UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________


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

For the quarterly period ended March 31, ~~2022~~2023


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

Commission File Number: 001-33958

SELLAS Life Sciences Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware						20-8099512
(State of incorporation)						(I.R.S. Employer Identification No.)

7 Times Square, Suite 2503, New York, NY 10036

(646) 200-5278

(Address, including zip code, and telephone number, including

area code, of registrant's principal executive offices)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	SLS	The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

As of May ~~11, 2022,~~10, 2023, SELLAS Life Sciences Group, Inc. had outstanding ~~20,535,629~~28,347,920 shares of common stock.

SELLAS LIFE SCIENCES GROUP, INC.

FORM 10-Q - Quarterly Report

For the Quarter Ended March 31, ~~2022~~2023

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	34
	Unaudited Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022	34
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	45
	Unaudited Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	56
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	67
	Unaudited Notes to Consolidated Financial Statements	78
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2827
Item 4	Controls and Procedures	2827
	PART II - OTHER INFORMATION
Item 1	Legal Proceedings	3029
Item 1A	Risk Factors	3029
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3029
Item 3	Defaults Upon Senior Securities	3029
Item 4	Mine Safety Disclosures	3029
Item 5	Other Information	3029
Item 6	Exhibits	3029

	Signatures

The names “SELLAS Life Sciences Group, Inc.,” “SELLAS,” the SELLAS logo, and other trademarks or service marks of SELLAS Life Sciences Group, Inc. appearing in this Quarterly Report on Form 10-Q are the property of SELLAS Life Sciences Group, Inc. Other trademarks, service marks or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We do not intend the use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of or by either of, these other companies.

Unless the context otherwise indicates, references in these notes to the “Company,” “we,” “us” or “our” refer to SELLAS Life Sciences Group, Inc. and its wholly owned subsidiaries.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements that reflect our current views with respect to our development programs, business strategy, business plan, financial performance and other future events. These statements include forward-looking statements both with respect to us, specifically, and our industry, in general. Such forward-looking statements include the words "expect," "intend,” "plan," "believe," "project," "estimate,” "may,” "should," "anticipate," "will" and similar statements of a future or forward-looking nature identify forward-looking ~~statements.~~statements and include, without limitation, statements regarding:

•our future financial and business performance;

•strategic plans for our business and product candidates;

•our ability to develop or commercialize products;

•the expected results and timing of clinical trials and nonclinical studies;

•our ability to comply with the terms of our license agreements;

•developments and projections relating to our competitors and industry;

•our expectations regarding our ability to obtain, develop and maintain intellectual property protection and not infringe on the rights of others;

•our ability to retain key scientific or management personnel;

•our future capital requirements and the timing of those requirements and sources and uses of cash;

•our ability to obtain funding for our operations; and

•changes in applicable laws or regulations.

These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements, including the following:

•risks associated with preclinical or clinical development and trials;

•changes in the assumptions underlying our expectations regarding our future business or business model;

•our ability to develop, manufacture and commercialize product candidates;

•general economic, financial, legal, political and business conditions and changes in domestic and foreign markets;

•changes in applicable laws or regulations;

•the impact of natural disasters, including climate change, and the impact of health epidemics, including the COVID-19 pandemic, on our business;

•the size and growth potential of the markets for our products, and our ability to serve those markets;

•market acceptance of our planned products;

•our ability to raise capital;

•the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and

•other risks and uncertainties set forth in this report in the section entitled “Risk Factors.”

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. ~~The COVID-19 pandemic has caused~~Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a ~~widespread global health crisis that could adversely affect the economies and financial markets~~result of many countries, resulting in an economic downturn that could impact our operating results. We expect the COVID-19 pandemic may continue to have both a direct and an indirect impact on our business operations and financial results and the business operations of our partners and collaborators; the extent of the impact on our clinical development and regulatory efforts and those of our partners and collaborators, our corporate development objectives, our financial position and the value of and market for our common stock will depend onnew information, future developments ~~that are highly uncertain and cannot be predicted with confidence at this time, such~~or otherwise, except as the ultimate duration of the pandemic, the emergence of new variants, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, including China, and the effectiveness of actions taken globally to contain and treat the disease, including the availability of safe and effective vaccines and the uptake thereof. required by law.

There are or will be important factors that could cause actual results to differ materially from those indicated in these statements. These factors include, but are not limited to, those factors set forth in the sections captioned "Business – Overview,” “Risk Factors,” “Legal Proceedings,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 as filed with the Securities and Exchange Commission ("SEC") on March ~~31,~~ 16, 2023 ("2022 ~~("2021~~ Annual Report") and in our other public filings with the SEC, all of which you should review carefully. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SELLAS LIFE SCIENCES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

March 31, 2022 December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents $ 14,252 $ 21,355
Restricted cash and cash equivalents 100 100
Accounts receivable 1,000 —
Prepaid expenses and other current assets 2,487 1,589
Total current assets 17,839 23,044
Operating lease right-of-use assets 1,127 723
Goodwill 1,914 1,914
Deposits and other assets 554 594
Total assets $ 21,434 $ 26,275
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 2,842 $ 2,144
Accrued expenses and other current liabilities 3,012 2,640
Operating lease liabilities 325 198
Acquired in-process research and development payable 4,500 —
Total current liabilities 10,679 4,982
Acquired in-process research and development payable, non-current 5,500 —
Operating lease liabilities, non-current 883 610
Warrant liability 51 40
Contingent consideration 296 296
Total liabilities 17,409 5,928
Commitments and contingencies (Note 7) 0 0
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; Series A convertible preferred stock, 17,500 shares designated; no shares issued and outstanding at March 31, 2022 and December 31, 2021 — —
Common stock, $0.0001 par value; 350,000,000 shares authorized, 15,905,999 and 15,895,637 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 2 2
Additional paid-in capital 159,370 158,948
Accumulated deficit (155,347) (138,603)
Total stockholders’ equity 4,025 20,347
Total liabilities and stockholders’ equity $ 21,434 $ 26,275

~~See accompanying notes to these unaudited consolidated financial statements.~~

~~Table of Contents~~

~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

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

~~(Unaudited)~~

Three Months Ended March 31,
2022 2021
Licensing revenue $ 1,000 $ 5,700
Operating expenses:
Cost of licensing revenue 100 100
Research and development 4,611 4,284
Acquired in-process research and development 10,000 —
General and administrative 3,024 3,561
Total operating expenses 17,735 7,945
Operating loss (16,735) (2,245)
Non-operating income (expense), net:
Change in fair value of warrant liability (11) (31)
Change in fair value of contingent consideration — (129)
Interest income 2 2
Total non-operating expense, net (9) (158)
Net loss $ (16,744) $ (2,403)
Per share information:
Net loss per common share, basic and diluted $ (1.05) $ (0.16)
Weighted-average common shares outstanding, basic and diluted 15,897,479 14,877,317


	March 31, 2023		December 31, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	23,902	$	17,125
Restricted cash and cash equivalents	100		100
Prepaid expenses and other current assets	2,020		531
Total current assets	26,022		17,756
Operating lease right-of-use assets	784		874
Goodwill	1,914		1,914
Deposits and other assets	384		399
Total assets	$	29,104	$	20,943
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,099	$	3,357
Accrued expenses and other current liabilities	6,485		6,286
Operating lease liabilities	427		372
Acquired in-process research and development payable	5,500		5,500
Total current liabilities	15,511		15,515
Operating lease liabilities, non-current	422		573
Warrant liability	2		4
Total liabilities	15,935		16,092
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; Series A convertible preferred stock, 17,500 shares designated; no shares issued and outstanding at March 31, 2023 and December 31, 2022	—		—
Common stock, $0.0001 par value; 350,000,000 shares authorized, 28,347,920 and 21,005,405 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	3		2
Additional paid-in capital	204,167		184,753
Accumulated deficit	(191,001)		(179,904)
Total stockholders’ equity	13,169		4,851
Total liabilities and stockholders’ equity	$	29,104	$	20,943

See accompanying notes to these unaudited consolidated financial statements.

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS' EQUITY~~OPERATIONS

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

(Unaudited)

Three Months Ended March 31, 2022
Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at December 31, 2021 15,895,637 $ 2 $ 158,948 $ (138,603) $ 20,347
Issuance of common stock under employee stock purchase plan 10,362 — 47 — 47
Stock-based compensation — — 375 — 375
Net loss — — — (16,744) (16,744)
Balance at March 31, 2022 15,905,999 $ 2 $ 159,370 $ (155,347) $ 4,025

Three Months Ended March 31, 2021
Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at December 31, 2020 14,254,554 $ 1 $ 145,864 $ (117,904) $ 27,961
Issuance of common stock and common stock warrants, net of issuance costs 830,200 1 2,999 — 3,000
Stock-based compensation — — 184 — 184
Net loss — — — (2,403) (2,403)
Balance at March 31, 2021 15,084,754 $ 2 $ 149,047 $ (120,307) $ 28,742


	Three Months Ended March 31,
	2023		2022
Licensing revenue	$	—	$	1,000
Operating expenses:
Cost of licensing revenue	—		100
Research and development	7,174		4,611
General and administrative	4,107		3,024
Acquired in-process research and development	—		10,000
Total operating expenses	11,281		17,735
Operating loss	(11,281)		(16,735)
Non-operating income (expense), net:
Change in fair value of warrant liability	2		(11)

Interest income	182		2
Total non-operating income (expense), net	184		(9)
Net loss	$	(11,097)	$	(16,744)

Per share information:
Net loss per common share, basic and diluted	$	(0.47)	$	(1.05)
Weighted-average common shares outstanding, basic and diluted	23,547,562		15,897,479

See accompanying notes to these unaudited consolidated financial statements.

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)



		Three Months Ended March 31, 2023
	Common Stock		Additional Paid-In Capital			Accumulated Deficit				Total Stockholders' Equity
		Shares			Amount
Balance at December 31, 2022		21,005,405	$	2		$	184,753	$	(179,904)		$	4,851
Issuance of common stock and common stock warrants, net of issuance costs		7,220,217	1			18,553		—			18,554
Issuance of common stock, net of issuance costs		76,882	—			268		—			268
Issuance of common stock under employee stock purchase plan		45,416	—			53		—			53
Stock-based compensation		—	—			540		—			540
Net loss		—	—			—		(11,097)			(11,097)
Balance at March 31, 2023		28,347,920	$	3		$	204,167	$	(191,001)		$	13,169




		Three Months Ended March 31, 2022
	Common Stock		Additional Paid-In Capital			Accumulated Deficit				Total Stockholders' Equity
		Shares			Amount
Balance at December 31, 2021		15,895,637	$	2		$	158,948	$	(138,603)		$	20,347
Issuance of common stock under employee stock purchase plan		10,362	—			47		—			47
Stock-based compensation		—	—			375		—			375
Net loss		—	—			—		(16,744)			(16,744)
Balance at March 31, 2022		15,905,999	$	2		$	159,370	$	(155,347)		$	4,025

See accompanying notes to these unaudited consolidated financial statements.

