Cue Biopharma(CUE) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, and significant agreements Consolidated Balance Sheets Consolidated Balance Sheets Data | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $29,726 | $64,371 | | Marketable securities | $29,457 | — | | Total current assets | $61,700 | $68,469 | | Total assets | $76,300 | $83,401 | | Total current liabilities | $10,222 | $12,788 | | Total liabilities | $25,536 | $17,909 | | Total stockholders' equity | $50,764 | $65,492 | Consolidated Statements of Operations and Other Comprehensive Loss Consolidated Statements of Operations and Other Comprehensive Loss Data | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Collaboration revenue | $68 | $2,395 | $1,094 | $6,687 | | General and administrative expenses | $3,528 | $4,125 | $12,465 | $12,660 | | Research and development expenses | $7,571 | $11,288 | $27,246 | $29,846 | | Total operating expenses | $11,099 | $15,413 | $39,453 | $42,506 | | Net loss | $(10,955) | $(12,993) | $(38,418) | $(35,777) | | Net loss per common share (basic & diluted) | $(0.31) | $(0.41) | $(1.11) | $(1.16) | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Data | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Common stock | $35 | $32 | | Additional paid in capital | $286,685 | $262,906 | | Accumulated other comprehensive loss | $(92) | — | | Accumulated deficit | $(235,864) | $(197,446) | | Total stockholders' equity | $50,764 | $65,492 | - Issuance of common stock from ATM offering, net of sales agent commission and fees, contributed $16,598,000 to additional paid-in capital for the nine months ended September 30, 2022[34] - Stock-based compensation for the nine months ended September 30, 2022, was $7,384,000[34] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Data | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(31,292) | $(28,192) | | Net cash (used in) provided by investing activities | $(29,609) | $9,108 | | Net cash provided by financing activities | $26,256 | $11,851 | | Net decrease in cash, cash equivalents, and restricted cash | $(34,645) | $(7,233) | | Cash, cash equivalents, and restricted cash at end of period | $29,876 | $67,783 | Notes to the Consolidated Financial Statements Note 1. Organization and Basis of Presentation The company, incorporated in Delaware in 2014, is a clinical-stage biopharmaceutical company focused on developing novel injectable biologics for cancer, infectious diseases, and autoimmune diseases. It has incurred recurring losses and negative cash flows since inception, with current cash and marketable securities of $59.183 million as of September 30, 2022, believed to be sufficient for the next twelve months, but additional capital will be needed for long-term viability - Cue Biopharma is a clinical-stage biopharmaceutical company developing novel injectable biologics designed to selectively engage and modulate tumor-specific T cells within the body to treat a broad range of cancers, chronic infectious diseases, and autoimmune diseases[40] - The company has incurred recurring losses and negative cash flows from operations since inception[41] Cash, Cash Equivalents, and Marketable Securities | Metric | Sep 30, 2022 (in thousands) | | :-------------------------------------- | :-------------------------- | | Cash, cash equivalents, and marketable securities | $59,183 | - Management believes that current cash, cash equivalents, and marketable securities on hand at September 30, 2022, are sufficient to fund operations for at least the next twelve months, but future viability depends on raising additional capital[41] Note 2. Summary of Significant Accounting Policies This note outlines the significant accounting policies used in preparing the unaudited consolidated financial statements, including the basis of presentation, consolidation, use of estimates, impact of the COVID-19 pandemic, and policies for cash, marketable securities, property and equipment, revenue recognition, and stock-based compensation - The accompanying unaudited consolidated financial statements have been prepared in accordance with SEC rules and U.S. GAAP, reflecting all necessary adjustments for a fair statement[42] - The preparation of financial statements requires management to make estimates and assumptions, particularly related to collaboration revenue, potential liabilities, stock-based compensation, deferred tax assets, and long-lived assets[49] - The COVID-19 pandemic may continue to impact the company's business and financial results due to evolving factors like macroeconomic conditions, capital markets access, and supply chain disruptions[50][51] - Cash equivalents are highly liquid investments with maturities of three months or less; marketable securities have maturities greater than ninety days and less than one year, classified as available-for-sale and recorded at fair value[53][54] - Collaboration revenue is recognized under ASC 606, with variable consideration estimated using the 'most likely amount' method, and patent costs are charged to general and administrative expense as incurred[62][68] Note 3. Fair Value This note details the company's fair value measurements for financial assets and liabilities, categorizing them into a three-level hierarchy based on input