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 ~~June~~September 30, 2022


☐			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 ~~August~~November 10, 2022, SELLAS Life Sciences Group, Inc. had outstanding ~~20,551,918~~20,588,247 shares of common stock.

SELLAS LIFE SCIENCES GROUP, INC.

FORM 10-Q - Quarterly Report

For the Quarter Ended ~~June~~September 30, 2022

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Unaudited Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021	3
	Unaudited Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	4
	Unaudited Consolidated Statements of Stockholders' Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	5
	Unaudited Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	6
	Unaudited Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2119
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3230
Item 4	Controls and Procedures	3230
	PART II - OTHER INFORMATION
Item 1	Legal Proceedings	3432
Item 1A	Risk Factors	3432
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3432
Item 3	Defaults Upon Senior Securities	3432
Item 4	Mine Safety Disclosures	3432
Item 5	Other Information	3432
Item 6	Exhibits	3432

	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.

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 a widespread global health crisis that could adversely affect the economies and financial markets 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, including direct and indirect economic effects as a result of inflation, supply chain disruptions and labor shortages. 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 on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, including infection rate and hospitalizations, the emergence of new variants, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, including the European Union and 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. 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 as filed with the Securities and Exchange Commission ("SEC") on March 31, 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)


		June 30, 2022		December 31, 2021			September 30, 2022			December 31, 2021

ASSETS	ASSETS								ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	26,987	$	21,355	Cash and cash equivalents	$	21,348		$	21,355
Restricted cash and cash equivalents	Restricted cash and cash equivalents	100		100		Restricted cash and cash equivalents	100			100
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,650		1,589		Prepaid expenses and other current assets	1,157			1,589
Total current assets	Total current assets	28,737		23,044		Total current assets	22,605			23,044
Operating lease right-of-use assets	Operating lease right-of-use assets	1,045		723		Operating lease right-of-use assets	961			723
Goodwill	Goodwill	1,914		1,914		Goodwill	1,914			1,914
Deposits and other assets	Deposits and other assets	514		594		Deposits and other assets	521			594
Total assets	Total assets	$	32,210	$	26,275	Total assets	$	26,001		$	26,275
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	3,339	$	2,144	Accounts payable	$	2,127		$	2,144
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	3,006		2,640		Accrued expenses and other current liabilities	4,570			2,640
Operating lease liabilities	Operating lease liabilities	341		198		Operating lease liabilities	356			198
Acquired in-process research and development payable	Acquired in-process research and development payable	5,500		—		Acquired in-process research and development payable	5,500			—
Total current liabilities	Total current liabilities	12,186		4,982		Total current liabilities	12,553			4,982
Operating lease liabilities, non-current	Operating lease liabilities, non-current	783		610		Operating lease liabilities, non-current	680			610
Warrant liability	Warrant liability	3		40		Warrant liability	1			40
Contingent consideration	Contingent consideration	181		296		Contingent consideration	170			296
Total liabilities	Total liabilities	13,153		5,928		Total liabilities	13,404			5,928
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)	0		0		Commitments and contingencies (Note 7)
Stockholders’ equity:	Stockholders’ equity:					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 June 30, 2022 and December 31, 2021		—		—
Common stock, $0.0001 par value; 350,000,000 shares authorized, 20,551,918 and 15,895,637 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		2		2
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 September 30, 2022 and December 31, 2021						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 September 30, 2022 and December 31, 2021	—			—
Common stock, $0.0001 par value; 350,000,000 shares authorized, 20,588,247 and 15,895,637 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock, $0.0001 par value; 350,000,000 shares authorized, 20,588,247 and 15,895,637 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	2			2
Additional paid-in capital	Additional paid-in capital	182,816		158,948		Additional paid-in capital	183,378			158,948
Accumulated deficit	Accumulated deficit	(163,761)		(138,603)		Accumulated deficit	(170,783)			(138,603)
Total stockholders’ equity	Total stockholders’ equity	19,057		20,347		Total stockholders’ equity	12,597			20,347
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	32,210	$	26,275	Total liabilities and stockholders’ equity	$	26,001		$	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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Licensing revenue	Licensing revenue	$	—	$	1,900	$	1,000	$	7,600	Licensing revenue	$	—	$	—	$	1,000	$	7,600
Operating expenses:	Operating expenses:									Operating expenses:
Cost of licensing revenue	Cost of licensing revenue	—		100		100		200		Cost of licensing revenue	—		—		100		200
Research and development	Research and development	5,529		3,456		10,140		7,740		Research and development	4,282		4,541		14,422		12,281
Acquired in-process research and development	Acquired in-process research and development	—		—		10,000		—		Acquired in-process research and development	—		—		10,000		—
General and administrative	General and administrative	3,094		2,797		6,118		6,358		General and administrative	2,864		2,436		8,982		8,794
Total operating expenses	Total operating expenses	8,623		6,353		26,358		14,298		Total operating expenses	7,146		6,977		33,504		21,275
Operating loss	Operating loss	(8,623)		(4,453)		(25,358)		(6,698)		Operating loss	(7,146)		(6,977)		(32,504)		(13,675)
Non-operating income (expense), net:	Non-operating income (expense), net:									Non-operating income (expense), net:
Change in fair value of warrant liability	Change in fair value of warrant liability	48		(28)		37		(59)		Change in fair value of warrant liability	2		30		39		(29)
Change in fair value of contingent consideration	Change in fair value of contingent consideration	115		(134)		115		(263)		Change in fair value of contingent consideration	11		(140)		126		(403)
Interest income	Interest income	46		2		48		4		Interest income	111		2		159		6
Total non-operating income (expense), net	Total non-operating income (expense), net	209		(160)		200		(318)		Total non-operating income (expense), net	124		(108)		324		(426)
Net loss	Net loss	$	(8,414)	$	(4,613)	$	(25,158)	$	(7,016)	Net loss	$	(7,022)	$	(7,085)	$	(32,180)	$	(14,101)

Per share information:	Per share information:									Per share information:
Net loss per common share, basic and diluted	Net loss per common share, basic and diluted	$	(0.41)	$	(0.30)	$	(1.39)	$	(0.47)	Net loss per common share, basic and diluted	$	(0.34)	$	(0.45)	$	(1.70)	$	(0.92)
Weighted-average common shares outstanding, basic and diluted	Weighted-average common shares outstanding, basic and diluted	20,286,624		15,270,288		18,104,176		15,074,887		Weighted-average common shares outstanding, basic and diluted	20,562,351		15,874,076		18,932,571		15,344,210

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 June 30, 2022															Three Months Ended September 30, 2022
		Common Stock			Additional Paid-In Capital				Accumulated Deficit					Total Stockholders' Equity			Common Stock							Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount										Shares					Amount
Balance at March 31, 2022		15,905,999	$	2			$	159,370			$	(155,347)					$	4,025
Balance at June 30, 2022																Balance at June 30, 2022	20,551,918				$	2			$	182,816		$	(163,761)		$	19,057
Issuance of common stock and common stock warrants, net of issuance costs	Issuance of common stock and common stock warrants, net of issuance costs	4,645,919	—		22,996				—					22,996		Issuance of common stock and common stock warrants, net of issuance costs	21,602				—			69			—			69

Issuance of common stock under employee stock purchase plan																Issuance of common stock under employee stock purchase plan	14,727				—			38			—			38
Stock-based compensation	Stock-based compensation	—	—		450				—					450		Stock-based compensation	—				—			455			—			455
Net loss	Net loss	—	—		—				(8,414)					(8,414)		Net loss	—				—			—			(7,022)			(7,022)
Balance at June 30, 2022		20,551,918	$	2	$	182,816			$	(163,761)				$	19,057
Balance at September 30, 2022																Balance at September 30, 2022	20,588,247				$	2		$	183,378		$	(170,783)		$	12,597

