~~In preclinical studies, we observed increased expression of CD39 following treatment with nivolumab,~~

~~We expect to file an IND for SRF388 in the fourth quarter of 2019. We wholly own SRF388, as the program~~activation through its binding with CD112. Because CD112 is ~~no longer part of the Collaboration Agreement.~~

~~IL-27 is a cytokine secreted by macrophages and antigen presenting~~commonly overexpressed on tumor cells, that plays an important physiologic role in suppressing the immune system, as evidenced by its role in resolving tissue inflammation and its association with maternal-fetal tolerance. Due to its immunosuppressive nature, there is an emerging rationale for ~~inhibiting IL-27 to treat cancer, as this approach influences~~disrupting the activity of multiple types of immune cells that are necessary to recognize and attack the tumor. As shown in the diagram below, IL-27 suppresses T cell activation, which we believe will prevent the immune system from recognizing, attacking and killing cancerous cells.

In several preclinical studies conducted by us, we observed that the treatment of human T cells and monocytes with IL-27 resulted in the induction of an immunosuppressive phenotype, including increased expression of the checkpoint proteins PD-L1 and TIM3. We observed that treatment with SRF388 blocked IL-27 signaling and prevented the induction of this phenotype, as shown in the figure below.

In several preclinical studies conducted by us, we observed that blocking IL-27 with SRF388 in cancer patient-derived human peripheral blood mononuclear cells, after T cell receptor activation, increased key inflammatory cytokines, TNFα and IL-6, which are indicative of an activated immune state, as shown in the figure below. Additionally, we conducted several preclinical studies and observed that by combining SRF388 with a PD-1 inhibitor, expression of these inflammatory cytokines was further increased, also shown in the figure below. Based upon our preclinical studies, we believe that blocking both PD-1 and IL-27 in certain clinical settings could helpCD112:CD112R interaction to promote ~~tumor-specific immunity.~~

~~We have seen compelling monotherapy anti-tumor activity following treatment with SRF388 in our preclinical studies.~~antitumor immune responses. On December 16, 2020, we granted GSK an exclusive license to worldwide development and commercialization rights of GSK4381562. In ~~the study below, SRF388 treatment resulted in a significant reduction in overall lung tumor metastasis, as compared to a control antibody.~~

~~We expect to file an IND for SRF388 in the fourth quarter of 2019. We wholly own SRF388, as the program is no longer part of the Collaboration Agreement.~~

~~Driving Macrophage Activation and Tumor Infiltration with SRF231, a CD47 Inhibitor~~

SRF231 is a fully human IgG4 monoclonal antibody that is a potent inhibitor of CD47. We selected SRF231 for clinical development based on the following key attributes observed in preclinical development:

WeMarch 2022, GSK initiated a Phase 1 clinical trial of ~~SRF231~~GSK4381562 in ~~February 2018. We have exclusive, worldwide rights to SRF231.~~

•National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this national MA can be recognized in other Member States through the mutual recognition procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the decentralized procedure. Under the ~~above described~~decentralized procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States, referred to as the Concerned Member States, for their approval. If the Concerned Member States raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the applicable Member States (i.e., in the RMS and the Concerned Member States).

Any of these laws, and future state and federal healthcare reform measures may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

•enforcing and defending intellectual property rights and claims.

Table of Contents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

•the patient eligibility criteria defined in the protocol;

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

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

•the proximity of patients to study sites;

•the design of the trial;

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

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

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

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

trials; and

•factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or clinical site availability (e.g., additional outbreaks of COVID-19 or its variants).

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

We may also engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful in developing such companion diagnostics, furthering the difficulty in identifying patients with the targeted genetic mutations for our clinical trials. We may also engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful in developing such companion diagnostics, furthering the difficulty in identifying patients with the targeted genetic mutations for our clinical trials.

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

Table of Contents

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

Undesirable or clinically unmanageable side effects could occur and cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.

For example, in December 2018, we announced the deprioritization of SRF231 as a result of toxicities seen during the dose escalation portion of the then-ongoing Phase 1 trial. We concluded the Phase 1 trial in 2021 and have ceased development of SRF231.

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

•injunctions or the imposition of civil or criminal penalties.

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

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

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

•efficacy and potential advantages compared to alternative treatments;

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

•convenience and ease of administration compared to alternative treatments;

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

•the strength of marketing and distribution support;

•

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

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

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

•the prevalence and severity of any side effects.

Table of Contents

Even if we obtain coverage for our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the U.S., the European Union or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

There is significant uncertainty related to the insurance coverage and reimbursement of newly-approved products. In the U.S., third-party payors, and governmental healthcare plans, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States. for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates. Outside the U.S., international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other foreign jurisdictions have and will continue to put pressure on the pricing and usage of our product candidates.

Moreover, increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products, and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

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

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

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

We expect to develop our product candidates in combination with other therapies, which exposes us to additional risks.

We ~~intend to develop our~~are developing some product candidates in combination with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

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

Table of Contents

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

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

The life sciences industry is highly competitive. We are currently developing therapeutics that will compete, if approved, with other products and therapies that currently exist or are being developed. Products we may develop in the future are also likely to face competition from other products and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, product development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining marketing approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or

are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.

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

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

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

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

The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

See the section entitled “Business — Government Regulation — Coverage and Reimbursement”.

Table of Contents

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

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

In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives.

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

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, as the process is time-consuming and costly, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Additionally, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States, which may result in coverage and reimbursement for drug products that can differ significantly from payor to payor. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. For example, on October 1, 2020, the FDA published a final rule that allows for the importation of certain prescription drugs from Canada. FDA also issued a Final Guidance document outlining a pathway for manufacturers to obtain an additional National Drug Code, or NDC, for an FDA-approved drug that was originally intended to be marketed in a foreign country and that was authorized for sale in that foreign country. Since the issuance of the final rule, on November 23, 2020, several industry groups filed a joint federal lawsuit in the U.S. District Court for the District of Columbia, requesting injunctive relief to prevent certification from the Secretary of HHS from taking effect and challenging multiple aspects of the final rule. This litigation was dismissed in February 2023 for lack of standing. The regulatory and market implications of the final rule and guidance are unknown at this time. Proponents of drug reimportation may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation, regulations or policies allowing the reimportation of drugs could decrease the price we receive for our products and adversely affect our future revenues and prospects for profitability. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.

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

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

Table of Contents

Additionally, because we have limited resources, we may forego or delay the pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. For example, in December 2018, we announced a significant reduction of the investment in ~~and scope of~~ our SRF231 program and ~~based~~later terminated its development. Additionally, in November 2022, we announced a significant reduction of the investment in our SRF617 program. Based on the reallocation of capital, we ~~anticipate that~~are prioritizing SRF388 ~~will accelerate~~ and ~~be ready for IND filing before the end of 2019.~~SRF114. However, the advancement of ~~SRF617~~SRF388 and ~~SRF388~~SRF114 may ultimately prove to be unsuccessful or less successful than another program in our pipeline that we might have chosen to ~~pursue on a less aggressive basis~~accelerate with our capital resources. Our estimates regarding the potential market for our product candidates could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. For example, we licensed worldwide development and commercialization rights with respect to NZV930 and GSK4381562 to Novartis and GSK, respectively, and we will receive only milestone payments and royalties on sales of NZV930 and GSK4381562, if approved. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

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

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

We may seek ~~Breakthrough Therapy Designation~~breakthrough therapy designation for any product candidate that we develop. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial treatment

effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval and priority review.

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

We ~~may seek Fast Track Designation by~~have received fast track designation from the FDA for aSRF388 for the treatment of hepatocellular carcinoma. We may in the future seek fast track designation for other product ~~candidate~~candidates that we develop, and we may be unsuccessful. ~~If we are successful, the~~Fast track designation may not actually lead to a faster development or regulatory review or approval process.

We have received fast track designation from the FDA for SRF388 for the treatment of hepatocellular carcinoma, and we may seek ~~Fast Track Designation~~fast track designation for ~~the~~other product candidates we develop. If a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, the product sponsor may apply for ~~Fast Track Designation.~~fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. ~~Even if we do receive Fast Track Designation, we~~We may not experience a faster development process, review or approval compared to conventional FDA ~~procedures. The~~procedures for SRF388 or any other product candidates that receive fast track designation. Furthermore, the FDA may rescind the ~~Fast Track Designation~~fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

Table of Contents

We have received orphan drug designation from the FDA for SRF388 for the treatment of hepatocellular carcinoma and for SRF617 for the treatment of pancreatic cancer. We may in the future seek ~~Orphan Drug Designation~~orphan drug designation for other product candidates we develop, and we may be ~~unsuccessful or~~unsuccessful. We may be unable to maintain the benefits associated with ~~Orphan Drug Designation,~~orphan drug designation, including the potential for market exclusivity.

~~As part~~

We have received orphan drug designation from the FDA for SRF388 for the treatment of ~~our business strategy, we have sought~~hepatocellular carcinoma and ~~received Orphan Drug Designation~~ for ~~SRF231 in~~SRF617 for the ~~United States.~~treatment of pancreatic cancer. We may seek ~~Orphan Drug Designation~~orphan drug designation for certain of our other product candidates we ~~develop, and~~develop. However, we may be ~~unsuccessful.~~unsuccessful in obtaining orphan drug designation for certain of our other product candidates and may be unable to maintain the benefits associated with orphan drug designation. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, ~~Orphan Drug Designation~~orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

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

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

~~Even though we have obtained an Orphan Drug Designation for SRF231, and even if we obtain~~

The exclusivity provided by orphan drug ~~exclusivity for SRF231 and other product candidates, that exclusivity~~designation may not effectively protect ~~SRF231 or~~ our ~~other~~ product candidates from competition because different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan ~~Drug Designation~~drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek ~~Orphan Drug Designation~~additional orphan drug designations for applicable indications for our current and any future product candidates, ~~in addition to SRF231,~~ we may never receive such designations. ~~Even if we do receive such designations, there~~There is no guarantee that we will enjoy the benefits of ~~those designations.~~

orphan drug designation for SRF388, SRF617 or any other product candidate for which we may receive orphan drug designation. Additionally, the FDA may reevaluate its regulations and policies under the Orphan Drug Act. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

Table of Contents

Accelerated approval by the FDA, even if granted for our current or future product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive regulatory approval.

We may seek accelerated approval of our current or future product candidates using the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA generally requires that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-approval confirmatory clinical trials which must be completed with due diligence. The Food and Drug Omnibus Reform Act, or FDORA, gives the FDA increased authority to withdraw approval of a product granted accelerated approval on an expedited basis if the sponsor fails to conduct such trials in a timely manner or if such post-approval trials fail to verify the drug’s predicted clinical benefit. FDORA also requires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets, and the FDA must promptly post this information publicly. Under FDORA, the FDA is empowered to take action, such as issuing fines, against companies that fail to conduct with due diligence any post-approval confirmatory trial or submit timely reports to the agency on their progress. In addition, the FDA currently requires, unless otherwise informed by the agency, pre-approval of promotional materials for products receiving accelerated approval, which could adversely impact the timing of the commercial launch of the product. Even if we do receive accelerated approval, we may not experience a faster development or regulatory review or approval process, and receiving accelerated approval does not provide assurance of ultimate FDA approval.

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

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

•decreased demand for any approved product;

•injury to our reputation;

•withdrawal of clinical trial participants;

•initiation of investigations by regulators;

•costs to defend the related litigation;

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

•substantial monetary awards to trial participants or patients;

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

•loss of revenue;

•exhaustion of any available insurance and our capital resources;

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

•a decline in our share ~~price.~~

price; and

•a default under the Loan Amendment.

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

Table of Contents

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

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

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially ~~changes~~changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (as of January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

~~Some of~~ See the ~~provisions of~~section entitled “Business — Government Regulation — Healthcare Reform.”

At the ~~ACA~~state level, legislatures have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. The loss of the cost share reduction payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA.

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

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

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

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The United States government, state legislatures, and foreign governments have shown significant interest in implementing cost containment programs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government paid health care costs. For example, the United States government has passed legislation requiring pharmaceutical manufacturers to provide rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress and the current administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs, and the current administration recently released a "Blueprint", or plan, to reduce the cost of drugs. The current administration’s Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a number of these, and other proposed measures, will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the United States have also been increasingly passing legislation and implementingimplemented regulations designed to control pharmaceutical ~~and biological~~ product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

It is unclear what effect such changes will have on our business and our ability to receive adequate reimbursement for our future products. Some of these proposed measures, including drug importation and pharmacy benefit manager rebate rule changes, face legal challenges from industry groups and participants. We cannot predict whether additional reform initiatives will be adopted in the future or whether initiatives that have been adopted will be repealed or modified, or whether legal challenges will be successful. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

• the demand for any products for which we may obtain regulatory approval;

•our ability to set a price that we believe is fair for our products;

•our ability to obtain coverage and reimbursement approval for a product;

•our ability to generate revenues and achieve or maintain profitability; and

•and the level of taxes that we are required to pay.

We expect that changes and challenges to the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies, and additional downward pressure on the price that we receive for any future approved product.

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

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

Table of Contents

We may fail to comply with evolving European and other privacy laws.

In the event we conduct clinical trials in the European Economic Area, or EEA, we may be subject to additional privacy laws. The General Data Protection Regulation, (EU) 2016/679, or GDPR, became effective on May 25, 2018, and deals with the processing of personal data and on the free movement of such data. The GDPR imposes a broad range of strict requirements on companies subject to the GDPR, including requirements relating to having legal bases for processing personal information relating to identifiable individuals and transferring such information outside the EEA, including to the United States, providing details to those individuals regarding the processing of their personal information, keeping personal information secure, having data processing agreements with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect of their personal information, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments, and record-keeping. The GDPR increases substantially the penalties to which we could be subject in the event of any non-compliance, including fines of up to 10,000,000 Euros or up to 2% of our total worldwide annual turnover for certain comparatively minor offenses, or up to 20,000,000 Euros or up to 4% of our total worldwide annual turnover for more serious offenses. Given the limited enforcement of the GDPR to date, we face uncertainty as to the exact interpretation of the new requirements on our trials and we may be unsuccessful in implementing all measures required by data protection authorities or courts in interpretation of the new law.

In particular, ~~national laws of~~EU member states ~~of the EU are in the process of being adapted to the requirements under the GDPR, thereby implementing~~have implemented national laws which may partially deviate from the GDPR and impose different obligations from country to country, so we do not expect to operate in a uniform legal landscape in the EU. Also, as it relates to processing and transfer of genetic data, the GDPR specifically allows national laws to impose additional and more specific requirements or restrictions, and European laws have historically differed quite substantially in this field, leading to additional uncertainty.

In addition, further to the ~~event we conduct clinical trials~~UK’s exit from the EU on January 31, 2020, the GDPR ceased to apply in the UK at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the UK’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain UK specific amendments) into UK law, referred to as the UK GDPR. The UK GDPR and the UK Data Protection Act 2018 set out the UK’s data protection regime, which is independent from but aligned to the EU’s data protection regime. The UK Government has announced plans to reform its data protection legal framework in its Data Reform Bill but those have been put on hold. Non-compliance with the UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the UK is regarded as a third country under the EU’s GDPR, the European Commission, or the EC, has now issued a decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the EU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the UK to countries not regarded by the UK as providing adequate protection. The UK government has confirmed that personal data transfers from the UK to the EEA ~~we must also ensure that we maintain adequate safeguards to~~remain free flowing.

To enable the transfer of personal data outside of the EEA ~~in particular to~~or the ~~United States,~~UK, adequate safeguards must be implemented in compliance with European and UK data protection laws. With regard to transfers of personal data from the EEA, transfers to third world countries that have not been approved as “adequate” are prohibited unless an appropriate safeguard specified by the EU GDPR is implemented, such as the Standard Contractual Clauses (SCCs) approved by the EC or binding corporate rules, or a derogation applies. In the past, companies in the U.S. were able to rely upon the Privacy Shield framework to legitimize data transfers from the EEA to the U.S. In July 2020, the Court of Justice of the European Union, or CJEU, in Case C-311/18 (Data Protection Commissioner v Facebook Ireland and Maximillian Schrems, or Schrems II) invalidated the EU-U.S. Privacy Shield on the grounds that it failed to offer adequate protections to EEA personal data transferred to the U.S. The CJEU, in the same decision, deemed that the Standard Contractual Clauses, or SCCs, published by the EC are valid. However, the CJEU ruled that transfers made pursuant to the SCCs need to be assessed on a case-by-case basis to ensure the law in the recipient country provides “essentially equivalent” protections to safeguard the transferred personal data as the EEA, and required businesses to adopt supplementary measures if such standard is not met.

On June 4, 2021, the EC issued new forms of standard contractual clauses for data transfers from controllers or processors in the EU/EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EU/EEA (and not subject to the GDPR). The new standard contractual clauses replace the standard contractual clauses that were adopted previously under the EU Data Protection Directive. The UK is not subject to the EC’s new standard contractual clauses but has published a draft version of a UK-specific transfer mechanism, which, once finalized, will enable transfers from the UK. On March 25, 2022, the EC and the U.S. announced to have reached a political agreement on a new “Trans-Atlantic Data Privacy Framework”, which will replace the invalidated Privacy Shield and on December 13, 2022, the EC published a draft adequacy decision on the Trans-Atlantic Data Privacy Framework. We ~~expect that~~will be required to implement these new safeguards when conducting restricted data transfers under the EU and UK GDPR and doing so will require significant effort and cost.

Table of Contents

In addition, many jurisdictions outside of Europe are also considering and/or enacting comprehensive data protection legislation. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we ~~will continue~~may be required to ~~face uncertainty as to whether our efforts~~put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with ~~our obligations under European privacy~~any such laws ~~will be sufficient. If we are investigated by a European data protection authority,~~or regulations, we may face significant fines and ~~other penalties. Any such investigation or charges by European data protection authorities~~penalties that could ~~have a negative effect on~~adversely affect our ~~existing~~ business, and on our ability to attract and retain new clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multi-national clients or pharmaceutical partners to continue to use our products and solutions due to the potential risk exposure as a result of the current and, in particular, future data protection obligations imposed on them by certain data protection authorities in interpretation of current law, including the GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance as being too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do business with us. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.

Risks Related To Reliance On Third Parties

We are fully dependent on our collaboration with Novartis for the development of NZV930 and GSK for the development of GSK4381562, and may depend on ~~Novartis or~~ additional third parties for the development and commercialization of our other programs and future product candidates. Our current and future collaborators may control aspects of our clinical trials, which could result in delays or other obstacles in the commercialization of the product candidates we develop. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

In January 2016, we entered into a strategic collaboration agreement with Novartis, or the ~~Collaboration~~Novartis Agreement, ~~focused on researching, developing and commercializing~~to develop next generation cancer ~~immunotherapies.~~therapies. Pursuant to the ~~Collaboration~~Novartis Agreement, we granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target ~~CD73, along~~CD73. Similarly, in December 2020, we entered into a license agreement with GSK, the ~~right~~GSK Agreement, pursuant to ~~purchase~~which we granted GSK a worldwide, exclusive, ~~option rights~~sublicensable license to ~~up to four~~develop and commercialize specified ~~targets, each an Option, to obtain certain development, manufacturing~~antibodies, including GSK4381562. Each of the Novartis Agreement and commercialization rights. In March 2018, Novartis notified us of its decision to not exercise its previously purchased Option for SRF231, and in February 2019, Novartis notified us of its decision not to purchase the Option for SRF388. Novartis currently has one Option remaining eligible for purchase and potential exercise. The collaborationGSK Agreement involves a complex allocation of rights, provides for milestone payments to us based on the achievement of specified clinical development, regulatory and commercial milestones, ~~provides for additional payments upon Novartis’ election to exercise rights to commercialize additional product candidates,~~ and provides us with royalty-based revenue if certain product candidates are successfully commercialized. Novartis will have substantial ability to control the development and commercialization of any target it licenses on a global basis.sales revenue. Our lack of control over the clinical development of certain programs ~~under the Collaboration Agreement~~with current and future collaborators could result in delays or other difficulties in the development and commercialization of product candidates, which may prevent completion of intended IND filings in a timely fashion, if at all. In particular, Novartis isand GSK are solely responsible for the development and commercialization of NZV930 and GSK4381562, respectively, and as such, we are wholly dependent on each of Novartis and GSK for the success of ~~this program.~~these programs. In the event Novartis terminates the ~~Collaboration~~Novartis Agreement, or GSK terminates the GSK Agreement, we would be prevented from receiving any milestone payments, royalty payments and other benefits under that agreement, which would have a materially adverse effect on our results of operations. Furthermore, in the event Novartis does not purchase and exercise its remaining Option, we will not be eligible to receive any future milestone payments under the Collaboration Agreement, other than from NZV930, if any, which could require us to seek additional funding in order to avoid delaying, reducing the scope of, or suspending, one or more of our research and development programs or clinical trials. In addition, any decision by Novartis not to purchase or exercise the Option may negatively impact public perception of the applicable program, or all of the programs, covered by the Collaboration Agreement, which could adversely affect the market price of our common stock. We cannot provide any assurance with respect to the success of ~~the Collaboration Agreement.~~

any current or future collaboration or license agreement.

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

In particular, we are seeking business development opportunities for SRF617.

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

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

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

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

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

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

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

Table of Contents

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

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

The advancement of our product candidates and development programs and the potential commercialization of our current and future product candidates will require substantial additional cash to fund expenses. For some of our programs, such as SRF617, we may decide to collaborate with additional pharmaceutical and biotechnology companies with respect to development and potential commercialization. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business.

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

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

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

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

Table of Contents

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

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

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

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

We and the third parties on which we rely for clinical trials are required to comply with regulations and requirements, including GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or these third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our future clinical trials will comply with ~~GCP.~~GCP requirements. In addition, our clinical trials must be conducted with product candidates produced under cGMP regulations. Our failure or the failure of these third parties to comply with these regulations may require us to repeat clinical trials, which would delay the marketing approval process and could also subject us to enforcement action. We also are required to register certain ongoing clinical trials and provide certain information, including information relating to the trial’s protocol, on a government-sponsored database, ClinicalTrials.gov, within specific timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Table of Contents

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

•have staffing difficulties;

•fail to comply with contractual obligations;

•experience regulatory compliance issues;

•undergo changes in priorities or become financially distressed; or

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

competitors; or

•experience difficulties or delays from factors we may not be able to control, such as current or potential pandemics that may affect patient recruitment and follow-up or staff or clinic site availability and initiation (e.g., outbreak of COVID-19).

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

It is possible that our development plans will have to be slowed down or stopped completely at times due to our inability to obtain required raw materials, components, and outsourced processes at an acceptable cost, if at all, or to get a timely response from vendors, particularly as a result of recent labor market and global supply chain constraints.

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

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

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

In order to conduct clinical trials of product candidates, we will need to have them manufactured in potentially large quantities. Our third-party manufacturers (or contract manufacturers, or CMOs) may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. Any inability to manufacture our product candidates or future approved drugs in sufficient quantities when needed would seriously harm our business. For example, recent global supply chain constraints have led to a risk of shortages in lab supplies. If there is a shortage of lab supplies which are critical for our clinical programs, there can be no assurance that we would be able to find alternative suppliers for certain critical materials.

Table of Contents

In addition, quality issues may arise during scale-up activities and at any other time. For example, ongoing data on the stability of our product candidates may shorten the expiry of our product candidates and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that product candidate may be delayed or not obtained, which could significantly harm our business.

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

Changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating comparability of clinical supplies which could require the conduct of additional clinical trials.

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

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

Additionally, we will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMO may possess technology related to the manufacture of our product candidate that such CMO owns independently. This would increase our reliance on such CMO or require us to obtain a license from such CMO in order to have another CMO manufacture our product candidates.

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

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

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

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

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

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

candidates and potentially cause delays to our ongoing clinical trials.

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

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

Table of Contents

Our third-party manufacturers and clinical reagent suppliers may be subject to damage or interruption from, among other things, fire, natural or man-made disaster, power loss, telecommunications failure, unauthorized entry, computer viruses, denial-of-service attacks, acts of terrorism, human error, vandalism or sabotage, financial insolvency, bankruptcy and similar events. For example, the COVID-19 pandemic, which continues to evolve, has caused labor market and global supply chain constraints. The extent to which COVID-19 may impact our third-party manufacturers and suppliers going forward will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

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

Our future relationships with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which we sell, market and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by the U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. ~~The applicable federal, state~~See the section entitled “Business — Government Regulation — Other Healthcare Laws and ~~foreign healthcare laws and regulations that may affect our ability to operate include:~~

the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under the Medicare and Medicaid programs or other federal healthcare programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

Compliance Requirements”.

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

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

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

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

•

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

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

On January 31, 2019, the Department of Health and Human Services (HHS) and HHS Office of Inspector General (OIG) proposed an amendment to one of the existing Anti-Kickback safe harbors (42 C.F.R. 1001.952(h)) which would prohibit certain pharmaceutical manufacturers from offering rebates to pharmacy benefit managers, PBMs, in the Medicare Part D and Medicaid managed care programs. The proposed amendment would remove protection for "discounts" from Anti-Kickback enforcement action, and would include criminal and civil penalties for knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward the referral of business reimbursable under federal health care programs. At the same time, HHS also proposed to create a new safe harbor to protect point-of-sale discounts that drug manufacturers provide directly to patients, and adds another safe harbor to protect certain administrative fees paid by manufacturers to PBMs. If this proposal is adopted, in whole or in part, it could affect the pricing and reimbursement for any products for which we receive approval in the future.

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

If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of which could harm our ability to operate our business and our financial results. Further, if the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. In addition, the approval and commercialization of any product candidate we develop outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

A variety of risks associated with operating internationally could materially adversely affect our business.

We currently have limited international operations, but we rely on and will continue to rely on our CMOs, some of which operate internationally, for both drug substance and drug product, and our business strategy incorporates potentially expanding internationally if any of our product candidates receive regulatory approval. Doing business internationally involves a number of risks, including but not limited to:

•multiple, conflicting and changing laws and regulations, such as regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

•failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;

Table of Contents

•additional potentially relevant third-party patent rights;

•complexities and difficulties in obtaining protection and enforcing our intellectual property;

•difficulties in staffing and managing foreign operations;

•complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;

•limits in our ability to penetrate international markets;

•financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;

•natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease (e.g., the novel COVID-19 pandemic), boycotts, curtailment of trade and other business restrictions;

•certain expenses including, among others, expenses for travel, translation and insurance; and

•regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions, or its anti-bribery provisions, or other anti-bribery and anti-corruption laws.

Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.

Risks Related To Intellectual Property

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

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

Our patents and patent applications are directed to our antibodies and accompanying technologies. We seek patent protection for our development programs, product candidates and related alternatives by filing and prosecuting patent applications in the U.S. and other countries as appropriate.

With respect to our IL-27 therapeutic antibody program, as of March ~~7, 2019,~~6, 2023, we ~~co-own and have exclusively licensed~~solely own five patent families related to ~~Novartis our rights in three U.S. provisional patent applications and one U.S. non-provisional patent application that cover~~ compositions of matter and methods of use for ~~our CD73 therapeutic antibody candidate, NZV930. Additionally, we~~various antibodies, including SRF388, and co-own ~~nine foreign~~two patent families related to methods of treating cancer with SRF388. The first patent family includes one issued U.S. patent, U.S. 11,332,524, one pending U.S. non-provisional patent application, one expired international Patent Cooperation Treaty, or PCT, patent application and thirteen pending ex-U.S. applications, each claiming priority to one expired U.S. provisional patent application. The second patent family includes one pending U.S. non-provisional patent application, one expired PCT patent application and fourteen pending ex-U.S. applications, each claiming priority to one expired U.S. provisional patent application. The third patent family includes one pending U.S. non-provisional patent application, one expired PCT patent application and sixteen pending ex-U.S. applications, each claiming priority to two expired U.S. provisional patent applications. Any patents issuing from these applications ~~would be expected to expire in 2038 or 2039, absent any applicable patent term adjustment or extension.~~

As of March 7, 2019, we co-own three U.S. provisional patent applications that cover composition of matter and methods of use for our CD39 therapeutic antibody candidates, including SRF617. Any patents issuing from this application would be expected to expire in 2039 and 2040, absent any applicable patent term adjustment or extension. ~~We do not yet own any~~The fourth patent family includes one pending U.S. non-provisional ~~applications or issued patents for this program.~~

~~With respect~~patent application, one pending ex-U.S. application and a pending PCT application, each claiming priority to ~~our IL-27 therapeutic antibody program, as of March 7, 2019, we own~~ three expired U.S. provisional patent applications; any patents issuing from these applications would be expected to expire in 2042, absent any applicable patent term adjustment or extension. The fifth patent family includes one pending U.S. provisional patent application; any patents issuing from this application would be expected to expire in 2043, absent any applicable patent term adjustment or extension. The two co-owned families each include one pending U.S. provisional patent application; any patents issuing from either of these applications would be expected to expire in 2043, absent any applicable patent term adjustment or extension.