observability. As of September 30, 2022, cash equivalents and marketable securities were valued using Level 1 and Level 2 inputs, respectively - The fair value hierarchy prioritizes inputs to valuation techniques into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[85][86][87] Fair Value Measurements | Asset | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | Fair Value Level | | :---------------------- | :-------------------------- | :-------------------------- | :--------------- | | Cash equivalents | $23,256 | $52,509 | Level 1 | | Marketable securities | $29,457 | — | Level 2 | | Total | $52,713 | $52,509 | | - The carrying values of accounts receivable, prepaid expenses, other current assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature[97] Note 4. Marketable Securities As of September 30, 2022, the company held $29.457 million in marketable securities, primarily U.S. Treasury securities, which were not present at December 31, 2021, and recorded an unrealized loss of $92,000 Marketable Securities Summary | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--------------------------- | :-------------------------- | :-------------------------- | | Amortized Cost | $29,550 | — | | Gross Unrealized Gains | — | — | | Gross Unrealized Losses | $(92) | — | | Fair Value | $29,457 | — | - Marketable securities consist of U.S. Treasury securities[98] Note 5. Property and Equipment This note details the composition and net value of property and equipment, which decreased from $2.112 million at December 31, 2021, to $1.642 million at September 30, 2022, primarily due to depreciation and a loss on the sale of fixed assets Property and Equipment Details | Asset | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Laboratory equipment | $5,253 | $5,203 | | Furniture and fixtures | $81 | $93 | | Computer and office equipment | $302 | $253 | | Leasehold improvements | $60 | $7 | | Less accumulated depreciation | $(4,054) | $(3,444) | | Net property and equipment | $1,642 | $2,112 | - Depreciation expense for the nine months ended September 30, 2022, was approximately $630,000[100] - The company recorded a loss on the sale of fixed assets of $4,300 during the nine months ended September 30, 2022[100] Note 6. Loan with Silicon Valley Bank The company entered into a $20 million term loan agreement with Silicon Valley Bank on February 15, 2022, drawing $10 million initially. The loan bears a floating interest rate (prime + 2.25% or 5.50%, whichever is greater) and is secured by most company assets, excluding intellectual property - On February 15, 2022, the company entered into a Loan and Security Agreement with Silicon Valley Bank for up to $20,000,000 in term loans, drawing $10,000,000 on the closing date[101] - The Term Loans bear interest at a floating rate per annum equal to the greater of (A) the prime rate plus 2.25% and (B) 5.50%. At September 30, 2022, the interest rate was 8.5%[101] - The Term Loans are secured by substantially all of the company's properties, rights, and assets, except for its intellectual property[101] Interest Expense Related to Term Loans | Metric | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------------------------- | :-------------------------------------------- | | Interest expense related to Term Loans | $354 | | Interest expense related to accretion of final payment | $76 | Note 7. Stock-Based Compensation This note details stock option and restricted stock unit (RSU) activity, including valuation assumptions and compensation expenses. For the nine months ended September 30, 2022, stock-based compensation expense totaled $7.384 million, with $13.856 million in unrecognized expense remaining Stock Option Valuation Assumptions | Assumption | 2022 | 2021 | | :------------------------ | :------------------- | :------------------- | | Risk-free interest rate | 1.53% - 2.92% | 0.61% - 1.31% | | Expected dividend yield | 0% | 0% | | Expected volatility | 92.1% - 95.7% | 97.8% - 100.9% | | Expected life | 5.50 to 6.25 years | 5.50 to 6.25 years | Stock-Based Compensation Expense | Category | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--------------------------- | :--------------------------------------------- | :-------------------------------------------- | | General and administrative | $1,003 | $3,650 | | Research and development | $1,061 | $3,734 | | Total | $2,064 | $7,384 | - As of September 30, 2022, total unrecognized stock-based compensation expense was approximately $13,856,000, expected to be recognized over a weighted average remaining period of 2.13 years[107] Note 8. Warrants As of September 30, 2022, the company had 789,358 common stock warrants outstanding from a December 2017 issuance, with an exercise price of $9.38 per share, expiring on December 26, 2022. Another tranche of warrants expired in June 2022 Outstanding Warrants | Tranche | Dec 31, 2021 | Sep 30, 2022 | | :------------------------------------ | :----------- | :----------- | | Warrant Issued June 15, 2015- Tranche 1 | 62,611 | 0 | | Warrant Issued December 27, 2017- Tranche 2 | 789,358 | 789,358 | | Total | 851,969 | 789,358 | - The remaining outstanding warrants (Tranche 2) have an exercise price of $9.38 per share and expire on December 26, 2022[116] Note 9. Collaboration Revenue