ANAPTYSBIO, INC Discussion and Analysis of Management’s Financial Situation and Results of Operations (form 10-Q)

ANAPTYSBIO, INC Discussion and Analysis of Management’s Financial Situation and Results of Operations (form 10-Q)
You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited consolidated financial
statements and related notes for the nine months ended September 30, 2022,
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,
2021 included in our Annual Report on Form 10-K. This discussion and other
sections of this Quarterly Report contain forward-looking statements that
involve risks and uncertainties, such as our plans, objectives, expectations,
intentions, and beliefs. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
below and those discussed in the section entitled "Risk Factors" included in
Part II, Item 1A of this Quarterly Report. You should also carefully read
"Special Note Regarding Forward-Looking Statements."

Overview


We are a clinical-stage biotechnology company focused on delivering innovative
immunology therapeutics. We are developing immune cell modulators, including two
checkpoint agonists in clinical-stage development, for autoimmune and
inflammatory disease: rosnilimab, our anti-PD-1 agonist program, previously
referred to as ANB030, which is currently in a Phase 2 clinical trial for the
treatment of moderate-to-severe alopecia areata; and ANB032, our anti-BTLA
agonist program. In addition, we are developing imsidolimab, our anti-IL-36R
antibody, which is currently in a Phase 3 clinical trial for the treatment of
generalized pustular psoriasis, or GPP. We also have additional preclinical
programs and discovery research of potentially innovative immunology
therapeutics, including ANB033, an anti-CD122 antagonist antibody for the
treatment of inflammatory diseases. We have also developed multiple therapeutic
antibodies in an immuno-oncology collaboration with GSK, including an anti-PD-1
antagonist antibody (JEMPERLI (dostarlimab-gxly)), an anti-TIM-3 antagonist
antibody (cobolimab, GSK4069889) and an anti-LAG-3 antagonist antibody
(GSK4074386). We currently generate revenue from milestones and royalties
achieved under our immuno-oncology collaboration with GSK. Our antibody pipeline
has been developed using our proprietary somatic hypermutation, or SHM platform,
which uses in vitro SHM for antibody discovery and is designed to replicate key
features of the human immune system to overcome the limitations of competing
antibody discovery technologies.

Our immune cell modulators, including anti-inflammatory checkpoint agonists for
PD-1 and BTLA, treat inflammatory disorders by down regulating immune responses
mediated by multiple immune cell types including T-cells, B-cells, and dendritic
cells. We believe these molecules have potential applicability across a broad
range of autoimmune and inflammatory disorders including dermatology,
rheumatology, gastroenterology, respiratory, and neurology therapeutic areas.

Rosnilimab, formerly named ANB030, is our proprietary anti-PD-1 agonist antibody program designed to suppress aberrant T-cell-driven inflammation by increasing signaling through PD-1 or cell-specific depletion TPD-1+.


Rosnilimab binds to PD-1 on a membrane proximal epitope that is on the opposite
side of the receptor to that utilized by PD-L1 for binding, and thus preserves
the ability of PD-L1 to agonize PD-1. In the setting of T cell activation,
rosnilimab binding has been shown to induce agonistic signaling and the
recruitment of SHP2 to PD-1, in a manner similar to that by PD-L1. In
preclinical assays, rosnilimab prevented T cell expansion in antigen-specific
response assays to numerous antigens, demonstrating prevention of T cell
expansion and reduction in the secretion of inflammatory cytokines associated
with multiple T cell types implicated in inflammatory pathology when
dysregulated. In addition to direct agonistic activity, rosnilimab is an IgG1k
antibody with effector function that can drive targeted depletion of PD-1+ T
cells via the induction of antibody-dependent cellular cytotoxicity (ADCC). We
believe this component of the mechanism of rosnilimab may provide more durable
immune modulation by effectively eliminating the most pathogenic
antigen-specific T cells in the setting of autoimmunity and inflammation.
Genetic mutations in the PD-1 pathway are known to be associated with increased
susceptibility to human inflammatory diseases, and hence we believe that
rosnilimab is applicable to diseases where PD-1 checkpoint receptor function may
be insufficient to maintain immune homeostasis.

We present preclinical data on rosnilimab at the annual meeting of the Festival of Biologics in March 2020including translational data demonstrating in vitro activity of rosnilimab in samples from patients with alopecia areata.


We announced positive top-line data from a healthy volunteer Phase 1 clinical
trial of rosnilimab in November 2021. A total of 144 subjects were enrolled in
the randomized, double-blind, placebo-controlled healthy volunteer Phase 1
trial, where single ascending dose (SAD) cohorts were administered single
subcutaneous or IV doses of rosnilimab ranging between 0.02mg to 600mg or
placebo, while multiple ascending dose (MAD) cohorts received four weekly
subcutaneous doses of

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rosnilimab ranging between 60mg and 400mg or placebo. Rosnilimab was generally
well-tolerated and no dose limiting toxicities were observed. Two serious
adverse events were reported in single dose cohorts, including obstructive
pancreatitis in a placebo-dosed subject and COVID-19 infection in a
rosnilimab-dosed subject leading to discontinuation. The COVID-19 infection was
deemed unrelated to treatment. No serious adverse events were reported in
subjects receiving multiple doses of rosnilimab or placebo.

