SEC Info - Cue Biopharma, Inc. - ‘10-Q’ for 9/30/22

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		Alternative Formats (Word, et al.) Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (Unaudited) Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2022 and 2021 (Unaudited) Consolidated Statements of Operations and Other Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (Unaudited) Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited) Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to the Consolidated Financial Statements (Unaudited) Other Information Part I. Financial Information Part Ii. Other Information Quantitative and Qualitative Disclosures about Market Risk Risk Factors Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I. Financial Information
"	Item 1. Financial Statements
"	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (Unaudited)
"	Consolidated Statements of Operations and Other Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (Unaudited)
"	Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)
"	Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2022 and 2021 (Unaudited)
"	Notes to the Consolidated Financial Statements (Unaudited)
"	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3. Quantitative and Qualitative Disclosures about Market Risk
"	Item 4. Controls and Procedures
"	Part Ii. Other Information
"	Item 1. Legal Proceedings
"	Item 1A. Risk Factors
"	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Mine Safety Disclosures
"	Item 5. Other Information
"	Item 6. Exhibits

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

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

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. i Yes x No o

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). i Yes x No o

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

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. i ☐

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

This Quarterly Report on Form 10-Q contains “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, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy,” “future,” “likely” or other comparable terms. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include the factors discussed below under the heading “Risk Factor Summary,” and the risk factors detailed further in Item 1A., “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.

This report includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties as well as our own estimates. All of the market data used in this report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our drug product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Investment in our securities involves risk. You should carefully consider the following summary of what we believe to be the principal risks facing our business, in addition to the risks described more fully in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2022 and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

If any of the following risks occurs, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.

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

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States (“U.S. GAAP”) for financial information, which prescribes elimination of all significant intercompany accounts and transactions in the accounts of the Company and its wholly owned subsidiary, Cue Biopharma Securities Corp., which was incorporated in the Commonwealth of Massachusetts in December 2018. In the opinion of management, these financial statements reflect all adjustments which are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2022.

Interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022, or any future periods.

Public Offerings

In June 2020, the Company entered into an at-the-market ("ATM") equity offering sales agreement (the “June 2020 ATM Agreement”) with Stifel Nicolaus & Company, Inc. ("Stifel") to sell shares of the Company’s common stock for aggregate gross proceeds of up to $ i 40 million, from time to time, through an ATM equity offering program under which Stifel would act as sales agent. The June 2020 ATM Agreement was terminated in October 2021 prior to entering into the October 2021 ATM Agreement (as defined below). As of September 30, 2022, the Company had sold an aggregate of i 2,099,700 shares of common stock under the June 2020 ATM Agreement for proceeds of approximately $ i 32.7 million, net of commissions paid, but excluding transaction expenses.

In October 2021, the Company entered into an open market sale agreement (the “October 2021 ATM Agreement”) with Jefferies LLC ("Jefferies"), as agent, to sell shares of the Company’s common stock for aggregate gross proceeds of up to $ i 80 million, from time to time, through an ATM equity offering program. The October 2021 ATM Agreement will terminate upon the earliest of (a) the sale of $ i 80 million of shares of the Company’s common stock pursuant to the October 2021 ATM Agreement or (b) the termination of the October 2021 ATM Agreement by the Company or Jefferies. During the three and nine months ended September 30, 2022, the Company sold i 0, and i 3,117,220 shares, of common stock under the October 2021 ATM Agreement for proceeds of $ i 0, and approximately $ i 16,598,000 net of commission paid, but excluding transaction expenses, respectively. As of September 30, 2022, the Company had sold an aggregate of i 3,593,407 shares of common stock under the October 2021 ATM

Agreement for proceeds of approximately $ i 23.6 million, net of commissions paid, but excluding transaction expenses, since its inception.

Consolidation

The accompanying consolidated financial statements include the Company and its wholly owned subsidiary, Cue Biopharma Securities Corp. The Company has eliminated all intercompany transactions.

Use of Estimates

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 at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include estimates related to collaboration revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and the useful life with respect to long-lived assets and intangibles. Actual results could differ from those estimates.

COVID-19 Pandemic

The extent to which the COVID-19 pandemic may continue to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the extent of its impact on worldwide macroeconomic conditions, the speed of the anticipated recovery, access to capital markets, and governmental and business policies regarding the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of September 30, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, estimates related to collaboration revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and assessments of impairment related to long-lived assets and intangibles. The Company’s future assessment of the potential effects of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Despite the Company’s efforts, the impact of the COVID-19 pandemic on its business depends on factors beyond the Company’s knowledge or control, including the supply-chain disruptions, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which the COVID-19 pandemic may negatively impact its financial results or liquidity in the future.

Cash Concentrations

The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with a financial institution with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company currently invests available cash in money market funds.

Marketable Securities

Marketable securities consist of investments with original maturities greater than ninety days and less than one year from the balance sheet date. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Unrealized gains and losses are recognized and determined on a specific identification basis and are included in other comprehensive loss. Realized gains and losses are determined on a specific identification basis and are included in other income on the consolidated statement of operations and other comprehensive loss. Amortization and accretion of discounts and premiums is recorded in interest income. The Company has invested available cash in U.S. Treasury obligations.

Restricted Cash

The Company had $ i i 150,000 / in restricted cash deposited with a commercial bank to collateralize a credit card as of September 30, 2022 and December 31, 2021.

Property and Equipment

Property and equipment is recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from dispositions of property and equipment are included in income and expense when realized. Amortization of leasehold improvements is provided using the straight-line method over the shorter of the lease term or the useful life of the underlying assets. i Depreciation of property and equipment is provided using the straight-line method over the following estimated useful lives:


Laboratory equipment		i 5 years
Computer and office equipment		i 3 years
Furniture and fixtures		i 3- i 8 years

The Company recognizes depreciation and amortization expense in general and administrative expenses and in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss, depending on how each category of property and equipment is utilized in the Company’s business activities.

Trademark

Trademark consists of the Company’s right, title and interest to the CUE BIOLOGICS Mark, and any derivative mark incorporating CUE, throughout the world, together with all associated goodwill and common law rights appurtenant thereto, including, but not limited to, any right, title and interest in any corporate name, company name, business, name, trade name, dba, domain name, or other source identifier incorporating CUE.

The Company has classified the trademark as a component of other long-term assets, having a useful life of i 15 years. The Company evaluates the status of this intangible asset for amortization and impairment at each quarter end and year end reporting date. For each of the three and nine months ended September 30, 2022 and 2021, the Company recorded approximately $ i i 3,000 / and $ i i 9,000 / , respectively, in amortization expense on a straight-line basis.

Debt Issuance Costs

Revenue Recognition

The Company recognizes collaboration revenue under certain of the Company’s license and collaboration agreements that are within the scope of Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company’s contracts with customers typically include promises related to licenses to intellectual property and research and development services. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of consideration to which it will be entitled for its one open contract. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method.

Research and Development Expenses

Research and development expenses consist primarily of compensation costs, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility costs, and development and clinical trial costs with respect to the Company’s drug product candidates.

Research and development expenses incurred under contracts are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the completion of contracted work, or other information indicates that a different pattern of performance is more appropriate. Other research and development expenses are charged to operations as incurred.

Nonrefundable advance payments are recognized as an expense as the related services are performed. The Company evaluates whether it expects the services to be rendered at each quarter end and year end reporting date. If the Company does not expect the services to be rendered, the advance payment is charged to expense. Nonrefundable advance payments for research and development services are included in prepaid and other current assets on the balance sheet. To the extent that a nonrefundable advance payment is for contracted services to be performed within 12 months from the reporting date, such advance is included in current assets; otherwise, such advance is included in non-current assets.

The Company evaluates the status of its research and development agreements and contracts, and the carrying amount of the related assets and liabilities, at each quarter end and year end reporting date, and adjusts the carrying amounts and their classification on the balance sheet as appropriate.

Patent Expenses

The Company is the exclusive worldwide licensee of, and has patent applications pending for, numerous domestic and foreign patents. Due to the significant uncertainty associated with the successful development of one or more commercially viable drug product candidates based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal fees, filing fees and other costs are charged to general and administrative expense as incurred. For the three and nine months ended September 30, 2022, patent expenses were $ i 395,000 and $ i 1,625,000, respectively. For the three and nine months ended September 30, 2021, patent expenses were $ i 522,000 and $ i 1,606,000, respectively.

Licensing Fees and Costs

Licensing fees and costs consist primarily of costs relating to the acquisition of the Company’s license agreement (the “Einstein License Agreement”) with the Albert Einstein College of Medicine (“Einstein”), including related royalties, maintenance fees, milestone payments and product development costs. Licensing fees and costs are charged to research and development expense as incurred.

Long-Lived Assets

The Company reviews long-lived assets, consisting of property and equipment, for impairment at each fiscal year end or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The Company has not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.

Leases

The Company accounts for leases under ASC 842 Leases, which requires a lessee to record a right-of-use asset and a corresponding lease liability for most lease arrangements on the balance sheet. Under the standard, disclosure of key information about leasing arrangements to assist users of the financial statements with assessing the amount, timing and uncertainty of cash flows arising from leases are required.

Stock-Based Compensation

The Company periodically issues stock-based awards to officers, directors, employees, Scientific and Clinical Advisory Board members, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers, directors, employees, Scientific and Clinical Advisory Board members and consultants, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. Stock option grants, which are generally time-vested, are measured at the grant date fair value and charged to operations on a straight-line basis over the service period, which generally approximates the vesting term. The Company also grants performance-based awards periodically to officers of the Company. The Company recognizes compensation costs related to performance awards over the requisite service period if and when the Company concludes that it is probable that the performance condition will be achieved.

The fair value of stock options and restricted stock units is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the life of the equity award, the exercise price of the stock option as compared to the fair value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until the Company has established a trading history for its common stock that approximates the expected term of the options, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date; the Company has never declared or paid dividends and has no plans to do so for the foreseeable future. As permitted by Staff Accounting Bulletin No. 107, due to the Company’s limited trading history and option activity, management utilizes the simplified method to estimate the expected term of options at the date of grant. The exercise price is determined based on the fair value of the Company’s common stock at the date of grant. The Company accounts for forfeitures as they occur.

The Company recognizes the fair value of stock-based compensation in general and administrative expenses and in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss, depending on the type of services provided by the recipient of the equity award.

Comprehensive Income (Loss)

Components of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which they are recognized. Other comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss). Comprehensive income (loss) includes net income (loss) as well as changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive income (loss) in periods presented was unrealized gain or loss on available-for-sale securities.

Earnings (Loss) Per Share

The Company’s computation of earnings (loss) per share (“EPS”) for the respective periods includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares that would result from the exercise of outstanding stock options and warrants as if they had been exercised at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Basic and diluted loss per common share is the same for all periods presented because all outstanding stock options and warrants are anti-dilutive.

At September 30, 2022 and 2021, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.


	September 30,
	2022		2021
Common stock warrants		i 789,358		i 851,969
Common stock options		i 6,268,729		i 5,533,657
Nonvested restricted stock units		i -		i 131,669
Total		i 7,058,087		i 6,517,295

Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.

Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.

Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently traded non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.

The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.

The Company had approximately $ i 23,256,000 in cash equivalents and $ i 29,457,000 in short-term marketable securities that were measured and recorded at fair value on the Company’s balance sheet as of September 30, 2022. The Company had $ i 52,509,000 in cash equivalents and $ i 0 in short-term marketable securities that were measured and recorded at fair value on the Company’s balance sheet at December 31, 2021.

