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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual report on Form 10-K. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Form 10-K. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Form 10-K.

Overview

We are a clinical stage, immunology focused biopharmaceutical company developing drugs and antibodies that target the most critical cellular elements of the immune system. Our strategy is to focus our efforts on the development of immune modulator product candidates to treat COVID-19, T-cell lymphomas, other cancers and autoimmune diseases. We have built a pipeline of five programs, three of which are in clinical development.

Our lead product candidate is CPI-006, a potent humanized monoclonal antibody that is designed to react with a specific site on CD73. In both preclinical and in vivo studies in cancer patients and patients with COVID-19, CPI-006 has demonstrated binding to various immune cells and the inducement of a humoral adaptive immune response. We believe CPI-006 has the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of infectious diseases and cancers.

We are evaluating CPI-006 in a global, randomized, double-blind, Phase 3 trial designed to evaluate the efficacy and safety of CPI-006 compared to placebo in hospitalized patients with mild-to-moderate COVID-19. The primary endpoint of the trial is the proportion of patients progressing to respiratory failure or death during the 28 days after dosing. The trial was designed with input from the U.S. Food and Drug Administration, or FDA.

Our next product candidate, CPI-818, is a selective, covalent inhibitor of ITK and is in a multi-center Phase 1/1b clinical trial in patients with various malignant T-cell lymphomas. CPI-818 is designed to inhibit the proliferation of certain malignant T-cells, and we believe it also has the potential to regulate the growth of abnormal T cells involved in autoimmunity.

Our third product candidate, ciforadenant (formerly CPI-444), is an oral, small molecule antagonist of the A2A receptor for adenosine with which we completed a Phase 2 expansion protocol in combination with Genentech, Inc.’s cancer immunotherapy, Tecentriq® (atezolizumab) for patients with either advanced or refractory renal cell cancer (“RCC”). We have identified a novel biomarker that may enable us to select patients most likely to benefit from ciforadenant. In studies presented at the American Society of Oncology (“ASCO”) meeting in 2020, patients expressing this marker in their tumor had a 17% response rate. Activity was seen with both CPI-444 as a monotherapy and in combination with Tecentriq. We have refined our strategy with ciforadenant and plan to collaborate with an academic consortium to evaluate ciforadenant in a first line RCC Phase 2 trial as a triplet combination with pembrolizumab and a tyrosine kinase inhibitor (“TKI”).

To date, the majority of our efforts have been focused on the research, development and advancement of CPI-006, CPI-818 and ciforadenant, and we have not generated any revenue from product sales and, as a result, we have incurred significant losses. We expect to continue to incur significant research and development and general and administrative expenses related to our operations. Our net loss for the years ended December 31, 2020 and 2019 was $6.0 million and $46.7 million, respectively. As of December 31, 2020, we had an accumulated deficit of $223.1 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, seek regulatory approval for and begin to commercialize CPI-006, CPI-818 and ciforadenant, and as we develop other product candidates. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

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Since our inception and through December 31, 2019, we have funded our operations primarily through the sale and issuance of stock. On March 22, 2016, our registration statement on Form S-1 (File No. 333-208850) relating to our initial public offering (“IPO”) of our common stock was declared effective by the SEC. Shares of our common stock began trading on the Nasdaq Global Market on March 23, 2016. The IPO closed on March 29, 2016, pursuant to which we sold 4,700,000 shares of our common stock at a public offering price of $15.00 per share. In April 2016, we sold an additional 502,618 shares of our common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. We received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all of our outstanding shares of convertible preferred stock were converted into 14.3 million shares of our common stock. In March 2018, in a follow-on offering, we sold 8,117,647 shares of our common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. We received aggregate net proceeds of approximately $64.9 million, after underwriting discounts, commissions and offering expenses.

In March 2020, we entered into a open market sales agreement (the “Sales Agreement”) with Jefferies LLC (“Jeffries”) to sell shares of the Company’s common stock, from time to time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jeffries acts as our sales agent. Jeffries is entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Jeffries under the Sales Agreement. As of December 31, 2020, we had sold 310,734 shares of our common stock for net proceeds of approximately $1.2 million pursuant to the Sales Agreement. As of December 31, 2020, $48.7 million remained for sale under the Sales Agreement.

In October 2020, we announced the formation and launch of Angel Pharmaceuticals Co., Ltd. (“Angel Pharmaceuticals”), a new China based biopharmaceutical company with a mission to bring innovative quality medicines to Chinese patients for treatment of serious diseases including cancer, autoimmune diseases and infectious diseases. We formed Angel Pharmaceuticals as a wholly owned subsidiary and it launched with a post-money valuation of approximately $106.0 million, based on an approximate $41.0 million cash investment from a Chinese investor group that includes funds associated with Tigermed and Betta Pharmaceuticals, Hisun Pharmaceuticals and Zhejiang Puissance Capital. Such cash is not available for our use. Contemporaneously with the financing, Angel Pharmaceuticals licensed the rights to develop and commercialize our three clinical-stage candidates – CPI-006, CPI-818 and ciforadenant – in greater China and obtained global rights to our BTK inhibitor preclinical programs. Under the collaboration, we currently have a 49.7% equity interest in Angel Pharmaceuticals, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP, and are entitled to designate three individuals on Angel’s five-person Board of Directors.

As of December 31, 2020, we had capital resources consisting of cash, cash equivalents and marketable securities of approximately $44.3 million. We do not expect our existing capital resources to be sufficient to enable us to fund the completion of all of our ongoing or planned clinical trials and remaining development program of any of ciforadenant, CPI-006 or CPI-818 through commercialization. In addition, our operating plan may change as a result of many factors, including those described in the section of this report entitled “Risk Factors” and others currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing would result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. If we raise additional capital through strategic collaboration agreements, we may have to relinquish valuable rights to our product candidates, including possible future revenue streams. In addition, additional funding may not be available to us on acceptable terms or at all and any additional fundraising efforts may divert our management from its day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.

We currently have no manufacturing capabilities and do not intend to establish any such capabilities. We have no commercial manufacturing facilities for our product candidates. As such, we are dependent on third parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards and at competitive prices.

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Impact of COVID-19

COVID-19 was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. COVID-19 has placed strains on the providers of healthcare services, including the healthcare institutions where we conduct our clinical trials. These strains have resulted in institutions prohibiting the initiation of new clinical trials, enrollment in existing clinical trials and restricting the on-site monitoring of clinical trials. As our oncology clinical trial enrollment goals for 2020 were largely completed in our first quarter, we have not been significantly affected by any clinical trial enrollment restrictions. Patients in our ongoing oncology clinical trials have generally completed their scheduled visits and we have been able to collect the essential data from those visits. We also follow FDA guidance on clinical trial conduct during the COVID-19 pandemic, including the remote monitoring of clinical data.

