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 period 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, 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.

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 ☒

The number of shares of Registrant’s Common Stock outstanding as of ~~November~~ ~~4, 2019~~April 29, 2020 was ~~80,514,459.~~80,837,093.

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Aduro” and the “Company” refer to Aduro Biotech, Inc. and its consolidated subsidiaries. Aduro, Aduro Biotech, the Aduro logo and other trade names, trademarks or service marks of Aduro are the property of Aduro Biotech, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	53,605		$	126,310		$	94,381		$	59,624
Short-term marketable securities		178,182			140,129
Marketable securities								108,539			153,978
Accounts receivable		222			12,037			1,053			342
Income tax receivable								5,665			—
Prepaid expenses and other current assets		3,805			4,500			2,676			3,958
Total current assets		235,814			282,976			212,314			217,902
Long-term marketable securities		3,593			11,434
Marketable securities								3,011			—
Property and equipment, net		25,534			29,157			22,492			24,688
Operating lease right-of-use assets		21,346			—			20,722			21,110
Goodwill		7,949			8,334			8,010			8,167
Intangible assets, net		18,608			25,135			18,478			18,978
Restricted cash		468			468			468			468
Total assets	$	313,312		$	357,504		$	285,495		$	291,313
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,643		$	1,457		$	752		$	414
Accrued clinical trial and manufacturing expenses		4,012			2,542			4,823			4,253
Accrued expenses and other liabilities		9,125			10,518			10,116			8,181
Operating lease liabilities		1,700			—			1,765			1,803
Deferred revenue		16,000			16,000			5,808			6,950
Total current liabilities		32,480			30,517			23,264			21,601
Deferred rent		—			11,063
Contingent consideration		975			998			1,972			1,051
Deferred revenue		161,203			172,671			165,208			166,963
Deferred tax liabilities		3,522			6,104			3,459			3,527
Operating lease liabilities		32,120			—			31,258			31,636
Other long-term liabilities		966			840			753			940
Total liabilities		231,266			222,193			225,914			225,718
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2019 and December 31, 2018		—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized; 80,514,459 and 79,571,714 shares issued and outstanding at September 30, 2019 and December 31, 2018		8			8
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2020 and December 31, 2019								—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized; 80,837,093 and 80,735,688 shares issued and outstanding at March 31, 2020 and December 31, 2019								8			8
Additional paid-in capital		549,705			538,895			554,192			552,077
Accumulated other comprehensive (loss) income		(178	)		940			(140	)		414
Accumulated deficit		(467,489	)		(404,532	)		(494,479	)		(486,904	)
Total stockholders’ equity		82,046			135,311			59,581			65,595
Total liabilities and stockholders’ equity	$	313,312		$	357,504		$	285,495		$	291,313

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Revenue:
Collaboration and license revenue	$	4,799		$	3,063		$	13,625		$	12,329		$	13,950		$	3,938
Total revenue		4,799			3,063			13,625			12,329			13,950			3,938
Operating expenses:
Research and development		15,510			18,675			51,916			58,223			15,828			17,494
General and administrative		8,683			9,149			25,845			27,021			7,819			8,224
Loss on impairment of intangible assets		5,006			—			5,006			—
Restructuring and related expense														4,308			2,994
Amortization of intangible assets		138			144			417			443			136			140
Total operating expenses		29,337			27,968			83,184			85,687			28,091			28,852
Loss from operations		(24,538	)		(24,905	)		(69,559	)		(73,358	)		(14,141	)		(24,914	)
Interest income		1,366			1,353			4,334			3,892			920			1,471
Other (loss) income, net		(32	)		21			(54	)		(15	)
Other expense, net														(19	)		(19	)
Total other income														901			1,452
Loss before income tax		(23,204	)		(23,531	)		(65,279	)		(69,481	)		(13,240	)		(23,462	)
Income tax benefit		2,252			385			2,322			444			5,665			35
Net loss	$	(20,952	)	$	(23,146	)	$	(62,957	)	$	(69,037	)	$	(7,575	)	$	(23,427	)
Net loss per common share, basic and diluted	$	(0.26	)	$	(0.29	)	$	(0.79	)	$	(0.88	)	$	(0.09	)	$	(0.29	)
Shares used in computing net loss per common share, basic and diluted		80,232,739			79,086,841			79,940,155			78,607,180			80,757,801			79,673,294

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

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Net loss

$
(20,952
)

$
(23,146
)

$
(62,957
)

$
(69,037
)
Other comprehensive income (loss):

Unrealized (loss) gain on marketable securities, net
of tax of $0

(7
)

111

324

16

Foreign currency translation adjustments, net of
tax of $0

(1,213
)

(24
)

(1,442
)

(642
)
Comprehensive loss

$
(22,172
)

$
(23,059
)

$
(64,075
)

$
(69,663
)

	Three Months Ended March 31,
	2020			2019
Net loss	$	(7,575	)	$	(23,427	)
Other comprehensive loss:
Unrealized (loss) gain on marketable securities, net of tax of $0		(81	)		184
Foreign currency translation adjustments, net of tax of $0		(473	)		(633	)
Other comprehensive loss		(554	)		(449	)
Comprehensive loss	$	(8,129	)	$	(23,876	)

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

Common Stock

Additional
Paid-In

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders

Shares

Amount

Capital

Income (Loss)

Deficit

Equity

Balance at December 31, 2018

79,571,714

$
8

$
538,895

$
940

$
(404,532
)

$
135,311

Issuance of common stock upon exercise of stock options

254,481

—

251

—

—

251

Release of restricted stock units

25,850

—

—

—

—

—

Stock-based compensation

—

—

3,703

—

—

3,703

Other comprehensive loss

—

—

—

(449
)

—

(449
)
Net loss

—

—

—

—

(23,427
)

(23,427
)
Balance at March 31, 2019

79,852,045

8

542,849

491

(427,959
)

115,389

Issuance of common stock upon exercise
   of stock options

173,925

—

188

—

—

188

Issuance of common stock under
   Employee Stock Purchase Plan

58,748

—

164

—

—

164

Release of restricted stock units

45,556

—

—

—

—

—

Stock-based compensation

—

—

3,336

—

—

3,336

Other comprehensive income

—

—

—

551

—

551

Net loss

—

—

—

—

(18,578
)

(18,578
)
Balance at June 30, 2019

80,130,274

8

546,537

1,042

(446,537
)

101,050

Issuance of common stock upon exercise
   of stock options

120,117

—

93

—

—

93

Release of restricted stock units

264,068

—

—

—

—

—

Stock-based compensation

—

—

3,075

—

—

3,075

Other comprehensive loss

—

—

—

(1,220
)

—

(1,220
)
Net loss

—

—

—

—

(20,952
)

(20,952
)
Balance at September 30, 2019

80,514,459

$
8

$
549,705

$
(178
)

$
(467,489
)

$
82,046

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

Common Stock

Additional
Paid-In

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’

Shares

Amount

Capital

Income (Loss)

Deficit

Equity

Balance at December 31, 2017

77,736,201

8

519,435

1,893

(283,863
)

237,473

Issuance of common stock upon exercise
   of stock options

712,973

—

638

—

—

638

Issuance of common stock upon exercise
   of warrants

3,317

—

—

—

—

—

Release of restricted stock units

26,175

—

—

—

—

—

Stock-based compensation

—

—

4,924

—

—

4,924

Other comprehensive loss

—

—

—

728

—

728

Cumulative effect of changes in accounting principles
    related to revenue recognition

—

—

—

—

(25,312
)

(25,312
)
Other

—

—

—

—

2

2

Net loss

—

—

—

—

(21,494
)

(21,494
)
Balance at March 31, 2018

78,478,666

8

524,997

2,621

(330,667
)

196,959

Issuance of common stock upon exercise
   of stock options

528,320

—

622

—

—

622

Issuance of common stock under Employee
   Stock Purchase Plan

52,778

—

366

—

—

366

Stock-based compensation

—

—

4,327

—

—

4,327

Other comprehensive loss

—

—

—

(1,442
)

—

(1,442
)
Other

—

—

—

—

(1
)

(1
)
Net loss

—

—

—

—

(24,397
)

(24,397
)
Balance at June 30, 2018

79,059,764

8

530,312

1,179

(355,065
)

176,434

Issuance of common stock upon exercise
   of stock options

73,446

—

99

—

—

99

Release of restricted stock units

236,681

—

—

—

—

—

Stock-based compensation

—

—

4,221

—

—

4,221

Other comprehensive loss

—

—

—

87

—

87

Other

—

—

—

1

(1
)

—

Net loss

—

—

—

—

(23,146
)

(23,146
)
Balance at September 30, 2018

79,369,891

8

534,632

1,267

(378,212
)

157,695

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2019		80,735,688	$	8	$	552,077	$	414		$	(486,904	)	$	65,595
Issuance of common stock upon exercise of stock options		88,480		—		80		—			—			80
Release of restricted stock units		12,925		—		—		—			—			—
Stock-based compensation		—		—		2,035		—			—			2,035
Other comprehensive loss		—		—		—		(554	)		—			(554	)
Net loss		—		—		—		—			(7,575	)		(7,575	)
Balance at March 31, 2020		80,837,093		8		554,192		(140	)		(494,479	)		59,581

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2018		79,571,714		8		538,895		940			(404,532	)		135,311
Issuance of common stock upon exercise of stock options		254,481		—		251		—			—			251
Release of restricted stock units		25,850		—		—		—			—			—
Stock-based compensation		—		—		3,703		—			—			3,703
Other comprehensive loss		—		—		—		(449	)		—			(449	)
Net loss		—		—		—		—			(23,427	)		(23,427	)
Balance at March 31, 2019		79,852,045		8		542,849		491			(427,959	)		115,389

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

	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash Flows from Operating Activities
Net loss	$	(62,957	)	$	(69,037	)	$	(7,575	)	$	(23,427	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,260			3,268
Depreciation								994			1,088
Amortization of intangible assets		417			443			136			140
Impairment of property and equipment		1,177			—			1,199			—
Impairment of intangible assets		5,006			—
Non-cash lease expense		664			—			380			219
Accretion of discounts and amortization of premiums on marketable securities		(1,371	)		(800	)		(294	)		(353	)
Stock-based compensation		10,114			13,472			2,035			3,703
Loss from remeasurement of fair value of contingent consideration		25			570			944			—
(Gain) loss on disposal of property and equipment		(4	)		3
Deferred income tax		(2,320	)		(99	)		—			(35	)
Changes in operating assets and liabilities:
Payment of contingent consideration		—			(3,322	)
Accounts receivable		11,815			989			(711	)		11,330
Income tax receivable		—			(346	)		(5,665	)		—
Prepaid expenses and other assets		671			1,631			1,277			(368	)
Accounts payable		409			(26	)		702			202
Deferred revenue		(11,468	)		(9,246	)		(2,897	)		(3,174	)
Accrued clinical trial and manufacturing expenses		1,483			(2,076	)		218			216
Accrued expenses and other liabilities		(454	)		(3,090	)		1,798			(1,556	)
Operating lease liabilities		94			—			(406	)		806
Net cash used in operating activities		(43,439	)		(67,666	)		(7,865	)		(11,209	)
Cash Flows from Investing Activities
Purchase of marketable securities		(224,927	)		(179,277	)		(36,385	)		(77,790	)
Proceeds from maturities of marketable securities		196,410			214,314			79,031			76,103
Purchase of property and equipment		(1,183	)		(2,007	)		(48	)		(424	)
Proceeds from sale of property and equipment		—			10
Net cash (used in) provided by investing activities		(29,700	)		33,040
Net cash provided by (used in) investing activities								42,598			(2,111	)
Cash Flows from Financing Activities
Payment of contingent consideration		—			(3,481	)
Proceeds from employee stock purchase plan		164			366
Proceeds from exercise of stock options and warrants		532			1,328
Net cash provided by (used in) financing activities		696			(1,787	)
Proceeds from exercise of stock options								80			251
Net cash provided by financing activities								80			251
Effect of exchange rate changes		(262	)		(450	)		(56	)		(127	)
Net decrease in cash, cash equivalents and restricted cash		(72,705	)		(36,863	)
Net increase (decrease) in cash, cash equivalents and restricted cash								34,757			(13,196	)
Cash, cash equivalents and restricted cash at beginning of period		126,778			158,082			60,092			126,778
Cash, cash equivalents and restricted cash at end of period	$	54,073		$	121,219		$	94,849		$	113,582
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchase of property and equipment in accounts payable and accrued liabilities	$	31		$	363		$	—		$	41
Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents	$	53,605		$	120,751		$	94,381		$	113,114
Restricted cash		468			468			468			468
Total cash, cash equivalents and restricted cash	$	54,073		$	121,219		$	94,849		$	113,582

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

Aduro Biotech, Inc., and its wholly owned subsidiaries, or the Company, is an immunotherapy company focused on the discovery, development and commercialization of therapies that are designed to harness the body's natural immune system for the treatment of patients with challenging diseases. The Company is located in Berkeley, California and its wholly-owned subsidiary, Aduro Biotech Holdings, Europe B.V., or Aduro Biotech Europe, is based in the Netherlands. The Company operates in ~~one~~1 business segment.

The Company’s product candidates in the Stimulator of Interferon Genes (STING) and A Proliferation Inducing Ligand (APRIL) pathways are being investigated in cancer, autoimmune and inflammatory diseases. The Company’s lead STING pathway activator product candidate, ADU-S100 (MIW815), which potentially activates the intracellular STING receptor for a potent tumor-specific immune response, is ~~designed to selectively modulate innate~~being evaluated in combination with KEYTRUDA® (pembrolizumab), an approved anti-PD-1 monoclonal antibody, as first-line treatment for patients with recurrent or metastatic squamous cell carcinoma of the head and ~~adaptive immune responses to enhance immune control in oncology.~~neck (SCCHN). The Company’s anti-APRIL antibody product candidate, BION-1301, a first-in-class fully blocking monoclonal antibody that blocks APRIL binding to both the BCMA and TACI receptors, is ~~designed to suppress the autoimmune response~~being evaluated in patients with IgA nephropathy. The Company is collaborating with ~~a number of~~ leading global pharmaceutical companies to help expand and drive its product pipeline. The Company’s strategy is to rapidly advance first- or best-in-class therapies from its STING and APRIL programs through clinical development and regulatory approval.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and follow the requirements of the Securities and Exchange Commission, or the SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the Company’s financial information. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019~~2020 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, ~~2018~~2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on ~~February 27, 2019.~~March 9, 2020.

The condensed consolidated financial statements include the accounts of Aduro Biotech, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenue and expenses in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical trial accruals, contingent consideration, income taxes, right-of-use assets, lease obligations, stock-based compensation, and valuation of intangibles and goodwill. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from these estimates.

On January 1, 2019, the Company adopted the new standard on leases, Accounting Standard Codification 842, which establishes a comprehensive new lease accounting model. The following steps were taken to be consistent with the guidance in accounting for leases under the new standard. The Company determines if an arrangement is a lease at inception. The Company elected the practical expedient to adopt the policy to not separate lease and non-lease components. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities on the Company’s consolidated balance sheets. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the

Company uses its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options to extend or terminate the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

On January 1, 2019, the Company adopted Accounting Standard Update, or ASU, No. 2018-07, simplifying its accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company measured its stock-based awards made to non-employees based on the estimated fair values of the awards as of the adoption date of January 1, 2019 using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over the remaining requisite service period using the straight-line method and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, the Company’s stock-based compensation is reduced for the estimated forfeitures and revised, if necessary, in subsequent periods if actual forfeitures differ from the original estimates.

