Sutro Biopharma(STRO) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the company's unaudited interim condensed financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the company's unaudited interim condensed financial statements, including the Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity (Deficit), and Cash Flows, along with detailed notes explaining the accounting policies, collaboration agreements, restructuring costs, and other financial details for the periods ended June 30, 2025, and December 31, 2024 Condensed Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Key Balance Sheet Data | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $262,355 | $387,207 | $(124,852) | | Cash and cash equivalents | $64,025 | $190,304 | $(126,279) | | Marketable securities | $141,106 | $126,591 | $14,515 | | Total Current Assets | $231,630 | $343,310 | $(111,680) | | Total Liabilities | $294,466 | $342,606 | $(48,140) | | Deferred revenue - current | $11,964 | $69,783 | $(57,819) | | Deferred royalty obligation | $200,084 | $180,809 | $19,275 | | Total Stockholders' (Deficit) Equity | $(32,111) | $44,601 | $(76,712) | Condensed Statements of Operations This section presents the company's revenues, expenses, and net loss over specific reporting periods Key Statements of Operations Data | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Revenue | $63,745 | $25,706 | 148% | $81,144 | $38,714 | 110% | | Research and development | $38,325 | $62,020 | (38)% | $89,922 | $118,898 | (24)% | | General and administrative | $10,343 | $12,371 | (16)% | $23,616 | $25,092 | (6)% | | Restructuring and related costs | $18,422 | $0 | * | $39,465 | $0 | * | | Total operating expenses | $67,090 | $74,391 | (10)% | $153,003 | $143,990 | 6% | | Loss from operations | $(3,345) | $(48,685) | (93)% | $(71,859) | $(105,276) | (32)% | | Net loss | $(11,499) | $(48,018) | (76)% | $(87,467) | $(106,231) | (18)% | | Net loss per share, basic and diluted | $(0.14) | $(0.59) | (76)% | $(1.04) | $(1.49) | (30)% | Condensed Statements of Comprehensive Loss This section details the company's net loss and other comprehensive income or loss components for the reporting periods Key Comprehensive Loss Data | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(11,499) | $(48,018) | $(87,467) | $(106,231) | | Net unrealized loss on available-for-sale securities | $(4) | $(50) | $(52) | $(184) | | Comprehensive loss | $(11,503) | $(48,068) | $(87,519) | $(106,415) | Condensed Statements of Stockholders' Equity (Deficit) This section outlines changes in the company's equity or deficit, including accumulated deficit and additional paid-in capital Key Stockholders' Equity (Deficit) Data | Metric (in thousands) | December 31, 2024 | June 30, 2025 | Change | | :-------------------------------- | :------------------ | :-------------- | :------- | | Total Stockholders' Equity (Deficit) | $44,601 | $(32,111) | $(76,712) | | Accumulated deficit | $(786,869) | $(874,336) | $(87,467) | | Additional paid-in-capital | $831,348 | $842,153 | $10,805 | Condensed Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the reporting periods Key Cash Flow Data | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net cash used in operating activities | $(112,607) | $(55,286) | $(57,321) | | Net cash used in investing activities | $(13,678) | $(16,270) | $2,592 | | Net cash provided by financing activities | $6 | $93,061 | $(93,055) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(126,279) | $21,505 | $(147,784) | | Cash, cash equivalents and restricted cash at end of period | $64,883 | $91,645 | $(26,762) | Notes to Unaudited Interim Condensed Financial Statements This section provides detailed explanations and disclosures supporting the interim condensed financial statements 1. Organization and Principal Activities This section describes the company's business, recent restructuring, financial position, and Nasdaq compliance status - Sutro Biopharma is an oncology company developing site-specific and novel-format ADCs[24] - On March 13, 2025, the company announced a Restructuring Plan to prioritize preclinical programs (STRO-004, STRO-006), deprioritize luveltamab tazevibulin (STRO-002), exit internal GMP manufacturing by year-end, and reduce workforce by approximately 50%[25] Key Financial Highlights | Metric | June 30, 2025 | | :-------------------------------- | :------------ | | Accumulated Deficit | $874.3 million | | Unrestricted Cash, Cash Equivalents, and Marketable Securities | $205.1 million | - The company received a Nasdaq non-compliance notice on June 20, 2025, for not meeting the $1.00 minimum bid price requirement and has until December 17, 2025, to regain compliance, with a potential reverse stock split approved by shareholders[30][31] 2. Summary of Significant Accounting Policies This section outlines the key accounting principles and estimates used in preparing the interim financial statements - Interim financial statements are unaudited and prepared under U.S. GAAP, with estimates affecting reported amounts[34][35] - Restructuring costs are accounted for under ASC Topic 712 for ongoing benefits and ASC Topic 420 for one-time termination