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


		For the Three Months Ended March 31,					For the Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(16,744)	$	(2,403)	Net loss	$	(11,097)	$	(16,744)
Adjustment to reconcile net loss to net cash used in operating activities:	Adjustment to reconcile net loss to net cash used in operating activities:					Adjustment to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development expense	Acquired in-process research and development expense	10,000		—		Acquired in-process research and development expense	—		10,000
Non-cash stock-based compensation	Non-cash stock-based compensation	375		184		Non-cash stock-based compensation	540		375
Change in operating lease right of use assets		45		—
Non-cash lease expense						Non-cash lease expense	87		45
Change in fair value of common stock warrants	Change in fair value of common stock warrants	11		31		Change in fair value of common stock warrants	(2)		11
Change in fair value of contingent consideration		—		129

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Contract asset		—		(564)
Accounts receivable	Accounts receivable	(1,000)		0		Accounts receivable	—		(1,000)
Prepaid expenses and other assets	Prepaid expenses and other assets	(606)		(2,683)		Prepaid expenses and other assets	(1,474)		(606)
Accounts payable	Accounts payable	667		(897)		Accounts payable	(284)		667
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	151		634		Accrued expenses and other current liabilities	196		151
Operating lease liabilities	Operating lease liabilities	(49)		0		Operating lease liabilities	(93)		(49)
Deferred revenue		—		(4,700)
Net cash used in operating activities	Net cash used in operating activities	(7,150)		(10,269)		Net cash used in operating activities	(12,127)		(7,150)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Issuance of common stock and common stock warrants, net of issuance costs						Issuance of common stock and common stock warrants, net of issuance costs	18,583		—
Issuance of common stock, net of issuance costs						Issuance of common stock, net of issuance costs	268		—
Proceeds from employee stock purchases	Proceeds from employee stock purchases	47		—		Proceeds from employee stock purchases	53		47
Net proceeds from exercise of warrants		—		3,000
Net cash provided by financing activities	Net cash provided by financing activities	47		3,000		Net cash provided by financing activities	18,904		47
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents		(7,103)		(7,269)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents						Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	6,777		(7,103)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at the beginning of period	Cash, cash equivalents, restricted cash, and restricted cash equivalents at the beginning of period	21,455		35,402		Cash, cash equivalents, restricted cash, and restricted cash equivalents at the beginning of period	17,225		21,455
Cash, cash equivalents, restricted cash, and restricted cash equivalents at the end of period	Cash, cash equivalents, restricted cash, and restricted cash equivalents at the end of period	$	14,352	$	28,133	Cash, cash equivalents, restricted cash, and restricted cash equivalents at the end of period	$	24,002	$	14,352

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash received during the period for interest	Cash received during the period for interest	$	2	$	—	Cash received during the period for interest	$	182	$	2

Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:
Payable for acquired in-process research and development	Payable for acquired in-process research and development	$	10,000	$	—	Payable for acquired in-process research and development	$	5,500	$	10,000

Increase in operating right of use asset and current and non-current lease liability		$	449	$	—
Deferred offering expenses included in accounts payable and accrued expenses and other current liabilities		$	252	$	—
Increase in operating right of use assets and current and non-current lease liabilities						Increase in operating right of use assets and current and non-current lease liabilities	$	—	$	449
Offering expenses included in accounts payable and accrued expenses and other current liabilities						Offering expenses included in accounts payable and accrued expenses and other current liabilities	$	29	$	252
Warrant modification recorded in stockholders' equity						Warrant modification recorded in stockholders' equity	$	252	$	—

See accompanying notes to these unaudited consolidated financial statements.

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Overview

SELLAS Life Sciences Group, Inc. ~~(the "Company" or "SELLAS")~~ is a late-stage clinical biopharmaceutical company focused on novel therapeutics for a broad range of cancer indications. SELLAS’ lead product candidate, galinpepimut-S ("GPS"), is a cancer immunotherapeutic agent licensed from Memorial Sloan Kettering Cancer Center ("MSK") and targets the Wilms Tumor 1 ("WT1") protein, which is present in an array of tumor types. GPS has potential as a monotherapy or in combination with other immunotherapeutic agents to address a broad spectrum of hematologic, or blood, cancers and solid tumor indications. SELLAS' second product candidate is GFH009, a small molecule, highly selective cyclin-dependent kinase 9 ("CDK9") inhibitor, which iswe licensed from GenFleet Therapeutics (Shanghai), Inc. ("GenFleet"), for all therapeutic and diagnostic uses in the world outside of ~~Greater China.~~mainland China, Hong Kong, Macau and Taiwan ("GFH009 Territory").

2. Liquidity

~~On April 5, 2022,~~Since inception, the Company ~~closed~~has incurred recurring losses and negative cash flows from operations and, as of March 31, 2023, has an accumulated deficit of $191.0 million. During the three months ended March 31, 2023, the Company incurred a net loss of $11.1 million, and used $12.1 million of cash in operations. The Company expects to continue to generate operating losses and negative cash flows from operations for the next few years and will need additional funding to support its planned operating activities through profitability. The transition to profitability is dependent upon the successful development, approval, and commercialization of the Company's product candidates and the achievement of a level of revenues adequate to support its cost structure.

On February 28, 2023, the Company consummated an underwritten public offering (the ~~"April 2022~~"February 2023 Offering"), issuing ~~4,629,630~~7,220,217 shares of common stock and accompanying common stock warrants to purchase an aggregate of ~~4,629,630~~7,220,217 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of ~~$5.40~~$2.77 per share and accompanying common stock warrant. Each common stock warrant sold with the shares of common stock represents the right to purchase 1one share of the Company’s common stock at an exercise price of ~~$5.40~~$2.77 per share. The common stock warrants are exercisable immediately and will expire on ~~April 5, 2027,~~February 28, 2028, five years from the date of issuance. The net proceeds to the Company from the ~~April 2022~~February 2023 Offering were approximately $18.5 million, after deducting ~~the~~ underwriting discounts and commissions, ~~and other~~ offering expenses, and excluding the exercise of any ~~warrants, were approximately $23.0 million.~~warrants.

On March 31, 2022, the Company entered into an exclusive license agreement with GenFleet Therapeutics (Shanghai) Inc. ("GenFleet") pursuant to which GenFleet granted to the Company a sublicensable, royalty-bearing license, under certain of its intellectual property, to develop, manufacture, and commercialize a small molecule CDK9 inhibitor for the treatment, diagnosis or prevention of disease in humans and animals in all countries and territories of the world, other than mainland China, Hong Kong, Macau and Taiwan (the "GFH009 Territory"). The CDK9 inhibitor, GFH009, is currently in a Phase 1 clinical trial in the United States and China.

In consideration for the exclusive license, the Company has agreed to pay to GenFleet (i) an upfront and technology transfer fee of $10.0 million, $4.5 million of which was payable within 30 days of the effective date of the license agreement, and $5.5 million of which is due upon the first day of the 15th calendar month following the effective date of the license agreement, (ii) development and regulatory milestone payments for up to three indications totaling up to $48.0 million in the aggregate, and (iii) sales milestone payments totaling up to $92.0 million in the aggregate upon the achievement of certain net sales thresholds in a given calendar year. The Company has also agreed to pay GenFleet single-digit tiered royalties based upon a percentage of annual net sales, with the royalty rate escalating based on the level of annual net sales of GFH009 in the GFH009 Territory ranging from the low to high single digits.

On March 31, 2022, the Company announced that an investigational new drug ("IND") application filed by 3D Medicines Inc. ("3DMed"), pursuant to its Exclusive License Agreement with the Company (the “3DMed License Agreement) for a small Phase 1 clinical trial investigating safety of GPS in China, was approved by China's National Medical Products Administration ("NMPA"). The IND approval by the NMPA triggered a $1.0 million milestone payment to the Company which was received subsequent to March 31, 2022. An additional $191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of March 31, 2022, which milestones are variable in nature and not under the Company's control. The current clinical development plan provides for initiation of a Phase II clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial; the initiation of the Phase II clinical trial will trigger a milestone payment to the Company which is expected in the second half of 2022 subject to any potential delays due to COVID-related lockdowns in China.

~~Table of Contents~~

~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

On April 16, 2021, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co. (the "Agent"). From time to time during the term of the Sales Agreement, the Company may offer and sell shares of common stock having an aggregate offering price up to a total of $50.0 million in gross proceeds. The Agent will collect a fee equal to 3% of the gross sales price of all shares of common stock sold. Shares of common stock sold under the Sales Agreement are offered and sold pursuant to the Company's registration statement on Form S-3, which was filed with the SEC on April 16, 2021 and declared effective on April 29, 2021. During the ~~year~~three months ended ~~December~~March 31, ~~2021,~~2023, the Company sold a total of ~~786,927~~76,882 shares of common stock pursuant to the Sales Agreement at an average price of ~~$12.04~~$3.59 per share for aggregate net proceeds of approximately ~~$9.0~~$0.3 million. ~~There were no sales of shares of common stock under the Sales Agreement during the three months ended March 31, 2022.~~ There remains approximately ~~$40.5~~$39.2 million available for future sales of shares of common stock under the Sales ~~Agreement.~~Agreement as of March 31, 2023. Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds.

~~Since inception,~~

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

In December 2020, the Company, together with its wholly-owned subsidiary, SLSG Limited, LLC, entered into an Exclusive License Agreement (the “3DMed License Agreement”) with 3D Medicines Inc. ("3DMed"), pursuant to which the Company granted 3DMed a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS product candidates for all therapeutic and other diagnostic uses in mainland China, Hong Kong, Macau and Taiwan ("3DMed Territory"). To date, the Company has ~~incurred recurring losses~~received $10.5 million in upfront payments and ~~negative cash flows from operations~~certain technology transfer and regulatory milestones. The participation of 3DMed in the Company's REGAL Phase 3 clinical trial in China will trigger two development milestone payments totaling $13.0 million to the Company, which the Company expects to receive prior to the end of the third quarter of 2023. A total of $191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of March 31, ~~2022, has an accumulated deficit of $155.3 million. During the three months ended March 31, 2022, the Company incurred a net loss of $16.7 million,~~2023, which ~~includes a one-time $10.0 million expense for acquired in-process research~~milestones are all variable in nature and development related to the upfront license fee for GFH009, and used $7.2 million of cash in operations. The Company expects to continue to generate operating losses and negative cash flows from operations for the next few years and will need additional funding to support its planned operating activities through profitability. The transition to profitability is dependent upon the successful development, approval, and commercialization ofnot under the Company's ~~product candidates and the achievement of a level of revenues adequate to support its cost structure.~~control.

As of March 31, ~~2022,~~2023, the Company had cash and cash equivalents of approximately ~~$14.3~~$23.9 million and restricted cash and cash equivalents of $0.1 million. In accordance with Accounting Standards Codification ("ASC") 205-40, Presentation of Financial Statements - Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the consolidated financial statements are issued. The Company expects ~~that~~ its cash and cash equivalents ~~together with the net proceeds of approximately $23.0 million from the April 2022 Offering,~~ will not be sufficient to fund its current planned operations for at least the next 12twelve months from the date of issuance of these financial statements, though it may pursue additional capital resources through public or private equity or debt financings or by entering into additional license agreements or collaborations with other companies. Management's expectations with respectstatements. The $13.0 million of development milestone payments to ~~its ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management's estimates,~~ the Company ~~may need~~triggered by 3DMed's participation in the REGAL study are variable in nature and not under the Company's control, and therefore are not included in the Company's going concern assumption.