As of March 6, 2023, we have exclusively licensed from Vaccinex rights to a patent family that ~~cover composition~~covers compositions of matter and methods of use for ~~various antibodies.~~our CCR8 therapeutic antibody candidates, including SRF114. This patent family includes two pending U.S. non-provisional patent applications, one expired PCT patent application, and sixteen pending ex-U.S. patent applications, each claiming priority to three expired U.S. provisional patent applications. Any patents issuing from these applications would be expected to expire in 2041, absent any applicable patent term adjustment or extension.

Table of Contents

As of March 6, 2023, we solely own three patent families related to compositions of matter and methods of use for our CD39 therapeutic antibody candidates, including SRF617, and co-own one patent family related to methods of treating cancer with SRF617. The first solely owned patent family includes two issued U.S. patents, U.S. 10,738,128 and U.S. 10,793,637, two pending U.S. non-provisional patent applications, one expired PCT patent application, fourteen issued ex-U.S. patents, one allowed ex-U.S. application and twelve pending ex-U.S. applications, each claiming priority to two expired U.S. provisional patent applications. The second solely owned patent family includes one allowed U.S. non-provisional patent application, one pending U.S. non-provisional patent application, an expired PCT patent application and sixteen pending ex-US applications, each claiming priority to seven expired U.S. provisional patent applications. Any patents issuing from these applications would be expected to expire in 2039 and 2040, absent any applicable patent term adjustment or extension. ~~We do not own any non-provisional applications or issued patents for this program. In 2017, we entered into a license agreement involving U.S.~~The third solely owned patent ~~rights, including~~family includes one ~~U.S. patent and a~~ pending U.S. non-provisional patent application, controlled by the University of Pennsylvania. Our license is exclusive and is limited to the use of antagonists of IL-27 for the treatment of cancer. Any patent issuing from this application would be expected to expire in 2024, excluding any applicable patent term adjustment or extension.

As of March 7, 2019, we co-own U.S. Patent Nos. 9,803,016 and 9,650,441, which cover composition of matter and the treatment of cancer using our therapeutic CD47 antibody, SRF231. These patent rights are expected to expire in 2036, absent any applicable patent term adjustment or extension. Also, with respect to SRF231, we co-own two pending U.S. non-provisional applications and eleven pending foreign applications, and own one pending PCT patent application and one pending ex-U.S. patent application, each claiming priority to three expired U.S. provisional patent applications and the co-owned patent family includes one pending U.S. non-provisional patent application, one pending PCT patent application and ~~three~~one pending ex-U.S. patent application, each claiming priority to two expired U.S. provisional ~~U.S.~~ patent ~~applications, within five patent families. Collectively, these patent applications cover compositions of matter and methods of using SRF231 in combination with certain other therapeutic agents.~~applications. Any patents issuing from these applications would be expected to expire in ~~2036,~~2042, absent any applicable patent term adjustment or extension.

As of March 6, 2023, we co-own and have exclusively licensed to Novartis our rights in two patent families that cover compositions of matter and methods of use for our CD73 therapeutic antibody candidate, NZV930. The first patent family includes one issued U.S. patent, U.S. 11,312,783, one pending U.S. non-provisional patent application, one expired PCT patent application, and forty-eight ex-U.S. patents and pending applications, each claiming priority to two expired U.S. provisional patent applications. The second patent family includes two expired U.S. provisional patent applications, one pending U.S. non-provisional patent application and one expired PCT patent application. Any patents issuing from the first and second patent families would be expected to expire in 2038 or 2039, respectively, absent any applicable patent term adjustment or extension.

As of March 6, 2023, we own and have exclusively licensed to GSK our rights in two patent families that cover compositions of matter and methods of use for our CD112R therapeutic antibody candidates, including GSK4381562. The first patent family includes two issued U.S. patents, U.S. 11,214,619 and U.S. 11,279,758, one pending U.S. non-provisional patent application, one expired PCT patent application, two issued ex-U.S. patents, one allowed ex-U.S. patent application, and twenty-four pending ex-U.S. applications, each claiming priority to two expired U.S. provisional patent applications. The second family includes one pending U.S. non-provisional patent application, one expired PCT patent application, and five pending ex-U.S. applications, each claiming priority to an expired U.S. provisional patent application. Any patents issuing from these applications would be expected to expire in 2039 and 2040, absent any applicable patent term adjustment or extension.

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

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

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

Table of Contents

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

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

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

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

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

current product candidates.

The field of therapeutic antibodies, including ~~CD47~~CCR8, CD39 and CD112R antibodies for use in oncology, is crowded, and no such products have reached the market. Due to the intense research and development undertaken by academic institutions and multiple companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain for the coming years. There may be significant intellectual property-related litigation and proceedings relating to our own and other third-party intellectual property and proprietary rights in the future.

~~We are subject to and may in~~

Table of Contents

In the future, we may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any product candidates we may develop, including interference proceedings, post-grant review, ~~inter partes~~inter-partes review, and derivation proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the European Patent Office, or EPO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit.

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

~~Stanford University also has rights to~~pending third-party European ~~Patent No. EP 2242512. In January 2017, we opposed this~~ patent in the Opposition Division of the EPO, or the Opposition Division. Six third parties also filed oppositions against European Patent No. EP 2242512. Stanford filed a response to the seven oppositions and oral proceedings were held in August 2018. The Opposition Division maintained an amended version of the patent. As of March 7, 2019, we and three additional opponents have submitted notices of appeal to the Opposition Division’s interlocutory decision to the Technical Boards of Appeal of the EPO.

Pending final resolution of this matter, Stanford, or other parties that may have rights to EP 2242512 may allege that the manufacture, use or sale of SRF231 infringes the patent in Europe. If, as part of any opposition or appeal proceeding before the Opposition Division or a Technical Board of Appeal, respectively, we are unsuccessful in invalidating or narrowing Stanford’s claims, or if claims successfully invalidated by the Opposition Division are restored on appeal, our ability to commercialize SRF231 in Europe could be materially impaired. Moreover, we are aware of two pending divisional applications relating to ~~EP 2242512~~CCR8, CD39 and CD112R antibody technology that, ~~are being pursued by Stanford. If either~~without invalidation of ~~these applications matures into~~(in the case of an issued patent), a ~~granted European patent~~change in claim scope, or ~~if any other related patent application matures into~~ a ~~granted European patent, our ability to commercialize SRF231 could be materially impaired. Similarly, related patents in the U.S. or other countries~~license, could materially impair our ability to commercialize ~~SRF231 in those countries.~~

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

product candidates.

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

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

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

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

We engage in collaborations with scientists at academic and non-profit institutions to access technologies and materials that are not otherwise available to us. The agreements that govern these collaborations may include an option to negotiate an exclusive license to the institution’s rights in any inventions that are created in the course of these collaborations, but we may not be able to come to a final agreement with an institution holding rights in an invention that is relevant to the development and commercialization of our technology.

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

Table of Contents

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

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

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

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

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

Intellectual property rights do not necessarily address all potential threats.

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

Table of Contents

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

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

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

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

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

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

Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. In addition, our intellectual property license agreements may not always include worldwide rights. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Table of Contents

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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

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

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

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

We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us in the field of therapeutic antibodies and filing patent applications potentially relevant to our business. For example, we are aware of third-party patents and patent applications that may be construed to cover uses of our ~~CD47~~CCR8 antibody product ~~candidates or their uses.~~

candidates.

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

Table of Contents

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

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

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

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

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

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

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Table of Contents

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

Related To Our Business

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

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

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

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

As of March ~~7, 2019,~~6, 2023, we had 7660 employees, all full-time, ~~employees,~~ including 5441 employees engaged in research and development. As our development and commercialization plans and strategies develop, ~~and as we transition into operating as a public company,~~ we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

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

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

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

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

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

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

Table of Contents

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

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

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

Our internal ~~computer~~information technology systems, or those ~~used by~~of our third-party contract research organizations, or CROs, contractors, consultants or ~~other contractors or consultants,~~others who process sensitive information on our behalf, may fail or suffer security ~~breaches.~~

incidents, loss or leakage of data and other compromises, any of which could result in a material disruption of our product candidates’ development programs, compromise sensitive information related to our business or prevent us from accessing such information, expose us to liability or otherwise adversely affect our business.

In the ordinary course of our business, we may collect, store and transmit confidential information, including intellectual property, proprietary business information and personal information (including health information). It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such information. We also have outsourced certain of our operations to third parties, and as a result we manage a number of third parties who have access to our information. Despite the implementation of security measures, our internal ~~computer~~information technology systems, and those of our ~~future~~ CROs and other ~~contractors and consultants~~third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyberattacks by sophisticated nation-state and nation-state supported actors or by malicious third parties (including the deployment of harmful malware (such as malicious code, viruses and worms), natural disasters, global pandemics, fire, terrorism, war and telecommunication and electrical failures, fraudulent activity, as well as security incidents from inadvertent or intentional actions (such as error or theft) by our employees, contractors, consultants, business partners, and/or other third parties, phishing attacks, ransomware, denial-of-service attacks, social engineering schemes and other means that affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise our system infrastructure as well as lead to unauthorized ~~access. While~~access, disclosure or acquisition of information. Cyberattacks are increasing in their frequency, sophistication and intensity. The techniques used to sabotage or to obtain unauthorized access to our information technology systems or those upon whom we rely on to process our information change frequently, and we may be unable to anticipate such techniques or implement adequate preventative measures or to stop security incidents in all instances. The recovery systems, security protocols, network protection mechanisms and other security measures that we have integrated into our information technology systems, which are designed to protect against, detect and minimize security breaches, may not be adequate to ~~our knowledge experienced any such material~~prevent or detect service interruption, system failure or data loss.

Significant disruptions of our information technology systems or security ~~breach~~incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, ~~date, if~~confidential information (including trade secrets or other intellectual property, proprietary business information and personal information including health information), and could result in financial, legal, business and reputational harm to us. If such ~~an event~~disruptions were to occur and cause interruptions in our operations, it could result in a material disruption of our product development ~~programs and our business operations.~~programs. For example, the loss of clinical trial data from completed, ongoing or ~~future~~planned clinical trials could result in delays

in our ~~marketing~~regulatory approval efforts and significantly increase our costs to recover or reproduce the data. ~~Likewise, we rely on third parties for~~Further, the ~~manufacture~~COVID-19 pandemic has resulted in a significant number of our ~~product candidates~~employees and ~~to conduct clinical trials,~~partners working remotely, which increases the risk of a data breach or issues with data and ~~similar events relating to their computer systems could also have a material adverse effect on our business.~~cybersecurity. To the extent that any disruption or security ~~breach were to result~~incident results in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development ~~and commercialization~~ of our future product candidates could be delayed.

Table of Contents

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

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

Legal, political and economic uncertainty surrounding the planned exit of the United Kingdom from the European Union may be a source of instability in international markets, create significant currency fluctuations and pose additional risks to our business, revenue, financial condition, and results of operations.

On June 23, 2016, the United Kingdom, or UK, held a referendum in which a majority of the eligible members of the electorate voted for the UK to leave the European Union, or EU. The UK’s withdrawal from the EU is commonly referred to as Brexit. Pursuant to Article 50 of the Treaty on European Union, the UK will cease to be an EU Member State either on the effective date of a withdrawal agreement (entry into such a withdrawal agreement will require UK parliamentary approval) or, failing that, two years following the UK's notification of its intention to leave the EU, unless the European Council (together with the UK) unanimously decides to extend the two-year period. On March 29, 2017, the UK formally notified the European Council of its intention to leave the EU. The UK is, therefore, scheduled to leave the EU at 11:00p.m. GMT on March 29, 2019. If the UK and the EU are unable to negotiate acceptable withdrawal terms, barrier-free access between the UK and other European Member States or among the European Economic Area, or EEA, overall could be diminished or eliminated

The lack of clarity over which EU laws and regulations will continue to be implemented in the UK after Brexit (including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws) may negatively impact foreign direct investment in the UK, increase costs, depress economic activity and restrict access to capital.

The uncertainty concerning the UK’s legal, political and economic relationship with the EU after Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond the date of Brexit.

These developments, or the perception that any of them could occur, have had, and may continue to have, a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the UK financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility.

Risks Related To Our Business and Common Stock

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

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

•the success of competitive products or technologies;

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

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

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

•the recruitment or departure of key personnel;

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

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

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

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

•changes in the structure of healthcare payment systems;

•market conditions in the pharmaceutical and biotechnology sectors; and

•general economic, industry and market conditions.

Table of Contents

We are not in compliance with Nasdaq’s minimum bid price requirement and if we fail to regain compliance with Nasdaq’s continued listing requirements , our common stock could be delisted, which could adversely affect the liquidity of our common stock and our ability to raise additional capital or enter into strategic transactions.

On January 6, 2023, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC, or Nasdaq, notifying us that our listed securities did not maintain the minimum bid price requirement of $1.00 per share of common stock for continued listing on The Nasdaq Global Market for a period of 30 consecutive business days as required under Nasdaq Listing Rule 5450(a)(1). Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum closing bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.

In accordance with Nasdaq’s Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until July 5, 2023, or the Compliance Period, to regain compliance with the minimum closing bid price requirement. If at any time during the Compliance Period, our common stock have a closing bid price of at least $1.00 for 10 consecutive business days, Nasdaq will provide us a written confirmation of compliance and the matter will be closed. In the event we do not regain compliance by July 5, 2023, we may be eligible for an additional 180 day period to regain compliance or may face delisting. If, however, compliance with the minimum closing bid price requirement cannot be demonstrated by the end of a second compliance period, Nasdaq will provide written notification that our common stock will be delisted. At that time, we may appeal Nasdaq’s determination to a Hearings Panel. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the minimum bid price requirement.

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

In April 2018, we closed our initial public offering. Prior to that offering, there was no public market for shares of our common stock. Although we have completed our initial public offering and shares of our common stock are listed and trading on the Nasdaq Global Market, an

An active trading market for our shares may not be sustained. If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their shares at or above the prices at which they acquired their shares or sell their shares at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

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

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

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

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

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

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

Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately ~~28%~~5% of our outstanding common stock. As a result, these stockholders, if they act together, are able to influence our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership might adversely affect the market price of our common stock by:

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

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

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

Table of Contents

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

As a public company, and particularly after we are no longer an emerging growth company, as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance, and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We are currently evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX Section 404, we ~~will be~~were required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the Securities and Exchange Commission, or the ~~SEC~~.SEC. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

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

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could significantly reduce the market price of our common stock, and impair our ability to raise adequate capital through the sale of additional equity securities.

If securities analysts publish negative evaluations of our stock, the price of our stock could decline.

The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which, in turn, could cause our stock price to decline.

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

Table of ~~our common stock may decline.~~

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

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

Contents

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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

Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of or based on a breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the United States District Court for the District of Massachusetts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions. We have chosen the United States District Court for the District of Massachusetts as the exclusive forum for such causes of action because our principal executive offices are located in Cambridge, Massachusetts. We recognize that the federal district court forum selection clause may impose additional litigation costs on stockholders who assert the provision is not enforceable and may impose more general additional litigation costs in pursuing any such claims, particularly if the stockholders do not reside in or near the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated bylaws may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us. Alternatively, if the federal district court forum selection provision is found inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have an adverse effect on our business, financial condition or results of operations. The United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. On December 19, 2018, the Court of Chancery of the State of Delaware issued a decision declaring that such federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are ineffective and invalid under Delaware law. On January 17, 2019, the decision was appealed to the Delaware Supreme Court. While the Delaware Supreme Court recently dismissed the appeal on jurisdictional grounds, we expect that the appeal will be re-filed after the Court of Chancery issues a final judgment. Unless and until the Court of Chancery’s decision is reversed by the Delaware Supreme Court or otherwise abrogated, we do not intend to enforce our federal forum selection provision designating the District of Massachusetts as the exclusive forum for Securities Act claims. In the event that the Delaware Supreme Court affirms the Court of Chancery’s decision or otherwise determines that federal forum selection provisions are invalid, the Company’s Board of Directors intends to amend promptly our amended and restated bylaws to remove our federal forum selection bylaw provision. As a result of the Court of Chancery’s decision or a decision by the Supreme Court of Delaware affirming the Court of Chancery’s decision, we may incur additional costs associated with our federal forum selection bylaw provision, which could have an adverse effect on our business, financial condition or results of operations.

Table of Contents~~Comprehensive tax reform legislation~~

Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may harm our liquidity, limit our ability to grow our business, pursue acquisitions or improve our operating infrastructure and restrict our ability to compete in our markets.

Our operations consume substantial amounts of cash, and we intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop our product candidates, retain or expand our current levels of personnel, improve our existing solutions, enhance our operating infrastructure, and potentially acquire complementary businesses and technologies. Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including the need to:

•finance unanticipated working capital requirements;

•develop our product candidates;

•pursue acquisitions or other strategic relationships; and

•respond to competitive pressures.

Accordingly, we may need to pursue equity or debt financings to meet our capital needs. With uncertainty in the capital markets and other factors, such financing may not be available on terms favorable to us or at all. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, we could face significant limitations on our ability to invest in our operations and otherwise suffer harm to our business.

Recent increases in interest rates have increased our borrowing costs, including interest expense under our variable rate credit facility, and may also affect our ability to obtain working capital through borrowings such as bank credit lines and public or private sales of debt securities, which may result in lower liquidity, reduced working capital and other adverse impacts on our business.

Under our loan and security agreement with K2 Health Ventures LLC, or the Loan Agreement, a portion of our outstanding debt bears interest at variable interest rates. Borrowings under the Loan Agreement bear interest at a floating per annum rate equal to the greater of (i) 8.50% and (ii) the sum of (A) the greater of (x) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) or (y) 3.25%, plus (B) 5.25%. In December 2022, the interest rate increased to 12.75%. The effective interest rate of the term loan as of December 31, 2022 is 15.47%.

To meet our liquidity needs, we have relied in part on borrowed funds, and may continue to do so in the future. Continued increases in interest rates will increase the cost of new indebtedness/servicing our outstanding indebtedness/refinancing our outstanding indebtedness, and could materially and adversely affect our results of operations, financial condition, liquidity and cash flows.

We have in the past relied in part on sales of our common shares through our at-the-market, or ATM, offering program. Increased volatility and decreases in market prices of equity securities generally and of our common shares in particular may have an adverse impact on our willingness and/or ability to continue to sell our common shares through our ATM offering. Decreases in these sales could affect the cost or availability of equity capital, which could in turn have an adverse effect on our business, including current operations, future growth, revenues, net income and the market prices of our common shares.

In August 2021, we commenced our current ATM program with JonesTrading Institutional Services LLC to raise capital. Under our ATM program, we have entered into a sales agreement to sell common shares, up to a maximum aggregate market value of $80 million, through one or more at-the-market offerings. In fiscal year 2022, our stock price declined by 83.9%. Given the decrease in the market price of our common shares and volatility in the capital markets, we may not be willing or able to continue to raise equity capital through our ATM program. We may, therefore, need to turn to other sources of funding that may have terms that are not favorable to us, or reduce our business operations given capital constraints.

Table of Contents

Alternative financing arrangements, if we pursue any, could involve issuances of one or more types of securities, including common stock, preferred stock, convertible debt, warrants to acquire common stock or other securities. These securities could be issued at or below the then prevailing market price for our common shares. In addition, if we issue debt securities, the holders of the debt would have a claim to our assets that would be superior to the rights of stockholders until the principal, accrued and unpaid interest and any premium or make-whole has been paid. In addition, if we borrow funds and/or issue debt securities through a subsidiary, the lenders and/or holders of those debt securities would have a right to payment that would be effectively senior to the company’s equity ownership in the subsidiary, which would adversely affect the rights of holders of both the company’s equity securities and its debt and debt securities.

Interest on any newly-issued debt securities and/or newly-incurred borrowings would increase our operating costs and reduce our net income, and these impacts may be material. If the issuance of new securities results in diminished rights to holders of our common stock, the market price of our common shares could be materially and adversely affected. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could/would result in a material adverse effect on our business, operating results, financial condition and prospects.

Our corporate restructuring may not be successful.

In November 2022, we announced a corporate restructuring to focus resources on the advancement of our SRF388 and SRF114 programs, and pause the SRF617 clinical development program. There is no guarantee that this corporate restructuring will achieve its intended benefits or that our post-restructuring focus will be sufficient for our business to be successful. For example, our corporate restructuring may not result in anticipated savings or other economic benefits, could result in total costs and expenses that are greater than expected, could make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material adverse effect on our business.

General Risk Factors

Our business may be adversely affected by the ongoing COVID-19 pandemic.

Our business could be adversely affected by health epidemics in regions where we have concentrations of clinical trial sites or other business activities and could cause significant disruption in the operations of third-party manufacturers and CROs upon whom we rely. For example, COVID-19 has spread rapidly throughout many countries, and, on March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic.

The ultimate impact of the COVID-19 pandemic, or the future outbreak of any other highly infectious our contagious diseases, on our business operations is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the scope, severity and duration of the pandemic, government actions taken to contain coronavirus or address its impact in the short and long term and the direct and indirect economic impacts of the pandemic and related containment measures, among others.

The current economic downturn may harm our business and results of operations.

Our overall performance depends, in part, on worldwide economic conditions. In recent months, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include reduced credit availability; higher borrowing costs, reduced liquidity, volatility in credit, equity and foreign exchange markets and bankruptcies.

These developments could lead to supply chain disruption, inflation, higher interest rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations.

Rising inflation rates could negatively impact our business if our costs increase, and the adverse impact may be material.

Inflation rates, particularly in the United States, have increased recently to levels not seen in years. Increased inflation may result in increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial ~~condition.~~

~~On December 22, 2017,~~markets, may have the ~~U.S. government enacted~~effect of further increasing economic uncertainty and heightening these risks. An increase in our costs could be detrimental to our financial condition and could also have an adverse impact on our future growth.

Table of Contents

Hostilities in Ukraine could have a material adverse effect on our supply chain, including the ~~TCJA,~~availability and cost of materials and/or services that we rely upon for our business operations, which ~~significantly reforms~~could have a material adverse impact on our business operations, revenues and net income.

Russia’s invasion of Ukraine, which has persisted over a year, and the ~~Internal Revenue Code~~global response, including the imposition of ~~1986,~~sanctions by the United States and other countries, could create or exacerbate risks facing our business. Given the continuing conflict, our supply chain or customer arrangements could be disrupted due to the demise of commercial activity in impacted regions and due to the severity of sanctions on the businesses that we and our suppliers rely on. Further, state-sponsored cyberattacks could expand as ~~amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction~~part of the ~~corporate tax rate from a top marginal rate of 35%~~conflict, which could adversely affect our and our suppliers’ ability to ~~a flat rate of 21%, effective January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses~~maintain or enhance key cybersecurity and ~~elimination of~~data protection measures.

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

We have incurred substantial losses during our history. As of December 31, 2022, we had federal and state net operating loss carryforwards of $93.8 million and $155.9 million, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, ~~arising~~unused losses will carry forward to offset future taxable income, if any, until such unused losses expire (other than federal and certain state net operating loss carryforwards generated in taxable years beginning after December 31, 2017, ~~(though any such~~which are not subject to expiration). Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax ~~losses~~attributes to offset its post-change income may be ~~carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred~~limited. We have in the ~~testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”. The tax rate change resulted in (i) a reduction~~past experienced, and we may in the ~~gross amount~~future experience ownership changes, some of which are outside our control. Use of our ~~deferred tax assets recorded as~~federal and state net operating loss carryforwards has been limited and could be further limited if we experience additional ownership changes, which could have an adverse effect on our future results of operations.

Pursuant to Section 404 of Sarbanes-Oxley, our management is required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ended December 31, ~~2017, without~~2019. When we lose our status as an ~~impact on~~“emerging growth company,” our independent registered public accounting firm will be required to attest to the ~~net amount~~effectiveness of our ~~deferred tax assets,~~internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.

Table of Contents

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

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements, that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering in April 2018, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are ~~recorded with~~deemed to be a ~~full valuation allowance, and (ii) no income tax expense or benefit being recognized~~large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the ~~enactment~~prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the ~~TCJA.~~same exemptions from disclosure requirements, including not being required to comply with the independent auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to ~~examine~~be a “smaller reporting company” until (i) the ~~impact this~~market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million as of the prior June 30. If we are a “smaller reporting company” at the time we cease to be an “emerging growth company,” we may continue to rely on exemptions from certain disclosure requirements that are available to “smaller reporting companies.” Specifically, as a “smaller reporting company” we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, “smaller reporting companies” have reduced disclosure obligations regarding executive compensation.

Changes in tax ~~reform legislation~~law may adversely affect us or our investors.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have onretroactive application) could adversely affect us or the holders of our ~~business. However,~~common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the ~~effect~~future. It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our shareholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of ~~the TCJA on us and our affiliates, whether adverse or favorable, is uncertain and may not become evident for some period of time.~~changes in tax law. We urge investors to consult with their legal and tax advisers regarding the potential implications of ~~the TCJA~~changes in tax law on an investment in our common stock.

~~Forward-Looking Statements~~

~~This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 2~~7A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

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

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

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

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

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

~~our ability to develop combination therapies, whether on our own or in collaboration with Novartis and other third parties;~~

~~our manufacturing, commercialization and marketing capabilities and strategy;~~

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

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

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

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

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

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

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

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

~~the impact of laws and regulations.~~

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

Item 1B. Unresolved Staff Comments.

Not applicable.

Table of Contents

Item 2. Properties.

We lease a facility containing our research and development, laboratory and office space, which consists of approximately ~~32,000~~65,000 square feet located at 50 Hampshire Street, Cambridge, Massachusetts. We sublease 33,529 square feet of this facility to a third party pursuant to a sublease that expires in July 2024. Our lease expires on ~~April 30,~~March 31, 2030. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.

Item 3. Legal Proceedings.

In ~~January 2017,~~October 2020, we filed an opposition in the European Patent Office, or EPO, opposing the grant of European Patent No. EP ~~2242512~~3258951B1 to ~~Stanford University.~~Compugen, Ltd., or the Compugen Patent. We ~~were~~are one of ~~seven~~two parties opposing the grant of the ~~European patent,~~Compugen Patent, which relates generally to ~~CD47~~PVRIG (an alternate name for CD112R) antibodies for use in treating cancer. ~~Stanford filed a response to~~In connection with the ~~seven oppositions and~~license agreement with GSK, GSK has assumed responsibility for this opposition. The oral ~~arguments were held in August 2018. The Opposition Division maintained an amended version~~proceedings are scheduled for July of ~~the patent. As of March 7, 2019, we and three additional opponents have submitted notices of appeal to the Opposition Division’s interlocutory decision to the Technical Board of Appeal of the EPO.~~2023. Accordingly, final resolution of the ~~oppositions~~opposition may be several years in the future.

~~The Opposition Division’s interlocutory decision, if maintained at~~

In June 2021, we filed an opposition in the ~~appeals level, could have a substantial negative effect on our business and leave open~~EPO, opposing the ~~possibility that Stanford University~~grant of European Patent No. EP 3153526B1 to INSERM (Institut National de la Santé et de la Recherche Médicale), or ~~other~~the INSERM Patent. We are one of four parties ~~that have rights to such patent could assert that SRF231 infringes on~~opposing the ~~Stanford Patent in a relevant European country. The timing and outcome of any such appeal cannot be predicted or determined as~~grant of the ~~date~~INSERM Patent, which relates generally to pharmaceutical compositions comprising anti-CD39 antibodies which inhibit activity of ~~this report.~~

Treg for use in the treatment or prevention of cancers. We are ~~also aware~~currently awaiting a summons to oral proceedings. Accordingly, final resolution of ~~various pending divisional applications relating to EP 2242512 that are being pursued by Stanford University. If any of these divisional applications proceed to grant they~~the opposition may ~~also materially impair our ability to commercialize SRF231~~be several years in ~~Europe.~~

the future.