		Six Months Ended June 30, 2022															Nine Months Ended September 30, 2022
		Common Stock			Additional Paid-In Capital				Accumulated Deficit					Total Stockholders' Equity			Common Stock							Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount										Shares					Amount
Balance at December 31, 2021	Balance at December 31, 2021	15,895,637	$	2			$	158,948			$	(138,603)					$	20,347	Balance at December 31, 2021	15,895,637			$		2		$	158,948		$	(138,603)		$	20,347
Issuance of common stock and common stock warrants, net of issuance costs	Issuance of common stock and common stock warrants, net of issuance costs	4,645,919	—		22,996				—					22,996		Issuance of common stock and common stock warrants, net of issuance costs	4,667,521				—			23,065			—			23,065

Issuance of common stock under employee stock purchase plan	Issuance of common stock under employee stock purchase plan	10,362	—		47				—					47		Issuance of common stock under employee stock purchase plan	25,089				—			85			—			85
Stock-based compensation	Stock-based compensation	—	—		825				—					825		Stock-based compensation	—				—			1,280			—			1,280
Net loss	Net loss	—	—		—				(25,158)					(25,158)		Net loss	—				—			—			(32,180)			(32,180)
Balance at June 30, 2022		20,551,918	$	2	$	182,816			$	(163,761)				$	19,057
Balance at September 30, 2022																Balance at September 30, 2022	20,588,247				$	2		$	183,378		$	(170,783)		$	12,597


		Three Months Ended June 30, 2021															Three Months Ended September 30, 2021
		Common Stock			Additional Paid-In Capital				Accumulated Deficit					Total Stockholders' Equity			Common Stock							Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount										Shares					Amount
Balance at March 31, 2021		15,084,754	$	2			$	149,047			$	(120,307)					$	28,742
Issuance of common stock and common stock warrants, net of issuance costs		786,927	—		9,005				—					9,005
Balance at June 30, 2021																Balance at June 30, 2021	15,873,941				$	2			$	158,333		$	(124,920)		$	33,415
Issuance of common stock upon exercise of warrants	Issuance of common stock upon exercise of warrants	2,260	—		17				—					17		Issuance of common stock upon exercise of warrants	190				—			2			—			2
Stock-based compensation	Stock-based compensation	—	—		264				—					264		Stock-based compensation	—				—			275			—			275
Net loss	Net loss	—	—		—				(4,613)					(4,613)		Net loss	—				—			—			(7,085)			(7,085)
Balance at June 30, 2021		15,873,941	$	2	$	158,333			$	(124,920)				$	33,415
Balance at September 30, 2021																Balance at September 30, 2021	15,874,131				$	2		$	158,610		$	(132,005)		$	26,607

		Six Months Ended June 30, 2021															Nine Months Ended September 30, 2021
		Common Stock			Additional Paid-In Capital				Accumulated Deficit					Total Stockholders' Equity			Common Stock							Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount										Shares					Amount
Balance at December 31, 2020	Balance at December 31, 2020	14,254,554	$	1			$	145,864			$	(117,904)					$	27,961	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	Issuance of common stock and common stock warrants, net of issuance costs	786,927	—		9,005				—					9,005		Issuance of common stock and common stock warrants, net of issuance costs	786,927				—			9,005			—			9,005
Issuance of common stock upon exercise of warrants	Issuance of common stock upon exercise of warrants	832,460	1		3,016				—					3,017		Issuance of common stock upon exercise of warrants	832,650				1			3,018			—			3,019
Stock-based compensation	Stock-based compensation	—	—		448				—					448		Stock-based compensation	—				—			723			—			723
Net loss	Net loss	—	—		—				(7,016)					(7,016)		Net loss	—				—			—			(14,101)			(14,101)
Balance at June 30, 2021		15,873,941	$	2	$	158,333			$	(124,920)				$	33,415
Balance at September 30, 2021																Balance at September 30, 2021	15,874,131				$	2		$	158,610		$	(132,005)		$	26,607

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 Six Months Ended June 30,					For the Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(25,158)	$	(7,016)	Net loss	$	(32,180)	$	(14,101)
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	825		448		Non-cash stock-based compensation	1,280		723
Change in operating lease right of use assets		127		—
Non-cash lease expense						Non-cash lease expense	334		—
Change in fair value of common stock warrants	Change in fair value of common stock warrants	(37)		59		Change in fair value of common stock warrants	(39)		29
Change in fair value of contingent consideration	Change in fair value of contingent consideration	(115)		263		Change in fair value of contingent consideration	(126)		403
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Contract asset	Contract asset	—		1,128		Contract asset	—		1,128

Prepaid expenses and other assets	Prepaid expenses and other assets	19		(1,932)		Prepaid expenses and other assets	505		(2,181)
Accounts payable	Accounts payable	1,195		(2,381)		Accounts payable	(17)		(2,112)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	366		(136)		Accrued expenses and other current liabilities	1,930		666
Operating lease liabilities	Operating lease liabilities	(133)		—		Operating lease liabilities	(344)		—
Deferred revenue	Deferred revenue	—		(5,600)		Deferred revenue	—		(5,600)
Net cash used in operating activities	Net cash used in operating activities	(12,911)		(15,167)		Net cash used in operating activities	(18,657)		(21,045)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Cash paid for acquisition of in-process research and development	Cash paid for acquisition of in-process research and development	(4,500)		—		Cash paid for acquisition of in-process research and development	(4,500)		—
Net cash used in investing activities	Net cash used in investing activities	(4,500)		—		Net cash used in investing activities	(4,500)		—
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of common stock and common stock warrants, net of offering costs	Proceeds from issuance of common stock and common stock warrants, net of offering costs	22,996		6,765		Proceeds from issuance of common stock and common stock warrants, net of offering costs	23,065		9,005

Proceeds from employee stock purchases	Proceeds from employee stock purchases	47		—		Proceeds from employee stock purchases	85		—
Net proceeds from exercise of warrants	Net proceeds from exercise of warrants	—		3,017		Net proceeds from exercise of warrants	—		3,019
Net cash provided by financing activities	Net cash provided by financing activities	23,043		9,782		Net cash provided by financing activities	23,150		12,024
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents		5,632		(5,385)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents						Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents	(7)		(9,021)
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	21,455		35,402
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	$	27,087	$	30,017	Cash, cash equivalents, restricted cash, and restricted cash equivalents at the end of period	$	21,448	$	26,381

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	$	48	$	4	Cash received during the period for interest	$	159	$	6

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	$	5,500	$	—	Payable for acquired in-process research and development	$	5,500	$	—
Stock subscription receivable		$	—	$	2,240
Increase in operating right of use asset and current and non-current lease liability		$	449	$	—

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	$	—

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 is licensed from GenFleet Therapeutics (Shanghai), Inc. ("GenFleet"), for all therapeutic and diagnostic uses in the world outside of Greater ~~China.~~China (mainland China, Hong Kong, Macau and Taiwan).