benefits[38] - The company is evaluating the impact of new accounting standards ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) for future periods[40][42] 3. Fair Value Measurements This section details the categorization and valuation methodologies for financial assets and liabilities measured at fair value - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[45] Fair Value Measurement Summary | Asset Type (in thousands) | June 30, 2025 Total | Level 1 | Level 2 | Level 3 | December 31, 2024 Total | Level 1 | Level 2 | Level 3 | | :------------------------ | :------------------ | :------ | :------ | :------ | :---------------------- | :------ | :------ | :------ | | Money market funds | $46,404 | $46,404 | $— | $— | $68,474 | $68,474 | $— | $— | | Commercial paper | $21,764 | $— | $21,764 | $— | $50,932 | $— | $50,932 | $— | | Corporate debt securities | $46,716 | $— | $46,716 | $— | $94,257 | $— | $94,257 | $— | | Asset-backed securities | $23,607 | $— | $23,607 | $— | $40,522 | $— | $40,522 | $— | | U.S. government securities | $64,639 | $64,639 | $— | $— | $49,644 | $49,644 | $— | $— | | U.S. agency securities | $— | $— | $— | $— | $9,582 | $— | $9,582 | $— | | Total Assets | $203,130 | $111,043 | $92,087 | $— | $313,411 | $118,118 | $195,293 | $— | - The deferred royalty obligation related to the sale of future Vaxcyte royalties is classified as Level 3[66] 4. Cash Equivalents and Marketable Securities This section provides a breakdown of the company's cash, cash equivalents, and marketable securities portfolio Cash Equivalents and Marketable Securities Portfolio | Asset Type (in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------------------ | :----------------------- | :--------------------------- | | Money market funds | $46,404 | $68,474 | | Commercial paper | $21,764 | $50,932 | | Corporate debt securities | $46,716 | $94,257 | | Asset-based securities | $23,607 | $40,522 | | U.S. government securities | $64,639 | $49,644 | | U.S. agency securities | $— | $9,582 | | Total | $203,130 | $313,411 | - No marketable securities had maturities of more than one year as of June 30, 2025, and December 31, 2024[67] - The company concluded that unrealized losses on marketable securities were not attributable to credit and did not record any other-than-temporary impairment charges[68] 5. Collaboration and License Agreements and Supply Agreements This section details the company's revenue-generating collaboration and license agreements, including terms and financial impacts - Revenue is derived from collaboration arrangements, including upfront payments, milestones, and royalties, recognized when customers obtain control of goods or services[51][52] Collaboration and License Revenue Summary | Collaborator (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Astellas Pharma Inc. | $7,415 | $24,752 | (70)% | $24,294 | $36,137 | (33)% | | Tasly Biopharmaceuticals Co., Ltd. | $96 | $5 | 1820% | $105 | $975 | (89)% | | Vaxcyte, Inc. | $165 | $846 | (80)% | $388 | $1,493 | (74)% | | Ipsen Pharma SAS | $56,069 | $95 | * | $56,357 | $95 | * | | Merck Sharp & Dohme Corporation | $— | $8 | (100)% | $— | $14 | (100)% | | Total revenue | $63,745 | $25,706 | 148% | $81,144 | $38,714 | 110% | Deferred Revenue Movement | Deferred Revenue (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Deferred revenue—beginning balance | $82,319 | N/A | | Additions to deferred revenue | $8,184 | N/A | | Recognition of revenue in current period | $(71,633) | N/A | | Deferred revenue—ending balance | $18,870 | $82,319 | Astellas Pharma Inc. Agreements This section outlines the collaboration agreement with Astellas Pharma Inc., including upfront payments, contingent milestones, and revenue recognition - Received a $90.0 million upfront payment from Astellas in 2022 for development of immunostimulatory ADCs for up to three biological targets[75] - Astellas' decision in June 2024 not to nominate a third target program resulted in a contract modification and a $17.8 million cumulative catch-up adjustment to revenue[77] - Earned a $7.5 million contingent payment in March 2025 for the initiation of the first IND-enabling toxicology study, leading to a $5.7 million cumulative catch-up adjustment to revenue[78] Astellas Pharma Inc. Revenue Breakdown | Revenue Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Ongoing performance | $5,410 | $21,590 | $18,368 | $28,820 | | Research and development services | $609 | $1,381 | $1,507 | $3,004 | | Financing component | $832 | $1,758 | $2,008 | $3,918 | | Materials supply | $564 | $23 | $2,411 | $395 | | Total revenue | $7,415 | $24,752 | $24,294 | $36,137 | Vaxcyte, Inc. Agreements This section describes the agreements with Vaxcyte, Inc., covering R&D services, material supply, and potential contingent payments - Vaxcyte reimburses the company for third-party CMO costs, which are recorded as a reduction to R&D expense[85] Vaxcyte, Inc. Revenue Breakdown | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | R&D services revenue | $147 | $650 | $369 | $1,297 | | Materials supply revenue | $18 | $196 | $19 | $196 | | Total revenue | $165 | $846 | $388 | $1,493 | - The Vaxcyte Agreement includes