The company recognizes collaboration revenue under ASC 606 from license and R&D services, primarily from agreements with Merck and LG Chem. Revenue decreased significantly in 2022 due to the expiration of the Merck agreement and completion of the research phase with LG Chem - The company recognizes collaboration revenue under ASC 606, typically including promises related to licenses to intellectual property and research and development services[120] - The research collaboration term under the Merck Collaboration Agreement expired on December 31, 2021, and the research phase under the LG Chem collaboration was substantially complete on March 31, 2022[129][134] Collaboration Revenue by Partner | Collaboration | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Merck | $0 | $293 | $0 | $1,762 | | LG Chem | $68 | $2,102 | $1,094 | $4,925 | | Total | $68 | $2,395 | $1,094 | $6,687 | - To date, the company has not recognized any development, regulatory or commercial milestones or royalty revenue resulting from any of its collaboration arrangements[122] Note 10. Commitments and Contingencies The company's primary commitments include the Einstein License Agreement, requiring potential milestone payments up to $1.85 million per product/indication and $5.75 million for cumulative sales. There are no accruals for contingent liabilities, and no material legal proceedings are ongoing - The Einstein License Agreement requires the company to make significant payments based upon the achievement of certain milestones[137] - Aggregate milestone payments under the Einstein License Agreement could reach up to $1.85 million for each product/indication and up to $5.75 million for cumulative sales of all Licensed Products[137] - As of September 30, 2022, the company was not a party to any legal proceedings or threatened legal proceedings that would have a material adverse effect on its business[141] Note 11. Leases The company accounts for leases under ASC 842, recording right-of-use assets and corresponding lease liabilities. It terminated its Cambridge office/lab lease in April 2022, recording a $258,000 gain, and relocated its headquarters to new premises in Boston, incurring new lease liabilities - The company accounts for leases under ASC 842, which requires recording a right-of-use asset and a corresponding lease liability for most lease arrangements[142] - The Laboratory and Office Lease in Cambridge, Massachusetts, was terminated effective April 30, 2022, resulting in a gain on right-of-use asset termination of approximately $258,000 for the nine months ended September 30, 2022[150] - The company relocated its corporate headquarters to 40 Guest Street, Boston, Massachusetts, under a new License Agreement commencing April 15, 2022, with a monthly rental rate of $200,700 for the first year[150][151] Operating Lease Balances | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease right-of-use asset | $9,561 | $9,810 | | Current operating lease liability | $3,335 | $4,932 | | Long-term operating lease liability | $6,321 | $5,121 | Note 12. Subsequent Events On November 14, 2022, the company entered into a private placement agreement to issue 7,656,966 shares of common stock and 1,531,440 pre-funded warrants, along with accompanying warrants for up to 9,188,406 additional shares, expecting to raise approximately $30 million in gross proceeds - On November 14, 2022, the company entered into securities purchase agreements for a private placement of 7,656,966 shares of common stock and 1,531,440 pre-funded warrants, with accompanying warrants for up to 9,188,406 additional shares[157] - The private placement is expected to generate aggregate gross proceeds of approximately $30 million[220] 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, highlighting its strategic focus on oncology programs, clinical trial progress, the impact of the COVID-19 pandemic, and liquidity management, including recent financing activities and future funding requirements Overview The company is a clinical-stage biopharmaceutical company developing Immuno-STAT™ T cell engager biologics, prioritizing its CUE-100 series for oncology. It aims to selectively modulate tumor-specific T cells to treat cancer while seeking third-party support for non-oncology programs. The company has no commercial revenue and requires additional capital - The company is a clinical-stage biopharmaceutical company developing a novel class of T cell engager biologics, Immuno-STAT™ (Selective Targeting and Alteration of T Cells) platform[160] - The company is currently prioritizing and strategically focusing on drug product candidates for treating cancer in its CUE-100 series, which exploits rationally engineered interleukin 2 (IL-2)[160] - The company is actively seeking third-party support through partnerships or alternative funding structures to further develop its programs outside of oncology (CUE-200, CUE-300, and CUE-400 series)[160] - The company has not yet commenced any commercial revenue-generating operations, has limited cash flows from operations, and will need to access additional capital[160] Our Pipeline of Immuno-STAT T Cell Engagers The company is making significant progress with its IL-2-based CUE-100 series for oncology, with CUE-101 showing anti-tumor