2. Liquidity

~~On April 5,~~Since inception, the Company has incurred recurring losses and negative cash flows from operations and, as of September 30, 2022, has an accumulated deficit of $170.8 million. During the nine months ended September 30, 2022, the Company ~~closed an underwritten public offering (the "April 2022 Offering"), issuing 4,629,630 shares~~incurred a net loss of ~~common stock~~$32.2 million, which includes a one-time $10.0 million expense for acquired in-process research and accompanying common stock warrants to purchase an aggregate of 4,629,630 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of $5.40 per share and accompanying common stock warrant. Each common stock warrant sold with the shares of common stock represents the right to purchase 1 share of the Company’s common stock at an exercise price of $5.40 per share. The common stock warrants are exercisable immediately and will expire on April 5, 2027, five years from the date of issuance. The net proceedsdevelopment related to the upfront license fee for GFH009, and used $18.7 million of cash in operations. The Company expects to generate losses from ~~the April 2022 Offering, 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 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 inhibitoroperations for the ~~treatment, diagnosis or prevention of disease in humans~~foreseeable future primarily due to research 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~~development costs for ~~the exclusive license, the Company agreed to pay GenFleet (i) an upfront and technology transfer fee of $10.0 million, of~~its product candidates, which $4.5 million was paid in April 2022 and $5.5 million 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 of GFH009 in the GFH009 Territory, with the royalty rate escalating based on the level of annual net sales 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 recognized as licensing revenue in the first quarter of 2022 and payment was received in May 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 June 30, 2022, which milestones are variable in nature and not underraises substantial doubt about the Company's ~~control. The current clinical development plan provides for initiation of~~ability to continue as a Phase 2 clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial. In addition, the Company and 3DMed are planning a regulatory submission in China by the end of 2022 for the commencement of a Phase 1 or Phase 1/2 clinical trial of GPS in combination with envafolimab, 3DMed's checkpoint inhibitor which has been approved in China and is the first single-domain PD-L1 targeting antibody

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~~administered by rapid subcutaneous injection. Under the terms of the 3DMed License Agreement, the initiation of a Phase 2 clinical trial will trigger a milestone payment to the Company.~~going concern.

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 ended December 31, 2021, the Company sold a total of 786,927 shares of common stock pursuant to the Sales Agreement at an average price of $12.04 per share for aggregate net proceeds of approximately $9.0 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company sold an additional ~~16,289~~37,891 shares of common stock pursuant to the Sales Agreement at an average price of ~~$3.16~~$3.25 per share for aggregate ~~gross~~net proceeds of approximately $0.1 million. There remains approximately ~~$40.5~~$40.4 million available for future sales of shares of common stock under the Sales Agreement. Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds.

~~Since inception,~~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 asregulatory milestones. The participation of ~~June 30, 2022, has an accumulated deficit of $163.8 million. During~~3DMed in the ~~six months ended June 30, 2022,~~REGAL Phase 3 clinical trial in China will trigger two development milestone payments totaling $13.0 million to the Company, ~~incurred a net loss of $25.2 million,~~ which ~~includes a one-time $10.0 million expense for acquired in-process research and development related to~~ the ~~upfront license fee for GFH009, and used $12.9 million of cash in operations. The~~ Company expects to ~~generate losses from operations for~~receive in the ~~foreseeable~~first half of 2023. A total of $191.5 million in potential future ~~primarily due to research~~development, regulatory, and ~~development costs for its product candidates,~~sales milestones, not including future royalties, remains under the 3DMed License Agreement as of September 30, 2022, which ~~raises substantial doubt about~~milestones are variable in nature and not under the Company's ~~ability to continue as a going concern.~~control.

As of ~~June~~September 30, 2022, the Company had cash and cash equivalents of approximately ~~$27.0~~$21.3 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

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going concern within one year after the consolidated financial statements are issued. The Company expects its cash and cash equivalents will not be sufficient to fund its current planned operations for at least the next twelve months from the date of issuance of these financial statements. The Company has prepared its consolidated financial statements assuming 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.

The Company will require substantial additional financing to commercially develop any current or future product candidates. ~~Alternatively,~~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, and may be unable to obtain sufficient funding in the future on acceptable terms, if at all.~~funds. The Company's management continues to evaluate different strategies to obtain the required funding for future operations. These strategies may include utilizing the Sales Agreement, public and private placements of equity and/or debt securities, payments from potential strategic research and development collaborations, and licensing and/or marketing arrangements with pharmaceutical companies. Additionally, the Company may continue to pursue discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to its product candidates.

The Company has prepared its consolidated financial statements assuming 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 Annual Report. The significant accounting policies summarized and included in the 2021 Annual Report have not materially changed, except as set forth below.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

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 ("ASUs") of the Financial Accounting Standards Board ("FASB").

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 Bermuda exempted company, SLSG Limited, LLC, Sellas Life Sciences Limited, and Apthera, Inc.

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 Annual Report. The accompanying consolidated financial statements as of ~~June~~September 30, 2022 and for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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 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 various 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 has and may continue to 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

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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~~despite progress in vaccination efforts, remain highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines and booster shots, developments or perceptions regarding safety of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new ~~variants~~strains of COVID-19, including any future variants that may emerge, the actions to contain COVID-19 or treat its impact, including continuing or new lockdowns, among others, and the direct and indirect economic effects of the pandemic, including as a result of inflation, supply chain disruptions, shifting demand and labor shortages. The estimates of the impact on the Company’s business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

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.

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

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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):


		Six Months Ended June 30,			As of September 30,
		2022	2021		2022	2021
Common stock warrants	Common stock warrants	5,148	559	Common stock warrants	5,148	558
Stock options	Stock options	1,012	520	Stock options	1,071	526
Restricted stock units ("RSUs")	Restricted stock units ("RSUs")	297	210	Restricted stock units ("RSUs")	297	210
		6,457	1,289		6,516	1,294

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

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In August 2020, the FASB issued ASU No. 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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~~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	June 30, 2022		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Description	September 30, 2022		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	25,984	$	25,984	$	—	$	—	Cash equivalents	$	20,967	$	20,967	$	—	$	—
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	$	26,084	$	26,084	$	—	$	—	Total assets measured and recorded at fair value	$	21,067	$	21,067	$	—	$	—
Liabilities:	Liabilities:									Liabilities:
Warrant liability	Warrant liability	$	3	$	—	$	—	$	3	Warrant liability	$	1	$	—	$	—	$	1
Contingent consideration	Contingent consideration	181		—		—		181		Contingent consideration	170		—		—		170
Total liabilities measured and recorded at fair value	Total liabilities measured and recorded at fair value	$	184	$	—	$	—	$	184	Total liabilities measured and recorded at fair value	$	171	$	—	$	—	$	171


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

The Company did not transfer any financial instruments into or out of Level 3 classification, during the ~~six~~nine months ended ~~June~~September 30, 2022 or during the year ended December 31, 2021. 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 ~~six~~nine months ended ~~June~~September 30, 2022.

A reconciliation of the change in the fair value of the contingent consideration liability for the ~~six~~nine months ended ~~June~~September 30, 2022 is as follows (in thousands):

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	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	~~(115)~~(126)
Contingent consideration, ~~June~~September 30, 2022	$	~~181~~170

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~~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 June 30, 2022		As of December 31, 2021			As of September 30, 2022		As of December 31, 2021
Potential milestone payments	Potential milestone payments	$0 - $30 million		$0 - $30 million		Potential milestone payments	$0 - $30 million		$0 - $30 million
Discount rate	Discount rate	16.5	%	15.5	%	Discount rate	16.8	%	15.5	%
Cumulative probability of success	Cumulative probability of success	5.3	%	5.3	%	Cumulative probability of success	5.3	%	5.3	%
Projected years of payments	Projected years of payments	2028 - 2031		2028 - 2031		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 all countries and territories of the ~~GFH009 Territory.~~world other than mainland China, Hong Kong, Macau, and Taiwan (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, of which $4.5 million was paid in April 2022 and $5.5 million 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 of GFH009 in the GFH009 Territory, with the royalty rate escalating based on the level of annual net sales ranging from the low to high single digits.

During the ~~six~~nine months ended ~~June~~September 30, 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 2023 for which the Company has recorded ~~a current~~an acquired in-process research and development payable as of ~~June~~September 30, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

6. Balance Sheet Accounts

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


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Insurance	Insurance	$	1,206	$	217	Insurance	$	667	$	217
Clinical development	Clinical development	240		1,309		Clinical development	316		1,309
Professional fees	Professional fees	111		36		Professional fees	127		36
Other	Other	93		27		Other	47		27
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	1,650	$	1,589	Prepaid expenses and other current assets	$	1,157	$	1,589

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


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Clinical trial costs	Clinical trial costs	$	1,815	$	1,325	Clinical trial costs	$	2,947	$	1,325
Compensation and related benefits	Compensation and related benefits	869		989		Compensation and related benefits	1,228		989
Professional fees	Professional fees	30		165		Professional fees	203		165
Other	Other	292		161		Other	192		161
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	3,006	$	2,640	Accrued expenses and other current liabilities	$	4,570	$	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 is approximately 13.95%. As of ~~June~~September 30, 2022, the leases have a remaining term of ~~2.50~~2.25 years.