potential contingent payments up to $60.0 million, which are currently constrained and not eligible for revenue recognition[88][89] Ipsen Pharma SAS Agreements This section details the licensing agreement with Ipsen Pharma SAS for STRO-003, including upfront fees, milestones, and the impact of program discontinuation - Licensed STRO-003 to Ipsen in March 2024, receiving a $50.0 million upfront license fee and $25.0 million from Ipsen USA for common stock (with a $0.4 million premium)[91][92][96] - Eligible for up to $447.0 million in developmental/regulatory milestones and $360.0 million in sales milestones, plus tiered royalties[93] - Ipsen's decision in June 2025 not to advance the STRO-003 program resulted in the acceleration and derecognition of $53.2 million in deferred revenue[100][101] Ipsen Pharma SAS Revenue Breakdown | Revenue Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Ongoing performance | $50,429 | $— | $50,429 | $— | | Research and development services | $17 | $18 | $71 | $18 | | Materials supply | $5,623 | $77 | $5,857 | $77 | | Total revenue | $56,069 | $95 | $56,357 | $95 | 6. Commitments and Contingencies This section discloses the company's lease obligations and other potential liabilities - The company leases facilities in South San Francisco and San Carlos, California, and plans to exit its San Carlos manufacturing facility by year-end 2025[102] Lease Cost Summary | Lease Cost (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease cost | $1,984 | $1,984 | $3,968 | $3,968 | | Short-term lease cost | $60 | $38 | $99 | $91 | | Variable lease cost | $718 | $853 | $1,440 | $1,447 | | Total lease costs | $2,762 | $2,875 | $5,507 | $5,506 | Operating Lease Liabilities | Operating Lease Liabilities (in thousands) | June 30, 2025 | | :--------------------------------------- | :------------ | | Total lease payments | $22,128 | | Less: imputed interest | $(2,535) | | Operating lease liabilities | $19,593 | | Less: current portion | $(8,057) | | Total lease liabilities, non-current | $11,536 | 7. Accrued Expenses and Other Current Liabilities This section provides a breakdown of the company's accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities Breakdown | Accrual Type (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Vaxcyte-related accrual | $12,713 | $12,435 | | CMO-related accrual | $4,603 | $8,525 | | Clinical trials-related accrual | $3,007 | $6,263 | | Other | $17,830 | $4,027 | | Total | $38,153 | $31,250 | 8. Deferred Royalty Obligation related to the Sale of Future Royalties This section details the deferred royalty obligation arising from the sale of future Vaxcyte royalties to Blackstone - Sold 4% royalty interest in future Vaxcyte product sales to Blackstone for a $140.0 million upfront payment in June 2023, recorded as a deferred royalty obligation[111][112][114] Deferred Royalty Obligation Details | Metric (in thousands) | June 30, 2025 | | :------------------------------------------------ | :------------ | | Liability related to sale of future Vaxcyte royalties - beginning balance | $180,809 | | Non-cash interest expense associated with the sale of future Vaxcyte royalties | $18,991 | | Amortization of issuance costs | $284 | | Liability related to the sale of future Vaxcyte royalties - ending balance | $200,084 | - The effective interest rate used to amortize the liability is 20.06%[115] 9. Segment Reporting This section presents financial information for the company's single operating segment, focusing on its oncology development activities - The company operates in one business segment focused on developing site-specific and novel-format ADCs[118] Segment Financial Performance | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $63,745 | $25,706 | $81,144 | $38,714 | | Operating expenses | $(67,090) | $(74,391) | $(153,003) | $(143,990) | | Loss from operations | $(3,345) | $(48,685) | $(71,859) | $(105,276) | | Segment net loss | $(11,499) | $(48,018) | $(87,467) | $(106,231) | 10. Restructuring, and Related Costs This section details the financial impact of the company's March 2025 restructuring plan, including costs for program deprioritization and workforce reduction - The Restructuring Plan, announced in March 2025, led to significant costs related to deprioritizing the luvelta program, severance, and contract terminations[121] Restructuring and Related Costs Breakdown | Cost Type (in thousands) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | | Clinical trial expense and other third-party costs for the deprioritization of luvelta program | $13,006 | $17,261 | | Severance and benefits expense | $3,862 | $12,372 | | Contract termination and other restructuring costs | $1,554 | $9,832 | | Total | $18,422 | $39,465 | - The company expects to incur additional expenses for the deprioritization of the luvelta program and related costs, with a significant portion in 2025[121][123] 11. Stockholders' Equity This section provides details on the company's common stock, options, restricted stock units, and shares reserved for issuance Stockholders' Equity Details | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :------------ | :---------------- | | Common