In alignment with public health guidance designed to slow the spread of COVID-19, as of mid-March 2020, we implemented a reduced onsite staffing model and transitioned to a remote work plan for all employees other than those providing essential services, such as our laboratory staff. For our onsite employees, we have implemented heightened health and safety measures designed to comply with applicable federal, state and local guidelines in response to the COVID-19 pandemic. We are further supporting all of our employees by leveraging virtual meeting technology and encouraging employees to follow local health authority guidance. We may need to undertake additional actions that could impact our operations if required by applicable laws or regulations or if we determine such actions to be in the best interests of our employees.

Components of Results of Operations

Revenue

To date, we have not generated any revenues. We do not expect to receive any revenues from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into revenue-generating collaboration agreements with third parties.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred to conduct research and development of our product candidates. We record research and development expenses as incurred. Research and development expenses include:

● license fees; and

We plan to increase our research and development expenses substantially as we continue the development and potential commercialization of our product candidates. Our current planned research and development activities include the following:

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● enrollment and completion of our ongoing Phase 1/1b clinical trial of CPI-818;

In addition to our product candidates that are in clinical development, we believe it is important to continue substantial investment in potential new product candidates to build the value of our product candidate pipeline and our business.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties related to timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including many of which are beyond our control. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming, and the successful development of our product candidates is uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in “Part I, Item 1A—Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses include personnel costs, expenses for outside professional services and allocated expenses. Personnel costs consist of salaries, benefits and stock-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated expenses consist of rent expense related to our office and research and development facility.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of one or more of our product candidates.

Results of Operations

Comparison of the periods below as indicated (in thousands):

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year ended December 31, Change Change

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​

Loss from equity method investment ​ ​ (234) ​ ​ — ​ ​ — ​ ​ (234) ​ —

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Research and Development Expenses

Research and development expenses for the years ended December 31, 2020 and 2019, consisted of the following costs by program (specific program costs consist solely of external costs):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year ended December 31, Change Change

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For the year ended December 31, 2020, the decrease in ciforadenant costs of $2.0 million as compared to the year ended December 31, 2019, primarily consisted of a decrease of $1.5 million in clinical trial expenses, a decrease of $0.2 million in drug manufacturing costs and a decrease of $0.3 million in other outside services.

For the year ended December 31, 2020, the increase in CPI-006 costs of $2.2 million as compared to the year ended December 31, 2019, primarily consisted of an increase of $3.5 million in clinical trial expenses as well as an increase of $0.4 million in other outside services, partially offset by a decrease of $1.7 million in drug manufacturing costs.

For the year ended December 31, 2020, the decrease in CPI-818 costs of $3.8 million as compared to the year ended December 31, 2019, primarily consisted of a decrease of $2.7 million in drug manufacturing costs, a decrease of $0.4 million in clinical trial expenses and a decrease of $0.7 million in other outside services.

For the year ended December 31, 2020, the decrease in costs related to other programs of $0.3 million as compared to the year ended December 31, 2019, primarily consisted of a decrease of $0.6 million in outside services, partially offset by an increase of $0.3 million in drug manufacturing costs.

For the year ended December 31, 2020, the decrease in unallocated costs of $2.2 million as compared to the year ended December 31, 2019, primarily consisted of a decrease of $1.5 million in outside services and a decrease of $0.7 million in personnel and related costs.

For the year ended December 31, 2019, the decrease in ciforadenant costs of $4.6 million as compared to the year ended December 31, 2018, primarily consisted of a decrease of $2.8 million in drug manufacturing costs, a decrease of $1.3 million in clinical trial expenses associated with lower enrollment in accordance with our protocol amendment focusing on RCC and mCRPC patients and a decrease of $0.5 million in other outside services.

For the year ended December 31, 2019, the increase in CPI-006 costs of $0.7 million as compared to the year ended December 31, 2018, primarily consisted of an increase of $1.2 million in clinical trial expenses, partially offset by a decrease of $0.3 million in drug manufacturing costs and a decrease of $0.2 million in other outside services.

For the year ended December 31, 2019, the increase in CPI-818 costs of $1.9 million as compared to the year ended December 31, 2018, primarily consisted of an increase of $2.2 million in clinical trial expenses, an increase of $0.6 million in drug manufacturing costs, and an increase of $0.2 million in other outside services, partially offset by a decrease of $1.1 million in IND-enabling study costs.

For the year ended December 31, 2019, the increase in costs related to other programs of $0.1 million as compared to the year ended December 31, 2018, primarily consisted of outside chemical synthesis and testing of research compounds.

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For the year ended December 31, 2019, the increase in unallocated costs of $1.4 million as compared to the year ended December 31, 2018, primarily consisted of an increase in personnel and related costs.

General and Administrative Expenses

For the year ended December 31, 2020, the increase in general and administrative expenses of $1.1 million as compared to the year ended December 31, 2019, primarily consisted of an increase of $1.9 million in outside professional services, partially offset by a decrease of $0.8 million in personnel and related costs.

For the year ended December 31, 2019, the increase in general and administrative expenses of $0.2 million as compared to the year ended December 31, 2018, primarily consisted of an increase in personnel and related costs.

Interest Income and Other Expense, net

For the year ended December 31, 2020, the decrease in interest income and other expense, net of $1.6 million as compared to the year ended December 31, 2019, primarily consisted of a decrease in interest income earned due to a decrease in cash equivalents and marketable securities and a decrease in interest rates.

For the year ended December 31, 2019, the decrease in interest income and other expense, net of $0.1 million as compared to the year ended December 31, 2018, primarily consisted of a decrease in interest income earned due to a decrease in cash equivalents and marketable securities.

Gain on deconsolidation of Angel Pharmaceuticals

For the year ended December 31, 2020, the gain on deconsolidation of Angel Pharmaceuticals of $37.5 million represents the fair value of our investment in Angel Pharmaceuticals at the date Angel Pharmaceuticals was deconsolidated from our financial statements.

Loss from equity method investment

For the year ended December 31, 2020, the loss from equity method investment of $0.2 million represents our share of the Angel Pharmaceutical’s loss for the period from deconsolidation of our investment in Angel Pharmaceuticals through December 31, 2020.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $44.3 million and an accumulated deficit of $223.1 million, compared to cash, cash equivalents and marketable securities of $78.0 million and an accumulated deficit of $217.1 million as of December 31, 2019. We have financed our operations primarily through sales of our common stock and convertible preferred stock.