The carrying value of financial instruments (consisting of cash, a certificate of deposit, accounts payable, accrued compensation and accrued expenses) is considered to be representative of their respective fair values due to the short-term nature of those instruments.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (CECL). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new standard is effective for annual reporting periods beginning after December 15, 2022, including interim reporting periods within each annual reporting period for smaller reporting companies. The Company is still evaluating the impact of ASU No. 2016-13 on the Company’s consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

Fair Value

The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, and indicate the level of the fair value hierarchy utilized to determine such fair value:

Fair Value Measurements as of September 30, 2022

(in thousands)

Level 1

Level 2

Level 3

Fair Value

Cash equivalents

i 23,256

i —

i 23,256

Marketable securities

i —

i 29,457

—

i 29,457

Total

i 23,256

i 29,457

i —

i 52,713

Fair Value Measurements as of December 31, 2021

(in thousands)

Level 1

Level 2

Level 3

Fair Value

Cash equivalents

i 52,509

i —

i 52,509

Marketable securities

i —

Total

i 52,509

i —

i 52,509

As of September 30, 2022, the Company reported approximately $ i 23,256,000 and $ i 29,457,000 in cash equivalents and marketable securities, respectively. The Company’s cash equivalents that are invested in money market funds are valued using Level 1 inputs for identical securities. The Company measures the fair value of marketable securities that are invested in U.S. Treasury securities using Level 2 inputs and primarily relies on quoted prices in active markets for similar marketable securities. As of December 31, 2021, the Company reported approximately $ i 52,509,000 of cash equivalents. During the three and nine months ended September 30, 2022, and the year ended December 31, 2021, there were i i no / transfers between Level 2 and Level 3.

The carrying values of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these balances.

Marketable Securities

As of September 30, 2022, the Company had marketable securities that consisted of $ i 29,457,000. The Company did i not have marketable securities at December 31, 2021. i The following table presents the Company's marketable securities at September 30, 2022, and December 31, 2021:

September 30, 2022

(in thousands)

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value

U.S. Treasury securities

i 29,550

i —

( i 92

)

i 29,457

i 29,550

i —

—

i 29,457

December 31, 2021

(in thousands)

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value

U.S. Treasury securities

i —

Loan with Silicon Valley Bank

On February 15, 2022 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Term Loan Agreement”), with Silicon Valley Bank, as lender (“Lender”). The Term Loan Agreement provides for up to $ i 20,000,000 in term loans to be drawn in two tranches as follows: (i) a Tranche A term loan in the aggregate principal amount of $ i 10,000,000 (the "Tranche A Loan") and (ii) two contingent Tranche B term loans in amounts of at least $ i 5,000,000 each and in the aggregate principal amount not to exceed $ i 10,000,000 which is available to be drawn upon meeting certain specified requirements (the "Tranche B Loans" and, collectively, the “Term Loans”). The Company drew $ i 10,000,000 in Term Loans on the Closing Date.

The Term Loans bear interest at a floating rate per annum equal to the greater of (A) the prime rate (as published in the money rates section of The Wall Street Journal) plus i 2.25% and (B) i 5.50%. The Term Loans are interest only from the Closing Date through i June 30, 2023, after which the Company is required to pay i 30 equal monthly installments of principal. If the Tranche B Loans are advanced, the interest-only period shall extend to i December 31, 2023, followed by 24 months of amortization. At September 30, 2022, the interest rate was i 8.5% based on the prime rate plus i 2.25%.

The Term Loans may be prepaid in full prior to February 15, 2023 with a payment of i 3.00% prepayment premium, after which they may be prepaid in full prior to February 15, 2024 with payment of a i 2.00% prepayment premium, on or after which they may be prepaid in full with payment of a i 1.00% prepayment premium. Upon prepayment or repayment in full of the Term Loans, the Company will be required to pay a one-time final payment fee equal to i 5.00% of the original principal amount of any funded Term Loans being repaid. This one-time final payment fee is recorded to interest expense using the effective interest method over the period of the Term Loans in the consolidated statements of operation and other comprehensive loss.

The Term Loans and related obligations under the Term Loan Agreement are secured by substantially all of the Company’s properties, rights and assets, except for its intellectual property which is subject to a negative pledge under the Term Loan Agreement.

The Term Loan Agreement contains customary representations, warranties, events of default and covenants, including a requirement that the Company maintain in accounts of the Company at the Lender unrestricted and unencumbered cash equal to the lesser of all of the Company’s cash and i 110% of the obligations to the Lender.

During the three and nine months ended September 30, 2022, the Company recognized interest expense related to the Term Loans of $ i 183,000 and $ i 354,000, respectively, and $ i 33,000 and $ i 76,000 in interest expense related to accretion of the final payment for the three months and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2021, the Company did i i no / t have interest expense related to the Term Loans.

The following table presents the aggregate maturities of long-term and short-term debt as of September 30, 2022: (in thousands):


Total long-term debt	$	i 9,000
Accretion of final payment		i 76
Less: unamortized debt issuance costs		( i 83	)
Long-term debt, net	$	i 8,993

Total current portion of long-term debt	$	i 1,000
Less: unamortized debt issuance costs		( i 37	)
Current portion of long-term debt, net	$	i 963


	Aggregate Minimum Payments
Year	(in thousands)
2022	$	i —
2023		i 2,000
2024		i 4,000
2025		i 4,000
Total maturities	$	i 10,000

Debt Issuance Costs

Debt issuance costs are deferred and presented as a reduction to long-term debt. Debt issuance costs are amortized using the effective interest rate method over the term of the loan. Amortization of deferred debt issuance costs are included in interest expense in the consolidated statements of operations. The Company incurred approximately $ i 142,000 in debt issuance costs related to the Term Loan Agreement. For the three and nine months ended September 30, 2022, the Company recorded approximately $ i 9,000 and $ i 21,000, respectively, in amortization of debt issuance costs to interest expense in the consolidated statements of operations and comprehensive loss. The Company recorded approximately $ i 37,000 and $ i 83,000 to short- and long-term debt issuance costs contra-liability, respectively, as of September 30, 2022.

7. Stock-Based Compensation

Stock Option Valuation

For stock options requiring an assessment of value during the nine months ended September 30, 2022 and 2021, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:


		September 30, 2022
Risk-free interest rate		i 1.53% - i 2.92%
Expected dividend yield		i 0%
Expected volatility		i 92.1% - i 95.7%
Expected life		i 5.50 to i 6.25 years

		September 30, 2021
Risk-free interest rate		i 0.61% - i 1.31%
Expected dividend yield		i 0%
Expected volatility		i 97.8% - i 100.9%
Expected life		i 5.50 to i 6.25 years

A summary of stock option activity for the nine months ended September 30, 2022 is as follows:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life
(in Years)

Stock options outstanding at December 31, 2021

i 5,654,168

i 10.08

i 5.48

Granted

i 828,500

i 6.99

—

Exercised

i —

—

Cancelled

( i 213,939

)

i 13.32

—

Stock options outstanding at September 30, 2022

i 6,268,729

i 9.56

i 5.22

Stock options exercisable at September 30, 2022

i 4,358,165

i 8.97

i 3.79

The Company recognized approximately $ i 2,045,000 and $ i 6,537,000 in stock-based compensation expense during the three and nine months ended September 30, 2022, respectively, related to stock options activity. As of September 30, 2022, total unrecognized stock-based compensation expense was approximately $ i 13,856,000, which is expected to be recognized as an operating expense in the Company’s consolidated statement of operations and other comprehensive loss over the weighted average remaining period of i 2.13 years. During the three months ended September 30, 2022, the Company granted stock options to purchase i 12,500 shares of common stock with a weighted average grant date fair value of $ i 2.45 per share. During the nine months ended September 30, 2022, the Company granted stock options to purchase i 828,500 shares of common stock with a weighted average grant date fair value of $ i 6.99 per share.

The Company recognized approximately $ i 2,876,000 and $ i 7,428,000 in stock-based compensation expense during the three and nine months ended September 30, 2021, respectively, related to stock options activity. As of September 30, 2021, total unrecognized stock-based compensation expense was approximately $ i 18,124,000, which is expected to be recognized as an operating expense in the Company’s consolidated statement of operations and other comprehensive loss over the weighted average remaining period of i 2.4 years. During the three and nine months ended September 30, 2021, the Company granted stock options to purchase i 35,000 shares of common stock with an average grant date fair value of $ i 12.24 per share and stock options to purchase i 1,026,000 shares of common stock with an average grant date fair value of $ i 14.41 per share, respectively.

The intrinsic value of exercisable but unexercised in-the-money stock options at September 30, 2022 was approximately $ i 4,358,000, based on a weighted average grant date fair value of $ i 8.97 per share on September 30, 2022.

Restricted Stock Units

On October 3, 2019, the Company granted i 100,000 restricted stock units (“RSUs”) with time-based vesting conditions to an executive officer having an average grant date fair value of $ i 7.53 per share. The RSUs vest in three equal installments beginning on the grant date, and annually on each anniversary of the grant date thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

On February 5, 2020, the Company granted i 150,000 RSUs with time-based vesting conditions to an executive officer. One-half of the RSUs vested on September 30, 2021, and the balance vested on March 31, 2022. On March 31, 2020, the Company granted i 50,000 RSUs with time-based vesting conditions to an executive officer. The RSUs vest in three equal installments beginning on the grant date, and annually on each anniversary of the grant date thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

On August 21, 2020, the Company granted i 20,000 RSUs with time-based vesting conditions to an executive officer. The RSUs vest in three equal installments beginning on the grant date, and annually on each anniversary of the grant date thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

The following table summarizes the RSU activity under the Company’s 2016 Omnibus Incentive Plan for the nine months ended September 30, 2022:


Restricted Stock Units	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested balance at December 31, 2021		i 98,335		$	i 18.21
Vested/Released		( i 98,335	)	$	i 18.21
Nonvested balance at September 30, 2022		i 0		$	i -

The Company recognized approximately $ i 19,000 and $ i 847,000 in stock-based compensation during the three and nine months ended September 30, 2022, respectively, related to RSU activity. As of September 30, 2022, total unrecognized stock-based compensation was fully recognized as an operating expense in the Company’s consolidated statement of operations and other comprehensive loss. The Company recognized approximately $ i 375,000 and $ i 1,113,000 in stock-based compensation during the three and nine months ended September 30, 2021, respectively, related to RSU activity. As of September 30, 2021, total unrecognized stock-based compensation was approximately $ i 1,660,000.

Stock-based Compensation

Stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 was included in the Company’s consolidated statement of operations and other comprehensive loss as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
General and administrative	$	i 1,003	$	i 1,199	$	i 3,650	$	i 3,662
Research and development		i 1,061		i 2,053		i 3,734		i 4,879
Total	$	i 2,064	$	i 3,252	$	i 7,384	$	i 8,541

9. Collaboration Revenue

The Company recognizes collaboration revenue under certain of the Company’s license or collaboration agreements that are within the scope of ASC 606. The Company’s contracts with customers typically include promises related to licenses to intellectual property and research and development services. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and if, over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company’s contracts may include options to acquire additional goods and/or services.

The terms of the Company’s arrangements with customers typically include the payment of one or more of the following: (i) non-refundable, up-front payment, (ii) development, regulatory and commercial milestone payments, (iii) future options and (iv) royalties on net sales of licensed products. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of consideration to which it will be entitled for its one open contract. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Milestone payments that are not within the control of the Company or the licensee, such as those dependent upon receipt of regulatory approval, are not considered to be probable of achievement until the triggering event occurs. At the end of each reporting period, the Company reevaluates the probability of achievement of each milestone and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, the Company recognizes revenue upon the later of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any development, regulatory or commercial milestones or royalty revenue resulting from any of its collaboration arrangements. Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception.

The Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis, when applicable. However, certain components of variable consideration are allocated specifically to one or more particular performance obligations in a contact to the extent both of the following criteria are met: (i) the terms of the payment relate specifically to the efforts to satisfy the performance obligation or transfer the distinct good or service and (ii) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective of the standard whereby the amount allocated depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services. The Company develops assumptions that require judgment to determine the standalone selling price for each performance obligation identified in each contract. The key assumptions utilized in determining the standalone selling price for each performance obligation may include forecasted revenues, development timelines, estimated research and development costs, discount rates, likelihood of exercise and probabilities of technical and regulatory success.