The Company will require substantial additional financing to ~~seek additional strategic~~commercially develop any current or financing opportunities sooner than would otherwise be expected. There is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders.future product candidates. If the Company is unable to obtain additional funding on a timely basis, it will be required to scale back its plans and place certain activities on hold. Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds. The Company's management continues to evaluate different strategies to obtain the required funding for future operations. These strategies may ~~be forced to significantly curtail, delay,~~ include utilizing the Sales Agreement, public and private placements of equity and/or ~~discontinue one or more of its planned~~debt securities, payments from potential strategic research and development ~~programs~~ collaborations, and licensing and/or ~~be unable~~marketing arrangements with pharmaceutical companies. Additionally, the Company may continue to ~~expand its operations~~ pursue discussions with global and regional pharmaceutical companies for licensing and/or ~~otherwise prepare for the potential regulatory approval and commercialization of~~co-development rights to its product ~~candidates,~~candidates. The Company has prepared its consolidated financial statements assuming ~~positive data.~~that it will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

3. Basis of Presentation and Significant Accounting Policies

The Company's complete summary of significant accounting policies can be found in "Item 8. Financial Statements and Supplementary Data - Note 3. Basis of Presentation and Significant Accounting Policies" in the audited annual consolidated financial statements included in the ~~2021~~2022 Annual Report. The significant accounting policies summarized and included in the ~~2021~~2022 Annual Report have not materially changed, except as set forth below.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the ASC and Accounting Standards Updates of the Financial Accounting Standards Board ("FASB").

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~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. Unless the context otherwise indicates, reference in these notes to the "Company" refer to SELLAS Life Sciences Group, Inc., and its wholly owned subsidiaries, SELLAS Life Sciences Group, Ltd., a privately held

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Bermuda exempted company, SLSG Limited, LLC, Sellas Life Sciences Limited, and Apthera, Inc. The functional currency of the Company's non-U.S. operations is the U.S. dollar.

Unaudited Interim Results

These consolidated financial statements and accompanying notes should be read in conjunction with the Company's annual consolidated financial statements and the notes thereto included in the ~~2021~~2022 Annual Report. The accompanying consolidated financial statements as of March 31, ~~2022~~2023 and for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, are unaudited, but include all adjustments, consisting of normal recurring entries, that management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, ~~2021~~2022 have been derived from the audited financial statements as of that date.

~~Impact of COVID-19~~

The ongoing global COVID-19 pandemic, including the surges of cases from the Delta and Omicron variants, continues to disrupt the Company’s business operations and those of its collaborators, including 3DMed and GenFleet contractors, contract research organizations (“CROs”), suppliers, clinical sites, contract manufacturing organizations (“CMOs”), and other partners. The COVID-19 pandemic could affect the health and availability of the Company’s workforce and that of the third-parties it relies on, such as its CROs, clinical sites, CMOs, and other contractors as well as the governmental agencies, such as the U.S. Food and Drug Administration (“FDA”) and health authorities in other countries which could delay or otherwise adversely impact the ability of such parties to fulfill their obligations. The Company is continuously monitoring the impact of the pandemic on its clinical development programs. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new variants of COVID-19, and the actions to contain COVID-19 or treat its impact, including continuing or new lockdowns, among others.

~~Accounts Receivable~~

Accounts receivable are carried at face value less any provision for uncollectible amounts. As of March 31, 2022, the Company had $1.0 million of accounts receivable related to the IND approval by the NMPA which triggered a $1.0 million milestone payment to the Company pursuant to the 3DMed License Agreement. The Company received the $1.0 million milestone payment in the second quarter of 2022.

~~Deferred Offering Costs~~

~~The Company accounts for offering costs in according with~~ ~~ASC 340, Other Assets and Deferred Costs~~. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs within prepaid expenses and other current assets in the consolidated balance sheet. The deferred offering costs are netted against the gross proceeds of the offering in stockholders' equity upon completion of the subsequent offering.

Acquired In-Process Research and Development

Costs incurred in obtaining technology licenses are immediately recognized as acquired in-process research and development expense, provided the technology licensed has no alternative future use. Payments related to contingent consideration such as development milestones, commercial milestones and royalties (Note 5) will be recognized when the contingency is probable and reasonably estimable as prescribed by ASC 450, Contingencies.

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~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Net Loss Per Share

Net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options and unvested restricted stock that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that, when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive (in thousands):


		Three Months Ended March 31,			Three Months Ended March 31,
		2022	2021		2023	2022
Common stock warrants	Common stock warrants	518	561	Common stock warrants	12,361	518
Stock options	Stock options	1,006	486	Stock options	1,661	1,006
RSUs		297	210
Restricted stock units ("RSUs")				Restricted stock units ("RSUs")	444	297
		1,821	1,257		14,466	1,821

~~Recent Accounting Standards Adopted~~

~~In May 2021, the FASB issued ASU No. 2021-04,~~ ~~Issuer’s Accounting for Certain Modifications of Exchanges of Freestanding Equity-Classified Written Call Options~~ to clarify the accounting for modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange. This ASU became effective for the Company on January 1, 2022 and did not have a material impact on the Company's consolidated financial statements.

~~Recent Accounting Standards Not Yet Adopted~~

~~In August 2020, the FASB issued ASU 2020-06,~~ ~~Debt—Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity~~ which, among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium. The standard becomes effective for the Company in the first quarter of 2024 and early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its consolidated financial statements.

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

4. Fair Value Measurements

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):


Description	Description	March 31, 2022		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Description	March 31, 2023		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	14,000	$	14,000	$	—	$	—	Cash equivalents	$	22,984	$	22,984	$	—	$	—
Restricted cash equivalents	Restricted cash equivalents	100		100		—		—		Restricted cash equivalents	100		100		—		—
Total assets measured and recorded at fair value	Total assets measured and recorded at fair value	$	14,100	$	14,100	$	—	$	—	Total assets measured and recorded at fair value	$	23,084	$	23,084	$	—	$	—
Liabilities:	Liabilities:									Liabilities:
Warrant liability	Warrant liability	$	51	$	—	$	—	$	51	Warrant liability	$	2	$	—	$	—	$	2
Contingent consideration		296		—		—		296

Total liabilities measured and recorded at fair value	Total liabilities measured and recorded at fair value	$	347	$	—	$	—	$	347	Total liabilities measured and recorded at fair value	$	2	$	—	$	—	$	2

Description December 31, 2021 Quoted Prices In
Active Markets
(Level 1) Significant Other
Observable
Inputs (Level 2) Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents $ 21,000 $ 21,000 $ — $ —
Restricted cash equivalents 100 100 — —
Total assets measured and recorded at fair value $ 21,100 $ 21,100 $ — $ —
Liabilities:
Warrant liability $ 40 $ — $ — $ 40
Contingent consideration 296 — — 296
Total liabilities measured and recorded at fair value $ 336 $ — $ — $ 336


Description	December 31, 2022		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	16,609	$	16,609	$	—	$	—
Restricted cash equivalents	100		100		—		—
Total assets measured and recorded at fair value	$	16,709	$	16,709	$	—	$	—
Liabilities:
Warrant liability	$	4	$	—	$	—	$	4

Total liabilities measured and recorded at fair value	$	4	$	—	$	—	$	4

The Company did not transfer any financial instruments into or out of Level 3 classification during the three months ended March 31, ~~2022~~2023 or during the year ended December 31, ~~2021.~~2022. See Note 9, Warrants to Acquire Shares of Common Stock, for a reconciliation of the changes in the fair value of the warrant liability for the three months ended March 31, ~~2022.~~2023.

~~A reconciliation of the change in the fair value of the contingent consideration liability for the three months ended March 31, 2022 is as follows (in thousands):~~


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
~~Contingent consideration, December 31, 2021~~	$	~~296~~
~~Change in the estimated fair value of the contingent consideration~~	—
~~Contingent consideration, March 31, 2022~~	$	~~296~~

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The contingent consideration relates to the future contingent payments of up to $32.0 million based on the achievement of certain development and commercial milestones relating to the Company’s nelipepimut-S ("NPS") product candidate, of which $2.0 million has been paid to date. The remaining contingent consideration of up to $30.0 million is payable at the election of the Company in either cash or shares of common stock, provided that the Company may not issue any shares in satisfaction of any contingent consideration, unless it has first obtained approval from its stockholders in accordance with Rule 5635(a) of the Nasdaq Marketplace Rules. The fair value of the contingent consideration is measured at the end of each reporting period using Level 3 inputs. The fair value of development and regulatory milestones are estimated utilizing a probability adjusted, discounted cash flow approach and the fair value of net sales milestones is estimated utilizing an option pricing model with Monte Carlo simulation.

~~The following significant unobservable inputs were used in the valuation of the contingent consideration liability:~~

As of March 31, 2022 As of December 31, 2021
Potential milestone payments $0 - $30 million $0 - $30 million
Discount rate 15.5 % 15.5 %
Cumulative probability of success 5.3 % 5.3 %
Projected years of payments 2028 - 2031 2028 - 2031

5. Acquired In-Process Research and Development

Exclusive License Agreement with GenFleet Therapeutics (Shanghai) Inc.

On March 31, 2022, the Company entered into an exclusive license agreement with GenFleet pursuant to which GenFleet granted to the Company a sublicensable, royalty-bearing license, under certain of its intellectual property, to develop, manufacture, and commercialize GFH009 for the treatment, diagnosis or prevention of disease in humans and animals in the GFH009 Territory. ~~GFH009 is currently in a Phase 1 clinical trial in the United States and China.~~

In consideration for the exclusive license, the Company has agreed to pay to GenFleet (i) an upfront and technology transfer fee of $10.0 million, $4.5 million of which was ~~payable within 30 days of the effective date of the license agreement,~~paid in April 2022 and $5.5 million of which is due ~~upon the first day of the 15th calendar month following the effective date of the license agreement,~~on June 1, 2023, (ii) development and regulatory milestone payments for up to three indications totaling up to $48.0 million in the aggregate, and (iii) sales milestone payments totaling up to $92.0 million in the aggregate upon the achievement of certain net sales thresholds in a given calendar year. The Company has also agreed to pay GenFleet single-digit tiered royalties based upon a percentage of annual net sales, with the royalty rate escalating based on the level of annual net sales of GFH009 in the GFH009 Territory ranging from the low to high single digits.

During the three months ended March 31, 2022, the Company expensed $10.0 million related to the acquired technology as in-process research and development based on the assessment that the technology has no alternative future use, $4.5 million of which was paid in April 2022 and the remaining $5.5 million ~~expected to be paid by the end of the second quarter of~~which is due on June 1, 2023 ~~upon the occurrence of events deemed probable to occur as of March 31, 2022. As of March 31, 2022,~~for which the Company has recorded ~~a current and non-current payable related to the~~an acquired in-process research and development inpayable as of March 31, 2023.

6. Balance Sheet Accounts

Prepaid expenses and other current assets consist of the ~~consolidated balance sheet in~~following (in thousands):


	March 31, 2023		December 31, 2022
Insurance	$	1,644	$	219
Clinical development	218		184
Professional fees	88		82
Other	70		46
Prepaid expenses and other current assets	$	2,020	$	531

Accrued expenses and other current liabilities consist of the ~~amounts of $4.5 million and $5.5 million, respectively.~~following (in thousands):


	March 31, 2023		December 31, 2022
Clinical trial costs	$	5,001	$	4,509
Professional fees	828		338
Compensation and related benefits	623		1,439
Other	33		—
Accrued expenses and other current liabilities	$	6,485	$	6,286

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~6. Balance Sheet Accounts~~

~~Prepaid expenses and other current assets consist of the following (in thousands):~~

March 31, 2022 December 31, 2021
Insurance $ 1,262 $ 217
Clinical development 811 1,309
Deferred offering costs 252 —
Professional fees 151 36
Other 11 27
Prepaid expenses and other current assets $ 2,487 $ 1,589

~~Accrued expenses and other current liabilities consist of the following (in thousands):~~

March 31, 2022 December 31, 2021
Clinical trial costs $ 2,049 $ 1,325
Compensation and related benefits 446 989
Professional fees 261 165
Other 256 161
Accrued expenses and other current liabilities $ 3,012 $ 2,640

7. Commitments and Contingencies

Leases

The Company has a non-cancelable operating lease for certain executive, administrative, and general business office space for its headquarters in New York, New York, which began on June 5, 2020, was amended in February 2022 to add additional space, and has a term through December 31, 2024. The Company assessed the lease amendment for the additional space and determined it should be accounted for as a separate contract.