activity and favorable tolerability in Phase 1 monotherapy and combination trials for HPV+ HNSCC. CUE-102, targeting WT1, has initiated a Phase 1 trial, and new platforms like Neo-STAT™ and RDI-STAT are being developed to expand targeting capabilities - CUE-101, the most advanced clinical stage asset, is currently being dosed in a Phase 1b monotherapy trial for HPV-driven R/M HNSCC and a Phase 1 combination trial with KEYTRUDA®[163] - CUE-101 as a monotherapy demonstrated a confirmed partial response lasting over 42 weeks and seven patients with durable stable disease, with an observed increased trend in median overall patient survival approaching greater than 12 months (13.3 months)[163] - CUE-101 received Fast Track Designation for the treatment of R/M HPV+ HNSCC as a monotherapy and in combination with KEYTRUDA[165] - In combination with KEYTRUDA, CUE-101 showed an initial overall response rate (ORR) of 40% in 10 evaluable patients at the RP2D, with two confirmed ongoing PRs and two unconfirmed PRs (later confirmed)[165] - CUE-102, targeting Wilms' tumor-1 protein (WT1), received IND acceptance in April 2022 and has initiated a Phase 1 monotherapy dose-escalation trial for WT1-positive recurrent/metastatic gastric, pancreatic, ovarian, and colorectal cancers[169] - The company is developing Neo-STAT™ (peptide-less HLA molecules for flexible targeting) and RDI-STAT (targeting moiety on Fc fragment to redirect anti-viral T cells to tumors) to address cancer heterogeneity and immune escape mechanisms[169] The COVID-19 Pandemic The COVID-19 pandemic has caused supply chain disruptions for lab supplies and delays with contract research organizations (CROs), including a six-week delay in CUE-102 GMP material manufacturing, which pushed back its IND filing - The COVID-19 pandemic has caused supply chain disruptions for lab supplies and delays with contract research organizations (CROs)[170] - The manufacture of CUE-102 drug product candidate GMP material was delayed by approximately six weeks due to the Defense Production Act, impacting its IND filing date[170] Plan of Operation The company is in the development phase, focusing on R&D to advance its Immuno-STAT platform and drug candidates. Its strategy includes early-stage clinical development, extensive patent protection, and seeking strategic partnerships for later-stage development and commercialization - The majority of the company's business activities are devoted to furthering research and development of its Immuno-STAT platform[172] - A fundamental part of the corporate development strategy is to establish strategic partnerships with pharmaceutical or biotechnology organizations for more extensive, later stages of clinical development[172] Critical Accounting Estimates and Significant Judgments The company's financial statements rely on estimates and assumptions, particularly for collaboration revenue, potential liabilities, stock-based compensation, deferred tax assets, and long-lived assets. No material changes to these critical accounting policies occurred during the reported period - The preparation of financial statements requires making estimates and assumptions that affect reported amounts, including collaboration revenue, potential liabilities, stock-based compensation, deferred tax assets, and long-lived assets[173] - There were no material changes to the company's critical accounting policies and estimates during the three and nine months ended September 30, 2022[174] Recent Accounting Pronouncements and Adopted Standards This section refers to Note 2 of the consolidated financial statements for a discussion of recent accounting pronouncements - A discussion of recent accounting pronouncements is included in Note 2 to the consolidated financial statements[175] Significant Contracts and Agreements Related to Research and Development Activities The company maintains key agreements, including the Einstein License Agreement for its core technology platform and collaboration agreements with Merck and LG Chem. The Merck agreement expired in 2021, while the LG Chem agreement continues for oncology development in Asia, having generated significant upfront and milestone payments Einstein License Agreement The company holds an exclusive worldwide license from Albert Einstein College of Medicine for patent rights related to its core technology platform. It is required to pay royalties, annual maintenance fees, and milestone payments, and was in compliance with its obligations as of September 30, 2022 - The company holds an exclusive worldwide license from Albert Einstein College of Medicine for certain patent rights relating to its core technology platform[176][177] - Obligations under the license include paying royalties, escalating annual maintenance fees, and significant milestone payments upon achievement of certain events[177] - As of September 30, 2022, the company was in compliance with its obligations under the Einstein License[178] Einstein License Agreement Fees | Period | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------- | :------------------ | :------------------ | | Three months ended Sep 30 | $0 | $80 | | Nine months ended Sep 30 | $0 | $257 | Collaboration Agreement with Merck The collaboration agreement with Merck for autoimmune