Revenue is recognized based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good and/or service to the customer. For performance obligations that are satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress which depicts the performance in transferring control of the associated goods and/or services to the customer. The Company uses input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment. The Company measures progress toward satisfaction of the performance obligation over time as effort is expended.

Collaboration Agreement with Merck

On November 14, 2017, the Company entered into a collaboration agreement (the “Merck Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) for a partnership to research and develop certain of the Company’s proprietary biologics that target certain autoimmune disease indications (the “Initial Indications”). The Company viewed the Merck Collaboration Agreement as a component of its development strategy since it allowed the Company to advance its autoimmune programs in partnership with a world class pharmaceutical company, while allowing its continued focus on its more advanced cancer programs. The research program outlined in the Merck Collaboration Agreement entailed (1) the Company’s research, discovery and development of certain Immuno-STATTM drug product candidates up to the point of demonstration of certain biologically relevant effects (“Proof of Mechanism”) and (2) the further development by Merck of the Immuno-STAT drug product candidates that have demonstrated Proof of Mechanism (the “Proposed Product Candidates”) up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Product Candidates’ profiles as described in the Merck Collaboration Agreement. The research collaboration term under the Merck Collaboration Agreement expired on December 31, 2021. Because the Company has determined to prioritize and strategically focus on its oncology programs in its IL-2 based CUE-100 series, the Company is not currently pursuing further development of these Immuno-STAT drug product candidates at this time.

In exchange for the licenses and other rights granted to Merck under the Merck Collaboration Agreement, Merck paid to the Company a $ i 2.5 million nonrefundable up-front payment. The Merck Collaboration Agreement required the Company to use the first $ i 2.5 million of milestone payments it received under the agreement to fund contract research.

As it relates to the Merck Collaboration Agreement, the Company recognized the up-front payment associated with its one open contract as a contract liability upon receipt of payment as it requires deferral of revenue recognition to a future period until the Company performed its obligations under the arrangement. Amounts expected to be recognized as revenue within the i twelve months following the balance sheet date are classified in current liabilities. Amounts not expected to be recognized as revenue within the i twelve months following the balance sheet date are classified as contract liabilities, net of current portion. The Company determined that there was one performance obligation, consisting of the license and research development services. Thus, the transaction price of $ i 2.5 million was allocated to the single performance obligation.

Aside from the $ i 2.8 million in milestone payments earned to date, the Company does not believe that any variable consideration should be included in the transaction price at September 30, 2022. The Company’s assessment ensured that estimates of variable consideration would be included in the transaction price only to the extent the Company had a high degree of confidence that revenue would not be reversed in a subsequent reporting period. For the three months ended September 30, 2022 and 2021, the Company recorded approximately $ i 0 and $ i 293,000, respectively, in collaboration revenue related to the Merck Collaboration Agreement. For the nine months ended September 30, 2022 and 2021, the Company recorded approximately $ i 0 and $ i 1,762,000, respectively, in collaboration revenue related to the Merck Collaboration Agreement. The Company did not record short or long-term research and development liabilities on its balance sheet dated September 30, 2022 and December 31, 2021, as the performance obligation was completed on December 31, 2021.

Collaboration Agreement with LG Chem

On November 6, 2018, the Company entered into a collaboration agreement (the “LG Chem Collaboration Agreement”) with LG Chem Ltd. (“LG Chem”) related to the development of the Company’s Immuno-STATs focused in the field of oncology. Pursuant to the LG Chem Collaboration Agreement, the Company granted LG Chem an exclusive license to develop, manufacture and commercialize the Company’s lead product, CUE-101, as well as Immuno-STATs that target T cells against two additional cancer antigens, in certain Asian countries (collectively, the “LG Chem Territory”). On April 30, 2021, LG Chem’s option pursuant to the Global License and Collaboration Agreement entered into between the Company and LG Chem on December 18, 2019 and as amended on November 5, 2020 (the "Global License and Collaboration Agreement"), expired, and accordingly the Company no longer has any material obligations under the Global License and Collaboration Agreement. In June 2021, after ongoing discussions regarding the selection of the second of the two additional cancer antigens, LG Chem and the Company agreed to let the selection period expire without a second antigen being selected. The Company retains rights to develop and commercialize all assets included in the LG Chem Collaboration Agreement in the United States and in global markets outside of the LG Chem Territory. In exchange for the licenses and other rights granted to LG Chem under the LG Chem Collaboration Agreement, LG Chem made a $ i 5.0 million equity investment in common stock of the Company and a $ i 5.0 million nonrefundable up-front cash payment. The Company is also eligible to receive up to an additional $ i 400.0 million in research, development, regulatory and sales milestones. In addition, the LG Chem Collaboration Agreement also provides that LG Chem will pay the Company tiered single-digit percentage royalties on net sales of commercialized drug product candidates in the LG Chem Territory.

On May 16, 2019, LG Chem paid the Company a $ i 2.5 million milestone payment for the U.S. Food and Drug Administration’s (“FDA”) acceptance of the investigational new drug application (“IND”) for the Company’s lead drug product candidate, CUE-101, pursuant to the LG Chem Collaboration Agreement. The $ i 2.5 million milestone payment was recorded as a contract liability upon receipt of payment as it requires deferral of revenue recognition to a future period until the Company performs its obligations under the arrangement. Of the $ i 2.5 million milestone payment, approximately $ i 412,500 was recognized as tax withholding, shown as income tax expense on the consolidated statement of operations and other comprehensive loss.

On December 7, 2020, the Company earned a $ i 1.25 million milestone payment on the selection of a pre-clinical candidate pursuant to the LG Chem Collaboration Agreement. The $ i 1.25 million milestone payment was recorded as a contract liability upon receipt. Revenue related to this milestone payment will be recognized by the Company pursuant to the Company’s revenue recognition policy in relation to the performance of its obligations related to the development of this pre-clinical candidate. Of the $ i 1.25 million milestone payment, approximately $ i 206,250 was withheld as payment of foreign tax withholding and shown as income tax expense on the consolidated statement of operations and other comprehensive loss.

On November 23, 2021 the Company earned a $ i 3 million milestone payment for the selection of a clinical product candidate in partnership with LG Chem. The $ i 3 million milestone payment was recorded as a contract liability upon receipt. Revenue related to this milestone payment will be recognized by the Company pursuant to the Company’s revenue recognition policy in relation to the performance of its obligations related to the development of this preclinical candidate. Of the $ i 3 million milestone payment, approximately $ i 495,000 was withheld as payment of foreign tax withholding and shown as income tax expense on the consolidated statements of operations and comprehensive loss. Cash was collected in relation to this milestone payment in February 2022.

Aside from the $ i 6.75 million in milestone payments earned to date, the Company does not believe that any variable consideration should be included in the transaction price as of September 30, 2022. Such assessment considered the application of the constraint to ensure that estimates of variable consideration would be included in the transaction price only to the extent the Company had a high degree of confidence that revenue would not be reversed in a subsequent reporting period. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as other changes in circumstances occur. For the three months ended September 30, 2022 and 2021, the Company recognized revenue of approximately $ i 68,000 and approximately $ i 2,102,000, respectively, related to the LG Chem Collaboration Agreement. For the nine months ended September 30, 2022 and 2021, the Company recognized revenue of approximately $ i 1,094,000 and approximately $ i 4,925,000, respectively, related to the LG Chem Collaboration Agreement. The Company did not record short or long-term research and development liabilities on its balance sheet dated September 30, 2022, as the performance obligation was met and completed. As of December 31, 2021, the Company recorded short- and long-term research and development liabilities on its balance sheet of approximately $ i 645,000. Research and development cost sharing provisions under the agreement expired on March 31, 2022.

Capitalization of Contract Costs

The Company considered the capitalization of contract costs under the guidance in ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers. There were no contract costs identified in the Merck Collaboration Agreement. As it related to the LG Chem Collaboration Agreement, the Company capitalized license expenses of approximately $ i 908,000 as of September 30, 2022, paid to Einstein pursuant to the Einstein License Agreement which requires the Company to pay a percentage of sublicenses related to the Company’s patent rights for components of its core technology that is licensed from Einstein. This amount is comprised of approximately $ i 438,000 of capitalized license expenses related to the up-front payment received from LG Chem in December 2018, approximately $ i 313,000 in capitalized license expenses related to the milestone payment received in June 2019, and approximately $ i 157,000 in capitalized license expenses related to the milestone payment received in December 2020, net of accumulated amortization on all capitalized license expenses of approximately $ i 908,000. As of September 30, 2022, i no capitalized license expenses net of accumulated amortization were included in prepaid expenses and other short-term assets related to the LG Chem Collaboration Agreement. As of December 31, 2021, $ i 80,000 was included in prepaid expenses and other short-term assets.

11. Leases

The Company leased approximately i 19,900 square feet of office space in Cambridge, Massachusetts under the Laboratory and Office Lease (as defined below) which began in May 2018 and was terminated effective April 2022, as discussed further below. Upon adoption of ASC 842, the Company recorded a right-of-use asset and corresponding lease liability for the Lease on January 1, 2019, by calculating the present value of lease payments, discounted at i 6%, the Company’s estimated incremental borrowing rate annually, over the i 2-year remaining term.

The Company accounts for leases under ASC 842 using an estimated incremental borrowing rate, which is derived from information available at the lease commencement date, to determine the present value of lease payments. The Company's incremental borrowing rate represents the rate of interest that it would have to pay to borrow over a similar term and an amount equal to the lease payments in a similar economic environment.

On January 18, 2018, the Company entered into an operating lease agreement for its laboratory and office space in Cambridge, Massachusetts at 21 Erie Street, for the period from i May 1, 2018 through i April 30, 2021 (the “Laboratory and Office Lease”). The Laboratory and Office Lease contains escalating payments during the lease period. i Upon execution of the Laboratory and Office Lease, the Company prepaid three months of rent, two of which will be held in escrow and credited against future rent payments and the other of which was applied to the first month’s rent. The Company also prepaid seven and one-half months’ rent pursuant to an amendment to the lease agreement executed on June 18, 2018. These amounts were recorded to deposits and prepaid expenses, respectively, at December 31, 2018. On June 18, 2018, the Company entered into an amendment to the Laboratory and Office Lease that provided the Company with a reduction in rental fees for its office and laboratory space in exchange for prepayment of a portion of the fees. This amendment was effective beginning on i May 15, 2018.

The monthly rent payment due under the Laboratory and Office Lease, as amended, was $ i 330,550 until April 2021 and increased to $ i 375,174 until its termination, as discussed below.

On September 20, 2018, the Company entered into an operating lease for additional laboratory space at 21 Erie Street, Cambridge, Massachusetts for the period from i October 15, 2018 through i April 14, 2021 (the “Additional Laboratory Lease”). The Additional Laboratory Lease contains escalating payments during the lease period. The monthly rental rate under the Additional Laboratory Lease was $ i 72,600 for the first 12 months and $ i 78,600 for the remainder of the term. Upon execution of the Additional Laboratory Lease, the Company prepaid 12 months’ rent pursuant to the lease agreement executed on September 20, 2018.

On September 19, 2019, the Company entered into a second amendment to the Additional Laboratory Lease that removed one holding room from the additional laboratory space. The amendment was effective beginning on i October 1, 2019. The monthly rental rate under the Additional Laboratory Lease decreased from $ i 78,600 to $ i 58,995 for the remainder of the lease term. The partial termination of the lease did not change the classification of the lease and remained accounted for as an operating lease. The weighted-average discount rate remained the same at i 6%. The Company accounted for the lease modification under ASC 842 that removed one holding room by electing Approach 1, which remeasured the right-of-use asset on the basis of the amount of the liability change. The modification of the partial termination resulted in a reduction to right-of-use asset and lease liability of $ i 335,465 and $ i 327,079, respectively. The difference of $ i 8,386 was recorded as a loss to the right-of-use asset as of December 31, 2020.

