
Issuance of common stock upon vesting of RSUs	997,400	—		—		—		—		—
Issuance of common stock under stock purchase plan	27,522	—		149		—		—		149
Issuance of common stock upon public offering, net of issuance costs	69,785	—		497		—		—		497
Stock-based compensation expense	—	—		2,044		—		—		2,044
Unrealized gain on marketable securities	—	—		—		6		—		6
Net loss	—	—		—		—		(19,893)		(19,893)
Balances at September 30, 2021	45,503,061	$	5	$	247,888	$	(3)	$	(116,693)	$	131,197

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

Table of Contents

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2019	27,893,337	$	3	$	178,155	$	103	$	(121,595)	$	56,666
Issuance of common stock upon exercise of stock options	27,832	—		10		—		—		10
Issuance of common stock under stock purchase plan	49,025	—		83		—		—		83
Issuance of common stock upon public offering, net of issuance costs	91,003	—		320		—		—		320
Stock-based compensation expense	—	—		1,850		—		—		1,850
Unrealized gain on marketable securities	—	—		—		67		—		67
Net income	—	—		—		—		22,570		22,570
Balances at March 31, 2020	28,061,197	$	3	$	180,418	$	170	$	(99,025)	$	81,566
Issuance of common stock upon exercise of stock options	68,426	—		262		—		—		262
Issuance of common stock upon public offering, net of issuance costs	11,127,590	1		28,765		—		—		28,766
Stock-based compensation expense	—	—		2,000		—		—		2,000
Unrealized loss on marketable securities	—	—		—		(116)		—		(116)
Net loss	—	—		—		—		(14,807)		(14,807)
Balances at June 30, 2020	39,257,213	4		211,445		54		(113,832)		97,671
Issuance of common stock upon exercise of stock options	37,234	—		143		—		—		143
Issuance of common stock under stock purchase plan	40,147	—		111		—		—		111
Issuance of common stock upon conversion of convertible note payable	1,282,050	—		2,000		—		—		2,000
Stock-based compensation expense	—	—		1,963		—		—		1,963
Unrealized loss on marketable securities	—	—		—		(50)		—		(50)
Net loss	—	—		—		—		(15,774)		(15,774)
Balances at September 30, 2020	40,616,644	$	4	$	215,662	$	4	$	(129,606)	$	86,064

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

Table of Contents

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Inin thousands)

Three months ended March 31,

2018

2017

Cash flows from operating activities:

Net income (loss)

$
31,212

$
(8,626
)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
   by operating activities:

Depreciation and amortization expense

321

158

Stock-based compensation expense

1,291

503

Net amortization of premiums and discounts on marketable securities

70

164

Realized losses on marketable securities

—

2

Loss on disposal of property and equipment

13

35

Deferred income tax benefit

—

(946
)
Changes in operating assets and liabilities:

Amounts due from related party

—

5,000

Prepaid expenses and other current assets

613

(1,016
)
Other assets

5

—

Accounts payable

3,693

3,044

Accrued expenses and other current liabilities

(5,653
)

(449
)
Deferred rent

(59
)

315

Deferred revenue - related party

(495
)

(1,672
)
Net cash provided by (used in) operating activities

31,011

(3,488
)
Cash flows from investing activities:

Purchases of property and equipment

(480
)

(1,095
)
Proceeds from sales or maturities of marketable securities

6,200

14,591

Net cash provided by investing activities

5,720

13,496

Cash flows from financing activities:

Payments of initial public offering costs

(55
)

—

Proceeds from exercise of stock options

157

—

Net cash provided by financing activities

102

—

Net increase in cash and cash equivalents and restricted cash

36,833

10,008

Cash and cash equivalents and restricted cash at beginning of period

23,540

11,080

Cash and cash equivalents and restricted cash at end of period

$
60,373

$
21,088

Supplemental disclosure of cash flow information:

Cash paid for income taxes (Note 10)

$
14

$
61

Supplemental disclosure of non-cash investing and financing activities:

Accretion of redeemable convertible preferred stock to redemption value

$
11

$
10

Purchases of property and equipment included in accounts payable and
   accrued expenses

$
50

$
167

Deferred offering costs included in accounts payable and accrued expenses

$
1,450

$
—

Reclassification of deposit liability for restricted stock upon vesting of shares

$
—

$
4

Landlord incentives for construction of leasehold improvements recorded as
   deferred rent

$
—

$
1,257


	Nine months ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(54,435)	$	(8,011)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	1,194		1,260
Stock-based compensation expense	6,703		5,813
Non-cash interest expense related to note payable	927		1,484
Net amortization of premiums and discounts on marketable securities	586		(50)
Loss on disposal of property and equipment	—		1
Non-cash operating lease cost	1,517		1,537
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	309		(2,358)
Other assets	115		(181)
Accounts payable	(1,234)		(2,875)
Accrued expenses and other current liabilities	(525)		(1,339)
Operating lease liability	(1,644)		(101)
Other liabilities	—		1,100
Deferred revenue - related party	—		(38,592)
Net cash used in operating activities	(46,487)		(42,312)
Cash flows from investing activities:
Purchases of property and equipment	(52)		(22)
Purchases of marketable securities	(91,439)		(650)
Proceeds from sales or maturities of marketable securities	2,000		56,000
Net cash provided by (used in) investing activities	(89,491)		55,328
Cash flows from financing activities:
Proceeds from issuance of convertible note payable	—		10,000
Proceeds from issuance of common stock upon public offering, net	19,479		29,086
Proceeds from employee stock purchases	267		194
Proceeds from exercise of stock options	1,939		415
Net cash provided by financing activities	21,685		39,695
Net increase (decrease) in cash and cash equivalents and restricted cash	(114,293)		52,711
Cash and cash equivalents and restricted cash at beginning of period	176,736		48,350
Cash and cash equivalents and restricted cash at end of period	$	62,443	$	101,061
Supplemental disclosure of cash flow information:
Cash paid for interest	$	945	$	753
Supplemental disclosure of non-cash investing and financing activities:
Additional right-of-use asset and related lease liability	$	—	$	15,003
Purchases of property and equipment included in accounts payable and accrued expenses	$	—	$	869
Conversion of note payable into shares of common stock	$	1,500	$	2,000

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

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

1. Nature of the Business

Surface Oncology, Inc. (the “Company” or “Surface”) is a clinical-stage immuno-oncology company focused on using its specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment (“TME”) for the development of next-generation cancer therapies. Surface was incorporated in April 2014 under the laws of the State of Delaware.

The Company is subject to risks common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the ability to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On ~~April 6, 2018,~~May 22, 2020, the Company ~~effected~~entered into a ~~one-for-2.2 reverse~~Capital on Demand™ Sales Agreement (the “2020 Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading") to issue and sell shares of the Company’s common stock ~~split~~ of up to $50,000 in gross proceeds, from time to time during the term of the 2020 Sales Agreement, through an “at-the-market” equity offering program under which JonesTrading will act as the Company’s agent and/or principal (the “2020 ATM Facility”). The 2020 ATM Facility provides that JonesTrading will be entitled to compensation for its ~~issued~~services in an amount of up to 3.0% of the gross proceeds of any shares sold under the 2020 ATM Facility. The Company has no obligation to sell any shares under the 2020 ATM Facility and ~~outstanding~~may, at any time, suspend solicitation and offers under the 2020 Sales Agreement. In the three and nine months ended September 30, 2021, the Company sold 69,785 and 2,303,545 shares of common stock, respectively, at-the-market under the 2020 Sales Agreement, resulting in net proceeds of approximately $497 and a proportional adjustment to the existing conversion ratios for each series of the Company’s Redeemable Convertible Preferred Stock (see Note 6). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

~~On April 23, 2018, the~~$19,479, respectively. The Company ~~completed its initial public offering of its common stock by issuing 7,200,000~~did not sell any shares of common stock ~~at $15.00 per share~~at-the-market under the 2020 Sales Agreement in 2020.

On August 5, 2021, the Company entered into Amendment No. 1 to Capital on DemandTM Sales Agreement (the “Amended Sales Agreement”) with JonesTrading, which amends the 2020 Sales Agreement to allow the issuance and sale of up to $80,000 in gross proceeds, from time to time during the term of the Amended Sales Agreement, through an “at-the-market” equity offering program under which JonesTrading will act as the Company’s sales agent ("the 2021 ATM Facility"). The 2021 ATM Facility provides that JonesTrading will continue to be entitled to compensation for its services in an amount of up to 3.0% of the gross proceeds of ~~$108,000, or net proceeds of $97,195 after deducting underwriting discounts, commissions~~any shares sold under the 2021 ATM Facility. The Company has no obligation to sell any shares under the Amended Sales Agreement and ~~offering expenses. Concurrent with~~may, at any time, suspend solicitation and offers under the ~~initial public offering, the~~2021 ATM Facility. The Company ~~issued~~ ~~Novartis Institutes for Biomedical Research, Inc. (Novartis) in a private placement, 766,666 shares of its common stock at $15.00 per share for proceeds of $11,500.~~

Upon the closing of the Company’s initial public offering on April 23, 2018, all shares of Series A and A-1 redeemable convertible preferred stock (the “Series A Preferred Stock” and “Series A-1 Preferred Stock”, respectively) automatically converted into 16,863,624has not sold any shares of common ~~stock.~~

stock at-the-market under the 2021 ATM Facility as of September 30, 2021.

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from ~~the~~private and public sales of ~~redeemable convertible preferred stock and~~its securities, proceeds from a collaboration agreement with ~~Novartis.~~Novartis Institutes for Biomedical Research, Inc. (“Novartis”), proceeds from a license agreement with GlaxoSmithKline Intellectual Property (No. 4) Limited (“GSK”) and issuance of a term loan with K2 Health Ventures LLC (“K2HV”). The Company has ~~incurred~~a history of incurring losses and negative cash flows from ~~operations since its inception.~~operations. As of ~~March 31, 2018,~~September 30, 2021, the Company had an accumulated deficit of ~~$28,997.~~

$116,693.

The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of ~~May 29, 2018,~~November 4, 2021, the ~~filing~~issuance date of this Quarterly Report on Form 10-Q, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses, debt service obligations and capital expenditure requirements for at least the next 12 ~~months from the date that the condensed consolidated financial statements are issued.~~months. The future viability of the Company beyond that date is dependent on its ability to raise additional capital to finance its operations.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

The Company will seek additional funding through public ~~offerings,~~financings, debt financings, collaboration agreements, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be required to delay, reduce, or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect its business prospects.

Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

The ongoing global outbreak of the novel coronavirus disease (“COVID-19”) has resulted in significant governmental measures being implemented to control the spread of the virus and while the Company cannot predict their scope or the severity of the outbreak, these developments and measures could materially and adversely affect the Company's business, the Company's results of operations and financial condition. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and has taken steps to minimize its impact on the Company's business. Although COVID-19 has not had a material adverse impact on the Company's operations and its clinical and preclinical programs, the extent to which COVID-19 ultimately impacts the Company's business, results of operations or financial condition will depend on future developments which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain the pandemic or mitigate its impact, among others. Certain of the Company's third-party service providers have experienced shutdowns or other business disruptions. As a result, the Company's ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on the Company's business, results of operations and financial condition.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary, Surface Securities Corporation, a Massachusetts corporation, after elimination of all intercompany accounts and transactions.

The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent in all material respects with those presented in Note 12 to the financial statements included in the Company’s ~~final prospectus for its initial public offering of its common stock~~Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) ~~pursuant to Rule 424(b)(4) of the Securities Act~~ on ~~April 18, 2018, which the Company refers to as the Prospectus, except for the Company’s adoption of the new revenue standard which is discussed below.~~

March 9, 2021.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition and the accrual of research and development ~~expenses and the valuation of common stock and stock-based awards.~~expenses. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from the Company’s estimates.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

Unaudited Interim Financial Information

The accompanying condensed consolidated ~~balance sheet as of March 31, 2018, the condensed consolidated~~financial statements of operations and comprehensive income (loss) and of cash flows for the three months ended March 31, 2018 and 2017, and the condensed consolidated statement of redeemable convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of ~~March 31, 2018~~September 30, 2021 and the results of its operations and its cash flows for the ~~three~~nine months ended ~~March 31, 2018~~September 30, 2021 and ~~2017.~~2020. The financial data and other information disclosed in these notes related to the three and nine months ended ~~March 31, 2018~~September 30, 2021 and ~~2017~~2020 are also unaudited. The condensed balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The results for the three and nine months ended ~~March 31, 2018~~September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, ~~2018,~~2021, any other interim periods, or any future year period.

Recently ~~Adopted~~Issued Accounting Pronouncements

~~Revenue from Contracts with Customers~~

I~~n May 2014, the Financial Accounting Standards Board (~~or ~~FAS~~B~~) issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers(Topic 606)~~, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.

In ~~August 2015, the FASB issued ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU 2016-08, ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~, which clarifies how a company identifies promised goods or services and clarifies whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In MayJune 2016, the FASB issued ASU No. ~~2016-12,~~ ~~Revenue from Contracts~~2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with ~~Customers (Topic 606): Narrow-Scope Improvements~~an expected loss model. It also eliminates the concept of other-than-temporary impairment and ~~Practical Expedients~~requires credit losses related to ~~disclosures~~available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of ~~remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and~~ the ~~presentation~~securities. These changes may result in earlier recognition of ~~sales and other similar taxes collected from customers.~~credit losses. In ~~December 2016~~November 2018, the FASB issued ASU No. ~~2016-20,~~ ~~Technical Corrections and~~2018-19, Codification Improvements to Topic ~~606, Revenue from Contracts with Customers~~326, Financial Instruments—Credit Losses, which ~~amends certain narrow aspects of~~narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09, all of which collectively are herein referred to as Revenue ASUs.

The Company adopted the Revenue ASUs effective January 1, 2018 using the modified retrospective method. Under the modified retrospective method, the cumulative effect of adopting the Revenue ASUs is recognized as an adjustment to deferred revenue and accumulated deficit. Under ASC 606, the Company will recognize revenue from its collaboration agreement with Novartis (see Note 5) earlier during the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated ten-year performance period under the previous standard. The following reflects the impact of the cumulative effect of the accounting changes upon the adoption of the Revenue ASUs (in thousands):

~~CondensedConsolidated Balance Sheets~~

December 31, 2017

Cumulative Effect

January 1,
2018

Deferred revenue - related party, current and net of current
portions

$
82,105

$
(13,736
)

$
68,369

Accumulated deficit

(73,945
)

13,736

(60,209
)

March 31, 2018

Under Topic 606

Under Topic 605

Effect of Change

Deferred revenue - related party

$
12,127

$
14,421

$
(2,294
)
Deferred revenue, net of current portion - related party

55,747

95,060

(39,313
)
Accumulated deficit

(28,997
)

(56,869
)

27,872

~~CondensedConsolidatedStatements~~of~~Operations and Comprehensive Income (Loss)~~

Three Months ended March 31, 2018

Under Topic 606

Under Topic 605

Effect of Change

Collaboration revenue - related party

$
45,495

$
17,623

$
27,872

Income from operations

31,043

3,171

27,872

Net income

31,212

3,340

27,872

Comprehensive income

31,162

3,290

27,872

~~Condensed Consolidated Statements of Cash Flows~~

Three Months ended March 31, 2018

Under Topic 606

Under Topic 605

Effect of Change

Net income

$
31,212

$
3,340

$
27,872

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:

Deferred revenue - related party

(495
)

27,377

(27,872
)

~~During the three months ended March 31, 2018, the Company adopted~~within ASU No. ~~2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments~~ (“2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief ("ASU ~~2016-15”~~2019-05"), which addresses diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash (“ASU 2016-18”)~~. The amendments in this update require that amounts generally described as restricted cash and restricted cash equivalents be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective January 1, 2018. As a result of adopting ASU 2016-18, the Company includes its restricted cash balance in the cash and cash equivalents reconciliation of operating, investing and financing activities. The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.

As of March 31,

2018

2017

Cash and cash equivalents

$
59,288

$
20,003

Restricted cash included in current assets

85

—

Restricted cash included in non-current assets

1,000

1,085

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$
60,373

$
21,088

~~Recently Issued Accounting Pronouncements~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(“ASU 2016-02”)~~. ASU ~~2016-02 will require lessees~~2019-05 provides an option to ~~recognize most leases on their balance sheet as a right-of-use asset~~irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and ~~a lease liability. Leases will~~Exchange Commission filers, excluding entities eligible to be ~~classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. The guidance~~smaller reporting companies, ASU 2016-13 is effective for annual ~~reporting~~ periods beginning after December 15, ~~2018 and~~2019, including interim periods within those fiscal ~~years, and early~~years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted.This standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that ~~the adoption of ASU 2016-02 will~~this standard may have on its condensed consolidated financial ~~statements.~~

~~In July 2017, the FASB issued~~ ~~ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives~~statements and Hedging(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). This guidance is intended to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be considered “not indexed to an entity’s own stock” and therefore accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. Down round features are most often found in warrants and conversion options embedded in debt or preferred equity instruments. In addition, the guidance re-characterized the indefinite deferral of certain provisions on distinguishing liabilities from equity to a scope exception with no accounting effect. This guidance becomes effective January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

related disclosures.

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

3. Marketable Securities

As of ~~March 31, 2018,~~September 30, 2021, the fair value of available-for-sale marketable debt securities by type of security was as follows:

March 31, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Marketable debt securities:

U.S. government agency bonds

$
7,300

$
—

$
(35
)

$
7,265

Corporate bonds

27,530

—

(261
)

27,269

$
34,830

$
—

$
(296
)

$
34,534


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable debt securities:
U.S. Treasury notes	$	73,017	$	9	(10)		$	73,016
U.S. government agency bonds	15,836		1		(3)		15,834
	$	88,853	$	10	$	(13)	$	88,850

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

The amortized cost and fair value of the Company’s available-for-sale debt securities by contractual maturity are summarized as follows:

March 31, 2018

Amortized Cost

Fair Value

Maturing in one year or less

$
24,250

$
24,125

Maturing after one year but less than two years

10,580

10,409

$
34,830

$
34,534


	September 30, 2021
	Amortized Cost		Fair Value
Maturing in one year or less	$	56,568	$	56,576
Maturing after one year	32,285		32,274
	$	88,853	$	88,850

As of December 31, ~~2017, the fair value of~~2020, there were no available-for-sale marketable debt ~~securities by type of security was as follows:~~

securities.

December 31, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Marketable debt securities:

U.S. government agency bonds

$
7,300

$
—

$
(38
)

$
7,262

Corporate bonds

33,800

—

(208
)

$
33,592

$
41,100

$
—

$
(246
)

$
40,854

~~The amortized cost and fair value of the Company’s available-for-sale securities by contractual maturity are summarized as follows:~~

December 31, 2017

Amortized Cost

Fair Value

Maturing in one year or less

$
27,769

$
27,672

Maturing after one year but less than two years

13,331

13,182

$
41,100

$
40,854

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of March 31, 2018 and December 31, 2017 was $24,125 and $27,672, respectively. The aggregate fair value of securities held by the Company in an unrealized loss position for more than twelve months as of March 31, 2018 and December 31, 2017 was $10,409 and $13,182, respectively. The Company determined that there was no material change in the credit risk of these investments. As a result, the Company determined it did not hold any investments with an other-than-temporary decline in fair value as of ~~March 31, 2018~~September 30, 2021 and December 31, ~~2017.~~

2020.

4. Fair Value of Financial Assets

The following tables present information about the Company’s financial assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

Fair Value Measurements as of March 31, 2018 using:

Level 1

Level 2

Level 3

Total

Cash equivalents:

Money market funds

$
45,919

$
—

$
—

$
45,919

Marketable securities:

U.S. government agency bonds

—

7,265

—

7,265

Corporate bonds

—

27,269

—

27,269

$
45,919

$
34,534

$
—

$
80,453


	Fair Value Measurements as of December 31, 2017 using:									Fair Value Measurements as of September 30, 2021 using:
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash equivalents:									Cash equivalents:
Money market funds	$	17,409	$	—	$	—	$	17,409	Money market funds	$	44,686	$	—	$	—	$	44,686
Cash									Cash	23		—		—		23
Marketable securities:									Marketable securities:
U.S. Treasury notes									U.S. Treasury notes	—		73,016		—		73,016
U.S. government agency bonds		—		7,262		—		7,262	U.S. government agency bonds	—		15,834		—		15,834
Corporate bonds		—		33,592		—		33,592
	$	17,409	$	40,854	$	—	$	58,263		$	44,709	$	88,850	$	—	$	133,559


	Fair Value Measurements as of December 31, 2020 using:
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	139,266	$	—	$	—	$	139,266
	$	139,266	$	—	$	—	$	139,266

As of ~~March 31, 2018~~September 30, 2021 and December 31, ~~2017,~~2020, the Company’s cash equivalents were invested in money market funds, U.S. Treasury notes and U.S. government agency bonds and were valued based on Level 1 and Level 2 inputs. During the ~~three~~nine months ended ~~March 31, 2018~~September 30, 2021 and ~~2017,~~2020, there were no transfers between Level 1, Level 2 and Level 3.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

5. Collaboration and License Agreements

Novartis Agreement ~~with Novartis~~

~~Overview~~

In January 2016, the Company entered into a collaboration agreement with Novartis (the “Novartis Agreement”), which was subsequently amended in May 2016, July 2017, ~~and~~ September 2017, ~~(the “Novartis Collaboration”).~~and October 2018. Pursuant to the Novartis ~~Collaboration,~~Agreement, the Company granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target ~~CD73, along with~~cluster of differentiation 73 (“CD73”). In addition, the Company initially granted Novartis the right to purchase exclusive option rights (each an “Option”) for up to ~~four~~4 specified targets (each an “Option Target”) ~~to obtain~~including certain development, manufacturing, and commercialization rights. Novartis ~~may~~initially had the right to exercise up to ~~three~~3 purchased Options. Under the Novartis ~~Collaboration,~~Agreement, therefore, Novartis ~~initially~~ had the ability to exclusively license the development and manufacturing rights for up to ~~four~~4 targets (inclusive of CD73), while the Company would retain the U.S. commercial rights to two of such targets. The Novartis Collaboration is governed by a joint steering committee that will be co-chaired by a chairperson designated by each of the Company and Novartis.