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2016-13 – Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. ~~The standard is~~In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and

Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which defers the effective date for ASU No. 2016-13 for smaller reporting companies to fiscal years ~~and interim periods~~ beginning after December 15, ~~2019.~~2022, including interim periods within those fiscal years. Early adoption is permitted for all periods beginning after December 15, 2018. The Company does not plan to early adopt and is currently in the process of evaluating the impact the standard will have on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The standard update simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also improves consistent application by clarifying and amending existing guidance. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company has evaluated the impact of this guidance and has concluded that adoption of the standard will not have a material impact on its ~~condensed~~ consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The standard eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information, and modifies some disclosure requirements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. Entities making this election to early adopt are permitted to early adopt the eliminated or modified disclosure requirements and delay the adoption of the new disclosure requirements until their effective date. The Company is currently evaluating the impact that the standard will have on its ~~condensed~~ ~~consolidated financial statements.~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASC 842), which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding ROU asset for leases with a lease-term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new standard on January 1, ~~2019 using~~2020. As the ~~prospective transition method.~~

~~The Company identified all leases and reviewed the leases to determine the impact of ASC 842 on its~~ ~~condensed~~ ~~consolidated financial statements. The Company has elected to apply all~~result of the ~~practical expedients as a package, which include not reassessing~~adoption the Company is no longer required to disclose (1) ~~whether any expired or existing contracts are or contain leases,~~the amount of and the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) ~~lease classification~~the policy for ~~any expired or existing leases,~~timing of transfers between levels, and (3) ~~initial direct costs~~the valuation process for ~~any existing leases. The Company also elected the practical expedient to not separate lease and non-lease components for its real estate leases. Based on the Company’s assessment,~~Level 3 fair value measurements. Additionally, the Company ~~concluded that~~is required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Refer to Note 3 “Fair Value Measurements” for the newly required disclosures resulting from the adoption of the new standard resulted in the recording of a $22.1 million ROU asset and a $33.8 million lease liability and a derecognition of $11.7 million of deferred rent on the consolidated balance sheet on January 1, 2019. The Company’s adoption of ASU No. 2016-02, as amended, did not have a material impact on its ~~condensed~~ ~~consolidated statements of operations or~~ ~~condensed~~ ~~consolidated statements of cash flows.~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350). The standard update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead of computing the implied fair value of goodwill under Step 2, the Company would perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard also eliminated the requirement to perform Step 2 of the goodwill impairment test for any reporting unit, with a zero or negative carrying amount, that fails the qualitative test. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted the new standard on September 30, 2019. Refer to Footnote 5 for additional information.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). The standard update allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, or the Tax Act. Consequently, the ASU 2018-02 eliminates the stranded tax effects resulting from the Tax Act. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period for reporting periods for which financial statements have not yet been issued. The new standard should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company adopted the new standard on January 1, 2019 and due to the full valuation allowance, the Company concluded that there is no impact on its ~~condensed~~ ~~consolidated financial statements.~~

In June 2018, the FASB issued ASU No. 2018-07 – Compensation-Stock Compensation (Topic 718): Improvements to Non-employee Shared-Based Payment Accounting. The standard update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The new standard simplifies several aspects of Topic 718 by expanding the scope of the following areas to account for non-employee shared-based payment transactions: (1) overall measurement objective, (2) measurement date, (3) awards with performance conditions, and (4) classification reassessment of certain equity-classified awards. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted the new standard on January 1, 2019. As a result, existing non-employee awards were measured as of the adoption date and the related expense will be recognized over the remaining requisite service period using the straight-line method. New awards made to non-employees will be measured at the grant date.

In March 2019, the FASB issued ASU No. 2019-01 – Leases (Topic 842): Codification Improvements. The standard clarifies the codification more generally and/or corrects unintended application of the guidance. The amendments in this standard include the following items: (Issue 1) Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, (Issue 2) Presentation on the statement of cash flows—sales-type and direct financing leases and (Issue 3) Transition disclosures related to Topic 250, Accounting Changes and Error Corrections. The amendments in this standard clarify the FASB’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. The new standard is effective on the adoption date of ASU No. 2016-02. The Company adopted the standard on January 1, 2019 and concluded that adoption of the standard did not have a material impact on its ~~condensed~~ ~~consolidated financial statements.~~standard.

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. Assets and liabilities recorded at fair value on a recurring basis in the balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s cash equivalents, ~~consisting of~~which include money market funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s cash equivalents consisting of corporate debt securities and commercial paper along with the Company’s marketable securities consisting of available-for-sale securities are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers. To

validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

In certain cases where there is limited activity or less transparency around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of the contingent consideration liability.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	September 30, 2019								March 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	28,100	$	—	$	—	$	28,100	$	69,414	$	—	$	—	$	69,414
U.S. government and agency securities		—		68,708		—		68,708		—		20,047		—		20,047
Corporate debt securities		—		80,341		—		80,341		—		43,114		—		43,114
Commercial paper		—		47,158		—		47,158		—		57,824		—		57,824
Total	$	28,100	$	196,207	$	—	$	224,307	$	69,414	$	120,985	$	—	$	190,399
Financial Liabilities:
Contingent consideration related to acquisition	$	—	$	—	$	975	$	975	$	—	$	—	$	1,972	$	1,972
Total	$	—	$	—	$	975	$	975	$	—	$	—	$	1,972	$	1,972

	December 31, 2018								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	22,082	$	—	$	—	$	22,082	$	39,994	$	—	$	—	$	39,994
U.S. government and agency securities		—		59,001		—		59,001		—		43,333		—		43,333
Corporate debt securities		—		70,964		—		70,964		—		54,590		—		54,590
Commercial paper		—		89,702		—		89,702		—		67,536		—		67,536
Total	$	22,082	$	219,667	$	—	$	241,749	$	39,994	$	165,459	$	—	$	205,453
Financial Liabilities:
Contingent consideration related to acquisition	$	—	$	—	$	998	$	998	$	—	$	—	$	1,051	$	1,051
Total	$	—	$	—	$	998	$	998	$	—	$	—	$	1,051	$	1,051

The acquisition-date fair value of the contingent consideration liability represents the future consideration that is contingent upon the achievement of specified development milestones for a product candidate. The fair value of the contingent consideration is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as ~~anticipated timelines and~~the probability of achieving development ~~milestones.~~milestones, anticipated timelines and discount rate, the values of which as of March 31, 2020 are shown in the table below. Changes in the fair value of the liability for contingent consideration ~~except for the impact of foreign currency,~~ will be recognized in the consolidated statement of operations until settlement.

The Company did ~~not~~0t have any financial assets and liabilities measured at fair value on a non-recurring basis as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018. During the nine months ended September 30, 2019 and 2018, there were no transfers between the fair value measurement category levels.~~2019.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

The following tables summarize the estimated value of the Company’s cash, cash equivalents and marketable securities and the gross unrealized holding gains and losses (in thousands):

	September 30, 2019									March 31, 2020
	Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value		Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	11,073	$	—	$	—		$	11,073	$	15,532	$	—	$	—		$	15,532
Money market funds		28,100		—		—			28,100		69,414		—		—			69,414
Commercial paper		12,933		—		(1	)		12,932		8,389		—		(4	)		8,385
Corporate debt securities		1,500		—		—			1,500		1,050		—		—			1,050
Total cash and cash equivalents	$	53,606	$	—	$	(1	)	$	53,605	$	94,385	$	—	$	(4	)	$	94,381
Marketable securities:
U.S. government and agency securities	$	68,642	$	68	$	(2	)	$	68,708	$	20,009	$	39	$	(1	)	$	20,047
Corporate debt securities		78,763		81		(3	)		78,841		42,115		10		(61	)		42,064
Commercial paper		34,221		8		(3	)		34,226		49,438		13		(12	)		49,439
Total marketable securities	$	181,626	$	157	$	(8	)	$	181,775	$	111,562	$	62	$	(74	)	$	111,550

	December 31, 2018									December 31, 2019
	Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value		Amortized cost		Unrealized gains		Unrealized losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	36,124	$	—	$	—		$	36,124	$	8,149	$	—	$	—		$	8,149
Money market funds		22,082		—		—			22,082		39,994		—		—			39,994
Commercial paper		62,413		—		—			62,413		11,482		—		(1	)		11,481
Corporate debt securities		5,694		—		(3	)		5,691
Total cash and cash equivalents	$	126,313	$	—	$	(3	)	$	126,310	$	59,625	$	—	$	(1	)	$	59,624
Marketable securities:
U.S. government and agency securities	$	59,127	$	16	$	(142	)	$	59,001	$	43,295	$	40	$	(2	)	$	43,333
Corporate debt securities		65,319		3		(49	)		65,273		54,563		33		(6	)		54,590
Commercial paper		27,289		—		—			27,289		56,055		7		(7	)		56,055
Total marketable securities	$	151,735	$	19	$	(191	)	$	151,563	$	153,913	$	80	$	(15	)	$	153,978

The amortized cost and estimated fair value of the Company’s available-for-sale marketable securities by contractual maturity are summarized below as of ~~September 30, 2019~~March 31, 2020 (in thousands):

Depreciation expense was ~~$1.1~~$1.0 million and $1.1 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $3.3 million and $3.3 million for the nine months ended September 30, 2019 and 2018,~~ respectively. As part of the Company’s efforts to wind down programs and prioritize spending, in the quarter ended June 30, 2019, the Company recorded an impairment charge of $1.2 million related to lab equipment that was previously recorded in construction in progress to research and development expenses within the statement of operations.

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

The Company tests goodwill for impairment on an annual basis on November 1, or more frequently if an impairment indicator exists. To determine if an impairment has occurred, the Company performs a quantitative test in which the Company compares the fair value of its single reporting unit to its carrying value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the Company records an impairment loss equal to that difference. ~~During the three months ended September 30, 2019, as~~As a result of the ~~significant decline in the~~ Company’s ~~stock price,~~planned closure of its Aduro Biotech Europe headquarters, the Company performed a quantitative assessment of goodwill as of March 31, 2020, and concluded that there was no0 impairment ~~to goodwill. The~~of goodwill as the fair value of the Company’s reporting unit exceeded its carrying ~~value by 4.0%.~~value.

The gross carrying amounts and net book value of intangible assets were as follows (in thousands):

Intangible assets are carried at cost less accumulated amortization and impairment. Amortization is over a period of 20 years and the amortization expense is recorded in operating expenses. The Company tests its Acquired IPR&D intangible assets for impairment on an annual basis, or more frequently if an impairment indicator exists.

In ~~September 2019,~~the first quarter of 2020, due to the ~~significant decline in the~~ Company’s ~~stock price during the quarter and due~~decision to ~~a change in the Company’s plans related to one of~~close its ~~Acquired IPR&D assets,~~Aduro Biotech Europe headquarters, the Company assessed its Acquired IPR&D intangible assets for impairment. ~~The Company recorded an~~Based on the qualitative assessment performed, 0 impairment ~~charge~~ of ~~$5.0 million due to the Company’s decision to discontinue one of its acquired early research programs. The impairment charge for the~~ Acquired IPR&D ~~asset~~intangible assets was recorded ~~to loss on impairment~~as of ~~intangible assets. The impairment charge resulted in a reduction of $2.2 million in the deferred tax liability of its foreign subsidiary.~~March 31, 2020.

Amortization expense was $0.1 million for each of the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, and $0.4 million for each of the nine months ended September 30, 2019 and 2018.~~2019. Based on finite-lived intangible assets recorded as of ~~September 30, 2019,~~March 31, 2020, the estimated future amortization expense for the next five years is as follows (in thousands):

In March 2015, the Company entered into a collaboration and license agreement with Novartis Pharmaceuticals Corporation, or Novartis, pursuant to which the Company is collaborating worldwide with Novartis regarding the development and potential commercialization of product candidates containing an agonist of the molecular target known as STING in the field of oncology, including immuno-oncology and cancer vaccines. Under this agreement, or the Novartis Agreement, the Company granted Novartis a co-exclusive license to develop such products worldwide, an exclusive license to commercialize such products outside the United States and a non-exclusive license to support the Company in commercializing such products in the United States if it requests such support. The collaboration is guided by a joint steering committee with each party having final ~~decision-making~~decision making authority regarding specified areas of development or commercialization.

Under the Novartis Agreement, the Company received an upfront payment of $200.0 million in April 2015. During the second quarter of 2016, the Company earned a $35.0 million development milestone upon initiation of a Phase 1 trial for the first STING product candidate, ADU-S100, and recognized the payment as revenue in the period. The Company is also eligible to receive up to an additional $215.0 million in development milestones and up to an additional $250.0 million in regulatory approval milestones.

The Company is responsible for 38% of the joint development costs worldwide and Novartis is responsible for the remaining 62% of the joint development costs ~~worldwide.~~worldwide; provided that either party may opt out of early stage clinical trials subject to an obligation to fund and participate in any pivotal trials and reimburse certain early development costs if development of the product progresses into pivotal trials.

The Company will also receive 50% of gross profits on sales of any products commercialized pursuant to this collaboration in the United States and 45% of gross profits for specified European countries and Japan. For each of these profit share countries, each party will be responsible for its respective commercial sharing percentage of all joint commercialization costs incurred in that country.

For all other countries where the Company is not sharing profits, Novartis will be responsible for all commercialization costs and will pay the Company a royalty in the mid-teens on all net sales of product sold by Novartis, its affiliates and sublicensees, with such percentage subject to reduction post patent and data exclusivity expiration and subject to reduction, capped at a specified percentage, for royalties payable to third party licensors. Novartis’ royalty obligation will run on a country-by-country basis until the later of expiration of the last valid claim covering the product, expiration of data exclusivity for the product or 12 years after first commercial sale of the product in such country.

With respect to the United States, specified European countries and/or Japan, the Company may elect for such region to either reduce by 50% or to eliminate in full the Company’s development and commercialization cost sharing obligation. If the Company elects to reduce its cost sharing percentage by 50% in any such region, then its profit share in such region will also be reduced by 50%. If the Company elects to eliminate its development cost sharing obligation, then such region will be removed from the profit share, and instead Novartis will owe the Company royalties on any net sales of product for such region, as described above.

For revenue recognition purposes, the Company determined that the duration of the contract begins on the effective date in March 2015 and ends upon receipt of regulatory approval, estimated to occur in 2028. The Company’s performance period commenced in May 2015. The transaction price consists of the $200.0 million upfront fee, a $35.0 million milestone payment received in the second quarter of 2016 upon commencement of a Phase 1 study, and ~~$1.7~~$2.1 million in reimbursement of research and development costs through ~~September 30, 2019.~~March 31, 2020. The Company determined that the remaining potential milestone payments are probable of significant reversal of cumulative revenue as their achievement is highly dependent on the successful completion of Phase 1 studies. Therefore, these payments are not included in the transaction price. Any consideration related to sales-based royalties and profit-sharing payments will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Novartis and have been excluded from the transaction price. The transaction price of ~~$236.7~~$237.1 million is allocated to one combined performance obligation. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

The Company concluded that it will utilize a cost-based input method to measure its progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Novartis. In applying the cost-based input method of revenue recognition, the Company uses actual clinical study enrollment figures as well as actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal full-time equivalent effort and third-party contract costs relative to the level of patient enrollment in the study. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligations. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company's performance obligation. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company's performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

Cost-sharing payments from Novartis are included in the transaction price and subject to the cost-based input method to determine the amount to be recognized in license and collaboration revenue in the Company’s consolidated statements of operations, while cost-sharing payments to Novartis are accounted for as research and development expenses in the Company’s consolidated statements of operations.

If the Company recognizes revenue from the sale of any products commercialized pursuant to this collaboration in the United States, it will retain 50% of the gross profits from such sales, and will pay the remaining 50% of the gross profits to Novartis. The Company will receive from Novartis 45% of gross profits for specified European countries and Japan from the sale of any products commercialized pursuant to this collaboration in such countries. Profit sharing payments made to or received from Novartis will be aggregated by product by territory and reported as expenses or revenues, as applicable.

In December 2019, the Company received notification that Novartis has removed ADU-S100 (MIW815), an intratumoral STING pathway activator product candidate, from Novartis’ portfolio based on clinical data generated to date. This decision was not the result of any safety concern. The collaboration and license agreement between Novartis and Aduro remains in effect, and both parties continue to jointly pursue STING pathway activation through systemic delivery as a therapeutic strategy. The removal of ADU-S100 from Novartis’ portfolio did not have an impact on the overall transaction price nor the revenue recognition methodology being utilized by the Company.

The Company is funding the squamous cell carcinoma of the head and neck and non-muscle invasive bladder cancer studies evaluating ADU-S100 itself because Novartis has opted out of these trials.