On June 24, 2020, the Company entered into a second amendment to the Laboratory and Office Lease. i Pursuant to the amendment (1) the term of the lease was extended to i June 14, 2022 and (2) the monthly rental rate for the last 14 months of the lease term was increased to $ i 375,174. The Company determined that the second amendment should be accounted for as a lease modification applicable under ASC 842, not as a separate contract, with an effective date of lease modification of i May 14, 2020. / At the effective date of modification, the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $ i 4,826,000.

On July 20, 2020, the Company entered into a third amendment to the Additional Laboratory Lease. i Pursuant to the third amendment, the term of the lease was extended to i June 14, 2022. The Company determined that the amendment should be accounted for as a lease modification applicable under ASC 842, not as a separate contract, with an effective date of lease modification of i August 4, 2020, when the agreement was fully executed. / At the effective date of modification, the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of approximately $ i 813,000.

On October 22, 2021, the Company entered into a third amendment to the Laboratory and Office Lease. i Pursuant to the third amendment (1) the term of the lease was extended to March 14, 2024 and (2) the monthly rental rate for the last 21 months of the lease term was increased from $ i 375,174 to $ i 388,305 / .

On January 25, 2022, the Company entered into the fourth amendment to the Additional Laboratory Lease. i Pursuant to the fourth amendment (1) the term of the lease was extended to March 14, 2024 and (2) the monthly rental rate for the amendment will increase from $ i 62,588 to $ i 64,466 on October 15, 2022, and to $ i 66,399 on October 15, 2023 / . The Company booked an adjustment to increase the right-of-use asset and long-term liability of approximately $ i 1,263,000. The Company paid a security deposit of approximately $ i 22,000 related to this amendment.

On March 28, 2022, the Company entered into a License Agreement (the “License”) with MIL 40G, LLC (the “Licensor”), pursuant to which the Company will lease approximately i 13,000 square feet of office, research and development and laboratory space located at 40 Guest Street, Boston, Massachusetts 02135 (the “Premises”). The Company relocated its corporate headquarters to the Premises in April 2022. On March 28, 2022, the Company terminated the Laboratory and Office Lease with an effective date of April 30, 2022. The Company performed an analysis of the accounting implications of this termination based on ASC 360 Impairments and Abandonments guidance. For the nine months ended September 30, 2022, the Company recorded an adjustment to decrease the right-of-use asset and lease liability of approximately $ i 8,124,000 and $ i 8,382,000, respectively, and recorded a gain on right-of-use asset included in the consolidated statement of operations and other comprehensive loss of approximately $ i 258,000.

The Company recognized a right of use asset of approximately $ i 9,056,000 and an operating lease liability of approximately $ i 9,056,000 which were recorded as of the Term Commencement Date (as defined below) related to the License.

The term of the License commenced on April 15, 2022 (the “Term Commencement Date”) and expires on April 14, 2026 (the “Term”). The License has a monthly rental rate of $ i 200,700 for the first year of the Term, $ i 208,728 for the second year of the Term, $ i 217,077 for the third year of the Term and $ i 225,760 for the remainder of the Term. Pursuant to the License, the Company prepaid two months of rent and a security deposit. The Licensor is obligated under the License to provide certain services to the Company, including providing certain gases, chemicals and equipment to the Premises’ laboratory space, IT support, security, office support and health and safety training. The Licensor has the right to terminate the License for Cause (as defined in the License).

On May 3, 2022, the Company entered into the First Amendment to the License ("First Amendment”) with the Licensor, pursuant to which the License was expanded to include an additional room effective July 15, 2022. In consideration of the First Amendment, the Security Deposit was increased from $ i 225,760 to $ i 235,884 effective July 15, 2022. Upon execution of the First Amendment, the Company prepaid three months of rent, two of which will be held in escrow and credited against future rent payments and the other of which was applied to the first month’s rent. Effective July 15, 2022, the monthly rental rate under the First Amendment increased to $ i 209,700 from $ i 200,700. During the three months ended September 30, 2022, the Company recognized a right of use asset of approximately $ i 369,000 and an operating lease liability of approximately $ i 360,000, using the weighted average discount rate of i 8%, which were recorded as of the Term Commencement Date related to the License.

On May 31, 2022, the Company entered into an operating lease for additional laboratory space at 40 Guest Street, Boston, Massachusetts for the period from December 1, 2022, through December 1, 2024 (the “40G Additional Laboratory Lease”). The 40G Additional Laboratory Lease contains escalating payments during the lease period. The monthly rental rate under the 40G Additional Laboratory Lease is $ i 59,152 for the first 12 months and $ i 61,519 for the remainder of the term. Under the terms of this lease agreement, the Company will prepay three months of rent, two of which will be held in escrow and credited against future rent payments and the other of which was applied to the first month’s rent.

On September 9, 2022, the Company terminated the Additional Laboratory Lease with MIL 21E, LLC with an effective termination date of December 6, 2022. The Company performed an analysis of the accounting implications of this termination based on ASC 360 Impairments and Abandonments guidance.

For the three and nine months ended September 30, 2022, the Company recorded approximately $ i 146,000 and $ i 309,000, respectively in non-cash interest expense to the lease liability.

At September 30, 2022, the Company recorded approximately $ i 9,561,000 to operating lease right-of-use asset, and approximately $ i 3,335,000 and $ i 6,321,000 to the short-term and long-term operating lease liability, respectively. At December 31, 2021, the Company recorded approximately $ i 9,809,876 to operating lease right-of-use asset, and approximately $ i 4,931,675 and $ i 5,121,179 to short- and long-term operating lease liability, respectively. As of September 30, 2022 and December 31, 2021, a security deposit of approximately $ i i 794,000 / was included in deposits on the Company’s consolidated balance sheet related to the 40G Additional Laboratory Lease. Cash was collected in the amount of approximately $ i 803,000 for the 21 Erie Laboratory and Office Lease during the three months ended September 30, 2022.

Future minimum lease payments under the leases in effect at September 30, 2022 are as follows:


Year	(in thousands)
2022	$	i 822
2023		i 3,366
2024		i 2,857
2025		i 2,799
2026		i 818
Total lease payment	$	i 10,662
Less: present value discount		( i 897	)
Total	$	i 9,765

Total rent expense of approximately $ i 860,000 and $ i 1,223,000 was included in the consolidated statement of operations and other comprehensive loss for the three months ended September 30, 2022 and 2021, respectively. Total rent expense of approximately $ i 3,309,000 and $ i 3,668,000 was included in the consolidated statement of operations and other comprehensive loss for the nine months ended September 30, 2022 and 2021, respectively. i Other information pertaining to the Company’s operating leases for the three and nine months ended September 30, 2022 is summarized in the table below.


Other information (in thousands)	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	( i 297	)	$	( i 397	)
Operating lease cost	$	i 860		$	i 3,309
Weighted average discount rate	i 5.75%- i 8%			i 5.75%- i 8%
Weighted average remaining lease term	i 3.54 years			i 3.54 years

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Cue Biopharma, Inc. and its subsidiary (“Cue Biopharma”, “we”, “us”, “our” or the “Company”) should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed by us with the Securities and Exchange Commission, or SEC, on March 16, 2022, or the 2021 Annual Report.

We are a clinical-stage biopharmaceutical company developing a novel class of T cell engager biologics designed to selectively engage and modulate tumor-specific T cells directly within the patient’s body. We believe our proprietary Immuno-STAT™ (Selective Targeting and Alteration of T Cells) platform, as described below, will allow us to harness the fullest potential of the patient’s intrinsic immune repertoire to fight cancer and restore health while avoiding the deleterious side effects of broad non-specific immune activation. In addition to the selective modulation of tumor specific T cells, we believe the core features of Immuno-STATs offer competitive differentiation, including modularity, manufacturability, and convenient administration that allows for versatility to treat a broad range of diseases.

While we have demonstrated the potential application of our Immuno-STAT platform in preclinical studies in cancer, chronic infectious disease, and autoimmune disease, we are currently prioritizing and strategically focusing on drug product candidates for treating cancer in our CUE-100 series, which exploits rationally engineered interleukin 2, or IL-2, for selective activation and expansion of tumor-specific T cells. We are actively seeking third party support through partnerships and collaborations, or alternative funding structures, to further develop our programs outside of oncology, including our CUE-200, CUE-300 and CUE-400 series.

Our drug product candidates are in various stages of clinical and preclinical development, and we believe that these candidates have significant potential value, however our activities are also subject to significant risks and uncertainties. We have not yet commenced any commercial revenue-generating operations, have limited cash flows from operations, and will need to access additional capital to fund our growth and ongoing business operations.

The pipeline chart depicted below details our current portfolio of oncology-based assets and their stages of development. We have committed to prioritize and strategically focus on our oncology programs within our IL-2 based CUE-100 series, and we are actively seeking third party support through partnerships and collaborations, or alternative funding structures, to further develop our programs outside of oncology, including our CUE-200, CUE-300 and CUE-400 series.

Through a focused and strategic deployment of resources, we have made significant progress advancing the IL-2-based CUE-100 series for oncology. CUE-101, representative of the CUE-100 series, is our most advanced clinical stage asset, currently being dosed in a second line and beyond Phase 1b monotherapy trial for human papilloma virus, or HPV, driven recurrent/metastatic head and neck cancer, or R/M HNSCC, as well as in a first line Phase 1 combination trial with KEYTRUDA® (anti-PD-1 mab, pembrolizumab), the current standard of care, for R/M HNSCC.

We have completed enrollment of the expansion phase of our monotherapy Phase 1 clinical trial of CUE-101 at the 4mg/kg recommended Phase 2 dose, or RP2D, for the treatment of late-stage treatment-refractory R/M HNSCC patients. These patients had received and failed several prior lines of systemic therapy, including checkpoint inhibitors, or CPIs, such as KEYTRUDA.

To date, CUE-101 as a monotherapy has demonstrated evidence of anti-tumor clinical activity along with a favorable tolerability profile. As of September 23, 2022, of the 19 evaluable patients treated at the RP2D of 4 mg/kg, we observed a confirmed partial response, or PR, lasting for more than 42 weeks and seven patients with durable stable disease, defined as stable disease on at least two consecutive post-treatment scans lasting at least 12 weeks, as shown in the graph below. We have also observed promising preliminary data with respect to CUE-101’s pharmacokinetic, or PK, and pharmacodynamic, or PD, profile, as well as biomarker data with respect to circulating HPV DNA as a potential proxy of immune stimulation that may result in anti-tumor effects. Importantly, to date we have observed an increased trend in median overall patient survival, or mOS, approaching greater than 12 months, i.e. based on a Kaplan-Meier (K-M) analysis estimate of mOS of 13.3 months. We continue to follow the patients treated in the monotherapy trial and anticipate having mature overall survival data by the end of 2022.

Overall Survival in CUE-101 Phase 1 Monotherapy Patients at RP2D as of September 23, 2022

On October 3, 2022, we received Fast Track Designation of CUE-101 for the treatment of R/M HPV+ HNSCC as a monotherapy and in combination with KEYTRUDA. Once we have analyzed the complete data set generated from the CUE-101 Phase 1 monotherapy trial, we plan to define a potential registration trial in mid-2023.