Pharmacokinetic analyses demonstrated a favorable profile for rosnilimab with an
estimated two-week half-life for subcutaneous and IV routes of administration.
Full PD-1 receptor occupancy was observed rapidly during the first week
following single subcutaneous rosnilimab doses at or above 60mg, and was
maintained for at least 30 days at or above 200mg single subcutaneous doses.
These data support monthly subcutaneous dosing of rosnilimab for future patient
trials. Rosnilimab's pharmacodynamic activity resulted in rapid and sustained
reduction in the quantity and functional activity of PD-1+ T cells, which are
known to be pathogenic drivers of inflammatory diseases. Conventional T (Tcon)
cells (CD3+, CD25 low) PD-1+, which represented approximately 25% of peripheral
T cells at baseline, were reduced by 50%, including in both CD4+ and CD8+
subsets, in a dose-dependent manner and in correlation with receptor occupancy.
This effect was maximized on high-PD-1+ Tcon cells, which represented
approximately 5% of peripheral T cells, with 90% reduction relative to baseline.
Conversely, total T cells (CD3+), total Tcon cells (CD3+, CD25low) and total
regulatory T (Treg) cells (CD3+, CD4+, CD25 bright, CD127-) were unchanged (<5%
change from baseline), resulting in a consistent ratio of PD-1+ Tcon cells to
total Treg cells post-treatment in healthy volunteers. No effect (<5% reduction
from baseline) was observed on any of the aforementioned cell types in
placebo-dosed subjects. In addition, an antigen-specific functional T cell
recall response, measured as ex vivo interferon-gamma released in response to
tetanus toxoid challenge, was inhibited in a receptor occupancy dependent manner
and was consistent with the observed reduction of PD-1+ Tcon cells, to a maximum
of approximately 90% relative to baseline within 30 days following single
rosnilimab dose, while placebo administration had no effect. Based upon these
data, we believe rosnilimab's in vivo mechanism has the potential to treat
T-cell driven human inflammatory diseases.

During the fourth quarter of 2021, we initiated AZURE, a randomized
placebo-controlled 45-patient Phase 2 proof-of-mechanism trial of rosnilimab in
moderate-to-severe alopecia areata patients with at least 50% scalp hair loss
for at least 6 months prior to enrollment, where the primary endpoint is change
in severity of alopecia tool (SALT) relative to baseline. Additional secondary
and exploratory endpoints are also being assessed to support understanding of
the mechanism of action for rosnilimab in PD-1+ T cell mediated immune diseases.
Top-line data from the AZURE clinical trial is anticipated during the first
quarter of 2023.

Alopecia is an inflammatory disease that is driven by immune cell-mediated
killing of hair follicles when the normal immune-privileged state of the area
around the follicle is disrupted by a stress event precipitating potent PD-1+ T
cell activation leading to excessive IFN? secretion and aberrant hair follicle
major histocompatibility complex (MHC) expression. Experimental data have shown
antigen-specific T cell activation in alopecia patient peripheral blood
mononuclear cells suggesting that the autoimmunity is driven by major
histocompatibility complex presentation of peptides derived from keratinocytes
and melanocytes in the hair follicle. We believe that the activated PD-1+ T
cells, found in the vicinity of hair follicles in alopecia areata, are a crucial
node in the inflammatory cycle driving the pathology of the disease, and that
their suppression or clearance (and amelioration of their cytotoxic activity and
IFN? secretion) may be sufficient to restore immune homeostasis and allow the
re-initiation of hair growth.

ANB032 is our wholly-owned anti-BTLA agonist antibody program designed to
augment BTLA signaling, which is broadly applicable to human inflammatory
diseases associated with lymphoid and myeloid immune cell dysregulation. Genetic
studies have demonstrated that BTLA pathway mutations increase human
susceptibility to multiple autoimmune diseases and insufficient BTLA signaling
can lead to dysregulated T or B cell responses and changes in the function of
dendritic cells. BTLA modulates signaling of HVEM, governing HVEM's interaction
with its natural ligands, including LIGHT. Polymorphisms in BTLA or molecules in
the BTLA pathway such as HVEM are associated with inflammatory diseases,
including aberrant T cell activity, B cell activity and dysregulation of
downstream humoral immune responses (IgE, IgG secretion). Similarly, BTLA
knockout animals have spontaneous or enhanced severity of inflammatory disease,
demonstrating aberrant T cell activity, B cell activity and dysregulation of
pathogenic antibody responses upon immunization. ANB032 is anticipated to
down-modulate the activity of T cells, B cells and dendritic cells via several
potential mechanisms: BTLA agonistic activity, stabilization of the interaction
of BTLA and HVEM in cis which prevents pro-inflammatory signaling mediated by
HVEM ligands such as LIGHT, and abrogation of pro-inflammatory HVEM signaling
mediated by BTLA in trans.

We announced positive top-line data from a healthy volunteer Phase 1 trial of
ANB032, under an Australian Clinical Trial Notification (CTN), in April 2022. A
total of 96 subjects were enrolled in the randomized, double-blind, placebo-

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controlled healthy volunteer Phase 1 trial, where single ascending dose (SAD)
cohorts received subcutaneous or IV single doses of ANB032 or placebo, while
multiple ascending dose (MAD) cohorts received four weekly subcutaneous doses of
ANB032 or placebo.

ANB032 was generally well-tolerated, no dose limiting toxicities were observed
and there were no discontinuations due to adverse events other than one patient
quarantined for potential COVID infection. No serious adverse events (SAEs) were
reported. Most adverse events were considered to be mild-to-moderate, of short
duration, resolved without sequelae and occurred sporadically in a
dose-independent manner. Three severe adverse events (two blood creatine
phosphokinase (CPK) increase and one aspartate aminotransferase (AST) increase),
none of which were treatment-related, were reported in two subjects in the
lowest dose MAD cohort.

Pharmacokinetic analyses demonstrated a favorable profile for ANB032 including
an approximate two-week half-life for subcutaneous and IV routes of
administration. ANB032 demonstrated rapid and sustained target engagement on
both T cells and B cells with full BTLA receptor occupancy was observed within
hours and was maintained for greater than 30 days following IV or subcutaneous
ANB032 dosing. ANB032 pharmacodynamic activity resulted in reduction of cell
surface BTLA expression on T cells and B cells following dosing. A portion of
the cell surface BTLA was shed from the cells as soluble BTLA (sBTLA), while the
residual approximately 60% of baseline BTLA on T cells and B cells remained
occupied by ANB032. The duration of reduced BTLA expression correlated with
receptor occupancy in a dose-dependent manner and was maintained for greater
than 30 days following IV or subcutaneous ANB032 dosing. Importantly, reduction
of cell surface BTLA expression and the shedding of a portion of the cell
surface BTLA as soluble BTLA, which was previously demonstrated to occur with
ANB032 treatment in animal models of inflammation where robust efficacy was
observed, confirmed the pharmacodynamic activity of ANB032 in humans. Based upon
these data, we believe ANB032's in vivo mechanism has the potential to broadly
treat T and B-cell driven human inflammatory diseases. We anticipate submitting
an IND for a Phase 2 clinical trial with ANB032 during the fourth quarter of
2022 and initiating a Phase 2 clinical trial in the first half of 2023.

Imsidolimab, our wholly-owned IL-36R antibody previously referred to as ANB019,
inhibits the interleukin-36 receptor (IL-36R), and is being developed for the
treatment of GPP. We completed a Phase 1 clinical trial in healthy volunteers,
which was presented at the European Academy of Allergy and Clinical Immunology
in 2018, where imsidolimab was well-tolerated by all subjects, no dose-limiting
toxicities were observed, and no serious adverse events were reported among any
subjects in the clinical trial. In July 2020, the FDA granted Orphan Drug
Designation for imsidolimab for the treatment of patients with GPP. We completed
an open-label, multi-dose, single-arm Phase 2 clinical trial of imsidolimab in 8
GPP patients, also referred to as the GALLOP clinical trial, where top-line data
through week 16 was presented at the European Academy of Dermatology and
Venerology (EADV) Congress on October 2, 2021. In this trial, 6 of 8 (75%)
patients treated with imsidolimab monotherapy achieved the primary endpoint of
response on the clinical global impression (CGI) scale at week 4 and week 16,
without requiring rescue medication. Two of 8 (25%) patients were considered to
have not met the primary endpoint because they dropped out of the trial prior to
Day 29. The Modified Japanese Dermatology Association severity index total score
(mJDA-SI), which incorporates both dermatological and systemic aspects of GPP,
decreased for patients on average by 29% at week 1, 54% at week 4 and 58% at
week 16. Erythema with pustules, which clinically defines GPP, decreased by 60%
at week 1, 94% by week 4 and 98% by week 16. Patients achieved a reduction in
the Dermatology Life Quality Index (DLQI), which is a patient-reported measure,
of 6 points at week 4 and 11 points by week 16, each of which exceeded the
minimal clinically importance difference (MCID) of 4 points. GPP Physician
Global Assessment (GPPPGA) scale was implemented by protocol amendment during
the course of the trial and was assessed in 4 of the 8 enrolled patients, where
zero (clear) or 1 (almost clear) response was achieved in 2 (50%) patients at
week 4 and 3 (75%) patients at week 16. Genotypic testing indicated homozygous
wild-type IL-36RN, CARD14 and AP1S3 alleles for all 8 patients. Through week 16,
anti-drug antibodies were only detected in one patient, which occurred at week
12 and did not impact imsidolimab pharmacokinetics or efficacy. Imsidolimab was
generally well-tolerated, and most treatment-emergent adverse events were mild
to moderate in severity and resolved without sequelae. No infusion or injection
site reactions were observed. One patient dropped out of the clinical trial due
to a diagnosis of Staphylococcal aureus bacteremia in the first week, which was
a serious adverse event deemed to be possibly drug-related. Because the patient
was symptomatic prior to dosing and had a prior medical history of bacteremia, a
common comorbidity of GPP, we do not believe this event is likely attributable
to imsidolimab. Another patient dropped out of the study on Day 22 due to
investigator reported inadequate efficacy. One patient contracted COVID-19
during the course of the clinical trial, which was deemed a serious adverse
event unrelated to imsidolimab, and did not lead to study discontinuation.
Medical claims analyses conducted by IQVIA indicate approximately 37,000 unique
patients were diagnosed with GPP at least once, and approximately 15,000 unique
patients were diagnosed with GPP at least twice, by a physician between 2017 and
2019 using the International Classification of Diseases 10th Revision (ICD-10)
diagnostic code pertaining to GPP.

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We met with the FDA during the second quarter of 2021 for an end-of-Phase 2
meeting to review an orphan disease registration plan for imsidolimab for the
treatment of GPP. We have initiated two Phase 3 trials for imsidolimab for GPP.
The first, called GEMINI-1, will enroll approximately 45 moderate-to-severe GPP
patients, each undergoing an active flare at baseline, which will be randomized
equally to receive a single dose of 750mg intravenous ("IV") imsidolimab, 300mg
IV imsidolimab, or placebo. The primary endpoint of the Phase 3 program is the
proportion of patients achieving clear or almost clear skin as determined by a
GPPPGA score of zero or 1 at week 4 of GEMINI-1. Patients completing the
GEMINI-1 trial will subsequently be enrolled in GEMINI-2, our second Phase 3
trial for imsidolimab in GPP, where they will receive monthly doses of 200mg
subcutaneous imsidolimab or placebo depending upon whether they are responders,
partial responders or non-responders to treatment under GEMINI-1. The objective
of GEMINI-2 is to assess the efficacy and safety of imsidolimab after 3 years of
monthly dosing. Top-line data from an interim analysis of GEMINI-1 is
anticipated in the fourth quarter of 2023.

We are conducting a global registry of GPP patients, also referred to as the
RADIANCE study, which we anticipate will improve understanding of the patient
journey and assist in enrollment of future GPP clinical trials.

we advertise in August 2022 that we intend to complete implementation of our Phase 3 program in GPP and license imsidolimab prior to potential FDA approval.


ANB033 is our wholly-owned anti-CD122 antagonist antibody program. CD122 targets
the common beta subunit shared by the IL-15 and IL-2 receptors. IL-15 signaling
mediates the survival and maintenance of tissue resident memory T cells (TRM).
The presence of long-lived and persistent TRM has been shown to drive
tissue-specific immune-mediated inflammation, TRm are present in the skin in
dermatologic diseases, where defined borders of inflammation often recur. TRM
are also observed in other tissue-specific inflammatory disorders including
gastroenterology, rheumatology and respiratory. ANB033 is designed with an
affinity to CD122 that inhibits IL-15 signaling, leading to death of pathogenic
TRM cells in diseased tissue, with the potential to achieve and maintain
remission of inflammation through the elimination of these disease-causing
cells. In addition, ANB033 inhibits IL-2 signaling through the low affinity IL-2
receptor (comprised of CD122 and the common gamma subunit, CD132) expressed on T
cells, while sparing regulatory T cells which express the high affinity IL-2
receptor (comprised of CD122, CD132 and the alpha receptor subunit for IL-2,
CD25). This drives reduction of pathogenic T cell numbers while sparing or
potentially enhancing regulatory T cell numbers. We anticipate submitting an IND
for a Phase 1 clinical trial with ANB033 during the first half of 2024.

We also have additional preclinical programs and discovery research for potentially innovative immune therapies.


In addition to our wholly-owned antibody programs, multiple Company-developed
antibody programs have been advanced to preclinical and clinical milestones
under our collaborations. Our collaborations include an immuno-oncology-focused
collaboration with GlaxoSmithKline, Inc. (GSK).

Under the GSK Agreement, a Biologics License Application (BLA) for our most
advanced partnered program, which is an anti-PD-1 antagonist antibody called
JEMPERLI (dostarlimab), was approved by the FDA in April 2021 for the treatment
of advanced or recurrent deficient mismatch repair endometrial cancer (dMMREC).
In addition, in April 2021 the European Medicines Agency ("EMA") granted
conditional marketing authorization in the European Union ("EU") for JEMPERLI
for use in women with mismatch repair deficient (dMMR)/microsatellite
instability-high (MSI-H) recurrent or advanced endometrial cancer who have
progressed on or following prior treatment with a platinum containing regimen,
which approval makes JEMPERLI the first anti-PD-1 therapy available for
endometrial cancer in Europe. A second FDA approval was received in August 2021
for JEMPERLI in pan-deficient mismatch repair tumors (PdMMRT). JEMPERLI is
currently in clinical development for various solid tumor indications, including
first-line advanced/recurrent endometrial cancer, first line ovarian cancer, and
non-small cell lung cancer.

In addition, under the collaboration, GSK is developing dostarlimab in
combination with two other development programs from the GSK Agreement:
cobolimab, an anti-TIM-3 antibody, and GSK40974386, an anti-LAG-3 antibody for
multiple solid tumor indications. GSK has initiated the COSTAR Lung Phase 3
trial which is a randomized, open label 3-arm trial comparing cobolimab plus
dostarlimab plus docetaxel to dostarlimab plus docetaxel to docetaxel alone in
patients with advanced NSCLC who have progressed on prior anti-PD-(L)1 therapy
and chemotherapy.

GSK is conducting additional combination trials of dostarlimab, including under
separate collaborations, with Zejula, belantamab mafodotin (BCMA ADC),
GSK6097608 (anti-CD96), GSK3745417 (STING agonist) and GSK4381562 (anti-PVRIG).
Also, under a separate collaboration between GSK and iTeos Therapeutics,
dostarlimab is being developed in combination with EOS-448 (anti-TIGIT) and
inupadenant (A2A receptor antagonist) in various solid tumor indications,
including registration-directed trials combining dostarlimab and EOS-448 for
first -line PD-L1 high non-small cell lung cancer

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(NSCLC) patients, head and neck squamous cell cancer (HNSCC) and a third
undisclosed indication. In June 2021, GSK estimated potential peak annual global
JEMPERLI sales on a non-risk adjusted basis of £1-£2 billion for currently
approved indications and first-line use in endometrial and ovarian cancer only.

In October 2020, we amended our GSK collaboration to increase royalties on
global net sales of JEMPERLI to 8% on annual global net sales below $1.0 billion
and 12-25% of annual global net sales above $1.0 billion, add a 1% royalty rate
on GSK's global net sales of Zejula and received a one-time cash payment of
$60.0 million. In October 2021, we signed a royalty monetization agreement
("JEMPERLI Royalty Monetization Agreement") with Sagard Healthcare Royalty
Partners ("Sagard"). Pursuant to this transaction, we received a $250.0 million
payment upon closing in December 2021, in exchange for JEMPERLI royalties due to
us on annual commercial sales below $1.0 billion and certain milestones starting
in October 2021. The aggregate JEMPERLI royalties and milestones to be received
by Sagard under the JEMPERLI Royalty Monetization Agreement is capped at certain
fixed multiples of the upfront payment based upon time. For more information see
Note 4 - Collaborative Research and Development Agreements and Note 5 - Sale of
Future Royalties in the accompanying notes to the consolidated financial
statements.

As referenced above, in connection with our amended GSK collaboration, in
October 2020 GSK agreed, under the terms of a settlement agreement (the GSK
Settlement Agreement), to pay us a royalty on all GSK net sales of Zejula
starting January 1, 2021. Under the GSK Settlement Agreement, the royalty is
paid at a rate of 1% but is subject to reduction due to royalties paid to third
parties, with a minimum royalty payable under the GSK Settlement Agreement of
0.5% of global net sales of Zejula. The current effective royalty rate is 0.5%.
In September 2022, we signed a royalty monetization agreement (the Zejula
Royalty Monetization Agreement) with a wholly-owned subsidiary of DRI Healthcare
Trust (DRI) to monetize all of our future royalties on global net sales of
Zejula under the GSK Settlement Agreement. Under the terms of the Zejula Royalty
Monetization Agreement, we received $35.0 million in exchange for all royalties
payable by GSK to us under the GSK Settlement Agreement on global net sales of
Zejula starting in July 2022. In addition, under the Zejula Royalty Monetization
Agreement, we are entitled to receive an additional $10.0 million payment from
DRI if Zejula is approved by the FDA for the treatment of endometrial cancer on
or prior to December 31, 2025. For more information see Note 5 - Sale of Future
Royalties in the accompanying notes to the consolidated financial statements.

The following table summarizes some key information about our wholly owned product candidates:

                    [[Image Removed: anab-20220930_g1.jpg]]

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Components of operating results

Collaboration Income


We have not generated any revenue from product sales. Our revenue has been
derived from amortization of upfront license payments, research and development
funding, milestone and royalty payments under collaboration and license
agreements with our collaborators. From inception through September 30, 2022, we
have received $229.0 million in funding from our collaborators.

Research and development expenses


Research and development expenses consist of costs associated with our research
and development activities, including drug discovery efforts, preclinical and
clinical development of our programs, and manufacturing. Our research and
development expenses include:

•External research and development expenses incurred under arrangements with
third parties, such as contract research organizations ("CROs"), consultants,
members of our scientific and therapeutic advisory boards, and contract
manufacturing organizations ("CMOs");

•Employee-related expenses, including salaries, benefits, travel, and stock-based compensation;

• Facilities, depreciation and other allocated expenses, including direct and allocated expenses for facility rental and maintenance, depreciation on leased equipment and improvements, and laboratory supplies; Y

•License and sublicense fees.

We spend research and development costs as they are incurred. We record non-refundable advances for goods and services to be used in future research and development activities as expenses when the service has been provided or when the goods have been received.


We are conducting research and development activities primarily on immunology
therapeutic programs. We have a research and development team that conducts
antibody discovery, characterization, translational studies, IND-enabling
preclinical studies, and clinical development. We conduct some of our early
research and preclinical activities internally and plan to rely on third
parties, such as CROs and CMOs, for the execution of certain of our research and
development activities, such as in vivo toxicology and pharmacology studies,
drug product manufacturing, and clinical trials.

We have completed Phase 1 and Phase 2 clinical trials and have ongoing Phase 3
clinical trials for imsidolimab, completed a Phase 1 clinical trial and have an
ongoing Phase 2 clinical trial in rosnilimab, and have completed a Phase 1 trial
in ANB032. We expect our research and development expenses to be higher for the
foreseeable future as we continue to advance our product candidates into larger
clinical trials.

General and adminsitrative expenses


General and administrative expenses consist primarily of salaries and related
benefits, including stock-based compensation for our executive, finance, legal,
business development, human resource, and support functions. Other general and
administrative expenses include allocated facility-related costs not otherwise
included in research and development expenses, travel expenses, and professional
fees for auditing, tax, and legal services.

Non-cash interest expense from the sale of future royalties


Non-cash interest expense for the sale of future royalties consists of interest
related to the liability for the sale of future royalties, as well as the
amortization of debt issuance costs. We impute interest on the unamortized
portion of the liability for the sale of future royalties using the effective
interest method and record interest expense based on timing of the payments over
the terms of the JEMPERLI Royalty Monetization Agreement and Zejula Royalty
Monetization Agreement. Our estimate of the interest rate under the arrangements
is based on forecasted royalty and milestone payments expected to be made to
Sagard and DRI over the life of the agreements.

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Interest income

Interest income consists primarily of interest earned on our short-term and long-term investments and is recognized when earned.

Critical Accounting Policies and Use of Estimates


Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The
preparation of these financial statements requires us to make judgments and
estimates that affect the reported amounts of assets, liabilities, revenues, and
expenses and the disclosure of contingent assets and liabilities in our
financial statements. We base our estimates on historical experience, known
trends and events, and various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. On an ongoing basis, we evaluate our
judgments and estimates in light of changes in circumstances, facts, and
experience. We believe there have been no significant changes in our critical
accounting policies as discussed in our Annual Report on Form 10-K filed with
the SEC on March 7, 2022.

Results of Operations – Comparison of the Three and Nine Months Ended
September 30, 2022 and 2021

Collaboration Income


Collaboration revenue consists of both milestone payments under the
collaborations, and royalty payments. We recognized $0 in milestone revenue
during the three months ended September 30, 2022 compared to $20.0 million
during the three months ended September 30, 2021, related to milestone payments
associated with JEMPERLI, the anti-PD-1 antagonist antibody partnered with GSK.
For the third quarter of 2021, milestone revenue reflects $20.0 million for
first BLA approval in a second indication.

We recognized $0 and $60.0 million of milestone revenue during the nine months
ended September 30, 2022 and 2021, respectively, related to milestone payments
associated with JEMPERLI, the anti-PD-1 antagonist antibody partnered with GSK.
For the nine months ended September 30, 2021, milestone revenue reflects $10.0
million for successful filing of the first BLA in a second indication for
JEMPERLI, $20.0 million for first BLA approval in a first indication, $10.0
million for first MAA approval in a first indication, and $20.0 million for
first BLA approval in a second indication.

We expect that any collaboration revenue we generate will continue to fluctuate
from period to period as a result of the timing and amount of milestones from
our existing collaborations.

Royalty revenue is a function of our partners' product sales and the applicable
royalty rate. During the three months ended September 30, 2022 and 2021, we
recognized $1.3 million and $0.9 million, respectively, related to the net sales
of GSK's Zejula and JEMPERLI, which we estimated based on GSK's historical
sales. All royalty revenue related to Zejula global net sales starting July 2022
will be paid directly to a wholly-owned subsidiary of DRI Healthcare Trust
pursuant to the Zejula Royalty Monetization Agreement. For more information see
Note 5 - Sale of Future Royalties in the accompanying notes to the consolidated
financial statements.

During the nine months that ended September 30, 2022 and 2021 we recognized
$3.5 million Y $2.2 millionrespectively, from royalty income related to net sales of GSK’s Zejula and JEMPERLI.

Research and development expenses


Research and development expenses were $22.1 million during the three months
ended September 30, 2022 compared to $22.2 million during the three months ended
September 30, 2021 for a decrease of $0.1 million, primarily due to a $1.3
million increase in outside services for manufacturing expenses, offset by $0.8
million decrease in clinical expenses, $0.4 million decrease in salaries and
related expenses, including stock compensation expense, and a $0.2 million
decrease in other research and development expenses.

Research and development expenses were $65.4 million during the nine months
ended September 30, 2022 compared to $71.7 million during the nine months ended
September 30, 2021 for a decrease of $6.3 million, primarily due to a $4.9
million decrease in clinical expenses, $1.8 million decrease in outside services
for manufacturing expenses, offset by a $0.3

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million in salaries and related expenses, including stock compensation expense, and a $0.1 million increase in other research and development expenses.


We do not track fully burdened research and development costs separately for
each of our product candidates. We review our research and development expenses
by focusing on external development and internal development costs. External
development expenses consist of costs associated with our external preclinical
and clinical trials, including pharmaceutical development and manufacturing.
Included in preclinical and other unallocated costs are external corporate
overhead costs that are not specific to any one program. Internal costs consist
of salaries and wages, stock-based compensation and benefits, which are not
tracked by product candidate as several of our departments support multiple
product candidate research and development programs. The following table
summarizes the external costs attributable to each program and internal costs:

                                          Three Months Ended                                                  Nine Months Ended
                                             September 30,                                                      September 30,
(in thousands)                          2022               2021             Increase/(Decrease)             2022              2021             Increase/(Decrease)
External Costs
Imsidolimab                         $    9,946          $  9,333          $                613          $  30,485          $ 33,803          $             (3,318)
Rosnilimab                               1,733             1,969                          (236)             5,425             6,160                          (735)
ANB032                                   1,083             2,249                        (1,166)             2,223             4,927                        (2,704)
Etokimab                                   350              (465)                          815                332              (375)                          707
Preclinical and other unallocated
costs                                    2,503             3,158                          (655)             7,351             9,538                        (2,187)
Total External Costs                    15,615            16,244                          (629)            45,816            54,053                        (8,237)
Internal Costs                           6,449             5,977                           472             19,608            17,667                         1,941
Total Costs                         $   22,064          $ 22,221          $               (157)         $  65,424          $ 71,720          $             (6,296)

General and adminsitrative expenses


General and administrative expenses were $8.9 million during the three months
ended September 30, 2022 compared to $5.4 million during the three months ended
September 30, 2021 for an increase of $3.5 million, primarily due to a $2.6
million increase in personnel costs including stock compensation expense, and a
$0.9 million increase in other general and administrative expenses.

General and administrative expenses were $27.2 million during the nine months
ended September 30, 2022 compared to $16.1 million during the nine months ended
September 30, 2021 for an increase of $11.1 million, primarily due to a $10.2
million increase in personnel costs including stock compensation expense, which
included $0.6 million in severance costs and $3.2 million in stock compensation
expense due to the resignation of our former President and CEO, and a $0.9
million increase in other general and administrative expenses.

We expect that our general and administrative expenses will increase for the
foreseeable future as we incur additional costs associated with being a publicly
traded company, including legal, auditing and filing fees, additional insurance
premiums, investor relations expenses and general compliance and consulting
expenses. We also expect our intellectual property related legal expenses,
including those related to preparing, filing, prosecuting and maintaining patent
applications, to increase as our intellectual property portfolio expands.

Non-cash interest expense from the sale of future royalties


Non-cash interest expense was $6.1 million and $16.9 million during the three
and nine months ended September 30, 2022 compared to $0 during the three and
nine months ended September 30, 2021. The increase in non-cash interest expense
is due to interest recognized on the liabilities related to the sale of future
royalties that were completed in September 2022 and December 2021.

Interest income


Interest income was $2.3 million and $0.1 million during the three months ended
September 30, 2022 and 2021, respectively, and $3.7 million and $0.4 million
during the nine months ended September 30, 2022 and 2021, respectively,

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which was mainly related to our short-term and long-term investments. The increase in interest income is due to higher interest rates earned on investments and an increase in the balance available to invest as a result of income from the sale of future royalties completed in december 2021.


Other Income, Net

Other income, net was less than $0.1 million for both the three and nine months
ended September 30, 2022 and 2021, which primarily related to foreign exchange
transactions through our Australian subsidiary and with our foreign CROs and
CMOs.

Liquidity and Capital Resources


From our inception through September 30, 2022, we have received an aggregate of
$1.2 billion to fund our operations, which included $631.2 million from the sale
of equity securities, $285.0 million from the sale of future royalties, and
$229.0 million from our collaboration agreements. As of September 30, 2022, we
had $590.5 million in cash, cash equivalents and investments.

In addition to our existing cash, cash equivalents and investments, we are
eligible to earn milestone and other contingent payments for the achievement of
defined collaboration objectives and certain nonclinical, clinical, regulatory
and sales-based events, and royalty payments under our collaboration agreements,
including the GSK Agreement and the GSK Settlement Agreement. Our ability to
earn these milestone and contingent payments and the timing of achieving these
milestones is primarily dependent upon the outcome of our collaborators'
research and development activities. Our rights to payments under our
collaboration agreements are our only committed external source of funds.

In October 2021, we signed the JEMPERLI Royalty Monetization Agreement with
Sagard. Pursuant to this transaction we received a $250.0 million payment upon
closing in December 2021, in exchange for JEMPERLI royalties due to us on annual
commercial sales below $1.0 billion and certain future milestones starting in
October 2021. We treated the sale of future revenue from the JEMPERLI Royalty
Monetization Agreement with Sagard as debt, which will be amortized under the
effective interest rate method over the estimated life of the related expected
royalty stream. We recorded the upfront proceeds of $250.0 million, net of $0.4
million of transaction costs, as a liability related to the sale of future
revenue. The liability and the related interest expense are based on our current
estimates of future royalties and certain milestones expected to be paid over
the life of the agreement. We will periodically assess the expected royalty and
milestone payments and to the extent our future estimates or timing of such
payments are materially different than our previous estimates, we will
prospectively recognize related interest expense. Royalty revenue will be
recognized as earned on net sales of JEMPERLI, and we will record the royalty
payments to Sagard as a reduction of the liability when paid. As such payments
are made to Sagard, the balance of the liability will be effectively repaid over
the life of the JEMPERLI Royalty Monetization Agreement. For further discussion
of the sale of future revenue, refer to Note 5 - Sale of Future Royalties in the
accompanying notes to the consolidated financial statements.