For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recognized ~~$2.4 million and $3.0 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company recognized $6.8 million and $9.1 million, respectively, in~~ revenue from its collaboration with ~~Novartis.~~Novartis totaling $1.8 million and $2.5 million, respectively. The remaining balance of the ~~transaction price~~upfront fee of ~~$170.0~~$167.2 million is included in deferred revenue at ~~September 30, 2019.~~March 31, 2020.

On December 18, 2018, the Company entered into a research collaboration and exclusive license agreement, or the Lilly Agreement, with Lilly for its cGAS-STING Pathway Inhibitor program for the research and development of novel immunotherapies for autoimmune and other inflammatory diseases. Pursuant to the Lilly Agreement, the Company granted an exclusive and worldwide license under certain intellectual property rights controlled by the Company to research, develop, manufacture and commercialize certain cGAS-STING products for the treatment of autoimmune and other inflammatory diseases. The license granted is sublicensable during a specified time period.

Under the terms of the Lilly Agreement, the Company received an upfront payment of $12.0 million in the first quarter of 2019. The Company will also be eligible for development and commercial milestones of up to approximately $620.0 million per product. Lilly is also obligated to pay the Company tiered royalty payments at percentages in the single to low-double digits based on annual net sales of the licensed products. Lilly must pay such royalties on a product-by-product and country-by-country basis until the latest to occur of (i) the expiration of the last-to-expire valid claim of certain patents, (ii) the expiration of the data exclusivity period in such country or (iii) a specified anniversary of the first commercial sale of such product in such country. The Company will be reimbursed for up to a certain amount of research funding spent during the research term. In addition, the Company has the option to co-fund the clinical development of each product in exchange for an increase in royalty payments and a reduction in certain milestone payments to the extent relevant to such co-funded product. Lilly will be responsible for all costs of global commercialization.

For revenue recognition purposes, the Company determined that the Company’s performance period commenced in January 2019 and ends upon completion of the research term, estimated to occur in 2021. The transaction price consists of the $12.0 million upfront fee and variable consideration related to reimbursement of research and development costs. The Company determined that the remaining potential milestone payments are probable of significant reversal of cumulative revenue as their achievement is highly dependent on the successful completion of research activities and advancement through clinical studies. Therefore, these potential milestone payments are not included in the transaction price. Any consideration related to sales-based royalties and profit-sharing payments will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Lilly and have been excluded from the transaction price. The transaction price is allocated to one combined performance obligation. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

The Company concluded that it will utilize a cost-based input method to measure its progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Lilly. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal full-time equivalent effort and third-party contract costs. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligation. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company's performance obligation. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company's performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

For the three months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized ~~$2.4~~$2.2 million and $1.4 million in ~~revenue. For~~revenue from the ~~nine months ended September 30, 2019, the Company recognized $6.8 million in revenue.~~Lilly Agreement. The Company recorded ~~$7.2~~$3.8 million in deferred revenue at ~~September 30, 2019.~~March 31, 2020.

In connection with the acquisition of Aduro Biotech Europe in October 2015, the Company became party to an agreement with Merck Sharp & Dohme Corp., or Merck. The agreement sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities for antibody product candidates. The Company identified the following promises under the agreement: 1) the license, 2) the obligation to provide research activities and 3) the obligation to participate on a Joint Research Committee. The Company determined that the promises were not distinct which resulted in them being combined into one performance obligation. The Company completed its performance obligation under the agreement by the end of 2016.

The Company received a milestone payment of $2.0 million in 2017 for the initiation of a Good Laboratory Practice, or GLP, toxicology study and $3.0 million in the first quarter of 2018 for the initiation of a Phase 1 trial for the anti-CD27 antibody and $10.0 million in the first quarter of 2020 for the initiation of a Phase II trial for the anti-CD27 antibody. ~~Both~~The payments were recognized in revenue when received as the Company had no0 remaining performance obligation. The Company is eligible to receive future contingent payments, including up to ~~$307.0~~$297.0 million in potential development milestone payments, and up to $135.0 million in commercial and net sales milestones for a product candidate. In addition, the Company is eligible to receive royalties in the mid-single digits to low teens based on net sales of the product. Future milestone payments and royalties will be recognized when earned as the Company has no remaining performance obligations under this agreement.

For the three months ended March 31, 2020, the Company recognized revenue from its collaboration with Merck totaling $10.0 million.

The Company leases ~~one~~1 facility in Berkeley, California under an operating lease that has a remaining lease term of approximately 10 years. The Company also leases ~~one~~1 facility in Oss, the Netherlands, under an operating lease that expires in December 2020. Both leases contain an option to extend for an additional term, however, the Company is not reasonably certain to exercise the option for ~~either lease.~~the Berkeley lease and the Company will not be exercising the option for the Oss lease due to the planned closure of the facility. Refer to footnote 10 “Restructuring and Related Expense” for additional information.

The Company is subleasing approximately ~~23,860~~26,552 square feet in its Berkeley facility under subleases that expire on or prior to December 31, 2020. Sublease income was ~~$0.3~~$0.4 million for each of the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, and $1.1 million and $0.9 million for the nine months ended September 30, 2019 and 2018, respectively.~~2019.

During 2016, the Company established a letter of credit with Bank of America Merrill Lynch as security for the Berkeley lease in the amount of $0.5 million. The letter of credit is collateralized by a certificate of deposit for $0.5 million which has been included in restricted cash in the consolidated balance sheet as of ~~September 30, 2019.~~March 31, 2020.

~~Future minimum payments under the leases at December 31, 2018 prior to the adoption of the new lease standard, ASC 842, were as follows (in thousands):~~

As of January 1, 2019, the Company recognized ROU assets and lease liabilities for its operating leases. Aside from the operating leases, there were no other leases, including finance leases, recognized as of January 1, 2019.

The maturity of the Company’s operating lease liabilities as of ~~September 30, 2019~~March 31, 2020 is as follows (in thousands):

Straight-line rent expense recognized for operating leases was ~~$1.2~~$1.4 million and ~~$1.3~~$1.2 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $3.7 million and $3.9 million for the nine months ended September 30, 2019 and 2018,~~ respectively. Variable lease payments, including non-lease components such as common area maintenance fees, recognized as rent expense for operating leases were ~~$0.5~~$0.3 million ~~and $0.3 million~~ for each of the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively, and $1.1 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.~~2019. The Company does not have any finance leases.

The following information represents supplemental disclosure for the condensed consolidated statement of cash flows related to operating leases (in thousands):

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.

The Company is not party to any material legal proceedings at this time. From time to time, the Company may become involved in various legal proceedings that arise in the ordinary course of its business.

The Company has various manufacturing, clinical, research and other contracts with vendors in the conduct of the normal course of its business. All contracts are terminable, with varying provisions regarding termination. If a contract with a specific vendor were to be terminated, the Company would only be obligated for the products or services that the Company had received at the time the termination became effective as well as non-cancelable and non-refundable obligations, including payment obligations for costs or expenses incurred by the vendor for products or services before the termination became effective. In the case of terminating a clinical trial agreement at a particular site, the Company would also be obligated to provide continued support for appropriate medical procedures at that site until completion or termination.

In August 2017, the Company entered into an “at-the-market” sales agreement, as amended in February 2019, or the 2017 Sales Agreement, with Cowen, through which the Company may offer and sell shares of its common stock having an aggregate offering of up to $100.0 million through Cowen, as the Company’s sales agent. The Company will pay Cowen a commission of up to 3% of the gross proceeds of sales made through the arrangement. There were no0 sales of shares of common stock pursuant to the 2017 Sales Agreement during the year ended December 31, ~~2018~~2019 or the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. As of ~~September 30, 2019,~~March 31, 2020, the Company had an aggregate of $81.5 million remaining for future sales under the 2017 Sales Agreement, subject to the continued effectiveness of its shelf registration statement on Form S-3 (Registration No. 333-219639) or an effective replacement shelf registration statement.

In March 2015, the Company’s board of directors adopted and in April 2015 the Company’s stockholders approved the 2015 Equity Incentive Plan, or the 2015 Plan, which became effective upon the initial public offering of the Company’s common stock, or IPO, and provides for the granting of incentive stock options, nonstatutory stock options and other forms of stock awards to its employees, directors and consultants. The Company’s 2009 Stock Incentive Plan, or the 2009 Plan, terminated on the date the 2015 Plan was adopted. Options granted or shares issued under the 2009 Plan that were outstanding on the date the 2015 Plan became effective will remain subject to the terms of the 2009 Plan.

The 2015 Plan is administered by the board of directors or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. The exercise price of incentive stock options and nonqualified stock options will be no less than 100% of the fair value per share of the Company’s common stock on the date of grant. If an individual owns capital stock representing more than 10% of the voting shares, the price of each share will be at least 110% of the fair value on the date of grant. Options expire after 10 years (five years for stockholders owning greater than 10% of the voting stock). The number of shares of common stock initially reserved for issuance under the 2015 Plan was 6,134,292 shares with an automatic annual increase to the shares issuable under the 2015 Plan to the lower of (i) 4% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (ii) a lower number determined by the board of directors. On January 1, ~~2019,~~2020, the shares issuable under the 2015 Plan increased by ~~3,182,868.~~3,229,427. The Company had ~~8,582,012~~10,011,759 shares available for future grant under the 2015 Plan as of ~~September 30, 2019.~~March 31, 2020.

The Company’s 2009 Stock Incentive Plan, or the 2009 Plan, terminated on the date the 2015 Plan was adopted. Options granted or shares issued under the 2009 Plan that were outstanding on the date the 2015 Plan became effective will remain subject to the terms of the 2009 Plan. Prior to the 2009 Plan termination, the number of options available for grant was increased by 360,000 shares. At ~~September 30, 2019, 2,769,320~~March 31, 2020, 2,694,764 options under the 2009 Plan remained outstanding.

The following table summarizes stock option activity for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:

Options Outstanding

Shares
Available
for Grant

Number of
Shares
Underlying
Options

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value

(In thousands)

Balance—December 31, 2018

7,255,050

8,986,010

$
7.54

$
5,458

Authorized

3,182,868

—

RSUs forfeited, net of grants

269,363

—

Granted

(4,976,100
)

4,976,100

3.63

Exercised

—

(548,523
)

0.97

Canceled

2,850,831

⁽¹⁾

(2,974,511
)

8.96

Balance—September 30, 2019

8,582,012

10,439,076

$
5.61

$
472

Options exercisable—September 30, 2019

5,455,325

$
6.74

$
472

Options vested and expected to vest—September 30, 2019

9,512,419

$
5.77

$
472

	Options Outstanding
	Shares Available for Grant				Number of Shares Underlying Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value
										(In thousands)
Balance—December 31, 2019		8,751,436				10,297,444		$	5.49	$	680
Authorized		3,229,427				—
RSUs forfeited		76,991				—
Granted		(2,866,000	)			2,866,000			3.16
Exercised		—				(88,480	)		0.90
Canceled		819,905		⁽¹⁾		(830,981	)		4.81
Balance—March 31, 2020		10,011,759				12,243,983		$	5.03	$	5,420
Options exercisable—March 31, 2020						5,942,462		$	6.44	$	4,515
Options vested and expected to vest—March 31, 2020						10,777,743		$	5.24	$	5,189

The aggregate intrinsic value represents the difference between the exercise price of the options and the closing price of the Company’s common stock. The aggregate intrinsic value of options exercised during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was $0.1 ~~million and $1.2 million, respectively.~~million.

As of ~~September 30, 2019,~~March 31, 2020, the total unrecognized compensation expense related to unvested options, net of estimated forfeitures, was ~~$11.2~~$11.3 million, which the Company expects to recognize over an estimated weighted-average period of ~~3.0~~3.2 years.

In September 2016, the Company’s board of directors authorized the issuance of restricted stock units, or RSUs, under the 2015 Plan and adopted a form of restricted stock unit grant notice and restricted stock unit award agreement, which is intended to serve as a standard form agreement for RSU grants issued to employees, executive officers, directors and consultants.

The following table summarizes RSU activity for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:

The fair value of RSUs is determined on the date of grant based on the market price of the Company’s common stock on that date. As of ~~September 30, 2019,~~March 31, 2020, there was ~~$4.9~~$3.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to RSUs which is expected to be recognized over a weighted-average period of ~~2.0~~1.6 years.

In March 2015, the Company’s board of directors adopted and in April 2015 the Company’s stockholders approved the 2015 Employee Stock Purchase Plan, or 2015 ESPP, which became effective upon the IPO. The 2015 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code, or the Code, and is administered by the Company’s board of directors and the compensation committee of the board of directors.

The number of shares of common stock initially reserved for issuance under the 2015 ESPP was 720,000 shares with an automatic annual increase to the shares issuable under the 2015 ESPP equal to the lower of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (ii) a lower number determined by the board of directors. There was no0 annual increase of shares issuable under the 2015 ESPP on January 1, 2019. The Company had ~~1,622,920~~1,570,337 shares available for future issuance under the 2015 ESPP as of ~~September 30, 2019.~~March 31, 2020.

As of September 30, 2019, the total unrecognized compensation expense related to the 2015 ESPP was $22,000, which the Company expects to recognize over an estimated weighted-average period of 0.1 years.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine fair value of the Company’s common shares to be issued under the 2015 ESPP:

Total stock-based compensation expense recognized for employees and non-employees was as follows (in thousands):

In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

Fair Value of Common Stock—Since the Company’s IPO, the Company has used the market closing price of its common stock as reported on the Nasdaq Global Select Market.

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual ~~term)~~term for employee options).The Company uses the contractual term to determine the non-employee award fair value at the grant date.

Expected Volatility—~~Because the Company does not have a long trading history for its common stock, the~~The Company’s expected volatility ~~was estimated~~is based on the ~~average~~historical volatility ~~for comparable publicly traded biopharmaceutical companies over a period equal to the expected term~~ of the Company’s common stock ~~option grants. The comparable companies were chosen based on their similar size, stage~~price since its IPO in ~~the life cycle or area of specialty.~~2015.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of ~~zero.~~0.

The fair value of stock option awards granted ~~to employees~~ was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

In January 2020, the Company’s Board of Directors approved a restructuring to further extend the Company’s operating capital and align personnel towards executing the clinical development strategy. As of March 31, 2020, the Company reduced its workforce by 19 employees (approximately 20% of total employees) and intends to reduce its workforce by an additional 32 employees in the remainder part of the year under the restructuring plan. Additionally, the Company intends to close its Aduro Biotech Europe, or ABE, headquarters in Oss, the Netherlands. The Company estimates that it will incur aggregate charges of approximately $6.4 million, including $2.1 million in one-time severance and employee termination related costs, approximately $4.0 million in one-time retention costs and relocation costs of approximately $0.3 million. During the three months ended March 31, 2020, the Company accrued approximately $3.1 million of restructuring compensation and paid approximately $0.9 million of restructuring compensation. As of March 31, 2020, the Company has a remaining restructuring compensation reserve balance of approximately $2.2 million. The restructuring is expected to be substantially complete by the end of the third quarter of 2020.

The restructuring plan includes the planned closure of the ABE leased facility by June 30, 2020. As a result, the Company fully impaired ABE’s property and equipment, consisting of lab equipment, computer and office equipment, furniture, and leasehold improvements, during the three months ended March 31, 2020. Additionally, the Company accelerated the amortization of the ROU asset associated with the leased facility so that the ROU asset will be fully amortized by June 30, 2020 rather than December 31, 2020, the expiration of the Oss lease. For the three months ended ~~September 30, 2019 and 2018,~~March 31, 2020, the Company ~~recognized $3.1 million~~recorded an additional ROU asset amortization expense of $0.1 million.