~~Novartis is a related party because it is a principal stockholder of the Company.~~. In January ~~2016, the Company entered into the~~2020, Novartis ~~Collaboration~~did not purchase and ~~sold 2,000,000 shares of~~exercise its ~~Series A-1 preferred stock to Novartis. In addition, concurrent with the initial public offering, the Company issued~~ ~~Novartis Institutes for Biomedical Research, Inc. (Novartis) in a private placement, 766,666 shares of its common stock at $15.00 per share for proceeds of $11,500.~~

As of March 31, 2018 and December 31, 2017, amounts due to Novartis by the Company totaled $3,437 related to the reimbursement of manufacturing costs incurred by Novartis, which was recorded as a reduction of the total arrangement consideration expectedsingle remaining Option under the Novartis Collaboration and affected the net amount of collaboration revenue-related party recognized in those same periods. During the three months ended March 31, 2018 and 2017, the Company made no cash payments to Novartis related to the Novartis Collaboration.

~~Research on Targets~~

Under the Novartis Collaboration, the Company is responsible for performing preclinical research through the first investigational new drug application (“IND”) acceptance on antibodies that bind to CD73 and each Option Target, pursuant to a research plan directed toward each target. The Company is responsible for all costs and expenses incurred by or on its behalf in connection with such research. Novartis also has the right, but not the obligation, to conduct research at its own cost on antibodies that bind to CD73 in accordance with the terms of the Novartis Collaboration.

~~Development and Commercialization of CD73 Products~~

Novartis has the sole right to develop and commercialize CD73 antibody candidates and corresponding licensed products worldwide pursuant to a development plan and a commercialization plan, respectively. Novartis is obligated to use commercially reasonable efforts to develop the CD73 antibody candidates and corresponding licensed products, to obtain regulatory approval of such products, including within certain defined markets, and to commercialize such products following regulatory approval. Novartis is responsible for all costs and expenses of such development and commercialization and is obligated to provide the Company with updates on its development and commercialization activities through the joint steering committee, joint development committee and joint commercialization committee.

~~Option Targets~~

Prior to filing an IND for an Option Target, Novartis may purchase the Option to obtain certain development, manufacturing and commercialization rights for antibodies that bind to each of the Option Targets. To the extent Novartis does not elect to purchase an Option to an Option Target, the Option for such Option Target will expire and all rights to such Option Target under the Novartis Collaboration will terminate. Novartis may exercise up to a total of three purchased Options. Each exercised Option will be designated as either a regional or global option, with each such designation determining the development and commercialization rights between the parties with respect to such Option Target, corresponding antibody candidates and licensed products, as summarized below. The Company had the ability to designate the first Option as either regional or global and one of the remaining two Options, with Novartis designating the other remaining Option. Following Novartis’ exercise of an Option with respect to an Option Target, the Company will grant to Novartis licenses that are necessary to effectuate the development, manufacturing or commercialization rights associated with a regional or global option, as described below.

~~In December 2016, Novartis purchased the Option for antibodies that bind to CD47 for $5,000,~~Agreement and, as ~~of December 31, 2017,~~a result, the option purchase period expired. Therefore, there were three remaining Options that may be purchased by Novartis. In March 2018, Novartis notified the Company of its decision not to exercise its purchased Option related to CD47. In March 2018, the Company and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Novartis Collaboration. Accordingly, as of March 31, 2018, Novartis had twoare no Options remaining eligible for purchase, ~~each of which can be exercised.~~

~~Development~~ and ~~Commercialization of Regional Licensed Products~~

Topotential exercise, and the ~~extent an exercised Option is designated as regional,~~Company’s performance obligations under the Novartis Agreement have ended. Under the Novartis Agreement, the Company is ~~primarily responsible for the early clinical~~currently entitled to potential development milestones of each corresponding regional antibody candidate and regional licensed product at its own cost. Unless the Company chooses to opt out of its development right, it will collaborate with Novartis on the further clinical development of regional antibody candidates and regional licensed products. Pursuant to a regional development plan for each regional licensed product, the Company will be responsible for development activities related to obtaining regulatory approval in the United States, with Novartis responsible for development activities related to obtaining regulatory approval elsewhere in the world. The development costs of such later clinical development activities will be split evenly among the parties. Thereafter, the Company is responsible for the commercialization of regional licensed products in the United States, and Novartis is responsible for the commercialization of regional licensed products outside of the United States, each pursuant to a commercialization plan. Each party must use commercially reasonable efforts to commercialize such products within their respective territories. The Company is obligated to work with Novartis to agree to a global commercialization strategy with respect to the regional licensed products prior to commercialization.

~~Development and Commercialization of Global Licensed Products~~

To the extent an exercised Option is designated as global, the Company is primarily responsible for the early clinical development of each global antibody candidate and global licensed product at the Company’s own cost, and Novartis is solely responsible for the later

worldwide clinical development of global antibody candidates and global licensed products, pursuant to a development plan for such global licensed product, at its own cost. Novartis is solely responsible for the worldwide commercialization of global licensed products and must use commercially reasonable efforts to commercialize such products, pursuant to a commercialization plan, at its own cost. Novartis agrees to provide the Company with development and commercialization updates regarding global licensed products through the joint steering committee, joint development committee and joint commercialization committee.

~~Exclusivity~~

Neither the Company nor Novartis may, alone or with any affiliate or third party, (i) research or develop any antibody that specifically binds to an Option Target for a specified period of time outside of the Novartis Collaboration or (ii) develop or commercialize any antibody that specifically binds to CD73 or any Option Target that subsequently becomes a licensed target for a specified period of time outside the Novartis Collaboration.

~~Financial Terms~~

Upon entering into the Novartis Collaboration in January 2016, Novartis made an upfront payment to the Company of $70,000. In addition, Novartis is obligated to pay the Company a fee to the extent it desires to purchase each Option for each Option Target and another fee to exercise such purchased Option, which entitles the Company to an aggregate of up to $67,500 in option purchase and option exercise payments, of which $5,000 had been received as of March 31, 2018. The Company is also eligible to receive payments on a target-by-target basis upon the achievement of specified development$325,000 and sales milestones of $200,000, as well as tiered royalties on annual net sales by Novartis ~~of licensed products~~ ranging from high single-digit to mid-teens percentages upon the successful commercialization of any products. Under the Novartis Collaboration, the maximum aggregate amount of potential option purchase, option exercise and milestone payments the Company was entitled to was up to $1,167,500, of which $80,000 had been received as of March 31, 2018. Such amount of potential option purchase, option exercise and milestone payments assumed that Novartis purchased, and exercised, all of the Options available to it pursuant to the Novartis Collaboration as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the Novartis Collaboration. In March 2018, Novartis notified the Company of its decision not to exercise its Option related to CD47. The Company is required to pay Novartis tiered royalties ranging from high single-digit to mid-teens percentages on annual net sales by the Company of regional licensed products in the United States. The royalty payments are subject to reduction under specified conditions set forth in the Novartis Collaboration.

NZV930 (formerly SRF373).

Termination

Unless terminated earlier, the Novartis ~~Collaboration~~Agreement will continue in effect until neither the Company nor Novartis is researching, developing, manufacturing or commercializing ~~any antibody candidates or licensed products under the Novartis Collaboration.~~NZV930. Novartis may terminate the Novartis ~~Collaboration on a target-by-target basis~~Agreement for any reason upon prior notice to the Company within a specified time period. ~~However, Novartis cannot terminate the Novartis Collaboration with respect to CD73 for a certain period of time following the effective date.~~ Either party may terminate the Novartis ~~Collaboration~~Agreement in full ~~or on a target-by-target basis,~~ if an undisputed material breach is not cured within a certain period of time or upon notice of insolvency of the other party. To the extent Novartis terminates for convenience, or the Company terminates for ~~the Company’s~~Novartis’ material breach, ~~or insolvency,~~ Novartis will grant the Company, on mutually agreeable financial terms, an exclusive, worldwide, irrevocable, perpetual and royalty-bearing license with respect to intellectual property controlled by Novartis that is reasonably necessary to research, develop, manufacture or commercialize ~~certain products.~~

NZV930.

Revenue Recognition – Collaboration Revenue

On January 1, 2018 the Company adopted ASC 606 under the modified retrospective method. Prior to January 1, 2018 the Company accounted for the collaboration agreement with Novartis under ASC 605-25, Multiple Element Arrangements.

~~Accounting under ASC 605~~

The Company determined that the deliverables under the Novartis Collaboration included (i) the worldwide exclusive license to CD73 antibody candidates, which was delivered to Novartis in January 2016 upon entering into the agreement, and (ii) the Company’s research and development and joint steering committee participation obligations under the agreement. The Company also determined that none of these deliverables have standalone value due to the specialized nature of the services to be provided by the Company in connection with the Novartis Collaboration. Therefore, at the inception of the arrangement, the Company concluded that the deliverables were not separable and, accordingly, the Company treated the license and undelivered services as a single unit of accounting and recognized revenue on a straight-line basis over the period that the Company expected to complete its performance obligations under the agreement, which was estimated to be ten years. Accordingly, the Company recognized the upfront payment and milestone payments received over the estimated ten-year period of performance.

In December 2016, Novartis purchased an exclusive option right to antibodies that bind to CD47 for $5,000. At that time, the Company concluded that the license and other obligations underlying the exclusive option right held by Novartis represented separate and additional deliverables that Novartis may receive from the Company in future periods. In December 2017, the Company included $5,000 in deferred revenue for the option purchase payment. In March 2018, Novartis decided not to exercise this option.

~~Accounting under ASC 606~~

– Related Party

In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Under ASC 606, the Company recognized revenue using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue will be recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. Under ASC 606, the estimated transaction price will include variable consideration. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.

Under ASC 606 the Company ~~accounts~~accounted for (i) the license it conveyed with respect to ~~CD73~~CD73; and (ii) its obligations to perform research on CD73 and other specified targets as a single performance obligation under the ~~collaboration agreement with Novartis.~~Novartis Agreement. Novartis’ right to purchase exclusive options to obtain certain development, manufacturing and commercialization rights ~~are~~would have been accounted for separately as they dodid not represent material rights, based on the criteria of ASC 606. Upon the exercise of any purchased option by Novartis, the contract promises associated with an ~~option target~~Option Target would ~~use~~have used a separate cost-to-cost model for purposes of revenue recognition under ASC 606.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

In ~~February 2018, the Company received an additional milestone payment of $45,000 from~~January 2020, Novartis ~~upon Novartis’ receipt~~did not purchase and acceptance of the first final audited GLP toxicology study report for SRF373. Upon achieving the milestone, the Company concluded this variable consideration associated with this milestone was no longer constrained and included the $45,000 in the transaction price. The Company recognized $23,424 as collaboration revenue – related party in the first quarter of 2018, based on the ratio of actual costs incurred as of the milestone achievement date to the total estimated costs with respect to performing research on antibodies that bind to CD73 and other specified targetsexercise its single remaining Option under the Novartis ~~Collaboration. The remaining unrecognized amount of $21,576 is recorded~~Agreement and, as ~~deferred revenue – related party as of March 31, 2018 and will subsequently be recognized as revenue over~~a result, the ~~performance~~option purchase period ~~in proportion to the costs incurred under the Novartis Collaboration.~~

In March 2018, Novartis notified the Company of its decision not to exercise its option related to CD47. The Company recognized the $5,000 exclusive option right payment as collaboration revenue – related party in the first quarter of 2018 because the Company no longer has any remaining performance obligations related to CD47.

~~In March 2018, the Company and Novartis elected to terminate a specified target under the Novartis Collaboration.~~expired. Future costs associated with this target were removed from the estimated total costs in the ~~cost~~cost-to-cost model. This resulted in the Company recognizing the remaining deferred revenue of $38,592 to ~~cost model.~~

collaboration revenue - related party in January 2020.

For the three and nine months ended ~~March 31, 2018~~September 30, 2021 and ~~2017,~~2020, the Company recognized the following totals of collaboration revenue – related party:

Three Months ended March 31,

2018

2017

Collaboration revenue - related party

$
45,495

$
1,672

~~The following table presents changes in~~


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Collaboration revenue - related party	$	—	$	—	$	—	$	38,592

GSK Agreement

In December 2020, the ~~Company’s contract assets~~Company entered into a license agreement with GSK (as amended by the GSK Amendment (as defined below) the "GSK Agreement"). Pursuant to the GSK Agreement, the Company granted GSK a worldwide, exclusive, sublicensable license to develop, manufacture and ~~liabilities during~~commercialize antibodies that target the ~~three months ended March 31, 2018 (in thousands):~~

December 31, 2017

Additions

Deductions

March 31, 2018

Contract Liabilities (1)

Total deferred revenue - related party

$
82,105

$
45,000

$
(59,231
)

$
67,874

~~(1)~~

Additions to contract liabilities relate to consideration from Novartis during the reporting period. Deductions to contract liabilities relate to deferred revenue recognized as revenue during the reporting period and cumulative catch-up adjustment recognized upon adoption of ASC 606 on January 1, 2018.

~~During~~antibody SRF813, targeting CD112R, also known as PVRIG (the “Licensed Antibodies”). GSK will be responsible for the~~threemonthsendedMarch31,2018,~~ development, manufacturing and commercialization of the Licensed Antibodies and a joint development committee has been formed to facilitate information sharing between the Company~~recognized$17,071~~ and GSK. Under the terms of ~~revenue~~the GSK Agreement, GSK is obligated to use commercially reasonable efforts to develop and commercialize the Licensed Antibodies. In August 2021, the Company entered into the first amendment to the GSK License Agreement (the "GSK Amendment"). Pursuant to the GSK Amendment, the Company will provide additional transition and supply services related to the ~~amounts~~development and manufacturing of the Licensed Antibodies.

Development, Manufacturing and Commercialization of Licensed Antibodies

GSK has the sole right to develop, manufacture and commercialize the Licensed Antibodies and corresponding licensed products worldwide. GSK is obligated to use commercially reasonable efforts to develop the Licensed Antibodies and corresponding licensed products. GSK is responsible for all costs and expenses of such development, manufacturing and commercialization and is obligated to provide the Company with updates on its development, manufacturing and commercialization activities through the joint development committee.

Exclusivity

During the term of the GSK Agreement, neither the Company, nor any affiliates, will research, develop, manufacture, or commercialize any alternative product.

Financial Terms

Under the terms of the GSK Agreement, GSK made a one-time upfront payment of $85,000 and is required to make additional payments to the Company for supply services and transition services, estimated to be $4,952 and $990, respectively. The Company is eligible to receive up to $90,000 in clinical and $155,000 in regulatory milestones. In addition, the Company may receive up to $485,000 in sales milestone payments. The Company is also eligible to receive royalties on global net sales of any approved products based on the licensed antibodies, ranging in percentages from high single digits to mid-teens. Due to the uncertainty of pharmaceutical development and the historical failure rates generally associated with drug development, the Company may not receive any milestone payments or any royalty payments under the GSK Agreement.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

Termination

Unless terminated earlier, the GSK Agreement expires on a licensed product-by-licensed product and country-by-country basis on the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim or regulatory exclusivity covering such licensed product in such country. Either party may terminate the GSK Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. GSK may terminate the GSK Agreement for its convenience. The Company may terminate the GSK Agreement if GSK institutes certain actions related to the licensed patents or if GSK ceases development activities, other than for certain specified technical or safety reasons. In the event of termination, the Company would regain worldwide rights to the terminated program.

Revenue Recognition –License Related Revenue

In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company assessed the GSK Agreement in accordance with ASC 606 and concluded that GSK is a customer. The Company identified the following promises under the contract: (i) a worldwide, exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supplying Licensed Antibodies until an Investigational New Drug application is accepted by a regulatory authority (iii) transition services until an Investigational New Drug application is accepted by a regulatory authority; and (iv) participation on the joint development and joint patent committees. The Company assessed the above promises and determined that the worldwide, exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies is considered functional intellectual property and distinct from other promises under the contract. This functional license is distinct in the context of the GSK Agreement as GSK can benefit from the license on its own or together with other readily available resources. In addition, the supply and transition services are not complex or specialized, could be performed by another qualified third party, are not expected to significantly modify or customize the license to SRF813, and are expected to be performed only for a short period of time. The Company determined that the impact of participation on the joint development and joint patent committees was insignificant and had an immaterial impact on the accounting model. Based on these assessments, the Company identified 3 distinct performance obligations at the outset of the GSK Agreement.

The Company determined the transaction price of the GSK Agreement, under ASC 606, to be $90,942, consisting of the upfront payment of $85,000 plus $4,952 for supply of the Licensed Antibodies and $990 for the transition services. The Company evaluated how much variable consideration related to clinical and regulatory milestones to include in the transaction price using the most likely amount approach and concluded that no amount should be included in ~~contractliabilitybalance at~~ the ~~beginning~~transaction price due to the high degree of uncertainty and risk associated with these potential payments. The Company also determined that royalties and sales milestones relate solely to the licenses of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606. Revenue related to these royalties and sales milestones will only be recognized when the associated sales occur, and relevant thresholds are met.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

As noted above, the Company identified 3 performance obligations in the GSK Agreement: (i) the delivery of the ~~period.~~worldwide, exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supply of Licensed Antibodies until an Investigational New Drug application is accepted by a regulatory authority; and (iii) transition services until an Investigational New Drug application is accepted by a regulatory authority. The selling price of each performance obligation in the GSK Agreement was determined based on the Company’s standalone selling price, with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The Company recognizes revenue for the license performance obligation at a point in time, that is upon transfer of the license to GSK. As control of the license was transferred on the effective date of December 16, 2020 and GSK could begin to use and benefit from the license, the Company recognized $85,000 of license related revenue during the year ended December 31, 2020 under the GSK Agreement. The Company will recognize $4,952 and $990 allocated to the supply services and transition services over time. The Company transfers control of these services over time and GSK receives and consumes the benefit over time as the Company performs the services. During the three and nine months ended September 30, 2021, the Company recognized $48 and $709 of license related revenue, respectively, related to the transition services and recognized $344 and $1,823 of license related revenue, respectively, related to the supply services, which represents the costs incurred for the manufacturing and transition services that were performed.

The aggregate amount of the transaction price allocated to the ~~single~~ performance ~~obligation~~obligations that ~~are~~is partially unsatisfied was ~~$67,874.~~

$912. The Company ~~considers~~expects to recognize the ~~total consideration expected to be earned~~remaining revenue associated with the GSK Agreement in the ~~next twelve months for services to be performed as current deferred revenue-related party, and consideration that is expected to be earned subsequent to twelve months from~~year ending December 31, 2021. As of September 30, 2021, the ~~balance sheet date as noncurrent deferred revenue-related party.~~

~~6. Redeemable Convertible Preferred Stock~~

Company did not have a contract liability associated with the GSK Agreement. The Company ~~has issued Series A~~will re-evaluate the transaction price at the end of each reporting period and Series A-1 preferred stock (together, the “Redeemable Convertible Preferred Stock”). The Redeemable Convertible Preferred Stock is classified outside of stockholders’ deficit because the shares contain redemption features thatas uncertain events are ~~not solely within the control~~resolved, or other changes in circumstances occur, adjust its estimate of the ~~Company.~~

~~Upon~~transaction price if necessary.

For the ~~closing~~three and nine months ended September 30, 2021 and 2020, the Company recognized the following totals of ~~the Company’s initial public offering on April 23, 2018, all shares of the Redeemable Convertible Preferred Stock automatically converted into 16,863,624 shares of common stock.~~

7.license related revenue:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
License related revenue	$	392	$	—	$	2,532	$	—

6. Stockholders’ ~~Deficit~~

Equity

Common Stock

As of ~~March 31, 2018~~September 30, 2021 and December 31, ~~2017,~~2020, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue ~~53,000,000~~150,000,000 shares, of $0.0001 par value common stock.

