Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 10-K"), filed with the Securities and Exchange Commission (the "SEC") on February 27, 2025. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Please also refer to those factors described in "Part I, Item 1A. Risk Factors" of our 2024 10-K and "Part II. Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company developing potential first- or best-in-class, high-impact therapies for autoimmune diseases and cancer. Our strategy is to identify high-impact targets, which we define as those that inhibit key drivers of disease or harness the immune system to eliminate diseased cells in both autoimmune diseases and cancer, and then select what we believe is the optimal therapeutic modality for those targets. We source innovation both internally and externally, focusing on product candidates with novel technology or differentiated mechanisms. Before we advance a product candidate into clinical development, we evaluate its potential for activity as a single agent as well as its ability to generate an immune response or to inhibit disease processes. Using this strategy, we have built a pipeline of targeted immunology and oncology product candidates that aim to maximize therapeutic potential for patients.

Immunology

Oncology

Preclinical Programs

In addition to the product candidates described above, we are actively developing several preclinical programs by leveraging our own internal expertise and through partnerships with external collaborators.

Recently Discontinued Programs

CLN-619 is a monoclonal antibody that stabilizes expression of MICA/B on the tumor cell surface to promote tumor cell lysis mediated by both cytotoxic innate and adaptive immune cells that we were evaluating in Phase 1 clinical trials. In May 2025, following a review of the CLN-619 data from the disease-specific expansion cohorts for endometrial and cervical cancers, we announced discontinuation of further development of CLN-619 in patients with gynecological cancers as preliminary results did not meet our internal threshold for advancement. In November 2025, after a review of the emerging clinical data in patients with NSCLC and multiple myeloma, we decided not to pursue further development of CLN-619.

CLN-617 is a fusion protein combining two potent antitumor cytokines, interleukin-2 and interleukin-12, with tumor retention domains for the treatment of solid tumors that we were evaluating in a Phase 1 clinical trial. In November 2025, after a review of the emerging clinical data in patients with advanced solid tumors, we decided not to pursue further development of CLN-617.

Previously, we were evaluating CLN-418, a fully human bispecific immune activator targeting B7H4 and 4-1BB that we licensed from Harbour BioMed US Inc. ("Harbour"), in a Phase 1 clinical trial. In August 2024, following a review of the data from the Phase 1 clinical trial, we notified Harbour of our decision to terminate the license and collaboration agreement for CLN-418 (the "Harbour License Agreement"), effective November 2024. In connection with the termination of the Harbour License Agreement, we discontinued development of CLN-418 and returned development and commercial rights for CLN-418 to Harbour to focus our resources on our other product candidates.

Intellectual Property

We hold the worldwide intellectual property rights for CLN-978 and the worldwide, excluding mainland China, Hong Kong, Macau and Taiwan (collectively referred to as "greater China"), intellectual property rights for velinotamig. We also hold the worldwide intellectual property rights or exclusive options for worldwide intellectual property for our early-stage programs. We have a controlling interest in the worldwide intellectual property rights for CLN-619, CLN-049, and CLN-617. We are co-developing zipalertinib, for which Taiho holds the intellectual property rights, with an affiliate of Taiho. The following table shows our ownership interest as of September 30, 2025 in product candidates in which we have a controlling interest in the worldwide intellectual property rights:

Financing and Business Operations

Since our inception in 2016, we have focused all of our efforts and financial resources on raising capital, organizing and staffing our company, identifying, acquiring or in-licensing and developing product and technology rights, establishing and protecting our intellectual property portfolio, and developing and advancing our programs. We do not have any products approved for sale and have not generated any revenue from product sales.

We have funded our operations primarily through the sale of equity securities and from licensing or selling the rights to our product candidates. As of September 30, 2025, we have received net proceeds of $842.2 million from equity financings. We have received $18.9 million in revenue from a previous license agreement and cash proceeds of $275.0 million from the sale of our equity interest in our former zipalertinib development subsidiary to Taiho.

As of September 30, 2025, we had cash, cash equivalents, and short-term investments of $332.6 million, and long-term investments and interest receivable of $142.9 million. Interest receivable is included in prepaid expenses and other current assets on the consolidated balance sheets and represents accrued and unpaid interest on our marketable securities. We have a history of significant operating losses and have had negative cash flows from operations since our inception. As of September 30, 2025, we had an accumulated deficit of $537.4 million. We expect to continue to generate operating losses for the foreseeable future. Our future viability is dependent on the success of our research and development and our ability to access additional capital to fund our operations. There can be no assurance that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.

In June 2025, we entered into a license and collaboration agreement (the "Genrix License Agreement") with Genrix, pursuant to which Genrix granted us a global (excluding greater China), exclusive license to develop and commercialize velinotamig, a BCMAxCD3 bispecific T cell engager, in all fields of use. Under the terms of the Genrix License Agreement, we paid Genrix an upfront license fee of $20.0 million in June 2025. Refer to Note 5 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional detail regarding the Genrix License Agreement.