disease indications expired on December 31, 2021. The company received a $2.5 million upfront payment and recognized collaboration revenue from this agreement in prior periods, but none in 2022, as it is now prioritizing oncology programs - The research collaboration term under the Merck Collaboration Agreement for autoimmune disease indications expired on December 31, 2021[182] - Merck paid the company a $2.5 million nonrefundable up-front payment[184] Merck Collaboration Revenue | Period | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------- | :------------------ | :------------------ | | Three months ended Sep 30 | $0 | $293 | | Nine months ended Sep 30 | $0 | $1,762 | Collaboration Agreement with LG Chem The collaboration with LG Chem focuses on oncology Immuno-STATs, granting LG Chem exclusive development and commercialization rights in certain Asian countries. The company received a $5.8 million upfront payment, a $5 million equity investment, and $6.75 million in milestone payments to date. The research phase was substantially complete by March 31, 2022, leading to a decrease in recognized revenue in 2022 - The LG Chem Collaboration Agreement grants LG Chem an exclusive license to develop, manufacture, and commercialize Immuno-STATs focused in oncology in certain Asian countries[186] - The company received a $5.8 million non-refundable upfront payment and a $5.0 million equity investment from LG Chem[187] - The company is eligible to receive up to an additional $400.0 million in research, development, regulatory, and commercial milestones, plus tiered single-digit percentage royalties on net sales[187] - Milestone payments earned to date total $6.75 million[134] LG Chem Collaboration Revenue | Period | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------- | :------------------ | :------------------ | | Three months ended Sep 30 | $68 | $2,102 | | Nine months ended Sep 30 | $1,094 | $4,925 | - The majority of the research phase of the collaboration agreement was substantially complete on March 31, 2022[188] Results of Operations The company has not generated commercial revenue, relying on collaboration revenue which significantly decreased in 2022 due to the expiration of the Merck agreement and completion of the LG Chem research phase. Operating expenses, including general & administrative and R&D, also saw reductions - The company has not generated commercial revenue from product sales, with collaboration revenue being its primary source[191] - Collaboration revenue decreased by approximately $2,327,000 for the three months and $5,593,000 for the nine months ended September 30, 2022, compared to the prior year[198] - The decrease in collaboration revenue is attributed to the expiration of the Merck Collaboration Agreement and the completion of the research phase under the LG Chem collaboration[198] Collaboration Revenue Collaboration revenue for the three months ended September 30, 2022, was $68,000, a significant decrease from $2,395,000 in the prior year, and for the nine months, it was $1,094,000, down from $6,687,000. This decline is attributed to the expiration of the Merck agreement and the completion of the LG Chem research phase Collaboration Revenue Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $68 | $2,395 | $(2,327) | | Nine months ended Sep 30 | $1,094 | $6,687 | $(5,593) | - The decrease was due to the expiration of the research collaboration term under the Merck Collaboration Agreement and the completion of the research phase under the LG Chem collaboration[198] General and Administrative General and administrative expenses decreased by $597,000 for the three months and $195,000 for the nine months ended September 30, 2022, compared to the prior year, mainly due to lower stock-based compensation, professional/consulting fees, and rent General and Administrative Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $3,528 | $4,125 | $(597) | | Nine months ended Sep 30 | $12,465 | $12,660 | $(195) | - The decrease for the three months was primarily due to lower stock-based compensation, professional and consulting fees, rent expense, and overhead[199] - The decrease for the nine months was primarily due to lower professional and consulting and legal expenses[201] Research and Development Research and development expenses decreased by $3.717 million for the three months and $2.600 million for the nine months ended September 30, 2022, compared to the prior year. This reduction was mainly driven by lower laboratory and drug substance manufacturing costs, stock-based compensation, and licensing fees, partially offset by increased clinical trial fees for CUE-101 and CUE-102 Research and Development Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $7,571 | $11,288 | $(3,717) | | Nine months ended Sep 30 | $27,246 | $29,846 | $(2,600) | - The decrease was primarily due to lower laboratory and drug substance manufacturing costs, stock-based compensation, other professional fees, and licensing fees[203][205] - The nine-month decrease was offset by increased clinical trial fees related to CUE-101 and CUE-102 trials[205] Gain on Right-of-use Asset Termination The company recognized a gain of $258,000 on right-of-use asset termination for the nine months ended September 30, 