Each share of common stock entitles the holder to ~~one~~1 vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the Redeemable Convertible Preferred Stock. When dividends are declared on shares of common stock, the Company must declare at the same time a dividend payable to the holders of Redeemable Convertible Preferred Stock equivalent to the dividend amount they would receive if eachany outstanding preferred ~~share were converted into common~~ stock. ~~The Company may not pay dividends to common stockholders until all dividends accrued or declared but unpaid on the Redeemable Convertible Preferred Stock have been paid in full.~~ No dividends have been declared or paid by the Company through ~~March 31, 2018.~~

September 30, 2021.

As of ~~March 31, 2018~~September 30, 2021 and December 31, ~~2017,~~2020, the Company had reserved ~~21,336,774~~33,878,328 and ~~20,703,575~~22,728,991 shares, respectively, of common stock for the ~~conversion of the outstanding shares of Redeemable Convertible Preferred Stock, the~~ exercise of outstanding stock options, shares to be issued under the 2021 ATM Facility, shares to be issued upon the conversion of the Loan Agreement (as defined below), and the number of shares remaining available for future grant under the Company’s ~~2014~~2018 Stock Option and Incentive Plan and 2018 Employee Stock Purchase Plan.

On ~~April 23, 2018,~~May 1, 2019, the Company ~~completed its initial public offering~~entered into the 2019 Sales Agreement with JonesTrading to issue and sell up to $30,000 in shares of ~~its~~the Company’s common stock ~~by issuing 7,200,000~~from time to time. In the nine months ended September 30, 2020, the Company sold 11,218,593 shares of common stock ~~at $15.00 per share for gross proceeds of $108,000, or~~at-the-market under the 2019 Sales Agreement, resulting in net proceeds of ~~$97,195. Concurrent with~~approximately $29,086. The Company did not sell any shares of common stock at-the-market under the ~~initial public offering,~~2019 Sales Agreement in the three months ended September 30, 2020. Through September 30, 2020, the Company ~~issued~~ ~~Novartis in a private placement, 766,666~~sold 11,229,174 shares of ~~its~~ common stock ~~at $15.00~~at-the-market under the 2019 Sales Agreement for net proceeds of $29,110. As of June 30, 2020 the Company fully utilized and closed the 2019 ATM Facility.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share ~~for~~data)

In May 2020, the Company entered into the 2020 Sales Agreement with JonesTrading to issue and sell up to $50,000 in shares of the Company's common stock, from time to time. In the three and nine months ended September 30, 2021, the Company sold 69,785 and 2,303,545 shares of common stock at-the-market under the 2020 Sales Agreement, resulting in net proceeds of ~~$11,500.~~

8.approximately $497 and $19,479, respectively. The Company did not sell any shares of common stock at-the-market under the 2020 Sales Agreement in 2020.

In August 2021, the Company entered into the Amended Sales Agreement with JonesTrading, which amends the 2020 Sales Agreement to allow the issuance and sale of up to $80,000 in shares of the Company's common stock, from time to time. The Company has not sold any shares of common stock at-the-market under the 2021 ATM Facility as of September 30, 2021.

7. Stock-Based Awards

2014 Stock Incentive Plan

The Company’s 2014 Stock Incentive Plan (the “2014 Plan”) provides for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards, unrestricted stock awards or restricted stock units to employees, directors and consultants of the Company. The 2014 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of the stock options may not be less than 100% of the fair market value of a share of the Company’s common stock on the date of grant and the term of the stock options may not be greater than ten years.

~~The total number~~

As of December 31, 2018, all remaining shares ~~of common stock that may be issued~~available under the 2014 Plan ~~was 4,489,839 shares as of December 31, 2017. On February 12, 2018,~~were transferred to the ~~Company effected an increase in the total number of shares of the~~ Company’s common stock reserved for issuance under the 2014 Plan from 4,489,839 shares to 4,498,930 shares. On March 2, 2018, the Company effected an increase in the total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan from 4,498,930 shares to 5,089,839 shares. On March 9, 2018, the Company effected an increase in the total number of shares of the Company’s common stock reserved for issuance under the 2014 Plan from 5,089,839 shares to 5,203,730 shares.

~~As of March 31, 2018 and December 31, 2017, there were 83,281 and 733,060 shares, respectively, available for future issuance under the 2014 Plan.~~

~~Stock options granted under the 2014 Plan to employees generally vest over four years and expire after ten years.~~

The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. The board of directors values the Company’s common stock taking into consideration the most recently available third-party valuation of common shares as well as additional factors, which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

~~Stock Options~~

~~The following table summarizes the Company’s stock option activity since January 1, 2018:~~

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

(in years)

Outstanding as of December 31, 2017

3,106,891

$
3.68

8.69

$
14,361

Granted

1,407,914

11.02

Exercised

(80,675
)

1.96

Forfeited

(44,261
)

0.40

Outstanding as of March 31, 2018

4,389,869

$
6.09

8.92

$
29,848

Options exercisable at March 31, 2018

1,108,667

$
2.69

7.96

$
11,309

~~The weighted average grant-date fair value per share of stock options granted during the three months ended March 31, 2018 and December 31, 2017 was $7.27 and $3.72, respectively.~~

As of March 31, 2018 and December 31, 2017, there were outstanding stock options held by non-employees for the purchase of 392,371 and 369,645 shares of common stock, respectively, with service-based vesting conditions.

~~2018 Stock Option and Incentive Plan~~

~~On April 3, 2018, the Company’s stockholders approved the~~ 2018 Stock Option and Incentive Plan (the “2018 Plan”)~~, which became effective on~~.

2018 Stock Option and Incentive Plan

In April ~~18,~~ 2018, the ~~date on which the registration statement for the~~ Company’s ~~initial public offering~~2018 Plan was ~~declared~~approved by its stockholders and became effective. The 2018 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, non-employee directors and other key persons (including consultants). The number of shares initially reserved for issuance under the 2018 Plan iswas 1,545,454, plus the shares of common stock remaining available for issuance under the 2014 Plan, which shall be cumulatively increased ~~on January 1, 2019 and~~ each January 1 ~~thereafter~~ by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2018 Plan and the 2014 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.

As of September 30, 2021, 855,968 shares were available for future issuance under the 2018 Plan.

Stock options granted under the 2014 Plan and 2018 Plan to employees generally vest over four years and expire after ten years.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2020:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
				(in years)
Outstanding as of December 31, 2020	6,011,126	$	5.55	7.28	$	24,912
Granted	1,725,605	9.24
Exercised	(486,632)	3.99
Forfeited	(242,848)	5.51
Outstanding as of September 30, 2021	7,007,251	$	6.57	7.17	$	15,121
Options exercisable at September 30, 2021	4,427,353	$	6.12	6.27	$	11,324
Vested and expected to vest at September 30, 2021	7,007,251	$	6.57	7.17	$	15,121

The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2021 and year ended December 31, 2020 was $6.50 and $2.11, respectively.

As of September 30, 2021 and December 31, 2020, there were outstanding stock options held by non-employees for the purchase of 276,570 and 253,971 shares of common stock, respectively, with service-based vesting conditions.

2018 Employee Stock Purchase Plan

In April 3, 2018, the Company’s ~~stockholders approved the~~ 2018 Employee Stock Purchase Plan (the “ESPP”)~~, which~~ was approved by its stockholders and became ~~effective on April 18, 2018, the date on which the registration statement for the Company’s initial public offering was declared~~ effective. A total of 256,818 shares of common stock were initially reserved for issuance under this plan. In addition, the number of shares of common stock that may be issued under the ESPP ~~will~~ automatically ~~increase~~increased on January 1, 2019, and shall increase each January 1 thereafter through January 1, 2028, by the lesser of (i) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 and (ii) such lesser number of shares as determined by the administrator of the Company’s ESPP.

As of September 30, 2021, a total of 1,084,476 shares of common stock were reserved for issuance under this plan.

For the three and nine months ended September 30, 2021 and 2020, the Company issued 27,522 and 46,899, and 40,147 and 89,172 shares of common stock under the ESPP, respectively.

Restricted Stock Units

The Company has granted restricted stock units (“RSUs”) with service-based vesting conditions. RSUs represent the right to receive shares of common stock upon meeting specified vesting requirements. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according to the service-based vesting conditions of each award. In 2020, the Company granted 1,071,400 RSUs that vest in full after eighteen-months as long as the individual remains an employee of the Company at such time.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

The table below summarizes the Company’s restricted stock unit activity since December 31, 2020:


	Number of Shares	Weighted Average Grant-Date Fair Value
Unvested restricted stock units as of December 31, 2020	1,043,300	$	3.21
Granted	—	—
Vested	(997,400)	3.21
Forfeited	(45,900)	3.18
Unvested restricted stock units as of September 30, 2021	—	$	—

The expense related to RSUs granted to employees was $124 and $1,103, and $552 and $1,541 for the three and nine months ended September 30, 2021 and 2020, respectively.

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted stock unit awards in the following expense categories of its condensed consolidated statements of operations and comprehensive ~~income (loss):~~

loss:

Three months ended March 31,

2018

2017

Research and development expenses

$
841

$
302

General and administrative expenses

450

201

$
1,291

$
503


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Research and development expenses	$	848	$	709	$	2,535	$	2,134
General and administrative expenses	1,196		1,254		4,168		3,679
	$	2,044	$	1,963	$	6,703	$	5,813

Included in the stock compensation expense recognized during the three and nine months ended September 30, 2021 is $28 and $449 of stock-based compensation, respectively, resulting from modifications to previously issued stock option awards in connection with the transition of the Company's Chief Executive Officer to Chairman of the Board, which is recorded in general and administrative expense. As of ~~March 31, 2018,~~September 30, 2021, the Company had an aggregate of ~~$16,114~~$12,433 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of ~~3.46~~1.59 years.

8. Debt

On November 22, 2019, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with K2HV (the “Lender”). The Lender made available to the Company term loans in an aggregate principal amount of up to $25,000 under the Loan Agreement. The Company plans to use the proceeds of the term loans to support clinical development as well as for working capital and general corporate purposes. The Loan Agreement provides a term loan commitment of $25,000 in three potential tranches: (i) a $7,500 term loan facility funded on November 22, 2019 (the “First Tranche Term Loan”), (ii) a $10,000 term loan facility funded on June 5, 2020 (the “Second Tranche Term Loan”), and (iii) a $7,500 term loan facility (the “Third Tranche Term Loan”). All 3 of these term loans have a maturity date of December 1, 2023.

Borrowings under all three loan facilities bear interest at a floating per annum rate equal to the greater of (i) 8.65% and (ii) the Prime Rate plus 3.90%. The Company is permitted to make interest-only payments on the First Tranche Term Loan for the first eighteen months following the funding date. The interest-only period can be extended by an additional six months, subject to the funding of the Second Tranche Term Loan; and by an additional six months, subject to the funding of the Third Tranche Term Loan. The term of the combined facility will be 48 months, with repayment in monthly installments commencing at the end of the resulting interest-only period as outlined above through the end of the 48-month term.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

The Company is obligated to pay a final fee equal to 4.45% of the aggregate amount of the term loans funded, such payment to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans under the Loan Agreement. If the Company prepays all of the term loans prior to the maturity date, it will pay the Lender a prepayment penalty fee based on a percentage of the outstanding principal balance, equal to 5% if the payment occurs on or before 24 months after the initial funding date, 3% if the prepayment occurs more than 24 months after, but on or before 36 months after the initial funding date, or 1% if the prepayment occurs more than 36 months after the initial funding date.

The Lender may, at its option, elect to convert any portion of no more than $4,000 of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of the Company’s common stock at a conversion price of $1.56 per share. The Company determined that the embedded conversion option is not required to be separated from the term loan. The embedded conversion option meets the derivative accounting scope exception since the embedded conversion option is indexed to the Company’s own common stock and qualifies for classification within stockholders’ equity. The Company recognized a beneficial conversion feature of $2,101, which represents the difference between the commitment date stock price of $2.33 per share and the conversion price of $1.56 per share. The beneficial conversion feature was recorded as a discount on the term loan and is accreted to interest expense using the effective interest method over the term of the loan. The effective interest rate of the term loan as of September 30, 2021 is 12.36%.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets. The Loan Agreement contains customary representations, warranties and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse effect clause.

Upon the occurrence of an event of default, a default interest rate of an additional 5.00% per annum may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law.

In June 2020, the Company drew down the Second Tranche Term Loan and received an additional $10,000 in proceeds. The Company is permitted to make interest-only payments on the First Tranche Term Loan and the Second Tranche Term Loan until January 2022 in accordance with the terms of the Loan Agreement.

In August 2020, the Lender elected to convert $2,000 of the outstanding term loan amount into 1,282,050 shares of the Company's common stock, in accordance with the Loan Agreement. In February 2021, the Lender elected to convert $1,500 of the outstanding term loan amount into 961,538 shares of the Company's common stock, in accordance with the Loan Agreement. The Company recognized $563 of interest expense in the nine months ended September 30, 2021 from accelerating amortization of the beneficial conversion feature and debt discount as a result of the conversion in February 2021. As of September 30, 2021, the outstanding principal balance was $14,000.

On October 1, 2021, the Company entered into a First Amendment to Loan and Security Agreement (the “Loan Amendment”) with the Lender, which amends the existing Loan Agreement. Under the Loan Amendment, the Lender made available to the Company term loans in an aggregate principal amount of up to $50,000, in three potential tranches: (i) a $25,000 term loan facility (including refinancing of the Company’s outstanding amounts under the Existing Loan Agreement) funded on October 1, 2021, (ii) up to a $15,000 term loan facility, and (iii) a $10,000 term loan facility. All three of these tranches have a maturity date of October 1, 2025.

Borrowings under all three tranches of the term loan facility bear interest at a floating per annum rate equal to the greater of (i) 8.50% and (ii) the sum of (A) the greater of (x) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) or (y) 3.25%, plus (B) 5.25%. The Company is permitted to make interest-only payments on the outstanding principal balance of the term loan for approximately nineteen months following the funding date. The interest-only period can be extended by an additional nine months, subject to the Company raising net cash proceeds from financing activities (including without limitation sales of the Company's securities and up-front or milestone payments pursuant to existing or new strategic partnerships), in an aggregate amount of at least $100,000. The term of the loan facility is 48 months, with repayment in monthly installments commencing at the end of the resulting interest-only period as outlined above through the end of the 48-month term.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

The Company is obligated to pay a final fee equal to (i) 4.25% of the aggregate amount of the term loans funded, such payment to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans and (ii) $779 on the earlier of December 1, 2023 or the prepayment of the term loans. The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans under the Loan Amendment. If the Company prepays all of the term loans prior to the maturity date, it will pay the Lender a prepayment penalty fee based on a percentage of the outstanding principal balance, equal to 5% if the payment occurs on or before 24 months after the initial funding date, 3% if the prepayment occurs more than 24 months after, but on or before 36 months after the initial funding date, or 1% if the prepayment occurs more than 36 months after the initial funding date.

The Lender may, at its option, elect to convert any portion of no more than $4,500 of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of the Company’s common stock at a conversion price of (i) with respect to the first $500 converted, $1.56 per share and (ii) with respect to any additional amounts converted in excess of $500, $7.81 per share.

The Company’s obligations under the Loan Amendment are secured by a first priority security interest in substantially all of its assets. The Loan Amendment contains customary representations, warranties and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse effect clause.

The Company recorded interest expense related to the loan facility of $421 and $1,858, and $1,469 and $2,237 for the three and nine months ended September 30, 2021 and 2020, respectively. The fair value of the loan at September 30, 2021 approximates its face amount due to the floating interest rate.

Future principal debt payments on the loan payable reflecting the amended terms are as follows:


	September 30, 2021
2021	$	—
2022	—
2023	3,739
2024	5,378
2025	4,883
Total principal payments	14,000
Final fee due at maturity in 2025	779
Total principal payments and final fee	14,779
Unamortized debt discount and final fee	(593)
Note payable	$	14,186

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

9. Net ~~Income (Loss)~~Loss per Share

Basic and diluted net ~~income (loss)~~loss per share attributable to common stockholders was calculated as follows:

Three months ended March 31,

2018

2017

Basic net income (loss) per share attributable to common stockholders:

Numerator:

Net income (loss)

$
31,212

$
(8,626
)
Accretion of redeemable convertible preferred stock to redemption value

(11
)

(10
)
Net income attributable to redeemable convertible preferred stockholders

(26,866
)

—

Net income (loss) attributable to common stockholders

$
4,335

$
(8,636
)
Denominator:

Weighted average commons shares outstanding—basic

2,727,606

2,399,265

Net income (loss) per share attributable to common stockholders—basic

$
1.59

$
(3.60
)
Diluted net income (loss) per share attributable to common stockholders:

Numerator:

Net income (loss)

$
31,212

$
(8,626
)
Accretion of redeemable convertible preferred stock to redemption value

(11
)

(10
)
Net income attributable to redeemable convertible preferred stockholders

(26,866
)

—

Net income (loss) attributable to common stockholders

$
4,335

$
(8,636
)
Denominator:

Weighted average commons shares outstanding—basic

2,727,606

2,399,265

Dilutive effect of common stock equivalents

1,407,038

—

Weighted average common shares outstanding - diluted

4,134,644

2,399,265

Net income (loss) per share attributable to common stockholders—diluted

$
1.05

$
(3.60
)

~~Stock options for the purchase of 623,827 weighted average shares were~~


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020

Basic and diluted net loss per share attributable to common stockholders:
Numerator:
Net loss	$	(19,893)	$	(15,774)	$	(54,435)	$	(8,011)
Denominator:
Weighted average common shares outstanding — basic and diluted	45,236,775		40,004,555		43,510,078		33,822,682
Net loss per share attributable to common stockholders — basic and diluted	$	(0.44)	$	(0.39)	$	(1.25)	$	(0.24)

The Company’s potential dilutive securities have been excluded from the computation of diluted net ~~income~~loss per share for the three and nine months ended September 30, 2021, as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the ~~three months ended March 31, 2018~~periods indicated above because ~~those options~~including them would have had an anti-dilutive ~~impact due to the assumed proceeds per share using the treasury stock method being greater than the average fair value of the Company’s common shares for those periods.~~

~~There were zero outstanding common stock equivalents that had an anti-dilutive impact on net income per share attributable to common stockholders for the three months ended March 31, 2017.~~

effect:


	September 30,
	2021	2020
Stock options to purchase common stock	7,007,251	6,114,639
Shares to be issued under the 2018 ESPP	1,084,476	724,305
RSUs issued and expected to vest	—	1,051,900
Shares available from conversion of note payable	320,514	1,282,050
	8,412,241	9,172,894

10. Income Taxes

~~During the three months ended March 31, 2018, the~~

The Company ~~recorded no provision from~~did not provide for any income taxes for the three and nine months ended September 30, 2021 or 2020.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net ~~income generated~~losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of September 30, 2021 and December 31, 2020. Management reevaluates the positive and negative evidence at each reporting period.

As of September 30, 2021 and December 31, 2020, the Company had no accrued interest or tax penalties recorded. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the ~~period because~~normal course of business, the Company is ~~forecasting a loss for the year ended December 31, 2018. During the three months ended March 31, 2017, the Company recorded an income tax provision of $214, which was primarily due~~subject to ~~the~~examination by federal and state jurisdictions, where applicable. The Company's tax years are still open under statute from 2017 to present. All years may be examined to the extent the tax credit or net operating loss carryforwards are used in future periods. There are currently no federal or state audits.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

11. Leases

Sublease Agreement with EQRx, Inc.

In the three and nine months ended September 30, 2021 and 2020, the Company recognized sublease income ~~tax treatment~~ of ~~the payments received~~$656 and $1,969, and $792 and $1,885, respectively.

As of September 30, 2021, future undiscounted cash inflows under the ~~Novartis Collaboration.~~

Prepaid income taxes of $5,357 and $6,513 at March 31, 2018 and December 31, 2017, respectively, were included in the prepaid expenses and other current assets on the condensed consolidated balance sheet and consist primarily of amounts receivable under a refund claim filed with the Internal Revenue Servicesublease are as ~~well as amounts paid to the Internal Revenue Service that will be applied to future income tax liabilities in 2018.~~

Our preliminary estimate of the Tax Cuts and Jobs Act of 2017, or TCJA, and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the TCJA may require further adjustments and changes in our estimates. The final determination of the TCJA and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the TCJA. For the three months ended March 31, 2018, there were no changes to management’s analysis originally performed as of December 31, 2017.

~~11.~~follows:


Year Ending December 31,
2021	$	709
2022	2,884
2023	241
	$	3,834

12. Commitments and Contingencies

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings.