In March 2016, we consummated our IPO and sold 4,700,000 shares of our common stock at a price of $15.00 per share, and in April 2016, sold 502,618 shares at a price of $15.00 per share pursuant to the partial exercise of the underwriters’ option to purchase additional shares of common stock. We received net proceeds of approximately $70.6 million, after deducting underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of our IPO, all outstanding shares of the convertible preferred stock were converted into common stock on a one-for-one basis.

In March 2018, in a follow-on offering, we sold 8,117,647 shares of our common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. We received aggregate net proceeds of approximately $64.9 million, after underwriting discounts, commissions and offering expenses.

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On February 17, 2021, we completed a follow-on public offering in which we sold 9,783,660 shares of common stock at a price of $3.50 per share, which included 1,212,231 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. We received aggregate net proceeds of approximately $31.8 million, net of underwriting discounts and commissions and offering expenses.

In March 2020, we entered into a Sales Agreement Jefferies LLC to sell shares of the Company’s common stock, from time to time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jeffries acts as our sales agent. Jeffries is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold through Jeffries under the Sales Agreement. During the year ended December 31, 2020, we received net proceeds of approximately $1.2 million from the sale of 310,734 shares of our common stock pursuant to the Sales Agreement. As of December 31, 2020, $48.7 million remained for sale under the Sales Agreement.

We believe our current cash, cash equivalents and marketable securities, including the net proceeds from our February 2021 follow-on offering, will be sufficient to fund our planned expenditures and meet our obligations through at least the next twelve months from the issuance of our consolidated financial statements as of and for year ended December 31, 2020. The amounts and timing of our actual expenditures depend on numerous factors, including:

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● the number and scope of preclinical and clinical programs we decide to pursue;

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● the cost and timing of regulatory approvals;

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● other factors described in the section of this report entitled “Risk Factors.”

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We expect to increase our spending in connection with the development and commercialization of our product candidates. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financings. We may also enter into additional collaboration arrangements or selectively partner for clinical development and commercialization. The sale of additional equity would result in dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations. In addition, sufficient additional funding may not be available on acceptable terms, or at all. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could have a material effect on our business, financial condition and results of operations.

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Summary of Statement of Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year ended December 31, Change Change

Net cash provided by (used in): ​ ​ ​ ​ ​ ​

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Cash Flows from Operating Activities

Cash used in operating activities during the year ended December 31, 2020 was $34.8 million, which primarily consisted of a net loss of $6.0 million, adjusted by non-cash charges of $6.8 million, primarily consisting of $5.7 million of stock compensation expense, a non-cash gain on deconsolidation of Angel Pharmaceuticals of $37.5 million, an increase of $1.7 million in accounts payable and accrued and other liabilities and a decrease of $0.4 million in prepaid and other current and non-current assets, partially offset by a decrease of $0.2 million in operating lease liability, net of operating lease right-of-use asset amortization.

Cash used in operating activities during the year ended December 31, 2019 was $37.3 million, which primarily consisted of a net loss of $46.7 million, adjusted by non-cash charges of $7.4 million, primarily consisting of $7.3 million of stock compensation expense, an increase of $2.5 million in accounts payable and accrued and other liabilities and an increase of $0.4 million in prepaid and other current assets, primarily associated with the timing of payments to vendors.

Cash used in operating activities during the year ended December 31, 2018 was $41.0 million, which primarily consisted of a net loss of $46.9 million, adjusted by non-cash charges of $7.4 million, primarily consisting of $7.1 million of stock compensation expense, a decrease of $2.0 million in accounts payable and accrued and other liabilities and a decrease of $0.6 million in current and other assets, primarily associated with the timing of payments to vendors.

Cash Flows from Investing Activities

Cash provided by investing activities during the year ended December 31, 2020 was $44.8 million, which consisted of proceeds from maturities of marketable securities of $86.4 million and proceeds from sales of marketable securities of $1.0 million, partially offset by purchases of marketable securities of $42.5 million and purchases of property and equipment of $0.1 million.

Cash provided by investing activities during the year ended December 31, 2019 was $3.3 million, which consisted of proceeds from maturities of marketable securities of $141.9 million, which were partially offset by purchases of marketable securities of $138.6 million.

Cash used in investing activities during the year ended December 31, 2018 was $30.2 million, which consisted of purchases of marketable securities of $161.9 million and purchases of property and equipment of $0.4 million, which were partially offset by proceeds from maturities of marketable securities of $132.0 million.

Cash Flows from Financing Activities

Cash provided by financing activities during the year ended December 31, 2020 was $1.3 million, which consisted of $1.2 million in net proceeds from the issuance of common stock through our at-the-market offering program and $0.1 million of proceeds from the exercise of stock options.

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Cash provided by financing activities during the year ended December 31, 2019 was negligible.

Cash provided by financing activities during the year ended December 31, 2018 was $65.3 million, consisting of $64.9 million of net proceeds from our follow-on offering and $0.4 million of proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Contractual Obligations

We lease our facilities under a non-cancelable operating lease that expires in 2023. As of December 31, 2020, contractual obligations were as follows (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Payment Due by Period

​ ​ ​ Less than ​ ​ ​ ​ More than

​ ​ Total ​ 1 year ​ 2 - 3 years ​ 4 - 5 years ​ 5 years

Contractual obligations: ​ ​ ​ ​ ​

Operating lease obligations ​ $ 2,559 ​ $ 1,260 ​ $ 1,299 ​ $ — ​ $ —

Total contractual obligations ​ $ 2,559 ​ $ 1,260 ​ $ 1,299 ​ $ — ​ $ —

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In August 2015 we entered into an agreement for a line of credit of $0.1 million for the purpose of issuing our landlord a letter of credit of $0.1 million as a security deposit under our facility lease. We pledged money market funds and marketable securities as collateral for the line of credit. Pursuant to our license agreements with each of Vernalis and Scripps, we have obligations to make future milestone and royalty payments to these parties. However, because these amounts are contingent, they have not been included on our balance sheet.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our 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. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Our significant accounting policies are more fully described in Note 2 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Cash, Cash Equivalents and Marketable Securities

We consider all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents.

Investments with remaining maturities, at the date of purchase, greater than three months, but less than one year are considered short-term. We determined the appropriate classification of marketable securities at the time of purchase and evaluates such designation as of each balance sheet date. To date, all marketable securities have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included as a component of

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accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Interest and realized gains and losses are included in interest income. Realized gains and losses are recognized based on the specific identification method.