We also continued to make progress with our Phase 1 clinical trial evaluating CUE-101 in combination with Merck Sharp & Dohme Corp., or Merck’s, anti-PD-1 therapy KEYTRUDA. We completed the dose escalation portion of this trial and have enrolled patients in the expansion phase at the RP2D dose of 4mg/kg of CUE-101 in combination with the approved dose of KEYTRUDA. The graph below was presented at the 2022 Society for Immunotherapy of Cancer (SITC) on November 10, 2022, where we reported on first 10 evaluable patients treated with combination therapy at the RP2D of 4mg/kg of CUE-101 and 200mg of KEYTRUDA who had at least one post-dose scan at the time of the data cutoff date. Of these 10 patients, two patients had confirmed ongoing PRs and two patients had unconfirmed PRs as their best response from baseline demonstrating an initial overall response rate, or ORR, for these 10 patients of 40% as of the data cutoff date. In addition, one patient treated with combination therapy at 2mg/kg of CUE-101 and 200mg of KEYTRUDA had durable stable disease, defined as stable disease on at least two consecutive post-treatment scans lasting at least 12 weeks.

Subsequent to the data cutoff date, both of the unconfirmed PRs shown below have been confirmed with a second scan and two of the patients with stable disease have converted to durable stable disease of greater than 12 weeks for a clinical benefit rate, to date,

of 70%. These responses include patients with low PD-L1 expression (combined positive score (CPS) less than 20). Notably, tumor reduction from baseline in the five patients with confirmed PRs was between 35% and 69%.

Best Change from Baseline (CFB) in Patients Treated with CUE-101 in Phase 1 Trial Combination with Pembrolizumab as of September 23, 2022

Best change from baseline (percent of tumor burden compared to baseline) in sum of target lesions for patients treated with CUE-101 + Pembrolizumab with at least 1 post treatment scan as of the data extract date. Data extracted from EDC 20-Oct-22 includes 16 of 17 combination trial patients with at least one post-treatment scan.

We anticipate preliminary ORR data on 20 patients at the RP2D of CUE-101 in combination with KEYTRUDA by the end of the second quarter of 2023 and plan to define a potential registration trial for 1L R/M HPV+ HNSCC by the end of 2023.

We believe the potential activity of CUE-101 with KEYTRUDA is likely due to their complementary mechanisms of action, specifically, CUE-101’s protein engineered design to selectively engage, activate and expand tumor-specific T cells and KEYTRUDA’s mechanism of checkpoint signaling a blockade that prevents the tumor from using PD-1/PDL-1 to shut down activation of T cells. We believe that CUE-101 has the potential to enhance the clinical activity of KEYTRUDA and potentially other CPIs, since the presence of expanded tumor-specific T cells is a pre-requisite for anti-PD-1 therapy. As such, we believe that CUE-101 has the potential to expand patient reach and enhance therapeutic benefit of CPIs.

As the most advanced candidate from our IL-2 based CUE-100 series, CUE-101 is exemplary of the Immuno-STAT platform and underscores the importance of integrating immune activation signals (such as IL-2) on tumor specific T cells to selectively enhance tumor immunity. Importantly, we believe that the CUE-101 clinical data we have generated to date reduces the risk profile of the entire IL-2 based CUE-100 series because the core framework of the CUE-100 series remains essentially the same for each drug product candidate, except for the targeting tumor peptide epitope within the human leukocyte antigen, or HLA pocket, in humans. Therefore, with the exception of some protein engineering modifications to ensure stability and manufacturability, the core IL-2 framework is a shared molecular feature of all molecules generated within this series including CUE-102, and the next-generation platform, Neo-STATTM.

We are also advancing additional development candidates within the CUE-100 series that we believe have the potential to treat multiple cancers with significant potential market opportunities. CUE-102, targets Wilms' tumor-1 protein, or WT1, an oncofetal

antigen known to be over-expressed in more than 20 different cancers, including both solid tumors (such as colorectal, ovarian, pancreatic, gastric and lung) and hematologic malignancies (such as acute myeloid leukemia, multiple myeloma and myelodysplastic syndromes). In April 2022, we received acceptance from the U.S. Food and Drug Administration, or FDA, of our investigational new drug application, or IND, for CUE-102. Based on the premise that CUE-102 shares the same core molecular framework as CUE-101, except for the T cell epitope difference between HPV-E7 and WT1, its IND was supported by clinical and safety data from the ongoing CUE-101 monotherapy trial and did not require additional IND-enabling toxicology studies. We have initiated a Phase 1 monotherapy dose-escalation trial with CUE-102 focused on WT1-positive recurrent/metastatic gastric, pancreatic, ovarian and colorectal cancers at a 1mg/kg dose. We anticipate data from the dose escalation portion of this Phase 1 clinical trial in mid-2023.

Furthermore, based on our foundational preclinical data with Immuno-STATs targeting the clinically important G12V mutated KRAS T cell epitope (including demonstration of selective activation and expansion of T cells expressing G12V-specific T cell receptors), we are now generating additional Immuno-STAT molecules that target KRAS T cell epitopes (G12V/D) presented by both the HLA-A03 and -A11 alleles, which will potentially enhance patient coverage and market reach. We believe that our platform can generate multiple therapeutic molecules to selectively target KRAS-mutated tumor types (such as pancreatic, lung and colorectal cancer). Beyond mutated primary driver oncogenes such as KRAS, we are also generating Immuno-STAT molecules to target cancer epitopes, such as MAGE-A4, that are becoming increasingly validated targets in cancer immune-therapy.

In addition, we have expanded the potential reach of the Immuno-STAT platform to address the heterogeneity and diversity of many cancers by developing a derivative scaffold of the CUE-100 series containing stable “peptide-less” or “empty” HLA molecules, to which defined peptides of interest may be covalently attached. We refer to this derivative scaffold as Neo-STAT™. Neo-STAT is designed to provide greater flexibility for targeting multiple tumor epitopes, and enhance production efficiencies, in turn decreasing time and cost to manufacture and potentially to realize the promise of targeted personalized neo-antigens in cancer immunotherapy. We continue to improve these methods to further increase the potential efficiencies to be gained with Neo-STAT. We have also endeavored to address a primary resistance mechanism found in a subset of solid tumors which escape immune surveillance by a down-regulation of HLA, thereby making the tumor “invisible” to T cells. Our approach entails a derivative of the CUE-100 series referred to as RDI-STAT that takes advantage of the clinical validation of the CUE-100 series from our Immuno-STAT platform, by deploying a targeting moiety on the Fc fragment to bind to a surface protein found on the tumor. Through this approach, we believe we may be able to “paint” the tumor with a viral epitope placed within the HLA pocket of the CUE-100 series Immuno-STAT with the potential of "redirecting" high frequency anti-viral T cells to attack the targeted tumor cells.

Also, in addition to the CUE-100 series, we have leveraged the modularity of the Immuno-STAT platform to develop three additional biologic series outside of oncology: CUE-200, CUE-300, and CUE-400, each specifically designed through rational engineering to possess distinct signaling modules for desired biological mechanisms that may be applied across various diseases. The CUE-200 series is focused on cell surface receptors including CD80 and/or 4-1BBL to harness additional nodes of T cell activation for chronic infections and cancers. The CUE-300 series, for autoimmune diseases, incorporates the inhibitory PD-L1 co-modulator for selective inhibition of the autoreactive T cell repertoire. The CUE-400 series, for autoimmune diseases with diverse or unknown autoantigens, represents a novel class of bispecific molecules designed to selectively induce and expand regulatory T cells, or iTregs. We have determined to prioritize and strategically focus on our oncology programs in our IL-2 based CUE-100 series, and we are actively seeking third party support through partnerships and collaborations, or alternative funding structures, to further develop the CUE-200, CUE-300 and CUE-400 series.

The COVID-19 pandemic prompted governments and regulatory bodies throughout the world to enact restrictions on businesses, public gatherings and travel to minimize the risk of virus transmission in the population. Beginning in March 2020, we undertook precautionary measures intended to help mitigate the risk of virus transmission to our employees, including the establishment of remote working standards, pausing all non-essential travel worldwide for our employees, and limiting employee attendance at industry events and in-person work-related meetings. We have continued some of these policies and procedures in 2022.

We have experienced supply chain disruptions for lab supplies used in our preclinical research as well as delays with some of our CROs. In January 2021, we were notified by our contract manufacturing organization, or CMO, that the manufacture of our good manufacturing practice, or GMP, material for the CUE-102 drug product candidate would be delayed by approximately six weeks due to the invocation of the Defense Production Act, or DPA, which gives priority to the manufacture of vaccines and other drug products used to prevent or treat COVID-19. The delay in the manufacturing of our CUE-102 GMP batch impacted the filing date of the CUE-102 IND that was planned for the fourth quarter of 2021 but was filed on March 31, 2022.

Our technology is in the development phase. We believe that our platforms have the potential for creating a diverse pipeline of promising drug product candidates addressing multiple medical indications. We intend to maximize the value and probability of commercialization of our Immuno-STAT drug product candidates by focusing on researching, testing, optimizing, conducting pilot

studies, performing early-stage clinical development and potentially partnering, where appropriate, for more extensive, later stages of clinical development, as well as seeking extensive patent protection and intellectual property development.

Since we are a development-stage company, the majority of our business activities to date and our planned future activities will be devoted to furthering research and development.

A fundamental part of our corporate development strategy is to establish one or more strategic partnerships with leading pharmaceutical or biotechnology organizations that will allow us to more fully exploit the potential of our technology platform, such as those described below under the headings “Collaboration Agreement with Merck” and “Collaboration Agreement with LG Chem”.

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of our 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 our financial statements, and the reported revenue and expenses during the reported periods. We evaluate these estimates and judgments, including those described below, on an ongoing basis. We base our estimates on historical experience, known trends and events, contractual milestones and 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.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our 2021 Annual Report have the greatest potential impact on our financial statements, so we consider those estimates, assumptions and judgments to be our critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2022.

A discussion of recent accounting pronouncements is included in Note 2 to our consolidated financial statements in this Quarterly Report on Form 10-Q.

Significant Contracts and Agreements Related to Research and Development Activities

On January 14, 2015, we entered into a license agreement, as amended and restated on July 31, 2017, and as amended on October 30, 2018, or the Einstein License, with Albert Einstein College of Medicine, or Einstein, for certain patent rights relating to our core technology platform for the engineering of biologics to control T cell activity, precision, immune-modulatory drug product candidates, and two supporting technologies that enable the discovery of costimulatory signaling molecules (ligands) and T cell targeting peptides.

We hold an exclusive worldwide license, with the right to sublicense, import, make, have made, use, provide, offer to sell, and sell all products, processes and services that use the patents covered by the Einstein License, including certain technology received from Einstein related thereto, or the Licensed Products. Under the Einstein License, we are required to:

As of September 30, 2022, we were in compliance with our obligations under the Einstein License.

The Einstein License expires upon the expiration of the last obligation to make royalty payments to Einstein which may be due with respect to certain Licensed Products, unless terminated earlier under the provisions thereof. The Einstein License includes certain termination provisions that will be triggered if we fail to meet our obligations thereunder.

We account for the costs incurred in connection with the Einstein License in accordance with Accounting Standards Codification, or ASC, 730, Research and Development. For the three months ended September 30, 2022 and 2021, costs incurred with respect to the Einstein License were $0 and $80,000, respectively. For the nine months ended September 30, 2022 and 2021, costs incurred with respect to the Einstein License were $0 and $257,000, respectively. Such costs are included in research and development costs in our consolidated statements of operations and other comprehensive loss.

Pursuant to the Einstein License, we issued to Einstein 671,572 shares of our common stock in connection with the consummation of the initial public offering of our common stock on December 27, 2017.

On November 14, 2017, we entered into an Exclusive Patent License and Research Collaboration Agreement, or the Merck Collaboration Agreement, with Merck Sharp & Dohme Corp., or Merck, for a partnership to research and develop certain of our proprietary biologics that target certain autoimmune disease indications, or the Initial Indications. We viewed the Merck Collaboration Agreement as a strategic component of our development strategy since it has subsidized the research for and advanced our early autoimmune programs through partnership with a world class pharmaceutical company, while allowing us to continue focusing on our more advanced cancer programs. The research program outlined in the Merck Collaboration Agreement entailed (1) our research, discovery and development of certain Immuno-STAT drug product candidates up to the point of demonstration of certain biologically relevant effects, or Proof of Mechanism, and (2) the further development by Merck of the Immuno-STAT drug product candidates that have demonstrated Proof of Mechanism, or the Proposed Product Candidates, up to the point of demonstration of all or substantially all of the properties outlined in such Proposed Product Candidates' profiles as described in the Merck Collaboration Agreement. The research collaboration term under the Merck Collaboration Agreement expired on December 31, 2021. Because we have determined to prioritize and strategically focus on our oncology programs in our IL-2 based CUE-100 series, we are not currently pursuing further development of these Immuno-STAT drug product candidates at this time.