~~12.~~

Adimab Development and Option Agreement

During the three and nine months ended September 30, 2021, the Company recognized research and development expense related to milestones achieved under the agreement of $1,500 and $3,000, respectively. During the nine months ended September 30, 2020, the Company recognized research and development expense related to milestones achieved under the agreement of $2,000. The Company did not recognize research and development expense related to milestones achieved under the agreement in the three months ended September 30, 2020.

13. Related Party Transactions

Novartis Institutes for BioMedical Research, Inc.

Novartis is a related party because it is a greater than 5% stockholder of the Company. In January 2016, the Company entered into the Novartis Agreement and sold 2,000,000 shares of its Series A-1 Preferred Stock to Novartis for gross proceeds of $13,500. In addition, concurrent with the Company’s initial public offering of common stock, the Company issued Novartis 766,666 shares of its common stock at $15.00 per share, for proceeds of $11,500 in a private placement. The Company did not recognize any collaboration revenue - related party under the Novartis Agreement in the nine months ended September 30, 2021. The Company recognized $38,592 in collaboration revenue - related party in the nine months ended September 30, 2020. The Company did not recognize any collaboration revenue - related party under the Novartis Agreement in the three months ended September 30, 2021 or 2020. As of September 30, 2021 and 2020, no amounts were due from Novartis.

During the three and nine months ended September 30, 2021 and 2020, the Company made no cash payments to Novartis related to the Novartis Agreement.

Vaccinex, Inc.

On November 30, 2017, the Company entered into ana research agreement (the “Vaccinex Research Agreement”) with Vaccinex, Inc. (“Vaccinex”) ~~whereby~~, pursuant to which Vaccinex ~~will use~~used its technology to assist the Company with identifying and selecting experimental human monoclonal antibodies against targets selected by the Company. On March 23, 2021, the Company exercised its option under the Vaccinex Research Agreement to enter into an exclusive license agreement (the “Vaccinex License Agreement”) to certain antibodies generated under the Vaccinex Research Agreement. The Company’s Chairman of the Board and former Chief Executive Officer is a member of the board of directors of Vaccinex. During the nine

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

months ended September 30, 2021, the Company paid Vaccinex $850 relating to the Vaccinex License Agreement. The payment was recognized as research and development expense. Vaccinex is eligible to receive up to an aggregate of $3,500 based on achievement of certain clinical milestones and up to an aggregate of $11,500 based on achievement of certain regulatory milestones per Licensed Product. The Company also owes low single digit royalties on global net sales of any approved Licensed Products. The Company did not make any payments to Vaccinex under the License Agreement in the three months ended ~~March 31, 2018,~~September 30, 2021 or the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2021 and 2020, the Company ~~incurred an expense payable~~made no payments relating to the Vaccinex ~~for $69 as a technology access fee upon entering into the agreement. No amounts were~~Research Agreement. The amount due by the Company to Vaccinex under the Vaccinex Research Agreement was $50 as of ~~December 31, 2017.~~

~~13.~~September 30, 2021 and 2020. There was no amount due by the Company to Vaccinex under the Vaccinex License Agreement as of September 30, 2021 or 2020.

14. Subsequent Events

~~For its condensed consolidated financial statements as of March 31, 2018 and for the three months then ended,~~

On October 1, 2021, the Company ~~evaluated subsequent events through~~entered into the ~~date on~~Loan Amendment, which ~~those financial statements were issued.~~

~~Reverse Stock Split~~

~~On April 6, 2018, the Company effected a one-for-2.2 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to~~amends the existing ~~conversion ratios~~Loan Agreement. Refer to Note 8 for ~~each series~~further discussion of the Company’s Convertible Preferred Stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustmentterms of the ~~preferred stock conversion ratios.~~

~~Initial Public Offering~~

~~On April~~ Loan Amendment.

23 ~~2018, the Company completed its initial public offering~~

Table of ~~its common stock by issuing 7,200,000 shares~~Contents

Item 2. Management's Discussion and Analysis of ~~common stock, at $15 per share for gross proceeds~~Financial Condition and Results of ~~$108,000, or net proceeds of $97,195. Concurrent with the initial public offering, the Company issued~~ ~~Novartis in a private placement, 766,666 shares of its common stock at $15 per share for proceeds of $11,500.~~

Upon the closing of the Company’s initial public offering on April 23, 2018, all shares of Series A and A-1 redeemable convertible Preferred Stock automatically converted into 16,863,624 shares of common stock.

~~Lease Amendment~~

~~In May 2018, the Company executed an amendment to lease an additional 33,529 square feet for a term of 10 years at 50~~ ~~Hampshire~~ ~~Street that is intended to support its continued growth. The original lease term was extended to co-terminate with the additional space.~~ ~~The Company will pay annual rent of $71.00 per rentable square foot for the first year, with annual upward adjustments of $1.00 per rentable square foot for the remainder of the term.~~ ~~The additional facility will be ready for occupancy in 2020.~~

Operations

~~Item 2.~~

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form ~~10-~~Q10-Q and our audited financial statements and related notes for the year ended December 31, ~~2017~~2020 included in our ~~final prospectus for our initial public offering of our common stock~~Annual Report on Form 10-K, filed with the Securities and Exchange Commission or ~~SEC pursuant to Rule 424(b)(4) of the Securities Act on April 19, 2018, which we refer to as the Prospectus.~~

SEC.

Overview

We are a clinical-stage immuno-oncology company focused on using our specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment, or the TME, for the development of next-generation cancer therapies. While first-generation immuno-oncology therapies, such as checkpoint inhibitors, ~~are~~represented a remarkable therapeutic advancement, we believe most patients do not achieve durable clinical benefit primarily because these therapies focus on only one element of the complex and interconnected immunosuppressive TME. We believe there is a significant opportunity to more broadly engage both the ~~body’s~~innate and adaptive arms of the immune system in a multi-faceted, coordinated and ~~personalized~~patient-specific approach, to meaningfully improve cure rates for patients with a variety of cancers. ~~Our approach is~~

We aim to identify key components within the TME to gain a deep understanding of its biology, leverage this understanding to define the optimal therapeutic targets and the patients most likely to benefit, and develop novel antibody therapeutics with differentiated biologic activity. By utilizing our ~~specialized knowledge and~~ expertise in immunology, oncology, assay development, antibody selection and characterization, and translational research, we ~~have developed~~are developing and advancing a broad pipeline of TME-focused programs that we believe are the next generation of immuno-oncology therapies. ~~In January 2016, we entered into a strategic collaboration with Novartis to leverage~~Our programs demonstrate our ~~combined expertise~~multi-faceted approach by targeting several critical components of the immunosuppressive TME.

NZV930 (formerly SRF373) and ~~resources to develop novel immunotherapies targeting the TME.~~

~~Our lead product candidate, SRF231, targets a protein called~~SRF617 are antibodies inhibiting cluster of differentiation, or CD, ~~47.~~73 and CD39, respectively, and illustrate how our specialized knowledge of TME biology can be leveraged across programs. CD73 and CD39 are both critical enzymes involved in the production of extracellular adenosine, a key metabolite with strong immunosuppressive properties within the TME. NZV930 and SRF617 each aim to reduce the production of immunosuppressive adenosine, but target different points of the adenosine pathway. In addition to reducing the production of adenosine, we believe SRF617 will also stimulate anti-tumor immunity because of its ability to maintain levels of extracellular adenosine triphosphate, or ATP, a proinflammatory molecule. In June 2018, a Phase 1 trial of NZV930 was initiated by our partner, Novartis. We initiated a Phase 1/1b dose escalation trial of SRF617 in March 2020 and initiated combination cohorts of the ongoing trial in January 2021. SRF617 received Orphan Drug Designation from FDA for the treatment of pancreatic cancer in March 2021. In June 2021, we presented initial clinical data demonstrating SRF617's potential as a combination therapy.

SRF388 is an antibody targeting interleukin 27, or IL-27, an immunosuppressive cytokine, or protein secreted by cells, in the TME that is overexpressed in certain cancers, including hepatocellular, lung and renal cell carcinoma. Due to its immunosuppressive nature, there is a rationale for inhibiting IL-27 to treat cancer, as this approach will influence the activity of multiple types of immune cells that are necessary to recognize and attack a tumor. We initiated a Phase 1 dose escalation clinical trial of ~~SRF231~~SRF388 in ~~February 2018~~April 2020, and ~~expect to report~~initiated expansion stages of the ongoing trial in June 2021. SRF388 received Orphan Drug Designation and Fast Track Designation from FDA for the treatment of hepatocellular carcinoma in November 2020. In June 2021, we presented initial clinical ~~results from this trial~~data at the American Society of Clinical Oncology Annual Meeting demonstrating monotherapy activity.

SRF813 is an antibody targeting CD112R, also known as PVRIG, an inhibitory protein expressed on natural killer, or NK, and T cells. SRF813 blocks the interaction of CD112R with CD112, its binding partner that is expressed on tumor cells. SRF813 can promote the activation of both NK and T cells, with potential to elicit a strong anti-tumor response and promote immunological memory. In October 2019, we formally declared SRF813 as a development candidate resulting in the ~~first half~~initiation of ~~2019. An Investigational New Drug application,~~IND-enabling activities. On December 16, 2020, we granted GSK, an exclusive license to worldwide development and commercialization rights of SRF813.

SRF114 is a highly specific antibody targeting CCR8, a chemokine receptor expressed on regulatory T cells, or ~~IND,~~Tregs, in the TME. SRF114 causes depletion of intra-tumoral Tregs, important regulators of immune suppression and tolerance, through antibody-dependent cellular cytotoxicity, or ADCC. In March 2021, we initiated IND-enabling activities for SRF114.

We expect that the unique insights generated in any one of our ~~next program, SRF373, which targets CD73, was sponsored and filed by Novartis Institutes for Biomedical Research, Inc. or Novartis, with~~product programs will accelerate the ~~U.S. Food and Drug Administration~~development of the other programs in ~~February 2018, and we anticipate SRF373 entering clinical trials in 2018. SRF373 has been exclusively licensed on~~ a ~~worldwide basis~~synergistic fashion due to ~~Novartis. The lead product candidates for our CD39 and interleukin 27, or IL-27, programs, SRF617 and SRF388, respectively, are anticipated to begin IND-enabling studies in 2018.~~

the interconnections between these TME pathways.

Table of Contents

We were incorporated and commenced principal operations in 2014. We have devoted substantially all of our resources to developing our programs, including ~~SRF231~~NZV930, SRF617, SRF388, SRF813, and ~~SRF373,~~SRF114, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the public and private sales of ~~preferred stock and~~our securities, payments received under the Novartis Agreement, payments received under the GSK Agreement and a collaboration agreement, or the Collaboration Agreement, with Novartis Institutes for BioMedical Research, Inc., or Novartis. Through March 31, 2018, we had received gross proceeds of $48.6 million from our sales of preferred stock and $150.0 million from the Collaboration Agreement.debt financing. As of ~~March 31, 2018,~~September 30, 2021, we had cash, cash equivalents and marketable securities of ~~$93.8~~$149.7 million.

On April 23, 2018, we completed an initial public offering of our common stock by issuing 7.2 million shares of our common stock, at $15.00 per share for gross proceeds of $108.0 million, or net proceeds of $97.2 million. Concurrent with the initial public offering, we issued ~~Novartis in a private placement, 766,666 shares of our common stock at $15.00 per share for proceeds of $11.5 million.~~

Since our inception, we have incurred significant losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of the product candidates we develop. Our net ~~income~~loss was ~~$31.2~~$19.9 million and $54.4 million for the three and nine months ended ~~March 31, 2018 and our~~September 30, 2021, respectively. Our net loss was ~~$8.6~~$15.8 million and $8.0 million for the three and nine months ended ~~March 31, 2017.~~September 30, 2020, respectively. As of ~~March 31, 2018,~~September 30, 2021, we had an accumulated deficit of ~~$29.0~~$116.7 million. We expect to continue to incur significant expenses and ~~increasing~~ operating losses for at least the next several ~~years. We anticipate that our expenses will increase substantially,~~years, particularly as we:

•pursue the clinical development of product candidates;

•leverage our programs to advance product candidates into preclinical and clinical development;

•seek regulatory approvals for any product candidates that successfully complete clinical trials;

•hire additional clinical, quality control, and scientific personnel;

•expand our operational, financial, and management systems and increase personnel, including personnel to support our clinical development, manufacturing, and commercialization efforts, and our operations as a public company;

•maintain, expand and protect our intellectual property portfolio;

•establish a sales, marketing, medical affairs, and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or ~~jointly;~~

jointly with a commercial partner; and

•acquire or in-license other product candidates and ~~technologies; and~~

technologies.

~~incur additional costs associated with operating as a public company.~~

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. We may be unable to raise additional funds or enter into other agreements or arrangements, when needed, on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We believe that our existing cash, cash equivalents and marketable securities, as of ~~May 29, 2018~~September 30, 2021 will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements ~~for at least the next 24 months.~~into 2023, excluding any future milestone payments from Novartis and GSK. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

We are monitoring the ongoing global outbreak and spread of the novel coronavirus disease, or COVID-19, and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address the COVID-19 pandemic. Although COVID-19 has not had a material adverse impact on our operations and our clinical and preclinical programs, the extent to which COVID-19 ultimately impacts the Company's business, results of operations or financial condition will depend on future developments which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain the pandemic or mitigate its impact, among others. Given the fluidity of the COVID-19 pandemic, however, we do not yet know the full extent of the potential impact of COVID-19 on our business operations. We will continue to monitor the situation closely.

Table of Contents

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. All of our revenue to date has been derived from the ~~Collaboration~~Novartis Agreement and the GSK Agreement. If our development efforts for our programs are successful and result in regulatory approval or additional license or collaboration agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties. We expect that our revenue for the next several years will be derived primarily from the ~~Collaboration~~Novartis Agreement and the GSK Agreement, as well as any additional collaborations or licenses that we may enter into in the future.

~~Collaboration~~

Novartis Agreement ~~with Novartis~~

In January 2016, we entered into the ~~Collaboration~~Novartis Agreement to develop next-generation cancer therapies. Under the ~~Collaboration~~Novartis Agreement, as amended, we ~~are~~were responsible for performing research on antibodies that bind to CD73 and four other specified targets. We ~~are~~were responsible for all costs and expenses incurred by, or on behalf of, us in connection with the research.

Upon entering into the Novartis ~~also has the right, but not the obligation, to conduct research at its own cost on antibodies that bind to CD73 in accordance with the agreement.~~

~~Pursuant to the Collaboration~~ Agreement, we received an upfront payment of $70.0 million from Novartis and granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target ~~CD73, along with~~CD73. In addition, we initially granted Novartis the right to purchase exclusive option rights, each an Option, ~~for~~to up to four specified targets, ~~each an Option Target, to obtain~~including certain research, development, manufacturing and commercialization rights. If Novartis purchases an Option, following receipt of the IND acceptance for a candidate with respect to the applicable Option Target, Novartis will be entitled to exercise the Option for such Option Target. Pursuant to the ~~Collaboration~~Novartis Agreement, Novartis initially had the right to exercise up to three purchased Options. In ~~March 2018,~~January 2020, Novartis ~~notified us of its decision to~~did not purchase and exercise its ~~previously purchased~~single remaining Option ~~for SRF231, our CD47 product candidate. In March 2018, we~~under the Novartis Agreement and, ~~Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. As~~as a result, ~~Novartis has two~~the option purchase period expired. Accordingly, there are no Options remaining eligible for purchase ~~both of which can be exercised.~~

Atand exercise by Novartis, and our performance obligations under the ~~time we entered into the Collaboration~~Novartis Agreement in January 2016, Novartis made an upfront payment to us of $70.0 million. Under the Collaboration Agreement, Novartis will also pay us a fee to purchase each Option for each Option Target and another fee to exercise an Option. As of March 31, 2018, we had received $5.0 million in option purchase payments and wehave ended. We are currently entitled to ~~an aggregate~~potential development milestones of ~~up to $67.5~~$325.0 million, of potential ~~option purchase and option exercise payments. We are also eligible to receive payments on a target-by-target basis upon the achievement of specified development and~~ sales milestones ~~and~~of $200.0 million, as well as tiered royalties on annual net sales of NZV930 by Novartis ~~of licensed products~~ ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Under the Collaboration Agreement, we are currently entitled to potential option purchase, option exercise and milestone payments aggregating up to $1.17 billion, of which $80.0 million had been received as of March 31, 2018.percentages. Such amount of potential ~~option purchase, option exercise and~~ milestone payments assumes ~~that Novartis purchases, and exercises both of the remaining Options available to it pursuant to the Collaboration Agreement as well as~~ the successful clinical development of and achievement of all sales milestones for all targets covered by the Collaboration Agreement. In addition, we are required to pay Novartis tiered royalties on annual net sales by us of regional licensed products in the United States ranging from high single-digit to mid-teens percentages. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In January 2016, Novartis also purchased $13.5 million of our Series A-1 preferred stock. The equity investment was made at fair value, and we determined it to be distinct from the Collaboration Agreement.

NZV930.

Under ASC 606 we account for (i) the license conveyed with respect to CD73 and (ii) our obligations to perform research on CD73 and other specified targets as a single performance obligation under the ~~Collaboration~~Novartis Agreement. We recognize revenue using the cost-to-cost method, which we believe best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion.

In February 2018, we received an additional milestone payment of $45.0 million from Novartis upon Novartis’ receipt of the first final audited GLP toxicology study report for SRF373. Upon achieving the milestone, we concluded this variable consideration was no longer constrained and included this amount in the transaction price. We recognized $23.4 million as collaboration revenue – related party in the first quarter of 2018, based on the ratio of our actual costs incurred as of the milestone achievement date to our total estimated costs with respect to performing research on antibodies that bind to CD73 and other specified targets under the Collaboration Agreement. The remaining unrecognized amount of $21.6 million is recorded as deferred revenue as of March 31, 2018 and will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the Collaboration Agreement.

In March 2018, Novartis notified us of its decision not to exercise its option related to CD47. We recognized the $5,000 exclusive option right payment as collaboration revenue – related party in the first quarter of 2018 because we no longer have any remaining performance obligations related to CD47.

Through ~~March 31, 2018,~~September 30, 2021, we had received an aggregate of $150.0 million from Novartis in upfront payments, milestone payments, and option purchase payments.

~~During~~ As of January 2020, we no longer have any performance obligations under the Novartis Agreement. We removed all costs associated with the remaining performance obligation for the single remaining Option from the cost-to-cost model in January 2020. This resulted in our recognizing the remaining deferred revenue of $38.6 million to collaboration revenue – related party in the first quarter of 2020. We did not recognize any collaboration revenue - related party in the three or nine months ended September 30, 2021.

GSK Agreement

In December 2020, we entered into the GSK Agreement, under which we granted GSK a worldwide, exclusive, sublicensable license to develop, manufacture and commercialize antibodies that target the antibody SRF813, targeting CD112R, also known as PVRIG, or the Licensed Antibodies. GSK will be responsible for the development, manufacturing and commercialization of the Licensed Antibodies and a joint development committee has been formed to facilitate information sharing between us and GSK. Under the terms of the GSK Agreement, GSK is obligated to use commercially reasonable efforts to develop and commercialize the Licensed Antibodies.

Under the terms of the agreement, as amended, GSK made a one-time upfront payment of $85.0 million and is required to make additional payments to us for supply services and transition services, estimated to be $5.0 million and $1.0 million, respectively. We are eligible to receive up to $90.0 million in clinical and $155.0 million in regulatory milestones. In addition, we may receive up to $485.0 million in sales milestone payments. We are also eligible to receive royalties on global net sales of any approved products based on the licensed antibodies, ranging in percentages from high single digits to mid-teens.

Table of Contents

Under ASC 606 we account for (i) the delivery of the worldwide, exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supply of Licensed Antibodies until an Investigational New Drug application is accepted by a regulatory authority; and (iii) transition services until an Investigational New Drug application is accepted by a regulatory authority as separate and distinct performance obligations. We determined the transaction price of the GSK Agreement, under ASC 606, to be $90.9 million, consisting of the upfront payment of $85.0 million plus $4.9 million for supply of the Licensed Antibodies and $1.0 million for the transition services. We recognized revenue for the license performance obligation at a point in time, that is upon transfer of the license to GSK. As control of the license was transferred on the effective date of December 16, 2020 and GSK could begin to use and benefit from the license, we recognized $85.0 million of license related revenue during the year ended December 31, 2020 under the GSK Agreement. We will recognize the $5.0 million and $1.0 million allocated to the supply services and transition services over time. We transfer control of these services over time and GSK receives and consumes the benefit over time as we perform the services. For the three months ended ~~March 31, 2018 and 2017,~~September 30, 2021, we recognized $0.3 million of license related revenue from the supply services and an immaterial amount of ~~$45.5~~license related revenue from the transition services. For the nine months ended September 30, 2021, we recognized $0.7 million of license related revenue from transition services and ~~$1.7~~$1.8 million ~~respectively,~~of license related torevenue from the ~~Collaboration Agreement.~~

supply services, which represents the costs incurred for the manufacturing and transition services that were performed.