The weighted average discount rate of the Company's operating leases under FASB Topic ASC 842, Leases ("ASC 842") is approximately 13.95%. As of March 31, ~~2022,~~2023, the leases have a remaining term of ~~2.75~~1.75 years. Rent expense related to the Company's operating leases was approximately $0.1 million for each of the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. The Company made cash payments related to its operating leases of approximately $0.1 million for each of the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

Future minimum lease payments are as follows as of March 31, ~~2022~~2023 (in thousands):


Future minimum lease payments:	Future minimum lease payments:			Future minimum lease payments:
2022 (remaining)		$	378
2023		518
2023 (remaining)				2023 (remaining)	$	390
2024	2024	533		2024	533
Total future minimum lease payments	Total future minimum lease payments	1,429		Total future minimum lease payments	923
Less: imputed interest	Less: imputed interest	(221)		Less: imputed interest	(74)
Current and non-current operating lease liabilities	Current and non-current operating lease liabilities	$	1,208	Current and non-current operating lease liabilities	$	849

~~Table of Contents~~

~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Legal Proceedings

From time to time, the Company is subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business, which may include employment matters, breach of contract disputes and stockholder litigation. Such actions and proceedings are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, when the Company has assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred. In the opinion of management, as of the date hereof, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s consolidated results of operations, financial position or cash flows. As of March 31, ~~2022~~2023, there was no pending or threatened litigation.

8. Stockholders’ Equity

Preferred Stock

The Company has authorized up to 5,000,000 shares of preferred stock, $0.0001 par value per share, for issuance. There were no preferred shares outstanding as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

Common Stock

The Company has authorized up to 350,000,000 shares of common stock, $0.0001 par value per share, for issuance.

As of March 31, ~~2022,~~2023, the Company has shares of common stock reserved for future issuance as follows (in thousands):


~~Warrants outstanding~~			~~518~~
~~Stock options outstanding~~			~~1,006~~
~~RSUs outstanding~~			~~297~~
~~Shares reserved for future issuance under the Company’s 2019 Equity Incentive Plan~~			~~672~~
~~Shares reserved for future issuance under the 2021 Employee Stock Purchase Plan~~			~~290~~
~~Shares reserved for future issuance under the 2017 Employee Stock Purchase Plan~~			14
~~Total common stock reserved for future issuance~~			~~2,797~~

1413

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)


Warrants outstanding			12,361
Stock options outstanding			1,661
RSUs outstanding			444
Shares reserved for future issuance under the 2019 Equity Incentive Plan			880
Shares reserved for future issuance under the 2021 Employee Stock Purchase Plan			229
Total common stock reserved for future issuance			15,575

9. Warrants to Acquire Shares of Common Stock

Warrants Outstanding

The following is a summary of the activity of the Company's warrants to acquire shares of common stock for the three months ended March 31, ~~2022~~2023 (in thousands):


Warrant Issuance	Warrant Issuance	Outstanding, December 31, 2021	Canceled/Expired	Outstanding, March 31, 2022	Exercise Price per Share		Expiration	Warrant Issuance	Outstanding, December 31, 2022	Issued	Outstanding, March 31, 2023	Weighted Average Exercise Price per Share		Expiration
Warrants classified as equity:	Warrants classified as equity:							Warrants classified as equity:
February 2023 Offering								February 2023 Offering	—	7,220	7,220	$	2.77	February 2028
April 2022 Offering								April 2022 Offering	4,630	—	4,630	$	4.08	April 2027
January 2020 Offering	January 2020 Offering	309	—	309	$	3.93	July 2025	January 2020 Offering	309	—	309	$	3.93	July 2025
July 2020 PIPE Offering	July 2020 PIPE Offering	25	—	25	$	3.30	August 2025	July 2020 PIPE Offering	25	—	25	$	3.30	August 2025
July 2018 Offering	July 2018 Offering	132	—	132	$	7.50	July 2023	July 2018 Offering	132	—	132	$	7.50	July 2023
March 2019 Exercise Agreement	March 2019 Exercise Agreement	30	—	30	$	7.50	March 2024	March 2019 Exercise Agreement	30	—	30	$	7.50	March 2024
Other	Other	9	—	9	$	306.66	December 2022 - June 2024	Other	2	—	2	$	7.50	June 2024
		505	—	505					5,128	7,220	12,348
Warrants classified as liability	Warrants classified as liability	14	(1)	13	$	7.50	September 2023 - November 2023	Warrants classified as liability	13	—	13	$	7.50	September 2023 - November 2023
		519	(1)	518					5,141	7,220	12,361

Warrants to acquire shares of common stock primarily consist of equity-classified warrants. In addition, warrants to acquire shares of common stock that may require the Company to settle in cash are liability-classified warrants.

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Warrants Classified as Equity

The warrants to acquire shares of common stock issued during the February 2023 Offering were recorded as equity upon issuance. During its evaluation of equity classification of these warrants, the Company considered the conditions as prescribed within ASC 815-40, Derivatives and Hedging, Contracts in an Entity’s own Equity (“ASC 815-40”). The conditions within ASC 815-40 are not subject to a probability assessment. The warrants to acquire shares of common stock do not fall under the liability criteria within ASC 480, Distinguishing Liabilities from Equity, as they are not puttable and do not represent an instrument that has a redeemable underlying security. The warrants do meet the definition of a derivative instrument under ASC 815, but are eligible for the scope exception as they are indexed to the Company’s own stock and would be classified in permanent equity if freestanding.

On February 28, 2023, in connection with closing of the February 2023 Offering, the Company entered into amendments to an aggregate of 3,438,851 warrants, which had been previously issued by the Company in an underwritten public offering that closed on April 5, 2022 (the "April 2022 Offering"), to reduce the exercise price of such warrants from $5.40 to $3.62, the average closing price of the Company’s common stock, as reported on the Nasdaq Capital Market, for the five trading days immediately preceding the pricing of the February 2023 Offering. The Company accounted for the amendment as a cost to issue equity with the incremental fair value of approximately $0.3 million recognized as an offset to the proceeds received. However, there was no net impact to the consolidated statements of stockholders' equity because the warrants are equity classified.

Warrants Classified as Liabilities

Liability-classified warrants consist of warrants to acquire common stock issued in connection with certain previous equity financings. These warrants may be settled in cash and were determined not to be indexed to the Company’s common stock.

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the consolidated statement of operations as change in fair value of warrant liability. The fair value of the warrants is estimated using a Black-Scholes pricing model with the following inputs:


		March 31, 2022			December 31, 2021				March 31, 2023			December 31, 2022
Risk free interest rate	Risk free interest rate	1.96		%	0.65		%	Risk free interest rate	4.94		%	4.75		%
Volatility	Volatility	140.67		%	131.04		%	Volatility	167.84		%	120.60		%
Expected term (years)	Expected term (years)	1.50			1.75			Expected term (years)	0.50			0.75
Expected dividend yield	Expected dividend yield	—		%	—		%	Expected dividend yield	—		%	—		%
Strike price	Strike price	$	7.50		$	7.50		Strike price	$	7.50		$	7.50

The expected volatility assumptions are based on the Company's implied volatility in combination with the implied volatilities of similar publicly traded entities. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero coupon rates in effect at the time of valuation. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.

~~Table of Contents~~

~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

The changes in fair value of the warrant liability for the three months ended March 31, ~~2022~~2023 were as follows (in thousands):


Warrant liability, December 31, ~~2021~~2022	$	404


Change in fair value of warrants	11 (2)
Warrant liability, March 31, ~~2022~~2023	$	512

Table of Contents

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

10. License Revenue

Exclusive License Agreement with 3D Medicines Inc.

In December 2020, the Company, together with its wholly-owned subsidiary, SLSG Limited, LLC, entered into ~~an Exclusive~~the 3DMed License Agreement, ~~(the “3DMed License Agreement”) with 3D Medicines Inc. ("3DMed"),~~ pursuant to which the Company granted 3DMed a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS ~~(referred to as~~ ("GPS ~~Plus)~~Plus") product candidates ("GPS Licensed Products") for all therapeutic and other diagnostic uses in ~~mainland China, Hong Kong, Macau and Taiwan ("~~the 3DMed ~~Territory").~~Territory. The license is exclusive except with respect to certain know-how that has been non-exclusively licensed to the Company and is sublicensed to 3DMed on a non-exclusive basis. The Company has retained development, manufacturing and commercialization rights with respect to the GPS Licensed Products in the rest of the world.

In partial consideration for the rights granted by the Company, 3DMed agreed to pay the Company (i) a one-time upfront cash payment of $7.5 million, and (ii) milestone payments totaling up to $194.5 million in the aggregate upon the achievement of certain technology transfer, development and regulatory milestones, as well as sales milestones based on certain net sales thresholds of GPS Licensed Products in the 3DMed Territory in a given calendar year. 3DMed also agreed to pay tiered royalties based upon a percentage of annual net sales of GPS Licensed Products in the 3DMed Territory ranging from the high single digits to the low double digits.

Revenue Recognition

The Company determined the initial transaction price of the single performance obligation to be $9.5 million, which included the $7.5 million upfront fee as well as $2.0 million in development milestones that were assessed as probable of being achieved at the inception of the 3DMed License Agreement and therefore were not ~~constrained. As of December 31, 2021,~~constrained, and the full $9.5 million initial transaction price was fully recognized as licensing revenue. The Company determined that the remaining $192.5 million in certain future development, regulatory, and sales milestones iswas variable consideration subject to constraint at inception. At the end of each reporting period, the Company reevaluates the probability of achievement of the future development, regulatory, and sales milestones subject to constraint and, if necessary, will adjust its estimate of the overall transaction price. Any such adjustments will be recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

On March 31, 2022, the Company announced that an IND application filed by 3DMed, pursuant to its 3DMed License Agreement for GPS, for a small Phase 1 clinical trial investigating safety of GPS in China was approved by China's ~~NMPA.~~National Medical Products Administration ("NMPA"). The IND approval by the NMPA triggered a $1.0 million milestone payment to the Company which was ~~received subsequent to March 31,~~recognized as licensing revenue in the first quarter of 2022. An additional $191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of March 31, ~~2022,~~2023, which milestones are variable in nature and not under the Company's control. The current clinical development plan provides for initiation of a Phase II clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial; the initiation of the Phase II clinical trial will also trigger a milestone payment to the Company which is expected in the second half of 2022 subject to any potential delays due to COVID-related lockdowns in China.

For the sales-based royalties, the Company will recognize revenue when the related sales occur. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

There was ~~$1.0 million in~~no license revenue recognized during the three months ended March 31, ~~2022,~~2023, and ~~$5.7~~$1.0 million of license revenue recognized during the three months ended March 31, ~~2021.~~2022.