We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on third parties, compliance with government regulations, and the ability to obtain additional capital to fund operations. Our current and future product candidates will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require additional capital, adequate personnel and extensive compliance-reporting capabilities. There can be no assurance that our research and development will be successfully completed, that adequate protection for our intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable.

Global Economic Conditions

As we continue to pursue commercial opportunities in both U.S. and international markets, we remain attentive to evolving global economic conditions, including uncertainties related to international trade policies, tariffs, and supply chain dynamics. Although these factors have not had a material impact on our business to date, future changes in trade regulations or tariff structures could have an impact on our business and operations, including our expenses, supply chain, manufacturing processes, preclinical studies and clinical trials. We continue to monitor these developments closely.

U.S. Government Shutdown

During the ongoing government shutdown in the U.S., the FDA has retained the majority of its staff and continues most of its typical operations. However, during the government shutdown, the FDA is not accepting new marketing applications that require a user fee, including NDAs. Taiho intends to initiate a rolling submission of an NDA for zipalertinib in relapsed EGFR ex20ins NSCLC by the end of 2025. If the government shutdown continues, acceptance and review of the NDA submission for zipalertinib may be delayed. Additionally, even when the government shutdown ends, the FDA may face a backlog of marketing submissions that it had not accepted for review during the shutdown, which may further delay acceptance and review of the planned NDA for zipalertinib.

Components of Our Results of Operations

Revenue

We have not generated any revenue from the sale of products since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates and programs. These expenses include:

Development costs and any future potential pre-tax profits from U.S. sales of zipalertinib are shared equally between us and Taiho.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation costs for personnel in executive management, finance, legal, corporate and business development, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax, and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses; and other operating costs.

Other Income

Other income consists primarily of interest income earned on our cash, cash equivalents, and investments.

Income Taxes

In July 2025, the U.S enacted the budget reconciliation bill H.R. 1 into law, which included significant changes to U.S. income tax laws. We have assessed the impacts of H.R. 1 in the current quarter and have determined that there is no expected impact on our 2025 effective tax rate.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2025 and 2024

The following table presents our results of operations for the three and nine months ended September 30, 2025 and 2024 (in thousands):

Research and Development Expenses

In the fourth quarter of 2024, we began disclosing research and development personnel costs without the effect of intercompany allocations to product candidates held by our development subsidiaries and also began disclosing license agreement obligations separately from the related product candidate. We have recast prior period financial information to conform to the new presentation. The following table summarizes our research and development expenses for the three and nine months ended September 30, 2025 and 2024 (in thousands):

The $6.5 million increase in research and development expenses in the three months ended September 30, 2025 compared to the same period in 2024 was primarily due to increases in clinical development costs ($4.2 million), personnel costs relating to additional headcount ($2.0 million), and chemistry, manufacturing and controls costs ($0.8 million), offset partially by a decrease in preclinical costs ($0.5 million).

The $42.0 million increase in research and development expenses in the nine months ended September 30, 2025 compared to the same period in 2024 was primarily due to the one-time upfront in-licensing fee for velinotamig ($20.0 million), and increases in clinical development costs ($13.8 million), personnel costs relating to additional headcount ($7.6 million), chemistry, manufacturing and controls costs ($1.6 million), and equity-based compensation expense ($1.1 million), offset partially by a decrease in preclinical costs ($2.3 million).

General and Administrative Expenses

The $0.3 million increase in general and administrative expenses in the three months ended September 30, 2025 compared to the same period in 2024 was primarily due to an increase in other professional fees ($0.3 million).

The $2.5 million increase in general and administrative expenses in the nine months ended September 30, 2025 compared to the same period in 2024 was primarily due to increases in other professional fees ($2.1 million) and legal costs ($1.4 million), partially offset by decreases in personnel costs ($0.7 million) and equity-based compensation costs ($0.5 million).

Other Income

The $3.3 million and $4.7 million decreases in other income for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024 were primarily related to lower investment income.

Net Loss Attributable to Noncontrolling Interests

Net loss attributable to noncontrolling interests is the difference in the noncontrolling interests in the consolidated balance sheets between the start and end of each reporting period, after taking into account any capital transactions between our development subsidiaries and third parties.

Liquidity and Capital Resources

Overview

We have a history of significant operating losses and have had negative cash flows from operations since our inception and expect to continue to generate operating losses for the foreseeable future. We have not yet commercialized any products, and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from the sale of equity securities and from licensing or selling the rights to our product candidates. As of September 30, 2025, we had cash, cash equivalents, and short-term investments of $332.6 million, and long-term investments and interest receivable of $142.9 million.

Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents, investments, and interest receivable, will be sufficient to fund operations through at least twelve months from the date of issuance of our consolidated financial statements. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We cannot guarantee that we will be able to raise additional capital on reasonable terms or at all.

In June 2025, we entered into the Genrix License Agreement with Genrix, pursuant to which Genrix granted us a global (excluding greater China), exclusive license to develop and commercialize velinotamig, a BCMAxCD3 bispecific T cell engager, in all fields of use. Under the terms of the Genrix License Agreement, we paid Genrix an upfront license fee of $20.0 million in June 2025. Refer to Note 5 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional detail regarding the Genrix License Agreement.

In April 2024, we completed the 2024 Private Placement, in which we issued approximately 14.4 million shares of our common stock and pre-funded warrants to purchase approximately 0.3 million additional shares of our common stock. We received net proceeds of $262.7 million from the 2024 Private Placement, after deducting offering costs of $17.3 million.

We have an at-the-market equity offering program (the "ATM") through an agreement with Cowen and Company, LLC ("Cowen"), pursuant to which we may offer and sell up to $125.0 million of our common stock from time to time through Cowen, acting as our sales agent. We made no sales under the ATM in the nine months ended September 30, 2025. Through September 30, 2025, we have sold approximately 3.3 million shares under the ATM and received net proceeds of $38.4 million, after deducting commissions. As of September 30, 2025, we had $85.6 million in shares of our common stock remaining under the ATM.

Comparison of Cash Flows for the Nine Months Ended September 30, 2025 and 2024

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2025 and 2024 (in thousands):

Cash Flow from Operating Activities

For the nine months ended September 30, 2025, our operating activities used $137.6 million of cash, which primarily consisted of our operating expenses, excluding non-cash items, of $157.4 million, partially offset by interest income, excluding accretion on marketable securities, of $12.2 million, a $5.0 million net change in our non-tax operating assets and liabilities, and an income tax refund of $3.0 million related to the utilization of federal research and development credits generated during 2023 that were carried back to tax year 2022. The non-cash operating expenses primarily consisted of equity-based compensation expense.

For the nine months ended September 30, 2024, our operating activities used $108.7 million of cash, which primarily consisted of our operating expenses, excluding non-cash items, of $113.5 million and a $7.5 million net change in our non-tax operating assets and liabilities, partially offset by interest income, excluding accretion on marketable securities, of $10.2 million, and a net income tax refund of $2.3 million. The non-cash operating expenses primarily consisted of equity-based compensation expense.

Cash Flow from Investing Activities

For the nine months ended September 30, 2025, our investing activities provided $157.6 million of cash, which consisted of $374.6 million of proceeds from the maturities of marketable securities, partially offset by $216.9 million of purchases of marketable securities.

For the nine months ended September 30, 2024, our investing activities used $152.3 million of cash, which primarily consisted of $553.1 million of purchases of marketable securities, partially offset by $400.8 million of proceeds from the maturities of marketable securities.

Cash Flow from Financing Activities

For the nine months ended September 30, 2025, our financing activities provided $0.3 million of cash, which consisted of net proceeds from the issuance of common stock under equity-based compensation plans.

For the nine months ended September 30, 2024, our financing activities provided $264.6 million of cash, which consisted of $262.7 million of net proceeds from the issuance of common stock under a private placement and $6.4 million in net proceeds from the issuance of common stock under equity-based compensation plans, partially offset by $4.4 million paid to acquire shares of our CLN-619 development subsidiary that were held by noncontrolling interests.

Future Funding Requirements

We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we:

Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents, investments, and interest receivable will be sufficient to fund operations through at least twelve months from the date of issuance of our consolidated financial statements. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development programs and the regulatory review process, we expect to incur significant expenses related to product manufacturing, pre-commercial activities and commercialization. We may also require additional capital to pursue in-licenses or acquisitions of other programs to further expand our pipeline.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted. If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Other Commitments

We have certain payment obligations that are contingent upon future events under various license and collaboration agreements. Under these agreements, we will be required to make milestone payments upon successful completion and achievement of certain intellectual property, clinical, regulatory, and sales milestones, and we will be required to make royalty payments in connection with the sale of products developed under these agreements. As the achievement and timing of these future payment obligations are not probable or estimable, such amounts have not been included in our consolidated balance sheets as of September 30, 2025 and December 31, 2024.

As of September 30, 2025, total future minimum lease payments of $1.2 million were all payable within twelve months. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail on our lease obligations and the timing of expected future payments.

In addition, we enter into agreements in the normal course of business with CROs for clinical trials and with other vendors for preclinical studies, manufacturing services, and other services and products for operating purposes, which are generally cancelable upon written notice.

Critical Accounting Policies and Estimates

Our critical accounting policies have not materially changed from those described in the 2024 10-K.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 of our consolidated financial statements included in this Quarterly Report on Form 10-Q.