Through September 30, 2021, we have received $85.0 million from GSK in upfront payments and $2.9 million in reimbursement for the transition and supply services.

Operating Expenses

Research and Development Expenses

Research and development expenses are expensed as incurred and consist of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:

•salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in research and development functions;

•expenses incurred in connection with the preclinical development of our programs and clinical trials of our product candidates, including under agreements with third parties, such as consultants, ~~and~~ contractors, and contract research organizations, or CROs;

•the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants, ~~and~~ contractors, and contract manufacturing organizations, or CMOs;

•laboratory supplies;

•facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities, insurance and supplies; and

•third-party license fees.

We generally do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel, early research and consumable costs, which are deployed across multiple projects under development. These costs are included in unallocated research and development expenses in the table below. A portion of our research and development costs are external costs, which we do track on a program-by-program basis.

Table of Contents

The following table summarizes our research and development expenses by program:

Three months ended March 31,

2018

2017

Change

(in thousands)

SRF231

$
3,725

$
3,978

$
(253
)
SRF373

12

—

12

SRF388

340

504

(164
)
SRF617

1,458

402

1,056

Other early-stage programs

843

440

403

Unallocated research and discovery expenses

4,712

3,356

1,356

Total research and development expenses

$
11,090

$
8,680

$
2,410


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020

	(in thousands)
SRF388	$	2,833	$	1,225	$	8,333	$	4,142
SRF617	4,287		1,427		8,557		4,756
SRF813	399		1,724		2,147		4,383
SRF114	1,092		61		2,363		223
Other early-stage programs	300		120		419		772
Unallocated research and discovery expenses	5,126		4,897		15,431		16,014
Total research and development expenses	$	14,037	$	9,454	$	37,250	$	30,290

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. ~~As a result, we expect~~We anticipate that our research and development expenses towill increase ~~over~~in the ~~next several years~~future as we ~~initiate~~anticipate incurring increased clinical development costs as we advance our SRF617 and SRF388 Phase 1 clinical trials ~~and~~as well as increased costs relating to the SRF114 program as we pursue ~~later stages of development of SRF231 and SRF388, initiate clinical trials for the product candidates we develop and continue to discover and develop additional product candidates.~~

IND-enabling activities.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of any of our product candidates that we develop from our programs. We are also unable to predict when, if ever, ~~material~~ net cash inflows will commence from sales of product candidates we develop. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

•successful completion of clinical trials and preclinical studies;

•sufficiency of our financial and other resources to complete the necessary clinical trials and preclinical studies;

•acceptance of INDs for our planned clinical trials or future clinical trials;

•successful enrollment and completion of clinical trials;

•successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations;

•receipt of regulatory and marketing approvals from applicable regulatory authorities;

•receipt and maintenance of marketing approvals from applicable regulatory authorities;

•establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product ~~candidate is~~candidates are approved;

•entry into collaborations to further the development of our product candidates;

•obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

•successfully launching commercial sales of our product candidates, if and when approved;

•acceptance of ~~the~~our product ~~candidate’s~~candidates’ benefits and uses, if and when approved, by patients, the medical community and third-party payors;

•maintaining a continued acceptable safety profile of the product candidates following approval;

•effectively competing with other therapies; and

•obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors.

A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing, and viability associated with the development of such program or product candidate.

Table of Contents

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as ~~we increase our headcount to support our continued research activities and development~~a result of ~~our programs. We also anticipate that we will incur~~incurring increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Interest and Other Income (Expense), Net

Interest and other income ~~consists~~consist primarily of interest earned on our cash, cash equivalents, and marketable ~~securities. We expect~~securities as well as interest expense incurred on our ~~interest income to increase slightly in~~Loan and Security Agreement, the ~~future due to investing the anticipated net cash proceeds from the initial public offering completed on April 23, 2018.~~

Loan Agreement with K2 Health Ventures LLC, or K2HV.

Results of Operations

Comparison of Three Months Ended ~~March 31, 2018~~September 30, 2021 and ~~2017~~

2020

The following table summarizes our results of operations for the three months ended ~~March 31, 2018~~September 30, 2021 and ~~2017,~~2020, along with the changes in those items:

	Three months ended March 31,
	2018		2017			Change			Three months ended September 30,
	(in thousands)								2021		2020		2021 v 2020
Collaboration revenue - related party	$	45,495	$	1,672		$	43,823
									(in thousands)
License related revenue								License related revenue	$	392	$	—	$	392
Operating expenses:								Operating expenses:
Research and development		11,090		8,680			2,410	Research and development	14,037		9,454		4,583
General and administrative		3,362		1,546			1,816	General and administrative	5,847		4,904		943
Total operating expenses		14,452		10,226			4,226	Total operating expenses	19,884		14,358		5,526
Income (loss) from operations		31,043		(8,554	)		39,597
Loss from operations								Loss from operations	(19,492)		(14,358)		(5,134)
Interest and other income (expense), net		169		142			27	Interest and other income (expense), net	(401)		(1,416)		1,015
Net income (loss) before income taxes		31,212		(8,412	)		39,624
Provision for income taxes		—		(214	)		214
Net income (loss)	$	31,212	$	(8,626	)	$	39,838
Net loss								Net loss	$	(19,893)	$	(15,774)	$	(4,119)

~~Collaboration~~

License Related Revenue

~~Collaboration~~

During the three months ended September 30, 2021, we recognized $0.3 million of license related revenue ~~was $45.5 million~~related to the supply services and ~~$1.7~~an immaterial amount of license related revenue related to the transition services, which represents the costs incurred for the manufacturing and transition services that were performed. We did not recognize any license related revenue in the three months ended September 30, 2020.

Table of Contents

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020, along with the changes in those items:


	Three months ended September 30,
	2021		2020		2021 v 2020
	(in thousands)
Direct research and development expenses by program:
SRF388	$	2,833	$	1,225	$	1,608
SRF617	4,287		1,427		2,860
SRF813	399		1,724		(1,325)
SRF114	1,092		61		1,031
Other early-stage programs	300		120		180
Research and discovery and unallocated expenses:
Personnel related (including stock-based compensation)	3,272		3,337		(65)
Facility related and other	1,854		1,560		294
Total research and development expenses	$	14,037	$	9,454	$	4,583

Research and development expenses were $14.0 million for the three months ended March 31, 2018 and 2017, respectively, all of which was derived from the Collaboration Agreement. The increase in collaboration revenue-related party during the quarter ended March 31, 2018 was primarily dueSeptember 30, 2021, compared to the partial recognition of $23.4 million in revenue related to a milestone payment of $45.0 million that we received in February 2018 from Novartis upon Novartis’ receipt and acceptance of the first final audited GLP toxicology study report for SRF373. The remaining unrecognized amount will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the Collaboration Agreement.

~~Research and Development Expenses~~

Three months ended March 31,

2018

2017

Change

(in thousands)

Direct research and development expenses by program:

SRF231

$
3,725

$
3,978

$
(253
)
SRF373

12

—

12

SRF388

340

504

(164
)
SRF617

1,458

402

1,056

Other early-stage programs

843

440

403

Research and discovery and unallocated expenses:

Personnel related (including stock-based
compensation)

3,408

2,104

1,304

Facility related and other

1,304

1,252

52

Total research and development expenses

$
11,090

$
8,680

$
2,410

~~Research and development expenses were $11.1~~$9.5 million for the three months ended ~~March 31, 2018, compared to $8.7 million for the three months ended March 31, 2017.~~September 30, 2020. The increase of ~~$2.4~~$4.6 million was primarily due to increases of ~~$1.1~~$1.6 million in external costs for our SRF388 program, $2.9 million in external costs for our SRF617 ~~programs, $0.4~~program, $1.0 million in external costs for our SRF114 program, $0.2 million in external costs for our other early-stage programs and ~~$1.4~~$0.2 million for research and discovery and unallocated costs, partially offset by ~~reductions~~a decrease of ~~$0.3~~$1.3 million in external costs for our ~~SRF231 program~~SRF813 program.

The increase in research and ~~$0.2 million in external costs~~development expenses for our SRF388 ~~program.~~

program was primarily due to continued enrollment in our Phase 1 dose escalation trial and advancement into the expansion stages of the ongoing trial in 2021.

The increase in research and development expenses for our SRF617 program was primarily due to continued enrollment in our Phase 1/1b dose escalation trial and advancement into combination cohorts of the ~~commencement of contract manufacturing work.~~

ongoing trial in 2021.

The increase in research and development expenses for our ~~other early-stage programs~~SRF114 program was primarily due to ~~advancement and~~the initiation of ~~new early discovery programs.~~

IND-enabling activities in 2021.

The increase in research and discovery and unallocated expenses was primarily due to ~~increases of $1.3 million in personnel-related costs due to increased headcount and $0.1 million in~~ increased facility and ~~laboratory~~lab costs ~~related~~in the third quarter of 2021 compared to ~~our new corporate headquarters.~~

the third quarter of 2020 as a result of reduced presence in the office due to safety concerns arising from the COVID-19 global pandemic in the third quarter of 2020.

The decrease in research and development expenses for our ~~SRF231~~SRF813 program was primarily due to the ~~completion~~transfer of ~~IND-enabling activities during 2017 and~~responsibility for development of this program to GSK as part of the ~~timing of contract manufacturing expenses.~~

~~The decreases~~GSK Agreement signed in ~~research and development expenses for our SRF388 program was due to contract higher manufacturing expenses incurred in 2017.~~

~~The decreases in research and development expenses for our SRF373 program was due to the completion of IND-enabling activities during 2017 and Novartis taking over the program development.~~

December 2020.

General and Administrative Expenses

General and administrative expenses were ~~$3.4~~$5.8 million for the three months ended ~~March 31, 2018,~~September 30, 2021, compared to ~~$1.5~~$4.9 million for the three months ended ~~March 31, 2017.~~September 30, 2020. The increase of ~~$1.9~~$0.9 million was primarily due to increases ~~of $0.9 million~~ in ~~personnel-related costs as a result of an increase in headcount; an increase of $0.5 million for professional fees~~personnel and facility related ~~to legal and accounting services; and an increase of $0.4 million in facility costs related to our new corporate headquarters.~~

costs.

Interest and Other Income (Expense), Net

Interest and other income ~~was~~(expense), net were approximately ~~$0.2~~$(0.4) million and ~~$0.1~~$(1.4) million during the three months ended ~~March 31, 2018~~September 30, 2021 and ~~2017,~~2020, respectively, due primarily to interest expense related to the Loan Agreement with K2HV and interest income on invested balances of our cash, cash equivalents and marketable securities.

Table of Contents

Comparison of Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020, along with the changes in those items:


	Nine months ended September 30,
	2021		2020		2021 v 2020
			(in thousands)
Collaboration revenue - related party	$	—	$	38,592	$	(38,592)
License related revenue	2,532		—		2,532
Total revenue	$	2,532	$	38,592	$	(36,060)
Operating expenses:
Research and development	37,250		30,290		6,960
General and administrative	17,923		14,686		3,237
Total operating expenses	55,173		44,976		10,197
Loss from operations	(52,641)		(6,384)		(46,257)
Interest and other income (expense), net	(1,794)		(1,627)		(167)
Net loss	$	(54,435)	$	(8,011)	$	(46,424)

Collaboration Revenue - Related Party

Collaboration revenue was $38.6 million for the nine months ended September 30, 2020, all of which was derived from the Novartis Agreement. In January 2020 our performance obligations under the Novartis Agreement ended and we removed all costs from the cost-to-cost model. This resulted in the recognition of the remaining deferred revenue of $38.6 million to collaboration revenue – related party in the first quarter of 2020. We did not recognize any collaboration revenue - related party in the nine months ended September 30, 2021.

License Related Revenue

During the nine months ended September 30, 2021, we recognized $1.8 million and $0.7 million of license related revenue related to the supply services and transition services, respectively, which represents the costs incurred for the manufacturing and transition services that were performed. We did not recognize any license related revenue in the nine months ended September 30, 2020.

Research and Development Expenses

The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020, along with the changes in those items:


	Nine months ended September 30,
	2021		2020		2021 v 2020
			(in thousands)
Direct research and development expenses by program:
SRF388	$	8,333	$	4,142	$	4,191
SRF617	8,557		4,756		3,801
SRF813	2,147		4,383		(2,236)
SRF114	2,363		223		2,140
Other early-stage programs	419		772		(353)
Research and discovery and unallocated expenses:
Personnel related (including stock-based compensation)	10,217		11,509		(1,292)
Facility related and other	5,214		4,505		709
Total research and development expenses	$	37,250	$	30,290	$	6,960

Table of Contents

Research and development expenses were $37.3 million for the nine months ended September 30, 2021, compared to $30.3 million for the nine months ended September 30, 2020. The increase of $7.0 million was primarily due to increases of $4.2 million in external costs for our SRF388 program, $3.8 million in external costs for our SRF617 program and $2.1 million in external costs for our SRF114 program, which were partially offset by decreases of $0.6 million for research and discovery and unallocated costs, $0.4 million in external costs for our other early-stage programs and $2.2 million in external costs for our SRF813 program.

The increase in research and development expenses for our SRF388 program was primarily due to continued enrollment in our Phase 1 dose escalation trial and advancement into the expansion stages of the ongoing trial in 2021.

The increase in research and development expenses for our SRF617 program was primarily due to continued enrollment in our Phase 1/1b doss escalation trial and advancement into combination cohorts of the ongoing trial in 2021.

The increase in research and development expenses for our SRF114 program was primarily due to the initiation of IND-enabling activities in the first quarter of 2021.

The decrease in research and discovery and unallocated expenses was primarily due to the reduction in severance expense incurred in 2020 as a result of the strategic restructuring announced in January 2020.

The decrease in research and development expenses for our SRF813 program was primarily due to the transfer of responsibility for development of the program to GSK as part of the GSK Agreement signed in December 2020.

General and Administrative Expenses

General and administrative expenses were $17.9 million for the nine months ended September 30, 2021, compared to $14.7 million for the nine months ended September 30, 2020. The increase of $3.2 million was primarily due to increases in personnel and facility related costs, including $0.4 million of stock-based compensation resulting from modifications to previously issued stock option awards in connection with the transition of our Chief Executive Officer to Chairman of the Board.

Interest and Other Income (Expense), Net

Interest and other income (expense), net were approximately $(1.8) million and $(1.6) million during the nine months ended September 30, 2021 and 2020, respectively, due primarily to interest expense related to the Loan Agreement with K2HV and interest income on invested balances of our cash, cash equivalents and marketable securities.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from the ~~Collaboration~~Novartis Agreement and the GSK Agreement. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations with proceeds from ~~the~~public and private sales of ~~preferred stock and~~our securities, payments received under the ~~Collaboration Agreement.~~Novartis Agreement, payments received under the GSK Agreement and a debt financing. Through ~~March 31, 2018,~~September 30, 2021, we had received gross proceeds of ~~$48.6~~$216.7 million from public and private sales of our securities, $17.5 million from our ~~sales of preferred stock~~Loan Agreement with K2HV, $87.9 million from the GSK Agreement and $150.0 million from the ~~Collaboration~~Novartis Agreement.

In May 2019, we entered into the 2019 Sales Agreement, with JonesTrading to issue and sell up to $30.0 million in shares of our common stock, from time to time. As of ~~March 31, 2018,~~June 30, 2020, we sold 11,229,174 shares of common stock at-the-market under the 2019 Sales Agreement for net proceeds of $29.1 million, and had fully utilized and closed the 2019 ATM Facility.

In May 2020, we entered into the 2020 Sales Agreement, with JonesTrading to issue and sell up to $50.0 million in shares of our common stock, from time to time. Through September 30, 2021, we sold 2,303,545 shares of common stock at-the-market under the 2020 Sales Agreement for net proceeds of $19.5 million.

In August 2021, the Company entered into the Amended Sales Agreement with JonesTrading, which amends the 2020 Sales Agreement to allow the issuance and sale of up to $80 million in shares of the Company's common stock, from time to time. The Company did not sell any shares of common stock at-the-market under the Amended Sales Agreement in the three or nine months ended September 30, 2021.

Table of Contents

As of September 30, 2021, we had cash, cash equivalents and marketable securities of ~~$93.8~~$149.7 million.

On April 23, 2018, we completed an initial public offering of our common stock by issuing 7.2 million shares of common stock, at $15.00 per share for gross proceeds of $108.0 million, or net proceeds of $97.2 million. Concurrent with the initial public offering, we issued ~~Novartis in a private placement, 766,666 shares of our common stock at $15.00 per share for proceeds of $11.5 million.~~

Future Funding Requirements

We expect our expenses towill increase ~~substantially~~ in ~~connection with our ongoing activities, in particular~~the future as we ~~continue to~~anticipate incurring increased clinical development costs as we advance our ~~product candidates~~SRF617 and ~~our discovery programs and conduct research under~~SRF388 Phase 1 clinical trials as well as increased costs relating to the ~~Collaboration Agreement. In addition, upon the completion of this offering,~~SRF114 program as we pursue IND-enabling activities. Additionally, we expect to continue to incur additional costs associated with operating as a public company.

We believe that ~~the anticipated net proceeds from this offering and the concurrent private placement, together with~~ our existing cash, cash equivalents, and marketable securities, as of November 4, 2021, will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements ~~for at least the next 24 months.~~into 2023, excluding any future milestone payments from Novartis and GSK. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

•completing clinical ~~and preclinical~~ development of existing product candidates and programs, identifying new product candidates, and completing pre-clinical and clinical development of such product candidates ~~and identifying and developing new product candidates;~~

in a timely manner, if at all;

•seeking and obtaining marketing approvals for any of product candidates that we develop;

•launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

•achieving adequate coverage and reimbursement by hospitals, government and third-party payors for product candidates that we develop;

•

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for product candidates that we develop, if approved;

•establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for product candidates that we develop, if approved;

•obtaining market acceptance of product candidates that we develop as viable treatment options;

•addressing any competing technological and market developments;

•negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;

•maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

•defending against third-party interference or infringement claims, if any; and

•attracting, hiring and retaining qualified personnel.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

In addition to the variables described above, if and when any product candidate we develop successfully completes development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other costs. We cannot reasonably estimate these costs at this time.

Table of Contents

Until such time, if ever, asthat we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration ~~arrangements, including the Collaboration Agreement. We currently have no credit facility or committed sources of capital.~~arrangements. 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 common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. 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. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.

Cash Flows

The following table summarizes information regarding our cash flows for each of the periods presented:

Three months ended March 31,

2018

2017

(in thousands)

Net cash provided by (used in):

Operating activities

$
31,011

$
(3,488
)
Investing activities

5,720

13,496

Financing activities

102

—

Net increase in cash and cash equivalents and restricted cash

$
36,833

$
10,008


	Nine months ended September 30,
	2021		2020
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(46,487)	$	(42,312)
Investing activities	(89,491)		55,328
Financing activities	21,685		39,695
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(114,293)	$	52,711

Operating Activities

During the ~~three~~nine months ended ~~March 31, 2018,~~September 30, 2021, net cash ~~provided by~~used in operating activities was ~~$31.0~~$46.5 million, primarily due to ~~our~~a net ~~income~~loss of ~~$31.2~~$54.4 million and ~~non-cash charges of $1.7 million partially offset by net cash used by~~ changes in our operating assets and liabilities of ~~$1.8~~$3.0 million, partially offset by non-cash charges of $10.9 million. Net cash used byin changes in our operating assets and liabilities for the ~~three~~nine months ended ~~March 31, 2018~~September 30, 2021 consisted primarily of a ~~$5.6~~$0.5 million decrease in accrued expenses and other current liabilities, ~~and~~ a ~~$0.5~~$1.2 million decrease ~~in deferred revenue-related party, offset by a $3.7 million increase~~ in accounts payable and a ~~$0.6~~decrease of 1.6 million in our operating lease liability. This was offset by an increase of $0.3 million in prepaid expenses and other current assets. The decrease in accrued expenses and other current liabilities ~~was~~is primarily due to ~~payments of~~the decrease in accrued bonus and contract manufacturing costs, ~~incurred to support ongoing clinical trial activities~~the decrease in our operating lease liability is a result of rental payment made on our operating leases, and the ~~payment~~decrease in accounts payable is a result of ~~accrued bonuses in January 2018.~~timing of payments. The increase in ~~accounts payable was~~prepaid expenses and other current assets is primarily due to ~~timing of invoices~~receivables from GSK related to reimbursement for ~~manufacturing expenses.~~

the supply and transition services performed.