There was no cost of license revenue recognized during the three months ended March 31, 2023, and $0.1 million in cost of license revenue for sublicensing fees incurred during the three months ended March 31, 2022 under the Company's license from MSK in connection with the 3DMed License Agreement.

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

There was $0.1 million in cost of license revenue for sublicensing fees incurred during the three months ended March 31, 2022, and 2021 under the Company's license from MSK in connection with the 3DMed License Agreement.

11. Stock-Based Compensation

2017 Equity Incentive Plan

On December 29, 2017, the 2017 Equity Incentive Plan was approved by the stockholders of the Company, which provided for the issuance of up to approximately 22,000 shares of common stock underlying stock options granted prior to September 10, 2019. The 2017 Equity Incentive Plan was terminated upon the approval of the 2019 Incentive Plan subject to outstanding stock options granted under the 2017 Equity Incentive Plan that remain exercisable through maturity for the Company's employees and directors.

2019 Equity Incentive Plan

On September 10, 2019, the 2019 Equity Incentive Plan was approved by the stockholders of the Company, which currently allows for issuance of up to approximately ~~1,964,000~~3,014,000 shares of common stock in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate.

The number of shares reserved for issuance under the 2019 Equity Incentive Plan ~~will~~ automatically ~~increase~~increased on January 1 of each year, for a period of ~~not more than~~ four years, commencing on January 1, 2020 and ending on (and including) January 1, 2023, by an amount equal to the lesser of (i) 5% of the total number of shares of common stock outstanding at the end of the prior fiscal year; and (ii) an amount determined by the board of directors or authorized committee. As of March 31, ~~2022,~~2023, approximately ~~672,000~~880,000 shares of common stock were reserved for future grants under the 2019 Equity Incentive Plan.

The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Research and development	Research and development	$	55	$	14	Research and development	$	96	$	55
General and administrative	General and administrative	320		170		General and administrative	444		320
Total stock-based compensation	Total stock-based compensation	$	375	$	184	Total stock-based compensation	$	540	$	375

Options to Purchase Shares of Common Stock

The following table summarizes stock option activity of the Company for the three months ended March 31, ~~2022:~~2023:

Total
Number of
Shares
(In Thousands) Weighted
Average
Exercise
Price Weighted Average Remaining Contractual Term (In Years) Aggregate
Intrinsic
Value
(In Thousands)
Outstanding at December 31, 2021 534 $ 10.09 8.77 $ 681
Granted 472 5.31
Outstanding at March 31, 2022 1,006 $ 7.85 9.14 $ 1,540
Options exercisable at March 31, 2022 214 $ 14.43 8.27 $ 500


	Total Number of Shares (In Thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (In Thousands)
Outstanding at December 31, 2022	1,040	$	7.57
Granted	648	3.28

Canceled	(27)	6.44
Outstanding at March 31, 2023	1,661	$	5.92	8.55	$	—
Options exercisable at March 31, 2023	477	$	10.02	7.84	$	—

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~~SELLAS LIFE SCIENCES GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

The aggregate intrinsic values of outstanding and exercisable stock options at March 31, ~~2022~~2023 were calculated based on the closing price of the Company’s common stock as reported on the Nasdaq Capital Market on March 31, ~~2022~~2023 of ~~$6.68~~$1.43 per share. The aggregate intrinsic value equals the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying stock options.

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The Company uses the Black-Scholes option-pricing model to determine the fair value of all its stock options granted. The weighted average assumptions used during the nine months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, were as follows:


		Three Months Ended March 31,						Three Months Ended March 31,
			2022		2021				2023		2022
Risk free interest rate	Risk free interest rate		1.79	%	1.03	%	Risk free interest rate		3.79	%	1.79	%
Volatility	Volatility		130.43	%	121.20	%	Volatility		127.68	%	130.43	%
Expected lives (years)	Expected lives (years)		6.20		6.17		Expected lives (years)		6.20		6.20
Expected dividend yield	Expected dividend yield		—	%	—	%	Expected dividend yield		—	%	—	%

The weighted-average grant date fair value of options granted during the three months ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 was ~~$4.79~~$2.95 and ~~$6.98,~~$4.79, respectively.

The Company’s expected common stock price volatility assumption is based upon the Company's own implied volatility in combination with the implied volatility of a basket of comparable companies. The expected life assumptions for employee grants were based upon the simplified method, which averages the contractual term of the Company’s options of ten years with the average vesting term of four years for an average of approximately six years. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption is zero because the Company has never paid cash dividends and presently has no intention to do so. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. The Company accounts for forfeitures as they occur.

As of March 31, ~~2022,~~2023, there was ~~$4.0~~$4.3 million of unrecognized compensation cost related to outstanding stock options that is expected to be recognized as a component of the Company’s operating expenses over a weighted-average period of ~~3.12~~2.9 years.

Time-vested RSUs and RSUs with Performance Conditions

The following table summarizes RSU activity of the Company for the three months ended March 31, ~~2022:~~2023:

Shares
(In Thousands) Weighted Average Grant Date Fair Value
Unvested at December 31, 2021 200 $ 2.81
Granted 97 $ 5.34
Unvested at March 31, 2022 297 $ 3.64


	Shares (In Thousands)	Weighted Average Grant Date Fair Value
Unvested at December 31, 2022	255	$	3.25
Granted	195	$	3.34
Canceled	(6)	$	3.34

Unvested at March 31, 2023	444	$	3.29

As of March 31, ~~2022,~~2023, there was ~~$1.0~~$1.4 million of unrecognized compensation cost related to outstanding RSUs that is expected to be recognized as a component of the Company's operating expenses over a weighted-average period of ~~2.76~~2.5 years. No RSUs vested during the three months ended March 31, ~~2022.~~2023.

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

2021 Employee Stock Purchase Plan

On April 22, 2021, the Board of Directors adopted the 2021 Employee Stock Purchase Plan ("2021 ESPP") which was approved by the Company's stockholders on June 8, 2021. The 2021 ESPP allows employees to contribute up to 20% of their cash earnings, subject to a maximum of $25,000 per year under Internal Revenue Service rules, to be used to purchase shares of the Company’s common stock on semi-annual purchase dates. The 2021 ESPP allows eligible employees to purchase shares of common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month offering period during the term of the 2021 ESPP.

During the three months ended March 31, ~~2022, 10,362~~2023, 45,416 shares of common stock were purchased by employees under the 2021 ESPP. There are currently ~~289,638~~229,495 shares of common stock reserved for issuance under the 2021 ESPP as of March 31, ~~2022.~~

~~2017 Employee Stock Purchase Plan~~

The Company also has the 2017 Employee Stock Purchase Plan ("2017 ESPP"). As of March 31, 2022, the Board of Directors has not established the various parameters under the 2017 ESPP and no shares have been delivered under the 2017 ESPP. There are 14,302 shares of common stock reserved for issuance under the 2017 ESPP as of March 31, 2022.2023.

12. Subsequent Events

The Company evaluated all events or transactions that occurred after March 31, ~~2022~~2023 up through the date these consolidated financial statements were issued. Other than as disclosed elsewhere in the notes to the consolidated financial statements, the Company did not have any material subsequent events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition as of March 31, ~~2022~~2023 and results of operations for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as filed with the Securities and Exchange Commission, or SEC, on March ~~31, 2022,~~16, 2023, or our ~~2021~~2022 Annual Report, and our other public reports filed with the SEC.

Overview

We are a late-stage clinical biopharmaceutical company focused on the development of novel ~~cancer therapies~~therapeutics for a broad range of cancer indications. Our product ~~development~~ candidates currently include galinpepimut-S, or GPS, a peptide immunotherapy directed against the Wilms tumor 1, or WT1, antigen, and ~~GFH009. We are pursuing an outlicensing strategy for~~GFH009, a ~~third product candidate, nelipepimut-S,~~highly selective small molecule cyclin-dependent kinase 9, or ~~NPS.~~CDK9, inhibitor.

Galinpepimut-S, or ~~GPS~~GPS: Highly Novel and Engineered Immunotherapy targeting the WT1 Antigen

Our lead product candidate, GPS, is a cancer immunotherapeutic agent licensed from Memorial Sloan Kettering Cancer Center, or MSK, that targets the ~~Wilms tumor 1, or~~ WT1 protein, which is present in 20 or more cancer types. Based on its mechanism of action as a directly immunizing agent, GPS has potential as a monotherapy or in combination with other immunotherapeutic agents to address a broad spectrum of hematologic, or blood, cancers and solid tumor indications.

In January 2020, we commenced in the United States aan open label randomized Phase 3 clinical trial, the REGAL study, for GPS monotherapy in patients with acute myeloid leukemia, or AML, in the maintenance setting after achievement of second complete remission, or CR2, following successful completion of second-line antileukemic therapy. Patients are randomized (1:1) to receive either GPS or best available treatment, or BAT. We expect this study will be used as the basis for submission of a Biologics License Application, or BLA, subject to a statistically significant and clinically meaningful data outcome and agreement with the U.S. Food &and Drug Administration, or the FDA. The primary endpoint of the clinical trial is overall survival. We plan to enroll approximately ~~116~~125 to 140 patients at ~~up to~~ approximately 8595 clinical sites in ~~the United States,~~North America, Europe and Asia with a planned interim safety, efficacy and futility analysis after 8060 events (deaths). Under our current planning assumptions, which take into account our best estimates of potential delays due to COVID-19, we believe that we will complete enrollment for the REGAL study in late 2022 or early in the first quarter of 2023. Based upon these current assumptions with respect to completion of enrollment and the estimated survival times for both the treated and control groups in the study, we believe, after previous discussions with our external statisticians and experts, that the planned interim analysis after 8060 events (deaths) per the protocol will occur by the end of 2023 or early 2024 and the ~~first half~~final analysis after 80 events will occur by the end of ~~2023, provided~~2024. It is important to note that ~~our statistical assumptions and assumptions regarding the impact of COVID-19 on the operations of our clinical sites as well as the duration of the pandemic remain unchanged. Because this analysis is~~because these analyses are event driven, itthey may occur at a different time than currently expected.

In December 2020, we entered into an exclusive license agreement, or 3DMed License Agreement, with 3D Medicines Inc., or ~~3DMed,~~3D Medicines, a China-based biopharmaceutical company developing next-generation immuno-oncology drugs, for the development and commercialization of GPS, as well as ~~our~~the Company’s next generation heptavalent immunotherapeutic ~~GPS Plus,~~GPS+, which is at preclinical stage, across all therapeutic and diagnostic uses in ~~the Greater China territory (mainland~~mainland China, Hong Kong, Macau and ~~Taiwan).~~Taiwan, which we refer to as Greater China. We have retained sole rights to GPS and ~~GPS Plus~~GPS+ outside of Greater China. In November 2022, we announced that we have agreed with 3D Medicines for 3D Medicines to participate in the REGAL study through the inclusion of approximately 20 patients from mainland China. Such participation by 3D Medicines will trigger two development milestone payments totaling $13.0 million, which we expect to receive prior to the end of the third quarter of 2023. If the REGAL study meets its primary endpoint for efficacy and the Chinese regulatory authorities determine that the REGAL data is sufficient for approval in China, GPS could potentially reach the market in Greater China ~~area. On~~much earlier than we and 3D Medicines had anticipated when we entered into the license agreement in December 2020. As of March ~~30, 2022,~~31, 2023, we have received an ~~investigational new drug, or IND, application filed by 3DMed to initiate~~aggregate of $10.5 million in upfront and milestone payments under our license agreement with 3D Medicines and a total of $191.5 million in potential future development, regulatory and sales milestones, not including future royalties, remains under the ~~first clinical trial~~license agreement, which milestones are variable in China for 3D189, also known as GPS, was approved by China’s National Medical Products Administration, or NMPA. The IND is for a small Phase 1 clinical trial investigating safety. The approval by the NMPA triggered a $1.0 million milestone payment to the Company which was received in the second quarter of 2022.nature and not under our control.

In December 2018, pursuant to a Clinical Trial Collaboration and Supply Agreement, we initiated a Phase 1/2 multi-arm ~~“basket”~~"basket" type clinical study of GPS in combination with Merck & Co., Inc.’s ~~or Merck,~~ anti-PD-1 therapy, ~~Keytruda® (pembrolizumab)~~pembrolizumab (Keytruda). In 2020, we, ~~and~~together with Merck, determined to focus on ovarian cancer (second or third ~~line WT1+ relapsed or refractory metastatic ovarian cancer)~~line). WeIn November 2022, we reported ~~updated~~topline clinical and initial immune response data from this study, which showed that treatment with the combination of GPS and pembrolizumab compared favorably to treatment with anti-PD-1 therapy alone in ~~June 2021. In February 2022, we reported that we had completed enrollment of 17 evaluable patients in this study. Data from 15 of the 17 evaluable patients is expected~~a similar patient population. We plan to ~~be examined by mid-2022, with~~present final data ~~analysis for all evaluable patients expected by~~from this study at a medical conference in the ~~end~~fourth quarter of ~~2022.~~2023.

In February 2020, ~~we commenced~~ a Phase 1 open-label investigator-sponsored clinical trial of GPS, in combination with Bristol-Myers Squibb’s anti-PD-1 therapy, nivolumab ~~(Opdivo®)~~(Opdivo), in patients with malignant pleural mesothelioma, or MPM, who harbor relapsed or refractory disease after having received frontline standard of care multimodality therapy was commenced at MSK. ~~In June 2021, we announced updated data from this study. Completion of enrollment~~Enrollment of a target total of 10 evaluable patients ~~is expected during~~was completed at the ~~second half~~end of 2022. We expect to report ~~additional clinical and immune response~~topline data from this study in the ~~first half~~second quarter of ~~2022.~~2023.

GPS was granted Orphan Drug Product Designations from the FDA, as well as Orphan Medicinal Product Designations from the European Medicines Agency, or EMA, for GPS in AML, MPM, and multiple myeloma, or MM, as well as Fast Track ~~designation~~Designation for AML, MPM, and MM from the FDA.

~~GFH009~~GFH009: Highly Selective Next Generation CDK9 Inhibitor

On March 31, 2022, we entered into an exclusive license agreement, or the GFH009 Agreement, with GenFleet Therapeutics (Shanghai), Inc., or GenFleet, a clinical-stage biotechnology company developing cutting-edge therapeutics in oncology and immunology, that grants rights to us for the development and commercialization of GFH009, a highly selective small molecule ~~cyclin-dependent kinase 9, or~~ CDK9 inhibitor, across all therapeutic and diagnostic uses worldwide, ~~outside of mainland China, Hong Kong, Macau and Taiwan.~~except for Greater China.

CDK9 activity has been shown to correlate negatively with overall survival in a number of cancer types, including hematologic cancers, such as AML and lymphomas, as well as solid cancers, such as osteosarcoma, pediatric soft tissue sarcomas, ~~and~~ melanoma, ~~and~~ endometrial, lung, prostate, breast and ~~ovarian cancer.~~ovarian. As demonstrated in ~~pre-clinical~~preclinical and clinical data, to date, GFH009’s high selectivity has the potential to reduce toxicity as compared to older CDK9 inhibitors and other next-generation CDK9 inhibitors currently in clinical ~~development.~~development and to potentially be more efficacious.

~~GFH009 is currently~~In April 2023, we announced the completion of the safety evaluation stage of the highest dose cohort of patients with AML who relapsed after or were refractory to available antileukemic therapies in our Phase 1 dose escalation clinical ~~trials~~trial of GFH009. No further dose escalations are planned in the AML group, while dose escalation continues in the lymphoma group with the addition of a 75 mg once-a-week dose cohort, which is planned to be the highest dose level for that group. We expect enrollment in the lymphoma group to be completed in the second quarter of 2023 and to report analyzed data from the lymphoma group in the third quarter of 2023. In May 2023, we announced positive topline data from this study for the group of patients with AML and that the recommended Phase 2 dose, or RP2D, in AML, was established and submitted to the U.S. Food and Drug Administration.

We plan to initiate a Phase 2a clinical trial during the second quarter of 2023 with GFH009 in combination with venetoclax and azacitidine, or aza/ven, in patients with AML who relapsed after or are refractory to treatment with venetoclax based therapies. The trial will be a single arm, open label dose ranging study with one dose level at the RP2D and one dose below RP2D. Primary endpoints will be complete response composite rate, and safety, and secondary endpoints will include duration of response, event free survival, overall survival, and proportion of patients proceeding to transplant. The trial will include several sites in the United States, will initially enroll approximately 20 patients and, ~~China. There~~based on initial results, may be expanded into a registrational trial. Topline data from this study are ~~six dose levels~~expected in ~~this dose-escalating trial~~the fourth quarter of up to 80 patients (2.5 mg, 4.5 mg, 9 mg, 15 mg, 22.5 mg, and 30 mg) and the indications are relapsed/refractory AML, chronic lymphocytic leukemia, or CLL, small lymphocytic leukemia, or SLL, and lymphoma. The fifth dose level (22.5 mg) cohort of the study (in relapsed/refractory AML) began in early April 2022. GFH009 is administered twice a week in this study. The primary goal of the trial is to establish the maximum tolerated dose and to assess safety. We expect the trial to be completed by the end of 2022.2023.

~~Following completion of the Phase 1 clinical trial and achievement of a maximum tolerated dose, we intend~~We are also planning to potentially commence a Phase 2 clinical trial of GFH009 in ~~combination with venetoclax and azacitidine~~certain solid tumors and/or lymphoma in ~~AML patients. The current standard of care for~~ the vast majority of AML patients, including older patients, is venetoclax in combination with a hypomethylating agent such as azacitidine. GFH009 has shown in preclinical models a strong synergy with venetoclax.

~~The goal of the Phase 2 clinical trial, which we expect to initiate by the end of the second~~third quarter of 2023 ~~would be~~and are exploring various options with respect to ~~show improved efficacy of venetoclax and would include patients who are resistant to venetoclax. We also intend to commence a Phase 1/2 basket~~ clinical ~~trial of monotherapy~~development for GFH009 in several pediatric soft tissue sarcomas including Ewing’s sarcoma and rhabdomyosarcoma in late 2022 or early 2023 and complete by the end of 2023. We believe positive results from this program could provide the basis for a rare pediatric disease priority voucher.

~~Nelipepimut-S or NPS~~

Nelipepimut-S, or NPS, is a cancer immunotherapy that targets human epidermal growth factor receptor 2, or HER2, expressing cancers. We do not currently plan to conduct or fund a further development program for NPS and are seeking to out-license the asset.indications.

~~Impact of COVID-19~~

The ongoing global COVID-19 pandemic, including the surges of cases from the Delta and Omicron variants, continues to disrupt our business operations and those of our collaborators, including 3D Med and GenFleet, contractors, contract research organizations, or CROs, suppliers, clinical sites, contract manufacturing organizations, or CMOs, and other partners. The COVID-19 pandemic could affect the health and availability of our workforce and that of the third-parties we rely on, such as our CROs, clinical sites, CMOs, and other contractors as well as the governmental agencies, such as the FDA and health authorities in other countries which could delay or otherwise adversely impact the ability of such parties to fulfill their obligations. We have implemented a return-to-work policy in compliance with federal, state and local requirements and guidance, which provides for a hybrid of remote and in-office work. We are continuously monitoring the impact of the pandemic on our clinical development programs and on those of our partners, 3DMed and GenFleet. Our Phase 3 REGAL study is progressing, with the necessary work to activate additional sites in the United States, Europe and Asia continuing. However, since the onset of the COVID-19 pandemic, we have observed that, at certain times and in certain instances, clinical site initiations, patient screening and patient enrollment have been delayed. These delays are likely due to many reasons, which have been changing and evolving as the COVID-19 pandemic itself has evolved, including the prioritization of hospital resources towards the care of patients with COVID-19, delays in reviews and approvals by independent institutional review boards, or IRBs, and/or ethics committees at clinical sites, the challenges for clinicians and patients to comply with clinical trial protocols due to quarantines impeding patient movement or interrupting operations at sites, restrictions on travel and, most recently, inadequate staffing at clinical sites, supply chain-related delays, materials shortages and, most recently, lockdowns in China. Throughout the United States, Europe and Asia, newly initiated sites have taken longer than expected to become fully operational and begin enrolling patients. We are continuing to monitor each clinical site through our CROs as well as conducting direct outreach to investigators and study staff through site visits investigator meetings and other modes of communication. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new variants of COVID-19, and the actions to contain COVID-19 or treat its impact, including continuing or new lockdowns, among others.

Components of Results of Operations

License Revenue

License revenue consists of revenue recognized pursuant to ~~our Exclusive License Agreement with 3DMed dated December 7, 2020, or~~ the 3DMed License Agreement. In the future, we may generate revenue from a combination of ~~reimbursements, up-front payments,~~regulatory, development, and sales milestone payments and royalties in connection with the 3DMed License Agreement.

Cost of License Revenue

Cost of license revenue consists of sublicensing fees incurred under our license from MSK in connection with the 3DMed License Agreement.

Research and Development ~~Expense~~

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:

•expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

•manufacturing ~~expenses;~~

•~~quality control~~ and ~~quality assurance services;~~clinical drug supply expenses;

•outsourced professional scientific development services;

•employee-related expenses, which include salaries, benefits and stock-based compensation;

•payments made under our license agreements, under which we acquired certain intellectual property;

•expenses relating to certain regulatory activities, including filing fees paid to regulatory agencies;

•laboratory materials and supplies used to support our research activities; and

•allocated expenses, utilities and other facility-related costs.

The successful development of our current and future product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from, any current or future product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of our clinical trials, which vary significantly over the life of a project as a result of many factors, ~~including, but not limited to:~~including:

•the number and geographical location of clinical sites ~~and participating countries~~ included in the trials;

•the length of time required to enroll suitable patients;

•the number and geographical location of patients that ultimately participate in the trials;

•the number of doses patients receive;

•the duration of patient follow-up;

•the results of clinical trials;

•the expenses associated with ~~manufacturing;~~manufacturing and clinical drug supply;

•the receipt of marketing approvals; and

•the commercialization of current and future product ~~candidates; and~~

•~~the impact of the COVID-19 pandemic.~~candidates.

Research and development activities are central to our business model. Oncology product candidates in the later stages of clinical development generally have higher development costs than those in the earlier stages of clinical development, primarily due to the increased size and duration of the later-stage clinical trials. We expect our research and development expenses to increase for the foreseeable future as we conduct and complete our ongoing early and ~~late stage~~late-stage clinical trials and initiate additional clinical trials.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals. We may never succeed in achieving regulatory approval for any of our current or future product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or target indications or focus on others. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, ~~due to the COVID-19 pandemic or otherwise,~~ we could be required to expend significant additional financial resources and time on the completion of clinical development.

~~Acquired In-Process Research and Development~~

~~Acquired in-process research and development consists of costs to acquire or license product candidates from third-parties for development with no alternative future use.~~

General and Administrative ~~Expense~~

General and administrative expenses consist principally of salaries and related costs for personnel in executive, administrative, finance and legal functions, including stock-based compensation, travel expenses and recruiting expenses, fees for outside legal counsel, ~~amortization of contract acquisition costs (commissions),~~ and director and officer insurance premiums. Other general and administrative expenses include facility related costs, patent filing and prosecution costs, professional fees for business development, accounting, consulting, legal and tax-related services associated with maintaining compliance with our Nasdaq listing and SEC reporting requirements, investor relations costs, and other expenses associated with being a public company.

If and when we believe that regulatory approval of a product candidate appears likely, we anticipate that an increase in general and administrative expenses will occur as a result of our preparation for commercial operations, particularly as it relates to the sales and marketing of such product candidate. Oncology product commercialization may take several years and millions of dollars in development costs.

Acquired In-Process Research and Development

Acquired in-process research and development consists of costs to acquire or license product candidates from third parties for development with no alternative future use as the technology and know-how acquired are not currently commercially viable.

Non-Operating Income (Expense) ~~Income,~~, Net

Non-operating income (expense) ~~income,~~, net consists of changes in fair value of our warrant liability, changes in fair value of our contingent consideration, and interest income. Interest income primarily reflects the interest earned from our cash and cash equivalents.

Critical Accounting Policies and Estimates

In the ~~2021~~2022 Annual Report, we disclosed our critical accounting policies and estimates upon which our financial statements are derived. There have been no material changes to these policies and estimates since December 31, ~~2021~~2022 that are not included in Note 3 of the accompanying consolidated financial statements for the three months ended March 31, ~~2022.~~2023. Readers are encouraged to read the ~~2021~~2022 Annual Report in conjunction with this Quarterly Report on Form 10-Q.

2423

Results of Operations for the Three and Nine Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

The following table summarizes our results of operations for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended March 31,							Three Months Ended March 31,
		2022		2021		Change			2023		2022		Change
Licensing revenue	Licensing revenue	$	1,000	$	5,700	$	(4,700)	Licensing revenue	$	—	$	1,000	$	(1,000)
Operating expenses:	Operating expenses:							Operating expenses:
Cost of license revenue	Cost of license revenue	100		100		—		Cost of license revenue	—		100		(100)
Research and development	Research and development	4,611		4,284		327		Research and development	7,174		4,611		2,563
General and administrative								General and administrative	4,107		3,024		1,083
Acquired in-process research and development	Acquired in-process research and development	10,000		—		10,000		Acquired in-process research and development	—		10,000		(10,000)
General and administrative		3,024		3,561		(537)
Total operating expenses	Total operating expenses	17,735		7,945		9,790		Total operating expenses	11,281		17,735		(6,454)
Operating loss	Operating loss	(16,735)		(2,245)		(14,490)		Operating loss	(11,281)		(16,735)		5,454
Non-operating income (expense), net	Non-operating income (expense), net	(9)		(158)		149		Non-operating income (expense), net	184		(9)		193
Net loss	Net loss	$	(16,744)	$	(2,403)	$	(14,341)	Net loss	$	(11,097)	$	(16,744)	$	5,647

Further analysis of the changes and trends in our operating results are discussed below.

Licensing Revenue

There was no licensing revenue for the three months ended March 31, 2023. Licensing revenue was $1.0 million for the three months ended March 31, 2022 and was related to China's National Medical Products Administration, or NMPA, approving an IND application for a small Phase I clinical trial investigating safety of GPS in China, which triggered a development milestone under the 3DMed License Agreement. Licensing revenue was $5.7 million for the three months ended March 31, 2021 and was related to the initial transaction price of $9.5 million under the 3DMed License Agreement, which was recognized over a period of time to satisfy the out-licensing of intellectual property rights and transfer of technical know-how.

Cost of License Revenue

There was no cost of license revenue during the three months ended March 31, 2023. We incurred $0.1 million of sublicensing fees payable under our license from MSK in connection with the 3DMed License Agreement during the three months ended March 31, ~~2022 and 2021.~~2022.

Research and Development

Research and development expenses were $7.2 million for the three months ended March 31, 2023 compared to $4.6 million for the three months ended March 31, ~~2022 compared to $4.3 million for the three months ended March 31, 2021.~~2022. The ~~$0.3~~$2.6 million increase was primarily attributable to a ~~$1.3~~$0.9 million increase in clinical trial expenses primarily related to our ongoing Phase 3 REGAL clinical trial of GPS in AML and Phase 1 clinical trial of GFH009 in hematological malignancies, a ~~$0.3~~$0.8 million increase related to clinical and regulatory consulting expenses, a $0.5 million increase in personnel related expenses due to increased ~~headcount. These increases were partially offset by~~headcount, and a ~~$1.1~~$0.4 million ~~decrease~~increase in manufacturing expenses due to clinical drug supply costs.

General and Administrative

General and administrative expenses were $4.1 million for the ~~timing of~~three months ended March 31, 2023 compared to $3.0 million for the ~~manufacturing of registration batches of GPS~~three months ended March 31, 2022. The $1.1 million increase was primarily due to a $0.4 million increase in ~~the prior year~~personnel related expenses due to increased headcount, a $0.3 million increase in legal fees, a $0.2 million increase in outside services and public company costs, and a $0.2 million ~~decrease in other research and development expenses. We anticipate that our research and development expenses will~~ increase in ~~the future as we continue to advance the development of GPS~~office and ~~GFH009, including our Phase 3 clinical trial of GPS in AML, the ongoing basket trial of GPS in combination with pembrolizumab,~~other general and ~~the ongoing Phase 1 clinical trial of GFH009.~~administrative expenses.

Acquired In-Process Research and Development

There was no acquired in-process research and development during the three months ended March 31, 2023. During the three months ended March 31, 2022, we recognized $10.0 million for the acquisition of in-process research and development related to the in-licensing of GFH009. ~~There was no acquired in-process research and development during the three months ended March 31, 2021.~~

~~General and Administrative~~

General and administrative expenses were $3.0 million for the three months ended March 31, 2022 compared to $3.6 million for the three months ended March 31, 2021. The $0.6 million decrease was primarily due to a $0.8 million decrease related to the amortization of contract asset costs associated with the 3DMed License Agreement in the prior year with no comparable expense in the current year and a $0.3 million decrease in professional service fees. These decreases were partially offset by a $0.4 million increase in personnel related expenses, including a $0.2 million increase in non-cash stock-based compensation, due to increased headcount and a $0.1 million increase in other general and administrative expenses.

Non-Operating Income (Expense), Net

Non-operating income (expense), net for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, was as follows (in thousands):

Three Months Ended March 31,
2022 2021 Change
Change in fair value of warrant liability $ (11) $ (31) $ 20
Change in fair value of contingent consideration — (129) 129
Interest income 2 2 —
Total non-operating income (expense), net $ (9) $ (158) $ 149


	Three Months Ended March 31,
	2023		2022		Change
Change in fair value of warrant liability	$	2	$	(11)	$	13

Interest income	182		2		180
Total non-operating income (expense), net	$	184	$	(9)	$	193

Non-operating income of $0.2 million during the three months ended March 31, 2023 was primarily interest income earned from our cash and cash equivalents. Net non-operating expense was nominal for the three months ended March 31, 2022.

~~Net non-operating expense of $0.2 million during the three months ended March 31, 2021 was primarily due to the increase in the~~The change in ~~the fair value of the contingent consideration liability and a slight increase in the change in the~~ fair value of the warrant liability partially offset by nominal interest income. The change in the fair value of contingent consideration liability reflects the interest component of contingent consideration related to the passage of time. The increase in the estimated fair value of our warrant liability was primarily due to an increase in our common stock price. Interest income consisted of interest earned from our cash and cash equivalents.

~~The change in fair value of warrant liability and change in fair value of contingent consideration are~~is non-cash in nature.

Income Tax Expense

There was no income tax expense for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. We continue to maintain a full valuation allowance against our net deferred tax assets.

Liquidity and Capital Resources

We did not generate any revenue from product sales during the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. Through March 31, ~~2022, the Company has~~2023, we have only generated licensing revenue from the 3DMed License Agreement. Since inception, we have incurred net losses, used net cash in our operations, and have funded substantially all of our operations through proceeds of the sale of equity securities and convertible notes.

Sources of Liquidity

On ~~April 5, 2022,~~February 28, 2023, we consummated an underwritten public offering ~~or the April 2022 Offering,~~(the "February 2023 Offering"), issuing ~~4,629,630~~7,220,217 shares of common stock and accompanying common stock warrants to purchase an aggregate of ~~4,629,630~~7,220,217 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of ~~$5.40~~$2.77 per share and accompanying common stock warrant. Each common stock warrant sold with the shares of common stock represents the right to purchase one share of our common stock at an exercise price of ~~$5.40~~$2.77 per share. The common stock warrants are exercisable immediately and will expire on ~~April 5, 2027,~~February 28, 2028, five years from the date of issuance. The net proceeds ~~to us~~ from the ~~April 2022~~February 2023 Offering were approximately $18.5 million, after deducting ~~the~~ underwriting discounts and commissions and ~~other~~ offering expenses, and excluding the exercise of any ~~warrants, were approximately $23.0 million.~~

On March 31, 2022, the Company announced that an IND application filed by 3DMed, pursuant to its Exclusive License Agreement for GPS, for a small Phase 1 clinical trial investigating safety of GPS in China was approved by China's NMPA. The IND approval by the NMPA triggered a $1.0 million milestone payment to the Company which was received subsequent to March 31, 2022. An additional $191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of March 31, 2022, which milestones are variable in nature and not under the Company's control. The current clinical development plan provides for initiation of a Phase II clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial; the initiation of the Phase II clinical trial will also trigger a milestone payment to the Company which is expected in the second half of 2022, subject to any potential delays due to COVID-related lockdowns in China.warrants.

On April 16, 2021, we entered into a Controlled Equity OfferingSM Sales Agreement ~~or the Sales Agreement,~~(the "Sales Agreement") with Cantor Fitzgerald & Co.~~, or the Agent.~~ (the "Agent"). From time to time during the term of the Sales Agreement, we may offer and sell shares of ~~our~~ common stock having an aggregate offering price up to a total of $50.0 million in gross proceeds. The Agent will collect a fee equal to 3% of the gross sales price of all shares of common stock sold. Shares of common stock sold under the Sales Agreement are offered and sold pursuant to our registration statement on Form S-3, which was filed with the SEC on April 16, 2021 and declared effective on April 29, 2021. ~~Under~~During the ~~Sales Agreement,~~three months ended March 31, 2023, we sold a total of ~~786,927~~76,882 shares of common stock pursuant to the Sales Agreement at an average price of ~~$12.04~~$3.59 per share for aggregate net proceeds of approximately ~~$9.0 million during the year ended December 31, 2021. There were no sales of shares of common stock under the Sales Agreement during the three months ended March 31, 2022.~~$0.3 million. There remains approximately ~~$40.5~~$39.2 million available for future sales of shares of common stock under the Sales ~~Agreement.~~Agreement as of March 31, 2023. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds.