In September 2022, we signed the Zejula Royalty Monetization Agreement with DRI.
Pursuant to this transaction we received a $35.0 million payment in exchange for
all royalties payable by GSK to us under the GSK Settlement Agreement on global
net sales of Zejula starting in July 2022. We treated the sale of future revenue
from the Zejula Royalty Monetization Agreement with DRI as debt, which will be
amortized under the effective interest rate method over the estimated life of
the related expected royalty stream. We recorded the upfront proceeds of $35.0
million, net of $0.2 million of transaction costs, as a liability related to the
sale of future revenue. The liability and the related interest expense are based
on our current estimates of future royalties expected to be paid over the life
of the agreement. We will periodically assess the expected royalty and milestone
payments and to the extent our future estimates or timing of such payments are
materially different than our previous estimates, we will prospectively
recognize related interest expense. Royalty revenue will be recognized as earned
on net sales of Zejula, and we will record the royalty payments to DRI as a
reduction of the liability when paid. As such payments are made to DRI, the
balance of the liability will be effectively repaid over the life of the Zejula
Royalty Monetization Agreement. For further discussion of the sale of future
revenue, refer to Note 5 - Sale of Future Royalties in the accompanying notes to
the consolidated financial statements.

In December 2021, we entered into an Open Market Sales Agreement with Jefferies
LLC, through which we may offer and sell shares of our common stock, having an
aggregate offering of up to $150.0 million through Jefferies LLC as our sales
agent. This agreement was terminated effective November 8, 2022.

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In November 2022, we entered into the Cowen Sales Agreement with Cowen and
Company, LLC, through which we may offer and sell shares of our common stock,
having an aggregate offering of up to $150.0 million through Cowen and Company,
LLC as our sales agent.

Funding Requirements

We may seek to obtain additional financing in the future through equity or debt
financings or through collaborations or partnerships with other companies. If we
are unable to obtain additional financing on commercially reasonable terms, our
business, financial condition and results of operations will be materially
adversely affected.

Our primary uses of capital are, and we expect will continue to be, third-party
clinical and preclinical research and development services, including
manufacturing, laboratory and related supplies, compensation and related
expenses, legal, patent and other regulatory expenses, and general overhead
costs. We have entered into agreements with certain vendors for the provision of
services, including services related to commercial manufacturing, that we are
unable to terminate for convenience. Under such agreements, we are contractually
obligated to make certain minimum payments to the vendors with the amounts to be
based on the timing of the termination and the specific terms of the agreement.

Cash, cash equivalents and investments totaled $590.5 million as of
September 30, 2022, compared to $615.2 million as of December 31, 2021. We
believe that our existing cash, cash equivalents and investments will fund our
current operating plan for at least the next twelve months from the issuance of
our consolidated financial statements. We have based this estimate on
assumptions that may prove to be wrong, and we could use our capital resources
sooner than we expect. Additionally, the process of testing product candidates
in clinical trials and seeking regulatory approval is costly, and the timing of
progress and expenses in these trials is uncertain.

Cash flow


The following table summarizes our cash flows for the nine months ended
September 30, 2022 and 2021:

                                                              Nine Months Ended
                                                                September 30,
(in thousands)                                               2022           2021
Net cash (used in) provided by:
Operating activities                                     $  (62,908)     $ (20,619)
Investing activities                                       (416,342)       105,529
Financing activities                                         42,068            962

Net increase (decrease) in cash and cash equivalents $(437,182) $85,872



Operating Activities

Net cash used in operating activities during the nine months ended September 30,
2022 of $62.9 million was primarily due to our net loss of $102.3 million,
adjusted for addbacks for non-cash expenses of $38.5 million, which includes
stock-based compensation, amortization of operating right-of-use assets,
non-cash interest expense, and net increases in working capital of $0.9 million.
Net cash used in operating activities during the nine months ended September 30,
2021 of $20.6 million was primarily due to our net loss of $25.3 million,
adjusted for addbacks for non-cash expenses of $13.5 million, which includes
stock-based compensation and amortization of operating right-of-use assets, and
net decreases in working capital of $8.8 million.

Investment activities


Net cash (used in) and provided by investing activities during the nine months
ended September 30, 2022 and 2021 of $(416.3) million and $105.5 million,
respectively, primarily relates to the timing of sales, maturities and purchases
of our investments.

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Financing activities


The net cash provided by financing activities during the nine months ended
September 30, 2022 of $42.1 million was primarily related to $35.0 million
received for the sale of future royalties, $8.4 million for the issuance of
common stock, offset by $1.0 million for repayments of the liability for the
sale of future royalties with Sagard, and $0.3 million for payments for debt
issuance costs. The net cash provided by financing activities during the nine
months ended September 30, 2021 of $1.0 million primarily related to the
issuance of common stock upon the exercise of stock options.

Contractual obligations


We have entered into agreements with certain vendors for the provision of goods
and services, which includes manufacturing services with contract manufacturing
organizations and development services with contract research organizations.
These agreements may include certain provisions for purchase obligations and
termination obligations that could require payments for the cancellation of
committed purchase obligations or for early termination of the agreements. The
amount of the cancellation or termination payments vary and are based on the
timing of the cancellation or termination and the specific terms of the
agreement and therefore are cancellable contracts.

For more information related to our operating lease and future minimum annual obligations, see Note 9 – Commitments and Contingencies in the notes attached to the consolidated financial statements.

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