During the ~~three~~nine months ended ~~March 31, 2017,~~September 30, 2020, net cash used in operating activities was ~~$3.5~~$42.3 million, primarily ~~resulting from our~~due a net loss of ~~$8.6~~$8.0 million ~~partially offset by net cash provided by~~and changes in our operating assets and liabilities of ~~$5.2~~$44.3 million, ~~and net~~partially offset by non-cash charges of ~~$0.1~~$10.1 million. Net cash ~~provided by~~used in changes in our operating assets and liabilities for the ~~three~~nine months ended ~~March 31, 2017~~September 30, 2020 consisted primarily of a ~~$5.0 million increase in amounts due from Novartis, a related party, an increase of $3.1 million in accounts payable partially offset by $1.7~~$38.6 million decrease in deferred revenue-related party, a ~~$0.5~~$1.3 million decrease in accrued expenses and other current liabilities, a $2.9 million decrease in accounts payable, a $1.1 million increase in other liabilities, and an ~~$1.0~~increase of $2.4 million ~~decrease~~ in prepaid expenses and other current assets. The decrease in deferred revenue-related party was due to the recognition of $38.6 million in revenue in 2020 due to the removal of all future costs in the cost-to-cost model as a result of Novartis’ decision not to purchase and exercise the single remaining Option under the Collaboration Agreement prior to it expiring in January 2020. The increase in other liabilities represents a commercial option fee which we incurred under the agreement with Adimab LLC in January 2020, but is not payable within twelve months of the balance sheet date. The decrease in accounts payable ~~was due to timing of invoices for clinical manufacturing costs. The decrease in~~and accrued expenses ~~and other current liabilities was due to payment~~is a result of ~~accrued bonuses~~the strategic restructuring announced in January ~~2017. The increase in prepaid expenses and other current assets was due to prepayments of clinical manufacturing costs.~~

2020.

Investing Activities

During the ~~three~~nine months ended ~~March 31, 2018,~~September 30, 2021, net cash used in investing activities was $89.5 million related to the net purchases of marketable securities.

During the nine months ended September 30, 2020, net cash provided by investing activities was ~~$5.7~~$55.3 million, ~~consisting~~ primarily ~~of $6.2~~due to $56.0 million of proceeds from sales or maturities of marketable securities partially offset by ~~$0.5 million of~~ purchases ~~of property and equipment.~~

~~During the three months ended March 31, 2017, net cash provided by investing activities was $13.5 million, consisting primarily of $14.6 million in proceeds from sales or maturities~~ of marketable securities ~~partially offset by $1.1 million~~ of ~~purchases~~$0.7 million.

Table of ~~property and equipment, primarily related to leasehold improvements in our corporate headquarters facility.~~

Contents

Financing Activities

During the ~~three~~nine months ended ~~March 31, 2018,~~September 30, 2021, net cash provided by financing activities was ~~immaterial,~~$21.7 million, consisting ~~primarily of $0.2 million~~ of proceeds of $19.5 million received from issuance of our shares of common stock at-the-market under the 2020 Sales Agreement, proceeds of $0.3 million received from the issuance of shares under our 2018 Employee Stock Purchase Plan, and proceeds of $1.9 million from the exercise of ~~stock~~ options ~~offset by payments of initial public offering costs of $0.1 million.~~

to purchase common stock.

During the ~~three~~nine months ended ~~March 31, 2017, there~~September 30, 2020, net cash provided by financing activities was ~~no financing activity.~~

$39.7 million, consisting of proceeds of $29.1 million received from issuance of our shares of common stock at-the-market under the 2019 Sales Agreement, proceeds from the issuance of the second tranche of our convertible note payable of $10.0 million, and proceeds of $0.4 million from the exercise of options to purchase common stock.

Contractual Obligations

We have entered into agreements in the normal course of business with ~~CROs~~contract research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. These contractual obligations are ~~cancelable at any time~~generally cancellable by us ~~generally~~ upon prior written notice to the vendor.

During the ~~three~~nine months ended ~~March 31, 2018,~~September 30, 2021, there were no material changes, ~~other than the item mentioned below,~~ to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our ~~final prospectus for our initial public offering of our common stock~~Annual Report on Form 10-K filed with the SEC ~~pursuant to Rule 424(b)(4) of the Securities Act~~ on ~~April 19, 2018.~~

~~Lease Amendment~~

In May 2018, we executed an amendment to lease an additional 33,526 square feet at 50 Hampshire Street in Cambridge, Massachusetts, with a 10-year term. The original lease term was extended to co-terminate with the additional space. We will pay annual rent of $71.00 per rentable square foot for the first year, with annual upward adjustments of $1.00 per rentable square foot for the remainder of the term. The additional facility will be ready for occupancy in 2020.

March 9, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our ~~condensed~~ consolidated financial statements, which we have prepared in accordance with the rules and regulations of the SEC, and generally accepted accounting principles in the United States, or GAAP. The preparation of these ~~condensed~~ consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, ~~and~~ liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as ~~the reported~~revenue and expenses during the reporting ~~periods.~~period. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed since our ~~final prospectus for our initial public offering of our common stock~~Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission or~~ SEC ~~pursuant to Rule 424(b)(4) of the Securities Act~~ on ~~April 19, 2018, which we refer to as the Prospectus, except for our adoption of the new revenue standard which is discussed above.~~

March 9, 2021.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

Emerging Growth Company and Smaller Reporting Company Status

As an “emerging growth company,” the Jumpstart Our Business Startups Act of 2012 allows us to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk.~~

Table of Contents

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. For so long as we remain a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not smaller reporting companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our cash, cash equivalents and marketable securities as of ~~March 31, 2018~~September 30, 2021 consisted of cash, a money market fund invested primarily in short-term U.S. Treasury obligations and U.S. government agency ~~bonds and corporate~~ bonds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, we do not believe that we have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

Item 4.

Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~March 31, 2018.~~

September 30, 2021.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) has occurred during the three months ended ~~March 31, 2018~~September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

Item 1. Legal Proceedings

In ~~January 2017,~~October 2020, we filed an opposition in the European Patent Office, or EPO, opposing the grant of European Patent No. EP ~~2242512~~3258951B1 to ~~Stanford University.~~Compugen, Ltd., or the Compugen Patent. We are one of ~~seven~~two parties opposing the grant of the ~~European patent,~~Compugen Patent, which relates generally to ~~CD47~~PVRIG (an alternate name for CD112R) antibodies for use in treating cancer. ~~Stanford has filed a~~The proprietor’s response to the ~~seven oppositions. Oral arguments have been scheduled~~statements of opposition was filed on March 22, 2021; we are currently awaiting a summons to commence on August 28, 2018, and the outcome of the opposition proceedings is uncertain. Furthermore, any party can appeal an opposition decision to the Technical Boards of Appeal at the European Patent Office.oral proceedings. Accordingly, final resolution of the ~~oppositions~~opposition may be several years in the future.

In June 2021, we filed an opposition in the European Patent Office, or EPO, opposing the grant of European Patent No. EP 3153526B1 to INSERM (Institut National de la Santé et de la Recherche Médicale), or the INSERM Patent. We are one of four parties opposing the grant of the INSERM Patent, which relates generally to pharmaceutical compositions comprising anti-CD39 antibodies which inhibit activity of regulatory T cells (Treg) for use in the treatment or prevention of cancers. We currently await the proprietor’s response to the statements of opposition and subsequently a summons to oral proceedings. Accordingly, final resolution of the opposition may be several years in the future.

From time to time, we may become involved in other litigation or legal proceedings relating to claims arising from the ordinary course of business.

~~Item 1A.~~

~~Risk Factors~~

~~Careful consideration should be given to~~

Item 1A. Risk Factors

There have been no material changes from the ~~following~~ risk factors previously disclosed in ~~addition to the other information set forth in this Quarterly~~Part I, Item 1A (“Risk Factors”) of our Annual Report on Form 10-Q and in other documents that we file with the SEC, in evaluating our company and our business. Investing in our common stock involves a high degree of risk. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

~~Risks Related To Our Financial Position And Need For Additional Capital~~

We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

~~Since inception, we have incurred significant net losses. Our net losses were $17.5 million and $45.4 million~~10-K for the ~~years~~fiscal year ended December 31, ~~2016~~2020.

Item 2. Unregistered Sales of Equity Securities and 2017, respectively, and net income of $31.2 for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $29.0 million. We have funded our operations to date primarily with proceeds from the sale of preferred stock and upfront fees received in connection with our collaboration with Novartis Institutes for Biomedical Research, Inc., or Novartis. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring and discovering development programs, securing related intellectual property rights and conducting discovery, research and development activities for our programs. We have not yet demonstrated our ability to successfully complete any clinical trials, including pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. We expect that it will be several years, if ever, before we have a commercialized product. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if, and as, we:

~~pursue the clinical development of product candidates;~~

~~leverage our programs to advance product candidates into preclinical and clinical development;~~

~~seek regulatory approvals for any product candidates that successfully complete clinical trials;~~

~~hire additional clinical, quality control and scientific personnel;~~

expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

~~maintain, expand and protect our intellectual property portfolio;~~

establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly; and

~~acquire or in-license other product candidates and technologies.~~

To become and remain profitable, we, Novartis or any potential future collaborator must develop and eventually commercialize products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval for product candidates, manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

~~We have never generated revenue from product sales and may never be profitable.~~

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with our collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our development programs. We do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, Novartis’, or any potential future collaborators’ success in:

~~completing clinical and preclinical development of product candidates and programs and identifying and developing new product candidates;~~

~~seeking and obtaining marketing approvals for any product candidates that we develop;~~

launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

~~achieving adequate coverage and reimbursement by hospitals, government and third-party payors for product candidates that we develop;~~

~~obtaining market acceptance of product candidates that we develop as viable treatment options;~~

~~addressing any competing technological and market developments;~~

~~negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;~~

~~maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;~~

~~defending against third-party interference or infringement claims, if any; and~~

~~attracting, hiring and retaining qualified personnel.~~

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

We will require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the preclinical and clinical development of our current and future programs. If we are able to gain marketing approval for product candidates that we develop, including SRF231, we will require significant additional amounts of cash in order to launch and commercialize such product candidates to the extent that such launch and commercialization are not the responsibility of Novartis or another collaborator that we may contract with in the future. In addition, other unanticipated costs may arise. Because the design and outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop.

~~Our future capital requirements depend on many factors, including:~~

~~the scope, progress, results and costs of researching and developing SRF231 and our other product candidates and programs, and of conducting preclinical studies and clinical trials;~~

~~the timing of, and the costs involved in, obtaining marketing approvals for SRF231 and future product candidates we develop if clinical trials are successful;~~

~~the success of our collaboration with Novartis;~~

~~whether Novartis exercises its licensing and co-development options under its collaboration agreement with us, each of which would trigger additional payments to us;~~

•

the cost of commercialization activities for SRF231 and future product candidates we develop, whether alone or with a collaborator, if SRF231 or any product candidate we develop are approved for sale, including marketing, sales and distribution costs;

~~the cost of manufacturing SRF231 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;~~

~~our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;~~

~~the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;~~

~~the timing, receipt and amount of sales of, or royalties on, our future products, if any;~~

~~the emergence of competing cancer therapies and other adverse market developments; and~~

~~the requirement for, and cost of, developing complementary diagnostics and/or companion diagnostics.~~

We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product and royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Based on our research and development plans, we expect that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.

If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain additional funding on favorable terms when needed, we may have to delay, reduce the scope of or suspend one or more of our research and development programs or clinical trials.

~~Our ability to utilize our net operating loss carryforwards and certain other tax attributes has been limited by “ownership changes” and may be further limited.~~

We have incurred substantial losses during our history. As of December 31, 2017, we had federal and state net operating loss carryforwards of $20.8 million and $19.9 million, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have in the past experienced, and we may in the future experience, ownership changes, some of which are outside our control. Use of our federal and state net operating loss carryforwards have been limited and could be further limited if we experience additional ownership changes, which could have an adverse effect on our future results of operations.

~~Risks Related To Product Development And Regulatory Process~~

If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.

We are early in our development efforts, and we have only recently initiated our first Phase 1 clinical trial for our lead product candidate. We have invested substantially all of our efforts and financial resources in the identification of targets and preclinical development of antibodies.

Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the product candidates we develop, which may never occur. Our current product candidates, and any future product candidates we develop, will require additional preclinical and clinical development, management of clinical, preclinical and manufacturing activities, marketing approval in the United States and other markets, demonstrating effectiveness to pricing and reimbursement authorities, obtaining sufficient manufacturing supply for both clinical

development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts before we generate any revenues from product sales. The success of our current and future product candidates will depend on several factors, including the following:

Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

~~successful completion of clinical trials and preclinical studies;~~

~~sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;~~

~~acceptance of INDs for our planned clinical trials or future clinical trials;~~

Item 6. Exhibits.

~~successful enrollment and completion of clinical trials;~~

~~successful data from our clinical program that supports an acceptable risk-benefit profile of our product candidates in the intended populations;~~

~~receipt of regulatory and marketing approvals from applicable regulatory authorities;~~

~~receipt and maintenance of marketing approvals from applicable regulatory authorities;~~

~~establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidate is approved;~~

~~entry into collaborations to further the development of our product candidates;~~

~~obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;~~

~~successfully launching commercial sales of our product candidates, if and when approved;~~

~~acceptance of the product candidate’s benefits and uses, if and when approved, by patients, the medical community and third-party payors;~~

~~maintaining a continued acceptable safety profile of the product candidates following approval;~~

~~effectively competing with other therapies;~~

~~obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors; and~~

~~enforcing and defending intellectual property rights and claims.~~

If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize the product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for SRF231, or any other product candidate we develop, we may not be able to continue our operations.

Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

In order to obtain FDA approval to market a new biological product we must demonstrate proof of safety, purity and potency or efficacy in humans. To meet these requirements we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned INDs in the United States. We only have one product candidate in clinical development and one product candidate ready to enter clinical development, and the rest of our programs are in preclinical development. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.

Conducting preclinical testing is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can be several years or more per program. Delays associated with programs for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain programs that are the responsibility of Novartis or our potential future partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:

~~inability to generate sufficient preclinical or other~~ ~~in vivo~~ or ~~in vitro~~ ~~data to support the initiation of clinical studies;~~

~~delays in reaching a consensus with regulatory agencies on study design; and~~

~~the FDA not allowing us to rely on previous findings of safety and efficacy for other similar but approved products and published scientific literature.~~

Moreover, even if clinical trials do begin for our preclinical programs, our development efforts may not be successful, and clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety, purity and potency or efficacy to obtain the requisite regulatory approvals for any of product candidates we develop. Even if we obtain positive results from preclinical studies or initial clinical trials, we may not achieve the same success in future trials.

The regulatory approval processes of the FDA, the EMA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA, the EMA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our current or future product candidates will ever obtain regulatory approval.

~~Our current and future product candidates could fail to receive regulatory approval for many reasons, including the following:~~

~~the FDA, the EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;~~

we may be unable to demonstrate to the satisfaction of the FDA, the EMA or comparable foreign regulatory authorities that a product candidate is safe, pure and potent or effective for its proposed indication;

~~the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA or comparable foreign regulatory authorities for approval;~~

~~we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;~~

~~the FDA, the EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from clinical trials or preclinical studies;~~

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a Biologics License Application, or BLA, to the FDA or other submission or to obtain regulatory approval in the United States, the European Union or elsewhere;

the FDA, the EMA or comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

~~the approval policies or regulations of the FDA, the EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.~~

This lengthy approval process as well as the unpredictability of clinical trial results may result in our failing to obtain regulatory approval to market any product candidate we develop, which would significantly harm our business, results of operations and prospects. The FDA, the EMA and other comparable foreign authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any product candidate that we develop. Even if we believe the data collected from future clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, 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. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Further, we have not previously submitted a BLA to the FDA, or a Marketing Authorization Application, or MAA, to the EMA. We cannot be certain that any of our programs will be successful in clinical trials or receive regulatory approval. Further, product candidates we develop may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Clinical product development involves a lengthy and expensive process, with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current and future product candidates.

To obtain the requisite regulatory approvals to commercialize any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe, pure and potent or effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and our future clinical trial results may not be successful.

We may experience delays in completing our clinical trials or preclinical studies and initiating or completing additional clinical trials. We may also experience numerous unforeseen events during our clinical trials that could delay or prevent our ability to receive marketing approval or commercialize the product candidates we develop, including:

~~regulators or Institutional Review Boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;~~

~~we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs;~~

~~the number of patients required for clinical trials may be larger than we anticipate;~~

it may be difficult to enroll a sufficient number of patients with a predictive biomarker or enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; and

~~the supply or quality of materials for product candidates we develop or other materials necessary to conduct clinical trials may be insufficient or inadequate.~~

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted or ethics committees, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of our product candidates.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates and may harm our business and results of operations.

Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates or result in the development of our product candidates being stopped early.

The results of early-stage clinical trials and preclinical studies may not be predictive of future results. Initial success in our ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not be predictive of the results of the later-stage clinical trials. In addition, initial success in clinical trials may not be indicative of results obtained when such trials are completed. There can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results.

We expect that we will need to develop, or enter into a collaboration or partnerships to develop, complementary diagnostics and/or companion diagnostics for our current or future product candidates. If we, or our future collaborators, are unable to successfully develop such companion diagnostics or complementary diagnostics, or experience significant delays in doing so, we may not realize the full commercial potential of our future product candidates.

As one of the key elements of our product development strategy, we seek to identify cancer patient populations who may derive meaningful benefit from our current or future product candidates. Because predictive biomarkers may be used to identify the right patients for our programs and our current or future product candidates, we believe that our success may depend, in part, on our ability to develop complementary diagnostics and/or companion diagnostics in collaboration with partners.

We have little experience in the development of diagnostics and, as such, we expect to rely on future collaborators in developing appropriate diagnostics to pair with our current or future product candidates. We have not yet begun discussions with any potential partners with respect to the development of complementary diagnostics and/or companion diagnostics and may be unsuccessful in entering into collaborations for the development of companion diagnostics for our programs and our current or future product candidates.

Complementary diagnostics and/or companion diagnostics are subject to regulation by the FDA and similar regulatory authorities outside the United States as medical devices and require separate regulatory approval or clearance prior to commercialization. If we, our collaborators, or any third parties that we engage to assist us, are unable to successfully develop complementary diagnostics and/or companion diagnostics for our product candidates and any future product candidates, or experience delays in doing so:

~~the development of our product candidates and any other future product candidates may be adversely affected if we are unable to appropriately select patients for enrollment in our clinical trials; and~~

we may not realize the full commercial potential of our product candidates and any other future product candidates that receive marketing approval if, among other reasons, we are unable to appropriately identify, or it takes us longer to identify, patients who are likely to benefit from therapy with our products, if approved.

~~If any of these events were to occur, our business would be harmed, possibly materially.~~

~~If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise be adversely affected.~~

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:

~~the patient eligibility criteria defined in the protocol;~~

~~our ability to enroll a sufficient number of patients with a predictive biomarker, if any;~~

~~the size of the patient population required for analysis of the trial’s primary endpoints;~~

~~the proximity of patients to study sites;~~

~~the design of the trial;~~

~~our ability to recruit clinical trial investigators with the appropriate competencies and experience;~~

clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;

~~our ability to obtain and maintain patient consents for participation in our clinical trials and, where appropriate, biopsies for future patient enrichment efforts; and~~

the risk that patients enrolled in clinical trials will drop out of the trials before completion or, because they are late-stage cancer patients, will not survive the full terms of the clinical trials.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our current and potential future product candidates. This competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such sites. Moreover, because our current and potential future product candidates may represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll patients in our ongoing or any future clinical trial.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of the product candidates we develop.

Our current or future product candidates may cause undesirable side effects or have other properties when used alone or in combination with other approved products or investigational new drugs that could halt their clinical development, prevent their marketing approval, limit their commercial potential or result in significant negative consequences.

Undesirable or clinically unmanageable side effects could occur and 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 marketing approval by the FDA or comparable foreign regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.

If unacceptable toxicities or other undesirable side effects arise in the development of any of our current or future product candidates, we or our collaborators could suspend or terminate our trials, or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of the product candidate for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or result in potential product liability claims. Any of these occurrences may prevent us from achieving or maintaining market acceptance of the affected product candidate and may harm our business, financial condition and prospects significantly.

Although our current and future product candidates have undergone and will undergo safety testing to the extent possible and, where applicable, under such conditions discussed with regulatory authorities, not all adverse effects of drugs can be predicted or anticipated. Immunotherapy, and its method of action of harnessing the body’s immune system, is powerful and could lead to serious side effects that we only discover in clinical trials. Unforeseen side effects could arise either during clinical development or, if such side effects are more rare, after our products have been approved by regulatory authorities and the approved product has been marketed, resulting in the exposure of additional patients. So far, we have not previously demonstrated that SRF231 or any other product candidate is safe in humans, and we cannot predict if ongoing or future clinical trials will do so. If any of our current or future product candidates fail to demonstrate safety and efficacy in clinical trials or do not gain marketing approval, we will not be able to generate revenue and our business will be harmed.

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any of our existing or future collaboration partners from obtaining approvals for the commercialization of SRF231 and any other product candidate we develop.