For the purposes of this collaboration, we granted to Merck under the Merck Collaboration Agreement an exclusive license under certain of our patent rights, including a sublicense of patent rights licensed from Einstein, to the extent applicable to the specific Immuno-STAT that were elected to be developed by Merck. So long as Merck continues product development on a Proposed Product Candidate, we are restricted from conducting any development activities within the Initial Indication covered by such Proposed Product Candidate other than pursuant to the Merck Collaboration Agreement.

In exchange for the licenses and other rights granted to Merck under the Merck Collaboration Agreement, Merck paid to us a $2.5 million nonrefundable up-front payment. The Merck Collaboration Agreement required us to deploy the first $2.5 million of milestone payments received under the agreement to fund and support contract research. For the three months ended September 30, 2022 and 2021, we recorded approximately $0 and $293,000, respectively, in collaboration revenue related to the Merck Collaboration Agreement. For the nine months ended September 30, 2022 and 2021, we recorded approximately $0 and $1,762,000, respectively, in collaboration revenue related to the Merck Collaboration Agreement. We did not record short or long-term research and development liabilities on our balance sheet dated September 30, 2022 and December 31, 2021, as the performance obligation was completed on December 31, 2021.

Effective November 6, 2018, we entered into a collaboration agreement with LG Chem Ltd., or LG Chem, which we refer to as the LG Chem Collaboration Agreement, related to the development of Immuno-STATs focused in the field of oncology.

Pursuant to the LG Chem Collaboration Agreement, we granted LG Chem an exclusive license to develop, manufacture and commercialize our lead product, CUE-101, as well as Immuno-STATs that target T cells against two additional cancer antigens, or Product Candidates (to be elected within a defined timeframe), in Australia, Japan, Republic of Korea, Singapore, Malaysia, Vietnam, Thailand, Philippines, Indonesia, China (including Macau and Hong Kong) and Taiwan, which we refer to collectively as the LG Chem Territory. On December 20, 2018, we reported the selection of WT1 as the first target antigen for a Product Candidate under the LG Chem Collaboration Agreement. In June 2021, after ongoing negotiations regarding the selection of the second of the two additional cancer antigens, we decided, along with LG Chem, to allow the defined selection period to expire without a second antigen being selected. We retain rights to develop and commercialize all assets included in the LG Chem Collaboration Agreement in the United States and in global markets outside of the LG Chem Territory. Under the LG Chem Collaboration Agreement, we will engineer the selected Immuno-STATs for up to three alleles, which are expected to include the predominant alleles in the LG Chem Territory, thereby enhancing our market reach by providing for greater patient coverage of populations in global markets, while LG Chem will establish a chemistry, manufacturing and controls, or CMC, process for the development and commercialization of selected Product Candidates. The LG Chem Collaboration Agreement provided LG Chem with the option to select one additional Immuno-STAT for an oncology target, or an Additional Immuno-STAT, for an exclusive worldwide development and commercialization license. On December 18, 2019, we and LG Chem entered into a global license and collaboration agreement, which was amended on November 5, 2020. We refer to such agreement, as amended, as the Global License and Collaboration Agreement. The Global License and Collaboration Agreement supersedes the provisions of the LG Chem Collaboration Agreement related to LG Chem’s option for an Additional Immuno-STAT but generally does not become effective unless and until LG Chem exercises its option, other than certain select provisions including the length of the option period and representations, warranties and covenants of the parties. On April 30, 2021, LG Chem’s option pursuant to the Global License and Collaboration Agreement, expired, and accordingly the Global License and Collaboration Agreement no longer contains any material obligations of ours including the option to co-develop and co-commercialize the additional program worldwide.

Under the terms of the LG Chem Collaboration Agreement, LG Chem paid us a $5.8 million non-refundable, non-creditable up-front payment and purchased approximately $5.0 million of shares of our common stock at a price per share equal to a 20% premium to the volume weighted-average closing price per share over the 30 trading day period immediately prior to the effective date of the LG Chem Collaboration Agreement. We are also eligible to receive additional aggregate payments of up to approximately $400.0 million if certain research, development, regulatory and commercial milestones are successfully achieved. On May 16, 2019, we earned a $2.5 million milestone payment for FDA acceptance of the IND for our lead drug product candidate, CUE-101, pursuant to the LG Chem Collaboration Agreement. On December 7, 2020, we earned a $1.25 million milestone payment on the selection of a pre-clinical candidate pursuant to the LG Chem Collaboration Agreement. On November 23, 2021, we earned a $3.0 million milestone on the confirmation of the Collaboration Product Candidate. In addition, the LG Chem Collaboration Agreement also provides that LG Chem will pay us tiered single-digit royalties on net sales of commercialized Product Candidates, or Collaboration Products, in the LG Chem Territory on a product-by-product and country-by-country basis, until the later of expiration of patent rights in a country, the expiration of regulatory exclusivity in such country, or ten years after the first commercial sale of a Collaboration Product in such country, subject to certain royalty step-down provisions set forth in the LG Chem Collaboration Agreement.

Pursuant to the LG Chem Collaboration Agreement, the parties will share research costs related to Collaboration Products, and LG Chem will provide CMC process development for selected Product Candidates and potentially additional downstream manufacturing capabilities, including clinical and commercial supply for Collaboration Products. In return for performing CMC process development, LG Chem is eligible to receive low-single digit royalty payments on the sales of Collaboration Products sold in all countries outside the LG Chem Territory. The amount of fees and milestone payments, as well as whether we receive royalty payments, will depend on the development of the Collaboration Products in the LG Chem Territory by LG Chem. For the three months ended September 30, 2022 and 2021, we recognized revenue of approximately $68,000 and approximately $2,102,000 respectively, related to the LG Chem Collaboration Agreement. For the nine months ended September 30, 2022 and 2021, we recognized revenue of approximately $1,094,000 and approximately $4,925,000, respectively, related to the LG Chem Collaboration Agreement. As of September 30, 2022, we recorded short-term research and development liabilities on our balance sheet of $0. As of December 31, 2021, we recorded short- and long-term research and development liabilities on our balance sheet of approximately $645,000. The majority of the research phase of the collaboration agreement was substantially complete on March 31, 2022.

The LG Chem Collaboration Agreement includes various representations, warranties, covenants, indemnities and other customary provisions. LG Chem may terminate the LG Chem Collaboration Agreement for convenience or in the event we undergo a change of control on a program-by-program, product-by-product or country-by-country basis, or in its entirety, at any time following the notice period set forth in the LG Chem Collaboration Agreement. Either party may terminate the LG Chem Collaboration Agreement, in its entirety or on a program-by-program, product-by-product or country-by-country basis, in the event of an uncured material breach. The LG Chem Collaboration Agreement is also terminable by either party (i) upon the bankruptcy, insolvency or liquidation of the other party or (ii) for certain activities involving the challenge of certain patents controlled by the other party. Unless earlier terminated, the LG Chem Collaboration Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the applicable royalty term.

We have not generated commercial revenue from product sales. To date, we have generated collaboration revenue from the Merck Collaboration Agreement and the LG Chem Collaboration Agreement. Collaboration revenue may vary from period to period depending on the progress of our work in connection with either or both of our collaboration agreements.

We generally recognize operating expenses as they are incurred in two general categories, general and administrative expenses and research and development expenses. Our operating expenses also include non-cash components related to depreciation and amortization of property and equipment and stock-based compensation, which are allocated, as appropriate, to general and administrative expenses and research and development expenses.

General and administrative expenses consist of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as professional fees, insurance costs, and other general corporate expenses. We expect general and administrative expenses to increase in future periods as we incur additional expenses related to our operation as a public company which requires our compliance with certain regulatory and legal procedures. We expect activities supporting our operations including legal, accounting, insurance, employee compensation and other expenses to increase.

Research and development expenses consist primarily of compensation expenses, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility expenses, and development and clinical trial expenses with respect to our drug product candidates. We charge research and development expenses to operations as they are incurred. We expect research and development expenses to increase in the future as we continue to advance the clinical development of CUE-101 and CUE-102, including our ongoing and planned clinical trials, and develop potential future products based on our technology and research. We also believe that rising inflation, supply chain disruptions and labor shortages may also contribute to increased research and development costs.

Our consolidated statements of operations and other comprehensive loss for the three and nine months ended September 30, 2022 and 2021, as discussed herein, are presented below.

Collaboration revenue was $68,000 and $2,395,000 for the three months ended September 30, 2022 and 2021, respectively. We recognized collaboration revenue of $1,094,000 and $6,687,000 for the nine months ended September 30, 2022 and 2021,

respectively. The decrease of approximately $2,327,000 and $5,593,000 during the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, respectively, was due to the expiration of the research collaboration term under the Merck Collaboration Agreement on December 31, 2021 and the completion of the research phase under the LG Chem collaboration at March 31, 2022. All collaboration revenue recognized was related to the performance of services under our collaboration agreements with Merck and LG Chem.

General and administrative expenses totaled $3,528,000 and $4,125,000 for the three months ended September 30, 2022 and 2021, respectively. This decrease of $597,000 during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was due primarily to lower stock-based compensation related to executive management, professional and consulting fees, as well as a decrease in rent expense and overhead.

General and administrative expenses for the three months ended September 30, 2022 consisted of expenses related to employee and board compensation of $1,140,000, stock-based compensation of $1,003,000, professional and consulting fees of $906,000, rent of $182,000, insurance expense of $95,000 and other expenses of $202,000. General and administrative expenses for the three months ended September 30, 2021 consisted of expenses related to professional and consulting fees of $1,319,000, stock-based compensation of $1,199,000, employee and board compensation of $1,064,000, rent of $263,000, insurance expense of $85,000, and other expenses of $195,000.

General and administrative expenses totaled $12,465,000 and $12,660,000 for the nine months ended September 30, 2022 and 2021, respectively. This decrease of $195,000 was due primarily to lower professional and consulting and legal expenses.

General and administrative expenses for the nine months ended September 30, 2022 consisted of expenses related to employee and board compensation of $3,682,000, stock-based compensation of $3,650,000, professional and consulting fees of $3,555,000, rent of $716,000, insurance expense of $267,000, and other expenses of $595,000. General and administrative expenses for the nine months ended September 30, 2021 consisted of expenses related to professional and consulting fees of $4,065,000, stock-based compensation of $3,662,000, employee and board compensation of $3,221,000, rent expense of $800,000, insurance expense of $254,000, and other expenses of $658,000.

Research and development expenses totaled $7,571,000 and $11,288,000 for the three months ended September 30, 2022 and 2021, respectively. This decrease of $3,717,000 during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was due primarily to lower laboratory and drug substance manufacturing costs, as well as lower stock-based compensation, other professional fees, and licensing fees.

Research and development expenses for the three months ended September 30, 2022 included expenses related to employee compensation of $2,368,000, clinical expenses of $1,495,000, research and laboratory expenses of $1,286,000, stock-based compensation expense of $1,061,000, rent of $677,000, insurance expense of $252,000, depreciation and amortization of $196,000, and other expenses of $236,000. Research and development expenses for the three months ended September 30, 2021 included expenses related to research and laboratory expenses of $3,551,000, employee compensation of $2,473,000, stock-based compensation expense of $2,053,000, clinical expenses of $1,109,000, rent of $959,000, depreciation and amortization of $291,000, insurance expense of $251,000, other professional fees of $199,000, and other expenses of $402,000.