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

Item 4. Mine Safety Disclosures.

Not applicable.

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has been traded on The Nasdaq Global Market under the symbol “SURF” since April 19, 2018. Prior to this time, there was no public market for our common stock. ~~The following table shows the high and low sale prices per share of our common stock as reported on The Nasdaq Global Market for the periods indicated:~~

High

Low

2018

Second Quarter 2018 (From April 19, 2018)

$
17.41

$
12.83

Third Quarter 2018

$
17.83

$
8.92

Fourth Quarter 2018

$
10.69

$
3.65

~~On March 4, 2019, the last reported sale price for our common stock on the Nasdaq Global Market was $4.16 per share.~~

Stock Performance Graph

The graph set forth below compares the cumulative total stockholder return on our common stock between April 19, 2018 and December 31, ~~2018,~~2022, with the cumulative total return of (a) the Nasdaq Composite Index and (b) the Nasdaq Biotechnology Index, over the same period. This graph assumes the investment of $100 on April 19, 2018 in our common stock, the Nasdaq Composite Index, and the Nasdaq Biotechnology Index and assumes the reinvestment of dividends, if any. The graph assumes our closing sales price on April 19, 2018 of $13.33 per share as the initial value of our common stock and not the initial offering price to the public of $15.00 per share.

The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.

Stockholders

As of March ~~4, 2019,~~6, 2023, there were approximately 207 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividends

We have not paid any cash dividends on our common stock since inception and do not anticipate paying cash dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item relating to our equity compensation plans will be included in our definitive proxy statement to be filed with the SEC with respect to our ~~2019~~2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Unregistered Sales of Equity Securities

~~We had no unregistered sales~~

None.

Table of ~~securities for the year ended December 31, 2018.~~

Contents

Purchases of Equity Securities by the Issuer or Affiliated Purchasers

~~During~~

We did not purchase any of our registered equity securities during the ~~year ended December 31, 2018, we repurchased 16,935 restricted shares for $0.0003 per share from employees pursuant to our equity programs. Unvested restricted stock units are subject to repurchase rights upon termination of service.~~

~~Item 6. Selected Consolidated Financial Data.~~

~~You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of~~period covered by this Annual Report on Form ~~10-K and “Management’s~~10-K.

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Annual Report on Form 10-K. We have derived the consolidated statement of operations data for the years ended December 31, 2018, 2017, and 2016, and the consolidated balance sheet data as of December 31, 2018 and 2017 from our audited consolidated financial statements appearing at the end of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of results that may be expected in the future.

Year Ended December 31,

2018

2017

2016

(in thousands, except per share data)

Statement of Operations Data:

Collaboration revenue

$
59,417

$
12,826

$
6,632

Operating expenses:

Research and development

52,492

47,783

20,492

General and administrative

16,076

11,033

4,144

Total operating expenses

68,568

58,816

24,636

Loss from operations

(9,151
)

(45,990
)

(18,004
)
Interest and other income, net

2,554

613

551

Net loss

(6,597
)

(45,377
)

(17,453
)
Accretion of redeemable convertible preferred stock to
   redemption value

(11
)

(40
)

(41
)
Net loss attributable to common stockholders

$
(6,608
)

$
(45,417
)

$
(17,494
)
Net loss per share attributable to common stockholders—basic
   and diluted ⁽¹⁾

$
(0.33
)

$
(18.35
)

$
(7.31
)
Weighted average common shares outstanding—basic and
   diluted ⁽¹⁾

19,991

2,475

2,394

As of December 31,

2018

2017

2016

(in thousands)

Balance Sheet Data:

Cash, cash equivalents and marketable securities

$
158,835

$
63,309

$
79,151

Working capital ⁽²⁾

137,424

47,946

76,968

Total assets

174,065

81,454

98,139

Accounts payable and accrued expenses

12,215

13,058

9,181

Deferred revenue – related party

53,952

82,105

64,931

Total stockholders’ equity (deficit)

102,862

(67,314
)

(26,912
)

⁽¹⁾	~~See Note 12 to our consolidated financial statements for further details on the calculation of basic and diluted net loss per share attributable to common stockholders.~~

Operations

⁽²⁾	~~We define working capital as current assets less current liabilities.~~

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

The following discussion and analysis of our financial condition and operating results should be read together with the section captioned “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in the Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the Annual Report on Form 10-K captioned “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

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

~~We aim~~

Effective November 1, 2022, our Board of Directors approved a strategic decision to ~~identify key components within~~pause the ~~TME to gain~~internal clinical development of SRF617, a ~~deep understanding of its biology, leverage this understanding to define the optimal therapeutic targets and the patients most likely to benefit, and develop~~ novel antibody ~~therapeutics with differentiated biologic activity. By utilizing~~targeting CD39, and focus resources on the advancement of our ~~expertise in immunology, oncology, assay development, antibody selection~~SRF388 and ~~characterization, and translational research, we are developing and advancing a broad pipeline of TME-focused~~SRF114 programs, ~~that~~which we believe ~~are~~hold the ~~next generation of immuno-oncology therapies. Our programs demonstrate~~greatest near-term potential to provide benefit to patients. We also implemented a corporate restructuring which reduced our ~~multi-faceted approach~~workforce by ~~targeting several critical components~~approximately 20%. The majority of the ~~immunosuppressive TME, including metabolites, cytokines~~personnel and ~~macrophages.~~

~~NZV930 (formerly SRF373) and SRF617 are antibodies inhibiting cluster~~program restructuring were completed during the fourth quarter of differentiation, or CD, 73 and CD39, respectively, and illustrate how our specialized knowledge of TME biology can be leveraged across programs. CD73 and CD39 are both critical enzymes involved in the production of extracellular adenosine,2022. We recorded a key metabolite with strong immunosuppressive properties within the TME. In June 2018, a Phase 1 trial of NZV930 was initiated by our partner, Novartis Institutes for Biomedical Research, Inc., or Novartis, and we expect to file an investigational new drug application, or IND, for SRF617charge in the fourth quarter of ~~2019.~~

~~SRF388 is an antibody targeting interleukin 27, or IL-27, an immunosuppressive cytokine in the TME that is overexpressed in certain cancers. IL-27 is a cytokine secreted by macrophages~~2022 of $4.0 million, consisting of severance, benefits, outplacement services and antigen presenting cells that plays an important physiologic role in suppressing the immune system. Due to its immunosuppressive nature, there is a rationale for inhibiting IL-27 to treat cancer as this approach will influence the activity of multiple types of immune cells that are necessary to recognize and attack a tumor. We expect to file an IND for SRF388 in the fourth quarter of 2019.

SRF231 is an antibody targeting CD47, which is a protein expressed on many cells, but often overexpressed on tumor cells. By targeting CD47, we believe we can promote macrophage activation to attack such tumors. We initiated a Phase 1 clinical trial of SRF231 in February 2018. In December 2018, we announced the deprioritization of SRF231 ascosts associated with terminating contracts. As a result of ~~toxicities seen during~~ the ~~dose escalation portion of the ongoing Phase 1 trial and the evolving competitive landscape. We~~restructuring, we are ~~continuing dose exploration in the Phase 1 trial and expect~~actively pursuing partnership opportunities to ~~provide additional data regarding SRF231 in the second half of 2019.~~

~~We also have several earlier stage programs that target other critical components of the TME, including regulatory T cells and natural killer,~~advance our SRF617 program with third-party collaborators or NK, cells. We expect that the unique insights generated in any one of our product programs will accelerate the development of the other programs in a synergistic fashion due to the interconnections between these TME pathways.

On April 23, 2018, we completed an initial public offering of our common stock by issuing 7,200,000 shares of our common stock, at $15.00 per share for net proceeds of $97.2 million. Concurrent with the initial public offering, we issued to ~~Novartis Institutes for BioMedical Research, Inc., or Novartis, 766,666 shares of our common stock at $15.00 per share for proceeds of $11.5 million in a private placement.~~

partners.

We were incorporated and commenced principal operations in 2014. We have devoted substantially all of our resources to developing our programs, including SRF388, SRF114, SRF617, NZV930 ~~SRF617, SRF388,~~ and ~~SRF231,~~GSK4381562, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from ~~the~~public and private sales of ~~preferred stock,~~our securities, payments received under ~~the Collaboration Agreement,~~our collaboration agreement with Novartis and ~~proceeds from the Company’s initial public offering of common stock~~license agreement with GSK and ~~concurrent private placement. Through December 31, 2018, we had received gross proceeds of $48.6 million from our sales of preferred stock and $150.0 million from the Collaboration Agreement.~~a debt financing. As of December 31, ~~2018,~~2022, we had cash, cash equivalents and marketable securities of ~~$158.8~~$124.8 million. Since our inception, we have incurred significant losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of the product candidates we develop. Our net loss was ~~$6.6~~$63.6 million and ~~$45.4~~$78.5 million for the years ended December 31, ~~2018~~2022 and ~~2017,~~2021, respectively. Our net income was $59.3 million for the year ended December 31, 2020. As of December 31, ~~2018,~~2022 and 2021 we had an accumulated deficit of ~~$66.8 million.~~$204.3 million and $140.7 million, respectively. We expect to continue to incur significant expenses and ~~increasing~~ operating losses for at least the next several ~~years. We anticipate that our expenses will increase substantially,~~years, particularly as we:

•pursue the clinical development of product candidates;

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

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

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

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

•maintain, expand and protect our intellectual property portfolio;

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

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

Table of Contents

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

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

We believe that our existing cash, cash equivalents and marketable securities, as of December 31, ~~2018~~2022 will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into ~~2021,~~the third quarter of 2024, excluding any future milestone payments from ~~Novartis.~~Novartis or GSK. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Components of Our Results of Operations

Revenue

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

Collaboration Agreement with Novartis

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

Upon entering into the agreement, we received an upfront payment of $70.0 million from Novartis ~~also has the right, but not the obligation, to conduct research at its own cost on antibodies that bind to CD73 in accordance with the agreement.~~

~~Pursuant to the Collaboration Agreement, we~~and granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target ~~CD73, along with~~CD73. In addition, we initially granted Novartis the right to purchase exclusive option rights, each an Option, ~~for~~to up to four specified targets, ~~each an Option Target, to obtain~~including certain research, development, manufacturing and commercialization rights. If Novartis purchases an Option, following receipt of the IND acceptance for a candidate with respect to the applicable Option Target, Novartis will be entitled to exercise the Option for such Option Target. Pursuant to the ~~Collaboration~~Novartis Agreement, Novartis initially had the right to exercise up to three purchased Options. In ~~March 2018,~~January 2020, Novartis ~~notified us of its decision to~~did not purchase and exercise its ~~previously purchased~~single remaining Option ~~for SRF231, our CD47 product candidate. In March 2018, we~~under the Novartis Agreement and, ~~Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. As~~as a result, ~~as of December 31, 2018, Novartis had two~~the option purchase period expired. Accordingly, there are no Options remaining eligible for purchase and ~~potential exercise.~~

Atexercise by Novartis, and our performance obligations under the ~~time we entered into the Collaboration~~Novartis Agreement in January 2016, Novartis made an upfront payment to us of $70.0 million. Under the Collaboration Agreement, Novartis will also pay us a fee to purchase each Option for each Option Target and another fee to exercise an Option. As of December 31, 2018, we had received $5.0 million in option purchase payments and we werehave ended. We are currently entitled to ~~an aggregate~~potential development milestones of ~~up to $67.5~~$325.0 million ofand potential ~~option purchase and option exercise payments. We are also eligible to receive payments on a target-by-target basis upon the achievement of specified development and~~ sales milestones ~~and~~of $200.0 million, as well as tiered royalties on annual net sales of NZV930 by Novartis ~~of licensed products~~ ranging from high single-digit to mid-teens percentages upon successful commercialization of any products. Under the Collaboration Agreement, as of December 31, 2018, we were entitled to potential option purchase, option exercise, and milestone payments aggregating up to $1.17 billion, of which $80.0 million had been received as of December 31, 2018.percentages. Such amount of potential ~~option purchase, option exercise, and~~ milestone payments assumes ~~that Novartis purchases, and exercises both of the remaining Options available to it pursuant to the Collaboration Agreement, as well as~~ the successful clinical development of and achievement of all sales milestones for ~~all targets covered by the Collaboration Agreement.~~

In addition, we are required to pay Novartis tiered royalties on annual net sales by us of regional licensed products in the United States ranging from high single-digit to mid-teens percentages. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In January 2016, Novartis also purchased $13.5 million of our Series A-1 preferred stock. The equity investment was made at fair value, and we determined it to be distinct from the Collaboration Agreement.

NZV930.

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

~~In February 2018, we received an additional milestone payment~~

Table of $45.0 million from Novartis upon Novartis’ receipt and acceptance of the first final audited GLP toxicology study report for NZV930. Upon achieving the milestone, we concluded this variable consideration was no longer constrained and included this amount in the transaction price. We recognized $27.9 million as collaboration revenue – related party in the year ended December 31, 2018, based on the ratio of our actual costs incurred as of the milestone achievement date to our total estimated costs with respect to performing research on antibodies that bind to CD73 and other specified targets under the Collaboration Agreement. The remaining unrecognized amount was initially recorded as deferred revenue and will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the Collaboration Agreement.

In March 2018, Novartis notified us of its decision not to exercise its option related to CD47. We recognized the $5.0 million exclusive option right payment as collaboration revenue – related party in the first quarter of 2018 because we no longer had any remaining performance obligations related to CD47.

Contents

Through December 31, ~~2018,~~2022, we had received an aggregate of $150.0 million from Novartis in upfront payments, milestone payments, and option purchase payments. As of January 2020, we no longer had any performance obligations under the Novartis Agreement. During the years ended December 31, 2022 and 2021 we did not recognize any revenue related to the Novartis Agreement. During the year ended December 31, ~~2018,~~ ~~2017, and 2016~~2020, we recognized revenue of ~~$59.4~~$38.6 million ~~$12.8 million and $6.6 million, respectively,~~ related to the ~~Collaboration~~Novartis Agreement.

License Agreement with GSK

In ~~February 2019, Novartis~~December 2020, we entered into a license agreement with GSK, which was subsequently amended in August 2021 or, as amended, the GSK Agreement, under which we granted GSK a worldwide exclusive, sublicensable license to develop, manufacture and commercialize antibodies that target the antibody GSK4381562, targeting CD112R, also known as PVRIG, or the Licensed Antibodies. GSK is responsible for the development, manufacturing and commercialization of the Licensed Antibodies and a joint development committee was formed to facilitate information sharing between us and GSK. Under the terms of the GSK Agreement, GSK is obligated to use commercially reasonable efforts to develop and commercialize the Licensed Antibodies. Pursuant to the August 2021 amendment to the GSK Agreement, we provided additional transition and supply services related to the development and manufacturing of the Licensed Antibodies.

Under the terms of the agreement, GSK made a one-time upfront payment of $85.0 million and was required to make additional payments to us for supply services and transition services of $4.5 million and $0.8 million, respectively. In March 2022, GSK initiated a Phase 1 clinical trial of GSK4381562 in patients with solid tumors, triggering a $30.0 million milestone payment. We are eligible to receive up to $60.0 million in additional clinical milestones and $155.0 million in regulatory milestones. In addition, we may receive up to $485.0 million in sales milestone payments. We are also eligible to receive royalties on global net sales of any approved products based on the licensed antibodies, ranging in percentages from high single digits to mid-teens. Such amount of potential milestone payments assumes the successful clinical development and achievement of all sales milestones for GSK4381562.

Under ASC 606 we account for (i) the delivery of the worldwide exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supply of Licensed Antibodies until an investigational new drug application is accepted by a regulatory authority; and (iii) transition services until an investigational new drug application is accepted by a regulatory authority as separate and distinct performance obligations. We determined the transaction price under ASC 606 at the inception of the GSK Agreement to be $90.3 million, consisting of the upfront payment of $85.0 million plus $4.3 million for supply of the Licensed Antibodies and $1.0 million for the transition services. We recognized revenue for the license performance obligation at a point in time, that is upon transfer of the license to GSK. As control of the license was transferred on the effective date of December 16, 2020 and GSK could begin to use and benefit from the license, we recognized $85.0 million of license-related revenue during the year ended December 31, 2020 under the GSK Agreement. We recognized the portion of the transaction price allocated to supply services and transition services over time. We transfer control of these services over time and GSK receives and consumes the benefit over time as we perform the services.

In November 2021, GSK received clearance from the FDA for GSK4381562 to proceed into a first-in-human clinical trial and as a result our performance obligations under the GSK Agreement ended. No amount of the transaction price allocated to the performance obligations was unsatisfied as of November 2021.

In March 2022, GSK notified us it had dosed the first patient in their Phase 1 study of its decision not to purchase its Option related to IL-27 (See Note 19 “Subsequent Events” for further discussion). Accordingly, as of February 4, 2019, Novartis had one Option remaining eligible for purchase and potential exercise.GSK4381562 in patients with solid tumors. As a result of this Phase 1 study initiation, the ~~maximum aggregate~~first clinical milestone under the GSK Agreement was achieved. We concluded the variable consideration associated with this milestone was no longer constrained and recognized $30.0 million in license-related revenue for the year ended December 31, 2022, as we had no further performance obligations associated with the milestone.

For the year ended December 31, 2022, we did not record license-related revenue related to the supply or transition services as our performance obligations under the GSK Agreement had ended. For the year ended December 31, 2021, we recognized $2.0 million of license-related revenue related to supply services and $0.7 million of license-related revenue related to the transition services. For the year ended December 31, 2020, we recognized $2.6 million of license-related revenue related to supply services and an immaterial amount of ~~potential option purchase, option exercise~~license-related revenue related to the transition services.

Through December 31, 2022, we have received $120.3 million from GSK in upfront payments, clinical milestones and ~~milestone payments that we are entitled to receive under~~reimbursement for the ~~Collaboration Agreement was reduced from $1.17 billion to $750 million.~~

The decision by Novartis to terminate the IL-27 target under the Collaboration Agreement will result in our removing all future costs associated with IL-27 from the estimated total costs in the cost-to-cost model in the first quartertransition and supply services performed.

Table of ~~2019. This change in the total estimated costs in the cost-to-cost model will result in our recognizing revenue of approximately $13.0 million in the first quarter of 2019.~~

Contents

Operating Expenses

Research and Development Expenses

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

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

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

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

•laboratory supplies;

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

•third-party license fees.

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

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

Year Ended December 31,

2018

2017

2016

2018 v 2017

2017 v 2016

SRF231

$
19,781

$
22,072

$
7,724

$
(2,291
)

$
14,348

NZV930

956

2,295

1,281

(1,339
)

1,014

SRF388

3,981

2,767

1,067

1,214

1,700

SRF617

4,784

—

—

4,784

—

Other early-stage programs

3,618

4,737

1,845

(1,119
)

2,892

Unallocated research and discovery
expenses

19,372

15,912

8,575

3,460

7,337

Total research and development
expenses

$
52,492

$
47,783

$
20,492

$
4,709

$
27,291


	Year ended December 31,
	2022		2021		2022 vs 2021

	(in thousands)
SRF388	16,945		13,834		3,111
SRF114	6,269		4,241		2,028
SRF617	15,834		12,243		3,591
GSK4381562 (formerly SRF813)	—		2,319		(2,319)
Other early-stage programs	415		507		(92)
Unallocated research and discovery expenses	27,540		20,428		7,112
Total research and development expenses	$	67,003	$	53,572	$	13,431

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. ~~As a result, we expect~~We anticipate that our research and development expenses will decrease in the future as a result of the strategic decision to ~~increase over~~pause the ~~next several years~~SRF617 program as well as the reduction in headcount relating to the corporate restructuring announced in November 2022. This will be partially offset by increased clinical development costs as we ~~initiate~~advance our SRF388 Phase 2 clinical trials and ~~pursue later stages of development of SRF617 and SRF388, initiate~~SRF114 clinical ~~trials for the product candidates we develop and continue to discover and develop additional product candidates.~~

development.

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

•successful completion of clinical trials and preclinical studies;

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

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

•successful enrollment and completion of clinical trials;

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

Table of Contents

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

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

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

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

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

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

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

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

•effectively competing with other therapies; and

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

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

General and Administrative Expenses

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

We anticipate that our general and administrative expenses will ~~increase~~decrease in the future as ~~we increase our~~a result of a reduction in headcount relating to ~~support research activities and development of our programs. We also anticipate that we~~the corporate restructuring announced in November 2022. This will ~~incur increased~~be partially offset by increases in accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Interest and Other Income (Expense), Net

Interest and other income ~~consists~~consist primarily of interest earned on our cash, cash equivalents, and marketable ~~securities.~~

securities as well as interest paid on the Loan Agreement.

Income Taxes

~~We have~~

During the years ended December 31, 2022 and 2021, we did not ~~recorded~~record any income tax benefits for the net losses we incurred or for the research and development tax credits we generated ~~during the years ended December 31, 2018 and 2017~~in each year, as we believed, based upon the weight of available evidence, that it was more likely than not that all of the net operating loss carryforwards and tax credits will not be realized. ~~As of~~During the year ended December 31, ~~2018,~~2020, we ~~had federal~~did not record any income tax expense or benefit for the net income incurred, or for the research and ~~state~~development tax credits generated during the year, due to the utilization of net operating loss carryforwards and the uncertainty of ~~$19.1 million and $19.4 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2034. As~~realizing a benefit from the credits.

Table of December 31, 2018, we also had federal and state research and development tax credit carryforwards of $1.4 million and $0.7 million, respectively, which begin to expire in 2034 and 2030, respectively. Through December 31, 2018, we had recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Contents

Results of Operations

Comparison of Years Ended December 31, ~~2018, 2017,~~2022, and ~~2016~~

2021

The following table summarizes our results of operations for the years ended December 31, ~~2018, 2017,~~2022, and ~~2016,~~2021, along with the changes in those ~~items:~~

Year Ended December 31,

2018

2017

2016

2018 v 2017

2017 v 2016

(in thousands)

Collaboration revenue - related party

$
59,417

$
12,826

$
6,632

$
46,591

$
6,194

Operating expenses:

Research and development

52,492

47,783

20,492

4,709

27,291

General and administrative

16,076

11,033

4,144

5,043

6,889

Total operating expenses

68,568

58,816

24,636

9,752

34,180

Loss from operations

(9,151
)

(45,990
)

(18,004
)

36,839

(27,986
)
Interest and other income, net

2,554

613

551

1,941

62

Net loss

$
(6,597
)

$
(45,377
)

$
(17,453
)

$
38,780

$
(27,924
)

~~Collaboration Revenue – Related Party~~

~~Collaboration revenue – related party was $59.4 million, $12.8 million,~~items. Discussions of 2020 items and ~~$6.6 million~~year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Part II, Item 7 of our Annual Report on Form 10-K for the ~~years~~fiscal year ended December 31, ~~2018, 2017,~~2021 filed on March 2, 2022.


	Year ended December 31,
	2022		2021		2022 vs 2021

	(in thousands)
License-related revenue	$	30,000	$	2,687	$	27,313
Operating expenses:
Research and development	67,003		53,572		13,431
General and administrative	24,866		25,128		(262)
Total operating expenses	91,869		78,700		13,169
Loss from operations	(61,869)		(76,013)		14,144
Interest and other income (expense), net	(1,717)		(2,472)		755
Net loss	$	(63,586)	$	(78,485)	$	14,899

License-Related Revenue

During the year ended December 31, 2022 and ~~2016,~~2021, we recognized revenue of $30.0 million and $2.7 million, respectively, ~~all of which was derived from~~related to the ~~Collaboration~~GSK Agreement. The increase in ~~collaboration~~license-related revenue during the year ended December 31, ~~2017~~2022 was ~~primarily~~ due to the ~~partial recognition~~achievement of ~~revenue related to~~ a ~~milestone payment of~~ $30.0 million ~~that we received in May 2017 from Novartis upon initiation~~clinical milestone under the GSK Agreement as a result of the first ~~GLP toxicology~~patient dosed in GSK's Phase 1 study ~~for NZV930 (formerly SRF373). The increase~~of GSK4381562 in ~~collaboration~~patients with solid tumors in March 2022. This was compared to $2.0 million of license-related revenue –recognized related ~~party~~to supply services and $0.7 million of license-related revenue recognized related to the transition services during the year ended December 31, 2018 was primarily due to the partial recognition of $27.9 million in revenue related to a milestone payment of $45.0 million that we received in February 2018 from Novartis upon Novartis’ receipt and acceptance of the first final audited GLP toxicology study report for NZV930. Additionally, we recognized $5.0 million of revenue upon Novartis’ decision not to exercise its Option relating to CD47 in March 2018. The remaining unrecognized amount will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the Collaboration Agreement.

2021.

Research and Development Expenses

Year Ended December 31,

2018

2017

2016

2018 v 2017

2017 v 2016

(in thousands)

Direct research and development expenses
   by program:

SRF231

$
19,781

$
22,072

$
7,724

$
(2,291
)

$
14,348

NZV930

956

2,295

1,281

(1,339
)

1,014

SRF388

3,981

2,767

1,067

1,214

1,700

SRF617

4,784

—

—

4,784

—

Other early-stage programs

3,618

4,737

1,845

(1,119
)

2,892

Research and discovery and unallocated
   expenses:

Personnel related (including stock
   -based compensation)

13,646

10,212

5,342

3,434

4,870

Facility related and other

5,726

5,700

3,233

26

2,467

Total research and development
   expenses

$
52,492

$
47,783

$
20,492

$
4,709

$
27,291


	Year Ended December 31,
	2022		2021		2022 vs 2021

	(in thousands)
Direct research and development expenses by program:
SRF388	16,945		13,834		3,111
SRF114	6,269		4,241		2,028
SRF617	15,834		12,243		3,591
GSK4381562 (formerly SRF813)	—		2,319		(2,319)
Other early-stage programs	415		507		(92)
Research and discovery and unallocated expenses:
Personnel related (including stock-based compensation)	18,487		13,047		5,440
Facility related and other	9,053		7,381		1,672
Total research and development expenses	$	67,003	$	53,572	$	13,431

Research and development expenses were ~~$52.5~~$67.0 million for the year ended December 31, ~~2018,~~2022, compared to ~~$47.8~~$53.6 million for the year ended December 31, ~~2017.~~2021. The increase of ~~$4.7~~$13.4 million was primarily due to increases of ~~$1.2~~$3.1 million in external costs for our SRF388 program, ~~$4.8~~$2.0 million in external costs for our SRF114 program, $3.6 million in external costs for our SRF617 program and ~~$3.5~~$7.1 million for research and discovery and unallocated ~~costs,~~expenses, which were partially offset by decreases of $2.3 million in external costs for ~~our SRF231 program, $1.3 million in external costs for our SRF373~~the GSK4381562 program and ~~$1.1~~$0.1 million in external costs for our other early-stage programs.

The increase in research and development expenses for our SRF388 program was primarily due to continued enrollment in our Phase 1 dose escalation trial and advancement into a ~~payment made~~Phase 2 trial in 2022.

Table of Contents

The increase in research and development expenses for ~~an exclusive license~~our SRF114 program was primarily due to ~~the antibodies related~~increased expenses relating to ~~this program~~IND-enabling activities and manufacturing, as well as ~~increased contract manufacturing work.~~

startup costs for our Phase 1/2 clinical trial.

The increase in research and development expenses for our SRF617 program was primarily due to increased manufacturing costs incurred in 2022, which were partially offset by slower enrollment in our Phase 1/1b and Phase 2 trials in 2022.

The decrease in research and development expenses for the ~~commencement~~GSK4381562 program was primarily due to the transfer of ~~contract manufacturing work.~~

responsibility for development of this program to GSK as part of the GSK Agreement.