Rent expense related to the Company's operating leases was approximately $0.1 million for each of the three months ended ~~June~~September 30, 2022 and 2021, and ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The Company made cash payments related to its operating leases of approximately $0.1 million for each of the three months ended ~~June~~September 30, 2022 and 2021, and $0.3 million and $0.2 million for ~~each of~~ the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~2021.~~2021, respectively.

Future minimum lease payments are as follows as of ~~June~~September 30, 2022 (in thousands):


Future minimum lease payments:	Future minimum lease payments:			Future minimum lease payments:
2022 (remaining)	2022 (remaining)	$	253	2022 (remaining)	$	127
2023	2023	518		2023	518
2024	2024	533		2024	533
Total future minimum lease payments	Total future minimum lease payments	1,304		Total future minimum lease payments	1,178
Less: imputed interest	Less: imputed interest	(180)		Less: imputed interest	(142)
Current and non-current operating lease liabilities	Current and non-current operating lease liabilities	$	1,124	Current and non-current operating lease liabilities	$	1,036

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(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 of filing of these unaudited interim consolidated financial statements as of and for the period ended June 30, 2022, 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 ~~June~~September 30, 2022, 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 ~~June~~September 30, 2022 and December 31, 2021.

Common Stock

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

On April 5, 2022, the Company closed an underwritten public offering (the "April 2022 Offering"), issuing 4,629,630 shares of common stock and accompanying common stock warrants to purchase an aggregate of 4,629,630 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of $5.40 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 the Company’s common stock at an exercise price of $5.40 per share. The common stock warrants are exercisable immediately and will expire on April 5, 2027, five years from the date of issuance. The net proceeds to the Company from the April 2022 Offering, after deducting the underwriting discounts and commissions and other offering expenses, and excluding the exercise of any warrants, were approximately $23.0 million.

As of ~~June~~September 30, 2022, the Company has shares of common stock reserved for future issuance as follows (in thousands):


Warrants outstanding			5,148
Stock options outstanding			~~1,012~~1,071
RSUs outstanding			297
Shares reserved for future issuance under the Company’s 2019 Equity Incentive Plan			~~666~~608
Shares reserved for future issuance under the 2021 Employee Stock Purchase Plan			~~290~~275
Total common stock reserved for future issuance			~~7,413~~7,399

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(Unaudited)

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 ~~six~~nine months ended ~~June~~September 30, 2022 (in thousands):


Warrant Issuance	Warrant Issuance	Outstanding, December 31, 2021	Granted	Canceled/Expired	Outstanding, June 30, 2022	Exercise Price per Share		Expiration	Warrant Issuance	Outstanding, December 31, 2021	Granted	Canceled/Expired	Outstanding, September 30, 2022	Exercise Price per Share		Expiration
Warrants classified as equity:	Warrants classified as equity:								Warrants classified as equity:
April 2022 Offering	April 2022 Offering	—	4,630	—	4,630	$	5.40	April 2027	April 2022 Offering	—	4,630	—	4,630	$	5.40	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	9	—	—	9	$	306.66	December 2022 - June 2024
		505	4,630	—	5,135					505	4,630	—	5,135
Warrants classified as liability	Warrants classified as liability	14	—	(1)	13	$	7.50	September 2023 - November 2023	Warrants classified as liability	14	—	(1)	13	$	7.50	September 2023 - November 2023
		519	4,630	(1)	5,148					519	4,630	(1)	5,148

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.

Warrants Classified as Equity

The warrants to acquire shares of common stock issued during the April 2022 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.

Warrants Classified as Liabilities

Liability-classified warrants consist of warrants to acquire common stock ~~issued in connection with certain previous equity financings. These warrants~~which 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~~date, and 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:

1514

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
Risk free interest rate		2.83		%	0.65		%
Risk-free interest rate								Risk-free interest rate	4.05		%	0.65		%
Volatility	Volatility	90.76		%	131.04		%	Volatility	89.94		%	131.04		%
Expected term (years)	Expected term (years)	1.26			1.75			Expected term (years)	1.00			1.75
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~~assumption is based on the Company's implied ~~volatility in combination with the implied volatilities of similar publicly traded entities.~~volatility. The expected ~~life~~term 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.

The changes in fair value of the warrant liability for the ~~six~~nine months ended ~~June~~September 30, 2022 were as follows (in thousands):


Warrant liability, December 31, 2021	$	40


Change in fair value of warrants	~~(37)~~(39)
Warrant liability, ~~June~~September 30, 2022	$	31

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"),~~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) 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.

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, 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 is 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.

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

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. The IND approval by the NMPA triggered a $1.0 million milestone payment to the Company which was recognized as licensing revenue in the first quarter of 2022 and payment was received in May 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 ~~June~~September 30, 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 2 clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial as well as a Phase 1 or Phase 1/2 clinical trial of GPS in combination with envafolimab, 3DMed’s checkpoint inhibitor which has been approved in China. Under the 3DMed License Agreement, the initiation of a Phase 2 clinical trial will trigger a milestone payment to the Company.

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 0no license revenue recognized during each of the three months ended ~~June~~September 30, 2022 and ~~$1.9 million in license revenue recognized during the three months ended June 30,~~ 2021. There was $1.0 million and $7.6 million in license revenue recognized during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

There was 0no cost of license revenue recognized during each of the three months ended ~~June~~September 30, 2022 and $0.1 million in cost of license revenue recognized during the three months ended June 30, 2021 for sublicensing fees incurred under the Company's license from MSK in connection with the 3DMed License Agreement.2021. There was $0.1 million and $0.2 million in cost of license revenues for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, for sublicensing fees incurred 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 currently allows for 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 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 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 ~~June~~September 30, 2022, approximately ~~666,000~~608,000 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 and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Research and development	$	72	$	36	$	197	$	84
General and administrative	383		239		1,083		639
Total stock-based compensation	$	455	$	275	$	1,280	$	723

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Research and development $ 70 $ 35 $ 125 $ 48
General and administrative 380 229 700 400
Total stock-based compensation $ 450 $ 264 $ 825 $ 448

Options to Purchase Shares of Common Stock

The following table summarizes stock option activity of the Company for the ~~six~~nine months ended ~~June~~September 30, 2022:


		Total Number of Shares (In Thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (In Thousands)			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	Outstanding at December 31, 2021	534	$	10.09	8.77	$	681	Outstanding at December 31, 2021	534	$	10.09	8.77	$	681
Granted	Granted	478	5.28					Granted	543	5.01

Outstanding at June 30, 2022		1,012	$	7.81	8.92	$	67
Options exercisable at June 30, 2022		251	$	13.49	8.07	$	41
Canceled								Canceled	(6)	2.28
Outstanding at September 30, 2022								Outstanding at September 30, 2022	1,071	$	7.56	8.73	$	28
Options exercisable at September 30, 2022								Options exercisable at September 30, 2022	282	$	12.89	7.85	$	18

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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 ~~June~~September 30, 2022 were calculated based on the closing price of the Company’s common stock as reported on the Nasdaq Capital Market on ~~June~~September 30, 2022 of ~~$2.23~~$2.02 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.