Restructuring and ~~$4.1 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company recognized $10.1 million and $13.2 million, respectively, of stock-based compensation~~ related ~~to options granted to employees. The compensation~~ expense ~~is allocated on a departmental basis, based on the classification~~consist of the ~~option holder.~~following (in thousands):

~~The Company uses the fair value method to value options granted to nonemployees.~~

For the three months ended ~~September 30,~~March 31, 2019 ~~and 2018,~~in the Statement of Operations, the Company ~~recognized stock-based compensation~~reclassified $3.0 million of ~~$12,000~~restructuring and ~~$0.1 million, respectively,~~related expense associated with the January 2019 strategic reset from Research and development and General and administrative to Restructuring and related expense to be consistent with the presentation of the March 31, 2020 condensed consolidated financial statements.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 global pandemic. The CARES Act, among other things, permits certain net operating losses (NOLs) to be carried back for the ~~nine months ended September 30, 2019 and 2018, the Company recognized stock-based compensation~~preceding five taxable years to offset 100% of $0.1 million and $0.2 million, respectively, related to options granted to nonemployees. Beginning on January 1, 2019, the Company adopted ASU 2018-07 and measured its stock-based awards made to non-employees based on the estimated fair values of the awards as of the adoption date of January 1, 2019 using the Black-Scholes option-pricing model and recognized expense over the remaining requisite service period using the straight-line method. As a result, the stock-based compensation amount recognized for the nine months ended September 30, 2019 reflects the adoption of ASU 2018-07 as of January 1, 2019 while the stock-based compensation amount recognized for the nine months ended September 30, 2018 reflects the amount prior to the recently adopted standard.

~~The fair value of stock option awards granted to nonemployees was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:~~

Income tax benefit for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was approximately ~~$2.3~~$5.7 million and ~~$385,000, respectively, and $2.3 million and $444,000 for the nine months ended September 30, 2019 and 2018,~~$35,000, respectively. The income tax benefit recorded for the ~~nine~~three months ended ~~September 30,~~on March 31, 2020 was primarily related to the tax refund due to the NOL carryback available under the CARES Act. The income tax benefit for the three months ended on March 31, 2019 was primarily related ~~primarily~~ to the foreign deferred tax benefit from the amortization of intangibles and the impairment of foreign intangible assets. The income tax benefit for the nine months ended September 30, 2018, related primarily to the carryback of net operating losses from 2017 to 2016.intangibles. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

The Company files income tax returns in the United States and Netherlands. The federal and state income tax returns are open under the statute of limitations subject to tax examinations for the tax years ended December 31, ~~2015~~2016 through December 31, ~~2017.~~2018. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS or state tax authorities to the extent utilized in a future period. For the Netherlands, the tax administration can impose an additional assessment within five years from the year in which the tax debt originated.

Since the Company was in a loss position for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per common share calculations because they would be anti-dilutive were as follows:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes thereto for the year ended December 31, ~~2018,~~2019, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

This discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, strategies, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

We are an immunotherapy company focused on the discovery, development and commercialization of therapies that are designed to harness the body's natural immune system for the treatment of patients with challenging diseases. Our primary technologies ~~which relate~~related to the cyclic GMP-AMP Synthase–Stimulator of Interferon Genes ~~(STING)~~(cGAS-STING) and A Proliferation Inducing Ligand (APRIL) pathways ~~are designed to harness the body's natural immune system, and~~ have led to what we believe is a strong pipeline of clinical candidates that are being investigated in cancer, ~~indications as well as~~ autoimmune and inflammatory diseases. We are collaborating with leading global pharmaceutical companies to help expand and drive our product pipeline. Our strategy is to rapidly advance first- or best-in-class therapies from our STING and APRIL technologies through clinical development and regulatory approval. Our lead STING pathway activator product candidate, ADU-S100 (MIW815), is designed to selectively modulate innate and adaptive immune responses to enhance immune control in oncology. Our anti-APRIL antibody product candidate, BION-1301, is designed to suppress the autoimmune response in patients with IgA nephropathy (IgAN).

Our STING pathway activator technology is designed to activate the intracellular STING receptor, which may result in a potent tumor-specific immune response. We are developing STING pathway activator product candidates ~~including ADU-S100 (MIW815),~~ in oncology under our worldwide collaboration with ~~Novartis Pharmaceuticals Corporation, or~~ Novartis. ADU-S100 (MIW815), the first STING pathway activator to enter the clinic, is being investigated in a Phase 2 clinical trial of ADU-S100 in combination with KEYTRUDA® (pembrolizumab), an approved anti-PD-1 monoclonal antibody, as first-line treatment for patients with recurrent or metastatic squamous cell carcinoma of the head and neck. We are preparing to initiate a Phase 1 clinical trial of ADU-S100 as a single agent administered intravesically in patients with non-muscle invasive bladder cancer who are unresponsive to Bacillus Calmette-Guerin (BCG), an approved intravesical immunotherapy, in the second half of 2020, subject to any delays resulting from COVID-19, as further discussed below. ADU-S100 has also been evaluated in a Phase 1 clinical trial as a single agent and ~~is being evaluated~~ in ~~an ongoing~~a Phase 1b combination trial with spartalizumab (PDR001), an investigational anti-PD-1 monoclonal antibody, in patients with cutaneously accessible metastatic solid tumors or lymphomas. In February 2019, we initiated a Phase 1 trial of ADU-S100 in combination with YERVOY® (ipilimumab), an approved anti-CTLA-4 antibody, for the treatment of relapsed and refractory melanoma. In September 2019, we initiated a Phase 2 clinical trial of ADU-S100 with KEYTRUDA® (pembrolizumab), an approved anti-PD-1 monoclonal antibody, in patients with squamous cell carcinoma of the head and neck (SCCHN).

APRIL is a ~~TNF-family ligand~~soluble factor that binds to B-cell maturation antigen, or BCMA, and transmembrane activator and CAML interactor, or TACI, receptors thereby inducing signaling, and is believed to be implicated in ~~several immunological processes.~~IgA nephropathy and other indications. We are developing BION-1301, a first-in-class monoclonal antibody that fully blocks APRIL binding to both of its natural ligands, the BCMA and TACI receptors. BION-1301 is being evaluated in a Phase 1 clinical trial for the treatment of ~~IgAN,~~IgA nephropathy, a ~~progressive~~chronic autoimmune kidney disease with unclear causality. Because there currently are no approved therapies for ~~IgAN~~IgA nephropathy with curative intent, we believe there is opportunity for BION-1301 to address a significant unmet patient need. We ~~are currently~~have completed dosing healthy volunteers in the first-in-human study of BION-1301 in ~~IgAN~~IgA nephropathy and ~~expect~~plan to begin dosing ~~IgAN~~ patients with IgA nephropathy in ~~2020.~~the first half of 2020, subject to any delays resulting from COVID-19, as further discussed below.

In addition to our current STING pathway product candidates that activate the STING receptor, we are developing product candidates that are designed to prevent or control immune responses through the STING pathway as part of our cGAS-STING pathway inhibitor ~~program. In December 2018, we entered into~~program under a research collaboration and exclusive license agreement with Eli Lilly and Company, or ~~Lilly, for our~~Lilly. Our cGAS-STING pathway inhibitor program ~~for~~involves the research and development of novel inhibitor product candidates for autoimmune and other inflammatory diseases.

Since commencing our operations, our efforts have been focused on research, development and the advancement of our product candidates into clinical trials. As a result, we have incurred significant losses. We have funded our operations primarily through the sale of common stock and licensing agreements with pharmaceutical ~~partners and revenue from government grants.~~partners. We incurred a net loss of ~~$21.0~~$7.6 million and ~~$23.1~~$23.4 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $63.0 million and $69.0 million for the nine months ended September 30, 2019 and 2018,~~ respectively. At ~~September 30, 2019,~~March 31, 2020, our cash, cash equivalents and marketable securities totaled ~~$235.4~~$205.9 million and our accumulated deficit was ~~$467.5~~$494.5 million. We have intellectual property protection on our STING and APRIL programs and each of our product candidates, some of which we believe can be maintained into ~~2039.~~2040.

In January ~~2019, we announced~~2020, our Board of Directors approved a ~~strategic reset~~restructuring to ~~focus primarily on the discovery~~further extend our operating capital and align personnel towards executing our clinical development strategy. As of ~~novel product candidates in the STING and APRIL pathways. As a result of the strategic reset,~~March 31, 2020, we reduced our workforce by ~~approximately 37%~~19 employees (approximately 20% of total employees) and ~~recorded a one-time charge~~intend to reduce our workforce by an additional 32 employees in the remainder part of the year under the restructuring plan. We estimate that we will incur aggregate charges of approximately ~~$2.5~~$6.4 million, including $2.1 million in ~~our operating expenses for~~one-time severance and employee termination related costs, approximately $4.0 million in one-time retention costs and relocation costs of approximately $0.3 million. The restructuring is expected to be substantially complete by the ~~three months ended March 31, 2019.~~end of the third quarter 2020. The reduction in ongoing operating expenses is expected to extend our cash, cash equivalents and marketable securities into ~~2022,~~2023, exclusive of potential future milestone payments from our partnerships with Novartis, Lilly and Merck.

In response to the COVID-19 global pandemic, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States and Europe, including in the locations of our offices, clinical trial sites, key vendors and partners. The COVID-19 global pandemic is rapidly evolving, and the timing of delays and overall impact to our clinical trials and business are currently unknown. In our Current Report on Form 8-K filed with the SEC on April 9, 2020, we provided an update on the current status of our clinical programs and business operations.

As previously disclosed, though we have begun activating clinical trial sites for Part 3 of the BION-1301 clinical trial for the treatment of IgA nephropathy, we expect there will be delays in our ability to activate additional sites and enroll patients at existing and any additional sites depending upon the duration and nature of COVID-19 public health guidance measures in much of the United States and Europe. These measures are also likely to impact our ability to conduct patient follow-up. As a result, our ability to report data in IgA nephropathy patients will likely be delayed until the first half of 2021.

Please also see the risk factor below titled “Public health crises such as pandemics or similar outbreaks could materially and adversely affect our clinical trials, business, financial condition and results of operations.”

We have not generated any revenue from product sales. Our revenue to date has been primarily derived from our collaboration and license agreements. Our collaboration agreements may include the transfer of intellectual property rights in the form of licenses, promises to provide research and development services and promises to participate on certain development committees with the collaboration party. The terms of such agreements include payment to us of one or more of the following: nonrefundable upfront fees, payment for research and development services, development, regulatory and commercial milestone payments, and royalties on net sales of licensed products.

Revenue associated with nonrefundable upfront license fees where the license fees and research and development activities cannot be accounted for as separate performance obligations is deferred and recognized as revenue over the expected period of performance based on a cost-based input method. Revenue from contingent development, regulatory and commercial milestones, when not deemed probable of significant reversal of cumulative revenue, is also recognized over the performance period based on a similar method. Where we have no remaining performance obligations, revenue from such milestones is recognized when the accomplishment of the milestones is deemed probable.

We expect that any revenue we generate from our current collaboration, research and license agreements and any future collaboration partners will fluctuate from year to year as a result of the timing and ~~amount~~number of milestones and other payments.

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates, as well as the development of product candidates pursuant to our research and license agreements with Novartis, Lilly and Merck. We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.

We expect our research and development expenses to increase in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates and technologies may be affected by a variety of factors including: the quality of our product candidates, early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never succeed in obtaining regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.

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

Restructuring and related expense includes restructuring compensation charges and the impairment of property and equipment. Restructuring compensation charges consist of one-time severance and employee termination related costs, one-time retention costs, and relocation costs. Specifically, as part of the restructuring plan to close Aduro Biotech Europe in the second quarter of 2020, the Company impaired its property and equipment balance for Aduro Biotech Europe.

Interest income primarily consists of interest income from our cash equivalents and marketable securities.

Other loss, ~~(income),~~ net primarily consists of foreign currency transaction gains and losses.

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the availability of research and development tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary.

Comparison of the Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~

	Three Months Ended September 30,									Three Months Ended March 31,
	2019			2018			Change			2020			2019			Change
	(in thousands)									(in thousands)
Revenue:
Collaboration and license revenue	$	4,799		$	3,063		$	1,736		$	13,950		$	3,938		$	10,012
Total revenue		4,799			3,063			1,736			13,950			3,938			10,012
Operating expenses:
Research and development		15,510			18,675			(3,165	)		15,828			17,494			(1,666	)
General and administrative		8,683			9,149			(466	)		7,819			8,224			(405	)
Loss on impairment of intangible assets		5,006			—			5,006
Restructuring and related expense											4,308			2,994			1,314
Amortization of intangible assets		138			144			(6	)		136			140			(4	)
Total operating expenses		29,337			27,968			1,369			28,091			28,852			(761	)
Loss from operations		(24,538	)		(24,905	)		367			(14,141	)		(24,914	)		10,773
Interest income		1,366			1,353			13			920			1,471			(551	)
Other loss (income), net		(32	)		21			(53	)
Other loss, net											(19	)		(19	)		-
Loss before income tax		(23,204	)		(23,531	)		327			(13,240	)		(23,462	)		10,222
Income tax benefit		2,252			385			1,867			5,665			35			5,630
Net loss	$	(20,952	)	$	(23,146	)	$	2,194		$	(7,575	)	$	(23,427	)	$	15,852

Total revenue was ~~$4.8~~$14.0 million for the three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$1.7~~$10.0 million compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The increase for the quarter was primarily due to ~~ratable~~ recognition of the ~~upfront~~$10.0 million development milestone payment received under our ~~Lilly collaboration.~~exclusive license and research agreement with Merck (known as MSD outside the United States and Canada) for Merck’s initiation of a Phase 2 clinical trial of MK-5890, an anti-CD27 agonist, in non-small cell lung cancer (NSCLC).

The following table summarizes our research and development costs by program incurred during the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019. Each year, we present and describe our research and development expenses based on programs and categories that are considered critical to us at that time and all other non-critical programs and categories are reported in Other R&D and Other, respectively. Therefore, the presentation in the Research and Development Expense tables may change from year to year.

	Three Months Ended September 30,							Three Months Ended March 31,
	2019		2018		Change			2020		2019		Change
	(in thousands)							(in thousands)
APRIL	$	4,267	$	3,162	$	1,105		$	6,045	$	5,492	$	553
STING		3,631		2,436		1,195			3,542		2,853		689
cGAS-STING		1,118		1,102		16			1,127		1,056		71
Other R&D		2,891		7,858		(4,967	)		2,548		4,460		(1,912	)
Subtotal		11,907		14,558		(2,651	)		13,262		13,861		(599	)
Stock-based compensation		1,555		2,230		(675	)		863		2,033		(1,170	)
Facility costs		2,048		1,887		161			1,703		1,600		103
Total research and development	$	15,510	$	18,675	$	(3,165	)	$	15,828	$	17,494	$	(1,666	)

The following table summarizes our research and development expenses incurred during the three months ended March 31, 2020 and 2019:

Research and development expenses allocated to our programs were ~~$15.5~~$15.8 million for the three months ended ~~September 30, 2019,~~March 31, 2020, a decrease of ~~$3.2~~$1.7 million compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease ~~for the quarter~~ was primarily due to lower costs related to our programs that are winding down partially offset by higher costs as a result of focused spending towards our STING and APRIL programs. The decrease was ~~also~~further attributable to lower compensation and related personnel costs as well as stock-based compensation in 2020 due to reduced headcount as a result of our strategic reset inof January ~~2019.~~2019 and the restructuring of January 2020.

The following table summarizes our ~~research~~general and ~~development~~administrative expenses incurred during the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

~~Research~~General and ~~development~~administrative expenses were ~~$15.5~~$7.8 million for the three months ended ~~September 30, 2019,~~March 31, 2020, a decrease of ~~$3.2~~$0.4 million compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The decrease for the quarter was primarily due to lower personnel and stock-based compensation expense, as a result of our strategic reset inof January ~~2019.~~

~~The following table summarizes our general and administrative expenses incurred during the three months ended September 30,~~ 2019 and ~~2018:~~the restructuring of January 2020.

~~General~~Restructuring and ~~administrative expenses were $8.7~~Related Expense

Restructuring and related expense was $4.3 million for the three months ended ~~September 30, 2019, a decrease~~March 31, 2020, an increase of ~~$0.5~~$1.3 million compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~decrease~~increase for the quarter was primarily due to ~~lower personnel~~the impairment of property and ~~stock-based compensation~~equipment associated with the planned closure of its subsidiary, Aduro Biotech Europe, as part of the January 2020 restructuring plan. The $3.0 million restructuring and related expense, ~~as a result of our strategic reset in~~which includes employee severance and retention payments, for the three months ended March 31, 2019, related to the January 2019 ~~partially offset by higher professional services.~~strategic reset.