Research and Development Expenses

We record research and development expenses as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Research and development expenses consist of costs incurred by us for the discovery and development of our product candidates and include:

● license fees; and

Clinical Trial Accruals

Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of the vendors’ progress towards completion of specific tasks, using data such as clinical site activations, patient enrollment or information provided to us by our vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed. We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion, or the services completed. Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time

Recent Accounting Pronouncements

See Note 2 in Item 8 “Financial Statements and Supplementary Data.”

Segment Information

We have one primary business activity and operate as one reportable segment.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act 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. We also rely on other exemptions provided by the JOBS Act, including, without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We will remain an emerging growth company until the earlier of (1) December 31, 2021, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are

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deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which may allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents and marketable securities of $44.3 million as of December 31, 2020, which consisted of U.S. Treasury securities, U.S. government agency securities and corporate debt obligations. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% increase in interest rates would not have a material effect on the fair market value of our portfolio.

We do not have any foreign currency or other derivative financial instruments.

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Item 8. Financial Statements and Supplementary Data

CORVUS PHARMACEUTICALS, INC.

ANNUAL REPORT ON FORM 10-K

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm 96

Consolidated Financial Statements ​

Consolidated Balance Sheets 97

Consolidated Statements of Operations and Comprehensive Loss 98

Consolidated Statements of Stockholders’ Equity 99

Consolidated Statements of Cash Flows 100

Notes to Consolidated Financial Statements 101

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Report of Independent Registered Public Accounting Firm

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To the Board of Directors and Stockholders of Corvus Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Corvus Pharmaceuticals, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

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Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

​

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the Company will require additional financing to fund future operations. Management’s plans in regard to this matter are described in Note 1.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 25, 2021

We have served as the Company’s auditor since 2015

​

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CORVUS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31,

Assets ​ ​

Current assets: ​ ​

Cash and cash equivalents ​ $ 16,455 ​ $ 5,154

Prepaid and other current assets ​ 1,077 ​ 1,362

Property and equipment, net ​ 906 ​ 1,462

Operating lease right-of-use asset ​ ​ 1,648 ​ ​ 2,327

Investment in Angel Pharmaceuticals ​ ​ 37,225 ​ ​ —

​ ​ ​ ​ ​ ​ ​

Liabilities and Stockholders’ Equity ​ ​ ​

Current liabilities: ​ ​

Operating lease liability ​ ​ 1,078 ​ ​ 878

Accrued and other liabilities ​ 7,604 ​ 6,899

Operating lease liability ​ ​ 1,232 ​ ​ 2,310

Commitments and contingencies (Note 13) ​ ​

Stockholders’ equity: ​ ​

Accumulated other comprehensive income ​ 4 ​ 29

Total liabilities and stockholders’ equity ​ $ 85,529 ​ $ 83,646

​

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

​

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CORVUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Operating expenses: ​ ​ ​ ​

Interest income and other expense, net ​ 540 ​ 2,182 ​ 2,283

Gain on deconsolidation of Angel Pharmaceuticals ​ ​ 37,459 ​ ​ – ​ ​ –

Loss from equity method investment ​ ​ (234) ​ ​ – ​ ​ –

Net loss per share, basic and diluted ​ $ (0.20) ​ $ (1.59) ​ $ (1.71)

Other comprehensive loss: ​ ​ ​ ​

Unrealized gain (loss) on marketable securities ​ (25) ​ 63 ​ 7

​

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

​

​

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CORVUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total

​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’

​ Shares Amount Capital Income (Loss) Deficit Equity

Stock-based compensation expense ​ — ​ ​ — ​ ​ 7,135 ​ ​ — ​ ​ — ​ ​ 7,135

Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 7 ​ ​ — ​ ​ 7

Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (46,939) ​ ​ (46,939)

Stock-based compensation expense ​ — ​ ​ — ​ ​ 7,348 ​ ​ — ​ ​ — ​ ​ 7,348

Unrealized gain on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ 63 ​ ​ — ​ ​ 63

Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (46,672) ​ ​ (46,672)

Stock-based compensation expense ​ — ​ ​ — ​ ​ 5,747 ​ ​ — ​ ​ — ​ ​ 5,747

Unrealized loss on marketable securities ​ — ​ ​ — ​ ​ — ​ ​ (25) ​ ​ — ​ ​ (25)

Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (5,995) ​ ​ (5,995)

​

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

​

​

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CORVUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows from operating activities ​ ​ ​ ​

Depreciation and amortization ​ 632 ​ 743 ​ 847

Accretion related to marketable securities ​ 154 ​ (644) ​ (608)

Gain on deconsolidation of Angel Pharmaceuticals ​ (37,459) ​ — ​ —

Loss from equity method investment ​ 234 ​ — ​ —

Changes in operating assets and liabilities: ​ ​ ​ ​

Prepaid and other current assets ​ 285 ​ (370) ​ 187

Operating lease right-of-use asset ​ ​ 679 ​ ​ 599 ​ ​ —

Other assets ​ ​ 99 ​ ​ (50) ​ ​ 406

Accrued and other liabilities ​ 705 ​ 2,042 ​ (560)

Operating lease liability ​ ​ (878) ​ ​ (767) ​ ​ —

Cash flows from investing activities ​ ​ ​

Sales of marketable securities ​ ​ 1,009 ​ ​ – ​ ​ —

Purchases of property and equipment ​ (76) ​ (25) ​ (355)

Net cash provided by (used in) investing activities ​ 44,769 ​ 3,255 ​ (30,192)

Cash flows from financing activities ​ ​ ​

Proceeds from exercise of common stock options ​ 88 ​ 24 ​ 393

Net cash provided by financing activities ​ 1,310 ​ 24 ​ 65,270

Cash and cash equivalents at beginning of the period ​ 5,154 ​ 39,196 ​ 45,106

Cash and cash equivalents at end of the period ​ $ 16,455 ​ $ 5,154 ​ $ 39,196

Supplemental disclosures of cash flow information ​ ​ ​

Purchases of property and equipment incurred but not paid ​ $ — ​ $ — ​ $ 84

​

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

​

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CORVUS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Corvus Pharmaceuticals, Inc. (“Corvus” or the “Company”) was incorporated in Delaware on January 27, 2014 and commenced operations in November 2014. Corvus is a clinical-stage biopharmaceutical company. The Company’s operations are located in Burlingame, California.

Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corvus Biopharmaceuticals, Ltd. and Corvus Hong Kong Limited. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Initial Public Offering

On March 22, 2016, the Company’s registration statement on Form S-1 (File No. 333-208850) relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on March 23, 2016. The public offering price of the shares sold in the IPO was $15.00 per share. The IPO closed on March 29, 2016, pursuant to which the Company sold 4,700,000 shares of its common stock. On April 26, 2016, the Company sold an additional 502,618 shares of its common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. The Company received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of convertible preferred stock were converted into common stock.

Follow-on Public Offering

In March 2018, the Company completed a follow-on public offering in which the Company sold 8,117,647 shares of common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $64.9 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

​

Liquidity

The Company is subject to risks and uncertainties 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, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of CPI-006, CPI-818 and ciforadenant. The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of ciforadenant, CPI-006, and CPI-818, as well as product candidates under the Company’s other development programs. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of CPI-006, CPI-818, and ciforadenant or any other product candidates. The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining

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development program of CPI-006, CPI-818 and ciforadenant through commercialization. In addition, its operating plan may change as a result of many factors.

The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit of $223.1 million as of December 31, 2020. The Company has historically financed its operations primarily through the sale of redeemable convertible preferred stock and common stock. While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As of December 31, 2020, the Company had cash, cash equivalents and short-term marketable securities of $44.3 million. Management believes that the Company’s current cash, cash equivalents and short-term marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these financial statements.

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As COVID-19 continues to spread around the globe, we will likely experience disruptions, including delays or difficulties in enrolling patients in our clinical trials, delays or difficulties in clinical site initiation, interruption of key clinical trial activities, delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and delays in necessary interactions with local regulatory authorities. COVID-19 may also impact the Company’s ability to raise additional capital on a timely basis or at all, which could negatively impact short-term and long-term liquidity.

Exchange Warrants

​

On November 8, 2019, the Company entered into an exchange agreement (the “Exchange Agreement”) with an investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,458,000 shares of the Company’s common stock, par value $0.0001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,458,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.0001 per share. The Exchange Warrants will expire ten years from the date of issuance. The Exchange Warrants are exercisable at any time prior to expiration except that the Exchange Warrants cannot be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99% of the Company’s common stock, subject to certain exceptions. In accordance with Accounting Standards Codification Topic 505, Equity, and Accounting Research Bulletin 43, the Company recorded the retirement of the common stock exchanged as a reduction of common shares outstanding and elected to record the excess over par value as a debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants are classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity, and Accounting Standards Codification Topic 815, Derivatives and Hedging, and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement. The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants. As of December 31, 2020, none of the Exchange Warrants have been exercised.

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2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s functional and reporting currency is the U.S. dollar, except for its investment in its equity method investee which is the Chinese yuan. The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business. Since its inception, the Company has incurred significant losses and negative cash flows from operations. As of December 31, 2020, the Company had an accumulated deficit of $223.1 million and cash, cash equivalents and marketable securities of $44.3 million. The Company has financed its operations primarily with the proceeds from the sale of stock. The Company will need to raise additional capital to meet its business objectives. The Company believes that its current cash, cash equivalents and marketable securities will be sufficient to fund its planned expenditures and meet its obligations through at least the next twelve months from the issuance of these financial statements.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

Concentrations of Credit Risk and Other Risks and Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with two financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company’s marketable securities consist of investments in U.S. Treasury securities, U.S. government agency securities and corporate debt obligations, which can be subject to certain credit risks. However, the Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.

The Company is subject to a number of risks similar to other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, and protection of proprietary technology. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology therapies.

Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents.

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Investments with remaining maturities, at the date of purchase, greater than three months are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses, if any, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Interest and realized gains and losses are included in interest income. Realized gains and losses are recognized based on the specific identification model.

Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). The carrying amount of the Company’s financial instruments, including cash equivalents, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities.

Variable Interest Entities

The Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests is considered a variable interest entity ("VIE"). The Company consolidates VIEs when it is the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company assesses whether any changes in the interest or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interest in accordance with applicable GAAP.

Investments in Equity Securities

Investments in equity securities over which the Company is able to exercise significant influence over the investee, but does not control the investee, and is not the primary beneficiary of the investee’s activities that are considered VIEs are accounted for using the equity method. Adjustments are made to investments accounted for using the equity method for any earnings or losses incurred and are recorded in loss from operations. Investments in equity securities which do not have readily determinable fair values and for which the Company is not able to exercise significant influence over the investee are accounted for under the measurement alternative which is the cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar securities of the same investee and adjustments related to the basis differences, if any.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets:

​

​ ​ ​ ​

Laboratory equipment 5 years

Computer equipment and purchased software ​ 3 years

​

Maintenance and repairs that do not extend the life or improve the asset are expensed when incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization are removed from the balance sheet and any resulting gain or loss is reflected in operations.

Impairment of Long-Lived Assets

The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic

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significance of the assets to the Company’s business objectives. Should impairment exist, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the projected discounted future net cash flows arising from the asset. All long-lived assets are maintained in the United States of America.

Research and Development Expenses

The Company records research and development expenses as incurred. The Company accounts for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Research and development expenses consist of costs incurred by the Company for the discovery and development of the Company’s product candidates and include:

● license fees; and

Clinical Trial Accruals

Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of the vendors’ progress towards completion of specific tasks, using data such as clinical site activations, patient enrollment or information provided to the Company by its vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion, or the services completed. The Company’s estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time.

Stock-Based Compensation

The Company maintains incentive plans under which incentive stock options and nonqualified stock options may be granted to employees and non-employee service providers.

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of ASC 718, “Compensation—Stock Compensation.” For stock options granted to employees, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values. The value of the award is recognized as an expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option pricing model. Forfeitures are accounted for when they occur.

Stock-based compensation expense related to stock options granted to non-employees is recognized based on the fair value of the stock options, determined using the Black-Scholes option pricing model. The awards generally vest over the time period the Company expects to receive service from the non-employee.

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Income Taxes

The Company accounts for income taxes under the asset and liability method. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the Company’s balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statements of operations and comprehensive loss become deductible expenses, under applicable income tax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and a valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered. The Company applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Based on the available evidence, the Company is unable, at this time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future. Accordingly, the Company recorded a full valuation allowance for all periods presented. The Company intends to maintain a valuation allowance until sufficient evidence exists to support its reversal.

The Company recognizes benefits of uncertain tax positions if it is more likely than not such positions will be sustained upon examination based solely on their technical merits as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense. The Company is required to file income tax returns in the U.S. federal jurisdiction. The Company currently is not under examination by the Internal Revenue Service or other jurisdictions for any tax years.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss in any period presented was unrealized gains and losses on available-for-sale marketable securities.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding and Exchange Warrants outstanding during the period, without consideration of potentially dilutive securities. In accordance with Accounting Standards Codification Topic 260, Earnings Per Share, the Exchange Warrants are included in the computation of basic net loss per share because the exercise price is negligible and they are fully vested and exercisable at any time after the original issuance date. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares, Exchange Warrants, and potentially dilutive securities outstanding for the period. Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted the new standard on January 1, 2019 and chose to apply the provisions of ASC 842 as of the effective date with no restatement of prior periods. Additionally, the Company

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has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. The Company determines if an arrangement is a lease at inception and accounts for lease and non-lease components separately. The Company has elected not to apply the recognition requirements of Topic 842 for leases with a term of 12 months or less. Upon adoption of ASU 2016-02, the Company recognized an operating lease, right-of-use asset of $2.8 million and a corresponding liability of $3.8 million and eliminated $1.0 million of deferred rent in the Company’s consolidated balance sheet. The adoption of ASU 2016-02 did not have any impact on the Company’s consolidated statements of operations and comprehensive loss. See also Note 12.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which is intended to improve consistency and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This new standard will be effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this standard effective January 1, 2021.

​

3. Net Loss per Share

The following table shows the calculation of net loss per share (in thousands, except share and per share data):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Numerator: ​ ​ ​ ​

Denominator: ​ ​ ​ ​

Net loss per share, basic and diluted ​ $ (0.20) ​ $ (1.59) ​ $ (1.71)

​

The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Common stock subject to repurchase ​ — — 43,076

​

​

4. Fair Value Measurements

Financial assets and liabilities are measured and recorded at fair value. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

● Level 1—Quoted prices in active markets for identical assets or liabilities

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There have been no transfers of assets and liabilities between levels of hierarchy.

The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

The following tables present information as of December 31, 2020 and 2019 about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fair Value Measured Using ​ Total

​ (Level 1) (Level 2) (Level 3) Balance

Assets ​ ​ ​ ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fair Value Measured Using ​ Total

​ (Level 1) (Level 2) (Level 3) Balance

Assets ​ ​ ​ ​

Cash equivalents ​ $ 4,252 ​ $ — ​ $ — ​ $ 4,252

​

As of December 31, 2020, marketable securities had a maximum remaining maturity of eleven months.

As of December 31, 2020 and 2019, the fair value of available for sale marketable securities by type of security were as follows (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Gross Gross ​ ​

​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair

​ ​ Cost ​ Gains ​ Losses ​ Value

U.S. Treasury securities ​ $ 6,074 ​ $ — ​ $ — ​ $ 6,074

U.S. Government agency securities ​ ​ 21,726 ​ ​ 5 ​ ​ (1) ​ ​ 21,730

​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Gross Gross ​ ​

​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair

​ ​ Cost ​ Gains ​ Losses ​ Value

U.S. Treasury securities ​ $ 7,019 ​ $ 4 ​ $ — ​ $ 7,023

U.S. Government agency securities ​ ​ 17,701 ​ ​ 16 ​ ​ — ​ ​ 17,717

​

​

​

5. Equity Method Investment

In August 2020, the Company established Angel Pharmaceuticals Co. Ltd. (“Angel”), a wholly-owned corporate venture in the People’s Republic of China (“China”) designed to develop, manufacture, and commercialize CPI-006, CPI-444, and CPI-818 compounds for distribution within the countries of China, Taiwan, Macao, and Hong Kong (collectively, the “Territories”) based on intellectual property licenses to be contributed to Angel by the Company.

In October 2020, Angel raised financing from third-party investors, the licenses were entered into and the Company’s ownership interest was reduced to 53.2%. Under the license agreements, the Company is required to provide manufacturing supply services for future supply of drug products for use in clinical trials, research and development, operational support, and participate in the joint steering committee which oversees the development and commercialization of the compounds. Angel is not required to make any payments to the Company regarding the licensed compounds or the additional services outlined in the agreement. After a 7 year Exclusive Grant Back Period, Angel license grants to the company for sole or jointly owned IP will be non-exclusive, fully paid and sublicensable. During the Exclusive Grant Back Period, Angel license grants to the company for sole and joint IP are exclusive, fully paid and sublicensable.

As a result of the financing, the Company reassessed its interest in Angel and determined that while Angel is a VIE, the Company is not considered the primary beneficiary of such VIE since Corvus does not have the power, through voting or similar rights and the license agreements, to direct the activities of Angel that most significantly impact Angel’s economic performance. Further, the Company determined that as it has a significant influence over Angel, and, therefore, it shall account for its investment in Angel using the equity method starting in October 2020, the date it lost control over Angel. At the date of loss of control, the Company derecognized all of Angel’s assets and liabilities from its balance sheet, recognized the retained equity interest at its fair value of $37.5 million, and recognized a gain of $37.5 million, which is included in gain on deconsolidation of Angel Pharmaceuticals on the consolidated statement of operations for the year ended December 31, 2020.

As of December 31, 2020, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP. The Company recognized its share of losses in Angel for the total amount of $0.2 million as loss from equity method investment on the consolidated statement of operations for the year ended December 31, 2020.

The Company’s maximum exposure to losses from its investment in Angel is to the extent of the carrying value of its investment since the Company is not obligated to provide additional financial support. At December 31, 2020 the Company reviewed its investment in Angel for impairment by determining whether events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. In making this judgment, the Company considered available quantitative and qualitative evidence in evaluating potential impairment of these investments. The Company determined that the carrying value of the investment did not exceed its fair value and, therefore, there are no indicators that its investment in Angel is impaired.

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Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

​

​ ​ ​ ​ ​

​ ​ As of ​

Balance Sheet Data (unaudited) December 31, 2020 ​

​ (In thousands) ​

Current assets ​ $ 38,883 ​

Current liabilities ​ 97 ​

Stockholders' equity ​ ​ 38,786 ​

​

​

​ ​ ​ ​ ​

​ ​ Year Ended ​

Statement of Operations Data (unaudited) December 31, 2020 ​

​ (In thousands) ​

Net loss ​ $ (274) ​

​

​

6. License and Collaboration Agreements

Scripps Licensing Agreement

In December 2014, the Company entered into a license agreement with The Scripps Research Institute (“Scripps”), pursuant to which it was granted a non-exclusive, world-wide license for all fields of use under Scripps’ rights in certain know-how and technology related to a mouse hybridoma clone expressing an anti-human CD73 antibody, and to progeny, mutants or unmodified derivatives of such hybridoma and any antibodies expressed by such hybridoma, from which we developed CPI-006. Scripps also granted the Company the right to grant sublicenses in conjunction with other proprietary rights the Company holds, or to others collaborating with or performing services for the Company. Under this license agreement, Scripps has agreed not to grant any additional commercial licenses with respect to such materials, other than march-in rights granted to the U.S. government.

Upon execution of the agreement, the Company made a one-time cash payment to Scripps of $10,000 in 2015 and is also obligated to pay a minimum annual fee to Scripps of $25,000. The one-time cash payment was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. A minimum annual fee payment is due on each anniversary of the effective date of the agreement for the term of the agreement. The Company is also required to make performance-based cash payments upon successful completion of clinical and sales milestones. The aggregate potential milestone payments are $2.6 million. The Company is also required to pay royalties on net sales of licensed products (including CPI-006) sold by it, its affiliates and its sublicensees at a rate in the low-single digits. In addition, should the Company sublicense the rights licensed under the agreement, it has agreed to pay a percentage of sublicense revenue received at specified rates that start at double digit percentages and decrease to single digit percentages based on the elapsed time from the effective date of the agreement and the time of entry into such sublicense. To date, no milestone payments have been made.

The Company’s license agreement with Scripps will terminate upon expiration of its obligation to pay royalties to Scripps under the license agreement. The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material breaches, or if the Company undergoes a bankruptcy event. In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to

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the development and commercialization of licensed products. Scripps may also terminate the agreement after the third anniversary of the effective date of the agreement if it reasonably believes, based on reports the Company provides to Scripps, that the Company has not used commercially reasonable efforts as required under the agreement, subject to a specified notice and cure period.

Vernalis Licensing Agreement

In February 2015, the Company entered into a license agreement with Vernalis (R&D) Limited (“Vernalis”), which was subsequently amended as of November 5, 2015, and, pursuant to which the Company was granted an exclusive, worldwide license under certain patent rights and know-how, including a limited right to grant sublicenses, for all fields of use to develop, manufacture and commercialize products containing certain adenosine receptor antagonists, including ciforadenant. Pursuant to this agreement, the Company made a one-time cash payment to Vernalis in the amount of $1.0 million, which was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. The Company is also required to make cash milestone payments to Vernalis upon the successful completion of clinical and regulatory milestones for licensed products depending on the indications for which such licensed products are developed and upon achievement of certain sales milestones. In February 2017, the Company made a milestone payment of $3.0 million to Vernalis following the expansion of a cohort of patients with renal cell cancer treated with single agent ciforadenant in the Company’s Phase 1/1b clinical trial. The aggregate potential milestone payments are approximately $220 million for all The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions. The tiered royalty rates for products containing ciforadenant range from the mid-single digits up to the low-double digits on a country-by-country net sales basis. The royalties on other licensed products that do not include ciforadenant also increase with the amount of net sales on a product-by-product and country-by-country basis and range from the low-single digits up to the mid-single digits on a country-by-country net sales basis. The Company is also obligated to pay to Vernalis certain sales milestones as indicated above when worldwide net sales reach specified levels over an agreed upon time period.

The agreement will expire on a product-by-product and country-by-country basis upon the expiration of the Company’s payment obligations to Vernalis in respect of a particular product and country. Both parties have the right to terminate the agreement for an uncured material breach by the other party. The Company may also terminate the agreement at its convenience by providing 90 days written notice, provided that the Company has not received notice of its own default under the agreement at the time the Company exercises such termination right. Vernalis may also terminate the agreement if the Company challenges a licensed patent or undergoes a bankruptcy event.

Genentech Collaboration Agreement

In October 2015, the Company entered into a clinical trial collaboration agreement with Genentech to evaluate the safety, tolerability and preliminary efficacy of ciforadenant combined with Genentech’s investigational cancer immunotherapy, Tecentriq (atezolizumab), a fully humanized monoclonal antibody targeting protein programmed cell death ligand 1(“PD-(L)1”), in a variety of solid tumors in a Phase 1/1b clinical trial. Pursuant to this agreement, the Company will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of representatives of the Company and representatives of Genentech. Genentech will supply Tecentriq. As part of the agreement, the Company granted Genentech certain rights of first negotiation to participate in future clinical trials that the Company may conduct evaluating the administration of ciforadenant in combination with an anti-PD-1 or anti-PD-L1 antibody. If the Company and Genentech do not reach agreement on the terms of any such participation by Genentech within a specified time period, the Company retains the right to collaborate with third parties in such activities. The Company also granted Genentech certain rights of first negotiation should it decide to license development and commercialization rights to ciforadenant. Should the Company and Genentech not reach agreement on the terms of such a license within a specified time period, it retains the right to enter into a license with another third party.

The Company and Genentech each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations, if directed by a

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regulatory authority or if development of ciforadenant or Tecentriq is discontinued. Further, the agreement will expire after a set period of time following the provision by the Company of the final clinical study report to Genentech.

In May 2017, the Company signed a second clinical trial collaboration agreement with Genentech. Under the second agreement, ciforadenant administered in combination with Tecentriq is being evaluated in a Phase 1b/2 randomized, controlled clinical study, known as Morpheus, as second-line therapy in patients with non-small cell lung cancer who are resistant and/or refractory to prior therapy with an anti-PD-(L)1 antibody. The patients in the Morpheus trial are currently in the follow-up phase of the trial. Genentech is responsible for the conduct of the study and the parties share the cost of the Morpheus trial, which began enrolling patients in the fourth quarter of 2017. The Company is responsible for supplying ciforadenant and retains global development and commercialization rights to ciforadenant. The Company and Genentech each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations, if directed by a regulatory authority or if development of ciforadenant or Tecentriq is discontinued.

Monash License Agreement

In April 2017, the Company entered into a license agreement with Monash University (“Monash”), pursuant to which the Company was granted an exclusive, sublicensable worldwide license under certain know-how, patent rights and other intellectual property rights controlled by Monash to research, develop, and commercialize certain antibodies directed to CXCR2 for the treatment of human diseases.

Upon execution of the agreement, the Company made a one-time cash payment to Monash of $275,000 and reimbursed Monash for certain patent prosecution costs incurred prior to execution of the agreement. The Company is also obligated to pay an annual license maintenance fee to Monash of $25,000 until a certain development milestone is met with respect to the licensed product, after which no further maintenance fee will be due. The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products in the aggregate of up to $45.1 million. The Company is also required to pay to Monash tiered royalties on net sales of licensed products sold by it, its affiliates and its sublicensees at a rate ranging in the low-single digits. In addition, should the Company sublicense its rights under the agreement, the Company has agreed to pay a percentage of sublicense revenue received at specified rates that are currently at low double digit percentages and decrease to single digit percentages based on the achievement of development milestones.

The term of the Company’s agreement with Monash continues until the expiration of its obligation to pay royalties to Monash thereunder. The license agreement is terminable at will by the Company upon providing 30 days written notice to Monash, or by either party for material breaches by the other party. In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached our obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

​

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7. Balance Sheet Components (in thousands):

​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​ December 31, ​

Prepaid and Other Current Assets ​ ​ ​ ​ ​ ​ ​

Interest receivable ​ $ 86 ​ $ 329 ​

Prepaid research and development manufacturing expenses ​ ​ 181 ​ ​ 240 ​

Prepaid facility expenses ​ ​ 160 ​ ​ 157 ​

Prepaid insurance ​ ​ 244 ​ ​ 150 ​

Property and Equipment ​ ​ ​ ​ ​ ​ ​

Laboratory equipment ​ $ 2,472 ​ $ 2,396 ​

Computer equipment and purchased software ​ 142 ​ 142 ​

Less: accumulated depreciation and amortization ​ (3,792) ​ (3,160) ​

Accrued and Other Liabilities ​ ​ ​ ​ ​ ​ ​

Accrued clinical trial related ​ $ 4,681 ​ $ 4,300 ​

Accrued manufacturing expense ​ 321 ​ 696 ​

​

​

​

​

​

​

​

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8. Common Stock

As of December 31, 2020, the amended and restated certificate of incorporation authorizes the Company to issue 290 million shares of common stock and 10 million shares of preferred stock.

Each share of common stock is entitled to one vote. Common stockholders are entitled to dividends if and when declared by the board of directors. As of December 31, 2020, no dividends on common stock had been declared.

In March 2020, the Company entered into an open market sale agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of the Company’s common stock, from time to time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jefferies will act as its sales agent. The issuance and sale of shares of common stock by the Company pursuant to the Sales Agreement are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Jefferies is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold through Jefferies under the Sales Agreement.

During the year ended December 31, 2020, the Company sold an aggregate of 310,734 shares under its at-the-market offering program at an average price of approximately $4.06 per share resulting in net proceeds of $1.2 million. As of December 31, 2020, $48.7 million remained for sale under the Sales Agreement.

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The Company has reserved shares of common stock, for issuance as follows:

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​

​

9. Stock Option Plans

In February 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which was subsequently amended in November 2014, July 2015 and September 2015, under which it granted incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2014 Plan. In general, awards granted by the Company vest over four years and have maximum exercise term of 10 years. The 2014 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant.

In connection with the consummation of the IPO in March 2016, the 2016 Equity Incentive Award Plan (the “2016 Plan”), became effective. Under the 2016 Plan, incentive stock options, non-statutory stock options, stock purchase rights and other stock-based awards may be granted. Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2016 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2016 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant. In conjunction with adopting the 2016 Plan, the 2014 Plan was terminated and no further awards will be granted under the 2014 Plan. Options outstanding under the 2014 Plan as of the effective date of the 2016 Plan that are forfeited or lapse unexercised may be re-issued under the 2016 Plan, up to a maximum of 1,136,229 shares.

Activity under the Company’s stock option plans is set forth below:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Options Outstanding

​ ​ ​ Weighted ‐

​ ​ Shares ​ ​ ​ Average

​ ​ Available ​ Number of ​ Exercise

​ for Grant Options Price

Additional shares authorized 1,118,000 — ​ —

​

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The following tables summarize information about stock options outstanding at December 31, 2020 and 2019:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Options Outstanding ​ Options Vested

​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ ​

​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ Average ​ Weighted

​ ​ ​ ​ ​ ​ Remaining ​ Weighted ​ ​ ​ Remaining ​ Average

​ ​ ​ ​ ​ ​ Contractual ​ Average ​ ​ ​ Contractual ​ Exercise

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Options Outstanding ​ Options Vested

​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ ​

​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ Average ​ Weighted

​ ​ ​ ​ ​ ​ Remaining ​ Weighted ​ ​ ​ Remaining ​ Average

​ ​ ​ ​ ​ ​ Contractual ​ Average ​ ​ ​ Contractual ​ Exercise

​

The weighted average grant date fair value of options granted for the years ended December 31, 2020, 2019 and 2018, was $2.66, $2.53 and $5.23, respectively.

Options outstanding and exercisable that had vested or were expected to vest at December 31, 2020 were as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Weighted ​ ​

​ ​ ​ ​ ​ ​ ​ Average ​ Aggregate

​ ​ ​ ​ Weighted ​ Remaining ​ Intrinsic

​ ​ Number ​ Average ​ Contractual ​ Value

​ ​ of shares ​ Exercise Price ​ Life (years) ​ (in thousands)

​

In the table above, aggregate intrinsic value represents the difference between the exercise price of the options to purchase common stock and the fair value of the Company’s common stock of $3.56 per share as of December 31, 2020.

The aggregate intrinsic value of stock options exercised in the years ended December 31, 2020, 2019 and 2018, was $0.3 million, $0.4 million and $1.1 million, respectively.

The total fair value of options that vested in the year ended December 31, 2020, 2019 and 2018, was $6.0 million, $7.8 million, and $7.1 million, respectively.

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10. Stock-Based Compensation

The Company’s results of operations include expenses relating to stock-based awards as follows (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​

Valuation Assumptions

The Company estimated the fair value of employee stock options using the Black-Scholes valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options were estimated using the following assumptions for the years ended December 31, 2020, 2019 and 2018:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​

Risk-free interest rate ​ 0.5 % 1.9 % 2.8 %

Expected term (in years) ​ 6.0 ​ 6.0 ​ 6.0

Expected dividend yield ​ 0 % 0 % 0 %

​

Risk-free Interest Rate: The Company based the risk-free interest rate over the expected term of the options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant.

Volatility: The Company uses an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company does not have sufficient trading history for its common stock. For purposes of identifying these peer companies, the Company considers the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, the Company measures historical volatility over a period equivalent to the expected term. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected Term: The Company uses the simplified method prescribed in the ASC 718, Compensation—Stock Compensation, to calculate the expected term of options granted to employees and directors.

Expected Dividends: The Company has not paid and does not anticipate paying any dividends in the near future.

At December 31, 2020, 2019 and 2018, the unrecognized compensation expense associated with respect to options granted to employees was $10.4 million, $13.4 million and $15.8 million, respectively, and is expected to be recognized on a straight-line basis over 2.78, 2.71, and 2.72 years, respectively.

​

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