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 three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Risk free interest rate		2.87	%	1.12	%	1.80	%	1.04	%
Risk-free interest rate										Risk-free interest rate	3.00	%	1.01	%	1.95	%	1.04	%
Volatility	Volatility	144.75	%	121.47	%	130.60	%	121.23	%	Volatility	138.57	%	124.63	%	131.54	%	121.29	%
Expected lives (years)		6.25		6.25		6.21		6.18
Expected term (years)										Expected term (years)	6.03		6.25		6.18		6.18
Expected dividend yield	Expected dividend yield	—	%	—	%	—	%	—	%	Expected dividend yield	—	%	—	%	—	%	—	%

The weighted-average grant date fair value of options granted during the three months ended ~~June~~September 30, 2022 and 2021 was ~~$2.13~~$2.78 and ~~$6.89,~~$8.09, respectively. The weighted-average grant date fair value of options granted during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was ~~$4.76~~$4.52 and ~~$6.97,~~$6.99, 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 ~~June~~September 30, 2022, there was ~~$3.6~~$3.4 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 ~~2.88~~2.72 years.

Time-vested RSUs and RSUs with Performance Conditions

The following table summarizes RSU activity of the Company for the ~~six~~nine months ended ~~June~~September 30, 2022:

Shares
(In Thousands) Weighted Average Grant Date Fair Value
Unvested at December 31, 2021 200 $ 2.81
Granted 97 $ 5.34
Unvested at June 30, 2022 297 $ 3.64

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SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)


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

Unvested at September 30, 2022	297	$	3.64

As of ~~June~~September 30, 2022, there was ~~$1.0~~$0.9 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 ~~2.51~~2.25 years. No RSUs vested during the ~~six~~nine months ended ~~June~~September 30, 2022.

~~Table of Contents~~

~~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 ~~six~~nine months ended ~~June~~September 30, 2022, ~~10,362~~25,089 shares of common stock were purchased by employees under the 2021 ESPP for proceeds of approximately ~~$47,000.~~$0.1 million. During the three months ended September 30, 2022, 14,727 shares of common stock were purchased by employees under the 2021 ESPP for proceeds of approximately $38,000. There are currently ~~289,638~~274,911 shares of common stock reserved for issuance under the 2021 ESPP as of ~~June~~September 30, 2022.

12. Subsequent Events

The Company evaluated all events or transactions that occurred after ~~June~~September 30, 2022 up through the date these 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.

2018

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 ~~June~~September 30, 2022 and results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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, as filed with the Securities and Exchange Commission, or SEC, on March 31, 2022, or our 2021 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 for a broad range of indications. Our product development candidates currently include galinpepimut-S, or GPS, and GFH009. ~~We are pursuing an out-licensing strategy for a third product candidate, nelipepimut-S, or NPS.~~

Galinpepimut-S, or GPS

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 a Phase 3 open-label randomized 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 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 & Drug Administration, or the FDA. ~~We plan~~The primary endpoint of the clinical trial is overall survival, or OS.

Following review of preliminary data to ~~enroll approximately 116 patients at approximately 95 clinical sites~~date from the REGAL study, which was pooled (i.e., GPS arm plus BAT, or control, arm) and which remained blinded as to treatment arm, we observed that the median OS in the ~~United States, Europe~~pooled study population is likely considerably longer, by approximately twofold, than that originally anticipated and ~~Asia~~upon which the protocol and statistical analysis plan, or SAP, for the study were based. Accordingly, the overall duration of the REGAL study is now expected to be longer than initially predicted. Following consultation with ~~a planned interim safety~~members of the Independent Data Monitoring Committee for the study and ~~futility analysis after 80 events (deaths). Under~~AML key opinion leaders, as well as the recommendations of our ~~current planning assumptions, which take into account our best estimates of potential delays, including due~~biostatistics experts, we are implementing changes to ~~COVID-19, we believe that we will complete enrollment~~the SAP and protocol for the REGAL study ~~in early 2023. We continue to face~~as follows:

•The total targeted enrollment challenges, which we believe are being experienced throughout our industry, and we plan to activate additional clinical sites in the United States and several countries in Europe and Asia throughout the remainder of 2022. Based upon our 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 discussions with our external statisticians and experts, that~~will be increased from 116 patients to a range of 125 patients to 140 patients

•The targeted number of events (deaths) for the ~~planned~~ interim analysis ~~after~~will be reduced to 60 from 80 and is expected to occur in late 2023 or early 2024

•The targeted number of events ~~(deaths) per~~(death) for the ~~protoco~~lfinal analysis will be reduced to 80 from 105 and is expected to occur by the end of 2024

•Statistical significance would be achieved by an estimated hazard ratio (HR) for OS of 0.636, corresponding to an OS of 12.6 months vs. 8 months for GPS vs. BAT, respectively.

Because the ~~first half of 2023,~~ ~~provided that our statistical assumptions~~interim 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~~final analyses are event driven, itthey may occur at a different ~~time~~times than ~~currently expected.~~those listed above.

In December 2020, we entered into an exclusive license agreement with 3D Medicines Inc., or 3DMed, a China-based biopharmaceutical company developing next-generation immuno-oncology drugs, for the development and commercialization of GPS, as well as our next generation heptavalent immunotherapeutic GPS Plus, which is at preclinical stage, across all therapeutic and diagnostic uses in the Greater China territory (mainland China, Hong Kong, Macau and Taiwan). We have retained sole rights to GPS and GPS Plus outside of the Greater China area. On March 30, 2022, an investigational new drug, or IND, application filed by 3DMed to initiate the first clinical trial 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 we recognized as license revenue in the first quarter of 2022 and payment was received in the second quarter of 2022. We have agreed with 3DMed for 3DMed to participate in the REGAL study through the inclusion of approximately 20 patients from the Greater China territory. Such participation by 3DMed is possible due to the increase in the target patient enrollment in the study and will trigger two development milestone payments totaling $13.0 million, which we expect to receive in the first half 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 (which cannot be guaranteed), GPS could potentially reach the market in Greater China much earlier than we and 3DMed had been anticipated when we entered into the license agreement providing rights to 3DMed.

In December 2018, pursuant to a Clinical Trial Collaboration and Supply Agreement, we initiated a Phase 1/2 multi-arm “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 Merck determined to focus on ovarian cancer (second or third line WT1+ relapsed or refractory metastatic ovarian cancer). ~~We reported updated clinical and initial immune response data from this study in June 2021. In February 2022, we reported that we had completed enrollment of 17~~

~~evaluable patients in this study. In May~~On November 10, 2022, we reported the following ~~preliminary~~confirmatory topline data from ~~15 of the~~ 17 evaluable ~~patients:~~patients in the study:

•~~An ad hoc analysis~~Median OS was 18.4 months compared to 13.8 months with pembrolizumab alone in a in a checkpoint inhibitor single agent study in a similar patient population treated with checkpoint inhibitor alone.

•Median progression-free survival, or PFS, was 12 weeks compared to 8 weeks in a checkpoint inhibitor single agent study in a similar patient population treated with checkpoint inhibitor alone.

•The overall response rate of ~~clinical outcomes showed~~the trial is 6.3 percent with a disease control rate, or DCR, which is the sum of overall response rate and rate of stable disease, of ~~53.9~~50.1 percent at a median follow-up of ~~43.1 weeks.~~14.4 months. In a checkpoint inhibitor single agent study ofin a similar platinum-resistant ovarian cancer patient population treated with a checkpoint inhibitor alone, the observed DCR was 37.2 ~~percent. This is~~percent, consistent with a DCR rate increase of approximately 45 percent in ~~the patients treated with~~ the GPS combination with pembrolizumab over that seen for checkpoint inhibitors alone.