stock shares issued and outstanding | 84,720,047 | 82,526,430 | | Common stock options issued and outstanding | 9,616,926 | 8,671,883 | | Restricted stock units issued and outstanding | 6,246,452 | 5,955,109 | | Total shares reserved for issuance | 21,670,050 | 17,594,294 | - No preferred stock was issued or outstanding as of June 30, 2025, and December 31, 2024[128] 12. Equity Incentive Plans, Equity Inducement Plans, Employee Stock Purchase Plan and Stock-Based Compensation This section outlines the company's equity compensation plans and the associated stock-based compensation expense - The 2018 Equity Incentive Plan automatically increases shares reserved by 5% of outstanding capital stock annually, adding 4,126,321 shares on January 1, 2025[129] - The Amended and Restated 2021 Plan reserved an additional 2,250,000 shares in May 2025, bringing the total reserved to 4,250,000 shares[133] Stock-Based Compensation Expense | Stock-Based Compensation Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development expense | $1,433 | $3,072 | $3,717 | $6,246 | | General and administrative expense | $1,346 | $3,087 | $3,795 | $5,981 | | Restructuring and related costs | $2,484 | $— | $3,289 | $— | | Total | $5,263 | $6,159 | $10,801 | $12,227 | 13. Net Loss Per Share This section presents the calculation of basic and diluted net loss per share, including the number of shares used in the computation Net Loss Per Share Calculation | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(11,499) | $(48,018) | $(87,467) | $(106,231) | | Shares used in computing net loss per share | 84,580,125 | 81,224,628 | 83,846,892 | 71,341,211 | | Net loss per share, basic and diluted | $(0.14) | $(0.59) | $(1.04) | $(1.49) | Common Stock Equivalents (as of June 30) | Common Stock Equivalents (as of June 30) | 2025 | 2024 | | :--------------------------------------- | :--- | :--- | | Common stock options issued and outstanding | 9,616,926 | 8,779,966 | | Restricted stock units issued and outstanding | 6,246,452 | 6,050,784 | | Warrants to purchase common stock | 127,616 | 127,616 | | Shares to be issued under employee stock purchase plan | 401,066 | 300,818 | | Total | 16,392,060 | 15,259,184 | 14. Subsequent Event This section discloses significant events occurring after the balance sheet date, such as new tax legislation - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, bringing significant changes to U.S. tax law[141] - The company is currently assessing the impact of the OBBBA on its financial statements[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, detailed analysis of revenue and operating expenses, liquidity and capital resources, contractual obligations, and critical accounting policies Overview This section provides a high-level summary of the company's business, strategic priorities, recent restructuring, and key financial highlights - Sutro Biopharma is an oncology company developing site-specific and novel-format ADCs using its proprietary XpressCF® and XpressCF+® platforms[144] - STRO-004, a TF-targeting ADC, is the highest priority wholly-owned product candidate, with an IND filing anticipated in the second half of 2025[146] - A strategic portfolio review in March 2025 resulted in deprioritizing luvelta, refocusing on the preclinical pipeline (STRO-004, STRO-006), exiting the San Carlos manufacturing facility by year-end 2025, and reducing the workforce by nearly 50%[151] Key Financial Highlights | Metric | 6 Months Ended June 30, 2025 | December 31, 2024 | | :-------------------- | :--------------------------- | :---------------- | | Loss from operations | $(71.9) million | N/A | | Net loss | $(87.5) million | $(227.5) million | | Accumulated deficit | $(874.3) million | N/A | Financial Operations Overview This section analyzes the company's revenue and operating expenses, highlighting key changes and their drivers over the reporting periods - Revenue is generated principally from collaboration and license agreements, with no commercial product sales to date[153] - Operating expenses include research and development, general and administrative, and restructuring and related costs[157] Key Financial Operations Summary | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Revenue | $63,745 | $25,706 | 148% | $81,144 | $38,714 | 110% | | Research and development | $38,325 | $62,020 | (38)% | $89,922 | $118,898 | (24)% | | General and administrative | $10,343 | $12,371 | (16)% | $23,616 | $25,092 | (6)% | | Restructuring and related costs | $18,422 | $— | * | $39,465 | $— | * | | Net loss | $(11,499) | $(48,018) | (76)% | $(87,467) | $(106,231) | (18)% | Liquidity and Capital Resources This section discusses the company's cash position, funding requirements, and cash flow activities from operations, investing, and financing Liquidity Position | Metric | June 30, 2025 | | :-------------------------------- | :------------ | | Cash, cash equivalents and marketable securities | $205.1 million | | Accumulated deficit | $874.3 million | - Existing capital resources are expected to fund operations for at least the next 12 months, but additional financing will be required for future development and operations[194][195] Cash