2022, due to the termination of its Cambridge office and laboratory lease. No such gain was recorded in the prior year Gain on Right-of-use Asset Termination Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $0 | $0 | $0 | | Nine months ended Sep 30 | $258 | $0 | $258 | - The gain resulted from the termination of the operating lease agreement for the laboratory and office space in Cambridge, Massachusetts, effective April 30, 2022[208] Interest Income, net Interest income significantly increased to $200,000 for the three months and $296,000 for the nine months ended September 30, 2022, compared to $25,000 and $42,000 respectively in 2021, primarily due to higher interest yields on cash and cash equivalents Interest Income, net Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $200 | $25 | $175 | | Nine months ended Sep 30 | $296 | $42 | $254 | - The increase was primarily due to higher interest yields on the company's cash and cash equivalents[209] Interest Expense, net Interest expense increased to $124,000 for the three months and $355,000 for the nine months ended September 30, 2022, from zero in the prior year. This rise is mainly due to interest payments on the Silicon Valley Bank term loan and amortization of debt issuance costs, partially offset by amortization/accretion on investments Interest Expense, net Summary | Period | 2022 (in thousands) | 2021 (in thousands) | Change (2022 vs 2021) (in thousands) | | :---------------------------- | :------------------ | :------------------ | :----------------------------------- | | Three months ended Sep 30 | $124 | $0 | $124 | | Nine months ended Sep 30 | $355 | $0 | $355 | - The increase was primarily due to cash paid for interest expense related to borrowings under the Loan Agreement with Silicon Valley Bank and amortization of deferred issuance costs[210] Liquidity and Capital Resources The company's liquidity is primarily from equity offerings, collaboration agreements, and a term loan. As of September 30, 2022, it had $59.183 million in cash, cash equivalents, and marketable securities, expected to fund operations for at least the next 12 months. However, significant additional capital will be required for future R&D and commercialization efforts. A private placement in November 2022 is expected to raise $30 million - The company has financed its working capital requirements primarily through private and public offerings of equity securities, cash from collaboration agreements, and borrowings under the Loan Agreement[211] Cash, Cash Equivalents, and Marketable Securities | Metric | Sep 30, 2022 (in thousands) | | :-------------------------------------- | :-------------------------- | | Cash, cash equivalents, and marketable securities | $59,183 | - Existing cash, cash equivalents, and marketable securities as of September 30, 2022, are expected to fund operating requirements for at least the next 12 months, but additional capital will be needed for future operations[230][231] - On November 14, 2022, the company entered into a private placement expected to receive aggregate gross proceeds of approximately $30 million[220] Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities increased to $31.292 million, investing activities used $29.609 million (compared to providing $9.108 million in 2021), and financing activities provided $26.256 million, leading to a net decrease in cash of $34.645 million Cash Flow Activities Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating activities | $(31,292) | $(28,192) | | Investing activities | $(29,609) | $9,108 | | Financing activities | $26,256 | $11,851 | | Net decrease in cash | $(34,645) | $(7,233) | Operating Activities Cash used in operating activities increased to $31.292 million for the nine months ended September 30, 2022, primarily due to a net loss of $38.418 million and decreases in various liabilities, partially offset by non-cash adjustments like stock-based compensation and depreciation - Net cash used in operating activities was $31,292,000 for the nine months ended September 30, 2022[224] - Cash used was primarily due to a net loss of $38,418,000 and decreases in accrued expenses, research and development contract liability, accounts payable, and operating lease liability[224] - Partially offset by increases in stock-based compensation ($7,384,000) and depreciation and amortization ($719,000)[224] Investing Activities Investing activities used $29.609 million in cash for the nine months ended September 30, 2022, a significant shift from providing $9.108 million in 2021. This change was mainly driven by the purchase of $29.5 million in short-term marketable securities - Net cash used in investing activities was $29,609,000 for the nine months ended September 30, 2022, compared to $9,108,000 provided in the prior year[225] - The decrease of $38,717,000 in cash from investing activities was primarily due to the purchase of $29,500,000 in short-term investments in marketable securities[225] Financing Activities Financing activities provided $26.256 million in cash for the nine months ended September 30, 2022, an increase from $11.851 million in 2021. This was primarily due to $16.598 million from ATM equity offerings and $10 million from term loan borrowings - Net cash provided by financing