•~~Median progression-free survival,~~Survival and disease control benefits were observed in patients harboring tumors with any level of detectable PD-L1 expression, i.e., those with Combined Positive Score, or ~~PFS, was 12 weeks compared~~CPS, of 1 or higher. The DCR is 63.6% in patients with a CPS of 1 or higher. Patients with a CPS score of less than 1 showed a median OS of 3.2 months vs. patients with a CPS greater than or equal to ~~8.4 weeks seen in studies for checkpoint inhibitors alone~~1 who had a median OS of 18.4 months and, as it relates to time to progression, patients with ~~similar patient populations, which is~~ a ~~43 percent increase in the GPS combination with pembrolizumab. Patients with fewer previous lines~~CPS score of ~~chemotherapy experienced~~ less than 1 had a ~~more favorable~~ median PFS ~~than those with more than two previous lines: for~~of 1.9 months and patients with ~~two~~a CPS score of greater than or ~~fewer previous lines of therapy treated with GPS in combination with pembrolizumab,~~ equal than 1 showed a median PFS ~~was 24 weeks.~~of 3.8 months.

•~~With 43.1 weeks~~In 16 evaluable patients in whom serial peripheral blood samples were available, a correlation was observed between PFS and OS and WT1-specific immune response after GPS vaccination across more than 1 channel with intracellular cytokine flow-cytometry assays in peripheral blood lymphocytes assaying reactivity against the four pooled WT1 antigens comprising GPS. The data were consistent with those seen in previous studies of ~~follow-up the median overall survival, or OS, has not been reached.~~GPS.

•The safety profile of GPS in combination with pembrolizumab was similar to pembrolizumab alone, with only the addition of low-grade rapidly resolving local reactions at the GPS injection site, consistent with observations from other GPS clinical studies.

~~The final data analysis for all evaluable patients is expected by the end of 2022.~~

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®), in patients with malignant pleural mesothelioma, or MPM, who harbor relapsed or refractory disease after having received frontline standard of care multimodality therapy at MSK. Completion of enrollment of a target total of 10 evaluable patients is expected during

the second half of 2022. In June 2022, we announced the following updated data from eight evaluable patients in this study, seven of which received at least three doses of GPS, the last given in combination with nivolumab:

•Of the eight evaluable patients, 75 percent of the patients entered the study as Stage III or IV patients, with 50 percent of patients entering as Stage IV. Initial tumor stages were II (two patients), III and IIIB (two patients) and IV (four patients). All patients had the MPM epithelioid and/or sarcomatoid variant, a tumor which is universally expressing WT1.

•Median OS calculated as the time from the cessation of the most recent previous therapy until confirmed death or most recent data update for patients who are still alive (50 percent of patients) was 40.9 weeks (9.4 months) for all eight patients and 45.7 weeks (10.5 months) in patients who received the combination therapy (seven out of eight patients). The median PFS was 11.1 weeks for all eight patients and 11.9 weeks in patients who received the combination therapy.

•The safety profile of the GPS-nivolumab combination was similar to that seen with nivolumab alone, with the addition of only low-grade, temporary local reactions at the GPS injection site, consistent with previously performed clinical studies with GPS. No Grade 3/4 toxicities were observed for GPS and there were no dose-limiting toxicities.

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 for AML, MPM, and MM from the FDA.

GFH009

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.

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. As demonstrated in pre-clinical 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.

GFH009 is currently in a Phase 1 dose-escalating clinical trial in the United States and China. ~~There~~We are ~~currently six dose levels in this dose-escalating trial of up to 80 patients (2.5 mg, 4.5 mg, 9 mg, 15 mg, 22.5 mg,~~evaluating both twice-a-week and ~~30 mg), administered twice-a-week,~~once-a-week dosing, and the indications are relapsed/refractory AML, chronic lymphocytic leukemia, or CLL, small lymphocytic leukemia, or SLL, and lymphoma. ~~We may further increase the twice-a-week dose regimen beyond 30 mg, if warranted, which will be based on efficacy, safety and pharmacokinetic parameters, among others.~~ The primary goal of the trial is to establish the recommended Phase 2 dose and to assess safety. We expect enrollment in the planned twice-a-week dosing cohorts in the trial to be completed by the end of ~~2022. As of August 4,~~ 2022 ~~we have observed~~and the ~~following:~~

•Among the 30 patients evaluable for safety and efficacy, there have been no dose limiting toxicities, or DLTs, with doses up to 22.5 mg (given twice a week) for the AML cohort and up to 15 mg for the lymphoma cohort and no grade 3 or 4 neutropenias that fall under the DLT definition have been observed.

•~~In the initial data from the first five dose levels for the AML patients,~~ ~~significant anti-leukemic effects (i.e., greater or equal to 50 percent decrease~~once-a-week cohorts in ~~bone marrow blasts following GFH009 monotherapy) have been observed in two AML patients treated sufficiently long enough to assess efficacy at previous dose levels.~~

•~~Four~~ lymphoma patients achieved stable disease (three at 4.5 mg and one at 9 mg); One patient with peripheral T cell lymphoma treated at 9 mg had a 62% decrease in the sum of the product of the perpendicular diameters for multiple lesions based on a computed tomography, or CT, scan.

In July 2022, we announced that a second, once-a-week dose cohort has been added in the study. Given that both AML and lymphoma patients tolerated all dose levels studied to date with the twice-a-week administration as well as the efficacy signals seen with both AML and lymphoma patients, we have amended the protocol for the study to introduce an additional single-dose cohort to study GFH009 once-a-week administration starting at the higher dose level of 30 mg. The new, weekly single-dose cohort regimen will commence at 30mg and escalate. The amended protocol allows us to expand our knowledge of the drug’s safety and efficacy profile, including observing whether efficacy could be increased beyond what has already been seen with ~~twice-a-week dosing.~~early 2023.

Following completion of the Phase 1 clinical trial and determination of the recommended Phase 2 dose, we intend to commence a Phase 2 clinical trial of GFH009 in combination with venetoclax and azacitidine in AML ~~patients.~~patients who failed or did not respond to treatment with venetoclax and azacitidine. The current standard of care for most 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 goalprimary endpoint of the Phase 2 clinical trial, which we expect to initiate by the end of the ~~second~~first quarter of 2023, ~~would~~will be complete remission (CR) rate and secondary endpoints will include progression free survival, OS and proportion of patients proceeding to ~~show improved efficacy of venetoclax and would include patients who~~transplant. We are ~~resistant to venetoclax. We~~ also ~~intend to commence~~planning a Phase 1/2 ~~basket~~ clinical trial of ~~monotherapy~~ GFH009 in ~~pediatric soft tissue sarcomas including Ewing’s sarcoma and rhabdomyosarcoma~~certain solid tumors which will likely commence in ~~late 2022 or early~~the first quarter of 2023 and ~~complete~~are exploring various options with respect to clinical development for GFH009 in several pediatric indications which we expect to finalize 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.

2022.

2321

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 has affected and may continue to 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~~despite progress in vaccination efforts, remain highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines and booster shots, developments or perceptions regarding safety of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new ~~variants~~strains of COVID-19, including any future variants that may emerge, the actions to contain COVID-19 or treat its impact, including continuing or new lockdowns, among others, and the direct and indirect economic effects of the pandemic, including as a result of inflation, supply chain disruptions, shifting demand and labor shortages. The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

2422

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, 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;

•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:

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

•the length of time required to enroll suitable patients;

•the number 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;

•the receipt of marketing approvals;

•the commercialization of current and future product candidates; and

•the impact of the COVID-19 pandemic.

2523

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 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~~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.

Non-Operating Income (Expense), Net

Non-operating income (expense), 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 interest earned from our cash and cash equivalents.

Critical Accounting Policies and Estimates

In the 2021 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 since December 31, 2021 that are not included in Note 3 of the accompanying consolidated financial statements for the ~~six~~nine months ended ~~June~~September 30, 2022. Readers are encouraged to read the 2021 Annual Report in conjunction with this Quarterly Report on Form 10-Q.

2624

Results of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

The following table summarizes our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,							Three Months Ended September 30,
		2022		2021		Change			2022		2021		Change
Licensing revenue	Licensing revenue	$	—	$	1,900	$	(1,900)	Licensing revenue	$	—	$	—	$	—
Operating expenses:	Operating expenses:							Operating expenses:
Cost of license revenue	Cost of license revenue	—		100		(100)		Cost of license revenue	—		—		—
Research and development	Research and development	5,529		3,456		2,073		Research and development	4,282		4,541		(259)
Acquired in-process research and development	Acquired in-process research and development	—		—		—		Acquired in-process research and development	—		—		—
General and administrative	General and administrative	3,094		2,797		297		General and administrative	2,864		2,436		428
Total operating expenses	Total operating expenses	8,623		6,353		2,270		Total operating expenses	7,146		6,977		169
Operating loss	Operating loss	(8,623)		(4,453)		(4,170)		Operating loss	(7,146)		(6,977)		(169)
Non-operating income (expense), net	Non-operating income (expense), net	209		(160)		369		Non-operating income (expense), net	124		(108)		232
Net loss	Net loss	$	(8,414)	$	(4,613)	$	(3,801)	Net loss	$	(7,022)	$	(7,085)	$	63


		Six Months Ended June 30,							Nine Months Ended September 30,
		2022		2021		Change			2022		2021		Change
Licensing revenue	Licensing revenue	$	1,000	$	7,600	$	(6,600)	Licensing revenue	$	1,000	$	7,600	$	(6,600)
Operating expenses:	Operating expenses:							Operating expenses:
Cost of license revenue	Cost of license revenue	100		200		(100)		Cost of license revenue	100		200		(100)
Research and development	Research and development	10,140		7,740		2,400		Research and development	14,422		12,281		2,141
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	General and administrative	6,118		6,358		(240)		General and administrative	8,982		8,794		188
Total operating expenses	Total operating expenses	26,358		14,298		12,060		Total operating expenses	33,504		21,275		12,229
Operating loss	Operating loss	(25,358)		(6,698)		(18,660)		Operating loss	(32,504)		(13,675)		(18,829)
Non-operating income (expense), net	Non-operating income (expense), net	200		(318)		518		Non-operating income (expense), net	324		(426)		750
Net loss	Net loss	$	(25,158)	$	(7,016)	$	(18,142)	Net loss	$	(32,180)	$	(14,101)	$	(18,079)

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

Licensing Revenue

There was no licensing revenue for each of the three months ended ~~June~~September 30, 2022. Licensing revenue was $1.9 million for the three months ended June 30, 2021 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 rights2022 and ~~transfer of technical know-how.~~2021.

Licensing revenue was $1.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 related to an approval by the NMPA of an IND application for a small Phase 1 clinical trial investigating safety of GPS in China, which triggered a development milestone under the 3DMed License Agreement. Licensing revenue was $7.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021 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 licensing revenue during each of the three months ended ~~June~~September 30, ~~2022. 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 June 30,~~2022 and 2021.

We incurred $0.1 million and $0.2 million of sublicensing fees payable under our license from MSK in connection with the 3DMed License Agreement during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Research and Development

Research and development expenses were ~~$5.5~~$4.3 million for the three months ended ~~June~~September 30, 2022 compared to ~~$3.5~~$4.5 million for the three months ended ~~June~~September 30, 2021. The ~~$2.0~~$0.2 million ~~increase~~decrease was primarily attributable to a ~~$0.9~~$0.5 million ~~increase~~decrease in ~~manufacturing~~clinical expenses due to the ~~purchase~~timing of ~~drug supply and manufacturing of a registration batch of GPS, a $0.6 million increase~~start-up fees in ~~clinical trial expenses primarily~~the prior year related to our ongoing Phase 3 REGAL clinical trial of GPS in AML, a $0.4 million decrease in manufacturing expenses due to the timing of drug supply purchases and manufacturing of a registration batch of GPS in the prior year. These decreases were partially offset by a $0.3 million increase in personnel related expenses due to increased headcount and a ~~$0.1~~$0.4 million increase in other clinical and regulatory consulting expenses. We anticipate that our research and development expenses will increase in the future as we continue to advance the development of GPS and GFH009, including our Phase 3 clinical trial of GPS in AML ~~the ongoing basket trial of GPS in combination with pembrolizumab,~~ and the ~~ongoing~~planned Phase 12 clinical ~~trial~~trials of GFH009.

Research and development expenses were ~~$10.1~~$14.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$7.7~~$12.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The ~~$2.4~~$2.1 million increase was primarily attributable to a ~~$1.9~~$1.4 million increase in clinical trial expenses primarily related to our ongoing Phase 3 REGAL clinical trial of GPS in AML, ~~and~~ a ~~$0.7~~$1.1 million increase in personnel related expenses due to increased ~~headcount.~~headcount, and a $0.2 million increase in other research and development expenses. These increases were partially offset by a ~~$0.2~~$0.6 million decrease in manufacturing expenses due to the timing of ~~the~~drug supply purchases and manufacturing of a registration ~~batches~~batch of GPS in the prior year. We anticipate that our research and development expenses will increase in the future as we continue to advance the development of GPS and GFH009, including our Phase 3 clinical trial of GPS in AML, ~~the ongoing basket trial of GPS in combination with pembrolizumab,~~ and the ~~ongoing~~planned Phase 12 clinical ~~trial~~trials of GFH009.

Acquired In-Process Research and Development

There was no acquired in-process research and development expense during the three months ended ~~June~~September 30, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2022, we recognized $10.0 million for the acquisition of in-process research and development related to the in-licensing of GFH009, $4.5 million of which was paid in April 2022 and the remaining $5.5 million which was deemed probable to occur and expected to be paid by the end of the second quarter of 2023. There was no acquired in-process research and development during the three and ~~six~~nine months ended ~~June~~September 30, 2021.

General and Administrative

General and administrative expenses were ~~$3.1~~$2.9 million for the three months ended ~~June~~September 30, 2022 compared to ~~$2.8~~$2.4 million for the three months ended ~~June~~September 30, 2021. The ~~$0.3~~$0.5 million increase was primarily due to a $0.5 million increase in personnel expenses due to increased headcount, including a ~~$0.2~~$0.1 million increase in non-cash stock-based ~~compensation, which was partially offset by a $0.2 million decrease in outside services and public company costs.~~compensation.

General and administrative expenses were ~~$6.1~~$9.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$6.4~~$8.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The ~~$0.3~~$0.2 million ~~decrease~~increase was primarily due to a $1.4 million increase in personnel related expenses due to increased headcount, including a $0.4 million increase in non-cash stock-based compensation, and a $0.3 million increase in outside services and public company costs. These increases were partially offset by a $1.1 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~~$0.4 million decrease in legal, ~~fees,~~accounting, and ~~a $0.1 million decrease in accounting~~other general and administrative fees. These decreases were partially offset by a $0.9 million increase in personnel related expenses due to increased headcount, including a $0.3 million increase in non-cash stock-based compensation, and a $0.3 million increase in outside services and public company costs.

Non-Operating Income (Expense), Net

Non-operating income (expense), net for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, was as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Change in fair value of warrant liability $ 48 $ (28) $ 76 $ 37 $ (59) $ 96
Change in fair value of contingent consideration 115 (134) 249 115 (263) 378
Interest income 46 2 44 48 4 44
Total non-operating income (expense), net $ 209 $ (160) $ 369 $ 200 $ (318) $ 518


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022		2021		Change		2022		2021		Change
Change in fair value of warrant liability	$	2	$	30	$	(28)	$	39	$	(29)	$	68
Change in fair value of contingent consideration	11		(140)		151		126		(403)		529
Interest income	111		2		109		159		6		153
Total non-operating income (expense), net	$	124	$	(108)	$	232	$	324	$	(426)	$	750

Net non-operating income of ~~$0.2~~$0.1 million during the three ~~and six~~ months ended ~~June~~September 30, 2022 was primarily due to decreases in the fair value of the contingent consideration liability driven by an increase in discount rates, a decrease in the fair value of the warrant liability driven by a decrease in our common stock price, and an increase in interest income earned from our cash and cash equivalents.

Net non-operating expense of ~~$0.2 million and $0.3~~$0.1 million for the three ~~and six~~ months ended ~~June~~September 30, 2021 ~~respectively,~~ was primarily due to ~~increases~~an increase in the fair value of the contingent consideration liability partially offset by a slight decrease in the change in the fair value of the warrant liability.

Net non-operating income of $0.3 million during the nine months ended September 30, 2022 was primarily due to interest income earned from our cash and cash equivalents, and a decrease in the fair value of the contingent consideration liability driven by an increase in discount rates.

Net non-operating expense of $0.4 million during the nine months ended September 30, 2021 was primarily due to the increase in 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 the contingent consideration liability reflected 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 non-cash in nature.

Income Tax Expense

There was no income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. We continue to maintain a full valuation allowance against our net deferred tax assets.

Liquidity, ~~and~~ Capital Resources, and Funding Requirements

We did not generate any revenue from product sales during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Through ~~June~~September 30, 2022, the Company has 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.

To date, the Company has received $10.5 million in upfront payments and certain technology transfer and regulatory milestones from 3DMed, pursuant to its Exclusive License Agreement for GPS. The participation of 3DMed in the REGAL Phase 3 clinical trial in China will trigger significant milestone payments to us, which we expect to receive in the first half 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 September 30, 2022, which milestones are variable in nature and not under our control.

On April 5, 2022, we consummated an underwritten public offering, or the April 2022 Offering, issuing 4,629,630 shares of common stock and accompanying common stock warrants to purchase an aggregate of 4,629,630 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of $5.40 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 per share. The common stock warrants are exercisable immediately and will expire on April 5, 2027, five years from the date of issuance. The net proceeds to us from the April 2022 Offering, 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, we entered into ~~an exclusive license agreement~~the GFH009 Agreement with GenFleet pursuant to which GenFleet granted to us a sublicensable, royalty-bearing license, to certain of its intellectual property, to develop, manufacture, and commercialize a small molecule CDK9 inhibitor, GFH009, 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, or 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, we agreed to pay GenFleet (i) an upfront and technology transfer fee of $10.0 million, of which $4.5 million was paid in April 2022, and $5.5 million is due upon the first day of the

15th calendar month following the effective date of the ~~license agreement,~~GFH009 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. We have 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, we 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 us which was recognized as licensing revenue in the first quarter of 2022 and the payment was received in May 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 June 30, 2022, which milestones are variable in nature and not under our control. 3DMed's current clinical development plan provides for initiation of a Phase 2 clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial as well as a Phase 1 or Phase 1/2 clinical trial of GPS in combination with envafolimab, 3DMed's checkpoint inhibitor which has been approved in China. Under the 3DMed License Agreement, the initiation of a Phase 2 clinical trial will trigger a milestone payment to the Company.

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. During the year ended December 31, 2021, we sold a total of 786,927 shares of common stock pursuant to the Sales Agreement at an average price of $12.04 per share for aggregate net proceeds of approximately $9.0 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, we sold an additional ~~16,289~~37,891 shares of common stock pursuant to the Sales Agreement at an average price of ~~$3.16~~$3.25 per share for aggregate ~~gross~~net proceeds of approximately $0.1 million. ~~Approximately $40.5~~There remains approximately $40.4 million ~~remains~~ available for future sales of shares of common stock under the Sales Agreement. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds.

As of ~~June~~September 30, 2022, we had an accumulated deficit of ~~$163.8~~$170.8 million, cash and cash equivalents of ~~$27.0~~$21.3 million and restricted cash and cash equivalents of $0.1 million. In addition, we had current liabilities of ~~$12.2~~$12.6 million as of ~~June~~September 30, 2022. We expect that our cash and cash equivalents 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. These conditions give rise to a substantial doubt over our ability to continue as a going concern.

We will require substantial additional financing to commercially develop any current or future product candidates. ~~Alternatively,~~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, and may be unable to obtain sufficient funding in the future on acceptable terms, if at all.~~funds. Our management continues to evaluate different strategies to obtain the required funding for future operations. These strategies may include utilizing the Sales Agreement, public and private placements of equity and/or debt securities, payments from potential strategic research and development collaborations, and licensing and/or marketing arrangements with pharmaceutical companies. Additionally, we continue to pursue discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to its product 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.

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Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Net cash (used in) provided by:	Net cash (used in) provided by:					Net cash (used in) provided by:
Operating activities	Operating activities	$	(12,911)	$	(15,167)	Operating activities	$	(18,657)	$	(21,045)
Investing activities	Investing activities	(4,500)		—		Investing activities	(4,500)		—
Financing activities	Financing activities	23,043		9,782		Financing activities	23,150		12,024
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	$	5,632	$	(5,385)	Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	$	(7)	$	(9,021)

Net Cash Used in Operating Activities

Net cash used in operating activities of ~~$12.9~~$18.7 million during the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily attributable to our net loss of ~~$25.2~~$32.2 million, which was partially offset by various net non-cash charges of ~~$10.8~~$11.4 million and the net change in our operating assets and liabilities of approximately ~~$1.5~~$2.1 million. Net non-cash charges were driven by $10.0 million in expense related to the acquired in-process research and development, ~~and $0.8~~$1.3 million in non-cash stock compensation ~~expense.~~expense, and $0.1 million in other net non-cash charges. The net change in our operating assets and liabilities of ~~$1.5~~$2.1 million is primarily attributable to ~~an increase in accounts payable of $1.2 million and~~ an increase in accrued expenses and other current liabilities of ~~$0.4~~$1.9 million, and a decrease in prepaid expenses and other current assets of $0.5 million, which were partially offset by a decrease in operating lease liabilities of ~~$0.1~~$0.3 million.

Net cash used in operating activities of ~~$15.2~~$21.0 million during the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily attributable to ~~a $8.9~~an $8.1 million change in our operating assets and liabilities and our net loss of ~~$7.0~~$14.1 million, which was offset by various net non-cash charges of ~~$0.7~~$1.2 million. The net change in our operating assets and liabilities of ~~$8.9~~$8.1 million is primarily attributable to a decrease in deferred revenue of $5.6 million, a ~~$1.9~~$2.2 million increase in prepaid expenses and other assets primarily for prepaid insurance premiums and clinical trial costs and a ~~$2.5~~$1.4 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by a $1.1 million decrease in contract acquisition costs related to the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed License Agreement.

Net Cash Used in Investing Activities

Net cash used in investing activities of $4.5 million during the ~~six~~nine months ended ~~June~~September 30, 2022 related to license payments made for the acquisition of in-process research and development under the ~~Company's GenFleet License~~GFH009 Agreement.

There was no cash used in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2021.

Net Cash Provided by Financing Activities

We generated ~~$23.0~~$23.2 million in net cash from financing activities during the ~~six~~nine months ended ~~June~~September 30, 2022 that was due to $23.0 million in aggregate net proceeds received from our underwritten public offering, which closed in April ~~2022.~~2022, $0.1 million in aggregate net proceeds received from the issuance of common stock under the Sale Agreement, and $0.1 million in aggregate net proceeds received from the issuance of common stock under the employee stock purchase plan.

We generated ~~$9.8~~$12.0 million of net cash from financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021. We received ~~$6.8~~$9.0 million in net proceeds from the issuance of common stock under the Sales Agreement, as well as $3.0 million 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 ~~June~~September 30, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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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”), 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 ~~June~~September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. The risks described in such 2021 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 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.

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.

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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

April 1, 2022

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 and 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 attached as Exhibit 32.1 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 it 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.

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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: ~~August 11,~~November 14, 2022

3634