~~Loss on impairment of intangible assets~~Interest income was ~~$5.0~~$0.9 million for the three months ended ~~September 30, 2019. There was no loss recorded in the same quarter in prior years. The loss was recorded due to our decision to discontinue one~~March 31, 2020, a decrease of ~~our acquired early research programs in the third quarter of 2019 resulting in impairment of the Acquired IPR&D asset.~~

~~Interest income was $1.4~~$0.6 million ~~for the three months ended September 30, 2019, an increase of $13,000~~ compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease for the three months ended ~~September 30, 2019~~March 31, 2020 was primarily due to ~~favorable interest rates.~~the lower cash balance in the first quarter of 2020.

Income tax benefit was ~~$2.3~~$5.7 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~an income tax benefit of $385,000~~$35,000 for the three months ended ~~September 30, 2018.~~March 31, 2019. The change was primarily related to ~~a $2.2 million reduction in~~ the ~~deferred~~ tax ~~liability associated with the impairment of our Acquired IPR&D intangible assets.~~

Nine Months Ended September 30,

2019

2018

Change

(in thousands)

Revenue:

Collaboration and license revenue

$
13,625

$
12,329

$
1,296

Total revenue

13,625

12,329

1,296

Operating expenses:

Research and development

51,916

58,223

(6,307
)
General and administrative

25,845

27,021

(1,176
)
Loss on impairment of intangible assets

5,006

—

5,006

Amortization of intangible assets

417

443

(26
)
Total operating expenses

83,184

85,687

(2,503
)
Loss from operations

(69,559
)

(73,358
)

3,799

Interest income

4,334

3,892

442

Other loss, net

(54
)

(15
)

(39
)
Loss before income tax

(65,279
)

(69,481
)

4,202

Income tax benefit

2,322

444

1,878

Net loss

$
(62,957
)

$
(69,037
)

$
6,080

~~Total revenue was $13.6 million for the nine months ended September 30, 2019, an increase of $1.3 million compared~~refund due to the ~~nine months ended September 30, 2018. The increase~~carryback of Net Operating Loss and Alternative Minimum Tax credit refund under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was ~~primarily due~~enacted in response to ~~ratable recognition of~~ the ~~upfront milestone payment received under our Lilly collaboration.~~ COVID-19 global pandemic.

~~The following table summarizes our research and development costs by program incurred during the nine months ended September 30, 2019 and 2018:~~

Research and development expenses allocated to our programs were $52.0 million for the nine months ended September 30, 2019, a decrease of $6.3 million compared to the nine months ended September 30, 2018. The decrease was primarily due to lower costs related to our programs that are winding down partially offset by higher costs as a result of focused spending towards our STING and APRIL programs.

~~The following table summarizes our research and development expenses incurred during the nine months ended September 30, 2019 and 2018:~~

Research and development expenses were $52.0 million for the nine months ended September 30, 2019, a decrease of $6.3 million compared to the nine months ended September 30, 2018. The decrease was primarily due to lower personnel and stock-based compensation expense as a result of our strategic reset in January 2019. In addition, we had lower facility costs due to sublease income.

~~The following table summarizes our general and administrative expenses incurred during the nine months ended September 30, 2019 and 2018:~~

General and administrative expenses were $25.8 million for the nine months ended September 30, 2019, a decrease of $1.2 million compared to the nine months ended September 30, 2018. The decrease was primarily due to lower personnel and stock-based compensation expense, as a result of our strategic reset in January 2019, partially offset by higher professional services.

Loss on impairment of intangible assets was $5.0 million for the nine months ended September 30, 2019. There was no loss recorded in the same period in prior years. The loss was recorded due to our decision to discontinue one of our acquired early research programs in the third quarter of 2019 resulting in impairment of the Acquired IPR&D asset.

Interest income was $4.3 million for the nine months ended September 30, 2019, an increase of $0.4 million compared to the nine months ended September 30, 2018. The increase for the nine months ended September 30, 2019 is primarily due to favorable interest rates.

Income tax benefit was $2.3 million for the nine months ended September 30, 2019 compared to an income tax benefit of $444,000 for the nine months ended September 30, 2018. The change was primarily related to a $2.2 million reduction in the deferred tax liability associated with the impairment of our Acquired IPR&D intangible assets.

To date, our operations have been financed primarily through the public issuance of common stock, sale of convertible preferred stock and proceeds from our collaboration and license agreements. At ~~September 30, 2019,~~March 31, 2020, we had cash, cash equivalents and ~~short term and long term~~ marketable securities of ~~$235.4~~$205.9 million. We believe that our available cash, cash equivalents and marketable securities will be sufficient to fund our planned operations into ~~2022.~~2023. We have based our cash sufficiency estimate on assumptions that may prove to be incorrect. If our assumptions prove to be incorrect, we could consume our available capital resources sooner than we currently expect or in excess of amounts that we currently expect, which could adversely affect our development activities.

In August 2017, we entered into an “at-the-market” sales agreement, as amended in February 2019, or the 2017 Sales Agreement, with Cowen and Company, LLC, or Cowen, through which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, acting as sales agent. We agreed to pay Cowen a commission of up to 3% of the gross proceeds of sales made through the arrangement. There were no sales of shares of common stock pursuant to the 2017 Sales Agreement during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. As of ~~September 30, 2019,~~March 31, 2020, we had an aggregate of $81.5 million remaining for future sales under the 2017 Sales Agreement, subject to the continued effectiveness of our shelf registration statement on Form S-3 (Registration No. 333-219639) or an effective replacement shelf registration statement.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical, development costs including manufacturing, and other research and development services, laboratory and related supplies and legal and other professional services. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect to incur substantial expenditures in the foreseeable future for the development, manufacturing and potential commercialization of our product candidates.

We plan to continue to fund our operations and capital funding needs through equity and/or debt financing and potential milestones from existing collaboration agreements. We may also consider entering into additional collaboration arrangements or selectively partnering for clinical development and commercialization or outlicensing non-core assets. In addition, we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations.The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could harm our business, financial condition and results of operations.

Net cash used in operating activities was ~~$43.4~~$7.9 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$67.7~~$11.2 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Net cash used in operating activities was lower primarily due to ~~receipt of $12.0 million from Lilly under our collaboration.~~the increase in accrued liabilities.

Net ~~cash used in investing activities was $29.7 million for the nine months ended September 30, 2019, compared to net~~ cash provided by investing activities ~~of $33.0~~was $42.6 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2020, compared to $2.1 million of net cash used for the three months ended March 31, 2019. The change was primarily due to a ~~higher~~lower level of purchases of marketable securities in ~~2019~~2020 as compared to ~~2018.~~2019.

Net cash provided by financing activities was ~~$0.7~~$0.1 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$1.8~~$0.3 million ~~used in financing activities~~ for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The change is primarily due to ~~the payment~~a lower amount of ~~contingent consideration of $3.5 million during the nine months ended 2018 partially offset by~~ proceeds from the issuance of common stock under our stock incentive ~~plans.~~plans in 2020 as compared to 2019.

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have entered into lease agreements for our corporate office and laboratory facilities. Effective January 1, 2019, we adopted ASC Topic 842, Leases, or ASC Topic 842, using the optional transition method and applied the standard to leases that existed at that date. Under the optional transition method, we do not need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 1, 2019 in accordance with ASC Topic 840. We have elected the package of practical expedients allowed under ASC Topic 842, which permits us to account for our existing operating leases as operating leases under the new guidance, without reassessing our prior conclusions about lease identification, lease classification and initial direct costs. As a result of the adoption of the new lease accounting guidance on January 1, 2019, we recognized operating lease ROU assets of approximately $22.1 million and operating lease liabilities of approximately $33.8 million.

We determine the initial classification and measurement of our operating lease ROU assets and operating lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that we are reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our incremental borrowing rate. The incremental borrowing rate is determined by using a portfolio approach based on the rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the consolidated statements of operations and comprehensive income (loss).

For all leases, rent payments that are based on a fixed index or rate at the lease commencement date are included in the measurement of operating lease ROU assets and operating lease liabilities at the lease commencement date.

We have elected the practical expedient to not separate lease and non-lease components. Our non-lease components are primarily related to property maintenance, which varies based on future outcomes, and thus is recognized in rent expense when incurred.

Effective September 30, 2019, we adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), the standard update that simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In performing the quantitative impairment analysis for goodwill as of September 30, 2019, the fair value of our single reporting unit exceeded carrying value by 4.0%. If certain assumptions regarding a control premium were used, this percentage would increase. If our stock price were to experience a sustained significant decline, or other macroeconomic factors that affect the value of the reporting unit, impairment charges could be recorded. Refer to Footnote 2 and Footnote 5 in the footnotes of the condensed consolidated financial statements for additional information.

There have been no ~~other~~ material changes in our critical accounting policies during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on ~~February 27, 2019.~~March 9, 2020.

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

The following table summarizes our contractual obligations as of ~~September 30, 2019:~~March 31, 2020:

~~On January 1, 2019, we adopted Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842). The adoption~~For information with respect to recently issued accounting standards and the impact of ~~this standard had a material impact~~these standards on our ~~condensed~~ consolidated financial ~~statements. Refer~~statements, refer to Note 2 ~~– Basis~~“Basis of Presentation, Use of Estimates and Recent Accounting ~~Pronouncements~~Pronouncements” in ~~the Notes to~~ ~~Condensed~~ ~~Consolidated Financial Statements (Part~~our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form ~~10-Q) for further discussion.~~10-Q.

~~On January 1, 2019, we adopted ASU No. 2018-07, Compensation-Stock Compensation (Topic 718). The adoption of this standard had a material impact on our~~ ~~condensed~~ ~~consolidated financial statements. Refer to Note 2 – Basis of Presentation, Use of Estimates and Recent Accounting Pronouncements in the Notes to~~ ~~Condensed~~ ~~Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) for further discussion.~~

~~On September 30, 2019, we adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350). The adoption of this standard did not have a material impact on our~~ ~~condensed~~ ~~consolidated financial statements. Refer to Note 2 – Basis of Presentation, Use of Estimates and Recent Accounting Pronouncements in the Notes to~~ ~~Condensed~~ ~~Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) for further discussion.~~

Item 3. Quantitative and ~~Qualitative~~Qualitative Disclosures about Market Risk

The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities are denominated in foreign currency. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars. The primary foreign currency to which we are exposed is the Euro. We manage these risks through normal operating and financing activities and do not currently hedge our exposure to foreign currency exchange rate fluctuations.

Furthermore, we have positions in financial instruments including corporate debt securities and similar financial instruments. Financial markets are volatile and the markets for asset backed or similar securities could be illiquid. The value of these securities will continue to be impacted by external market factors. Should we need to convert these positions to cash, we may not be able to sell these instruments without significant losses or other market considerations.

Our management, with the participation of our President and Chief Executive Officer and our Interim Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this Quarterly Report on Form 10-Q. Based on that evaluation, our President and Chief Executive Officer and our Interim Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were, in design and operation, effective.

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such actions will be sufficient to provide us with effective internal control over financial reporting.

We are not party to any material legal proceedings at this time. From time to time, we may become involved in various legal proceedings that arise in the ordinary course of our business.

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before investing in our common stock. While we believe that the risks and uncertainties described below are the material risks currently facing us, additional risks that we do not yet know of or that we currently think are immaterial may also arise and materially affect our business.If any of the following risks materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

We have incurred net losses in every year since our inception and anticipate that we will continue to incur substantial and increasing net losses in the foreseeable future.

We are an immunotherapy company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have financed our operations primarily through the sale of common stock, and licensing agreements with pharmaceutical partners. Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our product candidates. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. We incurred a net loss of ~~$21.0~~$7.6 million and ~~$23.1~~$23.4 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $63.0 million and $69.0 million for the nine months ended September 30, 2019 and 2018,~~ respectively. At ~~September 30, 2019,~~March 31, 2020, we had an accumulated deficit of ~~$467.5~~$494.5 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates.

We will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. At ~~September 30, 2019,~~March 31, 2020, our cash and cash equivalents and marketable securities were ~~$235.4~~$205.9 million. We expect to continue to spend substantial amounts to continue the development of our product candidates. If we are able to gain regulatory approval for any of our product candidates, we will require significant additional amounts of cash in order to launch and commercialize any such product candidates. In addition, other unanticipated costs may arise. Because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates.

We do not have any committed external source of funds or other support for our development efforts other than our license agreements, including our collaboration and license agreement with Novartis, which may be terminated by Novartis upon 180 days’ notice, our license agreement with Merck, which may be terminated by Merck upon 120 days’ notice, and our collaboration and license agreement with Lilly, which may be terminated following a specified notice period. Until we can generate sufficient product and royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Additional financing may not be available to us when we need it or it may not be available on favorable terms.

If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, including our “at-the-market” offering, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical trials or research and development programs or our commercialization efforts.

On January ~~30, 2019,~~9, 2020, we announced a ~~strategic reset~~restructuring plan to ~~focus on Aduro’s core strengths – discovery~~further extend our operating capital and align personnel towards executing our clinical development ~~of novel product candidates in the Stimulator of Interferon Genes (STING) and A Proliferation Inducing Ligand (APRIL) pathways.~~strategy. The success of this ~~strategic reset~~restructuring will depend on our ability to ~~successfully redirect resources to development of STING and APRIL product candidates,~~reduce operating expenses, reduce our facilities footprint, close our operations in the Netherlands, retain senior management and other highly qualified personnel and generate multiple clinical data readouts over the next several years. ~~Also on January 30, 2019, as a result of our strategic reset,~~In connection with the restructuring we ~~announced that we reduced~~intend to reduce our workforce by approximately ~~37%~~59%. Our workforce after these actions may not be sufficient to fully execute our strategy, and we may not be able to effectively attract or retain senior management or other qualified employees needed to implement this strategy. If we are unable to successfully execute our strategy, our business, financial condition and results of operations may be materially and adversely ~~affecte~~d.affected.

We intend to sublease a significant amount of space in our headquarters in Berkeley, California. If we are unable to sublease our facilities on favorable terms, our subtenants are unable to meet their obligations under the subleases or our landlord recaptures the subleased space, we may be responsible for unexpected costs or the value of the lease asset may be reduced, which could impact our financial results.

At March 31, 2020, we had approximately 110,853 square feet of leased space in Berkeley. In connection with our restructuring plan, we expect to sublease a significant portion of our Berkeley facility to third parties. The COVID-19 global pandemic may result in reduced sublease demand or the amount of rent we are able to obtain. In the event that we are unable to sublease our excess space on favorable terms, or at all, or if we are able to sublease space but our subtenants fail to make lease payments to us or otherwise default on their obligations to us, we could incur substantial payment obligations to our landlord. In the event our estimates regarding our ability to sublet our available space are incorrect, we would be required to adjust our restructuring reserves, which could have a material impact on our financial results. In addition, in the event that we sublease 50% or more of our Berkeley facility to third parties, our landlord may recapture such subleased space, which would require us to reduce the value of the operating lease right-of-use asset on our balance sheet and could have a material impact on our financial results.

Risks Related to the Development and Commercialization of Our Current and Future Product Candidates

Our product candidates are based on novel technologies, and the development and regulatory approval pathway for such product candidates is unproven and may never lead to marketable products.

We do not have any products that have gained regulatory approval. Our immunotherapy product candidates are designed to stimulate and/or regulate innate and adaptive immune responses as potential treatments for cancer, autoimmune and inflammatory diseases. Any products we develop may not effectively modulate the immune response. The scientific evidence to support the feasibility of immunotherapy product candidates is preliminary and limited. Our business and future success depend on our ability to obtain regulatory approval of, and then successfully commercialize, our product candidates. Advancing these novel therapies creates significant challenges for us, including, among others:

All of our product candidates will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive regulatory approval for any of our product candidates. If we are unable to develop or receive marketing approval for our product candidates in a timely manner or at all, our business, financial condition and results of operations may be materially and adversely affected.

We may not be successful in our efforts to use and expand our technologies to build a pipeline of product candidates.

A key element of our strategy is to use and expand our technologies to build a pipeline of product candidates, combine our product candidates with existing and novel therapies, and progress these product candidates and combinations through clinical development for the treatment of various diseases. Although our research and development efforts to date have resulted in a pipeline of product candidates directed at various indications, we may not be able to develop product candidates that are safe and effective. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods. See also the risk factor titled, “Our corporate strategy and ~~reset~~restructuring plan may not be successful.”