activities was $26,256,000 for the nine months ended September 30, 2022, an increase of $14,405,000 from the prior year[226] - Cash from financing activities included $16,598,000 from the sale of common stock via ATM offering and $10,000,000 from borrowings under the Loan Agreement[226] Funding Requirements The company anticipates increased expenses for R&D, clinical trials, regulatory approvals, and public company operations. It has prioritized oncology programs and taken steps to reduce costs. While existing cash is expected to last 12 months, significant additional capital will be needed, potentially through equity offerings, debt, or partnerships, with risks of dilution or asset relinquishment - The company expects expenses to increase due to ongoing R&D, clinical trials, regulatory approvals, and operating as a public company[227][228] - The company has prioritized its oncology programs (CUE-100 series) and is actively seeking third-party support for non-oncology programs (CUE-200, CUE-300, CUE-400 series)[229] - Existing cash, cash equivalents, and marketable securities as of September 30, 2022, are expected to fund operating requirements for at least the next 12 months[230] - Additional capital will be needed, potentially through public or private equity offerings, debt financings, collaborations, or grants, which could lead to ownership dilution or relinquishing valuable rights[231][234] Principal Commitments There were no material changes to the company's contractual obligations and commitments during the three and nine months ended September 30, 2022, other than entering into a new headquarters lease - No material changes to contractual obligations and commitments occurred during the three and nine months ended September 30, 2022, other than entering into a new headquarters lease[236] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide the information required by this Item 3[238] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022. They acknowledge inherent limitations in control systems and reported no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[239] - Management acknowledges that control systems have inherent limitations and can provide only reasonable, not absolute, assurance that objectives will be met[240] - There were no changes in internal control over financial reporting during the three months ended September 30, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting[241] Disclosure Controls and Procedures The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022, ensuring timely and accurate reporting of information required by the Exchange Act - Disclosure controls and procedures are designed to ensure that information required to be disclosed in SEC reports is recorded, processed, summarized, and reported within specified time periods[239] - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of September 30, 2022[239] Inherent Limitations on Effectiveness of Controls Management recognizes that control systems have inherent limitations, providing only reasonable assurance against errors or fraud, as they can be circumvented by individual acts, collusion, or management override - Management does not expect that disclosure controls or internal control over financial reporting will prevent or detect all errors and all fraud[240] - A control system can provide only reasonable, not absolute, assurance, and can be circumvented by individual acts, collusion, or management override[240] Changes in Internal Control over Financial Reporting No changes in internal control over financial reporting occurred during the three months ended September 30, 2022, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[241] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[242] ITEM 1A. RISK FACTORS Investors should carefully consider the risks outlined in this report and the company's 2021 Annual Report, as these factors could materially affect the business, financial condition, results of operations, and future growth prospects - Investment in the company's securities involves risk, and investors should carefully consider the summary of principal risks in this report and the risk factors detailed in Item 1A of the 2021 Annual Report[11][243] - If any of the risks occur, the company's business, financial condition, results of operations, and future growth prospects could be materially and adversely affected[12] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds to report for this period - No unregistered sales of equity securities and use of proceeds to report[244] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities to report for this period - No defaults upon senior securities to report[245] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine Safety Disclosures are not applicable[246] ITEM 5. OTHER INFORMATION No other information to report for this period - No other information to report[247] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including termination agreements, rider to license agreement, certifications, and XBRL documents - Exhibits include a Termination of License Agreement, a Rider to License Agreement, Certifications (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350), and Inline eXtensible Business Reporting Language (XBRL) documents[249]