The increase in research and discovery and unallocated expenses was primarily due to ~~the increase of $3.4 million in personnel-related costs due to~~ increased ~~headcount.~~

~~The decrease in research~~salaries and ~~development expenses for our NZV930 program was primarily due to initiation of the Phase 1 clinical trial by Novartis in June 2018. Novartis has worldwide exclusive rights to this program, and~~bonus as a result of ~~the initiation of the Phase 1 clinical by Novartis, we are no longer incurring~~increased headcount, increased consulting and contractor expenses ~~for this program.~~

~~The decrease in research~~ and development expenses for our other early-stage programs was primarily a result of costs related to SRF617, which were not tracked as a separate program until 2018. This decrease was offset by increasesseverance relating to ~~the advancement~~our corporate restructuring in November 2022.

General and ~~initiation of new early discovery programs.~~

~~Research~~Administrative Expenses

General and ~~development~~administrative expenses were ~~$47.8~~$24.9 million for the year ended December 31, ~~2017,~~2022, compared to ~~$20.5~~$25.1 million for the year ended December 31, ~~2016.~~2021. The ~~increase~~decrease of ~~$27.3~~$0.3 million was primarily due to ~~increases of $14.3 million~~a decrease in external costs for our SRF231 program, $1.0 million in external costs for our NZV930 program, $1.7 million in external costs for our SRF388 program, $2.9 million in external costs for our other early-stage programs and $7.3 million for research and discovery and unallocated costs.

~~The increase in research and development~~employee related expenses ~~for our SRF231 program was primarily related to advancing the program through IND-enabling activities and clinical material production costs.~~

~~The increases in research and development expenses for our NZV930 and SRF388 programs were primarily due to commencement of IND-enabling activities for each program.~~

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

The increase in research and discovery and unallocated expenses was primarily due to increases of $4.9 million in personnel-related costs (including an increase in stock-based compensation expense of $1.1 million) due to increased headcount and $2.5 million in increased facility and laboratory costs related to our new corporate headquarters.

~~General and Administrative Expenses~~

General and administrative expenses were $16.1 million for the year ended December 31, 2018, compared to $11.0 million for the year ended December 31, 2017. The increase of $5.1 million was primarily due to an increase of $2.6 million in personnel-related costs as a result of an increase in headcount; an increase of $1.0 million for professional fees related to legal and audit services, and an increase of $1.1 million in facility costs.

General and administrative expenses were $11.0 million for the year ended December 31, 2017, compared to $4.1 million for the year ended December 31, 2016. The increase of $6.9 million was primarily due to an increase of $5.5 million in personnel-related costs as a result of both an increase in headcount as well as ~~a one-time charge of $2.3 million related to separation costs for our former chief executive officer, an increase of $0.9 million for professional fees related to~~ legal and ~~audit services, and an increase of $0.5 million~~professional fees. This was partially offset by increases in ~~facility costs related~~severance relating to our ~~new~~ corporate ~~headquarters.~~

restructuring in November 2022.

Interest and Other Income (Expense), Net

Interest and other income (expense) was approximately ~~$2.6 million, $0.6~~$(1.7) million and ~~$0.6~~$(2.5) million during the years ended December 31, ~~2018, 2017,~~2022, and ~~2016,~~2021, respectively, primarily due ~~primarily~~ to interest expense related to our Loan Agreement with K2 HealthVentures LLC offset by interest income on invested balances of our cash, cash equivalents and marketable securities. ~~The increase in interest income was due to investing of the initial public offering proceeds in April 2018.~~

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from ~~the Collaboration Agreement.~~our collaboration agreement with Novartis and license agreement with GSK. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations with proceeds from ~~the~~public and private sales of ~~preferred stock,~~our securities, payments received under ~~the Collaboration Agreement,~~our collaboration agreement with Novartis and ~~proceeds from~~ our ~~initial public offering of common stock~~license agreement with GSK, and ~~concurrent private placement.~~a debt financing. Through December 31, ~~2018,~~2022, we had received gross proceeds of ~~$48.6~~$247.3 million from public and private sales of our securities, $25.0 million from our ~~sales of preferred stock~~loan and security agreement with K2 HealthVentures LLC, $150.0 million from the ~~Collaboration~~Novartis Agreement, and $120.3 million from the GSK Agreement.

~~On April 23, 2018,~~

In May 2020, we ~~completed an initial public offering of our common stock by issuing 7,200,000 shares of common stock, at $15.00 per share for gross proceeds of $108.0~~entered into a Capital on Demand™ Sales Agreement, or the 2020 Sales Agreement, with JonesTrading Institutional Services to issue and sell up to $50.0 million ~~or net proceeds of $97.2 million. Concurrent with the initial public offering, we issued~~ ~~Novartis 766,666~~in shares of our common stock, ~~at $15.00 per share~~from time to time. Since May 2020, we have sold 2,303,545 shares of common stock at-the-market under the 2020 Sales Agreement for net proceeds of ~~$11.5~~$19.5 million. As of August 2021, we had closed the 2020 ATM Facility.

In August 2021, we entered into an amendment to the 2020 Sales Agreement, or the Amended Sales Agreement, with JonesTrading, which amended the 2020 Sales Agreement to allow the issuance and sale of up to $80.0 million in ~~a private placement.~~

shares of our common stock from time to time. As of December 31, ~~2018,~~2022, we have sold 14,611,756 shares of common stock at-the-market under the Amended Sales Agreement for net proceeds of $41.4 million.

Effective November 1, 2022, our Board of Directors approved a corporate restructuring to pause the internal clinical development of SRF617 and focus resources on the advancement of our SRF388 and SRF114 programs. We recorded a charge of $4.0 million in the fourth quarter of 2022, consisting of severance, benefits, outplacement services and costs associated with terminating contracts.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of ~~$158.8~~$124.8 million.

Table of Contents

Effects of Inflation

We do not believe that inflation has had a material impact on our business or operating results during the periods presented. However, inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to conduct clinical trials and other operational costs. Inflationary costs could adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, any potential additional funding.

Future Funding Requirements

We expect our expenses will decrease in the future as a result of the corporate restructuring and strategic decision to ~~increase substantially~~pause the SRF617 program announced in ~~connection with our ongoing activities, in particular~~November 2022. This will be partially offset by increased clinical development costs as we ~~continue to~~ advance our ~~product candidates~~SRF388 Phase 2 clinical trials and ~~our discovery programs and conduct research under the Collaboration Agreement. In addition,~~SRF114 clinical development. Additionally, we expect to continue to incur additional costs associated with operating as a public company.

We believe that our existing cash, cash equivalents, and marketable securities, as of March ~~7, 2019,~~9, 2023, will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into ~~2021,~~the third quarter of 2024, excluding any future milestone payments from ~~Novartis.~~Novartis or GSK. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

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

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

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

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

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

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

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

•addressing any competing technological and market developments;

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

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

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

•attracting, hiring and retaining qualified personnel.

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

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

Table of Contents

Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration and license arrangements, including the ~~Collaboration~~Novartis Agreement and GSK Agreement. ~~We currently have no credit facility or committed sources of capital.~~ To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.

Cash Flows

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


											Year Ended December 31,
	Year Ended December 31,										2022		2021
	2018			2017			2016
	(in thousands)										(in thousands)
Net cash provided by (used in):										Net cash provided by (used in):
Operating activities	$	(13,222	)	$	(12,422	)	$	41,413		Operating activities	$	(59,552)	$	(62,344)
Investing activities		(36,584	)		25,918			(68,968	)	Investing activities	22,757		(99,252)
Financing activities		110,376			(1,036	)		25,942		Financing activities	31,660		42,500
Net increase (decrease) in cash and cash equivalents and restricted cash	$	60,570		$	12,460		$	(1,613	)
Net decrease in cash and cash equivalents and restricted cash										Net decrease in cash and cash equivalents and restricted cash	$	(5,135)	$	(119,096)

Operating Activities

During the year ended December 31, ~~2018,~~2022, net cash used in operating activities was ~~$13.2~~$59.6 million, primarily due to our net loss of $63.6 million and net cash used in our operating assets and liabilities of ~~$12.8~~$7.6 million, ~~and our net loss of $6.6 million,~~which was partially offset by non-cash charges of ~~$6.2~~$11.6 million. Net cash used in changes in our operating assets and liabilities for the year ended December 31, ~~2018~~2022 consisted primarily of a ~~$14.4 million decrease in deferred revenue, a $0.5~~$3.0 million decrease in accrued expenses and other current liabilities, ~~and~~ a ~~$2.2~~$2.6 million decrease in our lease liability, a $1.1 million increase in prepaid expenses and other current ~~assets. The~~assets and a $1.3 million decrease in ~~deferred revenue was due to the cumulative effect adjustment upon the adoption of ASC 606 in January 2018.~~accounts payable. The decrease in accrued expenses and other current liabilities was primarily due to ~~the payment of $3.4 million of~~decreases in accrued manufacturing costs ~~to Novartis~~and professional fees offset by an increase in ~~the current year offset increased manufacturing costs incurred to support ongoing clinical trial activities and payroll related accruals.~~accrued severance. The decrease in our lease liability is a result of rental payments made on our operating leases in 2022. The increase in prepaid expenses and other current assets ~~was primarily~~is due to ~~a reduction in prepaid taxes, offset by an increase in other assets resulting from an insurance claim that had not been received as of December 31, 2018.~~

prepayments made to our vendors associated with initiating the Phase 1/2 clinical trial for SRF114.

During the year ended December 31, ~~2017,~~2021, net cash used in operating activities was ~~$12.4~~$62.3 million, primarily due to our net loss of ~~$45.4~~$78.5 million, which was partially offset by non-cash charges of $14.0 million and net cash provided by ~~changes in~~ our operating assets and liabilities of ~~$26.7 million and non-cash charges of $6.2~~$2.1 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, ~~2017~~2021 consisted primarily of a ~~$17.2 million increase in deferred revenue, a $5.0 million decrease in amounts due from Novartis, a related party, a $2.9~~$2.3 million increase in accrued expenses and other current liabilities, a $0.5 million decrease in unbilled receivables, and a ~~$1.1~~$2.2 million decrease in our lease liability, and a $1.7 million decrease in prepaid expenses and other current assets. The increase in deferred revenue was due to the $35.0 million of aggregate milestone and option purchase payments received from Novartis during the year ended December 31, 2017, which were not fully recognized as revenue at that time. The increase in accrued expenses and other current liabilities was primarily due to ~~increased manufacturing costs incurred to support ongoing~~increases in R&D accruals associated with our clinical ~~trial activities and payroll related accruals.~~trials. The decrease in ~~prepaid expenses and other current assets was primarily due to~~our lease liability is a ~~reduction~~result of rental payments made on our operating leases in ~~prepaid taxes.~~

2021. The decrease in unbilled receivables is a result of the completion of our performance obligations under the GSK Agreement in December 2021.

Investing Activities

During the year ended December 31, ~~2016,~~2022, net cash provided by ~~operating~~investing activities was ~~$41.4~~$22.8 million, primarily ~~resulting~~due to $63.4 million in proceeds from ~~net cash provided by changes in our operating assets and liabilities~~sales or maturities of ~~$58.6 million and net non-cash charges of $0.3 million,~~marketable securities, which was partially offset by ~~our net loss~~purchases of ~~$17.5~~marketable securities of $40.2 million and purchases of property and equipment of 0.5 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted primarily of a $64.9 million increase in deferred revenue, a $5.4 million increase in accrued expenses and other current liabilities and a $1.8 million increase in accounts payable, partially offset by an $8.5 million increase in prepaid expenses and other current assets and a $5.0 million increase in amounts due from Novartis, a related party. The increase in deferred revenue was due to the $70.0 million upfront payment received from Novartis during the year ended December 31, 2016, which was not fully recognized as revenue at that time. The increase in accrued expenses and other current liabilities was due to accruals related to manufacturing costs. The increase in accounts payable was due to timing of invoices for clinical manufacturing costs. The increase in prepaid expenses and other current assets was due to prepayments for estimated taxes. The increase in amounts due from Novartis was the result of our achievement in December 2016 of a specified milestone under the Collaboration Agreement.

~~Investing Activities~~

During the year ended December 31, ~~2018,~~2021, net cash used in investing activities was ~~$36.6~~$99.3 million, primarily due to purchases of marketable securities of ~~$107.3~~$111.6 million and ~~$2.0 million of~~ purchases of property and equipment ~~primarily related to leasehold improvements in our corporate headquarters facility.~~of $0.1 million. This was partially offset by ~~$72.7~~$12.5 million in proceeds from sales or maturities of marketable securities.

Table of Contents

Financing Activities

During the year ended December 31, 2017, net cash provided by investing activities was $25.9 million, consisting primarily of $27.9 million of proceeds from sales or maturities of marketable securities, partially offset by $2.0 million of purchases of property and equipment, primarily related to leasehold improvements in our corporate headquarters facility.

During the year ended December 31, 2016, net cash used in investing activities was $69.0 million, consisting primarily of $97.0 million for purchases of marketable securities, an increase in restricted cash of $1.0 million and $0.8 million of purchases of property and equipment, all partially offset by $28.9 million of proceeds from sales or maturities of marketable securities.

~~Financing Activities~~

~~During the year ended December 31, 2018,~~2022, net cash provided by financing activities was ~~$110.4~~$31.7 million, consisting ~~primarily~~ of ~~$100.4~~proceeds of $31.4 million received from issuance of ~~net proceeds received upon the completion of the initial public offering in April 2018, $11.5 million from a private placement~~our shares of common stock ~~with Novartis, a related party,~~at-the-market under the 2021 ATM Facility and ~~$0.5 million~~proceeds from employee stock purchases of ~~proceeds received from the exercise of stock options, partially offset by $2.0 million paid for initial public offering costs.~~

$0.3 million.

During the year ended December 31, 2017, net cash used in financing activities was $1.0 million, consisting primarily of payments of initial public offering costs of $1.2 million, partially offset by $0.1 million of proceeds received from the exercise of stock options.

~~During the year ended December 31, 2016,~~2021, net cash provided by financing activities was ~~$25.9~~$42.5 million, consisting ~~primarily~~ of ~~net~~proceeds of $29.5 million received from issuance of our shares of common stock at-the-market under the 2020 and 2021 ATM Facilities, proceeds from the ~~sales~~issuance of the first tranche of our ~~Series A and Series A-1 preferred stock.~~

~~Contractual Obligations and Commitments~~

~~The following table summarizes our contractual obligations as~~amended convertible note payable of ~~December 31, 2018 and the effects that such obligations are expected to have on our liquidity and cash flow in future periods:~~

Payments Due by Period

Total

Less Than
1 Year

1 to 3
Years

4 to 5
Years

More Than
5 Years

(in thousands)

Operating lease commitments ⁽¹⁾

$
60,221

$
2,546

$
9,434

$
10,668

$
37,573

Research and manufacturing commitments ⁽²⁾

6,738

6,368

370

—

—

Total

$
66,959

$
8,914

$
9,804

$
10,668

$
37,573

⁽¹⁾	~~Reflects payments due for leases of office and laboratory space that expire in May 2030.~~

⁽²⁾	~~Reflects commitments for costs associated with external CMOs and CROs engaged to manufacture clinical trial materials as well as to conduct discovery research and preclinical development activities.~~

Under various license and collaboration agreements to which we are a party, we may be required to make milestone payments and pay royalties and other amounts to third parties. We have not included any such contingent payment obligations in the table above as the amount, timing and likelihood of such payments are not known.

~~Under our Collaboration Agreement, if Novartis obtains a regional license~~$10.7 million, proceeds from us for a product under the agreement, we will be required to pay to Novartis tiered royalties of a high single-digit to mid-teens percentage on annual net sales in the United States by us or our sublicensees of regional licensed products under the agreement.

Under our license agreement with Harbour Antibodies H2L2 BV, or H2L2, we are obligated to pay to H2L2 a low five-digit upfront license fee for each antibody program that we initiate using the H2L2 mice. In addition, we may be obligated to pay up to an aggregate of $1.04 million in milestone payments to H2L2 for each antibody product we develop through Phase 3 clinical trials and regulatory approval. We are required to pay H2L2 a one-time sales performance payment of a low seven-digit dollar amount for each antibody product that is commercialized and achieves worldwide gross sales in excess of a low eight-digit dollar amount. If we enter into an agreement with a third party to further research or commercialize an antibody product developed under the H2L2 agreement, then we are obligated to pay H2L2 a one-time payment of the lesser of (i) a low double-digit percentage of the upfront fee paid to us by the third party or (ii) a low six-digit dollar amount.

Under our license agreement with Harbour Antibodies B.V., or Harbour, we are required to pay a nominal annual maintenance fee during the term of the agreement. In addition, we are obligated to pay up to an aggregate of $4.75 million upon the achievement of specified development and commercial milestones for each product licensed under the agreement. We are also obligated to pay Harbour royalties of a low single-digit percentage on the worldwide net sales of any licensed product on a country-by-country basis.

~~Under our development and option agreement with Adimab LLC, or Adimab, we are obligated to make milestone payments and to pay specified fees upon~~ the exercise of the research or commercialization options under the agreement. During the discovery term, we may be obligated to pay Adimab up to $250,000 for technical milestones achieved against each biological target. Upon exercisecommon stock of ~~a research option, we are obligated to pay a nominal research maintenance fee on each~~$2.0 million, and proceeds from employee stock purchases of the next four anniversaries of the exercise. Upon the exercise of each commercialization option, we will be required to pay an option exercise fee of a low seven-digit dollar amount, and we may be responsible for milestone payments of up to an aggregate of $13.0 million for each licensed product that receives marketing approval. For any licensed product that is commercialized, we are obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product. We may also partially exercise a commercialization option with respect to ten antibodies against a biological target by paying 65% of the option fee and later either (i) paying the balance and choosing up to 20 antibodies for commercialization or (ii) foregoing the commercialization option entirely.

$0.3 million.

Critical Accounting Policies and Significant Judgments and Estimates

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

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, 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.

Revenue Recognition

~~Effective January 1, 2018, we adopted~~

We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method. Under this method, we recognized the cumulative effect of initially adopting ASC Topic 606, as an adjustment to the opening balance of accumulated deficit. Additionally, under this method of adoption, we apply the guidance to all incomplete contracts in scope as of the date of initial application.Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

In accordance with ASC Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, we perform the following five steps:

~~identify the contract(s) with a customer;~~

~~ii.~~

~~identify the performance obligations in the contract;~~

i. identify the contract(s) with a customer;

~~iii.~~

~~determine the transaction price~~

ii. identify the performance obligations in the contract;

~~iv.~~

~~allocate the transaction price to the performance obligations within the contract; and~~

iii. determine the transaction price;

~~recognize revenue when (or as) the entity satisfies a performance obligation.~~

iv. allocate the transaction price to the performance obligations within the contract; and

v. recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when we determine that it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in our arrangements typically consist of a license to our intellectual property and/or research and development services. We may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.

Table of Contents

We determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, we estimate the probability and extent of consideration we expect to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. We then consider any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

We then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

We record amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded for deferred revenue.

Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in our balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current.

Our revenue arrangement includes the following:

Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments: At the inception of an agreement that includes research and development milestone payments, we evaluate each milestone to determine when and how much of the milestone to include in the transaction price. We first estimate the amount of the milestone payment that we could receive using either the expected value or the most likely amount approach. We primarily use the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, we consider whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty.) We update the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.

All of our revenues to date have been generated through ~~the Collaboration Agreement~~our collaboration agreement with Novartis and license agreement with GSK. See Note 8, “Collaboration ~~Agreement with Novartis”~~and License Agreements” for additional details regarding ~~the Company’s~~our collaboration ~~arrangement.~~

agreement and license agreement.

Table of Contents

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed, or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

~~Income Taxes~~

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in our tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. We evaluate the potential recovery of deferred tax assets by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

We account for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

~~Stock-Based Compensation~~

We measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options and restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

For stock-based awards granted to non-employee consultants, we recognize compensation expense over the period during which services are rendered by such non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model referenced below.

We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the expected volatility of our stock, (ii) the expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. Due to the lack of company specific historical and implied volatility data, we based our estimate of expected volatility on the estimate and expected volatilities of a representative group of publicly traded companies. For these analyses, we select companies with comparable characteristics to ours including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. For awards that qualify as “plain-vanilla” options, we estimate the expected life of our employee stock options using the “simplified” method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. We elect to account for forfeitures as they occur rather than apply an estimated forfeiture rate to share based payment expense.

~~Off-Balance Sheet Arrangements~~

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

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our cash, cash equivalents and marketable securities as of December 31, ~~2018~~2022 consisted of cash aand investments in money market ~~fund invested primarily in short-term~~funds, U.S. Treasury ~~obligations,~~notes, U.S. government agency bonds and corporate bonds. Interest income is sensitive to changes in the general level of interest ~~rates;~~rates, which have risen in the past few months and may continue to rise; however, due to the nature of these investments, we do not believe that we have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

Item 8. Financial Statements and Supplementary Data.

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with ~~Accountants~~Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

~~Evaluation of Disclosure Controls and Procedures -~~ Our Chief Executive Officer and Senior Vice President, Finance and Business Operations, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

~~Management's Annual Report on Internal Control Over Financial Reporting -~~ This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

a.Evaluation of Disclosure Controls and Procedures - Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

~~Changes in Internal Controls -~~ There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the fourth quarter of our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

b.Management's Annual Report on Internal Control Over Financial Reporting - Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d‑15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, our management has concluded that our internal control over financial reporting was effective, as of December 31, 2022.

c.Changes in Internal Controls - There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the fourth quarter of our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Incorporated by reference from the information in our Proxy Statement for our ~~2019~~2023 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(1) Financial Statements

The following documents are included on pages F-1 through F-34 attached hereto and are filed as part of this Annual Report on Form 10-K.


	~~Page~~
		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations and Comprehensive ~~Loss~~ Income (Loss)		F-3
Consolidated Statements of ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-6

(2) Financial Statement Schedules:

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

(3) Exhibits.

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

Table of Contents

~~Exhibit~~ ~~Number~~	~~Description~~
~~3.1~~ Exhibit Number		Description

1.1		Capital on DemandTM Sales Agreement, dated as of May 22, 2020, by and between the Company and JonesTrading Institutional Services LLC (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 22, 2020 (File No.001-38459) and incorporated herein by reference)

1.2		Amendment No. 1, dated as of August 5, 2021, to Capital on DemandTM Sales Agreement, dated as of May 22, 2020, by and between Surface Oncology, Inc. and JonesTrading Institutional Services LLC (filed as Exhibit 1.1 to the Company’s Quarterly Report on Form 10-Q filed on August 5, 2021 (File No. 001-38459) and incorporated herein by reference)

3.1		Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 23, 2018 (File No. 001-38459) and incorporated herein by reference)

3.2		Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on April 23, 2018 (File No. 001-38459) and incorporated herein by reference)

4.1		Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

4.2		Amended and Restated Investors’ Rights Agreement among the Company and certain of its stockholders, dated November 6, 2014, as amended on January 9, 2016 (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.1#~~ 4.3		Description of the Registrant's Securities (filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K filed on March 10, 2020 (File No. 001-38459) and incorporated herein by reference)

10.1#		2014 Stock Option and Grant Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.2#		2018 Stock Option Plan (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.3#		Form of Incentive Stock Option Agreement under the Company’s 2018 Stock Option and Incentive Plan (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.4#		Form of Non-Qualified Stock Option Agreement for Company Employees under the Company’s 2018 Stock Option and Incentive Plan (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.5#		Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Company’s 2018 Stock Option and Incentive Plan (filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.6#		Form of Restricted Stock Award Agreement under the Company’s 2018 Stock Option and Grant Plan (filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.7#						Form of Restricted Stock Unit Award Agreement for Company Employees under the Company’s 2018 Stock Option and Incentive Plan (filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.8#						Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the Company’s 2018 Stock Option and Incentive Plan (filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.9#						2018 Employee Stock Purchase Plan (filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

10.10#						Senior Executive Cash Incentive Bonus Plan (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

Table of Contents


Exhibit Number		Description
~~10.11#~~
10.11#		2021 Inducement Plan and form of award agreement thereunder (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on March 3, 2022 (File No. 001-38459) and incorporated herein by reference)

10.12#		Employment Agreement between Vito J. Palombella, Ph.D. and the Company, dated April 23, 2018 (filed as Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.12#~~ 10.13#		Employment Agreement between Robert W. Ross, M.D. and the Company, dated April 23, 2018 (filed as Exhibit 10.13 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.13#~~ 10.14#		Employment Agreement between Daniel S. Lynch and the Company, dated November 23, 2016 (filed as Exhibit 10.14 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.14#~~	Contingent Employment Termination Letter between Daniel S. Lynch and the Company, dated March 30, 2018 (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1/A filed on April 9, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.15#~~	Employment Agreement between J. Jeffrey Goater and the Company, dated April 23, 2018 (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.16#~~ 10.15		Separation Agreement between Detlev Biniszkiewicz, Ph.D. and the Company, dated September 27, 2017 (filed as Exhibit 10.16 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.17~~	Lease by and between the Company and BMR-Hampshire LLC, dated May 13, 2016, as amended on February 28, 2017 (filed as Exhibit 10.17 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.18~~ 10.16		Second Amendment to Lease, dated May 22, 2018, by and between BMR-Hampshire LLC and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2018 (File No.001-3845) and incorporated herein by reference)

~~10.19~~† 10.17†		Collaboration Agreement between Novartis Institutes for BioMedical Research, Inc. and the Company, dated January 9, 2016, as amended on May 6, 2016, as further amended on July14, 2017, and as further amended on September 18, 2017 (filed as Exhibit 10.18 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.20~~† 10.18†		Amendment No. 4 to the Collaboration Agreement between Novartis Institutes for BioMedical Research, Inc. and the Company, dated October 9, 2018 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2018 (File No. 001-38459) and incorporated herein by reference)

~~10.21~~† 10.19†		Exclusive License Agreement between Harbour Antibodies B.V. and the Company, dated September 23, 2015, as amended on January 4, 2016 (filed as Exhibit 10.19 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.22#~~ 10.20#		Form of Director Indemnification Agreement (filed as Exhibit 10.21 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.23#~~ 10.21#		Form of Officer Indemnification Agreement (filed as Exhibit 10.22 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File No. 333-223877) and incorporated herein by reference)

~~10.24~~† 10.22†						First Amended and Restated Development and Option Agreement between Adimab, LLC and the Company, dated October 3, 2018 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2018 (File No. 001-38459) and incorporated herein by reference)

~~21.1~~ 10.23						Sublease Agreement by and between the Company and EQRx, Inc., dated December 16, 2019 (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K filed on March 10, 2020 (File No. 001-38459) and incorporated herein by reference)

10.24†						Loan and Security Agreement, dated November 22, 2019, by and among Surface Oncology, Inc., K2 HealthVentures, LLC and Ankura Trust Company, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 25, 2019 (File No. 001-38459) and incorporated herein by reference)

10.25†						First Amendment to Loan and Security Agreement, dated October 1, 2021, by and among the Company and, K2 HealthVentures LLC and Ankura Trust Company, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2021 (File No. 001-38459) and incorporated herein by reference).

10.26						Second Amendment to Loan and Security Agreement, dated September 21, 2022, by and between Surface Oncology, Inc. and K2 HealthVentures LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2022 (File No. 001-38459) and incorporated herein by reference)

Table of Contents


Exhibit Number						Description

10.27#						Transition and CEO Support Agreement, dated February 9, 2021, by and between J. Jeffrey Goater and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 11, 2021 (File No. 001-38459) and incorporated herein by reference)

10.28#						Amended and Restated Employment Agreement, dated February 9, 2021, by and between Robert Ross, M.D. and the Company (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 11, 2021 (File No. 001-38459) and incorporated herein by reference)

10.29#						Amended and Restated Employment Agreement, dated April 26, 2021, by and between Jessica Fees and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 27, 2021 (File No. 001-38495) and incorporated herein by reference)

10.30†						License Agreement, dated as of December 16, 2020, by and between the Company and GLAXOSMITHKLINE INTELLECTUAL PROPERTY (No. 4) LIMITED (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on December 17, 2020 (File No. 001-38459) and incorporated herein by reference)

10.31†						Amendment No. 1, dated as of August 11, 2021, to License Agreement, dated as of December 16, 2020, by and between the Company and GLAXOSMITHKLINE INTELLECTUAL PROPERTY (No. 4) LIMITED (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2021 (File No. 001-38459) and incorporated herein by reference)

10.32†						Exclusive Product License Agreement, dated March 23, 2021, by and between Vaccinex, Inc. and the Company (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2021 (File No. 001-38459) and incorporated herein by reference)

21.1						List of Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Registration Statement on Form S-1 filed on March 23, 2018 (File ~~No. 333-223877)~~No.333-223877) and incorporated herein by reference)

23.1*						Consent of PricewaterhouseCoopers LLP

31.1*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+						Certification of Principal Executive Officer a Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+						Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*	~~Filed herewith.~~
+ *		~~Furnished~~Filed herewith.
† +		Furnished herewith.
†		Confidential treatment obtained as to certain portions.
#		A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K

Item 16. Form 10-K Summary.

None.

~~SIGNATURES~~

~~Pursuant to the requirements~~Table of ~~Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized~~.

Contents

	~~Company Name~~

~~Date: March 7, 2019~~	~~By:~~	~~/s/~~ J.~~JeffreyGoater~~
		~~J. Jeffrey Goater~~
		~~Chief Executive Officer~~

~~POWER OF ATTORNEY AND SIGNATURES~~

We, the undersigned directors and officers of Surface Oncology, Inc. (the “Company”), hereby severally constitute and appoint J. Jeffrey Goater and Daniel S. Lynch, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of us might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

~~Name~~	~~Title~~	~~Date~~

~~/s/~~ J.~~JeffreyGoater~~	~~Chief Executive Officer~~ ~~(PrincipalExecutive Officer and Duly AuthorizedOfficer)~~	~~March 7, 2019~~
~~J. Jeffrey Goater~~

~~/s/~~ ~~Jessica Fees~~	~~Senior Vice President, Finance and Business Operations~~ ~~(Principal Financial and Accounting Officer)~~	~~March 7, 2019~~
~~Jessica Fees~~

~~/s/~~ ~~Daniel S.Lynch~~	~~Chairman of the Board~~	~~March 7, 2019~~
~~Daniel S. Lynch~~

~~/s/~~ ~~David S. Grayzel, M.D.~~	~~Director~~	~~March 7, 2019~~
~~David S. Grayzel, M.D.~~

~~/s/~~ ~~Geoffrey McDonough,M.D.~~	~~Director~~	~~March 7, 2019~~
~~Geoffrey McDonough, M.D.~~

~~/s/~~ ~~Armen B. Shanafelt,Ph.D~~	~~Director~~	~~March 7, 2019~~
~~Armen B. Shanafelt, Ph.D~~

~~/s/~~ ~~Elliott Sigal, M.D.,Ph.D.~~	~~Director~~	~~March 7, 2019~~
~~Elliott Sigal, M.D., Ph.D.~~

~~/s/~~ ~~Laurie D.Stelzer~~	~~Director~~	~~March 7, 2019~~
~~Laurie D. Stelzer~~

REPORT OF INDEPENDENT ~~REGISTERED~~REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Surface Oncology, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Surface Oncology, Inc. and its subsidiary (the “Company”) as of December 31, ~~2018~~2022 and ~~2017,~~2021, and the related consolidated statements of operations and comprehensive ~~loss,~~income (loss), of ~~redeemable convertible preferred stock and~~ stockholders’ equity ~~(deficit)~~ and of cash flows for each of the three years in the period ended December 31, ~~2018,~~2022, 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, ~~2018~~2022 and ~~2017,~~2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2018~~2022 in conformity with accounting principles generally accepted in the United States of America.

~~Change in Accounting Principle~~

~~As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.~~

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~~audits 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 evaluation of the events and conditions and plans to mitigate this matter are also described in Note 1.

/s/PricewaterhouseCoopers LLP

Boston, Massachusetts

March ~~7, 2019~~

9, 2023

We have served as the ~~Company’s~~Company's auditor since 2016.

F-1

Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31,			December 31,
	2018			2017				December 31, 2022		December 31, 2021
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	82,912		$	22,455		Cash and cash equivalents	$	50,910	$	56,045
Marketable securities		75,923			40,854		Marketable securities	73,913		98,104
Restricted cash		—			85
Prepaid expenses and other current assets		5,766			7,936		Prepaid expenses and other current assets	4,317		3,197
Total current assets		164,601			71,330		Total current assets	129,140		157,346
Property and equipment, net		8,226			7,326		Property and equipment, net	4,866		5,651
Operating lease right-of-use asset							Operating lease right-of-use asset	24,307		25,870
Restricted cash		1,198			1,000		Restricted cash	1,595		1,595
Deferred offering costs		—			1,784
Other assets		40			14		Other assets	2		385
Total assets	$	174,065		$	81,454		Total assets	$	159,910	$	190,847
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	3,412		$	3,215		Accounts payable	$	256	$	1,550
Accrued expenses and other current liabilities		8,803			9,843		Accrued expenses and other current liabilities	10,214		13,089
Deferred revenue - related party		14,610			9,837
Deferred rent		352			489
Operating lease liability							Operating lease liability	5,790		5,384
Total current liabilities		27,177			23,384		Total current liabilities	16,260		20,023
Deferred revenue - related party, non-current		39,342			72,268
Deferred rent, non-current		4,684			4,599
Operating lease liability, non-current							Operating lease liability, non-current	24,662		26,909
Convertible note payable, non-current							Convertible note payable, non-current	25,585		25,015
Total liabilities		71,203			100,251		Total liabilities	66,507		71,947
Commitments and contingencies (Note 15)
Redeemable convertible preferred stock (Series A and A-1), $0.0001 par value; no shares authorized, issued and outstanding at December 31, 2018 and 37,100,000 shares authorized, issued and outstanding at December 31, 2017		—			48,517
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at December 31, 2018 and no shares authorized at December 31, 2017; no shares issued and outstanding at December 31, 2018 and December 31, 2017		—			—
Common stock, $0.0001 par value; 150,000,000 and 53,000,000 shares authorized at December 31, 2018 and December 31, 2017, respectively; 27,772,600 and 2,686,350 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		3			—
Commitments and contingencies (Notes 13 and 16)							Commitments and contingencies (Notes 13 and 16)
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at December 31, 2022 and December 31, 2021; no shares issued and outstanding at December 31, 2022 and December 31, 2021							Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at December 31, 2022 and December 31, 2021; no shares issued and outstanding at December 31, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value; 150,000,000 authorized at December 31, 2022 and December 31, 2021; 60,578,956 and 46,958,776 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively							Common stock, $0.0001 par value; 150,000,000 authorized at December 31, 2022 and December 31, 2021; 60,578,956 and 46,958,776 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively	6		5
Additional paid-in capital		169,784			6,877		Additional paid-in capital	298,741		259,859
Accumulated other comprehensive loss		(119	)		(246	)	Accumulated other comprehensive loss	(1,015)		(221)
Accumulated deficit		(66,806	)		(73,945	)	Accumulated deficit	(204,329)		(140,743)
Total stockholders’ equity (deficit)		102,862			(67,314	)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	174,065		$	81,454
Total stockholders’ equity							Total stockholders’ equity	93,403		118,900
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	159,910	$	190,847

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

F-2

Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~LOSS~~

INCOME (LOSS)

(In thousands, except share and per share amounts)

Year Ended December 31,

2018

2017

2016

Collaboration revenue - related party

$
59,417

$
12,826

$
6,632

Operating expenses:

Research and development

52,492

47,783

20,492

General and administrative

16,076

11,033

4,144

Total operating expenses

68,568

58,816

24,636

Loss from operations

(9,151
)

(45,990
)

(18,004
)
Interest and other income, net

2,554

613

551

Net loss

(6,597
)

(45,377
)

(17,453
)
Accretion of redeemable convertible preferred stock to redemption
value

(11
)

(40
)

(41
)
Net loss attributable to common stockholders

$
(6,608
)

$
(45,417
)

$
(17,494
)
Net loss per share attributable to common stockholders—basic and
diluted

$
(0.33
)

$
(18.35
)

$
(7.31
)
Weighted average common shares outstanding—basic and diluted

19,990,773

2,474,800

2,393,909

Comprehensive loss:

Net loss

$
(6,597
)

$
(45,377
)

$
(17,453
)
Other comprehensive loss:

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

127

107

(353
)
Comprehensive loss

$
(6,470
)

$
(45,270
)

$
(17,806
)


	Year Ended December 31,
	2022		2021		2020
Collaboration revenue - related party	$	—	$	—	$	38,592
License-related revenue	30,000		2,687		87,570
Total revenue	$	30,000	$	2,687	$	126,162
Operating expenses:
Research and development	67,003		53,572		41,018
General and administrative	24,866		25,128		23,558
Total operating expenses	91,869		78,700		64,576
Income (loss) from operations	(61,869)		(76,013)		61,586
Interest expense	(3,146)		(2,546)		(2,855)
Other income, net	1,429		74		606
Net income (loss)	(63,586)		(78,485)		59,337
Net income (loss) per share—basic	$	(1.14)	$	(1.77)	$	1.67
Weighted average common shares outstanding—basic	55,761,386		44,243,317		35,545,121
Net income (loss) per share—diluted	$	(1.14)	$	(1.77)	$	1.57
Weighted average common shares outstanding—diluted	55,761,386		44,243,317		38,141,793
Comprehensive income (loss):
Net income (loss)	$	(63,586)	$	(78,485)	$	59,337
Other comprehensive loss:
Unrealized loss on marketable securities, net of tax	(794)		(221)		(103)
Comprehensive income (loss)	$	(64,380)	$	(78,706)	$	59,234

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

F-3

Table of Contents

SURFACE ONCOLOGY, INC.

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

(In thousands, except share amounts)

Series A and A-1
Redeemable
Convertible
Preferred
Stock

Common Stock

Additional
Paid-in

Note
Receivable
From

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Officer

Loss

Deficit

Equity (Deficit)

Balances at December 31, 2015

22,564,286

$
22,498

2,386,538

$
—

$
706

$
(31
)

$
—

$
(11,115
)

$
(10,440
)
Issuance of Series A redeemable convertible
   preferred stock, net of issuance costs of $4

12,535,714

12,531

—

—

—

—

—

—

—

Issuance of Series A-1 redeemable convertible
   preferred stock, net of issuance costs of $93

2,000,000

13,407

—

—

—

—

—

—

—

Issuance of common stock upon exercise of stock
   options

—

—

12,727

—

4

—

—

—

4

Vesting of restricted common stock

—

—

—

—

26

—

—

—

26

Stock-based compensation expense

—

—

—

—

1,345

—

—

—

1,345

Accretion of redeemable convertible preferred stock
   to redemption value

—

41

—

—

(41
)

—

—

—

(41
)
Unrealized loss on marketable securities

—

—

—

—

—

—

(353
)

—

(353
)
Net loss

—

—

—

—

—

—

—

(17,453
)

(17,453
)
Balances at December 31, 2016

37,100,000

48,477

2,399,265

—

2,040

(31
)

(353
)

(28,568
)

(26,912
)
Issuance of common stock upon exercise of stock
   options

—

—

287,085

—

102

—

—

—

102

Vesting of restricted common stock

—

—

—

—

35

—

—

35

Stock-based compensation expense

—

—

—

—

4,709

—

—

—

4,709

Collection of note receivable from officer

—

—

—

—

31

31

—

—

62

Accretion of redeemable convertible preferred stock
   to redemption value

—

40

—

—

(40
)

—

—

—

(40
)
Unrealized gain on marketable securities

—

—

—

—

—

—

107

—

107

Net loss

—

—

—

—

—

—

—

(45,377
)

(45,377
)
Balances at December 31, 2017

37,100,000

48,517

2,686,350

—

6,877

—

(246
)

(73,945
)

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

—

—

272,895

—

467

—

—

—

467

Repurchases of unvested restricted stock

—

—

(16,935
)

—

—

—

—

—

Stock-based compensation expense

—

—

—

—

5,217

—

—

—

5,217

Accretion of redeemable convertible
   preferred stock to redemption value

—

11

—

—

(11
)

—

—

—

(11
)
Conversion of redeemable convertible
   preferred stock to common stock

(37,100,000
)

(48,528
)

16,863,624

2

48,526

—

—

48,528

Issuance of common stock upon
   completion of initial public offering, net
   of commissions, underwriting discounts
   and offering costs

—

—

7,200,000

1

97,208

—

—

97,209

Issuance of common stock to a related party

—

—

766,666

—

11,500

—

—

11,500

Adjustment due to the adoption of ASC 606

—

—

—

—

—

—

—

13,736

13,736

Unrealized gain on marketable securities

—

—

—

—

—

—

127

—

127

Net loss

—

—

—

—

—

—

—

(6,597
)

(6,597
)
Balances at December 31, 2018

—

$
—

27,772,600

$
3

$
169,784

—

$
(119
)

$
(66,806
)

$
102,862


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balances at December 31, 2019	27,893,337	3		178,155		103		(121,595)		56,666
Issuance of common stock upon exercise of stock options	223,895	—		802		—		—		802
Issuance of common stock under stock purchase plan	89,172	—		194		—		—		194
Issuance of common stock upon public offering, net of issuance costs	11,218,593	1		29,085		—		—		29,086
Issuance of common stock upon conversion of convertible note payable	1,282,050	—		2,000		—		—		2,000
Stock-based compensation expense	—	—		7,765		—		—		7,765
Unrealized loss on marketable securities	—	—		—		(103)		—		(103)
Net income	—	—		—		—		59,337		59,337
Balances at December 31, 2020	40,707,047	4		218,001		—		(62,258)		155,747
Issuance of common stock upon exercise of stock options	508,720	—		2,022		—		—		2,022
Issuance of common stock upon vesting of RSUs	997,400	—		—		—		—		—
Issuance of common stock under stock purchase plan	46,899	—		266		—		—		266
Issuance of common stock upon public offering, net of issuance costs	3,737,172	1		29,524		—		—		29,525
Issuance of common stock upon conversion of convertible note payable	961,538	—		1,500		—		—		1,500
Stock-based compensation expense	—	—		8,546		—		—		8,546
Unrealized loss on marketable securities	—	—		—		(221)		—		(221)
Net loss	—	—		—		—		(78,485)		(78,485)
Balances at December 31, 2021	46,958,776	5		259,859		(221)		(140,743)		118,900
Issuance of common stock upon exercise of stock options	9,343	—		11		—		—		11
Issuance of common stock upon vesting of RSUs	284,400	—		—		—		—		—
Issuance of common stock under stock purchase plan	148,308	—		273		—		—		273
Issuance of common stock upon public offering, net of issuance costs	13,178,129	1		31,375		—		—		31,376
Stock-based compensation expense	—	—		7,223		—		—		7,223
Unrealized loss on marketable securities	—	—		—		(794)		—		(794)
Net loss	—	—		—		—		(63,586)		(63,586)
Balances at December 31, 2022	60,578,956	$	6	$	298,741	$	(1,015)	$	(204,329)	$	93,403

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

F-4

Table of Contents

SURFACE ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share amounts)


	Year Ended December 31,										Year Ended December 31,
	2018			2017			2016				2022		2021		2020
Cash flows from operating activities:										Cash flows from operating activities:
Net loss	$	(6,597	)	$	(45,377	)	$	(17,453	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net income (loss)										Net income (loss)	$	(63,586)	$	(78,485)	$	59,337
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:										Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense		1,347			964			331		Depreciation and amortization expense	1,368		1,569		1,670
Stock-based compensation expense		5,217			4,709			1,345		Stock-based compensation expense	7,223		8,546		7,765
Premiums paid on marketable securities		—			—			(1,841	)
Non-cash interest expense related to note payable										Non-cash interest expense related to note payable	570		1,069		1,650
Net amortization of premiums and discounts on marketable securities		(377	)		516			477		Net amortization of premiums and discounts on marketable securities	143		807		(47)
Realized losses on marketable securities		—			2			(13	)
Loss on disposal of property and equipment		14			35			—		Loss on disposal of property and equipment	—		—		1
Non-cash operating lease cost										Non-cash operating lease cost	2,318		2,041		1,950
Changes in operating assets and liabilities:										Changes in operating assets and liabilities:
Amounts due from related party		—			5,000			(5,000	)
Prepaid expenses and other current assets		2,170			1,088			(8,549	)	Prepaid expenses and other current assets	(1,120)		1,653		(32)
Unbilled receivable										Unbilled receivable	—		518		(2,571)
Other assets		(26	)		(12	)		41		Other assets	383		74		(431)
Accounts payable		23			285			1,800		Accounts payable	(1,301)		(226)		(2,716)
Accrued expenses and other current liabilities		(524	)		2,945			5,430		Accrued expenses and other current liabilities	(2,954)		2,307		2,436
Deferred rent		(52	)		249			(86	)
Operating lease liability										Operating lease liability	(2,596)		(2,217)		(423)
Deferred revenue - related party		(14,417	)		17,174			64,931		Deferred revenue - related party	—		—		(38,592)
Net cash (used in) provided by operating activities		(13,222	)		(12,422	)		41,413
Net cash provided by (used in) operating activities										Net cash provided by (used in) operating activities	(59,552)		(62,344)		29,997
Cash flows from investing activities:										Cash flows from investing activities:
Purchases of property and equipment		(2,019	)		(1,973	)		(836	)	Purchases of property and equipment	(497)		(120)		(43)
Purchases of marketable investments		(107,257	)		—			(97,048	)
Purchases of marketable securities										Purchases of marketable securities	(40,191)		(111,632)		(650)
Proceeds from sales or maturities of marketable securities		72,692			27,891			28,916		Proceeds from sales or maturities of marketable securities	63,445		12,500		59,000
Net cash (used in) provided by investing activities		(36,584	)		25,918			(68,968	)
Net cash provided by (used in) investing activities										Net cash provided by (used in) investing activities	22,757		(99,252)		58,307
Cash flows from financing activities:										Cash flows from financing activities:
Proceeds from issuances of redeemable convertible preferred stock, net of issuance costs		—			—			25,938
Payments of initial public offering costs		(2,031	)		(1,200	)		—
Proceeds from initial public offering of common stock, net of commissions and underwriting discounts		100,440			—			—
Proceeds from issuance of common stock to a related party		11,500			—			—
Collection of note receivable from officer		—			62			—
Proceeds from issuance of convertible note payable, net of issuance costs										Proceeds from issuance of convertible note payable, net of issuance costs	��		10,687		10,000
Proceeds for issuance of common stock, net										Proceeds for issuance of common stock, net	31,376		29,525		29,086
Proceeds from employee stock purchases										Proceeds from employee stock purchases	273		266		194
Proceeds from exercise of stock options		467			102			4		Proceeds from exercise of stock options	11		2,022		802
Net cash provided by (used in) financing activities		110,376			(1,036	)		25,942
Net cash provided by financing activities										Net cash provided by financing activities	31,660		42,500		40,082
Net increase (decrease) in cash and cash equivalents and restricted cash		60,570			12,460			(1,613	)	Net increase (decrease) in cash and cash equivalents and restricted cash	(5,135)		(119,096)		128,386
Cash and cash equivalents and restricted cash at beginning of period		23,540			11,080			12,693		Cash and cash equivalents and restricted cash at beginning of period	57,640		176,736		48,350
Cash and cash equivalents and restricted cash at end of period	$	84,110		$	23,540		$	11,080		Cash and cash equivalents and restricted cash at end of period	$	52,505	$	57,640	$	176,736
Supplemental disclosure of cash flow information:										Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	28		$	3,297		$	7,673
Cash paid for interest										Cash paid for interest	$	2,476	$	1,406	$	1,052
Supplemental disclosure of non-cash investing and financing activities:										Supplemental disclosure of non-cash investing and financing activities:
Accretion of redeemable convertible preferred stock to redemption value	$	11		$	40		$	41
Purchases of property and equipment included in accounts payable and accrued expenses	$	692		$	450		$	352		Purchases of property and equipment included in accounts payable and accrued expenses	$	86	$	436	$	1,006
Deferred offering costs included in accrued expenses	$	—		$	584		$	—
Reclassification of restricted cash from non-current assets to current assets	$	—		$	85		$	—
Reclassification of deposit liability for restricted stock upon vesting of shares	$	—		$	35		$	26
Landlord incentives for construction of leasehold improvements recorded as deferred rent	$	—		$	2,377		$	2,426
Additional right-of-use asset and related lease liability										Additional right-of-use asset and related lease liability	$	755	$	—	$	15,003
Conversion of note payable into shares of common stock										Conversion of note payable into shares of common stock	$	—	$	1,500	$	2,000

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

F-5

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1.	~~Nature of the Business~~

1.Nature of the Business

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

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

On ~~April 6, 2018,~~May 22, 2020, the Company ~~effected~~entered into a ~~one-for-2.2 reverse~~Capital on Demand™ Sales Agreement (the “2020 Sales Agreement”) with JonesTrading to issue and sell shares of the Company’s common stock ~~split~~ of up to $50,000 in gross proceeds, from time to time during the term of the 2020 Sales Agreement, through an “at-the-market” equity offering program under which JonesTrading will act as the Company’s agent and/or principal (the “2020 ATM Facility”). The 2020 ATM Facility provides that JonesTrading will be entitled to compensation for its ~~issued~~services in an amount of up to 3.0% of the gross proceeds of any shares sold under the 2020 ATM Facility. The Company has no obligation to sell any shares under the 2020 ATM Facility and ~~outstanding~~may, at any time, suspend solicitation and offers under the 2020 Sales Agreement. As of December 31, 2022, the Company has sold 2,303,545 shares of common stock ~~and a proportional adjustment~~at-the-market under the 2020 ATM Facility for net proceeds of $19,479. As of August 5, 2021, the Company had closed the 2020 ATM Facility.

On August 5, 2021, the Company entered into an amendment to the ~~existing conversion ratios for each series~~2020 Sales Agreement (as amended, the “Amended Sales Agreement”) with JonesTrading, which amended the 2020 Sales Agreement to allow the issuance and sale of up to $80,000 in gross proceeds, from time to time during the term of the Amended Sales Agreement, through an “at-the-market” equity offering program under which JonesTrading will act as the Company’s ~~Redeemable Convertible Preferred Stock. Accordingly, all~~sales agent ("the 2021 ATM Facility"). The 2021 ATM Facility provides that JonesTrading will continue to be entitled to compensation for its services in an amount of up to 3.0% of the gross proceeds of any shares sold under the 2021 ATM Facility. The Company has no obligation to sell any shares under the Amended Sales Agreement and may, at any time, suspend solicitation and offers under the 2021 ATM Facility. As of December 31, 2022, the Company has sold 14,611,756 shares of common stock at-the-market under the 2021 ATM Facility for net proceeds of $41,421.

Effective November 1, 2022, the Company's Board of Directors approved a strategic decision to pause the internal clinical development of SRF617, a novel antibody targeting CD39, and focus resources on the advancement of its SRF388 and SRF114 programs, which the Company believes hold the greatest near-term potential to provide benefit to patients. The Company also implemented a corporate restructuring which reduced its workforce by approximately 20%. The majority of the personnel and program restructuring was completed during the fourth quarter of 2022. The Company recorded a charge in the fourth quarter of 2022 of $4,000, consisting of severance, benefits, outplacement services and costs associated with terminating contracts. As a result of the restructuring, the Company is actively pursuing partnership opportunities to advance its SRF617 program with third-party collaborators or partners.

F-6

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

On April 23, 2018, the Company completed its initial public offering of its common stock by issuing 7,200,000 shares of common stock, at $15.00 per share for gross proceeds of $108,000, or net proceeds of $97,209 after deducting underwriting discounts, commissions and offering expenses. Concurrent with the initial public offering, the Company issued Novartis Institutes for Biomedical Research, Inc. (Novartis) 766,666 shares of its common stock at $15.00 per share for proceeds of $11,500, in a private placement.

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

amounts)

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from ~~the~~private and public sales of ~~redeemable convertible preferred stock,~~its securities, proceeds from a collaboration agreement with Novartis, a license agreement with GSK, and ~~proceeds from the Company’s initial public offering~~issuance of ~~common stock~~.a debt facility with K2 Health Ventures. The Company has incurred losses and negative cash flows from operations since its inception, including net losses of ~~$6,597, $45,377,~~$63,586 and ~~$17,453~~$78,485 for the years ended December 31, ~~2018, 2017,~~2022 and ~~2016.~~2021, respectively. The Company earned income of 59,337 for the year ended December 31, 2020, primarily related to revenue recognized under the GSK Agreement. As of December 31, ~~2018,~~2022 and 2021, the Company had an accumulated deficit of ~~$66,806.~~$204,329 and $140,743, respectively. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. As of March ~~7, 2019,~~9, 2023, the issuance date of the consolidated financial statements for the year ended December 31, ~~2018,~~2022, the Company expects that its cash and cash equivalents and marketable securities ~~of $158,835,~~ will be sufficient to fund its operating expenses, ~~and~~ capital expenditure requirements ~~through~~and debt service obligations for at least the next 12 months. The future viability of the Company beyond that date is dependent on its ability to raise additional capital to finance its operations.

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

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

~~F-6~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

2.	~~Summary of Significant Accounting Policies~~

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 (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary, Surface Securities Corporation, a Massachusetts corporation, after elimination of all intercompany accounts and transactions.

Use of Estimates

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

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at the acquisition date to be cash equivalents. Cash equivalents, which consist of money market funds are stated at fair value.

Marketable Securities

Marketable securities consist of investments with original maturities greater than 90 days at their acquisition date. The Company has classified its investments with maturities beyond one year as current, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

F-7

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company classifies all of its marketable securities as available-for-sale securities. The Company’s marketable securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale debt securities are reported as accumulated other comprehensive ~~loss,~~income (loss), which is a separate component of stockholders’ ~~equity (deficit).~~equity. The cost of debt securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income (expense), net in the consolidated statements of operations and comprehensive ~~loss.~~

income (loss).

The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Restricted Cash

At December 31, ~~2018~~2022 and ~~2017,~~2021, restricted cash consisted of cash deposited in a separate bank account as collateral for the Company’s facilities lease obligations. At December 31, ~~2018, $1,198~~2022 and 2021, $1,595 of restricted cash was classified as non-current. ~~At December 31, 2017, $85 and $1,000 of restricted cash was classified as current and non-current, respectively.~~

~~F-7~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash, cash equivalents and marketable securities. The Company maintains its cash, cash equivalents, and marketable securities at ~~one~~two accredited financial ~~institution~~institutions in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including preclinical testing. These programs could be adversely affected by a significant interruption in the supply of such drug substance products.

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s ~~accounts payable, accrued~~prepaid expenses and other current ~~liabilities~~assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

~~Deferred Offering Costs~~

~~The Company capitalizes certain legal, professional accounting~~

F-8

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and other third-party fees that are directly associated with in-process equity financings as deferred offering costs (non-current) until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statement of operations and comprehensive loss. The Company did not record any deferred offering costs as of December 31, 2018. Deferred offering costs totaled $1,784 at December 31, 2017.

per share amounts)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the useful life of the asset. Laboratory equipment is depreciated over five years. Computer equipment and furniture and office equipment are depreciated over three years. Leasehold improvements are amortized over the shorter of the lease term or 10 years. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is included in ~~loss~~income (loss) from operations.

~~F-8~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Impairment of Long-Lived Assets

Long-lived assets consist of property and ~~equipment.~~equipment and right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. To date, the Company has not recorded any impairment losses on long-lived assets.

Revenue Recognition

~~Effective January 1, 2018, the Company adopted~~

We account for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method. Under this method, the Company recognized the cumulative effect of initially adopting ASC Topic 606, as an adjustment to the opening balance of accumulated deficit. Additionally, under this method of adoption, the Company applies the guidance to all incomplete contracts in scope as of the date of initial application.Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

In accordance with ASC Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, it performs the following five steps:

~~identify the contract(s) with a customer;~~

~~ii.~~

~~identify the performance obligations in the contract;~~

i.identify the contract(s) with a customer;

~~iii.~~

~~determine the transaction price~~

ii.identify the performance obligations in the contract;

~~iv.~~

~~allocate the transaction price to the performance obligations within the contract; and~~

iii.determine the transaction price;

~~recognize revenue when (or as) the entity satisfies a performance obligation.~~

iv.allocate the transaction price to the performance obligations within the contract; and

v. recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements typically consist of a license to the Company’s intellectual property and/or research and development services. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.

F-9

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

~~F-9~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded for deferred revenue.

Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the Company’s balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current.

The Company’s revenue ~~arrangement includes~~arrangements include the following:

Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty.) The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.

The Company’s revenues have been generated through ~~the Collaboration Agreement~~our collaboration agreement with Novartis and license agreement with GSK. See Note 8, “Collaboration ~~Agreement with Novartis”~~and License Agreements” for additional details regarding the Company’s collaboration ~~arrangement.~~

and license agreements.

F-10

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and benefits of employees, third-party license fees and other operational costs related to the Company’s research and development activities, including allocated facility-related expenses and external costs of outside vendors engaged to conduct both preclinical studies and clinical trials.

~~F-10~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other companies. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Nonrefundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the accompanying statements of operations and comprehensive loss.

Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options and restricted stock awards with only service-based vesting conditions and records the expense for these awards using the straight-line method.

~~The Company measures~~

Following the Company’s adoption of ASU 2018-7, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), on January 1, 2019, for stock-based awards ~~granted~~issued to non-employees, the Company no longer revalues non-employee ~~consultants based on~~awards at each reporting date and instead calculates the fair value of the ~~award on~~awards as of the grant date ~~on which~~using the ~~related service is complete.~~Black-Scholes option-pricing model. Compensation expense for these awards is recognized over the ~~period during which services are rendered by such consultants and non-employees until completed. At the end of each reporting period prior to completion of the~~related service ~~the fair value of these awards is remeasured using the then-current fair value of the Company’s common stock and updated assumption inputs in the Black-Scholes option-pricing model.~~

period.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

The fair value of each stock option grant is estimated using the Black- Scholes option-pricing model. The Company has historically been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. ~~The expected term of stock options granted to non-employees is equal to the contractual term of the option award.~~ The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The Company elects to account for forfeitures as they occur rather than apply an estimated forfeiture rate to share based payment expense.

F-11

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) asset, operating lease liability, and operating lease liability, non-current in the Company’s consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Many lease agreements include the option to renew or extend the lease term. The exercise of lease renewal options or extensions is at the Company’s sole discretion, and are only included in the calculation of the operating lease ROU asset and operating lease liability when it is reasonably certain that the Company would exercise such options. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which it calculates based on the credit quality of the Company, and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease.

The components of a lease are split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company’s facilities operating leases have lease and non-lease components to which the Company has elected to apply the practical expedient and account for each lease component and related non-lease component as one single component. The Company also elected the package of practical expedients, which, among other things, allows the Company to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. The Company also made an accounting policy election not to recognize leases with an initial term of 12 months or less within its consolidated balance sheets and to recognize those lease payments on a straight-line basis in its consolidated statements of operations and comprehensive loss over the lease term.

Segment Data

The Company manages its operations as a single segment for the purposes of assessing performance and making decisions. The Company’s singular focus is using its specialized knowledge of the biological pathways critical to the TME for the development of next-generation cancer therapies. All of the Company’s tangible assets are held in the United States, and all ~~collaboration~~ revenue is derived from the Company’s two collaboration ~~partner~~partners, both of which are in the United States.

~~F-11~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company's tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

F-12

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Comprehensive ~~Loss~~

Income (Loss)

Comprehensive ~~loss~~income (loss) includes net loss as well as other changes in stockholders’ equity ~~(deficit)~~ that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive ~~loss~~income (loss) in all periods presented was unrealized gains (losses) on marketable securities.

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

The Company follows the two-class method when computing net ~~loss~~income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net ~~loss~~income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net ~~loss~~income (loss) per share attributable to common stockholders is computed by dividing the net ~~loss~~income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net ~~loss~~income (loss) attributable to common stockholders is computed by adjusting net ~~loss~~income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive ~~securities.~~securities, including the assumed conversion of the Company’s convertible note payable and outstanding options to purchase common stock, except where the results would be anti-dilutive. Diluted net ~~loss~~income (loss) per share attributable to common stockholders is computed by dividing the diluted net ~~loss~~income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common ~~shares.~~shares assuming the dilutive effective of the conversion of the convertible note payable and outstanding options to purchase common stock. In the diluted net income (loss) per share calculation, net income (loss) would also be adjusted for the elimination of interest expense on the convertible note payable (which includes amortization of the discount created for the beneficial conversion feature), if the impact was not anti-dilutive. For the purpose of this calculation, outstanding options to purchase common stock or redeemable convertible preferred stock are considered potential dilutive common shares.

The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends but contractually did not require the holders of such stock to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

~~F-12~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Recently ~~Adopted~~Issued Accounting Pronouncements

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

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

The Company adopted the Revenue ASUs effective January 1, 2018 using the modified retrospective method. Under the modified retrospective method, the cumulative effect of adopting the Revenue ASUs is recognized as an adjustment to deferred revenue and accumulated deficit. Under ASC 606, the Company will recognize revenue from its collaboration agreement with Novartis (see Note 8) earlier during the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated ten-year performance period under the previous standard. The following reflects the impact of the cumulative effect of the accounting changes upon the adoption of the Revenue ASUs (in thousands):

~~Consolidated Balance Sheets~~

December 31,
2017

Cumulative
Effect

January 1,
2018

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

$
82,105

$
(13,736
)

$
68,369

Accumulated deficit

(73,945
)

13,736

(60,209
)

December 31, 2018

Under
Topic 606

Under
Topic 605

Effect
of Change

Deferred revenue - related party

$
14,610

$
14,421

$
189

Deferred revenue, net of current portion - related party

39,342

84,195

(44,853
)
Accumulated deficit

(66,806
)

(97,734
)

30,928

~~F-13~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

~~ConsolidatedStatements~~of~~Operations and Comprehensive Loss~~

Year Ended December 31, 2018

Under
Topic 606

Under
Topic 605

Effect
of Change

Collaboration revenue - related party

$
59,417

$
28,489

$
30,928

Loss from operations

$
(9,151
)

(40,079
)

30,928

Net loss

$
(6,597
)

(37,525
)

30,928

Comprehensive loss

$
(6,470
)

(37,398
)

30,928

~~Condensed Consolidated Statements of Cash Flows~~

Year Ended December 31, 2018

Under
Topic 606

Under
Topic 605

Effect
of Change

Net loss

$
(6,597
)

$
(37,525
)

$
30,928

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

Deferred revenue - related party

(14,417
)

16,511

(30,928
)

~~In November 2016, the FASB issued~~within ASU No. ~~2016-18,~~ ~~Statement of Cash Flows~~2019-05, Financial Instruments—Credit Losses (Topic ~~230)~~ (“326): Targeted Transition Relief ("ASU ~~2016-18”~~2019-05"), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.. ASU ~~2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and should be applied using a retrospective transition method~~2019-05 provides an option to each period presented. Early adoption is permitted. The Company adopted ASU 2016-18 as of the required effective date of January 1, 2018 and has reflected the adoption retrospectively to all periods presented. The Company’s consolidated statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

As of December 31,

2018

2017

2016

Cash and cash equivalents

$
82,912

$
22,455

$
9,995

Restricted cash included in current assets

—

85

—

Restricted cash included in non-current assets

1,198

1,000

1,085

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

$
84,110

$
23,540

$
11,080

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~ (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only ifirrevocably elect the fair value ~~the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard~~option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, ~~2017,~~2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. ~~The~~This standard will be effective for the Company ~~adopted ASU 2017-09 as of the required effective date of~~on January 1, ~~2018. There were no modifications~~2023. The adoption of ASU 2016-13 is not expected to ~~stock-based awards in 2018.~~

~~F-14~~

have a material impact on the Company’s financial position or results of operations upon adoption.

F-13

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~Recently Issued Accounting Pronouncements~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. In July 2018, the FASB issued~~ASU No. 2018-10,~~ ~~“Codification Improvements to Topic 842, Leases”~~ (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, “Leases (Topic 842) – Targeted Improvements” (ASU 2018-11), which addresses implementation issues related to the new lease standard. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. The standard permits two transition methods, (1) to apply the new lease requirements at the beginning of the earliest period presented, or (2) to apply the new lease requirements at the effective date. Under both transition methods there is a cumulative effect adjustment.

The Company adopted the standard on the effective date of January 1, 2019 by applying the new lease requirements at the effective date. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification. The Company expects the standard to have an impact of approximately $17.0 million on its assets and $22.0 million on its liability for the recognition of right-of-use-assets and lease liabilities, which are primarily related to the lease of the Company’s corporate headquarters in Cambridge, Massachusetts. The Company does not expect the standard to have a material impact on its results of operations or cash flows.

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

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The new standard simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new standard will be effective beginning January 1, 2019 and early adoption is permitted. The Company does not expect the impact that the adoption of ASU 2018-07 to be material.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”).~~ The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact ASU 2018-13 may have on its disclosures upon adoption.

~~In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13,~~ ~~Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective on January 1, 2020, with early adoption permitted. The Company is currently evaluating the expected impact of ASU 2016-13 on its consolidated financial statements.

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

~~F-15~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

3.	~~Marketable Securities~~

3.Marketable Securities

As of December 31, ~~2018,~~2022, the fair value of available-for-sale marketable ~~debt~~ securities by type of security was as follows:


	December 31, 2018										December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable debt securities:										Marketable debt securities:
U.S. Treasury notes	$	62,866	$	—	$	(24	)	$	62,842	U.S. Treasury notes	$	50,080	$	1	$	(714)	$	49,367
U.S. Government agency bonds		2,900		—		(15	)		2,885
U.S. government agency bonds										U.S. government agency bonds	10,957		—		(184)		$	10,773
Corporate bonds		10,276		—		(80	)		10,196	Corporate bonds	$	13,891	$	—	$	(118)	$	13,773
	$	76,042	$	—	$	(119	)	$	75,923		$	74,928	$	1	$	(1,016)	$	73,913

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

December 31, 2018

Amortized
Cost

Fair
Value

Maturing in one year or less

$
76,042

$
75,923

$
76,042

$
75,923


	December 31, 2022
	Amortized Cost		Fair Value
Maturing in one year or less	$	73,446	$	72,453
Maturing in more than one year	1,482		$	1,460
	$	74,928	$	73,913

As of December 31, ~~2017,~~2021, the fair value of available-for-sale marketable securities by type of security was as follows:


	December 31, 2017										December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable debt securities:										Marketable debt securities:
U.S. Treasury notes										U.S. Treasury notes	$	77,550	$	—	$	(188)	$	77,362
U.S. government agency bonds	$	7,300	$	—	$	(38	)	$	7,262	U.S. government agency bonds	20,775		—		(33)		$	20,742
Corporate bonds		33,800		—		(208	)	$	33,592
	$	41,100	$	—	$	(246	)	$	40,854		$	98,325	$	—	$	(221)	$	98,104

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


	December 31, 2017					December 31, 2021
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Maturing in one year or less	$	27,769	$	27,672	Maturing in one year or less	$	60,462	$	60,406
Maturing after one year but less than two years		13,331		13,182
Maturing in more than one year					Maturing in more than one year	37,863		$	37,698
	$	41,100	$	40,854		$	98,325	$	98,104

The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. During the ~~year~~years ended December 31, ~~2018~~2022 and 2021, there were no realized ~~gains (losses)~~losses on sales of marketable securities. During the year ended December 31, ~~2017 and 2016,~~2020 the realized ~~gains (losses)~~gain on sales of marketable securities ~~were $(2) and $13, respectively.~~was $12. There were no marketable securities that required adjustment for other-than-temporary declines in fair value during the years ended December 31, ~~2018, 2017,~~2022, 2021, and ~~2016.~~

~~F-16~~

2020.

F-14

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

There were 20 securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2022. The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of December 31, ~~2018 and 2017~~2022 was ~~$62,842 and $27,672, respectively.~~$34,079. There were no securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2021. There were 18 securities held in an unrealized loss position for more than twelve months as of December 31, 2022. The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2022 was $36,857.There were no securities held in an unrealized loss position for more than twelve months as of December 31, ~~2018~~2021. The Company has the intent and ~~2017 was $13,081 and $13,182, respectively.~~ability to hold investments in an unrealized loss position until recovery, which may be at maturity. The Company determined ~~that there was no material change in the credit risk~~it is more likely than not it would not be required to sell these securities before recovery of ~~these investments.~~their amortized cost. As a result, the Company determined it did not hold any investments with an other-than-temporary decline in fair value as of December 31, ~~2018~~2022 and ~~2017.~~

2021.

4.	~~Fair Value of Financial Assets~~

4.Fair Value of Financial Assets

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


	Fair Value Measurements as of December 31, 2018 using:									Fair Value Measurements as of December 31, 2022 using:
	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash equivalents:									Cash equivalents:
Money market funds	$	77,737	$	—	$	—	$	77,737	Money market funds	$	31,189	$	—	$	—	$	31,189
Marketable securities:									Marketable securities:
U.S. Treasury notes		—		62,842		—	$	62,842	U.S. Treasury notes	—		49,367		—		49,367
U.S. Government agency bonds		—		2,885		—	$	2,885
U.S. government agency bonds									U.S. government agency bonds	—		10,773		—		10,773
Corporate bonds		—		10,196		—	$	10,196	Corporate bonds	$	—	$	13,773	$	—	13,773
	$	77,737	$	75,923	$	—	$	153,660		$	31,189	$	73,913	$	—	$	105,102

Fair Value Measurements as of December 31, 2017 using:

Level 1

Level 2

Level 3

Total

Cash equivalents:

Money market funds

$
17,409

$
—

$
—

$
17,409

Marketable securities:

U.S. government agency bonds

—

7,262

—

7,262

Corporate bonds

—

33,592

—

33,592

$
17,409

$
40,854

$
—

$
58,263


	Fair Value Measurements as of December 31, 2021 using:
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	20,309	$	—	$	—	$	20,309
Marketable securities:
U.S. Treasury notes	—		77,362		—		77,362
U.S. government agency bonds	—		20,742		—		20,742
	$	20,309	$	98,104	$	—	$	118,413

As of December 31, ~~2018~~2022 and ~~2017,~~2021, the Company’s cash equivalents were invested in money market funds and were valued based on Level 1 inputs. As of December 31, ~~2018 and 2017,~~2022, the Company’s marketable securities consisted of U.S. ~~treasury~~Treasury notes, U.S. government agency bonds and corporate bonds and were valued based on Level 2 inputs. In determining the fair value of its U.S. ~~treasury~~Treasury notes, U.S. government agency bonds and corporate bonds, the Company relied on quoted prices for similar securities in active markets or other inputs that are observable or can be corroborated by observable market data. During the years ended December 31, ~~2018~~2022 and ~~2017,~~2021, there were no transfers between Level 1, Level 2 and Level 3.

5.	~~Property and Equipment, Net~~

F-15

~~Property and equipment, net consisted~~

Table of ~~the following:~~

Contents

Year Ended December 31,

2018

2017

Laboratory equipment

$
2,970

$
2,469

Leasehold improvements

6,531

5,472

Computer equipment

305

133

Furniture and office equipment

1,074

646

Construction in progress

79

13

10,959

8,733

Less: Accumulated depreciation and amortization

(2,733
)

(1,407
)

$
8,226

$
7,326

~~F-17~~

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

5.Property and Equipment, Net

Property and equipment, net consisted of the following:


	Year Ended December 31,
	2022		2021
Laboratory equipment	$	3,982	$	3,653
Leasehold improvements	7,655		7,638
Computer equipment	1,069		702
Furniture and office equipment	1,074		1,074
Construction in process	203		337
	13,983		13,404
Less: Accumulated depreciation and amortization	(9,117)		(7,753)
	$	4,866	$	5,651

For the years ended December 31, ~~2018, 2017,~~2022, 2021, and ~~2016~~2020 depreciation and amortization expense was ~~$1,347, $964,~~$1,368, $1,569, and ~~$331~~$1,670 respectively.

~~During the years ended December 31, 2018~~

6.Prepaid Expenses and 2017, the Company recorded a loss on disposal of property and equipment of $14 and $35, respectively. No gain or loss was recorded on the disposal of property and equipment during the year ended December 31, 2016.

Other Current Assets

6.	~~Prepaid Expenses and Other Current Assets~~

Prepaid expenses and other current assets consisted of the following:

	Year Ended December 31,
	2018		2017			Year Ended December 31,
Prepaid income taxes	$	923	$	6,657
						2022		2021
Prepaid expenses		4,520		1,005	Prepaid expenses	$	4,120	$	2,432
Unbilled receivable					Unbilled receivable	—		518
Interest receivable on marketable securities		323		274	Interest receivable on marketable securities	197		247
	$	5,766	$	7,936		$	4,317	$	3,197

7.	~~Accrued Expenses and Other Current Liabilities~~

7.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	Year Ended December 31,					Year Ended December 31,
	2018		2017			2022		2021
Accrued external research and development costs	$	5,011	$	3,005	Accrued external research and development costs	$	2,219	$	5,316
Amounts due to related party		—		3,437
Accrued payroll and payroll-related costs		2,618		1,955	Accrued payroll and payroll-related costs	5,347		4,180
Accrued professional fees		634		874	Accrued professional fees	502		355
Other		540		572	Other	2,146		3,238
	$	8,803	$	9,843		$	10,214	$	13,089

8.	~~Collaboration Agreement with Novartis~~

~~Overview~~

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

8.Collaboration and License Agreements

Novartis Agreement

In January 2016, the Company entered into a collaboration agreement with Novartis, ~~(the “Collaboration Agreement”),~~ which was subsequently amended in May 2016, July 2017, September 2017, and October 2018 ~~(the “October 2018 Amendment”~~(as amended, the “Novartis Agreement”). Pursuant to the ~~Collaboration~~Novartis Agreement, the Company granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target ~~CD73, along with~~cluster of differentiation 73 ("CD73"). In addition, the Company initially granted Novartis the right to purchase exclusive option rights (each an “Option”) for up to four specified targets (each an “Option Target”) ~~to obtain~~including certain development, manufacturing and commercialization ~~rights.~~rights, pursuant to which, Novartis ~~may~~initially had the right to exercise up to three purchased Options. ~~Under the Collaboration Agreement,~~Accordingly, Novartis ~~initially~~ had the ability to exclusively license the development, manufacturing and ~~manufacturing~~commercial rights for up to four targets (inclusive of CD73). ~~Of these,~~As of December 31, 2022, the Company ~~would retain the U.S. commercial rights to two~~had received an aggregate of such targets. The Collaboration Agreement is governed by a joint steering committee that is co-chaired by a chairperson designated by each of the Company and Novartis. The October 2018 Amendment, among other things, modified certain definitions and provisions of the Collaboration Agreement to make them consistent with the amended and restated development$150,000 from Novartis in upfront payments, milestone payments and option ~~agreement the Company entered into with Adimab LLC in October~~purchase payments. As of January 2020, there were no Options remaining for purchase and ~~clarified the parties’ rights~~exercise, and ~~responsibilities relating to the amended agreement with Adimab LLC and diagnostic products.~~

Novartis is a related party because it is a principal stockholder of the Company. In January 2016, the Company entered into the Collaboration Agreement and sold 2,000,000 shares of its Series A-1 preferred stock to Novartis. In addition, concurrent withaccordingly, the Company’s ~~initial public offering of common stock,~~performance obligations under the ~~Company issued~~ Novartis ~~766,666 shares of its common stock at $15.00 per share for proceeds of $11,500 in a private placement.~~

~~F-18~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

During the year ended December 31, 2018, the Company made a payment of $3,437 to Novartis for the reimbursement of manufacturing costs incurred by Novartis prior to December 31, 2017. During the year ended December 31, 2017, the Company made no cash payments to Novartis related to the Collaboration Agreement.

~~Research on Targets~~

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

~~Development and Commercialization of CD73 Products~~

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

~~Option Targets~~

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

In December 2016, Novartis purchased the Option for antibodies that bind to CD47 for $5,000, and as of December 31, 2017, there were three remaining Options that may be purchased by Novartis. In March 2018, Novartis notified the Company of its decision not to exercise its Option related to CD47. In March 2018, the Company and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. Accordingly, as of December 31, 2018, Novartis had two Options remaining eligible for purchase and potential exercise. In February 2019, Novartis notified the Company of its decision not to purchase the Option related to IL-27 (See Note 19).

~~Development and Commercialization of Regional Licensed Products~~

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

~~F-19~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

~~Development and Commercialization of Global Licensed Products~~

To the extent an exercised Option is designated as global, the Company is primarily responsible for the early clinical development of each global antibody candidate and global licensed product at the Company’s own cost, and Novartis is solely responsible for the later worldwide clinical development of global antibody candidates and global licensed products, pursuant to a development plan for such global licensed product, at its own cost. Novartis is solely responsible for the worldwide commercialization of global licensed products and must use commercially reasonable efforts to commercialize such products, pursuant to a commercialization plan, at its own cost. Novartis agrees to provide the Company with development and commercialization updates regarding global licensed products through the joint steering committee, joint development committee and joint commercialization committee.

~~Exclusivity~~

Neither the Company nor Novartis may, alone or with any affiliate or third party, (i) research or develop any antibody that specifically binds to an Option Target for a specified period of time outside of the Collaboration Agreement or (ii) develop or commercialize any antibody that specifically binds to CD73 or any Option Target that subsequently becomes a licensed target for a specified period of time outside the Collaboration Agreement. The October 2018 Amendment clarified that Novartis is permitted to research, develop, manufacture or commercialize any diagnostic product that specifically binds to a licensed target, subject to Novartis’ compliance with its rights and obligations under the Collaboration Agreement, and provided that where such diagnostic product is an Adimab diagnostic product, Novartis may research, develop, manufacture or commercialize such Adimab diagnostic product solely for the purpose of research, development or commercialization of a therapeutic or prophylactic licensed product that specifically binds to the same licensed target.

~~Financial Terms~~

Upon entering into the Collaboration Agreement in January 2016, Novartis made an upfront payment to the Company of $70,000. In addition, Novartis is obligated to pay the Company a fee to the extent it desires to purchase an Option for any Option Target and another fee to exercise such purchased Option, which entitles the Company to an aggregate of up to $67,500 in option purchase and option exercise payments, of which $5,000 has been received. The Company is also eligible to receive payments on a target-by-target basis upon the achievement of specified development$325,000 and sales milestones of $200,000, as well as tiered royalties on annual net sales by Novartis ~~of licensed products~~ ranging from high single-digit to mid-teens percentages upon the successful commercialization of ~~any products. Under~~NZV930 (formerly SRF373). Due to the ~~Collaboration Agreement,~~uncertainty of pharmaceutical development and the ~~maximum aggregate amount of potential option purchase, option exercise and~~historical failure rates generally associated with drug development, the Company may not receive any milestone payments the Company was entitled to was up to $1,167,500, of which $80,000 had been received as of December 31, 2018. Such amount of potential option purchase, option exercise and milestone payments assumed that Novartis purchased, and exercised, all of the Options available to it pursuant to the Collaboration Agreement as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the Collaboration Agreement. In March 2018, Novartis notified the Company of its decision not to exercise its Option related to CD47. In February 2019, Novartis notified the Company of its decision not to purchase the Option related to IL-27 (See Note 19). The Company is required to pay Novartis tiered royalties ranging from high single-digit to mid-teens percentages on annual net sales by the Company of regional licensed products in the United States. Theor any royalty payments ~~are subject to reduction~~ under ~~specified conditions set forth in~~ the ~~Collaboration~~Novartis Agreement.

Termination

Unless terminated earlier, the ~~Collaboration~~Novartis Agreement will continue in effect until neither the Company nor Novartis is researching, developing, manufacturing or commercializing ~~any antibody candidates or licensed products under the Collaboration Agreement.~~NZV930. Novartis may terminate the ~~Collaboration~~Novartis Agreement ~~on a target-by-target basis~~ for any or no reason upon prior notice to the Company within a specified time period. ~~However, Novartis cannot terminate the Collaboration Agreement with respect to CD73 for a certain period of time following the effective date.~~ Either party may terminate the ~~Collaboration~~Novartis Agreement in full ~~or on a target-by-target basis,~~ if an undisputed material breach is not cured within a certain period of time or upon notice of insolvency of the other party. To the extent Novartis terminates for convenience, or the Company terminates for ~~the Company’s~~Novartis’ uncured material breach, ~~or insolvency,~~ Novartis will grant the Company, on mutually agreeable financial terms, an exclusive, worldwide, irrevocable, perpetual and royalty-bearing license with respect to intellectual property controlled by Novartis that is reasonably necessary to research, develop, manufacture or commercialize ~~certain products.~~

~~F-20~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

NZV930.

Revenue Recognition - Collaboration Revenue – Related ~~to theCollaboration Agreement~~

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

~~Accounting under ASC 605~~

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

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

~~Accounting under ASC 606~~

Party

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

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

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

F-17

~~In February 2018, the Company received an additional milestone payment~~Table of $45,000 from Novartis upon Novartis’ receipt and acceptance of the first final audited GLP toxicology study report for NZV930 (formerly SRF373). Upon achieving the milestone, the Company concluded this variable consideration associated with this milestone was no longer constrained and included the $45,000 in the transaction price. The Company recognized $27,850 as collaboration revenue – related party in the twelve months ended December 31, 2018, based on the ratio of actual costs incurred as of the milestone achievement date to the total estimated costs with respect to performing research on antibodies that bind to CD73 and other specified targets under the Collaboration Agreement. The remaining unrecognized amount of $17,150 is recorded as deferred revenue – related party as of December 31, 2018 and will subsequently be recognized as revenue over the performance period in proportion to the costs incurred under the Collaboration Agreement.

~~F-21~~

Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

In ~~March 2018,~~January 2020, Novartis ~~notified the Company of its decision~~did not topurchase and exercise its ~~option related to CD47. The Company recognized the $5,000 exclusive option right payment as collaboration revenue – related party in the first quarter of 2018 because the Company no longer has any~~single remaining ~~performance obligations related to CD47.~~

~~In March 2018, the Company and Novartis elected to terminate a specified target~~Option under the ~~Collaboration Agreement.~~Novartis Agreement and, as a result, the option purchase period expired. Future costs associated with this target were removed from the estimated total costs in the cost-to-cost model.

This resulted in the Company recognizing the remaining deferred revenue of $38,592 to collaboration revenue - related party in January 2020.

For the years ended December 31, ~~2018, 2017,~~2022, 2021, and ~~2016,~~2020, the Company recognized the following totals of collaboration revenue – related party:

Year Ended December 31,

2018

2017

2016

Collaboration revenue - related party

$
59,417

$
12,826

$
6,632


	Year Ended December 31,
	2022		2021		2020
Collaboration revenue - related party	$	—	$	—	$	38,592

~~The following table presents changes~~

As there are no Options remaining eligible for purchase and exercise, the Company's performance obligations under the Novartis Agreement have ended.

GSK Agreement

In December 2020, the Company entered into a license agreement with GSK, which was subsequently amended in August 2021 (as amended, the “GSK Agreement”). Pursuant to the GSK Agreement, the Company granted GSK a worldwide exclusive, sublicensable license to develop, manufacture and commercialize antibodies that target the antibody GSK4381562 (formerly SRF813), targeting CD112R, also known as PVRIG (the “Licensed Antibodies”). GSK is responsible for the development, manufacturing and commercialization of the Licensed Antibodies and a joint development committee was formed to facilitate information sharing between the Company and GSK. GSK is responsible for all costs and expenses of such development, manufacturing and commercialization and is obligated to provide the Company with updates on its development, manufacturing and commercialization activities through the joint development committee. Under the terms of the GSK Agreement, GSK made a one-time upfront payment of $85,000 and was required to make additional payments to the Company for supply services and transition services initially estimated to be $4,314 and $950, respectively. In November 2021, GSK notified the Company it received clearance from the FDA for GSK4381562 to proceed into a first-in-human clinical trial, and as a result, the Company’s performance obligations under the GSK Agreement ended. In March 2022, the Company earned a $30,000 milestone payment from GSK upon the dosing of the first patient in the ~~Company’s contract liabilities during the twelve months ended December 31, 2018 (in thousands):~~

December 31, 2017

Additions

Deductions

December 31, 2018

Contract Liabilities (1)

Total deferred revenue - related party

$
82,105

45,000

$
(73,153
)

$
53,952

~~(1)~~

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

~~During the year ended December 31, 2018,~~Phase 1 trial of GSK4381562. The Company is eligible to receive up to $60,000 in additional clinical milestones and $155,000 in regulatory milestones. In addition, the Company ~~recognized~~ ~~$26,568~~ may receive up to $485,000 in sales milestone payments. The Company is also eligible to receive royalties on global net sales of ~~revenue~~any approved products based on the licensed antibodies, ranging in percentages from high single digits to mid-teens. Due to the uncertainty of pharmaceutical development and the historical failure rates generally associated with drug development, the Company may not receive any milestone payments or any royalty payments under the GSK Agreement.

Termination

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

Revenue Recognition –License-Related Revenue

In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in ~~contract liability balance at~~ the ~~beginning~~contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the ~~period. The aggregate amount~~contract; (iii) measurement of the transaction price, ~~allocated~~including the constraint on variable consideration; (iv) allocation of the transaction price to the ~~single~~ performance ~~obligation that are partially unsatisfied was~~ ~~$53,952.~~

~~The~~obligations; and (v) recognition of revenue when (or as) the Company considers the total consideration expected to be earned in the next twelve months for services to be performed as current deferred revenue-related party, and consideration that is expected to be earned subsequent to twelve months from the balance sheet date as noncurrent deferred revenue-related party.

satisfies each performance obligation.

9.	~~Redeemable Convertible Preferred Stock~~

F-18

~~The Company has authorized redeemable convertible preferred stock amounting to 37,100,000 shares as~~

Table of December 31, 2017. The Company’s redeemable convertible preferred stock (“Preferred Stock”) has been classified as temporary equity on the accompanying balance sheets instead of in stockholders’ equity (deficit) in accordance with authoritative guidance for the classification and measurement of redeemable securities as the redeemable convertible preferred stock is redeemable at the option of the holder after the redemption date.

On April 23, 2018, upon the closing of the Company’s initial public offering, all shares of the Redeemable Convertible Preferred Stock automatically converted into 16,863,624 shares of common stock. See Note 10 “Stockholders’ Equity (Deficit)”. There are no shares of redeemable convertible preferred stock authorization or outstanding as of December 31, 2018.

~~The holders of the Redeemable Convertible Preferred Stock had the following rights and preferences:~~

~~Voting Rights~~

The holders of Redeemable Convertible Preferred Stock were entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote and have the right to vote the number of shares equal to the number of shares of common stock into which such Redeemable Convertible Preferred Stock could convert on the record date for determination of stockholders entitled to vote. The holders of Redeemable Convertible Preferred Stock, exclusively and as a separate class, were entitled to elect four directors of the Company.

~~F-22~~

Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~Dividends~~

~~The holders of Redeemable Convertible Preferred Stock were entitled to receive noncumulative dividends when and if declared by the board of directors.~~

The Company ~~may not declare or pay any dividends~~assessed the GSK Agreement in accordance with ASC 606 and concluded that GSK is a customer. The Company identified the following promises under the contract: (i) a worldwide exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supplying Licensed Antibodies until an investigational new drug ("IND") application is accepted by a regulatory authority (iii) transition services until an IND application is accepted by a regulatory authority; and (iv) participation on ~~shares of any~~the joint development and joint patent committees. The Company assessed the above promises and determined that the worldwide exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies is considered functional intellectual property and distinct from other ~~class or series of capital stock~~promises under the contract. This functional license is distinct in the context of the GSK Agreement as GSK can benefit from the license on its own or together with other readily available resources. In addition, the supply and transition services are not complex or specialized, could be performed by another qualified third party, are not expected to significantly modify or customize the license to GSK4381562, and are expected to be performed only for a short period of time. The Company ~~unless~~determined that the ~~holders~~impact of participation on the joint development and joint patent committees was insignificant and had an immaterial impact on the accounting model. Based on these assessments, the Company identified three distinct performance obligations at the outset of the ~~Redeemable Convertible Preferred Stock then outstanding first receive a dividend on each outstanding share~~GSK Agreement.

The Company determined the transaction price of ~~Redeemable Convertible Preferred Stock in an amount at least equal~~the GSK Agreement, under ASC 606 to ~~(i)~~be $90,286, consisting of the upfront payment of $85,000 plus $4,524 for supply of the Licensed Antibodies and $762 for the transition services. The Company evaluated how much variable consideration related to clinical and regulatory milestones to include in the ~~case~~transaction price using the most likely amount approach and concluded that no amount should be included in the transaction price due to the high degree of uncertainty and risk associated with these potential payments. The Company also determined that royalties and sales milestones relate solely to the licenses of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606. Revenue related to these royalties and sales milestones will only be recognized when the associated sales occur, and relevant thresholds are met.

As noted above, the Company identified three performance obligations in the GSK Agreement: (i) the delivery of the worldwide exclusive, sublicensable license to develop, manufacture and commercialize the Licensed Antibodies; (ii) supply of Licensed Antibodies until an IND is accepted by a ~~dividend on common stock or any class or series of stock that~~regulatory authority; and (iii) transition services until an IND application is convertible into common stock, that dividend per share of Redeemable Convertible Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversionaccepted by a regulatory authority. The selling price of each ~~share of Redeemable Convertible Preferred Stock, or (ii)~~performance obligation in the ~~case~~GSK Agreement was determined based on the Company’s standalone selling price with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a ~~dividend~~standalone basis. The Company recognized revenue for the license performance obligation upon transfer of the license to GSK. As control of the license was transferred on ~~any class~~the effective date of December 16, 2020 and GSK could begin to use and benefit from the license, the Company recognized $85,000 of license-related revenue during the year ended December 31, 2020. The Company recognized the costs allocated to supply services and transition services over time as the Company transferred control of these services and GSK received and consumed the benefit as the Company performed the services. The Company re-evaluated the transaction price at the end of each reporting period and as uncertain events were resolved, or ~~series~~other changes in circumstances occurred adjusted its estimate of the transaction price as necessary.

In November 2021, GSK notified the Company it received clearance from the FDA for GSK4381562 to proceed into a first-in-human clinical trial and, as a result, the Company's performance obligations under the GSK Agreement ended. The transition and supply services were completed in November 2021.

In March 2022, GSK notified the Company it had dosed the first patient in its Phase 1 study of GSK4381562 in patients with solid tumors. As a result of this Phase 1 study initiation, the first clinical milestone under the GSK Agreement was achieved. The Company concluded the variable consideration associated with this milestone was no longer constrained and recognized $30,000 in license-related revenue for the year ended December 31, 2022, as it had no further performance obligations associated with the milestone.

For the year ended December 31, 2021, the Company recognized $1,954 of license-related revenue for supply services and $733 of license-related revenue related to the transition services. For the year ended December 31, 2020, the Company recognized $2,570 of license-related revenue for supply services, which represented the costs incurred associated with the portion of goods that ~~is not convertible into common stock, at a rate per share~~were immediately transferred upon execution of ~~Redeemable Convertible Preferred Stock determined by (A) dividing~~ the GSK Agreement. An immaterial amount of the ~~dividend payable on each share of such class or series of capital stock by the Original Issue Price (as specified below) of such class or series of capital stock (subject to appropriate adjustment~~transition services was performed in the event of any stock dividend, stock split, combination of or other similar recapitalization affecting such shares) and (B) multiplying such fraction by an amount equal to the Original Issue Price of each series of Redeemable Convertible Preferred Stock. If the Company declares or pays on the same date a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of the Redeemable Convertible Preferred Stock will be calculated based upon the dividend on the class or series of capital stock that would result in the highest Redeemable Convertible Preferred Stock dividend. No dividends have been declared or paid by the Company throughyear ended December 31, ~~2018.~~

~~The Original Issue Price~~2020.

F-19

Table of Series A preferred stock is $1.00 per share, and the Original Issue Price of Series A-1 preferred stock is $6.75 per share, each subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Redeemable Convertible Preferred Stock.

~~Liquidation Preference~~

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event (as defined below), holders of Redeemable Convertible Preferred Stock were entitled to receive, prior and in preference to any distributions to the holders of common stock, an amount per share equal to (i) in the case of Series A-1 preferred stock, the greater of (A) the Series A-1 preferred stock Original Issue Price, plus any dividends declared but unpaid thereon, or (B) such amount per share as would have been payable had all shares of Series A-1 Preferred Stock been converted into common stock and (ii) in the case of the Series A preferred stock, the Series A preferred stock Original Issue Price, plus any dividends declared but unpaid thereon. In the event that proceeds are not sufficient to permit payment in full to the holders of the Redeemable Convertible Preferred Stock, the proceeds will be ratably distributed among the holders of Redeemable Convertible Preferred Stock on a ~~pari passu~~ basis. After payments have been made in full to the holders of Redeemable Convertible Preferred Stock, then, to the extent available, the remaining assets of the Company available for distribution to its stockholders will be distributed among the holders of Redeemable Convertible Preferred Stock and common stock pro rata based on the number of shares held by each holder, treating all securities as if they had been converted into common stock prior to any dissolution, liquidation or winding up of the Company or Deemed Liquidation Event.

Unless the holders of at least 61% of the then outstanding shares of the Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis, elect otherwise, a Deemed Liquidation Event includes a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company.

~~Conversion~~

Shares of Series A and A-1 Redeemable Convertible Preferred Stock were convertible into common stock on a 2.2-for-one basis. Conversion was at the option of the holder at any time, although was automatic upon the earlier of (i) the closing of a firm commitment underwritten public offering with a price of at least 300% of the Series A preferred stock Original Issue Price per share resulting in proceeds of not less than $35,000, net of underwriting discounts and commissions, or (ii) upon the vote or written consent of the holders of at least 61% of the outstanding shares of the Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis.

~~F-23~~

Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~Redemption Rights~~

For the ~~written election~~years ended December 31, 2022, 2021, and 2020, the Company recognized the following totals of at least 61% of the holders of the outstanding Redeemable Convertible Preferred Stock, voting together as a single class on an as-converted to common stock basis, the shares of Redeemable Convertible Preferred Stock outstanding were redeemable at any time on or after January 8, 2020 in three equal annual installments commencing 60 days after receipt of the required vote, in an amount equal to the Original Issue Price per share of each series of Redeemable Convertible Preferred Stock, plus all declared but unpaid dividends.

The carrying value of the Redeemable Convertible Preferred Stock was being accreted to its redemption value through January 8, 2020. Such accretion amounts relate solely to the original issuance costs of the Redeemable Convertible Preferred Stock.

license-related revenue:

~~10.~~

~~Stockholders’ Equity (Deficit)~~


	Year Ended December 31,
	2022		2021		2020
License-related revenue	$	30,000	$	2,687	$	87,570

9.Stockholders’ Equity

Common Stock

As of December 31, ~~2018~~2022 and ~~2017,~~2021, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 ~~and 53,000,000~~ shares ~~respectively,~~ of $0.0001 par value common stock.

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

2022.

As of December 31, ~~2018~~2022 and ~~2017,~~2021, the Company had reserved ~~6,083,202~~23,936,163 and ~~20,703,575~~32,934,776 shares, respectively, of common stock for the ~~conversion of the outstanding shares of Redeemable Convertible Preferred Stock, the~~ exercise of outstanding stock options, the vesting of restricted stock units, shares to be issued under the 2021 ATM Facility, shares to be issued upon the conversion of the Loan Agreement, as amended (defined below), and the number of shares remaining available for future grant under the Company’s ~~2014 Stock Incentive Plan, the Company’s~~ 2018 Stock Option and Incentive Plan, 2021 Inducement Plan and ~~the Company’s~~ 2018 Employee Stock Purchase Plan.

Reserved for future issuance

The Company has reserved for future issuance the following number of shares of common stock:

As of December 31,

2018

2017

Options to purchase common stock

4,414,225

3,106,891

Shares available for future grant

1,412,159

733,060

2018 Employee Stock Purchase Plan

256,818

—

Conversion of preferred stock

—

16,863,624

Total reserved

6,083,202

20,703,575


	As of December 31,
	2022	2021
Options to purchase common stock - 2018 Plan	8,233,330	7,057,258
Shares available for future grant - 2018 Plan	806,429	783,873
Options to purchase common stock - Inducement Plan	210,400	—
Shares available for future grant - Inducement Plan	389,600	—
RSU's issued and expecting to vest	385,980	—
2018 Employee Stock Purchase Plan	1,405,755	1,084,476
Shares available for conversion of note payable	2,506,306	832,677
Shares available for ATM offering	9,998,363	23,176,492
Total reserved	23,936,163	32,934,776

~~On April 23, 2018,~~

In August 2021, the Company ~~completed its initial public offering~~entered into the Amended Sales Agreement with JonesTrading, which amended the 2020 Sales Agreement to issue and sell up to $80,000 in shares of ~~its~~the Company's common stock ~~by issuing 7,200,000~~from time to time. As of December 31, 2022, the Company has sold 14,611,756 shares of common stock ~~at $15.00 per share~~at-the-market under the 2021 ATM Facility for ~~gross proceeds of $108,000, or~~ net proceeds of ~~$97,209. Concurrent with the initial public offering,~~$41,421.

In May 2020, the Company ~~issued Novartis 766,666~~entered into the 2020 Sales Agreement with JonesTrading to issue and sell shares up to $50,000 in shares of ~~its~~the Company's common stock ~~at $15.00 per share~~from time to time. As of December 31, 2022, the Company has sold 2,303,545 shares of common stock at-the-market under the 2020 ATM Facility for net proceeds of ~~$11,500, in a private placement.~~

~~F-24~~

$19,479. As of August 2021, the Company had closed the 2020 ATM Facility.

F-20

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~11.~~

~~Stock-Based Awards~~

10.Stock-Based Awards

2014 Stock Incentive Plan

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

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

As of December 31, ~~2018~~2022 and 2021 all remaining shares available under the 2014 Plan were transferred to the 2018 Plan. ~~As of December 31, 2017, 733,060 shares were available for future issuance under the 2014 Plan.~~

2018 Stock Option and Incentive Plan

On April 3, 2018, the Company’s stockholders approved the 2018 Stock Option and Incentive Plan (the “2018 Plan”), which became effective on April 18, 2018, the date on which the registration statement for the Company’s initial public offering was declared effective. The 2018 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, non-employee directors and other key persons (including consultants). The number of shares initially reserved for issuance under the 2018 Plan iswas 1,545,454, plus the shares of common stock remaining available for issuance under the 2014 Plan, which shall be cumulatively increased on ~~January 1, 2019 and~~ each January 1 ~~thereafter~~ by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2018 Plan and the 2014 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.

As of December 31, ~~2018, 1,412,159~~2022 and 2021, 806,429 shares and 783,873 shares were available for future issuance under the 2018 ~~Plan.~~

Plan, respectively.

Stock options granted under the 2014 Plan and 2018 Plan to employees generally vest over four years and expire after ten years. The Company does not currently hold any treasury shares. Upon stock option exercise, the Company issues new shares and delivers them to the participant.

~~F-25~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

Stock Option Valuation

The assumptions that the Company used to determine the fair value of the stock options granted to employees and directors were as follows, presented on a weighted average basis:


	Year Ended December 31,										Year Ended December 31,
	2018			2017			2016				2022		2021		2020
Risk-free interest rate		2.67	%		2.04	%		1.73	%	Risk-free interest rate	1.94	%	0.89	%	1.29	%
Expected term (in years)		6.18			6.25			6.25		Expected term (in years)	5.96		5.96		5.99
Expected volatility		72.70	%		78.60	%		76.39	%	Expected volatility	76.79	%	83.87	%	71.34	%
Expected dividend yield		0.0	%		0.0	%		0.0	%	Expected dividend yield	—	%	—	%	—	%

F-21

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Stock Options

The following table summarizes the Company’s stock option activity for the year ended December 31, ~~2018:~~

2022:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

(in years)

Outstanding as of December 31, 2017

3,106,891

$
3.68

8.69

$
14,361

Granted

1,794,198

11.25

Exercised

(272,895
)

1.71

Forfeited

(213,969
)

5.47

Outstanding as of December 31, 2018

4,414,225

$
6.79

8.29

$
2,031

Options exercisable at December 31, 2018

1,751,546

$
4.51

7.59

$
1,743

Vested and expected to vest at December 31, 2018

4,414,225

$
6.79

8.29

$
2,031


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

	(in years)
Outstanding as of December 31, 2021	7,057,258	$	6.59	6.98	$	4,678
Granted	2,112,300	3.42
Exercised	(9,343)	1.18
Forfeited	(926,885)	6.95
Outstanding as of December 31, 2022	8,233,330	$	5.74	6.68	$	159
Options exercisable at December 31, 2022	5,622,263	$	5.98	5.75	$	159
Vested and expected to vest at December 31, 2022	8,233,330	$	5.74	6.68	$	159

The weighted average grant-date fair value per share of stock options granted during the years ended December 31, ~~2018~~2022 and ~~2017,~~2021, was ~~$7.47~~$2.28 and ~~$3.72,~~$6.41, respectively.

The aggregate fair value of stock options vested during the years ended December 31, ~~2018~~2022 and ~~2017,~~2021, was ~~$4,493~~$7,193 and ~~$2,828,~~$10,864, respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, ~~2018, 2017,~~2022, 2021, and ~~2016~~2020 was $7, $1,887, ~~$1,876,~~ and ~~$46~~$735 respectively.

As of December 31, ~~2018,~~2022, and ~~2017,~~2021, there were outstanding stock options held by non-employees for the purchase of ~~317,957~~260,570 and ~~369,645~~276,570 shares of common stock, respectively, with service-based vesting conditions.

~~Restricted Common Stock~~

~~The~~

2021 Inducement Plan

In December 2021, the Company ~~has granted restricted~~adopted the Company’s 2021 Inducement Plan (the “Inducement Plan”) pursuant to which the Company reserved 600,000 shares of common stock ~~with service-based vesting conditions. The purchase price~~to be used exclusively for grants of equity-based awards to individuals who were not previously employees or directors of the ~~restricted common stock is determined by the Company’s board of directors. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according~~Company, as an inducement material to the ~~service-based vesting conditions of each award. The Company has the option to repurchase the restricted stock at the original purchase price if the grantee terminates its working relationship~~individual’s entry into employment with the Company ~~prior~~within the meaning of Rule 5635(c)(4)) of the Marketplace Rules of the Nasdaq Stock Market, Inc. The Inducement Plan provides for the grant of equity-based awards in the form of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, unrestricted stock awards, and dividend equivalent rights. The Inducement Plan was adopted by the Company without stockholder approval pursuant to Rule 5635(c)(4) of the ~~stock becoming vested.~~

~~F-26~~

Marketplace Rules of the Nasdaq Stock Market, Inc.

F-22

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

In May 2015, the Company issued to an executive officer 350,073 shares of restricted common stock, which are restricted as to sale or transferability until vested, over a four-year vesting period. As consideration for the award, the executive officer made an upfront cash payment of $62 and issued to the Company a promissory note for $62, which bore interest at a rate of 1.53% per annum and was due and payable in May 2020, unless earlier due upon specified events. At that time, the Company concluded that the promissory note was a recourse note with respect to half of the amount, or $31, and was a non-recourse note for the remaining amount.

Upon issuance of the award, the Company recorded the $62 of upfront cash received as a liability in the consolidated balance sheet as it represented a deposit for the exercise price. The deposit liability is reclassified to additional paid-in capital over vesting term of the award as the restrictions of the award lapse. The Company determined upon issuance that the non-recourse portion of the note of $31 was not substantive and, as a result, the amount is being recognized as stock-based compensation expense over the vesting term of the award. The recourse portion of the note of $31 was recorded as a note receivable from officer within stockholders’ deficit in the accompanying consolidated balance sheet. In October 2017, the promissory note was repaid in full by the executive officer.

The following table summarizes the Company’s ~~restricted~~ stock option under the Inducement Plan activity ~~for~~since December 31, 2021:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

	(in years)
Outstanding as of December 31, 2021	—	$	—	0	$	—
Granted	371,600	2.66
Exercised	—	—
Forfeited	(161,200)	2.73
Outstanding as of December 31, 2022	210,400	$	2.61	9.36	$	—
Options exercisable at December 31, 2022	—	$	—	0	$	—
Vested and expected to vest at December 31, 2022	210,400	$	2.61	9.36	$	—

The weighted average grant-date fair value per share of stock options granted under the Inducement Plan during the year ended December 31, ~~2018:~~

Number of
Shares

Weighted
Average
Grant-Date
Fair Value

Unvested restricted common stock as of December 31, 2017

84,666

$
0.42

Issued

—

Vested

(67,731
)

0.44

Forfeited and repurchased

(16,935
)

Unvested restricted common stock as of December 31, 2018

—

$
—

~~The aggregate intrinsic value~~2022 was $1.80. As of ~~restricted stock awards that vested during the years ended~~ December 31, ~~2018 and 2017,~~2022, 389,600 shares were ~~$810 and $1,834, respectively.~~

available for future issuance under the Inducement Plan.

2018 Employee Stock Purchase Plan

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

As of December 31, 2022, a total of 1,405,755 shares of common stock were reserved for issuance under this plan.

For the years ended December 31, 2022 and 2021, the Company issued 148,308 and 46,899 shares of common stock, respectively, under the ESPP.

Restricted Stock Units

The Company has granted restricted stock units ("RSUs") with service-based vesting conditions. RSUs represent the right to receive shares of common stock upon meeting specified vesting requirements. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according to the service-based vesting conditions of each award.

The table below summarizes the Company’s restricted stock unit activity since December 31, 2021:


	Number of Shares	Weighted Average Grant-Date Fair Value
Unvested restricted stock units as of December 31, 2021	—	$	—
Granted	732,000	3.64
Vested	(284,400)	3.64
Forfeited	(61,620)	3.64
Unvested restricted stock units as of December 31, 2022	385,980	$	3.64

The expense related to RSUs granted to employees was $1,620, $1,103 and $2,097 for the years ended December 31, 2022, 2021 and 2020. The aggregate intrinsic value of RSUs vested in the year ended December 31, 2022 was $466.

F-23

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

At December 31, 2022, there was $820 unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over the remaining weighted-average vesting period of 0.58 years.

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options, ~~and~~ restricted stock awards, and the ESPP in the following expense categories of its statements of operations and comprehensive loss:

Year Ended December 31,

2018

2017

2016

Research and development expenses

$
2,557

$
1,917

$
852

General and administrative expenses

2,660

2,792

493

$
5,217

$
4,709

$
1,345


	Year Ended December 31,
	2022		2021		2020
Research and development expenses	$	2,630	$	2,431	$	2,826
General and administrative expenses	4,593		6,115		4,939
	$	7,223	$	8,546	$	7,765

As of December 31, ~~2018,~~2022, the Company had an aggregate of ~~$13,993~~$10,198 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of ~~2.89~~1.58 years.

~~F-27~~

11.Debt

On November 22, 2019, the Company entered into a loan and security agreement (the “Loan Agreement”) with K2 HealthVentures LLC (the “Lender” or "K2HV"). The Lender agreed to make available to the Company term loans in an aggregate principal amount of up to $25,000 under the Loan Agreement. On October 1, 2021, the Company entered into a first amendment to the Loan Agreement with the Lender (as amended, the “First Loan Amendment”). On September 21, 2022, the Company entered into a second amendment to the Loan Agreement. with the Lender (as further amended, the “Second Loan Amendment”). The Company plans to use the proceeds of the term loans to support clinical development as well as for working capital and general corporate purposes.

The Loan Agreement provided for a term loan commitment of $25,000 in three potential tranches: (i) a $7,500 term loan facility funded on November 22, 2019 (the “First Tranche Term Loan”), (ii) a $10,000 term loan facility funded on June 5, 2020 (the “Second Tranche Term Loan”), and (iii) a $7,500 term loan facility (the “Third Tranche Term Loan”). All three of these term loans had a maturity date of December 1, 2023.

The Company was obligated to pay a final fee equal to 4.45% of the aggregate amount of the term loans funded, such payment to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans.

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

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

In August 2020, the Lender elected to convert $2,000 of the outstanding term loan amount into 1,282,050 shares of the Company's common stock, in accordance with the Loan Agreement. In February 2021, the Lender elected to convert $1,500 of the outstanding term loan amount into 961,538 shares of the Company's common stock, in accordance with the Loan Agreement. After the conversions, the outstanding principal balance was $14,000.

F-24

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~12.~~

~~Net Loss per Share~~

In October 2021, the Loan Agreement was amended. Under the First Loan Amendment, the Lender made available to the Company term loans in an aggregate principal amount of up to $50,000, in three potential tranches: (i) a $25,000 term loan facility (including refinancing of the Company’s outstanding amounts under the Loan Agreement) funded on October 1, 2021 (the "First Tranche Refinancing Term Loan"), (ii) up to a $15,000 term loan facility (the "Second Tranche Refinancing Term Loan"), and (iii) an up to $10,000 term loan facility (the "Third Tranche Refinancing Term Loan") (together the "Refinancing Term Loans"). All three of these tranches have a maturity date of October 1, 2025.

Borrowings under all three tranches of the term loan facility bear interest at a floating per annum rate equal to the greater of (i) 8.50% and (ii) the sum of (A) the greater of (x) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) or (y) 3.25%, plus (B) 5.25%. As of December 31, 2022, the interest rate was increased to 12.75%. Under the First Loan Amendment, the Company is permitted to make interest-only payments on the outstanding principal balance of the term loan for approximately eighteen months following the funding date. The interest-only period could have been extended by an additional nine months, subject to the Company raising net cash proceeds from financing activities (including without limitation sales of the Company's securities and up-front or milestone payments pursuant to existing or new strategic partnerships), in an aggregate amount of at least $100,000. The term of the loan facility is 48 months, with repayment in monthly installments commencing at the end of the resulting interest-only period as outlined above through the end of the 48-month term.

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

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

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

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

The First Loan Amendment was accounted for as a debt modification; as such, the financing costs of $313 were reflected as additional debt discount and is amortized as an adjustment to interest expense over the term of the First Loan Amendment.

In September 2022, the Company entered into the Second Loan Amendment. Under the Second Loan Amendment, the loan facility continues to carry a 48-month term with interest only payments extended for ten months, ending on February 1, 2024. In addition, the Lender may, at its option, elect to convert any portion of no more than $4,500 of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of the Company’s common stock at a conversion price of (i) with respect to the first $500 converted, $1.56 per share and (ii) with respect to any additional amounts converted in excess of $500, $1.83 per share. The effective interest rate of the term loan as of December 31, 2022 is 15.47%.

The Second Loan Amendment was accounted for as a debt modification. The financing costs were immaterial. The Company recorded interest expense related to the loan facility of $3,146, $2,546, and $2,745 for the years ended December 31, 2022, 2021 and 2020, respectively. The fair value of the loan at December 31, 2022 approximates its face amount.

F-25

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Future principal debt payments on the loan payable are as follows (in thousands):


	December 31, 2022
2023	$	—
2024	12,367
2025	12,633
Total principal payments	25,000
Final fee due in 2023	779
Final fee due at maturity in 2025	1,063
Total principal payments and final fee	26,842
Unamortized debt discount and final fee	1,257
Note payable	$	25,585

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

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

Year Ended December 31,

2018

2017

2016

Basic and diluted net loss per share attributable to common stockholders:

Numerator:

Net loss

$
(6,597
)

$
(45,377
)

$
(17,453
)
Accretion of redeemable convertible preferred stock to
redemption value

(11
)

(40
)

(41
)
Net loss attributable to common stockholders

$
(6,608
)

$
(45,417
)

$
(17,494
)
Denominator:

Weighted average commons shares outstanding—basic and diluted

19,990,773

2,474,800

2,393,909

Net loss per share attributable to common stockholders—basic
and diluted

$
(0.33
)

$
(18.35
)

$
(7.31
)


	Year Ended December 31,
	2022		2021		2020

Basic net income (loss) per share:
Numerator:
Net income (loss)	$	(63,586)	$	(78,485)	$	59,337
Denominator:
Weighted average commons shares outstanding—basic	55,761,386		44,243,317		35,545,121
Net income (loss) per share—basic	$	(1.14)	$	(1.77)	$	1.67

Diluted net income (loss) per share:
Numerator:
Net income (loss) - basic	$	(63,586)	$	(78,485)	$	59,337
Interest expense on convertible note payable	—		—		395
Net income (loss) - diluted	$	(63,586)	$	(78,485)	$	59,732
Denominator:
Weighted average commons shares outstanding—basic	55,761,386		44,243,317		35,545,121
Shares issuable upon conversion of convertible notes, as if converted	—		—		1,282,052
Dilutive effect of restricted stock units	—		—		557,402
Dilutive effect of common stock equivalents	—		—		757,218
Weighted average commons shares outstanding—diluted	55,761,386		44,243,317		38,141,793
Net income (loss) per share—diluted	$	(1.14)	$	(1.77)	$	1.57

The Company’s potential dilutive securities ~~which include stock options, unvested restricted common stock and redeemable convertible preferred stock,~~ have been excluded from the computation of diluted net loss per share ~~attributable to common stockholders whenever~~for the years ended December 31, 2022 and 2021, as the effect ~~of including them~~ would be to reduce the net loss per share. ~~In periods where there is a net loss,~~Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, ~~were excluded~~ from the ~~calculation~~computation of diluted net loss per share attributable to common stockholders for the periods indicated above because including them would have had an anti-dilutive effect:

Year Ended December 31,

2018

2017

Redeemable convertible preferred stock (as converted to common stock)

—

16,863,624

Outstanding options to purchase common stock

4,414,225

3,106,891

Unvested Restricted Stock

—

84,666

4,414,225

20,055,181

~~13.~~

~~License Agreements~~

F-26

~~H2L2 License Agreement~~

In April 2014, the Company entered into a license agreement with Harbour Antibodies H2L2 BV (“H2L2”). Pursuant to the H2L2 agreement, H2L2 granted the Company a worldwide, non-exclusive license under H2L2’s technology to (i) make, use, manufacture, import and export (but not sell) H2L2 mice, which are capable

Table of generating fully human antibodies, for research, development, clinical and manufacturing purposes and (ii) to make, use, sell, offer for sale, import and export antibodies discovered or generated using H2L2 technology, and products incorporating such antibodies. Such licenses are sublicensable only to the Company’s affiliates or third-party contractors, other than in the case of the license to sell antibody products, which the Company may license to any third party.

Under the agreement, the Company is obligated to pay to H2L2 a low five-digit dollar amount as an upfront license fee for each antibody program that it initiates using the H2L2 mice. In addition, the Company may be obligated to pay up to an aggregate of $1,035 in milestone payments to H2L2 if it develops an antibody product through Phase 3 clinical trials and regulatory approval. The Company is required to pay H2L2 a one-time sales performance payment of a low seven-digit dollar amount for each antibody product that is commercialized and achieves worldwide gross sales in excess of a low eight-digit dollar amount. If the Company enters into an agreement with a third party to further research or commercialize an antibody product developed under the H2L2 agreement, then the Company is obligated to pay H2L2 a one-time payment of the lesser of (i) a low double-digit percentage of the upfront fee paid to the Company by the third party or (ii) a low six-digit dollar amount.

~~F-28~~

Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Unless earlier terminated, the H2L2 agreement will expire in April 2019. Either party may terminate this agreement upon an uncured material breach by the other party. The Company may also terminate the agreement at will upon providing prior written notice to H2L2.

During the years ended December 31, 2018 and 2017, the Company did not recognize any research and development expense under the agreement. During the year ended December 31, 2016, the Company recognized research and development expense under the agreement of $270.

~~Harbour~~


	Year Ended December 31,
	2022	2021
Stock Options to purchase common stock - 2018 Plan	8,233,330	7,057,258
Stock Options to purchase common stock - Inducement Plan	210,400	—
Shares to be issued under the ESPP	1,405,755	1,084,476
RSUs issued and expected to vest	385,980	—
Shares available from conversion of note payable	2,506,306	832,677

13.License ~~Agreement~~

In September 2015, the Company entered into an exclusive license agreement with Harbour Antibodies B.V. (“Harbour”) to receive an exclusive license to Harbour’s materials and patent rights directed to CD47. Pursuant to the agreement, Harbour granted to the Company a worldwide, royalty-bearing exclusive license, with the right to sublicense, to exploit products that incorporate Harbour’s materials or that would infringe Harbour’s patent rights. The Company is obligated to use commercially reasonable efforts to develop and commercialize such licensed products.

In consideration for the license, the Company paid Harbour a one-time upfront payment of $125 and is required to pay a nominal annual maintenance fee during the term of the agreement. In addition, the Company is obligated to pay up to an aggregate of $4,750 upon the achievement of specified development and commercial milestones for each product licensed under the agreement. In March 2018, the Company paid Harbour a $200 milestone payment due upon the dosing of the first patient in the Company’s SRF231 Phase 1 trial. The Company is also obligated pay Harbour royalties of a low single-digit percentage on the worldwide net sales of any licensed product on a country-by-country basis.

The Harbour CD47 exclusive license agreement will expire on the last to expire royalty term on licensed product-by-licensed product basis, unless terminated earlier by the parties. The Company may terminate the agreement for any reason on with proper prior notice to Harbour. Harbour may terminate if the Company fails to pay an amount due after Harbour provides the Company written notice or upon the Company’s uncured material breach, subject to completion of a dispute resolution process and subsequent cure.

~~During the years ended December 31, 2018, 2017, and 2016, the Company recognized research and development expense under the agreement of $203, $10, and 60, respectively.~~

Agreements

Adimab Development and Option Agreement

In October 2018, the Company and Adimab LLC (“Adimab”), entered into an amended and restated development and option agreement, (“the A&R Adimab Agreement”), which amended and restated the development and option agreement with Adimab dated July 2014, as amended, (“the Original Adimab Agreement”), for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the A&R Adimab Agreement, the Company will select biological targets against which Adimab will use its proprietary platform technology to research and develop antibody proteins using a mutually agreed upon research plan. The A&R Adimab Agreement, among other things, extended the discovery term of the Original Adimab Agreement, provided access to additional antibodies, and expanded the Company’s right to evaluate and use antibodies that were modified or derived using Adimab technology for diagnostic purposes.

Upon the Company’s selection of a target, the Company and Adimab will initiate a research plan and the discovery term begins. During the discovery term, Adimab will grant the Company a non-exclusive, non-sublicenseable license under its technology with respect to the target, to research, design and preclinically develop and use antibodies that were modified or derived using Adimab technology, solely to evaluate such antibodies, perform the Company’s responsibilities under the research plan, and use such antibodies for certain diagnostic purposes. The Company also will grant to Adimab a non-exclusive, nontransferable license with respect to the target under the Company’s technology that covers or relates to such target, solely to perform its responsibilities under the research plan during the discovery period. The Company is required to pay Adimab at an agreed upon rate for its full-time employees during the discovery period while Adimab performs research on each target under the applicable research plan.

Adimab granted the Company an exclusive option to obtain a non-exclusive, worldwide, fully paid-up, sublicensable license under Adimab’s platform patents and other Adimab technology solely to research up to ten antibodies, chosen by the Company against a specific biological target for a specified period of time (the “Research Option”). In addition, Adimab granted the Company an exclusive option to obtain a worldwide, royalty-bearing, sublicensable license under Adimab platform patents and other Adimab technology to exploit, including commercially, 20 or more antibodies against specific biological targets (the “Commercialization Option”). Upon the exercise of a Commercialization Option, and payment of the

~~F-29~~

~~SURFACE ONCOLOGY, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share amounts)~~

applicable option fee to Adimab, Adimab will assign the Company the patents that cover the antibodies selected by such Commercialization Option. The Company will be required to use commercially reasonable efforts to develop, seek market approval of, and commercialize at least one antibody against the target covered by the Commercialization Option in specified markets upon the exercise of a Commercialization Option.

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Under the agreement, the Company is obligated to make milestone payments and to pay specified fees upon the exercise of the Research or Commercialization Options. During the discovery term, the Company may be obligated to pay Adimab up to ~~$250~~250 for technical milestones achieved against each biological target. Upon exercise of a Research Option, the Company is obligated to pay a nominal research maintenance fee on each of the next four anniversaries of the exercise. Upon the exercise of each Commercialization Option, the Company will be required to pay an option exercise fee of a low seven-digit dollar amount, and the Company may be responsible for milestone payments of up to an aggregate of $13,000 for each licensed product that receives marketing approval. For any licensed product that is commercialized, the Company is obligated to pay Adimab tiered royalties of a low to mid single-digit percentage on worldwide net sales of such product. The Company may also partially exercise a Commercialization Option with respect to ten antibodies against a biological target by paying 65% of the option fee and later either (i) paying the balance and choosing additional antibodies for commercialization, up to the maximum number under the Commercialization Option, or (ii) foregoing the Commercialization Option entirely. For any Adimab diagnostic product that is used with or in connection with any compound or product other than a licensed antibody or licensed product, the Company is obligated to pay Adimab up to a low seven digits in regulatory milestone payments and low single-digit royalties on net sales. No additional payment is due with respect to any companion diagnostic or any diagnostic product that does not contain any licensed antibody.

Any payments payable to Adimab as a result of any product candidates being developed pursuant to the GSK Agreement, will be payable to Adimab directly by GSK.

The A&R Adimab Agreement will remain in effect until (a) the earlier of (i) the expiration of the Research and Commercialization Options (if they expire without exercise) and (ii) 12 months from the effective date without the Company providing materials that pass Adimab’s quality control; or (b) if a Research Option is exercised but the Commercialization Option is not, then upon the expiration of the last to expire research license term; or (c) upon commercialization of a product, until the end of the royalty term, which will vary on a product-by-product and country-by-country basis, ending on the later of (y) the expiration of the last valid claim covering the licensed product in such country as the product is manufactured or sold, or (z) ten after the first commercial sale of the licensed product in such country.

Either party may terminate the A&R Adimab Agreement for material breach if such breach remains uncured for a specified period of time, however, if a Research Option or Commercialization Option has been exercised and the breach only applies to the applicable target of such Research Option or Commercialization Option, then the termination right will only apply to such ~~target~~.target. The Company may also terminate the A&R Adimab Agreement for any reason with prior notice to Adimab. If Adimab is bankrupt, the Company will be entitled to a complete duplicate of, or complete access to, all rights and licenses granted under or pursuant to the A&R Adimab Agreement.

During the year ended December 31, 2022, the Company did not recognize research and development expense under the A&R Adimab Agreement. During the years ended December 31, ~~2018, 2017,~~2021 and ~~2016,~~2020, the Company recognized research and development expense under the agreement of ~~$2,480, $2,172,~~$3,000, and ~~$1,181,~~$3,092, respectively.

~~14.~~

~~Income Taxes~~

Memorial Sloan Kettering Cancer Center License Agreement

~~2017~~

In November 2020, the Company and Memorial Sloan Kettering Cancer Center ("MSK") entered into a license agreement (the "MSK Agreement"). Under the agreement, MSK granted the Company a non-exclusive license to certain U.S. ~~Tax Reform~~

~~On December 22, 2017, President Trump signed into law~~patent rights relating to methods of treating cancer with CCR8 antibodies to research, develop, make, use, sell, offer for sale, and import CCR8 antibodies intended to treat cancer.

Under the Tax Cuts and Jobs Act (“TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reductionterms of the ~~corporate tax rate from a top marginal rate of 35%~~MSK Agreement the upfront license execution fee due to ~~a flat rate of 21%, effective as of January 1, 2018; limitation~~MSK was $100. Half of the ~~tax deduction for interest expense; limitation~~execution fee was due to MSK upon signature of the ~~deduction~~agreement, with the remaining portion due on the first anniversary. Under the MSK Agreement, each of these CCR8 antibodies is a licensed product and the Company is obligated to make milestone payments of up to an aggregate of $7,500 for each licensed product, as well as reimburse MSK for a portion of past and future patent-related expenses. For any licensed product that is commercialized, the Company is obligated to pay MSK a low single-digit percentage royalty on net ~~operating losses to 80%~~U.S. sales of ~~annual taxable income and elimination~~such product.

F-28

Table of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs.”

The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The Company finalized its accounting for the income tax effects of the TCJA during 2018, with no adjustment.

~~F-30~~

Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

~~Income Taxes~~

The MSK License will remain in effect on a licensed product-by-licensed product basis until the later of when there is no longer a valid patent claim covering the composition, manufacture or use of such licensed product or 10 years from the date of first commercial sale of such licensed product in the U.S. The Company may terminate the MSK License for any reason with thirty days prior written notice to MSK. MSK may terminate the MSK License immediately upon written notice if the Company is convicted of a felony relating to the manufacture, use or sale of a licensed product anywhere we may manufacture, use or sell the licensed product, or, with a specified notice period, in the event of the Company's insolvency, bankruptcy, or cessation of business operations. MSK may also terminate the MSK License for nonpayment of any fees, milestones or royalties if such payment(s) remain past due for a specified period of time, and for an uncured material breach.

During the years ended December 31, ~~2018, 2017,~~2022, 2021 and ~~2016,~~2020, the Company recognized research and development expense under the MSK Agreement of $200 and $50 and $50, respectively .

Vaccinex Exclusive Product License Agreement

In March 2021, the Company and Vaccinex entered into an exclusive product license agreement (the "Vaccinex License Agreement"), to exclusively license certain antibodies, including SRF114. Pursuant to the terms of the Vaccinex License Agreement, the Company has a worldwide, exclusive, sublicensable license to make, have made, use, sell, offer to sell, have sold, import, and otherwise exploit licensed products that incorporate certain Vaccinex intellectual property which covers certain antibodies, including the antibody SRF114 targeting CCR8, each a “Licensed Product.”

Under the Vaccinex License Agreement, the Company is obligated to use commercially reasonable efforts to develop, clinically test, achieve regulatory approval, manufacture, market and commercialize at least one Licensed Product and have the sole right to develop, manufacture and commercialize the licensed products worldwide. The Company is responsible for all costs and expenses of such development, manufacturing and commercialization. Pursuant to the Vaccinex License Agreement, the Company paid Vaccinex a one-time fee of $850. Vaccinex is eligible to receive up to an aggregate of $3,500 based on achievement of certain clinical milestones and up to an aggregate of $11,500 based on achievement of certain regulatory milestones per Licensed Product. The Company also owes low single digit royalties on global net sales of any approved Licensed Products. Commencing on the third anniversary of the date of the Vaccinex License Agreement and continuing until the first dosing of a Licensed Product in a clinical trial, the Company will be required to pay Vaccinex a nominal yearly maintenance fee.

The Company may terminate the Vaccinex License Agreement for convenience upon the notice period specified in the Vaccinex License Agreement. Either party may terminate the Vaccinex License Agreement for an uncured material breach by the other party. Vaccinex may terminate the Vaccinex License Agreement if the Company defaults on any payments owed to Vaccinex under the agreement, if the Company is in material breach of, and fail to cure, its development obligations, or institute certain actions related to the licensed patents. In the event of termination, all rights in the licensed intellectual property would revert to Vaccinex.

During the years ended December 31, 2022 and 2021, the Company recognized research and development expense under the Vaccinex License Agreement of $500 and $850, respectively.

14.Income Taxes


	Year Ended December 31,
	2022		2021		2020
Income (loss) before taxes:
Domestic	$	(63,586)	$	(78,485)	$	59,346
Foreign	—		—		—
Total income (loss) before income taxes	$	(63,586)	$	(78,485)	$	59,346

Income Taxes

During the years ended December 31, 2022 and 2021, the Company recorded no income tax benefits for the net losses incurred or for the research and development tax credits generated in each year due to its uncertainty of realizing a benefit from those items.

During the year ended December 31, 2020, the Company recorded no income tax expense or benefit for the net income incurred or for the research and development tax credits generated during the year due to the utilization of net operating loss carryforwards and the uncertainty of realizing a benefit from the credits.

F-29

Table of Contents

SURFACE ONCOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:


	Year Ended December 31,										Year Ended December 31,
	2018			2017			2016				2022		2021		2020
Federal statutory income tax rate		(21.0	)%		(35.0	)%		(35.0	)%	Federal statutory income tax rate	(21.0)	%	(21.0)	%	21.0	%
State taxes, net of federal benefit		(6.2	)		(5.2	)		(5.2	)	State taxes, net of federal benefit	(5.6)	%	(12.5)	%	6.3	%
Permanent differences		1.1			0.3			0.2
Stock-based compensation		5.2			2.6			2.4		Stock-based compensation	1.5	%	0.2	%	0.5	%
Research and development tax credits		(13.7	)		(0.9	)		(1.2	)	Research and development tax credits	(6.7)	%	(5.0)	%	(3.2)	%
Increase in deferred tax asset valuation allowance		34.5			18.6			38.8
Change in deferred tax asset valuation allowance										Change in deferred tax asset valuation allowance	31.4	%	38.1	%	(24.5)	%
Other		0.1			—			—		Other	0.4	%	0.2	%	(0.1)	%
Change in statuatory tax rate		—			19.6			—
Effective income tax rate		—	%		—	%		—	%	Effective income tax rate	—	%	—	%	—	%

Novartis is a related party because it is a principal stockholder of the Company. In January 2016, the Company entered into the Collaboration Agreement (see Note 8) and sold 2,000,000 shares of its Series A-1 preferred stock to Novartis for gross proceeds of $13,500. In addition, concurrent with the Company’s initial public offering of common stock, the Company issued Novartis 766,666 shares of its common stock at $15.00 per share for proceeds of $11,500 in a private placement. During the year ended December 31, 2018, the Company received cash payments totaling $45,000 from Novartis upon the achievement of a specified milestone in February 2018 and recognized $59,417 of collaboration revenue under the Collaboration Agreement. As of December 31, 2018 and 2017, no amounts were due from Novartis.

During the twelve months ended December 31, 2018, the Company made a payment of $3,437 to Novartis for the reimbursement of manufacturing costs incurred by Novartis prior to December 31, 2017. During the twelve months ended December 31, 2017 and 2016, the Company made no cash payments to Novartis related to the Collaboration Agreement.

Unrelated to the Collaboration Agreement, the Company subleased office and laboratory space from CoStim, a subsidiary of Novartis (see Note 15). Payments made by the Company to CoStim for this sublease during the years ended December 31, 2018, 2017, and 2016 totaled $106, $569, and $557, respectively. As of December 31, 2018, 2017, and 2016, no amounts were due by the Company to CoStim for this sublease.

On November 30, 2017, the Company entered into an agreement with Vaccinex, Inc. (“Vaccinex”) whereby Vaccinex will use its technology to assist the Company with identifying and selecting experimental human monoclonal antibodies against targets selected by the Company. The Company’s Chief Executive Officer is a member of the board of directors of Vaccinex. During the year ended December 31, 2018 and 2017, the Company paid Vaccinex an aggregate of $199 and $250 relating to the agreement. The amount of the payment was recognized as research and development expense during the years ended December 31, 2018 and 2017. As of December 31, 2018, $83 was due by the Company to Vaccinex. No amounts were due by the Company to Vaccinex as of December 31, 2017.

In May 2015, an executive officer of the Company entered into a promissory note for $62 payable to Company, which bore interest at a rate of 1.53% per annum and was due and payable in May 2020, unless earlier due upon specified events (see Note 11). In October 2017, the promissory note was repaid in full by the executive officer.

In February 2019, Novartis notified the Company of its decision not to purchase its Option related to IL-27 (see Note 8). Accordingly, as of February 4, 2019, Novartis had one Option remaining eligible for purchase and potential exercise. As a result, the maximum aggregate amount of potential option purchase, option exercise and milestone payments that the Company is entitled to receive under the Collaboration Agreement was reduced from $1,167,500 to $750,000. The decision by Novartis to terminate the IL-27 target under the Collaboration Agreement will result in the Company removing all future costs associated with IL-27 from the estimated total costs in the cost-to-cost model in the first quarter of 2019. This change in the total estimated costs in the cost-to-cost model will result in the Company recognizing revenue of approximately $13,000 in the first quarter of 2019.


Delaware			46-5543980
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

50 Hampshire Street, 8th Floor Cambridge, MA			02139
(Address of principal executive offices)			(Zip Code)


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

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

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

~~Delaware~~	~~46-5543980~~
SURFACE ONCOLOGY, INC. (Exact name of Registrant as specified in its Charter)

	~~Page~~
			Page
PART I			1
Item 1.		Business	1
Item 1A.		Risk Factors	33 32
Item 1B.		Unresolved Staff Comments	73 74
Item 2.		Properties	73 75
Item 3.		Legal Proceedings	73 75
Item 4.		Mine Safety Disclosures	73 75

PART II			74 76
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	74 76
Item 6.		~~Selected Financial Data~~Reserved	75 77
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	77
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	91 88
Item 8.		Financial Statements and Supplementary Data	91 88
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	92 88
Item 9A.		Controls and Procedures	92 89
Item 9B.		Other Information	92 89
Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	89

PART III			93 90
Item 10.		Directors, Executive Officers and Corporate Governance	93 90
Item 11.		Executive Compensation	93 90
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93 90
Item 13.		Certain Relationships and Related Transactions, and Director Independence	93 90
Item 14.		Principal Accounting Fees and Services	93 90

PART IV			94 91
Item 15.		Exhibits, Financial Statement Schedules	94 91
Item 16.		Form 10-K Summary	96 94
Item 17.		Signatures	97 35

	High		Low
2018
Second Quarter 2018 (From April 19, 2018)	$	17.41	$	12.83
Third Quarter 2018	$	17.83	$	8.92
Fourth Quarter 2018	$	10.69	$	3.65

	Payments Due by Period
	Total		Less Than 1 Year		1 to 3 Years		4 to 5 Years		More Than 5 Years
	(in thousands)
Operating lease commitments ⁽¹⁾	$	60,221	$	2,546	$	9,434	$	10,668	$	37,573
Research and manufacturing commitments ⁽²⁾		6,738		6,368		370		—		—
Total	$	66,959	$	8,914	$	9,804	$	10,668	$	37,573

	Series A and A-1 Redeemable Convertible Preferred Stock						Common Stock					Additional Paid-in			Note Receivable From			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount			Shares			Amount		Capital			Officer			Loss			Deficit			Equity (Deficit)
Balances at December 31, 2015		22,564,286		$	22,498			2,386,538		$	—	$	706		$	(31	)	$	—		$	(11,115	)	$	(10,440	)
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $4		12,535,714			12,531			—			—		—			—			—			—			—
Issuance of Series A-1 redeemable convertible preferred stock, net of issuance costs of $93		2,000,000			13,407			—			—		—			—			—			—			—
Issuance of common stock upon exercise of stock options		—			—			12,727			—		4			—			—			—			4
Vesting of restricted common stock		—			—			—			—		26			—			—			—			26
Stock-based compensation expense		—			—			—			—		1,345			—			—			—			1,345
Accretion of redeemable convertible preferred stock to redemption value		—			41			—			—		(41	)		—			—			—			(41	)
Unrealized loss on marketable securities		—			—			—			—		—			—			(353	)		—			(353	)
Net loss		—			—			—			—		—			—			—			(17,453	)		(17,453	)
Balances at December 31, 2016		37,100,000			48,477			2,399,265			—		2,040			(31	)		(353	)		(28,568	)		(26,912	)
Issuance of common stock upon exercise of stock options		—			—			287,085			—		102			—			—			—			102
Vesting of restricted common stock		—			—			—			—		35			—			—						35
Stock-based compensation expense		—			—			—			—		4,709			—			—			—			4,709
Collection of note receivable from officer		—			—			—			—		31			31			—			—			62
Accretion of redeemable convertible preferred stock to redemption value		—			40			—			—		(40	)		—			—			—			(40	)
Unrealized gain on marketable securities		—			—			—			—		—			—			107			—			107
Net loss		—			—			—			—		—			—			—			(45,377	)		(45,377	)
Balances at December 31, 2017		37,100,000			48,517			2,686,350			—		6,877			—			(246	)		(73,945	)		(67,314	)
Issuance of common stock upon exercise of stock options		—			—			272,895			—		467			—			—			—			467
Repurchases of unvested restricted stock		—			—			(16,935	)		—		—						—			—			—
Stock-based compensation expense		—			—			—			—		5,217			—			—			—			5,217
Accretion of redeemable convertible preferred stock to redemption value		—			11			—			—		(11	)		—			—			—			(11	)
Conversion of redeemable convertible preferred stock to common stock		(37,100,000	)		(48,528	)		16,863,624			2		48,526						—			—			48,528
Issuance of common stock upon completion of initial public offering, net of commissions, underwriting discounts and offering costs		—			—			7,200,000			1		97,208						—			—			97,209
Issuance of common stock to a related party		—			—			766,666			—		11,500						—			—			11,500
Adjustment due to the adoption of ASC 606		—			—			—			—		—			—			—			13,736			13,736
Unrealized gain on marketable securities		—			—			—			—		—			—			127			—			127
Net loss		—			—			—			—		—			—			—			(6,597	)		(6,597	)
Balances at December 31, 2018		—		$	—			27,772,600		$	3	$	169,784			—		$	(119	)	$	(66,806	)	$	102,862

	December 31, 2018
	Under Topic 606			Under Topic 605			Effect of Change
Deferred revenue - related party	$	14,610		$	14,421		$	189
Deferred revenue, net of current portion - related party		39,342			84,195			(44,853	)
Accumulated deficit		(66,806	)		(97,734	)		30,928

	Year Ended December 31, 2018
	Under Topic 606			Under Topic 605			Effect of Change
Collaboration revenue - related party	$	59,417		$	28,489		$	30,928
Loss from operations	$	(9,151	)		(40,079	)		30,928
Net loss	$	(6,597	)		(37,525	)		30,928
Comprehensive loss	$	(6,470	)		(37,398	)		30,928

	December 31, 2017		Additions		Deductions			December 31, 2018
Contract Liabilities (1)
Total deferred revenue - related party	$	82,105		45,000	$	(73,153	)	$	53,952


FORM 10-K

	Number of Shares			Weighted Average Grant-Date Fair Value
Unvested restricted common stock as of December 31, 2017		84,666		$	0.42
Issued		—
Vested		(67,731	)		0.44
Forfeited and repurchased		(16,935	)
Unvested restricted common stock as of December 31, 2018		—		$	—


Lease Costs	Classification	Year Ended December 31, 2022			Year Ended December 31, 2021			Year Ended December 31, 2020
Operating lease cost	R&D Expense	$	2,121		$	2,000		$	2,111
	G&A Expense	3,261			3,353			3,292
Variable lease costs (1)	R&D Expense	648			641			585
	G&A Expense	1,144			1,112			1,169
Total lease cost		$	7,174		$	7,106		$	7,157

Weighted-average remaining lease term (in months)		85.92			98.73			109.84
Weighted-average discount rate		10.5		%	10.5		%	10.5		%


Year Ending December 31,
2023	$	5,790
2024	5,630
2025	5,656
2026	5,782
2027	6,018
Thereafter	14,065
Total future lease payments	42,941
Less: Interest	(12,489)
Present value of future lease payments (lease liability)	$	30,452


Year Ending December 31,			Year Ending December 31,
2019		2,546
2020		4,258
2021		5,176
2022		5,292	2022	$	5,385
2023		5,376	2023	5,413
2024			2024	5,533
2025			2025	5,656
2026			2026	5,782
Thereafter		37,573	Thereafter	20,083
	$	60,221		$	47,852

~~18.~~	~~Selected Quarterly Financial Data (Unaudited)~~
		Company Name

Date: March 9, 2023		By:	/s/ Robert W. Ross, M.D.
			Robert W. Ross, M.D.
			Chief Executive Officer

	2018
	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
Collaboration revenue - related party	$	45,495	$	2,428		$	1,730		$	9,764
Total operating expenses		14,452		19,011			19,760			15,345
Loss from operations		31,043		(16,583	)		(18,030	)		(5,581	)
Net loss		31,212		(15,852	)		(17,222	)		(4,735	)
Net loss per share attributable to common stockholders—basic	$	1.59	$	(0.73	)	$	(0.62	)	$	(0.17	)
Net loss per share attributable to common stockholders— diluted	$	1.05	$	(0.73	)	$	(0.62	)	$	(0.17	)