Clinical development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future clinical trial results. Our clinical trials may fail to demonstrate adequately the safety and efficacy of one or more of our product candidates, which would prevent or delay regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective, or in the case of biologics, safe, pure and potent, for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.

Additionally, because our product candidates are based on new technologies and costs to treat potential side effects that may result from our product candidates ~~may be significant,~~are uncertain, our clinical trial costs ~~are likely to~~may be significantly higher than for more conventional therapeutic technologies or drug products.

The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. We cannot be certain that we will not face similar setbacks. Most product candidates that commence clinical trials are never approved as commercial products. The outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their drugs. We cannot guarantee that the FDA or foreign regulatory authorities will interpret trial results as we do, and more trials could be required before we are able to submit applications seeking approval of our product candidates. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Even if regulatory approval is secured for any of our product candidates, the terms of such approval may limit the scope and use of our product candidate, which may also limit its commercial potential. Furthermore, the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval, which may lead to the FDA or comparable foreign regulatory authorities delaying, limiting or denying approval of our product candidates.

Any delay, suspension, termination or request to repeat or redesign a trial could increase our costs and prevent or significantly delay our ability to commercialize our product candidates.

We may experience delays in our ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. In addition, due to delays in clinical trials related to the COVID-19 global pandemic, we expect that our clinical development program timelines will be negatively affected. See also the risk factor titled, “Public health crises such as pandemics or similar outbreaks could materially and adversely affect our clinical trials, business, financial condition and results of operations.”

The commencement or completion of clinical trials can be delayed or aborted for a variety of reasons, including delays or failures related to:

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs/ECs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose a clinical hold or suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, a negative finding from an inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or safety concerns raised by other clinical trials of therapies with similar mechanisms of action.

If we experience delays in the completion, or termination, of any clinical trial for our product candidates, the commercial prospects of that product candidate will be harmed, and our ability to generate product revenues from the product candidate will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.

In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Any delays to our clinical trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize our product candidates and our competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition and prospects significantly.

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.

From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock after this offering.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

If the interim topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Actual or potential conflicts of interest arising from our relationships with investigators could adversely impact the FDA approval process.

Principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash compensation in connection with such services. We also provide grants to investigators’ institutions from time to time. If certain of these relationships exceed specific financial thresholds, they must be reported to the FDA. If these relationships and any related compensation paid results in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay in approval, or rejection, of our marketing applications by the FDA.

Our product candidates may cause undesirable side effects or may have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, if approved, or result in significant negative consequences.

Side effects or adverse events associated with the use of our product candidates may be observed at any time, including in clinical trials or when a product is commercialized, and any such side effects or adverse events could cause us or regulatory authorities to interrupt, delay or halt clinical trials, result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities, or negatively affect our ability to market our product candidates. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.

To date, patients treated with our product candidates have experienced drug-related side effects or adverse events, or AEs, including AEs that were considered moderate or severe. Examples of the AEs experienced include among others, fevers, chills, injection sight pain, headaches, increased lipase and elevated amylase, tumor pain, dyspnea and respiratory failure. We cannot provide assurances that there will not be further adverse events.

If unacceptable side effects arise in the development of our product candidates, we could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials, require us to conduct additional animal or human studies or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, if side effects are observed in competing product candidates that are perceived to have similarities to ours, regulators or patients may infer that our product candidates could cause similar side effects. Any of these occurrences may materially and adversely affect our business, financial condition and results of operations.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could materially and adversely affect our business, financial condition and results of operations.

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

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

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

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

Public health crises such as pandemics or similar outbreaks could materially and adversely affect our clinical trials, business, financial condition and results of operations.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to COVID-19. In response to the COVID-19 global pandemic, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States and Europe, including in the locations of our offices, clinical trial sites, key vendors and partners. We expect that our clinical development program timelines will be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, due to “shelter in place” orders and other public health guidance measures, we have implemented a work-from-home policy for all staff members excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories will be delayed.

As a result of the COVID-19 global pandemic, or similar pandemics, and related “shelter in place” orders and other public health guidance measures, we have and may in the future experience disruptions that could materially and adversely impact our clinical trials, business, financial condition and results of operations. Potential disruptions include but are not limited to:

These and other factors arising from the COVID-19 global pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could materially and adversely affect our business, financial condition and results of operations.

The COVID-19 global pandemic continues to rapidly evolve. The extent to which the outbreak may affect our clinical trials, business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, business, financial condition and results of operations.

In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 global pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.

The market opportunities for our product candidates may be small or limited to those patients who are ineligible for established therapies or for whom prior therapies have failed.

Our projections of the number of people who have the indications that we are targeting and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these indications. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. Even if we obtain significant market share for our product candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications. If the market opportunities for our product candidates are smaller than we estimate, our business, financial condition and results of operations may be materially and adversely affected.

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

We are subject to a multitude of manufacturing, supply chain, storage and distribution risks, any of which could substantially increase our costs and limit the supply of our product candidates.

The process of manufacturing our product candidates is complex, highly regulated and subject to several risks, including:

Any adverse developments affecting manufacturing operations for our product candidates and/or damage that occurs during shipping may result in delays, inventory shortages, lot failures, withdrawals or recalls or other interruptions in the supply of our drug substance and drug product. We may also have to write off inventory, incur other charges and expenses for supply of drug product that fails to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Inability to meet the demand for any of our product candidates, if approved, could damage our reputation and the reputation of our products among physicians, healthcare payors, patients or the medical community, which could materially and adversely affect our business, financial condition and results of operations.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.

We currently have ~~only limited~~no marketing capabilities and no sales or distribution capabilities and have no marketed products. We intend to develop an in-house commercial organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products; however, we cannot assure you that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.

We cannot assure you that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or elsewhere.

A variety of risks associated with conducting clinical trials and marketing our product candidates internationally could materially and adversely affect our business, financial condition and results of operations.

We conduct clinical trials, and plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we ~~expect that we will be~~are subject to additional risks related to operating in foreign countries in conducting clinical trials and if we obtain the necessary approvals, including:

These and other risks associated with our international operations may materially and adversely affect our business, financial condition and results of operations.

We face significant competition from other biotechnology and pharmaceutical companies, and our business, financial condition and results of operations will suffer if we fail to compete effectively.

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results.

Many major multinational pharmaceutical companies, ~~established~~ biotechnology companies, specialty pharmaceutical companies, ~~and~~ universities and other research institutions continue to invest time and resources in developing novel approaches to immunotherapies. Promising results have spurred significant competition from major pharmaceutical and biotechnology companies alike. Our competitors in the field of diversified immunotherapy include: AstraZeneca PLC, Amgen Inc., Bristol-Myers Squibb Company, Celgene Corporation, Eli Lilly and Company, GlaxoSmithKline plc, Incyte Corporation, Janssen Pharmaceuticals, Merck & Co., Novartis AG, Pfizer Inc., Roche Holding AG and Sanofi SA. Our competitors in the STING pathway activator technology include Merck & Co., Inc., Bristol-Myers Squibb Company/IFM Therapeutics, GlaxoSmithKline plc, Synlogic, Inc. ~~and~~, Spring Bank ~~Pharmaceuticals;~~Pharmaceuticals, Inc., Codiak Biosciences, Inc., Eisai, Co., Ltd./H3 Biomedicine, Inc., AbbVie (following its acquisition of Mavupharma), Curadev, Trillium Therapeutics Inc., Mersana Therapeutics, Stingray Therapeutics, Ryvu Therapeutics, Cancer Therapeutics CRC, ImmuneSensor Therapeutics, Nimbus Therapeutics and STINGINN LLC. Our competitors for the anti-APRIL ~~includes~~program include Otsuka Pharmaceutical Co., Ltd. (following its acquisition of Visterra, Inc.); and Merck KGaA (EMD Serono). Our competitors for the cGAS-STING pathway inhibitor program ~~includes~~include Pfizer Inc., Spring Bank Pharmaceuticals, Inc., GlaxoSmithKline plc, Curadev, Sirenas, LLC, Nimbus Therapeutics/ Bristol-Myers Squibb Company, IFM Due a(a subsidiary of IFM Therapeutics, LLC), AbbVie (following its acquisition of Mavupharma), ImmuneSensor Therapeutics and STINGINN LLC. While we believe that our product candidates, technology, knowledge and experience provide us with competitive advantages, we face competition from established and emerging pharmaceutical and biotechnology companies, among others. Many of our competitors have substantially greater financial, technical and other resources than we do, such as larger research and development staff and experienced marketing, market access and manufacturing organizations and well-established sales forces.

Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.

Even if we obtain regulatory approval of our product candidates, the availability and prices of our competitors’ products could limit the demand and the prices we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

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

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including our President and Chief Executive Officer, our Chief Scientific Officer, our Chief Medical Officer, our Interim Chief Financial Officer and our Chief Administrative Officer. As previously disclosed, our Chief Scientific Officer intends to resign effective as of June 30, 2020 in connection with our restructuring plan, which includes closure of the Aduro Biotech Europe headquarters in Oss, the Netherlands, where our Chief Scientific Officer is based. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business. The Northern California region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. As previously disclosed, our Interim Chief Financial Officer has notified us of his intent to resign effective as of the later of the filing of this Quarterly Report on Form 10-Q or the appointment of his successor. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our other employees.

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

As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

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

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

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not succeed in further developing and commercializing our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

Our internal computer systems, or those used by our CROs or other contractors, consultants or vendors, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors, consultants or vendors are vulnerable to damage from, among others, computer viruses, malware, natural disasters, terrorism, war, telecommunication and ~~unauthorized access.~~electronic failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization or similar disruptive problems. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Any such material system failure or security breach could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, and damage to our reputation, and the further development and commercialization of our product candidates could be delayed.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages or outages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce and process our product candidates, in some cases on a patient by patient basis. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Our corporate headquarters is in Northern California near major earthquake faults and fire zones. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

For example, the current COVID-19 global pandemic has disrupted businesses globally. We cannot at this time predict the specific extent, duration, or full impact that the COVID-19 global pandemic will have on our financial condition and operations, including ongoing and planned clinical trials, or the financial condition and operations of our CROs, contract manufacturers or other partners. We believe that there will be an impact on the clinical development of our product candidates, which may include potential delays, halts or modifications to our ongoing and planned trials.

Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals and others in the medical community.

The use of STING or APRIL product candidates as potential immunotherapy treatments, even if approved, may not become broadly accepted by physicians, patients, hospitals and others in the medical community. Additional factors will influence whether our product candidates are accepted in the market, including:

If our product candidates are approved but fail to achieve or maintain market acceptance among physicians, patients, hospitals or others in the medical community, we will not be able to generate significant revenue.

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

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

We currently hold product liability insurance in amounts that we believe are customary for similarly situated companies and adequate to provide us with insurance coverage for foreseeable risks, but which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims, which could inhibit the commercialization of products we develop, alone or with collaborators. Our insurance policies may have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

We have entered into licensing agreements with third parties for certain product candidates and as a result have placed restrictions on our development of certain product candidates for particular indications. We may elect to enter into additional licensing or collaboration agreements to partner our product candidates in territories we currently retain. Our dependence on such relationships may adversely affect our business.

We have, and we may seek to enter into additional, collaboration agreements with other pharmaceutical or biotechnology companies. In the event we grant exclusive rights to such partners, we would be precluded from potential commercialization of our product candidates within the territories in which we have a partner. For example, we have entered into a collaboration and license agreement with Novartis for the development and commercialization of STING Activator product candidates in oncology. Under this agreement, we have granted Novartis a co-exclusive license to develop such products worldwide and an exclusive license to commercialize such products outside of the United States. We have also entered into a research collaboration and exclusive license agreement with Lilly for our cGAS-STING Pathway Inhibitor program for the research and development of novel immunotherapies for autoimmune and other inflammatory diseases and a worldwide development and commercialization agreement with Merck for the development of an anti-CD27 antibody. Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product candidates. ~~For example, effective December 2018, Janssen terminated our exclusive research and license agreements under which we granted Janssen licenses for the development and commercialization of~~ ~~proprietary attenuated strains of~~ ~~Listeria~~ ~~for treatment of lung and~~ ~~prostate~~ ~~cancers.~~Any termination of our collaboration agreements, ~~including the termination of our research and license agreements with Janssen,~~or a decision by a partner to reduce its development efforts under a collaboration agreement, will terminate or reduce the funding we may receive under the relevant collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs. For example, effective December 2019, Novartis determined to remove ADU-S100 from its portfolio and we are funding the current ADU-S100 trials on our own.

Our commercialization strategy for our product candidates may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for the development and potential commercialization of our product candidates in the territories in which we seek to partner. Despite our efforts, we may be unable to secure additional collaborative licensing or other arrangements that are necessary for us to further develop and commercialize our product candidates. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs. For example, under our collaboration and license agreement with Novartis, we are responsible for a share of the worldwide joint development costs, which may be significant. If we elect to reduce our share of development funding as provided for under the agreement, our share in profits would decrease or convert to a royalty. We may determine that continuing a collaboration under the terms provided is not in our best interest, and we may terminate the collaboration. Our potential future collaborators could delay or terminate their agreements with us, and as a result our product candidates may never be successfully commercialized.

Further, our collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that our product candidates receive less attention or resources than we would like, or they may be terminated altogether. In addition, we could have disputes with our collaborators, including regarding development plans or the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of our product candidates or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

We rely and will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or otherwise conduct the trials as required or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize our product candidates when expected or at all.

We depend and plan to continue to depend upon independent investigators, other third parties and collaborators, such as universities, medical institutions, CROs and strategic partners, to conduct our preclinical and clinical trials under agreements with us. We have to negotiate budgets and contracts with CROs and study sites, which may result in delays to our development timelines and increased costs. We rely and plan to continue relying heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with good clinical practices, or ~~GCPs,~~GCP, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce ~~these GCPs~~GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP ~~regulations,~~requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with ~~the~~ GCP ~~regulations.~~requirements. In addition, our clinical trials must be conducted with product

produced under ~~cGMPs~~cGMP regulations. Our failure or any failure by these third parties to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting our clinical trials are not our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of, or successfully commercialize, our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

If our relationships with any third parties conducting our trials are terminated, we may be unable to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with third parties conducting our clinical trials, we cannot assure you that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material and adverse effect on our business, financial condition and results of operations.

We ~~are subject~~rely on third party contract manufacturers to ~~a multitude~~provide clinical supplies of our product candidates. If these parties do not successfully carry out their contractual duties or encounter problems in manufacturing ~~risks, any of which~~our product candidates, it could ~~substantially~~ increase our costs, limit supply of our product candidates and interfere with obtaining product commercialization approvals.

We currently rely on outside vendors to manufacture clinical supplies of our product candidates and have limited experience manufacturing our product candidates. In order to develop our product candidates, apply for regulatory approvals and commercialize our products, if approved, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities.

We may manufacture limited quantities of clinical trial materials ourselves in the future, but we currently rely on a limited number of contract manufacturing organizations, or CMOs, for our clinical product supplies. There are risks inherent in the manufacture of drug and biologic products that could affect the ability of our CMOs to meet our delivery time requirements or provide adequate amounts of material to meet our needs. Manufacturers of biologic products often encounter difficulties in production, particularly in scaling up and validating initial production. Typical manufacturing problems include longer lead times, low product yields, quality control failures, product instability, operator error, shortages of raw materials, shortages of qualified facilities or personnel, storage mistakes and unpredictable production costs. If contaminants are discovered in our supply of our product candidates or in the manufacturing facilities, manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination, thereby interrupting supply.

If in the future we develop our own manufacturing capabilities by building our own manufacturing facilities, we will incur significant expenditures. In addition, the construction and qualification of a drug substance facility may take several years to complete and there are many risks inherent in the construction of a new facility that could result in delays and additional costs, including the need to obtain access to necessary equipment and third-party technology, if any. In addition, we would likely need to continue to hire and train qualified employees to staff our facilities.

The manufacturing process for any products that we may develop is subject to the FDA and foreign regulatory authority approval process and we will need to meet, and will need to contract with CMOs who can meet, all applicable FDA and foreign regulatory authority requirements on an ongoing basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third parties to produce materials required for commercial supply. If we are unable to obtain or maintain CMOs for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our products.

To the extent that we have existing, or enter into future, manufacturing arrangements with third parties, we depend, and will depend in the future, on these third parties to perform their obligations in a timely manner and consistent with contractual and regulatory requirements. The failure of any CMO to perform its obligations as expected, or, to the extent we manufacture all or a portion of our product candidates ourselves, our failure to execute on our manufacturing requirements, could materially and adversely affect our business, financial condition and results of operations.

If any CMO with whom we contract fails to perform its obligations, our ability to provide our product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial materials could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.

We may not realize the benefits of acquisitions or strategic transactions, including our acquisition of Aduro Biotech Europe.

We acquired Aduro Biotech Europe in October 2015, and may acquire or license other businesses, products or technologies, as well as pursue strategic alliances, joint ventures or investments in complementary businesses. The success of acquisitions depends on a number of risks and uncertainties, including:

If any of these risks or uncertainties occur, we may not realize the anticipated benefit of any acquisition or strategic transaction. For example, ~~in connection with~~subsequent to our acquisition of Aduro Biotech Europe we have incurred intangible asset impairment charges of $9.0 million and related reductions in deferred tax benefit of $2.2 ~~million. Further, our acquisition of~~million related to the Aduro Biotech Europe ~~may not~~business. Further, in January 2020, we announced plans to shut down our Netherlands operations, which resulted in impairment and other charges. While BION-1301 was originally developed by Aduro Biotech Europe, it is currently uncertain whether the Aduro Biotech Europe acquisition will result in any product candidates that are ~~safe and effective, or~~ultimately approved for sale. Additionally, foreign acquisitions ~~including our acquisition of Aduro Biotech Europe,~~ are subject to additional risks, including those related to integration of operations across different cultures and languages, currency risks, potentially adverse tax consequences of overseas operations and the particular economic, political and regulatory risks associated with specific countries. See also the risk factor titled, “Impairment of goodwill and other intangible assets may result in significant impairment charges, which would adversely affect our financial condition and results of operations.”

The FDA regulatory approval process is lengthy, time-consuming and inherently unpredictable, and we may experience significant delays in the clinical development and regulatory approval of our product candidates or ultimately be unable to obtain regulatory approval for our product candidates, in which case our business will be substantially harmed.

We will not be permitted to market any of our product candidates in the United States until approval from the FDA is received. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other data. We have not previously submitted a biologics license application, or BLA, or a new drug application, or NDA, to the FDA, or similar marketing applications filings to comparable foreign authorities. A BLA or NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and potency, or safety and effectiveness for each desired indication. The BLA or NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA has limited experience with commercial development of immunotherapies for cancer. We also intend to obtain regulatory approval of future oncology product candidates regardless of cancer type or origin, which the FDA may have difficulty accepting if our clinical trials only involve cancers of certain origins. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.

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

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

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

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

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

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

For instance, in the European Economic Area, or EEA, which is comprised of the Member States of the EU plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of MAs:

Requirements for the conduct of clinical trials in the European Union including ~~Good Clinical Practice, or~~ GCP are set forth in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the EU member states. Under this system, approval must be obtained from the competent national authority of each EU. member state in which a study is planned to be conducted. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.

In April 2014, the EU passed the new Clinical Trials Regulation, (EU) No 536/2014, which will replace the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new EU clinical trials legislation was passed as a regulation that is directly applicable in all EU member states. All clinical trials performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until the new Clinical Trials Regulation (EU) No 536/2014 becomes applicable. According to the current plans of EMA, the new Clinical Trials Regulation will become applicable in 2020.

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

Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the products may be marketed or the conditions of approval, or contain requirements for potentially costly post-market testing and surveillance to monitor the safety and efficacy of the product candidates. We will be required to immediately report any serious and unexpected adverse events and certain quality or production problems with our products to regulatory authorities along with other periodic reports. The FDA may also require a risk evaluation and mitigation strategy, or REMS, as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports and registration, as well as continued compliance with ~~cGMPs~~cGMP and ~~GCPs~~GCP for any clinical trials that we conduct post-approval. We will also have to comply with requirements concerning advertising and promotion for any of our product candidates that receive regulatory approval.

Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

Any new legislation addressing drug or biologic products could result in delays in product development or commercialization, or increased costs to assure compliance. In addition, the FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

~~Changes in funding for~~Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, ~~and~~ retain or deploy key leadership and other personnel, or otherwise prevent new or modified products ~~and services~~ from being developed, or approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and ~~statutory, regulatory, and policy changes.~~other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 global pandemic, on March 10, 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020,and subsequently, on March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 global pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.

Successful sales of our product candidates, if approved, depend, in part, on the availability of adequate insurance coverage and reimbursement from third-party payors. In addition, because our product candidates represent new ~~treatment~~treatments, we cannot accurately estimate the potential revenue from our product candidates.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Additionally, obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Separate reimbursement for the product itself or the treatment or procedure in which our product

is used may not be available. A decision by a third-party payor not to cover or separately reimburse for our products or procedures using our products, could reduce physician utilization of our products once approved. Assuming there is coverage for our product candidates, or procedures using our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that use of a product is:

Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Further, we plan to develop our product candidates for use in combination with other products, which may make them cost prohibitive or less likely to be covered by third-party payors. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific, clinical and cost-effectiveness data and support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions.

Our product candidates may be subject to government price controls that may affect our revenue.

There has been heightened governmental scrutiny in the United States and abroad of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. In the United States, at the federal level such scrutiny has resulted in several recent congressional inquiries and proposed legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. Congress and the Trump administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Outside of the United States, particularly in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

Third-party payors, whether domestic or foreign, governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to health care systems that could impact our ability to sell our products profitably. In particular, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively, the Affordable Care Act, was enacted. The Affordable Care Act and its implementing regulations, among other things, subjected biologic products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed

by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including our product candidates, that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, provided incentives to programs that increase the federal government’s comparative effectiveness research and established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. The Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year (this requirement was commonly referred to as the “individual mandate”). On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well. ~~While~~On December 18, 2019, the ~~Trump Administration and CMS have both stated~~U.S. Court of Appeals for the 5th Circuit upheld the District Court's decision that the ~~ruling will have no immediate effect,~~individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review the case, although it is unclear when a decision will be made or how ~~this decision, subsequent appeals, if any, and~~the Supreme Court will rule. In addition, there may be other efforts to challenge, repeal ~~and~~or replace the Affordable Care ~~Act will impact the Affordable Care Act and our business. Congress may consider other legislation to repeal or replace other elements of the Affordable Care~~ Act. ~~Thus, the full impact of the Affordable Care Act, or any law replacing elements of it, on our business remains unclear.~~ The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. ~~The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Health Care Reform Law, effective January 1, 2019, to close the coverage gap in most Medicare drug plans.~~ In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013, and will remain in effect through 2029 unless additional Congressional action is taken. These reductions will be suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 global pandemic. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. For example, there have been several recent Congressional inquiries and proposed and enacted legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer’s patient programs, and reform government program reimbursement methodologies for pharmaceutical products. At the federal level, Congress and the Trump administration have each indicated that it will continue to pursue new legislative and/or administrative measures to control drug costs. Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

~~Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.~~

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent regulatory approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

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

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

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities, including our consulting arrangements with physicians, some of whom receive stock options as compensation for services provided, could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have a material and adverse effect on our business, financial condition and results of operations.

If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, imprisonment, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from participation in federal and state healthcare programs and the curtailment or restricting of our operations, any of which could harm our ability to operate our business and our financial results. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

If we or our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by us and our third-party manufacturers. We and our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our and our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could materially and adversely affect our business, financial condition and results of operations.

We are subject to governmental regulation and other legal obligations related to privacy, data protection and information security. Compliance with these requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.

Privacy and data security have become significant issues in the United States, Europe and in many other jurisdictions where we may in the future conduct our operations. As we receive, collect, process, use and store personal and confidential data, we are subject to diverse laws and regulations relating to data privacy and ~~security, including, in the United States, HIPAA, and, in the EU and in the EEA, Regulation 2016/679, known as the General Data Protection Regulation, or GDPR.~~security. Compliance with these privacy and data security requirements is rigorous and time-intensive and may increase our cost of doing business, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm, which could materially and adversely affect our business, financial condition and results of operations.

Most healthcare providers, including research institutions from which we obtain patient health information, are subject to privacy and security regulations promulgated under HIPAA, as amended by HITECH. We do not believe that we are currently classified as a covered entity or business associate under HIPAA and thus are not subject to its requirements or penalties. However, any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information. In addition, we may maintain sensitive personally identifiable information, including health information, that we receive throughout the clinical trial process and in the course of our research collaborations. As such, we may be subject to state laws requiring notification of affected individuals and state regulators in the event of a breach of personal information, which is a broader class of information than the health information protected by HIPAA. Our clinical trial programs outside the United States may implicate international data protection laws, including the GDPR.

Our activities outside the United States impose additional compliance requirements and generate additional risks of enforcement for noncompliance. Failure by our CROs and other third-party contractors to comply with the strict rules on the transfer of personal data outside of the European Union into the United States may result in the imposition of criminal and administrative sanctions on such collaborators, which could adversely affect our business. Furthermore, certain health privacy laws, data breach notification laws, consumer protection laws may apply directly to our operations and/or those of our collaborators and may impose restrictions on our collection, use and dissemination of individuals’ health information. Moreover, patients about whom we or our collaborators obtain health information, as well as the providers who share this information with us, may have statutory or contractual rights that limit our ability to use and disclose the information. We may be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security laws. Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

If we or third-party CMOs, CROs or other contractors or consultants fail to comply with applicable federal, state or local regulatory requirements, we could be subject to a range of regulatory actions that could affect our or our contractors’ ability to develop and commercialize our product candidates and could harm or prevent sales of any affected products that we are able to commercialize, or could substantially increase the costs and expenses of developing, commercializing and marketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business. Increasing use of social media could give rise to liability, breaches of data security or reputational damage.

Even when HIPAA does not apply, according to the Federal Trade Commission or the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, or the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.

Additionally,certainstateshaveadoptedcomparableprivacyandsecurity lawsandregulations,someofwhichmaybemorestringentthanHIPAA. By way of example, the California Consumer Privacy Act, or CCPA, effective January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and similar laws have been proposed at the federal level and in other states.

In addition, the regulatory framework for the receipt, collection, processing, use, safeguarding, sharing and transfer of personal and confidential data is rapidly evolving and is likely to remain uncertain for the foreseeable future as new global privacy rules are being enacted and existing ones are being updated and strengthened. For example, on May 25, 2018, the General Data Protection Regulation, or GDPR, took effect in Europe. The GDPR is directly applicable in each EU member state and applies to companies established in the EU as well as companies that collect and use personal data to offer goods or services to, or monitor the behavior of, individuals in the EU, including, for example, through the conduct of clinical trials. GDPR introduces more stringent data protection obligations for processors and controllers of personal data, and penalties and fines for failure to comply with GDPR are significant, including fines of up to €20 million or 4% of total worldwide annual turnover, whichever is higher. ~~In addition, on June 28, 2018, California enacted~~Additionally, following the ~~California Consumer Privacy Act,~~United Kingdom’s withdrawal from the European Union, we will have to comply with the GDPR and the United Kingdom GDPR, each regime having the ability to fine up to the greater of €20 million/ £17.5 million or ~~CCPA,~~4% of global turnover. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which takes effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expectedexposes us to ~~increase data breach litigation. The CCPA may increase our~~further compliance ~~costs and potential liability, and similar laws have been proposed at the federal level and in other states.~~risk.

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

Our commercial success will depend in part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United States. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

With respect to patent rights, we do not know whether any of the pending patent applications for any of our compounds or biologic products will result in the issuance of patents that effectively protect our technology or products, or if any of our issued patents or if any of our or our licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.

Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensor’s patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult. For example, two of our patents, U.S. Patent Nos. 7,842,289 and 7,935,804, have previously been subject to reexamination proceedings in the U.S. Patent and Trademark Office, or USPTO, at the request of a third party.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates, and to use our related proprietary technologies without infringing the intellectual property rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing our product candidates. In addition, in any such proceeding or litigation, we could also be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business, financial condition and results of operations.

While our product candidates are in preclinical studies and clinical trials, we believe that their use in these preclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which generally exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. As our product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that our product candidates and the methods we employ to manufacture them, as well as the methods for their use that we intend to promote, do not infringe other parties’ patents and other proprietary rights. We cannot assure you they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.

In addition, we are testing our product candidates administered with other product candidates or products that are covered by patents held by other companies or institutions. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or product recommended for administration with our product candidates. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.

If we breach any of our license agreements, it could have a material adverse effect on our commercialization efforts for our product candidates.

Our commercial success depends on our ability, and the ability of our licensors and collaborators, to develop, manufacture, market and sell our product candidates and use our licensors’ or collaborators’ proprietary technologies without infringing the property rights of third parties. For example, we have entered into license agreements with Karagen Pharmaceuticals, Inc. and the Regents of the University of California and a consortium of universities led by Memorial Sloan Kettering related to STING Activators, and we expect to enter into additional licenses in the future. If we fail to comply with the obligations under these agreements, including payment and diligence terms, our licensors may have the right to terminate these agreements, in which event we may not be able to develop, manufacture, market or sell any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements, which may not be available to us on equally favorable terms, or at all, or cause us to lose our rights under these agreements, including our rights to intellectual property or technology important to our development programs.

We have granted Lilly and Merck rights to control certain matters related to our intellectual rights for our licensed products. Our inability to control the filing, prosecution, maintenance and enforcement of such patents could materially and adversely affect our business, financial condition and results of operations.

As part of our license and collaboration agreements with Merck and Lilly related to anti-CD27 and cGAS STING pathway molecules, respectively, we have granted Merck and Lilly the first rights to prosecute certain patent rights and we are required to consult with Merck and Lilly with respect to infringement and defense matters related to certain licensed patents. Further, Merck has rights to determine the strategy for patent term extensions for anti-CD27 and we are required to cooperate with Lilly with respect to obtaining patent term extensions for certain patents related to the cGAS STING pathway program. Our inability to control these intellectual property rights could materially harm our business. For example, if a third party is infringing our patent covering anti-CD27, by marketing a product that is identical or similar to anti-CD27, Merck would have the initial right to enforce the patent against the third party and may make decisions with which we may not agree. Further, Merck may decide not to apply for extension of any term of a licensed patent that may otherwise be eligible for extension, which could decrease the royalties for the sale of products relating to such patents.

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

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we or our licensors have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents, and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

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

The laws of certain foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic and/or biosimilar product manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings.

Generic or biosimilar product manufacturers may develop, seek approval for, and launch generic or biosimilar versions, respectively, of our products. The FDA has published four draft guidance documents on biosimilar product development. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biosimilar and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation, which are still being worked out by the FDA. To date, no biosimilar or interchangeable biologic has been licensed under the Biologics Price Competition and Innovation Act of 2009, or BPCIA, framework, although such approvals have occurred in Europe, and it is anticipated that the FDA will approve a biosimilar in the relatively near future. If any of our product candidates are approved by the FDA, the approval of a biologic product biosimilar to one of our products could materially and adversely affect our business, financial condition and results of operations. In particular, a biosimilar could be significantly less costly to bring to market and priced significantly lower than our products, if approved by the FDA.

Some jurisdictions may require us to grant licenses to third parties. Such compulsory licenses could be extended to include some of our product candidates, which may limit our potential revenue opportunities.

Many countries, including European Union countries, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time, and our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

Given the amount of time required for the development, testing and regulatory review of new product candidates, such as our product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Currently, we own or license patent families that cover STING Activators, which, expire, or if issued will expire, between 2025 and 2038, subject to any extensions. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

The BPCIA established legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing branded product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

We anticipate being awarded market exclusivity for each of our biological product candidates that is subject to its own BLA for 12 years in the United States, 10 years in Europe and significant durations in other markets. However, the term of the patents that cover such product candidates may not extend beyond the applicable market exclusivity awarded by a particular country. For example, in the United States, if all of the patents that cover our particular biologic product expire before the 12-year market exclusivity expires, a third party could submit a marketing application for a biosimilar product four years after approval of our biologic product, and the FDA could immediately review the application and approve the biosimilar product for marketing 12 years after approval of our

biologic. Alternatively, a third party could submit a BLA for a similar or identical product any time after approval of our biologic product, and the FDA could immediately review and approve the similar or identical product for marketing and the third party could begin marketing the similar or identical product upon expiry of all of the patents that cover our particular biologic product.

Additionally, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. The extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

Changes in patent law could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patents we and our licensors may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.

For instance, under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, U.S. patent applications containing or at that at any time contained a claim not entitled to priority before March 16, 2013 are subject to a “first to file” system, in which the first inventor to file a patent application will be entitled to the patent. This “first to file” system requires us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, for United States applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have a material and adverse effect on our business, financial condition and results of operations.

Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us or our licensors to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being

invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments in any such proceedings. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

We may be subject to claims by third parties asserting that our licensors, employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees and our licensors’ employees, including our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants and collaborators upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these

agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and may materially and adversely affect our business, financial condition and results of operations.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, in addition to existing agreements with Novartis, Merck and Lilly, we may enter into license or collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under current and any potential future license and collaboration agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next.

In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as approved by the compensation committee and sub-committees, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly.

Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:

The cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.

Our ability to use net operating loss carryforwards to offset future taxable income, and our ability to use tax credit carryforwards, may be subject to certain limitations.

Our ability to use our federal and state net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the net operating losses, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our net operating losses. In addition, a corporation that undergoes an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards, or NOLs, to offset future taxable income and its ability to utilize tax credit carryforwards.

Under Section 382 of the Internal Revenue Code of 1986, as amended (Code), our ability to utilize NOL carryforwards or other tax attributes, such as federal tax credits, in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws. We believe that we may have experienced an ownership change under Section 382, which will result in limitations in our ability to utilize net operating losses and credits. In addition, we may experience future ownership changes as a result of future offerings or other changes in the ownership of our stock. As a result, the amount of the NOLs and tax credit carryforwards presented in our financial statements could be limited and may expire unutilized.

Impairment of goodwill and other intangible assets may result in significant impairment charges, which would adversely affect our financial condition and results of operations.

Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. We review our goodwill and acquired IPR&D intangible assets at least annually for impairment. Impairment may result from, among other things, failure to realize the anticipated benefits of past or any future acquisitions or strategic transactions,, decisions to discontinue acquired businesses or assets, deterioration in our stock price, adverse market conditions and adverse changes in applicable laws or regulations. For example, in ~~connection with our acquisition of Aduro Biotech Europe~~2018 and 2019, we have incurred IPR&D intangible impairment charges ~~and~~ related ~~deferred tax benefit.~~to our acquired entity, Aduro Biotech Europe. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations.

Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.

We maintain a portfolio of marketable securities for investment of our cash, and securities included in our portfolio have recently been downgraded. Changes in the value of our portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to additional downgrades of securities included in our portfolio, increases in interest rates, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the securities included in our portfolio and other factors. In addition, the COVID-19 pandemic could adversely affect the financial markets in some or all countries worldwide. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.

The price of our common stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume and as a result of the factors discussed in this “Risk Factors” section and elsewhere in this Quarterly Report on Form ~~10-Q~~10-K among others.

In addition, the stock market in general, and the Nasdaq Global Select Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors, such as the current COVID-19 global pandemic and resulting market volatility, may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition and results of operations.

If our stock price trades below $1.00 for 30 consecutive trading days, our common stock may be subject to delisting from the Nasdaq Global Select Market.

If at any time the bid price of our common stock closes at below $1.00 per share for more than 30 consecutive trading days, we may be subject to delisting from the Nasdaq Global Select Market. If we receive a delisting notice, we would have 180 calendar days to regain compliance, which would mean having a bid price above the minimum of $1.00 for at least 10 consecutive days in the 180-day period. During this 180-day period, we would anticipate reviewing our options to regain compliance with the minimum bid requirements, including conducting a reverse stock split. To the extent that we are unable to resolve any listing deficiency, there is a risk that our common stock may be delisted from Nasdaq, which would adversely impact liquidity of our common stock and potentially result in even lower bid prices for our common stock. As of ~~November 6, 2019,~~March 31, 2020, our stock had traded at a 52-week low of ~~$0.90~~$0.94 per share, and a 52-week high of ~~$4.59~~$4.41 per share. Our closing share price on ~~November 6, 2019,~~March 31, 2020 was ~~$1.11.~~$2.74.

Our common stock is currently traded on the Nasdaq Global Select Market, but we can provide no assurance that we will be able to maintain an active trading market for our shares on the Nasdaq Global Select Market or any other exchange in the future. If there is no active market for our common stock, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all.

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

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

Our principal stockholders and management own a significant percentage of our common stock and will be able to exert significant control over matters subject to stockholder approval.

Our executive officers, directors and 5% stockholders together beneficially own a significant percentage of our voting stock. These stockholders may be able to determine the outcome of matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that other stockholders believe are in their best interests.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, or FASB, and the SEC. A change in these policies or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may require us to make costly changes to our operational processes and accounting systems.

Our revenue to date has been primarily derived from research and license agreements, which can result in significant fluctuation in our revenue from period to period, and our past revenue is therefore not necessarily indicative of our future revenue.

Our revenue is primarily derived from our research and license agreements, from which we receive upfront fees, contract research payments, milestone and other contingent payments based on clinical progress, regulatory progress or net sales achievements and royalties. Significant variations in the timing of receipt of cash payments and our recognition of revenue can result from significant payments based on the execution of new research and license agreements, the timing of clinical outcomes, regulatory approval, commercial launch or the achievement of certain annual sales thresholds. The amount of our revenue derived from research

and license agreements in any given period will depend on a number of unpredictable factors, including our ability to find and maintain suitable collaboration partners, the timing of the negotiation and conclusion of collaboration agreements with such partners, whether and when we or our collaboration partners achieve clinical, regulatory and sales milestones, the timing of regulatory approvals in one or more major markets, reimbursement levels by private and government payers, and the market introduction of new drugs or generic versions of the approved drug, as well as other factors. Our past revenue generated from these agreements is not necessarily indicative of our future revenue. If any of our existing or future collaboration partners terminates our collaboration, fails to develop, obtain regulatory approval for, manufacture or ultimately commercialize any product candidate under our collaboration agreement, our business, financial condition, and results of operations could be materially and adversely affected.

Once we are no longer an emerging growth company or otherwise no longer qualify for applicable exemptions, we will be subject to additional laws and regulations affecting public companies that will increase our costs and the demands on management and could harm our operating results.

As a public company we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which requires, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly and current reports with respect to our business and financial condition as well as other disclosure and corporate governance requirements. However, as an emerging growth company we may take advantage of exemptions from various requirements such as an exemption from the requirement to have our independent auditors attest to our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 as well as an exemption from the “say on pay” voting requirements pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. After we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which may allow us to take advantage of some of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Once we are no longer an emerging growth company or otherwise qualify for these exemptions, we will be required to comply with these additional legal and regulatory requirements applicable to public companies and will incur significant legal, accounting and other expenses to do so. If we are not able to comply with the requirements in a timely manner or at all, our financial condition or the market price of our common stock may be harmed. For example, if we or our independent auditor identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses we could face additional costs to remedy those deficiencies, the market price of our stock could decline or we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

We will remain an emerging growth company until the earliest of (1) December 31, 2020, (2) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.07 billion or (b) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior June 30th, and (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. ~~We cannot predict when we will no longer be an emerging growth company.~~

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

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Moreover, holders of certain shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. For example, on August 2, 2017, we filed a registration statement on Form S-3 to register for resale shares held by Morningside Venture (IV) Investments Limited and Ultimate Keen Limited, which together hold 14,908,031 shares of our common stock. We have registered all currently reserved shares of common stock that we may issue under our equity compensation plans and intend to register in the future any additional reserved or issued shares of common stock. These registered shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our 2015 Plan, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock.

Pursuant to our equity incentive plans, our compensation committee is authorized to grant equity-based incentive awards to our employees, nonemployee directors and consultants. Future grants of restricted stock units, options and other equity awards and issuances of common stock under our equity incentive plans will result in dilution and may have an adverse effect on the market price of our common stock.

Additionally, the number of shares of our common stock reserved for issuance under our 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2016 and continuing through and including January 1, 2025, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Further, the number of shares of our common stock reserved for issuance under our 2015 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2016 and continuing through and including January 1, 2025, by 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing or cause us to take other corporate actions stockholders may desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other

employees. Alternatively, if a court were to find this provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.

If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us downgrade our common stock or change their opinion of our common stock, our stock price would likely decline.

Exhibit No

Description of Exhibit

Incorporated by Reference

Description of Exhibit

Incorporated by Reference

Form

File No.

Exhibit

Filing Date

Filed

Herewith

Form

File No.

Exhibit

Filing Date

Filed

Herewith

3.1

Restated Certificate of Incorporation of Aduro Biotech, Inc.

8-K

001-37345

3.1

04/20/2015

Restated Certificate of Incorporation of Aduro Biotech, Inc.

8-K

001-37345

3.1

04/20/2015

3.2

Amended and Restated Bylaws of Aduro Biotech, Inc.

S-1/A

333-202667

3.5

04/06/2015

Amended and Restated Bylaws of Aduro Biotech, Inc.

S-1/A

333-202667

3.5

04/06/2015

4.1

Form of common stock certificate.

S-1/A

333-202667

4.1

04/06/2015

Form of common stock certificate.

S-1/A

333-202667

4.1

04/06/2015

4.2

Amended and Restated Investor Rights Agreement, by and among Aduro Biotech, Inc. and the stockholders named therein, dated December 19, 2014.

S-1

333-202667

4.2

03/11/2015

Amended and Restated Investor Rights Agreement, by and among Aduro Biotech, Inc. and the stockholders named therein, dated December 19, 2014.

S-1

333-202667

4.2

03/11/2015

10.1†

Amendment No. 3 to Exclusive License Agreement between Aduro Biotech, Inc. and the Memorial Sloan Kettering Cancer Center, dated March 30, 2020.

10.2†+

Termination Agreement between Andrea van Elsas and Aduro Biotech, Inc. dated April 10, 2020.

31.1

Certification of the Chief Executive Officer Pursuant to Securities Exchange Act of Rules 13A-14(A) and 15D-14(A).

31.2

Certification of the Interim Chief Financial Officer Pursuant to Securities Exchange Act Rules 13A-14(A) and 15D-14(A).

32.1*

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	ADRO	The Nasdaq Global Select Market

		Page
	PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4
	Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	6
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	87
	Notes to the Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3329
Item 4.	Controls and Procedures	3330

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	3431
Item 1A.	Risk Factors	3431
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	65
EXHIBIT INDEX		66
SIGNATURES		6768

	Unobservable Input
Probability of attaining milestone		18.8	%
Period of time to achieve milestone (in years)	7.8
Discount rate		10.0	%

	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Leasehold improvements	$	27,282		$	26,961		$	27,084		$	27,288
Lab equipment		8,881			8,281			6,046			8,817
Computer and office equipment		2,312			2,292			2,005			2,334
Furniture		1,586			1,560			1,427			1,590
Construction in progress		68			1,458			206			190
Total property and equipment		40,129			40,552			36,768			40,219
Less: accumulated depreciation		(14,595	)		(11,395	)		(14,276	)		(15,531	)
Property and equipment, net	$	25,534		$	29,157		$	22,492		$	24,688

	September 30,		December 31,		March 31		December 31,
	2019		2018		2020		2019
Compensation and related benefits	$	3,952	$	4,619	$	3,702	$	3,677
Professional and consulting services		2,983		2,185		2,165		2,845
Value-added tax payable						2,016		5
Accrued research expense		1,280		1,859		816		890
Deferred rent		—		653
Accrued property and equipment		31		101		—		31
Other		879		1,101		1,417		733
Total accrued expenses and other liabilities	$	9,125	$	10,518	$	10,116	$	8,181

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☒

	Contingent Consideration			Contingent Consideration
Balance at December 31, 2018	$	998
Balance at December 31, 2019				$	1,051
Net change in fair value upon remeasurement		25			944
Foreign currency impact on contingent consideration		(48	)		(23	)
Balance at September 30, 2019	$	975
Balance at March 31, 2020				$	1,972

Balance at December 31, 2018	$	8,334
Foreign currency translation adjustment		(385	)
Balance at September 30, 2019	$	7,949

	September 30, 2019								March 31, 2020
	Gross Carrying Amount		Impairment⁽¹⁾		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Intangible assets with finite lives:
License agreement	$	10,796	$	—	$	2,114	$	8,682	$	10,878	$	2,402	$	8,476
Total intangible assets with finite lives		10,796		—		2,114		8,682		10,878		2,402		8,476
Acquired IPR&D assets		14,890		4,964		—		9,926		10,002		—		10,002
Total intangible assets	$	25,686	$	4,964	$	2,114	$	18,608	$	20,880	$	2,402	$	18,478

Year Ending December 31,	Estimated Amortization Expense		Estimated Amortization Expense
2019 (remaining three months)	$	135
2020		540
2020 (remaining nine months)			$	408
2021		540		544
2022		540		544
2023		540		544
2024		540		544
2025				544

Year Ending December 31,	Amounts
2019	$	5,519
2020		5,669
2021		5,332
2022		5,460
2023		5,570
Thereafter		35,836
Total future minimum lease payments	$	63,386

Undiscounted Lease Payments	Amounts		Amounts
2019 (remaining three months)	$	1,389
2020		5,647
2020 (remaining nine months)			$	4,260
2021		5,332		5,332
2022		5,460		5,460
2023		5,570		5,569
2024				5,681
Thereafter		35,836		30,155
Total undiscounted lease payments		59,234		56,457
Present value adjustment		25,414		23,434
Total net lease liability	$	33,820	$	33,023

Net lease liability - current	$	1,700	$	1,765
Net lease liability - non-current		32,120		31,258
Total net lease liability	$	33,820	$	33,023

			Three months ended March 31,
	Nine months ended September 30, 2019		2020		2019
Cash flows from operating activities
Cash paid for amounts included in the measurement of lease liabilities	$	4,106	$	1,390	$	1,356

	~~September 30,~~ ~~2019~~
~~Weighted-average remaining lease terms (in years)~~
~~Operating leases~~		~~10.10~~
~~Weighted-average discount rate~~
~~Operating leases~~		12	%

	March 31, 2020		March 31, 2019
Weighted-average remaining lease terms (in years)
Operating leases		9.7		10.6
Weighted-average discount rate
Operating leases	12%		12%

	~~September 30,~~March 31, ~~2019~~2020
Options issued and outstanding		~~10,439,076~~12,243,983
Shares available for future stock option grants		~~8,582,012~~10,011,759
Restricted stock units		~~995,381~~709,027
Common stock warrants		~~48,482~~47,762
Total		~~20,064,951~~23,012,531

	RSUs Outstanding
	Number of Restricted Stock Units			Weighted- Average Grant Date Fair Value Per Share
Balance—December 31, 2018		1,600,218		$	8.81
Granted		275,000			1.74
Vested		(335,474	)		9.65
Forfeited		(544,363	)		8.66
Balance—September 30, 2019		995,381		$	6.65

	Three months ended
	March 31, 2020
Restructuring compensation	$	3,106
Impairment of property and equipment		1,202
Total restructuring and related expense	$	4,308

	Payments due by period										Payments due by period
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
	(in thousands)										(in thousands)
Operating leases	$	1,389	$	10,979	$	11,030	$	35,836	$	59,234	$	4,260	$	10,792	$	11,250	$	30,155	$	56,457
Total contractual obligations	$	1,389	$	10,979	$	11,030	$	35,836	$	59,234	$	4,260	$	10,792	$	11,250	$	30,155	$	56,457

	Aduro Biotech, Inc.
Date: ~~November 7, 2019~~May 4, 2020	By:	/s/ Stephen T. Isaacs
		Stephen T. Isaacs
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

	Aduro Biotech, Inc.
Date: ~~November 7, 2019~~May 4, 2020	By:	/s/ ~~James Welch~~William G. Kachioff
		~~James Welch~~William G. Kachioff
		Interim Chief Financial Officer
		(Principal Financial Officer)