Any current or future product candidate we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval to market any product candidates from regulatory authorities in any jurisdiction and it is possible that none of the product candidates we may seek to develop in the future will ever obtain regulatory approval. We have no experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biologic product candidate’s safety, purity, efficacy and potency. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any product candidates we develop may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If we experience delays in obtaining approval or if we fail to obtain approval of any current or future product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.

Obtaining and maintaining marketing approval of our current and future product candidates in one jurisdiction does not mean that we will be successful in obtaining marketing approval of our current and future product candidates in other jurisdictions.

Obtaining and maintaining marketing approval of our current and future product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain marketing approval in any other jurisdiction, while a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the marketing approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign marketing 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. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

~~Adverse events in the field of immuno-oncology could damage public perception of our current or future product candidates and negatively affect our business.~~

The commercial success of our products will depend in part on public acceptance of the use of cancer immunotherapies. While a number of cancer immunotherapies have received regulatory approval and are being commercialized, our approach to targeting different components of the tumor microenvironment is novel and unproven. Adverse events in clinical trials of our product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of immuno-oncology that may occur in the future, could result in a decrease in demand for any product that we may develop. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our products may not be accepted by the general public or the medical community.

Future adverse events in immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for the product candidates we develop.

Even if we receive marketing approval of a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products, if approved.

Any marketing approvals that we receive for any current or future product candidate may be subject to limitations on the approved indicated uses for which the product may be marketed or the conditions of approval, or contain requirements for potentially costly post-market testing and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval of any product candidate, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves a product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import and export and record keeping for the product candidate will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practice, or cGMP, and Good Clinical Practice, or GCP, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with any approved candidate, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

~~restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or product recalls;~~

~~fines, untitled and warning letters, or holds on clinical trials;~~

•

~~refusal by the FDA to approve pending applications or supplements to approved applications we filed or suspension or revocation of license approvals;~~

~~product seizure or detention, or refusal to permit the import or export of the product; and~~

~~injunctions or the imposition of civil or criminal penalties.~~

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of a product. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Even if a current or future product candidate receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any current or future product candidate we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community. For example, current approved immunotherapies, and other cancer treatments like chemotherapy and radiation therapy, are well established in the medical community, and doctors may continue to rely on these therapies. If the product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, will depend on a number of factors, including:

~~efficacy and potential advantages compared to alternative treatments;~~

~~the ability to offer our products, if approved, for sale at competitive prices;~~

~~convenience and ease of administration compared to alternative treatments;~~

~~the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;~~

~~the strength of marketing and distribution support;~~

~~the ability to obtain sufficient third-party coverage and adequate reimbursement, including with respect to the use of the approved product as a combination therapy;~~

~~adoption of a companion diagnostic and/or complementary diagnostic; and~~

~~the prevalence and severity of any side effects.~~

The market opportunities for any current or future product candidate we develop, if and when approved, may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

Cancer therapies are sometimes characterized as first-line, second-line, or third-line, and the FDA often approves new therapies initially only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We expect to initially seek approval of SRF231 and any other product candidates we develop as a therapy for patients who have received one or more prior treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval potentially as a first-line therapy, but there is no guarantee that product candidates we develop, even if approved, would be approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

The number of patients who have the cancers we are targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for our current programs or future product candidates may be limited, if and when approved. Even if we obtain significant market share for any product candidate, if and when approved, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications, including to be used as first- or second-line therapy.

~~We expect to develop SRF231 and, potentially future product candidates, in combination with other therapies, which exposes us to additional risks.~~

We intend to develop SRF231, and may develop future product candidates, in combination with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy,

manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

We may also evaluate SRF231 or any other future product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell SRF231 or any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with SRF231 or any product candidate we develop, we may be unable to obtain approval of or market SRF231 or any product candidate we develop.

We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

The life sciences industry is highly competitive. We are currently developing therapeutics that will compete, if approved, with other products and therapies that currently exist or are being developed. Products we may develop in the future are also likely to face competition from other products and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, product development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining marketing approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.

There are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology companies. These treatments consist both of small molecule drug products, such as traditional chemotherapy, and biological products. There are also several programs in development targeting cluster of differentiation, or CD, 47, SIRPa, including those by Alexo Therapeutics, Inc., Arch Oncology, Aurigene, Inc., Blink Biomedical, Inc., Celgene, Inc., Forty Seven, Inc., Novimmune, S.A., OSE Immunotherapeutics S.A., Sorrento, Inc., Synthon Holding B.V. and Trillium Therapeutics, Inc.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are reimbursed or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Even if the product candidate we develop achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced competitiveness.

Smaller and other early stage companies may also prove to be significant competitors. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our product candidates obsolete, less competitive or not economical.

Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing 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, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate,

possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize any product candidates, whether as a single agent or combination therapy, successfully also will depend in part on the extent to which coverage and reimbursement for these product candidates and related treatments will be available from government authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. It is difficult to predict at this time what government authorities and third-party payors will decide with respect to coverage and reimbursement for our programs.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and requiring substitutions of generic products and/or biosimilars. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, the level of reimbursement. These third-party payors are also examining the cost-effectiveness of drugs in addition to their safety and efficacy.

Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, as the process is time-consuming and costly, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Additionally, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States, which may result in coverage and reimbursement for drug products that can differ significantly from payor to payor. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including 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 not be made permanent. Reimbursement rates may vary according to the use of 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. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.

We may not be successful in our efforts to identify or discover other product candidates and may fail to capitalize on programs or product candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.

The success of our business depends upon our ability to identify, develop and commercialize product candidates. If we do not successfully develop and eventually commercialize products, we will face difficulty in obtaining product revenue in future periods, resulting in significant harm to our financial position and adversely affecting our share price. Research programs to identify new product candidates require substantial technical, financial and human resources, and we may fail to identify potential product candidates for numerous reasons.

Additionally, because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. For example, we currently intend to focus our capital resources primarily on the development of SRF231. However, the advancement of this product candidate may ultimately prove to be unsuccessful or less successful than another program in our pipeline that we might have chosen to pursue on a less aggressive basis with our capital resources. Our estimates regarding the potential market for our product candidates could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. For example, we licensed worldwide development and commercialization rights with respect to SRF373 to Novartis and will receive only milestone payments and royalties on sales of SRF373, if approved. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

If any of these events occur, we may be forced to abandon or delay our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may seek Breakthrough Therapy Designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek Breakthrough Therapy Designation for any product candidate that we develop. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval and priority review.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe a product candidate we develop meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if the product candidates we develop qualify as breakthrough therapies, the FDA may later decide that the drugs no longer meet the conditions for qualification and rescind the designation.

We may seek Fast Track Designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not actually lead to a faster development or regulatory review or approval process.

We may seek Fast Track Designation for the product candidates we develop. If a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, the product sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may rescind the Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.

We may seek Orphan Drug Designation for product candidates we develop, and we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity.

As part of our business strategy, we may seek Orphan Drug Designation for any product candidates we develop, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

Similarly, in Europe, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an Orphan Drug Designation application. Orphan Drug Designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe would be sufficient to justify the necessary investment in developing the drug. In Europe, Orphan Drug Designation entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.

Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable such that market exclusivity is no longer justified.

Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek Orphan Drug Designation for applicable indications for our current and any future product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

~~If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any approved products.~~

We face an inherent risk of product liability as a result of the clinical testing of product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product candidate we develop causes or is perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of any approved products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

~~decreased demand for any approved product;~~

~~injury to our reputation;~~

~~withdrawal of clinical trial participants;~~

~~initiation of investigations by regulators;~~

~~costs to defend the related litigation;~~

~~a diversion of management’s time and our resources;~~

~~substantial monetary awards to trial participants or patients;~~

~~product recalls, withdrawals or labeling, marketing or promotional restrictions;~~

~~loss of revenue;~~

~~exhaustion of any available insurance and our capital resources;~~

~~the inability to commercialize any product candidate; and~~

~~a decline in our share price.~~

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators.

Insurance coverage is increasingly expensive. We may not be able to maintain insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, if at all. Our insurance policy contains various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with Novartis or any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

~~Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.~~

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the

rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (70% commencing January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” The effect that the ACA and its possible repeal and replacement may have on our business remains unclear.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services, or CMS, the agency responsible for administering the Medicare program, reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for any product candidate we develop or complementary diagnostics or companion diagnostics or additional pricing pressures.

Additionally, 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 and enacted federal and state legislation designed to, among other things, bring more transparency to 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.

~~We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.~~

Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

~~Risks Related To Reliance On Third Parties~~

We are fully dependent on our collaboration with Novartis for the development of SRF373 and may depend on Novartis or additional third parties for the development and commercialization of our other programs and future product candidates. Our current and future collaborators may control aspects of our clinical trials, which could result in delays or other obstacles in the commercialization of the product candidates we develop. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

In January 2016, we entered into a strategic collaboration agreement with Novartis, or the Collaboration Agreement, focused on researching, developing and commercializing cancer immunotherapies. Pursuant to the Collaboration Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73, along with the right to purchase exclusive option rights to up to four specified targets, each an Option, to obtain certain development, manufacturing and commercialization rights. In March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231. Novartis currently has two Options remaining eligible for purchase, both of which can be exercised. The collaboration involves a complex allocation of rights, provides for milestone payments to us based on the achievement of specified clinical development, regulatory and commercial milestones, provides for additional payments upon Novartis’ election to exercise rights to commercialize additional product candidates, and provides us with royalty-based revenue if certain product candidates are successfully commercialized. Novartis will have substantial ability to control the development and commercialization of the target it chooses to license on a global basis. Our lack of control over the clinical development of certain programs under the Collaboration Agreement could result in delays or other difficulties in the development and commercialization of product candidates, which may prevent completion of intended IND filings in a timely fashion, if at all. In particular, Novartis is solely responsible for the development and commercialization of SRF373 and as such, we are wholly dependent on Novartis for the success of this program. In the event Novartis terminates the Collaboration Agreement, we would be prevented from receiving any milestone payments, royalty payments and other benefits under that agreement, which would have a materially adverse effect on our results of operations. Furthermore, in the event Novartis does not purchase and exercise its remaining Options, we will not be eligible to receive any future milestone payments under the Collaboration Agreement, other than from SRF373, if any, which could require us to seek additional funding in order to avoid delaying, reducing the scope of, or suspending, one or more of our research and development programs or clinical trials. In addition, any decision by Novartis not to purchase or exercise an Option may negatively impact public perception of the applicable program, or all of the programs, covered by the Collaboration Agreement, which could adversely affect the market price of our common stock. We cannot provide any assurance with respect to the success of the Collaboration Agreement.

In the future, we may form or seek other strategic alliances, joint ventures, or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to product candidates we develop.

~~Our current Collaboration Agreement poses, and potential future collaborations involving our product candidates may pose, the following risks to us:~~

~~collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;~~

~~collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;~~

collaborators may not properly enforce, maintain or defend our intellectual property rights or may use our proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation, or other intellectual property proceedings;

disputes may arise between a collaborator and us that cause the delay or termination of the research, development or commercialization of the product candidate, or that result in costly litigation or arbitration that diverts management attention and resources;

if a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated; and

collaboration agreements may restrict our right to independently pursue new product candidates. For example, under the Collaboration Agreement, for a certain period of time we may not directly or indirectly research or develop, outside of the collaboration, any antibody with specified activity against that program’s collaboration target.

As a result, if we enter into additional collaboration agreements and strategic partnerships or license our intellectual property, products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to any product candidate we develop could delay the development and commercialization of our product candidates, which would harm our business prospects, financial condition, and results of operations.

~~We may seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.~~

The advancement of our product candidates and development programs and the potential commercialization of our current and future product candidates will require substantial additional cash to fund expenses. For some of our programs, we may decide to collaborate with additional pharmaceutical and biotechnology companies with respect to development and potential commercialization. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business.

We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Whether we reach a definitive agreement for other collaborations will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the progress of our clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Further, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view them as having the requisite potential to demonstrate safety and efficacy.

We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. For example, under the Collaboration Agreement, we have granted worldwide exclusive rights to Novartis for antibodies targeting CD73, and during the term of the agreement we will be restricted from granting similar rights to other parties. This exclusivity could limit our ability to enter into strategic collaborations with future collaborators.

~~In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.~~

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

~~If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies.~~

If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies. Novartis or future collaborators or strategic partners, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our product candidates. Our current or future collaborators or strategic partners may preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any of these developments could harm our product development efforts.

We will rely on third parties to conduct our planned clinical trials for SRF231 and any product candidates we develop. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize SRF231 and any product candidates we develop and our business could be substantially harmed.

We do not have the ability to independently conduct clinical trials. We will rely on medical institutions, clinical investigators, contract laboratories, and other third parties, such as CROs, to conduct or otherwise support clinical trials for SRF231 and other product candidates. We will rely heavily on these parties for execution of clinical trials for SRF231 and other product candidates and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our clinical trials, we could be subject to untitled and warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

We and our CROs are required to comply with regulations and requirements, including GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or 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 assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with GCP. In addition, our clinical trials must be conducted with product candidates produced under cGMP regulations. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the marketing approval process and could also subject us to enforcement action. We also are required to register certain ongoing clinical trials and provide certain information, including information relating to the trial’s protocol, on a government-sponsored database, ClinicalTrials.gov, within specific timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Although we intend to design the clinical trials for our product candidates, CROs will conduct all of the clinical trials. As a result, many important aspects of our clinical development, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future clinical trials will also result in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

~~have staffing difficulties;~~

~~fail to comply with contractual obligations;~~

~~experience regulatory compliance issues;~~

~~undergo changes in priorities or become financially distressed; or~~

~~form relationships with other entities, some of which may be our competitors.~~

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, marketing approval and commercialization of our product candidates may be delayed, we may not be able to obtain marketing approval and commercialize our product candidates, or our development program may be materially and irreversibly harmed. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain are compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain marketing approval for or successfully commercialize our product candidates. As a result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We intend to rely on third parties to manufacture product candidates, which increases the risk that we will not have sufficient quantities of such product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of the product candidates that we are developing or evaluating in our development programs. We have limited personnel with experience in drug manufacturing and lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We rely on third parties for supply of our product candidates, and our strategy is to outsource all manufacturing of our product candidates and products to third parties.

In order to conduct clinical trials of product candidates, we will need to have them manufactured in potentially large quantities. Our third-party manufacturers may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities and at any other time. For example, ongoing data on the stability of our product candidates may shorten the expiry of our product candidates and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that product candidate may be delayed or not obtained, which could significantly harm our business.

Our use of new third-party manufacturers increases the risk of delays in production or insufficient supplies of our product candidates as we transfer our manufacturing technology to these manufacturers and as they gain experience manufacturing our product candidates.

Even after a third-party manufacturer has gained significant experience in manufacturing our product candidates or even if we believe we have succeeded in optimizing the manufacturing process, there can be no assurance that such manufacturer will produce sufficient quantities of our product candidates in a timely manner or continuously over time, or at all.

We may be delayed if we need to change the manufacturing process used by a third party. Further, if we change an approved manufacturing process, then we may be delayed if the FDA or a comparable foreign authority needs to review the new manufacturing process before it may be used.

We do not currently have any agreements with third-party manufacturers for the long-term commercial supply. In the future, we may be unable to enter into agreements with third-party manufacturers for commercial supplies of any product candidate that we develop, or may be unable to do so on acceptable terms. Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails risks, including:

~~reliance on the third party for regulatory compliance and quality assurance;~~

~~the possible breach of the manufacturing agreement by the third party;~~

~~the possible misappropriation of our proprietary information, including our trade secrets and know-how; and~~

~~the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.~~

Third-party manufacturers may not be able to comply with cGMP requirements or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and/or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

Our future product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP requirements particularly for the development of monoclonal antibodies, and that might be capable of manufacturing for us.

If the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials should cease to continue to do so for any reason, we likely would experience delays in advancing these tests and trials while we identify and qualify replacement suppliers or manufacturers and we may be unable to obtain replacement supplies on terms that are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

Our future relationships with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, 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 in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which we sell, market and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by the U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include:

•

the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under the Medicare and Medicaid programs or other federal healthcare programs. A person or entity can be found guilty of violating the statute without actual

knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

the federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statutes or specific intent to violate them;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

the federal legislation commonly referred to as the Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

~~federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and~~

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that our business arrangements with third parties comply with applicable healthcare laws, as well as responding to investigations by government authorities, can be time- and resource-consuming and can divert management’s attention from the business.

If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as 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, any of which could harm our ability to operate our business and our financial results. Further, if the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions,

including exclusions from government funded healthcare programs. In addition, the approval and commercialization of any product candidate we develop outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

~~Risks Related To Intellectual Property~~

~~Intellectual property is critical to our business and our success in part depends on our ability to maintain, protect, and expand our portfolio of intellectual property rights.~~

Biotechnology and pharmaceutical companies generally, and we in particular, compete in a crowded competitive space characterized by rapidly evolving technologies and aggressive defense of intellectual property.

Our patents and patent applications are directed to our antibodies and accompanying technologies. We seek patent protection for our development programs, product candidates and related alternatives by filing and prosecuting patent applications in the U.S. and other countries as appropriate. For example, we co-own patents and pending applications relating to our therapeutic CD47 antibody candidate, SRF231, which are expected to expire in 2036, absent any adjustment or extension. As of May 28, 2018, we co-own U.S. Patent Nos. 9,803,016 and 9,650,441, which cover composition of matter and the treatment of cancer using our therapeutic CD47 antibody, SRF231. With respect to SRF231, as of May 28, 2018, we co-own two pending U.S. non-provisional applications, as well as national applications in Australia, Brazil, Canada, China, Israel, Japan, New Zealand, and the United Kingdom, and one regional European application, for which any resulting patent from these applications would be expected to expire in 2036, absent any adjustment or extension. Further, as of May 28, 2018, we own three pending U.S. provisional patent applications, for which any resulting patent from these applications would be expected to expire in 2038 or 2039, absent any adjustment or extension.

With respect to our anti-IL-27 therapeutic antibody program, as of May 28, 2018, we are a co-applicant and co-own one U.S. provisional patent application that covers composition of matter and methods of use for various antibodies, and we do not own any non-provisional applications or issued patents for this program. Any patents that may eventually issue to these applications are expected to expire in 2039, absent any adjustment or extension. Pursuant to our agreement with Adimab LLC, or Adimab, we will own this application upon exercise of our option to a commercial license to certain antibodies from this project. In 2017 we entered into a license agreement involving U.S. patent rights, including one U.S. patent and a pending U.S. non-provisional patent application, controlled by the University of Pennsylvania. Our license is exclusive and is limited to the use of antagonists of IL-27 for the treatment of cancer. Any patent issuing from this application is expected to expire in 2024, excluding any applicable patent term adjustment or extension.

As of May 28, 2018, we are co-applicants on one U.S. provisional patent application that covers composition of matter and methods of use to our anti-CD39 therapeutic antibody candidates. Pursuant to our agreement with Adimab, we will own this application upon exercise of our option to a commercial license to certain antibodies from this project. We do not own any non-provisional applications or issued patents for this program. Any patents that may eventually issue to this application are expected to expire in 2039, absent any adjustment or extension.

As of May 28, 2018, we co-own and have exclusively licensed to Novartis our rights in two U.S. provisional patent applications that cover compositions of matter and methods of use for our CD73 therapeutic antibody candidate, SRF373, and we do not yet own any non-provisional applications or issued patents for this candidate. Any patent issuing from these applications would be expected to expire in 2038, not including any applicable patent term adjustment or extension.

If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our antibodies and the accompanying technologies we develop that are important to our business. If we are unable to secure or maintain patent protection with respect to our antibody technology and any proprietary products and technology we develop, our business, financial condition, results of operations, and prospects could be materially harmed.

Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing the scope of claims allowable in the field of antibodies has emerged in the United States. The scope of patent protection in jurisdictions outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdiction that we seek patent protection may diminish our ability to protect our inventions, maintain and enforce our intellectual property rights;

~~and, more generally, may affect the value of our intellectual property, including the narrowing of the scope of our patents and any that we may license.~~

The patent prosecution process is complex, expensive, time-consuming, and inconsistent across jurisdictions. We may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to obtain appropriate or any patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, including for example, our employees, corporate collaborators, external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimed in our patents or pending patent applications.

The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Further, the scope of the invention claimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even where patent applications we currently own or that we may license in the future issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third parties may be able to evade our patent rights by developing new antibodies, biosimilar antibodies, or alternative technologies or products in a non-infringing manner.

The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future, become subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the United States Patent and Trademark Office, or USPTO, or other foreign patent office. An unfavorable determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.

In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need the cooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and such cooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

The intellectual property landscape around therapeutic antibodies in oncology, including CD47 antibodies, is crowded, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our CD47 antibody technology.

The field of therapeutic antibodies, including CD47 antibodies for use in oncology, is crowded, and no such products have reached the market. Due to the intense research and development undertaken by academic institutions and multiple companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain for the coming years. There may be significant intellectual property-related litigation and proceedings relating to our own and other third-party intellectual property and proprietary rights in the future.

We are subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any product candidates we may develop, including interference proceedings, post-grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in foreign

jurisdictions such as oppositions before the European Patent Office, or EPO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit.

We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our CD47 antibody technology. For example, we are aware of several separate families of U.S. patents, patent applications, and foreign counterparts that relate to CD47 antibodies and methods of treatment, where the earliest priority dates of each family pre-date the priority dates of our patents and patent applications, including PCT Publication No. WO 2009/091601 (and related U.S. Patent Nos. 8,562,997, 9,493,575, 9,399,682, 9,611,329 and other related U.S. patent applications and foreign counterparts) filed by Stanford University, which is reported to have exclusively licensed its rights to Forty Seven, Inc.

Stanford University also has rights to European Patent No. EP 2242512. In January 2017, we opposed this patent in the Opposition Division of the EPO, or the Opposition Division. Six third parties have also filed oppositions against European Patent No. EP 2242512. Stanford has filed a response to the seven oppositions and oral proceedings are scheduled to commence on August 28, 2018. We cannot predict the outcome of the opposition proceeding and any party may appeal the opposition decision to the Technical Boards of Appeal at the EPO.

Pending final resolution of this matter, Stanford, or other parties that may have rights to EP 2242512 may allege that the manufacture, use or sale of SRF231 infringes the patent in Europe. If, as part of any opposition proceeding before the Opposition Division, we are unsuccessful in invalidating or narrowing Stanford’s claims, or if claims successfully invalidated by the Opposition Division are restored on appeal, our ability to commercialize SRF231 in Europe could be materially impaired. Moreover, we are aware of two pending divisional applications relating to EP 2242512 that are being pursued by Stanford. If either of these applications matures into a granted European patent or if any other related patent application matures into a granted European patent, our ability to commercialize SRF231 could be materially impaired. Similarly, related patents in the U.S. or other countries could materially impair our ability to commercialize SRF231 in those countries.

We are also aware of another family of third-party patents and patent applications that may be asserted to encompass certain combination therapies using our CD47 antibodies. This family of U.S. and foreign patents and patent applications relate to combination therapy using CD47 antibodies, and includes U.S. Patent No. 9,352,037 and related European Patent No. EP 2282772. This family was filed by Stichting Sanquin Bloedvoorziening of the Netherlands, or Sanquin, which is reported to have licensed its rights to Synthon Biopharmaceuticals B.V., also of the Netherlands. Sanquin or other parties that may have rights in the patents may allege that we are not entitled to market combination therapies involving SRF231 without a license, which could materially impair our ability to commercialize SRF231 combination therapies.

In order to avoid infringing third-party patents, or patents that issue from these third-party patent applications, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. We may be forced to obtain or maintain a license on commercially unreasonable terms to any third-party patents that cover our product candidates or activities, and such third parties could potentially assert infringement claims against us, which could have a material adverse effect on the conduct of our business.

If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, and marketing any product candidates we may develop and our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing technology or product candidates. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations, and prospects.

Our development and commercialization rights to our therapeutic antibodies, current and future product candidates and technology are subject, in part, to the terms and conditions of licenses granted to us by others.

We are reliant upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the engineering and development of our therapeutic antibodies, and our current and future product candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we choose to develop or commercialize our technology and products in the future. As a result, we may not be able to prevent competitors from developing and commercializing competitive products in territories included in all of our licenses.

We engage in collaborations with scientists at academic and non-profit institutions to access technologies and materials that are not otherwise available to us. The agreements that govern these collaborations may include an option to negotiate an exclusive license to

the institution’s rights in any inventions that are created in the course of these collaborations, but we may not be able to come to a final agreement with an institution holding rights in an invention that is relevant to the development and commercialization of our technology.

In addition, we may not have the right to control the preparation, filing, prosecution, maintenance, enforcement, and defense of patents and patent applications covering the technology that we license from third parties. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with the best interests of our business. If our licensors fail to prosecute, maintain, enforce, and defend such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected. Additionally, we may be required to reimburse our licensors for all of their expenses related to the prosecution, maintenance, enforcement and defense of patents and patent applications that we in-license from them.

Our licensors may have relied on third-party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive owners of the patents we in-licensed. If other third parties have ownership rights to our in-licensed patents, they may be able to license such patents to our competitors, and our competitors could market competing products and technology. This could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products identical to ours. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses. Any of these events could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

~~We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time-consuming and unsuccessful.~~

Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claims of infringement. In addition, our patents or the patents of our licensing partners also are, and may become, involved in inventorship, priority, or validity disputes. To counter or defend against such claims can be expensive and time-consuming, and our licensors’ adversaries may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. Accordingly, despite our or our licensors’ efforts, we or our licensors may not be able to prevent third parties from infringing upon or misappropriating intellectual property rights we own or control. An adverse result in any litigation proceeding could put one or more of our owned or in-licensed patents at risk of being invalidated or interpreted narrowly. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

~~Intellectual property rights do not necessarily address all potential threats.~~

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example, others may develop biosimiliar or competing antibodies to any product candidates that we have or may develop, but that are not covered by the claims of the patents that we own or may own or license in the future.

We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

Many of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

~~If we do not obtain patent term extension and data exclusivity for any of our current or future product candidates, our business may be materially harmed.~~

Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.

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

Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. In addition, our intellectual property license agreements may not always include worldwide rights. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the United States. These products may compete with our products, and our 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 of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

~~We may not be successful in obtaining necessary rights to our current and future product candidates through acquisitions and in-licenses.~~

We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us in the field of therapeutic antibodies and filing patent applications potentially relevant to our business. For example, we are aware of third-party patents and patent applications that may be construed to cover our CD47 antibody product candidates or their uses.

In order to avoid infringing these third-party patents, or patents that issue from these third-party patent applications, we may find it necessary or prudent to obtain licenses from such third-party intellectual property holders. In addition, with respect to any patents we co-own with third parties, we may require licenses to such co-owners’ interest to such patents. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for product candidates we may develop. The licensing or acquisition of third-party intellectual property rights is a competitive area, and other companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all.

~~Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.~~

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third- party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. The America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent rulings from the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

~~The U.S. government may exercise its march-in rights with regards to certain in-licensed patents.~~

Pursuant to the Bayh-Dole Act, the U.S. government has march-in rights with regards to government-funded technology. The U.S. government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations, and prospects.

~~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 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 our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, 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 to compete with us, which could harm our competitive position.

~~Risks Related To Employee Matters, Managing Our Growth And Other Risks~~

~~Related To Our Business~~

We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

We are highly dependent on members of our executive team. The loss of the services of any of them may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are “at-will” employees. We currently do not have “key person” insurance on any of our employees. The loss of the services of one or more of our current employees might impede the achievement of our research, development and commercialization objectives.

Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, also will be critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.

~~We will need to grow the size of our organization, and we may experience difficulties in managing this growth.~~

As of March 31, 2018, we had 56 full-time employees, including 42 employees engaged in research and development. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

~~identifying, recruiting, integrating, maintaining and motivating additional employees;~~

managing our internal development efforts effectively, including the clinical and FDA review process for SRF231 and any product candidate we develop, while complying with our contractual obligations to contractors and other third parties; and

~~improving our operational, financial and management controls, reporting systems and procedures.~~

Our future financial performance and our ability to advance development of and, if approved, commercialize SRF231 and any product candidate we develop will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of marketing approval, clinical management, and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of any current or future product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize SRF231 and any future product candidates we develop and, accordingly, may not achieve our research, development and commercialization goals.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

~~Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.~~

Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not to our knowledge experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product candidates could be delayed.

Our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and comparable foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These 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. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the

imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

~~Risks Related To Our Common Stock~~

~~The price of our common stock may be volatile and fluctuate substantially.~~

The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:

~~the success of competitive products or technologies;~~

~~results of clinical trials and preclinical studies or those of our competitors;~~

~~regulatory or legal developments in the United States and other countries;~~

~~developments or disputes concerning patent applications, issued patents or other proprietary rights;~~

~~the recruitment or departure of key personnel;~~

~~the level of expenses related to our product candidates or clinical development programs;~~

~~the results of our efforts to discover, develop, acquire or in-license product candidates or companion diagnostics;~~

~~actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;~~

~~variations in our financial results or those of companies that are perceived to be similar to us;~~

~~changes in the structure of healthcare payment systems;~~

~~market conditions in the pharmaceutical and biotechnology sectors; and~~

~~general economic, industry and market conditions.~~

~~An active trading market for our common stock may not develop or be sustainable, and you may not be able to resell your shares at or above the purchase price.~~

In April 2018, we closed our initial public offering. Prior to that offering, there was no public market for our common stock. Although we have completed our initial public offering and shares of our common stock are listed and trading on the Nasdaq Global Market, an active trading market for our shares may not be sustained. If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their shares at or above the prices at which they acquired their shares or sell their shares at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

~~We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.~~

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

~~We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.~~

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements, that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering in April 2018, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during

the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

Our executive officers, directors and their affiliates have significant influence over our company, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.

Our executive officers, directors and their affiliates beneficially owned, in the aggregate, approximately 32% of our outstanding common stock immediately after our initial public offering and the concurrent private placement. As a result, these stockholders, if they act together, will be able to influence our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership might adversely affect the market price of our common stock by:

~~delaying, deferring or preventing a change of control of us;~~

~~impeding a merger, consolidation, takeover or other business combination involving us; or~~

~~discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.~~

~~We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.~~

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. Following the completion of our initial public offering in April 2018, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which require, among other things, that we file with the U.S. Securities and Exchange Commission, or the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of our initial public offering. We intend to take advantage of this new legislation, but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

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

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline. Following the April 2018 closing of our initial public offering and concurrent private placement, we had outstanding 27,597,315 shares of common stock, of which 20,397,315 shares are subject to restrictions on transfer under 180-day lock-up arrangements with the underwriters of our initial public offering. These restrictions are due to expire on October 16, 2018, resulting in the majority of these shares becoming eligible for public sale on October 16, 2018 if they are registered under the Securities Act of 1933, as amended, or the Securities Act, or if they qualify for an exemption from registration under the Securities Act including under Rules 144 or 701.

~~If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.~~

The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which, in turn, could cause our stock price to decline.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.

Pursuant to Section 404 of Sarbanes-Oxley, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2019. When we lose our status as an “emerging growth company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult 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 may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, 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, which is responsible for appointing the members of our management.

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware or the United States District Court for the District of Massachusetts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf,

(ii) any action asserting a claim of or based on a breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the United States District Court for the District of Massachusetts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions. We have chosen the United States District Court for the District of Massachusetts as the exclusive forum for such causes of action because our principal executive offices are located in Cambridge, Massachusetts. Some companies that have adopted similar federal district court forum selection provisions are currently subject to a suit in the Court of Chancery of the State of Delaware brought by stockholders who assert that the federal district court forum selection provision is not enforceable. We recognize that the federal district court forum selection clause may impose additional litigation costs on stockholders who assert the provision is not enforceable and may impose more general additional litigation costs in pursuing any such claims, particularly if the stockholders do not reside in or near the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated bylaws may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us. Alternatively, if the federal district court forum selection provision is found inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have an adverse effect on our business, financial condition or results of operations. The United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

~~Comprehensive tax reform legislation could adversely affect our business and financial condition.~~

On December 22, 2017, the U.S. government enacted the TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”. The tax rate change resulted in (i) a reduction in the gross amount of our deferred tax assets recorded as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA. We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the TCJA on us and our affiliates, whether adverse or favorable, is uncertain and may not become evident for some period of time. We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA on an investment in our common stock.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~Recent Sales of Unregistered Equity Securities~~

On April 23, 2018, upon the closing of our initial public offering, all 37,100,000 shares of our then-outstanding convertible preferred stock were automatically converted into 16,863,624 shares of common stock. The issuance of such shares of common stock was exempt from the registration requirements of the Securities Act, pursuant to Section 3(a)(9) and Section 4(a)(2) of the Securities Act.

On April 23, 2018, we issued and sold 766,666 shares of common stock to Novartis in a private placement, which occurred concurrent with the closing of our initial public offering. The aggregate cash purchase price of the shares sold in the private placement was $11.5 million, representing a price per share of $15.00, the same price at which shares were sold to the public in the initial public offering. The sale and issuance of the private placement shares were not registered under the Securities Act or any state securities laws. We have relied on the exemption from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and the rules and regulations promulgated thereunder relating to transactions not involving any public offering.

During the period between January 1, 2018 and March 31, 2018, we granted to certain of our employees, consultants and directors options to purchase an aggregate of 1,407,914 shares of our common stock at an exercise price of $11.02 per share. We deemed these issuances to be exempt from registration under the Securities Act either in reliance on Rule 701 of the Securities Act as sales and offers under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701, or in reliance on Section 4(a)(2), as transaction by an issuer not involving a public offering.

During the period between January 1, 2018 and March 31, 2018, we issued an aggregate of 80,675 shares of common stock to certain of our employees, directors and consultants for cash consideration in the aggregate amount of $157 upon the exercise of stock options. We deemed these issuances to be exempt from registration under the Securities Act either in reliance on Rule 701 of the Securities Act as sales and offers under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701, or in reliance on Section 4(a)(2), as transaction by an issuer not involving a public offering.

~~Use of Proceeds from Initial Public Offering of Common Stock~~

On April 23, 2018, we closed our initial public offering of 7,200,000 shares of our common stock at a public offering price of $15.00 per share for an aggregate offering of $108 million. The offer and sale of all of the shares in the offering were registered under the Securities Act pursuant to registration statement on Form S-1 (File No. 333-218474), which was declared effective by the SEC on April 18, 2018. Goldman Sachs & Co. LLC, Cowen ~~and Company, LLC and Evercore Group L.L.C. acted as joint~~ ~~book-running managers for the offering. The offering commenced on April 18, 2018 and did not terminate until the sale of all of the shares offered.~~

We received aggregate net proceeds from the offering of $97.2 million, after deducting underwriting discounts and commissions of $7.6 million and estimated offering expenses of $3.1 million payable by us. ~~Concurrent with the initial public offering, we issued~~ Novartis, in a private placement, 766,666 shares of our common stock at $15.00 per share for proceeds of $11.5 million. None of the underwriting discounts and commissions or offering expenses were incurred or paid to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to any affiliates of ours.

We had not received any of the net offering proceeds as of March 31, 2018 and therefore, have not used any of the net proceeds from the offering. There has been no material change in our planned use of the net proceeds from the offering as described in our Prospectus dated April 18~~, 2018.~~

~~Item 3.~~

~~Defaults upon Senior Securities.~~

~~None.~~

~~Item~~ 4.

~~Mine Safety Disclosures.~~

~~Not applicable.~~

~~Item~~ 5.

~~Other Information.~~

~~Not applicable.~~

~~Item 6.~~

E~~xhibits.~~

The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

~~Exhibit~~ ~~Number~~	~~Description~~
Exhibit Number			Description
~~3.1~~ 10.1			~~Restated Certificate~~Amendment No. 1, to the Capital on DemandTM Sales Agreement, dated as of ~~Incorporation of the Registrant~~August 5, 2021, by and between Surface Oncology, Inc. and JonesTrading Institutional Services LLC (incorporated by reference to Exhibit ~~3.1~~1.1 to the ~~Registrant’s Current~~Company’s Quarterly Report on Form ~~8-K~~10-Q filed on August 5, 2021 (File No. 001-38459) ~~filed with the SEC on April 23, 2018)~~).
10.2 †
~~3.2~~		~~Amended and Restated By-laws~~Amendment No. 1, dated as of ~~Registrant (incorporated by reference~~August 11, 2021, to ~~Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38459) filed with the SEC on April 23, 2018).~~

~~10.1~~	~~Second Amendment to Lease,~~License Agreement, dated as of December 16, 2020, by and between ~~the Registrant~~Surface Oncology, In.c and ~~BMR-Hampshire LLC, dated as of May 22, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38459) filed on May 24, 2018).~~GLAXOSMITHKLINE INTELLECTUAL PROPERTY (No. 4) LIMITED.
31.1
~~31.1~~		Certification of Principal Executive ~~Officer and Principal Financial~~ Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Principal Financial and Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1~~ 32.1*			Certification of Principal Executive ~~Officer and Principal Financial~~ Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2*			Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH
~~101.SCH~~		XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase Document
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document

~~SIGNATURES~~

SIGNATURES

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


	Surface Oncology, Inc.
Date: November 4, 2021	By:			/s/ Robert W. Ross, M.D.
~~Date: May 29, 2018~~			~~By:~~	~~/s/ J. Jeffrey Goater~~ Robert W. Ross, M.D.
				~~J. Jeffrey Goater~~
		Chief Executive Officer (Principal Executive Officer)
Date: November 4, 2021	By:		/s/ Jessica Fees
			Jessica Fees
			Chief Financial Officer
			(Principal Financial and Accounting ~~officer)~~ Officer)

	March 31,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	59,288		$	22,455
Marketable securities		34,534			40,854
Restricted cash		85			85
Prepaid expenses and other current assets		7,323			7,936
Total current assets		101,230			71,330
Property and equipment, net		7,072			7,326
Restricted cash		1,000			1,000
Deferred offering costs		2,705			1,784
Other assets		9			14
Total assets	$	112,016		$	81,454
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	6,793		$	3,215
Accrued expenses and other current liabilities		4,771			9,843
Deferred revenue - related party		12,127			9,837
Deferred rent		485			489
Total current liabilities		24,176			23,384
Deferred revenue - related party, non-current		55,747			72,268
Deferred rent, non-current		4,544			4,599
Total liabilities		84,467			100,251
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock (Series A and A-1), $0.0001 par value; 37,100,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017; aggregate liquidation preference of $48,600 at March 31, 2018 and December 31, 2017		48,528			48,517
Stockholders’ deficit:
Common stock, $0.0001 par value; 53,000,000 shares authorized at March 31, 2018 and December 31, 2017; 2,767,025 and 2,686,350 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively		—			—
Additional paid-in capital		8,314			6,877
Accumulated other comprehensive loss		(296	)		(246	)
Accumulated deficit		(28,997	)		(73,945	)
Total stockholders’ deficit		(20,979	)		(67,314	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	112,016		$	81,454

	Series A and A-1 Redeemable Convertible Preferred Stock				Common Stock				Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Loss			Deficit			Deficit
Balances at December 31, 2017		37,100,000	$	48,517		2,686,350		—	$	6,877		$	(246	)	$	(73,945	)	$	(67,314	)
Issuance of common stock upon exercise of stock options		—		—		80,675		—		157			—			—			157
Stock-based compensation expense		—		—		—		—		1,291			—			—			1,291
Accretion of redeemable convertible preferred stock to redemption value		—		11		—		—		(11	)		—			—			(11	)
Adjustment due to the adoption of ASC 606		—		—		—		—		—			—			13,736			13,736
Unrealized loss on marketable securities		—		—		—		—		—			(50	)		—			(50	)
Net income		—		—		—		—		—			—			31,212			31,212
Balances at March 31, 2018		37,100,000	$	48,528		2,767,025	$	—	$	8,314		$	(296	)	$	(28,997	)	$	(20,979	)

	March 31, 2018
	Under Topic 606			Under Topic 605			Effect of Change
Deferred revenue - related party	$	12,127		$	14,421		$	(2,294	)
Deferred revenue, net of current portion - related party		55,747			95,060			(39,313	)
Accumulated deficit		(28,997	)		(56,869	)		27,872

	Three Months ended March 31, 2018
	Under Topic 606		Under Topic 605		Effect of Change
Collaboration revenue - related party	$	45,495	$	17,623	$	27,872
Income from operations		31,043		3,171		27,872
Net income		31,212		3,340		27,872
Comprehensive income		31,162		3,290		27,872

	As of March 31,
	2018		2017
Cash and cash equivalents	$	59,288	$	20,003
Restricted cash included in current assets		85		—
Restricted cash included in non-current assets		1,000		1,085
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	60,373	$	21,088

	March 31, 2018
	Amortized Cost		Fair Value
Maturing in one year or less	$	24,250	$	24,125
Maturing after one year but less than two years		10,580		10,409
	$	34,830	$	34,534

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Marketable debt securities:
U.S. government agency bonds	$	7,300	$	—	$	(38	)	$	7,262
Corporate bonds		33,800		—		(208	)	$	33,592
	$	41,100	$	—	$	(246	)	$	40,854

	December 31, 2017		Additions		Deductions			March 31, 2018
Contract Liabilities (1)
Total deferred revenue - related party	$	82,105	$	45,000	$	(59,231	)	$	67,874

* The certification furnished in Exhibit 32.1 and Exhibit 32.2 hereto is deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. Such certification will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit because they are both (i) not material and (ii) the type that the registrant treats as private or confidential, in accordance with the rules of the Securities and Exchange Commission.