Flow Activities | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net cash used in operating activities | $(112,607) | $(55,286) | $(57,321) | | Net cash used in investing activities | $(13,678) | $(16,270) | $2,592 | | Net cash provided by financing activities | $6 | $93,061 | $(93,055) | - The increase in cash used in operating activities for the six months ended June 30, 2025, was primarily due to a $63.4 million decrease in deferred revenue from Ipsen's decision not to advance the STRO-003 program[198] Contractual Obligations and Other Commitments This section outlines the company's significant contractual obligations, including leases and other commitments - The company has contractual obligations for leases and term loans[204] - Agreements with CROs, CMOs, and other vendors are generally cancelable upon written notice[204] Critical Accounting Policies and Estimates This section describes the accounting policies and estimates that require significant management judgment and their potential impact on financial results - Financial statements require management to make estimates and assumptions, including for R&D periods, stock-based compensation, income taxes, and deferred royalty obligations[205] - No material changes to critical accounting policies and estimates were reported, other than those related to restructuring and related costs[206] Recent Accounting Pronouncements This section refers to new accounting standards and their potential impact on the company's financial statements - Refer to Note 2 for details on recent accounting pronouncements, including ASU 2023-09 and ASU 2024-03[207] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate sensitivities, and its strategy for managing investments - The company's primary market risk exposure is interest rate sensitivity, with an investment objective to preserve capital and maximize income without significant risk[209] Cash, Cash Equivalents and Marketable Securities | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash, cash equivalents and marketable securities | $205.1 million | $316.9 million | - A hypothetical 10% change in market interest rates is not expected to have a material impact on the financial statements[211] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness, and reports on any changes in internal control over financial reporting during the quarter - As of June 30, 2025, disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level by the CEO and CFO[212][213] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[214] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, and other required disclosures for the reporting period Item 1. Legal Proceedings This section states that the company is not currently involved in any legal proceedings that would have a material adverse effect on its business, while acknowledging the potential negative impacts of litigation - The company is not currently a party to any legal proceedings that would have a material adverse effect on its business[217] - Litigation can adversely impact the company through defense and settlement costs, diversion of management resources, and reputational harm[217] Item 1A. Risk Factors This comprehensive section outlines the significant risks associated with investing in the company, covering its business operations, intellectual property, government regulation, and common stock Summary of Risk Factors This section provides a concise overview of the primary risks, including financial losses, funding needs, development uncertainties, and regulatory challenges - The company has a history of significant losses and may not achieve profitability, requiring substantial additional funding for product development[220][221] - Product candidates are in development and face risks from competition, delays, and the unproven nature of novel technologies[220] - Dependence on IT systems, compliance with privacy laws, successful collaborations, and manufacturing capabilities are critical business risks[220] - Intellectual property protection, regulatory approval, and maintaining Nasdaq listing requirements are significant challenges[220] Risks Related to Our Business This section details the operational and strategic risks faced by the company, such as its early-stage nature, funding requirements, development uncertainties, competition, and the impact of restructuring - The company is an early-stage biopharmaceutical company with no commercial products, an accumulated deficit of $874.3 million, and expects to incur significant future losses[221][222] - Substantial additional funding is required for product development, manufacturing, and commercialization, with current capital expected to last only 12 months[225][226] - Product candidates (STRO-004, STRO-006) are in preclinical development, and their success is uncertain due to the unproven nature of novel technologies and potential for delays or failures in clinical trials[229][242][246] - The company faces intense competition from larger, well-funded biopharmaceutical companies and relies on third parties for clinical trials and manufacturing, introducing risks of delays or non-compliance[271][272][292] - The March 2025 