In December 2020, together with our wholly-owned subsidiary, SLSG Limited, LLC, we entered into an Exclusive License Agreement (the “3DMed License Agreement”) with 3D Medicines Inc. ("3DMed"), pursuant to which we granted 3DMed a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by us, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS product candidates for all therapeutic and other diagnostic uses in mainland China, Hong Kong, Macau and Taiwan ("3DMed Territory"). To date, we have received $10.5 million in upfront payments and certain technology transfer and regulatory milestones. The participation of 3DMed in our REGAL Phase 3 clinical trial in China will trigger two development milestone payments totaling $13.0 million to us, which we expect to receive prior to the end of the third quarter of 2023. A total of $191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of March 31, 2023, which milestones are all variable in nature and not under our control.

Funding Requirements

As of March 31, ~~2022,~~2023, we had an accumulated deficit of ~~$155.3~~$191.0 million, cash and cash equivalents of ~~$14.3~~$23.9 million and restricted cash and cash equivalents of $0.1 million. In addition, we had current liabilities of ~~$10.7~~$15.5 million as of March 31, ~~2022.~~2023. We expect that our cash and cash equivalents ~~together with the net proceeds of approximately $23.0 million from the April 2022 Offering,~~ will not be sufficient to fund our current planned operations for at least the next twelve months from the date of issuance of these financial ~~statements, although we may pursue additional capital resources through public or private equity or debt financings or~~statements. The $13.0 million of development milestone payments to us triggered by ~~establishing additional collaborations with other companies. Our expectations with respect~~3DMed's participation in the REGAL study are variable in nature and not under our control, and therefore are not included in our going concern assumption. These conditions give rise to a substantial doubt over our ability to ~~fund current planned operations~~continue as a going concern. This going concern assumption is based on ~~estimates that are subject to risks~~management’s assessment of the sufficiency of our current and ~~uncertainties. If actual results are different from management's estimates,~~future sources of liquidity and whether or not it is probable we ~~may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. There is no guarantee that any of these strategic or financing opportunities~~ will be ~~executed~~able to meet our obligations as they become due for at least one year from the date our consolidated financial statements are available to be issued, and if not, whether our liquidation is imminent.

Our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or ~~executed on favorable terms,~~the amounts and ~~some could be dilutive~~classification of liabilities that might result from the outcome of this uncertainty. We anticipate incurring additional losses until such time, if ever, that we can generate significant sales of any current or future product candidates in development.

We will require substantial additional financing to ~~existing stockholders.~~develop any current or future product candidates. If we are unable to obtain additional funding on a timely basis, we will be required to scale back our plans and place certain activities on hold. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds. Our management continues to evaluate different strategies to obtain the required funding for future operations. These strategies may ~~be forced to significantly curtail, delay,~~ include utilizing the Sales Agreement, public and private placements of equity and/or ~~discontinue one or more of our planned~~debt securities and payments from potential strategic research and development ~~programs~~ collaborations. Additionally, we continue to pursue discussions with global and regional pharmaceutical companies for licensing and/or ~~be unable~~co-development rights to ~~expand our operations or otherwise prepare for the potential regulatory approval and commercialization of~~ our product ~~candidates, assuming positive data.~~candidates. There can be no assurance that these future funding efforts will be successful.

Our future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of any additional financings, (ii) our ability to complete revenue-generating partnerships with pharmaceutical and biotechnology companies, (iii) the success of our research and development activities, (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (v) regulatory approval and market acceptance of our ~~proposed future products.~~product candidates.

2726

Cash Flows

The following table summarizes our cash flows from operating and financing activities for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Net cash (used in) provided by:	Net cash (used in) provided by:					Net cash (used in) provided by:
Operating activities	Operating activities	$	(7,150)	$	(10,269)	Operating activities	$	(12,127)	$	(7,150)

Financing activities	Financing activities	47		3,000		Financing activities	18,904		47
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents		$	(7,103)	$	(7,269)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents						Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	$	6,777	$	(7,103)

We had no investing activities during the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

Net Cash Used in Operating Activities

Net cash used in operating activities of $12.1 million during the three months ended March 31, 2023 was primarily attributable to our net loss of $11.1 million and the net change in our operating assets and liabilities of approximately $1.6 million, which were partially offset by various net non-cash charges of $0.6 million. The net change in our operating assets and liabilities of $1.6 million is primarily attributable to an increase in prepaid expenses and other current assets of approximately $1.5 million, and a decrease in operating lease liabilities of approximately $0.1 million. Net non-cash charges were driven by $0.5 million in non-cash stock compensation expense and $0.1 million in non-cash lease expense.

Net cash used in operating activities of $7.2 million during the three months ended March 31, 2022 was primarily attributable to our net loss of $16.7 million and the net change in our operating assets and liabilities of approximately $0.9 million, ~~which were~~ partially offset by various net non-cash charges of $10.4 million. The net change in our operating assets and liabilities of $0.9 million is primarily attributable to an increase in accounts receivable under the 3DMed License Agreement ~~for~~of $1.0 million and an increase in prepaid expenses and other current assets of $0.6 million, which were partially offset by an increase in accounts payable of $0.7 million. Net non-cash charges were driven by $10.0 million in expense related to the acquired in-process research and development and $0.4 million in non-cash stock compensation expense.

Net Cash Provided by Financing Activities

We generated $18.9 million in net cash ~~used in operating~~from financing activities ~~of $10.3 million~~ during the three months ended March 31, ~~2021 was primarily attributable to a $9.1 million change in our operating assets and liabilities and our net loss of $2.4 million,~~2023, which was ~~offset by various~~due to approximately $18.5 million in net non-cash charges of $1.2 million. The net change in our operating assets and liabilities of $9.1 million is primarily attributable to a decrease in deferred revenue of $4.7 million and one-time payments totaling $1.4 million for contract acquisition costs related toproceeds from the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed License Agreement, a $2.7 million increase in prepaid expenses and other assets primarily for prepaid insurance premiums and clinical trial costs and aFebruary 2023 Offering, $0.3 million ~~decrease~~ in ~~accounts payable~~net proceeds under the Sales Agreement, and ~~accrued expenses and other current liabilities.~~

~~Net Cash Provided~~$0.1 million from the purchase of shares of common stock by ~~Financing Activities~~employees under the Company's 2021 Employee Stock Purchase Plan.

We generated $0.1 million in net cash from financing activities during the three months ended March 31, 2022 from the purchase of shares of common stock by employees under the Company's 2021 Employee Stock Purchase Plan.

~~We generated $3.0 million of net cash from financing activities for the three months ended March 31, 2021 from the exercise of warrants to acquire shares of common stock.~~

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet financing arrangements as of March 31, ~~2022.~~2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

2827

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and our principal financial officer (the “Certifying ~~Officer”~~Officers”), evaluated the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. Based on these evaluations, the Certifying Officers have concluded, that, as of the end of the period covered by this Quarterly Report on Form 10-Q:

(a)our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(b)our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2928

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Note 7 (Commitments and Contingencies) to our consolidated financial statements contained in Part I, Item 1 (Financial Statements) of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

ITEM 1A. RISK FACTORS

Please refer to our note on forward-looking statements on page 2 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our ~~2021~~2022 Annual Report. The risks described in such ~~2021~~2022 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, operating results and stock price.

~~Risks related to our dependence on third parties and our license agreements~~

We rely on a license agreement with GenFleet for the development of GFH009, and if this license is breached or otherwise terminated, we could lose the ability to continue the development and potential commercialization of GFH009.

We have entered into a license agreement with GenFleet under which we have an exclusive license to develop and commercialize GFH009 worldwide, other than in mainland China, Hong Kong, Macau and Taiwan. Under the license agreement, we are subject to various obligations, including diligence obligations with respect to development and commercialization activities, payment obligations upon achievement of certain milestones, and royalties on annual net sales (if the product candidate is ultimately commercialized), as well as other material obligations. If there is any conflict, dispute, disagreement, or issue of nonperformance between us and GenFleet regarding our rights or obligations under the license agreement, including any such conflict, dispute, or disagreement arising from our failure to satisfy diligence or payment obligations under the license agreement, we may be liable to pay damages and GenFleet may have a right to terminate the license. The loss of the license agreement could prevent us from developing, commercializing, or entering into future strategic transactions relating to GFH009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

3029

ITEM 6. EXHIBITS

Exhibit
#

Description

Form

Exhibit

Filing Date

Exhibit
#

Description

Form

Exhibit

Filing Date

3.1

Composite Amended and Restated Certificate of Incorporation of the Registrant (formerly, Galena Biopharma, Inc.) amended as of December 27, 2017

10-K

3.1

April 13, 2018

3.1

Composite Amended and Restated Certificate of Incorporation of the Registrant (formerly, Galena Biopharma, Inc.) amended as of December 27, 2017

10-K

3.1

April 13, 2018

3.2

Amended and Restated By-Laws of the Registrant

8-K

3.3

January 5, 2018

3.2

Amended and Restated By-Laws of the Registrant

8-K

3.3

January 5, 2018

4.1

Form of Warrant

8-K

4.1

February 24, 2023

10.1

License Agreement effective as of March 31, 2022 by and between SELLAS Life Sciences Group, Inc. and GenFleet Therapeutics (Shanghai) Inc.**

May 12, 2022

10.1

Severance Agreement, dated March 27, 2023, by and between the Registrant and Robert Francomano*

10.2

Form of Amendment to Common Stock Purchase Warrant

8-K

10.1

March 1, 2023

31.1

Certification of Principal Executive Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.**

31.1

Certification of Principal Executive Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.**

31.2

Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.**

31.2

Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.**

32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***

101.INS

XBRL Instance Document.*

101.INS

XBRL Instance Document.*

101.SCH

XBRL Taxonomy Extension Schema.*

101.SCH

XBRL Taxonomy Extension Schema.*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase.*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase.*

101.DEF

XBRL Taxonomy Extension Definition Linkbase.*

101.DEF

XBRL Taxonomy Extension Definition Linkbase.*

101.LAB

XBRL Taxonomy Extension Label Linkbase.*

101.LAB

XBRL Taxonomy Extension Label Linkbase.*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.*


*			Indicates management contract or compensatory plans or arrangements.
**			Filed herewith
***			The ~~certification~~certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall itthey be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

3130

SIGNATURES

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


			SELLAS Life Sciences Group, Inc.

			By:						/s/ Angelos M. Stergiou

									Angelos M. Stergiou, MD, ScD h.c.
									President and Chief Executive Officer

									~~Date: May 12, 2022~~(Principal Executive Officer)

									Date: May 11, 2023

			By:						/s/ John T. Burns

									John T. Burns, CPA
									Chief Financial Officer
									(Principal Financial and Principal Accounting Officer)

									Date: May 11, 2023

3231




		Three Months Ended March 31, 2021
	Common Stock		Additional Paid-In Capital			Accumulated Deficit				Total Stockholders' Equity
		Shares			Amount
Balance at December 31, 2020		14,254,554	$	1		$	145,864	$	(117,904)		$	27,961
Issuance of common stock and common stock warrants, net of issuance costs		830,200	1			2,999		—			3,000
Stock-based compensation		—	—			184		—			184
Net loss		—	—			—		(2,403)			(2,403)
Balance at March 31, 2021		15,084,754	$	2		$	149,047	$	(120,307)		$	28,742


	As of March 31, 2022		As of December 31, 2021
Potential milestone payments	$0 - $30 million		$0 - $30 million
Discount rate	15.5	%	15.5	%
Cumulative probability of success	5.3	%	5.3	%
Projected years of payments	2028 - 2031		2028 - 2031


	Shares (In Thousands)	Weighted Average Grant Date Fair Value
Unvested at December 31, 2021	200	$	2.81
Granted	97	$	5.34

Unvested at March 31, 2022	297	$	3.64