Research and development expenses totaled $27,246,000 and $29,846,000 for the nine months ended September 30, 2022 and 2021, respectively. This decrease of $2,600,000 was due primarily to lower laboratory and drug substance manufacturing costs, as well as lower stock-based compensation, other professional fees, and licensing fees, offset by increased clinical trial fees related to CUE-101 and CUE-102 trials.

Research and development expenses for the nine months ended September 30, 2022, included expenses related to employee compensation of $7,920,000, research and laboratory expenses of $5,619,000, clinical expenses of $4,570,000, stock-based compensation of $3,734,000, rent of $2,592,000, insurance expense of $756,000, depreciation and amortization of $687,000, and other expenses of $1,368,000. Research and development expenses for the nine months ended September 30, 2021 included research and laboratory expenses of $7,805,000, employee compensation of $7,354,000, stock-based compensation of $4,879,000, clinical expenses of $3,263,000, rent of $2,867,000, other professional fees of $1,223,000, depreciation and amortization of $868,000, insurance expense of $735,000, licensing fees of $221,000, and other expenses of $631,000.

Gain on right-of-use asset termination was $0 and $258,000 for the three and nine months ended September 30, 2022, respectively. Gain on right-of use asset termination was $0 for the three and nine months ended September 30, 2021, respectively. This increase of $258,000 for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was due to the gain on right-of-use asset related to the termination of our operating lease agreement for our laboratory and office space in Cambridge, Massachusetts at 21 Erie Street, effective on April 30, 2022.

Interest income was $200,000 and $25,000 for the three months ended September 30, 2022 and 2021, respectively. This increase of $175,000 was primarily due to higher interest yields on our cash and cash equivalents during the three months ended September 30, 2022.

Interest income was $296,000 and $42,000 for the nine months ended September 30, 2022 and 2021, respectively. This increase of $254,000 was primarily due to higher interest yields on our cash and cash equivalents during the nine months ended September 30, 2022.

Interest expense was $124,000 and $0 for the three months ended September 30, 2022 and 2021, respectively. This increase of $124,000 was primarily due to cash paid for interest expense related to the proceeds from borrowings under our Loan and Security Agreement, or the Loan Agreement, with Silicon Valley Bank, or SVB, of $216,000, and amortization of deferred issuance costs of $9,000, offset by amortization/accretion on investments of $101,000.

Interest expense was $355,000 and $0 for the nine months ended September 30, 2022 and 2021, respectively. This increase of $355,000 was primarily due to cash paid for interest expense related to the proceeds from borrowings under our Loan Agreement of $430,000, and amortization of deferred issuance costs of $22,000, offset by amortization/accretion on investments of $101,000.

We have financed our working capital requirements primarily through private and public offerings of equity securities, cash received from Merck and LG Chem under the respective collaboration agreements and borrowings under the Loan Agreement. At September 30, 2022, we had cash, cash equivalents, and marketable securities totaling $59,183,000 available to fund our ongoing business activities. Additional information concerning our financial condition and results of operations is provided in the financial statements included in this Quarterly Report on Form 10-Q.

The amounts that we actually spend for any specific purpose may vary significantly and will depend on a number of factors, including, but not limited to, our research and development activities and programs, clinical testing, regulatory approval, market conditions, and changes in or revisions to our business strategy and technology development plans.

In March 2020, we entered into an at-the-market, or ATM, equity offering sales agreement, or the March 2020 Sales Agreement, with Stifel Nicolaus & Company, Inc., or Stifel, to sell shares of our common stock for aggregate gross proceeds of up to $35.0 million, from time to time, through an “at-the-market” equity offering program under which Stifel acts as sales agent. As of September 30, 2022, we had sold a total of 1,824,901 shares of common stock under the March 2020 Sales Agreement for proceeds of $34.3 million, net of commissions paid, but excluding estimated transaction expenses. Due to the issuance and sale of all the shares of common stock subject thereto, the March 2020 Sales Agreement terminated in accordance with its terms.

On June 22, 2020, we filed a registration statement on Form S-3ASR, which became automatically effective upon filing with the SEC (File No. 333-239357), or the 2020 Shelf, to register for sale from time to time up to $300.0 million of our common stock, preferred stock, debt securities, warrants, rights and/or units in one or more offerings.

In June 2020, we entered into an ATM equity offering sales agreement, or the June 2020 ATM Agreement, with Stifel to sell shares of our common stock for aggregate gross proceeds of up to $40.0 million, from time to time, through an “at-the-market” equity offering program under which Stifel acted as sales agent. As of September 30, 2022, we have sold 907,700 shares of common stock under the June 2020 ATM Agreement for proceeds of $10.4 million, net of commissions paid, but excluding transaction expenses. The June 2020 ATM Agreement was terminated prior to entering into the October 2021 ATM Agreement (as defined below).

In October 2021, we entered into an open market sale agreement, or the October 2021 ATM Agreement, with Jefferies LLC, or Jefferies, to sell shares of our common stock for aggregate gross proceeds of up to $80.0 million, from time to time, through an ATM

equity offering program under which Jefferies acts as sales agent. The October 2021 ATM Agreement will terminate upon the earliest of (a) the sale of $80.0 million of shares of our common stock pursuant to the October 2021 ATM Agreement or (b) the termination of the October 2021 ATM Agreement by us or Jefferies. During the three and nine months ended September 30, 2022, we sold 0 and 3,117,220 shares, respectively, of common stock under the October 2021 ATM Agreement for proceeds of approximately $0, and $16,598,000 net of commission paid, but excluding transaction expenses, respectively. As of September 30, 2022, we had sold an aggregate of 3,593,407 shares of common stock under the October 2021 ATM Agreement for proceeds of approximately $23.6 million, net of commissions paid, but excluding transaction expenses.

On February 15, 2022, we entered into the Loan Agreement, pursuant to which we have borrowed $10.0 million. We also may be able to borrow, at our option, an additional $10.0 million, if we reach certain milestone events. The term loans under the Loan Agreement, or the Term Loans, bear interest at a floating rate per annum equal to the greater of (A) the prime rate (as published in the money rates section of The Wall Street Journal) plus 2.25% and (B) 5.50%. On the first calendar day of each month, we will be required to make monthly interest payments and commencing on June 30, 2023 (extended to December 31, 2023, if the additional term loans are advanced), we will be required to repay the Term Loans in (i) 30 consecutive installments of principal plus monthly payments of accrued interest if the additional term loans are not advanced and (ii) 24 months if the additional term loans are advanced. All outstanding principal and accrued and unpaid interest under the Term Loans and all other outstanding obligations with respect to the Term Loans are due and payable in full on December 1, 2025.

The Loan Agreement permits voluntary prepayment of all, but not less than all, of the Term Loans, subject to a prepayment premium except if the facility is refinanced with another SVB facility. Such prepayment premium would be 3.00% of the principal amount of the Term Loans if prepaid prior to the first anniversary of the date on which we entered the Loan Agreement, 2.00% of the principal amount of the Term Loan if prepaid on or after the first anniversary of the date on which we entered the Loan Agreement but prior to the second anniversary of the date on which we entered the Loan Agreement, and 1.00% of the principal amount of the Term Loan if prepaid on or after the second anniversary of the date on which we entered the Loan Agreement. Upon prepayment or repayment in full of the Term Loans, we will be required to pay a one-time final payment fee equal to 5.00% of the original principal amount of any funded Term Loans being repaid.

On November 14, 2022, we entered into securities purchase agreements with accredited investors pursuant to which we agreed to issue and sell to such investors in a private placement an aggregate of 7,656,966 shares of common stock and, in lieu of shares of common stock to certain investors, pre-funded warrants, or Pre-Funded Warrants, to purchase an aggregate of 1,531,440 shares of common stock, and, in each case, accompanying warrants, or Warrants, to purchase an aggregate of up to 9,188,406 additional shares of common stock (or Pre-Funded Warrants in lieu thereof) at a price of $3.265 per share and accompanying Warrant (or $3.2649 per Pre-Funded Warrant and accompanying Warrant), or the PIPE financing. The exercise price of the Warrants is $3.93 per share, or if exercised for a Pre-Funded Warrant in lieu thereof, $3.9299 per Pre-Funded Warrant. The Warrants are exercisable at any time after they are issued and ending on the fifth anniversary of the closing. The Pre-Funded Warrants are exercisable at any time after they are issued and will not expire. The transaction is expected to close on or about November 16, 2022, subject to the satisfaction of customary closing conditions. We expect to receive aggregate gross proceeds from the PIPE financing of approximately $30 million, before deducting placement agent fees and offering expenses. Piper Sandler & Co. acted as lead placement agent and Public Ventures LLC acted as co-placement agent for the PIPE financing.

If we issue additional equity securities to raise funds, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. If we issue debt securities, we may be required to grant security interests in our assets, could have substantial debt service obligations, and lenders may have a senior position (compared to stockholders) in any potential future bankruptcy or liquidation. Additionally, corporate collaboration and licensing arrangements may require us to incur non-recurring and other charges, give up certain rights relating to our intellectual property and research and development activities, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, issue debt which may require liens on our assets and which will increase our monthly expense obligations, or disrupt our management and business.

The following table summarizes our changes in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2022 and 2021:

During the nine months ended September 30, 2022 and 2021, we used cash of $31,292,000 and $28,192,000, respectively, to fund our operating activities. Cash used in operating activities during the nine months ended September 30, 2022 consisted primarily of our net loss of $38,418,000 and decreases of $741,000 in accrued expenses, $645,000 in research and development contract liability, $258,000 in gain on right-of-use asset termination, $546,000 in accounts payable, $395,000 in deposits, $397,000 in operating lease liability, $101,000 in amortization of discount on purchased securities, $3,000 in accrued interest on purchased securities, and $846,000 in prepaid expenses and other current assets. Cash used in operating activities was partially offset by increases of $7,384,000 in stock-based compensation, $507,000 in amortization of operating lease right-of-use asset, $21,000 in amortization of debt issuance costs, $76,000 in accretion on final payment of term loan, $719,000 in depreciation and amortization, $2,347,000 in accounts receivable, and $4,000 in loss on disposal of fixed assets.

Cash used in operating activities during the nine months ended September 30, 2021 consisted primarily of our net loss of $35,777,000, and decreases of $3,513,000 in operating lease liability, $3,354,000 in research and development contract liability, $867,000 in prepaid expenses and other current assets. Cash used in operating activities was partially offset by increases of $8,541,000 in stock-based compensation, $3,405,000 in change in operating lease right-of-use asset, $1,202,000 in accrued expenses, $948,000 in depreciation and amortization, $646,000 in accounts receivable, $400,000 in accounts payable and $250,000 in other assets.

During the nine months ended September 30, 2022, our investing activities used $29,609,000 in cash, compared to cash provided by investing activities of $9,108,000 during the nine months ended September 30, 2021. This decrease of $38,717,000 in cash from investing activities was primarily due to the purchase of short-term investments in marketable securities partially offset by purchases of property and equipment. Cash used in investing activities during the nine months ended September 30, 2022 consisted of the purchase of property and equipment of $170,000, and the purchase of short-term investments in marketable securities of $29,500,000, offset by cash received from the sale of fixed assets of $6,000. Cash provided by investing activities during the nine months ended September 30, 2021 consisted of $10,000,000 for the redemption of short-term investments and $21,000 of cash received on the sale of fixed assets, offset by the purchase of property and equipment of $913,000.