restructuring and workforce reduction may negatively impact employee retention, institutional knowledge, and operational efficiency[299] Risks Related to Intellectual Property This section addresses the challenges and uncertainties in obtaining, maintaining, and enforcing patent and other intellectual property protection for the company's platforms and product candidates - Success depends on obtaining, maintaining, and enforcing patent and other IP protection for XpressCF® and XpressCF+® platforms and product candidates[331] - Challenges include the high cost, time-consuming, and unpredictable nature of patent prosecution, with no guarantee of broad or enforceable patents[331][332] - Risks include third-party infringement claims, the need for costly licenses, and potential disputes over inventorship or ownership of IP[354][373] - Trade secret protection is vital but vulnerable to breaches, and changes in U.S. and foreign patent laws could diminish the value and enforceability of patents[338][370] - Patent terms may be inadequate to protect competitive position due to long development and regulatory review periods[365][368] Risks Related to Government Regulation This section outlines the extensive and complex governmental regulations impacting product development, approval, and commercialization, including evolving policies and healthcare reforms - Product candidates are subject to extensive and costly U.S. and foreign governmental regulations for research, development, manufacturing, and commercialization[377] - Regulatory approval is uncertain and can be delayed by evolving FDA policies (e.g., Project Optimus, Project FrontRunner), new EU regulations (IVDR, GDPR), and lack of precedent for cell-free manufacturing platforms[379][384] - Post-approval, products face ongoing regulatory obligations, potential labeling restrictions, market withdrawal risks, and penalties for non-compliance[385][386] - Healthcare legislative reforms (ACA, IRA) and price controls in the U.S. and foreign markets could adversely affect future profitability[395][403] - The company is exposed to product liability risks, employee misconduct, and compliance with anti-bribery, fraud and abuse, and data privacy laws (HIPAA, CCPA, GDPR), with potential for significant penalties[308][407][411] Risks Related to Our Common Stock This section discusses risks specific to the company's common stock, including price volatility, anti-takeover provisions, delisting risk, and potential dilution from future issuances - Quarterly and annual operating results may fluctuate significantly, leading to stock price volatility[438] - Anti-takeover provisions in charter documents and Delaware law, along with exclusive forum provisions, could hinder acquisitions and limit stockholder claims[439][442][445] - No cash dividends are anticipated, making capital appreciation the sole source of gain for stockholders[450] - The common stock does not meet Nasdaq's minimum bid price requirement, risking delisting, which could negatively impact financing and liquidity[454] - Future equity or debt issuances will dilute share capital and may cause the stock price to decline[456][457] - Unfavorable global economic conditions, including tariffs and geopolitical tensions, could adversely affect the business[460][462] - Compliance with public company requirements (e.g., Sarbanes-Oxley) strains resources, diverts management attention, and increases legal and financial costs[464][465] General Risk Factors This section covers broader economic, market, and compliance risks that could affect the company's business and stock performance - Unfavorable global economic conditions, including market volatility, tariffs, and geopolitical tensions, could adversely affect the business and capital-raising ability[460][462] - Lack of research coverage or adverse analyst opinions could lead to a decline in stock price and trading volume[463] - Compliance with public company requirements (e.g., Exchange Act, Sarbanes-Oxley) strains resources, diverts management attention, and increases legal and financial costs[464][465] - The company may be subject to expensive and distracting securities litigation due to stock price volatility[471] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section indicates that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report for the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities were reported[472] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[473] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[475] Item 5. Other Information This section indicates that no other information was required to be reported - No other information was reported[477] Item 6. Exhibits This section lists all exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including an offer letter, certifications, and XBRL documents - The report includes various exhibits such as an offer letter, certifications of principal executive and financial officers, and Inline XBRL documents[479][480] Signatures This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the submission of the report - The report was signed by Jane Chung (CEO) and Gregory Chow (CFO) on August 7, 2025[485]