During the nine months ended September 30, 2022 and 2021, we generated cash from financing activities of $26,256,000 and $11,851,000, respectively, an increase of $14,405,000. Cash from financing activities during the nine months ended September 30, 2022 consisted of cash proceeds from the sale of common stock pursuant to the October 2021 ATM Agreement of $16,598,000 net of sales agent commissions and fees, and proceeds from borrowings under the Loan Agreement of $10,000,000, partially offset by cash used for restricted stock buy-back at vesting of $200,000 and payment of debt issuance costs of $142,000. Cash from financing activities during the nine months ended September 30, 2021, consisted of cash proceeds of $10,357,000 from the common stock sold through the June 2020 Sales Agreement, net of sales agent commissions and fees, and exercises of common stock options of $2,061,000, offset by cash used of $567,000 to pay taxes related to restricted stock withheld at vesting.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of our Immuno-STAT platform, continue ongoing and initiate new clinical trials of and seek marketing approval for our drug product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we:

In the first quarter of 2022, we determined to prioritize and strategically focus on our oncology programs in our CUE-100 series. We are actively seeking third party support through partnerships and collaborations, or alternative funding structures, to further develop our programs outside of oncology, including our CUE-200, CUE-300 and CUE-400 series. We also determined to take proactive steps to decrease our office and lab footprint and to restructure our Research and Development functions in support of prioritized corporate objectives and strategies. These steps have realized cost savings to date that have been allocated to our key programs.

We believe that our existing cash, cash equivalents and marketable securities as of September 30, 2022 will enable us to fund our operating requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market drug product candidates that we would otherwise prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue our operations. Because of numerous risks and uncertainties associated with the research, development and commercialization of our drug product candidates, we are unable to estimate the exact amount of our working capital requirements. Factors that may affect our planned future capital requirements and accelerate our need for additional working capital include the following:

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

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. If we raise additional funds by selling shares of our common stock or other equity-linked securities, the ownership interest of our current stockholders will be diluted. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or drug product candidates or to grant licenses on terms that may not be acceptable to us. If we raise additional funds through debt financing, we may have to grant a security interest on our assets to the future lenders, our debt service costs may be substantial, and the lenders may have a preferential position in connection with any future bankruptcy or liquidation.

If we are unable to raise additional capital when needed, we may be required to curtail the development of our technology or materially curtail or reduce our operations. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, results of operation and financial condition, including the possibility that a lack of funds could cause our business to fail, dissolve and liquidate with little or no return to investors.

During the three and nine months ended September 30, 2022, there were no material changes to our contractual obligations and commitments as of December 31, 2021 described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report, other than our entry into a new headquarters lease more fully described in Note 11 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

As a smaller reporting company, we are not required to provide the information required by this Item 3.

We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management’s evaluation (with the participation of our principal executive officer and our principal financial officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022, the end of the period covered by this report.

Our management, including our principal executive officer and our principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of control effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

There were no changes in our internal control over financial reporting during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In evaluating us and our business, you should carefully consider the information included in this Quarterly Report on Form 10-Q and in other documents we file with the SEC and the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of our 2021 Annual Report.

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.


i Delaware		i 47-3324577
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

i 40 Guest Street i Boston, i Massachusetts		i 02135
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
i Common Stock, par value $0.001 per share	i CUE	i Nasdaq Capital Market


Large accelerated filer	¨	Accelerated filer	¨

i Non-accelerated filer	☒	Smaller reporting company	i ☒

Emerging growth company	i ☒


	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	i 29,726		$	i 64,371
Marketable securities		i 29,457			i —
Accounts receivable		i 796			i 3,143
Prepaid expenses and other current assets		i 1,721			i 955
Total current assets		i 61,700			i 68,469
Property and equipment, net		i 1,642			i 2,112
Operating lease right-of-use		i 9,561			i 9,810
Deposits		i 3,116			i 2,721
Restricted cash		i 150			i 150
Other long-term assets		i 131			i 140
Total assets	$	i 76,300		$	i 83,401
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	i 2,045		$	i 2,591
Accrued expenses		i 3,879			i 4,620
Research and development contract liability, current portion		i —			i 645
Operating lease liability, current portion		i 3,335			i 4,932
Current portion of long-term debt, net		i 963			i —
Total current liabilities		i 10,222			i 12,788
Operating lease liability, net of current portion		i 6,321			i 5,121
Long-term debt, net		i 8,993			i —
Total liabilities	$	i 25,536		$	i 17,909
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $ i i 0.001 / par value; i i 10,000,000 / shares authorized and i i i i 0 / / / shares issued and outstanding at September 30, 2022 and December 31, 2021		i —			i —
Common stock, $ i i 0.001 / par value; i i 100,000,000 / shares authorized; i i 35,385,582 / and i i 32,202,496 / shares issued and outstanding, at September 30, 2022 and December 31, 2021, respectively		i 35			i 32
Additional paid in capital		i 286,685			i 262,906
Accumulated other comprehensive loss		( i 92	)		i —
Accumulated deficit		( i 235,864	)		( i 197,446	)
Total stockholders’ equity		i 50,764			i 65,492
Total liabilities and stockholders’ equity	$	i 76,300		$	i 83,401


	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities
Net loss	$	( i 38,418	)	$	( i 35,777	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		i 719			i 948
Stock-based compensation		i 7,384			i 8,541
Amortization of operating lease right-of-use asset		i 507			i 3,405
Gain on right-of-use asset termination		( i 258	)
Loss (gain) on disposal of fixed assets		i 4			( i 21	)
Amortization of premium/discount on purchased securities		( i 101	)		( i 5	)
Amortization of debt issuance costs		i 21			i —
Accretion of final payment on term loan		i 76			i —
Changes in operating assets and liabilities:
Accounts receivable		i 2,347			i 646
Prepaid expenses and other current assets		( i 846	)		( i 867	)
Other assets		i —			i 250
Deposits		( i 395	)		( i 47	)
Accounts payable		( i 546	)		i 400
Accrued expenses		( i 741	)		i 1,202
Research and development contract liability		( i 645	)		( i 3,354	)
Operating lease liability		( i 397	)		( i 3,513	)
Accrued interest		( i 3	)		i —
Net cash used in operating activities		( i 31,292	)		( i 28,192	)
Cash flows from investing activities
Purchases of property and equipment		( i 170	)		( i 913	)
Cash received from the sale of fixed asset		i 6			i 21
Redemption of short-term investments		i —			i 10,000
Purchase of short-term investments		( i 29,445	)		i —
Net cash (used in) provided by investing activities		( i 29,609	)		i 9,108
Cash flows from financing activities
Proceeds from ATM offering, net of sales agent commission and fees		i 16,598			i 10,357
Proceeds from borrowings under term loan		i 10,000			i —
Proceeds from exercise of stock options		i —			i 2,061
Payment of debt issuance costs		( i 142	)		i —
Restricted stock awards withheld at vesting to cover taxes		( i 200	)		( i 567	)
Net cash provided by financing activities		i 26,256			i 11,851
Net decrease in cash, cash equivalents, and restricted cash		( i 34,645	)		( i 7,233	)
Cash, cash equivalents, and restricted cash at beginning of period		i 64,521			i 75,016
Cash, cash equivalents, and restricted cash at end of period	$	i 29,876		$	i 67,783
Supplemental disclosures of non-cash investing and financing activities:
Income taxes	$	i —		$	i 206
Cash paid for interest	$	i 354		$	i —
Right-of-use asset and lease liability (new lease)	$	i 9,057		$	i —
Operating lease modification	$	i 7,119		$	i —

Cue Biopharma, Inc. – ‘10-Q’ for 9/30/22

On: Monday, 11/14/22, at 4:11pm ET · For: 9/30/22 · Accession #: 950170-22-24991 · File #: 1-38327

Previous ‘10-Q’: ‘10-Q’ on 8/4/22 for 6/30/22 · Next: ‘10-Q’ on 5/9/23 for 3/31/23 · Latest: ‘10-Q’ on 11/3/23 for 9/30/23 · 5 References:

Quarterly Report — Form 10-Q

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(in thousands)						(in thousands)
Collaboration revenue	$	68		$	2,395		$	1,094		$	6,687
Operating expenses:
General and administrative		3,528			4,125			12,465			12,660
Research and development		7,571			11,288			27,246			29,846
Gain on right-of-use asset termination		-			—			(258	)		—
Total operating expenses		11,099			15,413			39,453			42,506
Loss from operations		(11,031	)		(13,018	)		(38,359	)		(35,819	)
Other (expense) income:
Interest income, net		200			25			296			42
Interest expense, net		(124	)		—			(355	)		—
Total other (expense) income		76			25			(59	)		42
Net loss	$	(10,955	)	$	(12,993	)	$	(38,418	)	$	(35,777	)
Unrealized loss from available-for-sale securities		(92	)		—			(92	)		(7	)
Comprehensive loss	$	(11,047	)	$	(12,993	)	$	(38,510	)	$	(35,784	)
Net loss per common share – basic and diluted	$	(0.31	)	$	(0.41	)	$	(1.11	)	$	(1.16	)
Weighted average common shares outstanding – basic and diluted		35,383,430			31,315,178			34,471,499			31,064,579


		Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Exhibit	Filing Date	Registration/File No.
10.1	Termination of License Agreement, dated September 9, 2022, between Cue Biopharma, Inc. and MIL 21E, LLC	X
10.2	Rider to License Agreement, dated as of July 7, 2022, between Cue Biopharma, Inc. and MIL 40G, LLC		10-Q	10.2	8/4/22	001-38327
31.1	Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	X
31.2	Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	X
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS	Inline eXtensible Business Reporting Language (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.	X
101.SCH	Inline XBRL Taxonomy Extension Schema Document	X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	X
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL.	X


	Cue Biopharma, Inc.


Dated: November 14, 2022	By:	/s/ *Daniel R. Passeri*

		Daniel R. Passeri Chief Executive Officer and Director (Principal Executive Officer)

Dated: November 14, 2022	By:	/s/ *Kerri-Ann Millar*

		Kerri-Ann Millar Chief Financial Officer (Principal Financial and Accounting Officer)

This ‘10-Q’ Filing	Date	Other Filings

	4/14/26
	12/1/25
	12/1/24
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	2/15/24
	12/31/23
	10/15/23
	6/30/23
	2/15/23
	12/31/22
	12/26/22
	12/15/22
	12/6/22
	12/1/22
	11/16/22
Filed on:	11/14/22
	11/10/22
	11/1/22
	10/15/22
	10/3/22
For Period end:	9/30/22
	9/23/22
	9/9/22
	7/15/22
	6/30/22	10-Q
	6/15/22
	6/14/22	4
	5/31/22	4
	5/3/22
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	4/15/22
	3/31/22	10-Q, 4
	3/28/22	8-K
	3/16/22	10-K, S-8
	2/15/22	8-K
	1/25/22
	12/31/21	10-K
	11/23/21
	10/22/21
	9/30/21	10-Q, 4
	6/30/21	10-Q
	4/30/21
	4/14/21
	12/31/20	10-K, 5
	12/7/20
	11/5/20
	8/21/20	4, 8-K
	8/4/20
	7/20/20
	6/24/20	4, 8-K
	6/22/20	424B5, 8-K, S-3ASR
	5/14/20
	3/31/20	10-Q, 4
	2/5/20	4
	12/18/19	SC 13D
	10/3/19	3, 4, 8-K
	10/1/19
	9/19/19
	5/16/19
	1/1/19
	12/31/18	10-K, 10-K/A, 4, 5
	12/20/18	4
	11/6/18	8-K, 8-K/A
	10/30/18
	10/15/18
	9/20/18
	6/18/18	8-K
	5/31/18
	5/15/18
	5/1/18	3
	1/18/18
	12/27/17	3, 4, 8-K
	11/14/17	UPLOAD
	7/31/17
	6/15/15
	1/14/15
	1/1/15
	12/31/14
		List all Filings

Cue Biopharma, Inc. – ‘10-Q’ for 9/30/22

On: Monday, 11/14/22, at 4:11pm ET · For: 9/30/22 · Accession #: 950170-22-24991 · File #: 1-38327

Quarterly Report — Form 10-QFiling Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

1 Previous Filing that this Filing References

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents