cmpx20220930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 


 

FORM 10-Q

 


 

 

(Mark One)

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

 

For the quarterly period ended September 30, 2022

 

OR

 

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

 

For the transition period from _________________ to _________________

 

Commission File Number: 001-39696

 


 

COMPASS THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 


 

Delaware

82-4876496

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

80 Guest St., Suite 601

Boston, Massachusetts

02135

(Address of principal executive offices)

(Zip Code)

 

Registrants telephone number, including area code: (617) 500-8099

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

CMPX

 

NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

 

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

 

Large accelerated filer 

 

Accelerated filer 

     

Non-accelerated filer 

 

Smaller reporting company 

     
   

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

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

 

As of November 7, 2022, the registrant had 126,191,473 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets (Unaudited)

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

 

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

27

Signatures

28

 

 

 

 

i

 
 

 

PART IFINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Compass Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except par value)

 

  

September 30,
2022

(unaudited)

  

December 31,
2021

(Note 1)

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $16,481  $144,514 

Marketable securities

  104,121    

Prepaid expenses and other current assets

  1,952   2,591 

Total current assets

  122,554   147,105 

Property and equipment, net

  1,708   2,243 

Operating lease, right-of-use ("ROU") asset

  3,256   4,089 

Other assets

  320   320 

Total assets

 $127,838  $153,757 

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $2,761  $867 

Accrued expenses

  5,742   8,775 

Operating lease obligations, current portion

  1,075   989 

Total current liabilities

  9,578   10,631 

Operating lease obligations, long-term portion

  2,144   3,048 

Total liabilities

  11,722   13,679 

Commitments and contingencies (Note 7)

          

Stockholders' equity:

        

Common stock, $0.0001 par value: 300,000 shares authorized; 101,286 and 101,303 shares issued at September 30, 2022 and December 31, 2021, respectively; 101,032 and 100,832 shares outstanding at September 30, 2022 and December 31, 2021, respectively

  10   10 

Additional paid-in-capital

  377,967   373,657 

Accumulated other comprehensive loss

  (641)   

Accumulated deficit

  (261,220)  (233,589)

Total stockholders' equity

  116,116   140,078 

Total liabilities and stockholders' equity

 $127,838  $153,757 

 

 

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

 

1

 

  

Compass Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Operating expenses:

                               

Research and development

  $ 9,791     $ 3,154     $ 20,069     $ 10,763  

General and administrative

    2,807       2,700       8,698       7,500  

In-process R&D

                      50,618  

Total operating expenses

    12,598       5,854       28,767       68,881  

Loss from operations

    (12,598 )     (5,854 )     (28,767 )     (68,881 )

Other income (expense), net

    623       (121 )     1,136       (306 )

Loss before income tax expense

    (11,975 )     (5,975 )     (27,631 )     (69,187 )

Income tax expense

                      (13 )

Net loss

  $ (11,975 )   $ (5,975 )   $ (27,631 )   $ (69,200 )

Net loss per share - basic and diluted

  $ (0.12 )   $ (0.10 )   $ (0.27 )   $ (1.26 )

Basic and diluted weighted average shares outstanding

    101,010       61,694       100,939       55,003  
                                 

Other comprehensive loss:

                               

Net loss

  $ (11,975 )   $ (5,975 )   $ (27,631 )   $ (69,200 )

Unrealized loss on marketable securities

    (129 )           (641 )      

Comprehensive loss

  $ (12,104 )   $ (5,975 )   $ (28,272 )   $ (69,200 )

 

 

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

 

2

 

Compass Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

(In thousands)

 

 

 

 

 

 

  

Common Stock

  

Additional
Paid-in

  

Accumulated Other Comprehensive

  

Accumulated

  

Total
Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2021

  100,832  $10  $373,657  $  $(233,589) $140,078 

Vesting of share-based awards

  73                

Stock-based compensation

        1,574         1,574 

Net loss

              (7,162)  (7,162)

Balance at March 31, 2022

  100,905   10   375,231      (240,751)  134,490 

Vesting of share-based awards

  63                

Stock-based compensation

        1,444         1,444 

Unrealized loss on marketable securities

           (512)     (512)

Net loss

              (8,494)  (8,494)

Balance at June 30, 2022

  100,968   10   376,675   (512)  (249,245)  126,928 

Vesting of share-based awards

  62                

Stock-based compensation

        1,287         1,287 

Exercise of common stock options

  2      5         5 

Unrealized loss on marketable securities

           (129)     (129)

Net loss

              (11,975)  (11,975)

Balance at September 30, 2022

  101,032  $10  $377,967  $(641) $(261,220) $116,116 

 

  

Common Stock

  

Additional
Paid-in

  

Accumulated Other Comprehensive

  

Accumulated

  

Total
Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Loss

  

Deficit

  

Equity

 

Balance at December 31, 2020

  51,221  $5  $191,348  $  $(151,408) $39,945 

Vesting of share-based awards

  92                

Stock-based compensation

        948         948 

Net loss

              (7,422)  (7,422)

Balance at March 31, 2021

  51,313   5   192,296      (158,830)  33,471 

Common shares issued for TRIGR acquisition

  10,265   1   50,299         50,300 

Vesting of share-based awards

  88                

Stock-based compensation

        908         908 

Net loss

              (55,804)  (55,804)

Balance at June 30, 2021

  61,666   6   243,503      (214,634)  28,875 

Vesting of share-based awards

  94                

Stock-based compensation

        987         987 

Net loss

              (5,975)  (5,975)

Balance at September 30, 2021

  61,760  $6  $244,490  $  $(220,608) $23,888 

 

 

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

 

3

 

 

Compass Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

  

For the Nine Months
Ended September 30,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net loss

 $(27,631) $(69,200)

Adjustments to reconcile net loss to net cash used in operating activities:

     

Depreciation and amortization

  587   442 

Gain on disposal of equipment

  (70)  (75)

Noncash interest expense

     35 

Share-based compensation

  4,305   2,843 

Amortization of premium and discount on marketable securities

  (190)   

Write-off of in-process R&D

     50,618 

ROU asset amortization

  833   786 

Changes in operating assets and liabilities:

        

Prepaid expenses and other current assets

  639   63 

Accounts payable

  1,894   (193)

Accrued expenses

  (3,033)  427 

Operating lease liability

  (818)  (747)

Net cash used in operating activities

  (23,484)  (15,001)

Cash flows from investing activities:

        

Purchases of property and equipment

  (158)  (791)

Purchases of marketable securities

  (117,332)   

Proceeds from sale or maturities of marketable securities

  12,760    

Asset acquisition costs

     (318)

Proceeds from sale of equipment

  176   115 

Net cash used in investing activities

  (104,554)  (994)

Cash flows from financing activities:

        

Proceeds from issuance of common stock

  5    

Repayment of borrowings under loan

     (5,625)

Net cash provided by (used in) financing activities

  5   (5,625)

Net change in cash, cash equivalents and restricted cash

  (128,033)  (21,620)

Cash, cash equivalents and restricted cash at beginning of period

  144,514   47,339 

Cash, cash equivalents and restricted cash at end of period

 $16,481  $25,719 

Supplemental disclosure of cash flow information

        

Cash paid for interest

 $  $226 

Supplemental disclosure of cash flow information

        

ROU asset acquired through operating leases

 $  $5,148 

Unrealized loss on marketable securities

 $641  $ 

Acquisition of Trigr Therapeutics, Inc.

 $  $50,300 

 

 

 

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

 

4

 

Compass Therapeutics, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1.         Nature of Business and Basis of Presentation

 

Compass Therapeutics, Inc. (“Compass” or the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company developing proprietary antibody-based therapeutics to treat multiple human diseases. Our scientific focus is on the relationship between angiogenesis and the immune system. Our pipeline includes novel product candidates that leverage our understanding of the tumor microenvironment, including both angiogenesis-targeted agents and immune-oncology focused agents. These product candidates are designed to optimize critical components required for an effective anti-tumor response to cancer. These include modulation of the microvasculature via angiogenesis-targeted agents; induction of a potent immune response via activators on effector cells in the tumor microenvironment; and alleviation of immunosuppressive mechanisms used by tumors to evade immune surveillance. We plan to advance our product candidates through clinical development as both standalone therapies and in combination with our proprietary drug candidates as long as their continued development is supported by clinical and nonclinical data. References to Compass or the Company herein include Compass Therapeutics, Inc. and its wholly-owned subsidiaries. The Company was incorporated as Olivia Ventures, Inc. (“Olivia”) in the State of Delaware on March 20, 2018. Prior to the Company’s reverse merger with Compass Therapeutics LLC (the “Merger”), Olivia was a “shell company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended).

 

The Company is subject to risks and uncertainties common to companies in the biotechnology and pharmaceutical industries. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s consolidated financial position as of September 30, 2022 and its consolidated results of operations, comprehensive loss and changes in stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

 

The unaudited condensed consolidated financial statements include the accounts of Compass Therapeutics, Inc. and its subsidiaries, and have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”).

 

Liquidity

 

Since our inception, we have devoted substantially all of our efforts to organizing and staffing our Company, business planning, raising capital, research and development activities, building our intellectual property portfolio and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from the sale of our equity securities and borrowings from debt arrangements.  Through September 30, 2022, we have received $329.0 million in gross proceeds from the sale of equity securities.  As of September 30, 2022, we had cash, cash equivalents and marketable securities of $120.6 million. On November 2, 2022, the Company issued additional common stock pursuant to a private investment in public equity ("PIPE") offering with gross proceeds of $80.3 million (see Note 11). Based on our research and development plans, we expect that such cash resources will enable us to fund our operating expenses and capital expenditure requirements into 2026.

 

5

 

COVID-19 Update

 

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of our employees and to reduce the spread of COVID-19 community-wide. We are ensuring that essential staffing levels at our operations remain in place, including maintaining key personnel in our laboratory facilities. We have implemented stringent safety measures designed to create a safe and clean environment for our employees as we continue to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic.

 

There have been delays in sourcing of selected supplies required for the manufacturing of material to be used in our future clinical trials, and these delays have impacted and may continue to impact the timing of our future clinical trials. We expect that COVID-19 may continue to directly or indirectly impact: (i) our employees and business operations or personnel at third-party suppliers and other vendors in the U.S. and other countries; (ii) the availability, cost or supply of materials; and (iii) the timeline for our ongoing clinical trial and potential future trials. We are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

 

 

2.         Summary of Significant Accounting Policies

 

There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report, except as noted below.

 

Marketable Securities

 

Marketable securities consist of available-for-sale debt securities and are carried at fair value. Unrealized holding gains and losses are reported within other comprehensive loss in the Company's Consolidated Statements of Comprehensive Loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations, or other observable inputs.

 

Accounting Pronouncements not yet adopted

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” which has subsequently been amended by ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11, and ASU No. 2020-03 (“ASU 2016-03”). This guidance replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 and must be adopted using a modified retrospective approach, with certain exceptions. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

 

Recently Adopted Accounting Pronouncements

 

The Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, on January 1, 2022. The Company accounts for income taxes pursuant to FASB ASC Topic 740, Income Taxes. Under FASB ASC Topic 740, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the federal tax laws. The adoption of ASU 2019-12 did not have any impact on the Company’s condensed consolidated financial statement presentation or disclosures.

 

6

    
 

3.         Marketable Securities

 

The objectives of the Company’s investment policy are to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. The Company invests its excess cash in securities issued by financial institutions, commercial companies, and government agencies that management believes to be of high credit quality in order to limit the amount of its credit exposure. The Company has not realized any net losses from its investments.

 

Unrealized gains and losses on investments that are available for sale are recognized in accumulated comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are included in other income (loss) in the condensed consolidated statements of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a trade date basis. The Company classifies marketable securities that are available for use in current operations as current assets on the condensed consolidated balance sheet.

 

The following tables summarize marketable securities held at September 30, 2022 (in thousands):

 

   

Fair Value Measurements as of September 30, 2022 Using:

 
   

Amortized Cost

   

Unrealized gains

   

Unrealized

Losses

   

Fair Value

 

Assets

                               

Corporate bonds

  $ 70,058     $     $ (506 )   $ 69,552  

Commercial paper

    20,825             (50 )     20,775  

Certificates of Deposit

    7,487             (39 )     7,448  

Asset-backed securities

    6,392             (46 )     6,346  

Total assets

  $ 104,762     $     $ (641 )   $ 104,121  

 

   

As of

 
   

September 30, 2022

 

Maturing in one year or less

  $ 86,552  

Maturing after one year through two years

    17,569  

Total

  $ 104,121  

 

There were no marketable securities as of December 31, 2021.

 

7

    
 

4.         Fair Value Measurements

 

The following tables represent the Company’s financial assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

   

Fair Value Measurements as of September 30, 2022 Using:

 
   

Quoted Prices in
Active Markets

for
Identical Assets
(Level 1)

   

Significant Other
Observable
Inputs
(Level 2)

   

Significant
Unobservable
Inputs
(Level 3)

   

Fair Value

 

Assets

                               

Corporate bonds

  $     $ 69,552     $     $ 69,552  

Commercial paper

    20,775                   20,775  

Certificates of deposit

          7,448             7,448  

Asset-backed securities

          6,346             6,346  
Cash and cash equivalents     16,481                   16,481  

Total assets

  $ 37,256     $ 83,346     $     $ 120,602  

 

   

Fair Value Measurements as of December 31, 2021 Using:

 
   

Quoted Prices in
Active Markets

for
Identical Assets
(Level 1)

   

Significant Other
Observable
Inputs
(Level 2)

   

Significant
Unobservable
Inputs
(Level 3)

   

Fair Value

 

Assets

                               
Cash and cash equivalents   $ 130,005     $     $     $ 130,005  

Total assets

  $ 130,005     $     $     $ 130,005  

 

 

5.         Property and Equipment

 

Property and equipment consist of the following (in thousands):

 

   

September 30,
2022

   

December 31,
2021

 

Equipment

  $ 5,087     $ 5,351  

Leasehold improvements

    1,607       1,531  

Software

    364       365  

Furniture and fixtures

    22       22  

Total property and equipment–at cost

    7,080       7,269  

Less: Accumulated depreciation

    (5,372 )     (5,026 )

Property and equipment, net

  $ 1,708     $ 2,243  

 

Depreciation expense for the three months ended September 30, 2022 and 2021 was $0.2 million and $0.1 million, respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $0.6 million and $0.4 million, respectively.   

 

 

8

    
 

6.         Accrued Expenses

 

Accrued expenses consist of the following (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Compensation and benefits

  $ 1,218     $ 1,601  

Project expenses

    4,436       704  

Accrued milestone

          6,000  

Other

    88       470  

Total accrued expenses

  $ 5,742     $ 8,775  

 

 

7.        Commitments and Contingencies

 

Leases

 

The Company adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2021, using the modified retrospective transition method, in which the new standard is applied as of the date of initial adoption. The Company recognized and measured agreements executed prior to the date of initial adoption that were considered leases on January 1, 2021. No cumulative effect adjustment of initially applying the standard to the opening balance of retained earnings was made upon adoption. The Company elected the package of practical expedients permitted under the transition guidance that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. In addition, the Company elected the accounting policy of not recording short-term leases with a lease term at the commencement date of 12 months or less on the condensed consolidated balance sheet as permitted by the new standard.

 

The Company has evaluated its leases and determined that it has one lease that is classified as an operating lease. The classification of this lease is consistent with the Company’s determination under the previous accounting standard.

 

When available, the Company will use the rate implicit in the lease to discount lease payments to present value; however, the Company’s current lease does not provide an implicit rate. Therefore, the Company used its incremental borrowing rate to discount the lease payments based on the date of the lease commencement.

 

The Company has one operating lease for its corporate office and laboratory facility (“Facility”) that was signed in December 2020. The Company moved into the Facility in January 2021. The Facility lease has an initial term of four years and five months, beginning on January 1, 2021. The Facility lease contains scheduled rent increases over the lease term. The discount rate used for the Facility lease is 6.25%, and the remaining lease term of the Facility lease is two years and eight months as of September 30, 2022.

 

The table below presents the undiscounted cash flows for the lease term. The undiscounted cash flows are reconciled to the operating lease liabilities recorded on the condensed consolidated balance sheet (000's):

 

Remainder of 2022

  $ 219  

Years ending December 31,

       

2023

    1,345  

2024

    1,379  

2025

    543  

Total minimum lease payments

    3,486  

Less: amount of lease payments representing interest

    (267 )

Present value of future minimum lease payments

    3,219  

Less: operating lease obligations, current portion

    (1,075 )

Operating lease obligations, long-term portion

  $ 2,144  

 

9

 

Milestone payments

 

As part of the ABL Bio Agreement (see Note 10), the Company is obligated to pay certain development milestone payments. In the fourth quarter of 2021, the Company was notified of the completion of Phase 1 of the clinical trial for CTX-009. In the third quarter of 2022, the Company paid a $6.0 million milestone payment to ABL Bio based on delivery of the final report related to completion of Phase 1 of the clinical trial.

 

 

8.         Stock-Based Compensation

 

Stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 was classified in the condensed consolidated statement of operations as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 
   

(000’s)

   

(000’s)

 

Research and development

  $ 170     $ 178     $ 718     $ 476  

General and administrative

    1,117       809       3,587       2,367  

Total

  $ 1,287     $ 987     $ 4,305     $ 2,843  

 

As of September 30, 2022, remaining unrecognized stock-based compensation cost from all plans to be recognized in future periods totaled $11.5 million.

 

Restricted Stock:

 

Prior to the adoption of the 2020 Plan, the Company issued restricted stock. A summary of the Company’s restricted stock activity during the nine months ended September 30, 2022 is as follows:

 

   

Shares

   

Fair Value

 
Weighted Average Fair Value  

(000's)

   

Per Share

 

Unvested, December 31, 2021

    471     $ 1.76  

Granted

        $  

Vested

    (198 )   $ 1.79  

Forfeited or canceled

    (20 )   $ 1.77  

Unvested, September 30, 2022

    253     $ 1.73  

 

As of September 30, 2022, the total unrecognized compensation cost related to stock compensation expense for restricted stock is $0.4 million, expected to be recognized over a weighted average period of 1.1 years.

 

2020 Plan

 

In June 2020, the Company’s board of directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”) and reserved 2.9 million shares of common stock for issuance under this plan. The 2020 Plan includes automatic annual increases. The increase on January 1, 2022 was 4.2 million shares. As of September 30, 2022, 2.2 million shares remain available for future grant.

 

The 2020 Plan authorizes the board of directors or a committee of the board to grant incentive stock options, nonqualified stock options, restricted stock awards and restricted stock units ("RSUs") to eligible officers, employees, consultants and directors of the Company. Options generally vest over a period of four years and have a contractual life of 10 years from the date of grant.

 

10

 

Stock Options:

 

The following table summarizes the stock option activity for the 2020 Plan:

 

           

Weighted

   

Weighted

         
   

Number of

   

Average

   

Average

   

Aggregate

 
   

Unvested

   

Exercise

   

Remaining

   

Intrinsic

 
   

Options

   

Price

   

Contractual

   

Value

 
   

(000's)

   

Per Share

   

Term (in years)

   

($000's)

 

Outstanding at December 31, 2021

    3,659     $ 4.99       8.67          

Granted

    2,277     $ 2.30       9.38          

Exercised

    (2 )   $ 1.56                  

Forfeited/canceled

    (334 )   $ 4.07                  

Outstanding at September 30, 2022

    5,600     $ 3.97       8.70     $ 277  

Vested at September 30, 2022

    2,472     $ 4.74       8.22     $ 19  

 

For the nine months ended September 30, 2022, the weighted average grant date fair value for options granted was $2.30. The intrinsic value for options vested as of September 30, 2022, was $19 thousand. As of September 30, 2022, the total unrecognized compensation cost related to outstanding options was $7.5 million, to be recognized over a weighted average period of 2.8 years.

 

For the nine months ended September 30, 2021, the weighted average grant date fair value for options granted was $3.82. There was no intrinsic value for options vested as of September 30, 2021.

 

The weighted average assumptions used in the Black-Scholes pricing model to determine the fair value of stock options granted during the nine months ended September 30, 2022 and 2021 were as follows:

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 

Expected term (in years)

    6.0       6.1  

Risk-free rate

    2.02 %     0.76 %

Expected volatility

    94 %     90 %

Expected dividend yield

           

 

RSUs:

 

The following table summarizes the RSU activity for the 2020 Plan:

 

   

Shares
(000's)

   

Weighted
Average Price
Per Share

   

Weighted
Average Fair Value

($000's)

 

Unvested, December 31, 2021

    1,200     $ 3.83     $ 4,596  

Granted

                 

Vested

                 

Forfeited or canceled

                 

Unvested, September 30, 2022

    1,200     $ 3.83     $ 4,596  

 

Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants. The weighted average fair value is the weighted average share price times the number of shares.
As of September 30, 2022, remaining unrecognized compensation cost related to RSUs to be recognized in future periods totaled $3.6 million, which is expected to be recognized over a weighted average period of 3.1 years.

 

11

    
 

9.        Other Income (Expense)

 

Other income (expense) consisted of the following:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 
  

(000's)

  

(000's)

 

Interest income

 $623  $1  $1,066  $25 

Interest expense

     (78)     (331)

Realized gain on disposal of equipment

     (44)  70    

Total other income (expense)

 $623  $(121) $1,136  $(306)

 

 

10.      License, Research and Collaboration Agreements

 

Collaboration Agreements

 

ABL Bio Corporation ("ABL Bio") Agreement

 

In November 2018, the Company's wholly-owned subsidiary, TRIGR, and ABL Bio, a South Korean biotechnology company, entered into an exclusive global (excluding South Korea) license agreement (the “TRIGR License Agreement”) which granted TRIGR a license to ABL001, ABL Bio’s bispecific antibody targeting DLL4 and VEGF-A (renamed CTX-009). Under the terms of the agreement, ABL Bio and TRIGR would jointly develop CTX-009, with ABL Bio responsible for development of CTX-009 throughout the end of Phase 1 clinical trials and TRIGR responsible for the development of CTX-009 from Phase 2 and onward. ABL Bio received a $5 million upfront payment, a $6 million development milestone for the completion of Phase 1 clinical trials and is eligible to receive a total of up to $110 million of development and regulatory milestone payments, up to $295 million of commercial milestone payments and tiered single-digit royalties on net sales of CTX-009 in Oncology. As a result of the TRIGR acquisition in 2021, the TRIGR License Agreement was assigned to the Company and the Company has assumed all the rights and liabilities of the agreement.

 

Adimab Agreement

 

The Company entered into a collaboration agreement with Adimab, LLC on October 16, 2014. The agreement includes provisions for payment of royalties at rates ranging in the single digits as a percentage of future net sales within a specified term from the first commercial sale. There were no milestone payments made during the first nine months of 2022. As of September 30, 2022, future potential milestone payments in connection with this agreement amounted to $2.0 million.

 

      Other License and Research Agreements

 

FUJIFILM Diosynth Biotechnologies ("Fujifilm) Agreement

 

The Company entered into a scope of work (“SOW”) under a master services agreement with Fujifilm on July 20, 2020. The Company made no cash payments and recorded $89 thousand in research and development expense during the three months ended September 30, 2022 related to this agreement. The Company made cash payments of $0.5 million and recorded $2.9 million in research and development expense during the nine months ended September 30, 2022. As of September 30, 2022, future payments in connection with the SOW amounted to approximately $0.6 million and future expenses amounted to less than $100 thousand.    

 

11.       Subsequent events

 

On November 2, 2022, the Company and certain accredited investors (each an “Investor” and collectively, the “Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company agreed to sell and issue to the Investors in a PIPE financing an aggregate of 25,000,000 shares of the Company’s common stock at a purchase price of $3.21 per share. The gross proceeds to the Company from the PIPE are $80.3 million, before deducting fees to the placement agents and other offering expenses payable by the Company. This transaction closed on November 4, 2022.

 

 

12

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

 

The following discussion of the financial condition and results of operations of Compass Therapeutics, Inc. should be read in conjunction with the financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q for the period ended September 30, 2022. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions. You should read the Risk Factors section of this Quarterly Report on Form 10-Q and the Risk Factors section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

We are a clinical-stage, oncology-focused biopharmaceutical company developing proprietary antibody-based therapeutics to treat multiple human diseases. Our scientific focus is on the relationship between angiogenesis, the immune system, and tumor growth. Our pipeline of novel product candidates is designed to target multiple critical biological pathways required for an effective anti-tumor response. These include modulation of the microvasculature via angiogenesis-targeted agents, induction of a potent immune response via activators on effector cells in the tumor microenvironment, and alleviation of immunosuppressive mechanisms used by tumors to evade immune surveillance. We plan to advance our product candidates through clinical development as both standalone therapies and in combination with proprietary pipeline antibodies based on supportive clinical and nonclinical data.

 

On June 25, 2021, we consummated a definitive merger agreement (the “Merger Agreement”) with TRIGR Therapeutics, Inc. (“TRIGR”), a private biotechnology company. Pursuant to the Merger Agreement, through our wholly-owned subsidiaries and a two-step merger structure, we acquired all of the outstanding shares of TRIGR (the “TRIGR Merger”). Consideration payable to TRIGR shareholders at closing totaled an aggregate of 10,265,133 shares of our common stock (after giving effect to elimination of fractional shares that would otherwise be issued). In addition, TRIGR shareholders are eligible to receive up to $9 million, representing earnout payments which are dependent on certain events.

 

We currently have two product candidates in the clinical stage of development: CTX-009 and CTX-471. In addition, a third product candidate, CTX-8371, is expected to enter the clinic in 2023. A summary of these product candidates is presented below. We are also developing a portfolio of bispecific and monoclonal antibody product candidates which derive from our in-house antibody discovery and development platforms. For a more detailed description, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

CTX-009(a.k.a. ABL001) - anti-DLL4 x VEGF-A bispecific antibody

 

CTX-009 is an investigational bispecific antibody that simultaneously blocks Delta-like ligand 4/Notch-1 ("DLL4") and vascular endothelial growth factor A ("VEGF-A") signaling pathways, which are critical to angiogenesis and tumor vascularization. We have licensed exclusive global rights to CTX-009, outside of South Korea, from ABL Bio, Inc. (“ABL Bio”), a South Korea-based clinical-stage company focused on developing antibody therapeutics. South Korean rights are held by Handok Pharmaceuticals, Inc. (“Handok”) and China rights were out-licensed from the Company to Elpiscience Biopharmaceuticals Co., Limited (“Elpiscience”).

 

CTX-009 is undergoing clinical development in patients with advanced solid tumors. A Phase 1 dose escalation and dose expansion monotherapy study and a Phase 1b combination study of CTX-009 in combination with chemotherapy have been completed. In the first quarter of 2021, Handok commenced a Phase 2 study of CTX-009 in combination with paclitaxel in patients with biliary tract cancers (“BTC” or “cholangiocarcinoma”) in South Korea. The study enrolled patients with unresectable advanced, metastatic, or relapsed BTC who have received one or two prior systemic therapies. This Phase 2 study has a Simon 2 stage adaptive design. In the  first stage of the study, three partial responses (“PRs”) need to be observed among the patients dosed in order for the study to advance to the second stage. As of April 14, 2022, the first stage was fully enrolled, and there were ten PRs observed among the 24 patients enrolled and dosed, and therefore, the criteria to advance the study to its second stage was met. The study is being conducted at four leading medical centers in South Korea and as of September 30, 2022, is still ongoing.

 

We submitted an Investigational New Drug (“IND”) application to the U.S. Food and Drug Administration (“FDA”) in December 2021 to initiate a global Phase 2 study in the U.S. and South Korea. The FDA cleared our IND application in January 2022.

 

13

 

Phase 2a: Interim Data from Combination Clinical Trial of CTX-009 in BTC in South Korea

 

Preliminary Activity Data Summary

 

As of April 14, 2022, the first stage of the study has been fully enrolled, and all 24 patients have been dosed. Of the 24 patients, there were 10 PRs, 9 of which have been confirmed by RECIST 1.1 and one PR pending confirmation, leading to a preliminary overall response rate ("ORR") of 42%.  Two patients are not evaluable for response, and 22 of the 24 patients have had stable disease or better with a decline in tumor burden observed in all 22 evaluable patients leading to a clinical benefit rate ("CBR") of 92%.  The median time on study as of April 14, 2022 was approximately 6 months. 

 

The interim waterfall plot below depicts the best response for 22 of the 24 patients in the study as of April 14, 2022 (two patients did not reach their week 8 scan):

 

       https://cdn.kscope.io/cb39cd0e8cfee656096834c56760c4ae-preliminaryactivitydatasumma.jpg

 

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The swimmer plot below depicts the duration that each patient has been on treatment as of April 14, 2022:

 

Days on Study

https://cdn.kscope.io/cb39cd0e8cfee656096834c56760c4ae-swimmerplot.jpg

 

Preliminary Safety Data Summary

 

As of April 14, 2022, no formal safety data analysis has been completed, but CTX-009 in combination with paclitaxel was observed to be generally well-tolerated and the safety data are consistent with the Phase 1 studies with hypertension and neutropenia being the most common events related to CTX-009 and paclitaxel, respectively.

 

Of the 24 subjects enrolled in the study, all subjects had at least one Adverse Event (“AE”) related to CTX-009 and/or paclitaxel. The most common AEs (all Grades) occurring in at least 3 patients were anemia (n=3, 12.5%), asthenia (n=6, 25.0%), fatigue (n=4, 16.7%), edema (n=4, 16.7%), pyrexia (n=4, 16.7%), neutropenia (n=13, 54.2%), thrombocytopenia (n=5, 20.8%), headache (n=4, 16.7%), proteinuria (n=5, 20.8%), dysphonia (n=3, 12.5%), dyspnea (n=6, 25%), epistaxis (n=8, 33.3%), pulmonary hypertension (n=4, 16.7%, all Grade 1) and hypertension (n=12, 50.0%).

 

Grade 3 or greater AEs that were determined to be probably or possibly related to CTX-009 treatment included neutropenia (n=12; 50%), hypertension (n=4; 17%), anemia (n=3; 12.5%) and thrombocytopenia (n=2; 8%), which were attributed to the concomitant chemotherapy agent (paclitaxel) with the exception of hypertension which was attributed to CTX-009. In addition, there were additional Grade 3 or greater events observed in no more than one patient: intestinal perforation, asthenia, catheter site hemorrhage, fatigue, cholangitis, abdominal infection, bacterial gastritis, pneumonia (which was fatal), post-procedure hemorrhage, decreased appetite, cerebral hemorrhage, proteinuria and embolism.

 

PROGRAM UPDATE CTX-009

 

Following initial conversations with the FDA and considering the data from our BTC Phase 2 study, we submitted a protocol to the FDA for a randomized Phase 2/3 study in the United States in adult patients with unresectable, advanced, metastatic or recurrent biliary tract cancers who have received one prior systemic chemotherapy regimen. The study is designed to assess the safety and efficacy of the combination of CTX-009 and paclitaxel versus paclitaxel alone. A schema of the study design is provided below.

 

 

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          https://cdn.kscope.io/cb39cd0e8cfee656096834c56760c4ae-p16.jpg
 
 

The study will enroll 120 patients which will be randomized in a 2:1 ratio to receive CTX-009 plus paclitaxel (n=80) or paclitaxel alone (n=40). The primary endpoint of the study is overall response rate (“ORR”). The study can be found on clinicaltrials.gov.

 

In September 2022, we received additional feedback from the FDA to our study protocol. Depending on the study’s results, this study could serve as a registrational study to support BLA submission.

 

Additionally, we are in the process of initiating a Phase 2 study for CTX-009 in patients with advanced metastatic colorectal cancer. This study will assess the safety and efficacy of CTX-009 as a monotherapy in the third and fourth line of treatment. The study can be found on clinicaltrials.gov.     

 

Development Strategy for CTX-009

 

Our development strategy is to develop CTX-009 in all of the indications in which patients have a need for effective and novel therapeutic agents and data supports the potential therapeutic benefit of CTX-009.

 

We chose BTC as our lead indication based on activity observed in the Phase 1b and Phase 2 studies, lack of effective therapies for this patient population and the potential for a straight-forward regulatory route to approval. Our Phase 2/3 study for CTX-009 in combination with paclitaxel is targeting the second line BTC patient population, including all four anatomical subtypes of the disease. In the United States, there are over 18,000 BTC patients diagnosed each year. The only therapies launched in the last two decades for the second and third line BTC patients are targeted therapies (FGFR2 inhibitors, IDH1 inhibitors and MSI-high tumors) that may address less than 15% of this patient population combined.

 

The second indication we are pursuing for CTX-009 is advanced colorectal cancer. There are over 150,000 colorectal cancer patients diagnosed in the United States each year, and approximately one third (~ 50,000 patients) progress to the third line of treatment. The therapies available in the third line (trifluridine/tipiracil; regorafenib) have each demonstrated less than 2% overall response rate with limited efficacy. Moreover, targeted therapies recently approved or in development, such as the small molecule KRAS G12C inhibitors, sotorasib and adagrasib, are only targeting 1-3% of the colorectal cancer patients. Accordingly, we are initiating a Phase 2 monotherapy clinical trial of CTX-009 in the third and fourth line settings in patients with advanced colorectal cancer with ORR as the primary endpoint of this study.

 

We intend to explore the potential of CTX-009 in additional indications, based on preclinical and clinical data from CTX-009 studies. These studies combined suggest the potential of CTX-009 as a therapy for gastric cancer, ovarian cancer, pancreatic cancer and renal cell cancer. 

 

In addition, we are developing a plan to study the combination of CTX-009 with our novel bispecific checkpoint blocker, CTX-8371, or with other checkpoint blockers, such as pembrolizumab and nivolumab. Additionally, we plan to study the combination of CTX-009 with our novel CD137 agonistic antibody, CTX-471.

 

The timing of the initiation of our clinical trials in the United States depends, among other things, on the availability of clinical drug product for the studies, communications with the FDA, FDA allowance for each of the proposed studies to proceed and the availability of cash resources to support such trials. 

 

 

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CTX-471 - a monoclonal antibody agonist of CD137

 

CTX-471, our monoclonal antibody product candidate, is a fully human, IgG4 monoclonal antibody that is an agonist of CD137, a key co-stimulatory receptor on immune cells. Binding of CTX-471 to CD137 has been observed to lead to ligand-stimulated activation of T-cells and NK cells. In tumor models, treatment with CTX-471 as a monotherapy led to recruitment and activation of immune cells in the tumor microenvironment. In the treated mice, dosing with CTX-471 led to extensive reprogramming of the tumor microenvironment, including increased recruitment of immune cells, reversion of exhausted cytotoxic CD8+ T-cells, reductions in immunosuppressive regulatory T-cells, and reductions in immunosuppressive tumor- associated macrophages. Long after the completion of the treatment with CTX-471, a period described as eight half-lives of the antibody, treated mice exhibited immune memory that prevented reestablishment of the same tumor.

 

In July 2019, we initiated a Phase 1 trial evaluating the safety and tolerability of CTX-471 as a monotherapy in oncology patients who were previously treated with PD-1 or PD-L1 immune checkpoint inhibitors and subsequently relapsed or progressed after a period of stable disease. The design of this trial includes a dose escalation stage (Phase 1a) followed by a dose expansion stage (Phase 1b). The Phase 1a dose-escalation stage of the trial has been completed and CTX-471 was observed to be generally well-tolerated.

 

The dose expansion stage of the trial is currently ongoing and nearing completion. As of September 30, 2022, 60 patients with 18 different cancers have been enrolled in the study and 50 of those patients are evaluable. There are six patients remaining on the study. Four patients had a PR; three of the four have been confirmed by RECIST 1.1 and the fourth PR is unconfirmed and will remain unconfirmed. In addition, 27 patients have reached stable disease, leading to a preliminary ORR of 8% and a CBR of 62%. There have been two treatment-related serious adverse events (“SAE”) in the Phase 1b dose expansion stage of the trial. One event was identical to the dose-limiting toxicity seen in the Phase 1a study (thrombocytopenia with elevated liver function tests and elevated C-reactive protein) and the second SAE was an event of pneumonitis.  Both events resolved.

 

PROGRAM UPDATE CTX-471

 

On October 11, 2022, we announced a clinical trial collaboration and supply agreement with Merck & Co. (“Merck”) to evaluate CTX-471 in combination with KEYTRUDA® (pembrolizumab). Under the agreement, we are the study sponsor, Merck will provide the clinical supply of KEYTRUDA and together, we will form a Joint Development Committee to review the clinical trial results. In November 2022, we began screening patients for this combination arm of the Phase 1b study to include CTX-471 combined with KEYTRUDA in patients who have progressed following initial response to a PD-1 regimen.

 

CTX-8371 - a bispecific antibody that targets PD-1 and PD-L1

 

CTX-8371 is a bispecific antibody that binds to both PD-1 and PD-L1, the targets of well-known and widely used checkpoint inhibitor antibodies. Preclinical studies demonstrate that CTX-8371 has the ability to outperform PD-1, PD-L1, and combinations of the two to activate T-cells in in vitro assays. In mouse xenografts, treatment with CTX-8371 led to significantly greater tumor growth control and longer survival than treatment with a PD-1 inhibitor alone, a PD-L1 inhibitor alone or the combination of PD-1 and PD-L1 inhibitors.  IND-enabling studies with CTX-8371 were initiated in August 2020 and toxicology studies in non-human primates are ongoing. Our contract development manufacturing organization, Fujifilm Diosynth Biotechnologies (see Note 10 to the financial statements contained in this Form 10-Q for further description of Fujifilm agreement) experienced delays with its supply chain management, leading to a delay in the good manufacturing practice (“GMP”) manufacturing of CTX-8371. The GMP manufacturing campaign of CTX-8371 was completed in the second quarter of 2022.

 

Pending the results of the toxicology studies in non-human primates, we anticipate filing of an IND and initiating first-in-human study in the first half of 2023.

 

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Operating Activities

 

We have funded our operations primarily with proceeds from the sale of our equity securities. Through September 30, 2022, we have received $329.0 million in gross proceeds from the sale of our equity securities. 

 

We have incurred significant operating losses since inception and have not generated any revenue from the sale of products and we do not expect to generate any revenue from the sale of products in the near future, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our treatments and any future product candidates. Our net losses were $12.0 million and $6.0 million for the three months ended September 30, 2022 and 2021, respectively. Our net losses were $27.6 million and $69.2 million for the nine months ended September 30, 2022 and 2021, respectively. We had an accumulated deficit of $261.2 million at September 30, 2022. We expect to continue to incur significant expenses for at least the next several years as we advance through clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

 

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity and debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. As of September 30, 2022, we had $120.6 million in cash, cash equivalents and marketable securities. On November 2, 2022, we entered into a securities purchase agreement ("the "Securities Purchase Agreement") with certain accredited investors (each an "Investor" and collectively, the "Investors") pursuant to which we agreed to sell and issue to the Investors in a private investment in public equity ("PIPE") financing an aggregate of 25,000,000 shares of our common stock at a purchase price of $3.21 per share. The gross proceeds to us from the PIPE are $80.3 million, before deducting fees to the placement agents and other offering expenses payable by us. Based on our research and development plans, we expect that such cash resources will enable us to fund our operating expenses and capital expenditure requirements into 2026. 

 

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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COVID-19 Update

 

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of our employees and to reduce the spread of COVID-19 community-wide. We are ensuring that essential staffing levels at our operations remain in place, including maintaining key personnel in our laboratory facilities. We have implemented stringent safety measures designed to create a safe and clean environment for our employees as we continue to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic.

 

There have been delays in sourcing of selected supplies required for the manufacturing of material to be used in our future clinical trials, and these delays have impacted and may continue to impact the timing of our future clinical trials. We expect that COVID-19 may continue to directly or indirectly impact (i) our employees and business operations or personnel at third-party suppliers and other vendors in the U.S. and other countries; (ii) the availability, cost or supply of materials; and (iii) the timeline for our ongoing clinical trial and potential future trials. We are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system.

 

Components of Results of Operations

 

Research and Development

 

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates, CTX-009, CTX-471 and CTX-8371, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include:

 

 

employee-related expenses including salaries, related benefits and equity-based compensation expense for employees engaged in research and development functions;

 

 

expenses incurred under agreements with organizations that support our platform program development;

 

 

Contract Manufacturing Organizations (“CMOs”) that are primarily engaged to provide drug substance and product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;

 

 

the cost of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;

 

 

costs related to compliance with quality and regulatory requirements; and

 

 

facilities and equipment expenses.

 

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

 

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of any future product candidates.

 

The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization.

 

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General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and 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.

 

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our business operations.

 

Other Income (expense)

 

Other income (expense) consists of interest income, interest expense and realized gains or losses on sales of furniture and equipment.

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2022 and 2021

 

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:

 

   

Three Months Ended September 30,

 
   

2022

   

2021

   

Change

 
           

(000’s)

         

Operating expenses:

                       

Research and development

  $ 9,791     $ 3,154     $ 6,637  

General and administrative

    2,807       2,700       107  

Total operating expenses

    12,598       5,854       6,744  

Loss from operations

    (12,598 )     (5,854 )     (6,744 )

Other income (expense)

    623       (121 )     744  

Loss before income tax expense

    (11,975 )     (5,975 )     (6,000 )

Income tax expense

                 

Net loss

  $ (11,975 )   $ (5,975 )   $ (6,000 )

 

Research and Development Expenses

 

Research and development expenses increased by $6.6 million, or 210%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The increase primarily came from an increase in the purchase and manufacturing of drug substance for the CTX-009 program of $4.3 million and toxicological studies for CTX-8371 of $1.1 million as compared to the same period in 2021. 

 

 

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We track outsourced development, personnel costs and other research and development costs of specific programs. Research and development expenses are summarized by program in the table below:

 

   

Three Months Ended September 30,

 
   

2022

   

2021

 
   

(000’s)

 

CTX-009

  $ 5,523     $ 177  

CTX-471

    1,074       1,067  

CTX-8371

    1,324       274  

Unallocated research and development expenses

    1,870       1,636  

Total research and development expenses

  $ 9,791     $ 3,154  

 

General and Administrative Expenses

 

General and administrative expenses increased by $0.1 million, or 4%, to $2.8 million for the three months ended September 30, 2022 as compared to the same period in 2021.

 

Other Income (Expense)

 

For the three months ended September 30, 2022, other income (expense) consists of interest income of $0.6 million.  The increase in interest income was due to the investment of our cash in marketable securities. For the three months ended September 30, 2021, the primary component was interest expense of $0.1 million related to a term loan facility with Pacific Western Bank, Inc. (the “Credit Facility”) which we extinguished in the fourth quarter of 2021. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for further information on the Credit Facility.

 

Income Tax Expense

 

During the three months ended September 30, 2022 and 2021, we recognized no income tax expense.

 

Comparison of the Nine Months Ended September 30, 2022 and 2021

 

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

Change

 
           

(000’s)

         

Operating expenses:

                       

Research and development

  $ 20,069     $ 10,763     $ 9,306  

General and administrative

    8,698       7,500       1,198  

In-process R&D

          50,618       (50,618 )

Total operating expenses

    28,767       68,881       (40,114 )

Loss from operations

    (28,767 )     (68,881 )     40,114  

Other income (expense)

    1,136       (306 )     1,442  

Loss before income tax expense

    (27,631 )     (69,187 )     41,556  

Income tax expense

          (13 )     13  

Net loss

  $ (27,631 )   $ (69,200 )   $ 41,569  

 

Research and Development Expenses

 

Research and development expenses increased by $9.3 million, or 86%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase primarily came from an increase in the purchase and manufacturing of drug substance for program CTX-009 of $4.1 million, clinical costs for program CTX-009 of $1.0 million, manufacturing of drug substance for program CTX-8371 of $1.6 million and toxicological studies for CTX-8371 of $1.1 million as compared to the same period in 2021.

 

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We track outsourced development, personnel costs and other research and development costs of specific programs. Research and development expenses are summarized by program in the table below:

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 
   

(000’s)

 

CTX-009

  $ 6,991     $ 282  

CTX-471

    3,788       2,763  

CTX-8371

    4,277       2,083  

Unallocated research and development expenses

    5,013       5,635  

Total research and development expenses

  $ 20,069     $ 10,763  

 

General and Administrative Expenses

 

General and administrative expenses increased by $1.2 million, or 16%, to $8.7 million for the nine months ended September 30, 2022, as compared to the same period in 2021. The increase primarily came from an increase of $1.2 million of stock compensation expense.

 

In-Process R&D

 

In the second quarter of 2021, we acquired TRIGR Therapeutics, Inc., whose primary asset is CTX-009, an anti-DLL4 x VEGF-A bispecific antibody. As we expense research and development costs as incurred, the cost of this acquisition was expensed to In-Process R&D. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for further information description of the accounting of this transaction. There were no In-Process R&D expenses for the nine months ended September 30, 2022.

 

Other income (expense)

 

For the nine months ended September 30, 2022, other income (expense) consists of interest of $1.1 million and gain on disposal of assets of $70 thousand.  For the nine months ended September 30, 2021, the primary component was interest expense of $0.3 million related to the Credit Facility which we extinguished in the fourth quarter of 2021. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for further information on the Credit Facility.

 

Income Tax Expense

 

During the nine months ended September 30, 2022, we recognized no income tax expense. During the nine months ended September 30, 2021, we recognized $13 thousand of income tax expense.

 

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Liquidity and Capital Resources

 

Since our inception, we have devoted substantially all of our efforts to organizing and staffing our Company, business planning, raising capital, research and development activities, building our intellectual property portfolio and providing general and administrative support for these operations. We have funded our operations primarily with proceeds from the sale of our equity securities (in addition, we received borrowings from the Credit Facility, which was extinguished in the fourth quarter of 2021).  Through September 30, 2022, we have received $329.0 million in gross proceeds from the sale of equity securities. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $120.6 million.  In November 2022, we completed a PIPE financing with gross proceeds of $80.3 million. (see Note 11 to the financial statements contained in this Form 10-Q for further description of this transaction).

 

Funding Requirements

 

Our primary use of cash is to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

 

 

the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

 

 

the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

 

 

the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

 

 

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

 

the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

 

 

our ability to establish additional collaborations on favorable terms, if at all;

 

 

the costs required to scale up our clinical, regulatory and manufacturing capabilities;

 

 

the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and

 

 

revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, current stockholders’ interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. 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, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Cash Flows

 

The following table shows a summary of our cash flows for the periods indicated:

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 
   

(000’s)

 

Cash used in operating activities

  $ (23,484 )   $ (15,001 )

Cash used in investing activities

    (104,554 )     (994 )

Cash provided by (used in) financing activities

    5       (5,625 )

Net change in cash, cash equivalents and restricted cash

  $ (128,033 )   $ (21,620 )

 

Operating Activities

 

During the nine months ended September 30, 2022, we used $23.5 million of cash in operating activities, resulting from our net loss of $27.6 million, offset by non-cash charges and the change in operating assets and liabilities of $4.1 million. Our non-cash charges are primarily from share-based compensation expense of $4.3 million and depreciation and amortization (including ROU asset amortization) of $1.4 million.

 

During the nine months ended September 30, 2021, we used $15.0 million of cash in operating activities, resulting from our net loss of $69.2 million, offset by non-cash charges of $54.7 million. Our non-cash charges are from the TRIGR acquisition expense of in-process R&D of $50.6 million, share-based compensation expense of $2.8 million and depreciation and amortization of $0.4 million.

 

Investing Activities

 

During the nine months ended September 30, 2022, we used $104.6 million of cash in investing activities which primarily related to $117.3 million used to purchase marketable securities offset by the proceeds from sale or maturities of marketable securities of $12.8 million. During the nine months ended September 30, 2021, cash used in investing activities was $1.0 million which was primarily attributed to $0.8 million in leasehold improvements and purchases of equipment.

 

Financing Activities

 

During the nine months ended September 30, 2022, we had a small number of options exercised for $5 thousand. During the nine months ended September 30, 2021, we had $5.6 million in payments under the Credit Facility.

 

Future Funding Requirements

 

We expect our expenses to increase substantially in connection with our ongoing activities. The timing and amount of our operating expenditures will depend largely on:

 

 

the initiation, progress, timing, costs and results of clinical trials for our product candidate or any future product candidates we may develop;

 

 

the initiation, progress, timing, costs and results of nonclinical studies for our product candidates or any future product candidates we may develop;

 

 

our ability to maintain our relationships with key collaborators;

 

 

the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to;

 

 

the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;

 

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the effect of competing technological and market developments;

 

 

the costs of continuing to grow our business, including hiring key personnel and maintain or acquiring operating space;

 

 

market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors;

 

 

the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

 

 

the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing;

 

 

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and

 

 

our need to implement additional internal systems and infrastructure, including financial and reporting systems.

 

We believe that our existing cash and marketable securities as of filing of the form 10-Q will enable us to fund our operating expenses and capital expenditure requirements into 2026 based on our current plans, which may change based on clinical or preclinical results. These plans include initiation and completion of a Phase 2/3 clinical trial of CTX-009 in combination with paclitaxel in BTC, initiation of a Phase 2 trial of CTX-009 in colorectal cancer, completion of the ongoing Phase 1b clinical trial of CTX-471, initiation of a Phase 1b combination trial for CTX-471 with KEYTRUDA and commencement of the planned Phase 1 development of CTX-8371, subject to satisfactory completion of IND-enabling activities for that product candidate.  We expect that we will require additional funding to complete the clinical development of CTX-009, CTX-471 and CTX-8371, commercialize our product candidates, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for CTX-009, CTX-471 or CTX-8371 or other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize these product candidates.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise 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, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements 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 product candidates that we would otherwise prefer to develop and market ourselves.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable since we are a smaller reporting company.

 

Item 4. Controls and Procedures.

 

Managements Evaluation of our Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Operating Officer (Principal Financial Officer), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2022. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Operating Officer (Principal Financial Officer) concluded that, as of such date, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

25

 

PART IIOTHER INFORMATION

 

Item 1. Legal Proceedings.

 

As of the date of this Quarterly Report on Form 10-Q, we are not involved in any material legal proceedings. However, from time to time, we could be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could materially affect our business, financial condition, or results of operations.

 

 

 

 

 

26

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On November 9, 2022, we issued a press release announcing our financial results for the quarter ended September 30, 2022. A copy of this press release is attached as Exhibit 99.1 to this Quarterly Report. The information regarding this press release in this Item 5 (including Exhibit 99.1) shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 6. Exhibits.

 

Exhibit

Number

 

Description

     
10.1*   Registration Rights Agreement dated November 2, 2022.
     
10.2*   Securities Purchase Agreement dated November 2, 2022.
     

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1**

 

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

     

32.2**

 

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

     

99.1**

 

Press release titled "Compass Therapeutics Reports Third Quarter 2022 Financial Results and Provides Corporate Update".

     

101.INS

 

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

     

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

     

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

     

104

 

 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 


* Filed herewith.
** These exhibits are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in such filing.

 

27

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Company Name

 

 

 

 

Date: November 9, 2022

 

By:

/s/ Thomas Schuetz

 

 

 

Thomas Schuetz, MD

 

 

 

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

Date: November 9, 2022

 

By:

/s/ Vered Bisker-Leib

 

 

 

Vered Bisker-Leib, PhD

 

 

 

President and Chief Operating Officer (Principal Financial Officer)

       

Date: November 9, 2022

 

By:

/s/ Neil Lerner

 

 

 

Neil Lerner, CPA

 

 

 

Vice President - Finance

 

 

 

 

 

28
ex_443781.htm

Exhibit 10.1

 

EXECUTION VERSION

 

 

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of November 2, 2022 by and among Compass Therapeutics, Inc., a Delaware corporation (the “Company”), and the “Investors” named in that certain Securities Purchase Agreement by and among the Company and the Investors (the “Purchase Agreement”). Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.

 

The parties hereby agree as follows:

 

1. Certain Definitions.

 

As used in this Agreement, the following terms shall have the following meanings: “Board of Directors” means the board of directors of the Company.

 

“Effectiveness Deadline” means, with respect to the Registration Statement, February 1, 2023.

 

“Investors” means the Investors identified in the Purchase Agreement and any Affiliate or permitted transferee of any Investor who is a subsequent holder of Registrable Securities.

 

“Prospectus” means (i) the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post- effective amendments and all material incorporated by reference in such prospectus and (ii) any “free writing prospectus” as defined in Rule 405 under the Securities Act of 1933, as amended (the “1933 Act”).

 

“Register,” “registered” and “registration” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act, and the declaration or ordering of effectiveness of such Registration Statement or document.

 

“Registrable Securities” means (i) the Purchased Shares and (ii) any other securities issued or issuable with respect to or in exchange for Registrable Securities, whether by merger, charter amendment or otherwise; provided, that a security shall cease to be a Registrable Security upon sale pursuant to a Registration Statement or Rule 144 under the 1933 Act.

 

“Registration Statement” means any registration statement of the Company under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

 

“Required Investors” means the Investors holding a majority of the Registrable Securities outstanding from time to time.

 

2. Registration.

 

(a) Registration Statements.

 

(i)    Promptly following the Closing Date but in any case no later than 30 days after the Closing Date (the “Filing Deadline”), the Company shall prepare and file with the Securities and Exchange Commission (the “SEC”) one Registration Statement covering the resale of all of the Registrable Securities. Subject to any SEC comments, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. Such Registration Statement shall

 

 

 

not include any shares of Common Stock or other securities for the account of any other holder without the prior written consent of the Required Investors. Such Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 4(c) to the Investors prior to its filing or other submission. If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any portion thereof following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities. Such payments shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive relief. Such payments shall be made to each Investor in cash no later than three Business Days after the end of each 30-day period (the “Payment Date”). Interest shall accrue at the rate of 1% per month on any such liquidated damages payments that shall not be paid by the Payment Date until such amount is paid in full. The parties agree that the maximum aggregate liquidated damages payable to a holder of Registrable Securities under this Agreement shall be 5.0% of the aggregate purchase price paid by such holder pursuant to the Purchase Agreement for the Registrable Securities then held by such holder.

 

(ii)    The Registration Statement referred to in Section 2(a)(i) shall be on Form S-3. In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder at the Filing Deadline, the Company shall (i) register the resale of the Registrable Securities on such other form as is available to the Company and (ii) so long as Registrable Securities remain outstanding, promptly following the date upon which the Company becomes eligible to use a registration statement on Form S-3 to register the Registrable Securities for resale (the “Qualification Date”), but in no event more than 30 days after the Qualification Date (the “Qualification Deadline”), the Company shall file a registration statement on Form S-3 covering the Registrable Securities (or a post-effective amendment on Form S-3 to a registration statement on Form S-1) (a “Shelf Registration Statement”); provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Shelf Registration Statement covering the Registrable Securities has been declared effective by the SEC.

 

(b) Expenses. The Company will pay all reasonable expenses associated with the filing of any Registration Statement, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws and listing fees, and including selling stockholder counsel fees in an amount not to exceed $50,000, but excluding discounts, commissions and fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold.

 

(c) Effectiveness.

 

(i)    The Company shall use commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable, but no later than the Effectiveness Deadline. The Company shall notify the Investors by e-mail as promptly as practicable, and in any event, within 48 hours, after any Registration Statement is declared effective and shall simultaneously provide the Investors with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby. If (A) a Registration Statement covering the Registrable Securities is not declared effective by the SEC prior to the earlier of (i) 5 Business Days after the SEC informs the Company that no review of such Registration Statement will be made or that the SEC has no further comments on such Registration Statement or (ii) the Effectiveness Deadline or (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update such Registration Statement), but excluding any Allowed Delay (as defined below), then the Company will make pro rata payments to each Investor then holding Registrable Securities, as liquidated damages and not as a penalty, in an amount equal to 1% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any portion thereof following the date by which such Registration Statement should have been effective (the “Blackout Period”). Such payments shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive relief. The amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three Business Days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period (the “Blackout Period Payment Date”). Such payments shall be made to each Investor in cash. Interest shall accrue at the rate of 1% per month on any such liquidated damages payments that shall not be paid by the Blackout Payment Date until such amount is paid in full.

 

 

2

 

(ii)    For not more than 30 consecutive days or for a total of not more than 60 days in any 12 month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section 2 in the event that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “Allowed Delay”); provided, that the Company shall promptly (a) notify each Investor in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of an Investor) disclose to such Investor any material non-public information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales under such Registration Statement until the end of the Allowed Delay and

 

(c)    use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable. With respect to each Investor, at such time when Rule 144 is available for the resale of such Investor’s Registrable Securities without restriction, the time periods referenced in the first sentence of this paragraph shall not limit duration of an Allowed Delay with respect such Investor’s Registrable Securities.

 

(d) Rule 415; Cutback. If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Investor to be named as an “underwriter,” the Company shall use commercially reasonable efforts to persuade the SEC that the offering contemplated by such Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Investors is an “underwriter.” The Investors shall have the right to together select one legal counsel designated by the holders of a majority of the Registrable Securities to review and oversee any registration or matters pursuant to this Section 2(d), including participation in any meetings or discussions with the SEC regarding the SEC’s position and to comment on any written submission made to the SEC with respect thereto. No such written submission with respect to this matter shall be made to the SEC to which the Investors’ counsel reasonably objects. In the event that, despite the Company’s commercially reasonable efforts and compliance with the terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from such Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agree to name any Investor as an “underwriter” in such Registration Statement without the prior written consent of such Investor. Any cut-back imposed on the Investors pursuant to this Section 2(d) shall be allocated among the Investors on a pro rata basis and shall be applied first to any of the Registrable Securities of such Investor as such Investor shall designate, unless the SEC Restrictions otherwise require or provide or the Investors otherwise agree. No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions applicable to such Cut Back Shares (such date, the “Restriction Termination Date”). In furtherance of the foregoing, each Investor shall provide the Company with prompt written notice of its sale of substantially all of the Registrable Securities under such Registration Statement such that the Company will be able to file one or more additional Registration Statements covering the Cut Back Shares. From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this Section 2 (including the Company’s obligations with respect to the filing of a Registration Statement and its obligations to use commercially reasonable efforts to have such Registration Statement declared effective within the time periods set forth herein and the liquidated damages provisions relating thereto) shall again be applicable to such Cut Back Shares; provided, however, that (i) the Filing Deadline and/or the Qualification Deadline, as applicable, for such Registration Statement including such Cut Back Shares shall be 10 Business Days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares shall be the 90th day immediately after the Restriction Termination Date.

 

3. Secondary Offering. If the Company proposes to effect a secondary sale of shares of the Company’s Common Stock of its stockholders by means of an underwritten offering or a block trade of at least (i) 3,000,000 shares of Registrable Securities (as adjusted for any stock split, dividend, combination or other recapitalization from the date hereof) or (ii) an estimated market value of at least $10,000,000 (a “Secondary Offering”), the Company shall promptly give notice of such Secondary Offering at least ten (10) Business Days prior to the anticipated filing date

 

3

 

of the prospectus or supplement relating to such Secondary Offering to the Investors and thereupon shall use its commercially reasonable efforts to effect, as expeditiously as possible, the offering in such Secondary Offering of subject to the restrictions set forth in this Section 3, all Registrable Securities for which the Investors have requested (such requesting Investors, “Requesting Investors”) to be included in such Secondary Offering within five (5) Business Days after the Company has delivered notice of the Secondary Offering, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be offered. All Investors proposing to distribute their securities through such Secondary Offering shall enter into an underwriting agreement or other agreement(s), including, if requested by the managing underwriter or investment bank, any lock-up or market standoff agreements, in customary form with the underwriter(s) or investment bank(s) selected for such Secondary Offering as may be mutually agreed upon among the Company, the underwriter(s) or investment bank(s) and the selling stockholders in such Secondary Offering. In connection with a Secondary Offering, the Company shall enter into and perform its obligations under an underwriting agreement or other agreement(s), in usual and customary form as may be mutually agreed upon among the Company, the underwriter(s) or investment bank(s) and the selling stockholders in such Secondary Offering. Notwithstanding any other provision of this Section 3, if the managing underwriter in good faith advises the Requesting Investors and the Company in writing that the inclusion of all Registrable Securities proposed to be included by the Requesting Investors would materially and adversely interfere with the successful marketing of such offering, then the number of shares, including the Registrable Securities, that may be included in such Secondary Offering shall be allocated among the selling stockholders in such Secondary Offering as follows: (i) first, the shares of common stock to be included in such Secondary Offering by the selling stockholders in such Secondary Offering and the Registrable Securities requested to be included in such Secondary Offering by the Requesting Investors in proportion (as nearly as practicable) to the number of shares of common stock or Registrable Securities proposed to be sold by each such selling stockholder and such Requesting Investors or in such other proportion as shall mutually be agreed to by all such selling stockholders and Requesting Investors in such Secondary Offering; and (ii) second to the Company, if the Company desires to sell any shares of Common Stock or other securities in such offering.

 

4. Company Obligations. The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:

 

(a)    use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold, and (ii) the later of (A) the date that is five years after the date of this Agreement and (B) with respect to each Investor, the date on which Rule 144 is available for the resale of all of such Investor’s Registrable Securities (the “Effectiveness Period”) and advise the Investors promptly in writing when the Effectiveness Period has expired;

 

(b)    prepare and file with the SEC such supplements, amendments and post-effective amendments to such Registration Statement and the related Prospectus as may be necessary to keep such Registration Statement effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the Securities Exchange Act of 1934, as amended (the “1934 Act”), with respect to the distribution of all of the Registrable Securities covered thereby;

 

(c)    provide copies to and permit any counsel designated by the Investors to review each Registration Statement and all amendments and supplements thereto no fewer than three days prior to their filing with the SEC and not file any document to which such counsel reasonably objects; provided, however, for the avoidance of doubt, the Company shall not be required to provide such copies of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or other 1934 Act filings;

 

(d)    furnish to each Investor whose Registrable Securities are included in any Registration Statement (i) promptly after the same is prepared and filed with the SEC, if requested by the Investor, one copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all

 

4

 

amendments and supplements thereto and such other documents as each Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor;

 

(e)    use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest practical moment;

 

(f)    prior to any public offering of Registrable Securities, use commercially reasonable efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities for the offer and sale under the securities or blue sky laws of such jurisdictions requested by the Investors and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 4(f), or (iii) file a general consent to service of process in any such jurisdiction;

 

(g)    use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed;

 

(h)    promptly notify the Investors, at any time prior to the end of the Effectiveness Period, upon discovery that, or upon the happening of any event as a result of which, the Prospectus includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

 

(i) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, including, without limitation, (i) Rule 172 under the 1933 Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, (ii) promptly inform the Investors in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Investors are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder, (iii) and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least 12 months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 4(i), “Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter);

 

(j)    with a view to making available to the Investors the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Investors to sell shares of Common Stock to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction by the holders thereof pursuant to Rule 144 or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to each Investor upon request, as long as such Investor owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act (to the extent not previously addressed by the representation on the cover of the most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable, filed by the Company), (B) a copy of the Company’s most recent Annual Report on Form

 

5

 

10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Investor of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration; and

 

(k)    take all other commercially reasonable actions necessary to enable, expedite or facilitate the Investors’ disposal of their Registrable Securities by means of a Registration Statement as contemplated hereby.

 

5. Due Diligence Review; Information. If any Investor is required under applicable securities laws to be described in a Registration Statement as an “underwriter,” the Company shall, upon reasonable prior notice, make available, during normal business hours, for inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to the Company) (collectively, the “Inspectors”), all pertinent financial and other records, and all other corporate documents and properties of the Company (collectively, the “Records”) as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Inspectors (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of such Registration Statement for the sole purpose of enabling such Investor and its accountants and attorneys to conduct such due diligence solely for the purpose of establishing a due diligence defense to underwriter liability under the 1933 Act; provided, however, that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to such Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non- appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other Transaction Document.

 

Notwithstanding the foregoing, the Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

 

6. Obligations of the Investors.

 

(a)    Each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities included in such Registration Statement. An Investor shall provide such information to the Company at least two Business Days prior to the first anticipated filing date of such Registration Statement if such Investor elects to have any of the Registrable Securities included in such Registration Statement.

 

(b)    Each Investor, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

 

(c)    Each Investor agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 4(h) hereof, such Investor will as promptly as practicable discontinue disposition of Registrable Securities pursuant to any

 

6

 

Registration Statement covering such Registrable Securities, until the Investor is advised by the Company that such dispositions may again be made.

 

7. Indemnification.

 

(a) Indemnification by the Company. The Company will indemnify and hold harmless each Investor and its officers, directors, members, employees and agents, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof or any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement and, in each case, will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other documented, out-of-pocket expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability (i) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such Registration Statement or Prospectus or (ii) is finally judicially determined to have resulted from an Investor’s bad faith, gross negligence, recklessness, fraud or willful misconduct.

 

(b) Indemnification by the Investors. Each Investor agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in any Registration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement of material fact or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds received by such Investor upon the sale of the Registrable Securities included in such Registration Statement giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed in writing to pay such fees or expenses, (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further that the failure of any indemnified party to give written notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

 

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(d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the aggregate liability a holder of Registrable Securities under Section 7(c) and Section 7(b) be greater in amount than the dollar amount of the net proceeds received by it upon the sale of the Registrable Securities giving rise to such contribution obligation. The amount paid or payable by a party as a result of the losses or other liabilities referred to above shall be deemed to include, subject to the limitations set forth in Section 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation, which does not take account of the equitable considerations referred to in this Section 7(d).

 

8. Miscellaneous.

 

(a) Effective Date. This Agreement shall be effective as of the Closing Date, and if the Closing Date has not occurred on or prior to the fifth trading day following the date of the Purchase Agreement, unless otherwise mutually agreed, then this Agreement shall be null and void.

 

(b) Amendments and Waivers. This Agreement may be amended only by a writing signed by the Company and the Required Investors. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Required Investors.

 

(c) Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement.

 

(d) Assignments and Transfers by Investors. The provisions of this Agreement shall be binding upon and inure to the benefit of the Investors and their respective successors and assigns. An Investor may transfer or assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with the transfer of Registrable Securities by such Investor to such person, provided that such Investor complies with all laws applicable thereto, and the provisions of the Purchase Agreement, and provides written notice of assignment to the Company promptly after such assignment is effected, and such person agrees in writing to be bound by all of the provisions contained herein.

 

(e) Assignments and Transfers by the Company. This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Investors, provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Person and the term “Registrable Securities” shall be deemed to include the securities received by the Investors in connection with such transaction unless such securities are otherwise freely tradable by the Investors after giving effect to such transaction.

 

(f) Benefits of the Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

(g) Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed electronically, which shall be deemed an original.

 

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(h) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

(i) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.

 

(j) Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

(k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

 

(l) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

(m) Subsequent Registration Rights. The Company shall not enter into any agreement granting registration rights that are superior to or that would adversely affect the registration rights set forth in this Agreement without the written consent of the Required Investors.

 

(n) Opt-Out Requests. An Investor shall have the right, at any time and from time to time (including after receiving information regarding any potential public offering), to elect by giving ten (10) Business Days' notice to the Company to not receive any notice that the Company otherwise is required to deliver pursuant to this Agreement by delivering to the Company a written statement signed by such Investor that it does not want to receive any notices hereunder (an “Opt-Out Request”); in which case and notwithstanding anything to the contrary in this Agreement, the Company shall not be required to, and shall not deliver any notice or other information required to be provided to Investors hereunder to the extent that the Company reasonably expects that it would result in an Investor acquiring material non-public information within the meaning of Regulation FD promulgated under the Exchange Act. An Opt-Out Request may state a date on which it expires or, if no such date is specified, shall remain in effect indefinitely. An Investor who previously has given the Company an Opt-Out Request may revoke such request at any time by giving ten (10) Business Days' notice to the Company, and there shall be no limit on the ability of an Investor to issue and revoke subsequent Opt-Out Requests.

 

 

 

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We are registering the shares of common stock to permit the resale of these shares of common stock by the holders of the common stock from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock, except that, if the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions.

 

The selling stockholders may sell all or a portion of the shares of our common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,

 

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

in the over-the-counter market;

in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

through the writing of options, whether such options are listed on an options exchange or otherwise;

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

distributions to members, partners, stockholders or other equityholders of the selling stockholders;

an exchange distribution in accordance with the rules of the applicable exchange;

privately negotiated transactions;

short sales;

sales pursuant to Rule 144 of the Securities Act;

broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share;

a combination of any such methods of sale; and

any other method permitted pursuant to applicable law.

 

If the selling stockholders effect such transactions by selling shares of our common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of our common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of our common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of our common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of our common stock short and deliver shares of our common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of our common stock to broker-dealers that in turn may sell such shares.

 

The selling stockholders may pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or other applicable provisions of the Securities Act, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of our common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealer participating in the distribution of the shares of our common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or

 

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discounts under the Securities Act. At the time a particular offering of the shares of our common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of our common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

 

Under the securities laws of some states, the shares of our common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of our common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

 

There can be no assurance that any selling stockholder will sell any or all of the shares of our common stock registered pursuant to the registration statement, of which this prospectus forms a part.

 

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of our common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of our common stock to engage in market-making activities with respect to the shares of our common stock. All of the foregoing may affect the marketability of the shares of our common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of our common stock.

 

We will pay all expenses of the registration of the shares of our common stock pursuant to the registration statement of which this prospectus forms a part, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that the selling stockholders will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus or we may be entitled to contribution.

 

Once sold under the registration statement of which this prospectus forms a part, the shares of our common stock will be freely tradable in the hands of persons other than our affiliates.

 

 

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ex_443782.htm

Exhibit 10.2

 

EXECUTION VERSION

 

 

 

SECURITIES PURCHASE AGREEMENT

 

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of November 2, 2022 by and among Compass Therapeutics, Inc., a Delaware corporation (the “Company”), and the Investors identified on Exhibit A attached hereto (each an “Investor” and collectively the “Investors”).

 

 

RECITALS

 

WHEREAS, the Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder (the “1933 Act”) and/or Rule 506 of Regulation D (“Regulation D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the 1933 Act;

 

WHEREAS, the Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and subject to the conditions stated in this Agreement, that aggregate number of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) as set forth next to such Investors name on Exhibit A;

 

WHEREAS, the shares of Common Stock to be sold pursuant to the terms of this Agreement are sometimes referred to herein as the “Purchased Shares”; and

 

WHEREAS, contemporaneously with the sale of the Purchased Shares, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company will agree to provide certain registration rights in respect of the Purchased Shares under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Definitions. For the purposes of this Agreement, the following terms shall have the meanings set forth below:

 

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common Control with, such Person.

 

“Applicable Laws” means all statutes, rules or regulations of the U.S. Food and Drug Administration (“FDA”) and other comparable governmental entities applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product under development, manufactured or distributed by the Company.

 

“Appointed Director” has the meaning set forth in Section 7.4.

 

“Authorizations” means any Applicable Laws or any licenses, certificates, approvals, clearances, exemptions, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws.

 

“Board” has the meaning set forth in Section 6.1(j).

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

 

“Closing” has the meaning set forth in Section 3.1.

 

 

 

“Closing Date” has the meaning set forth in Section 3.1.

 

“Code” has the meaning set forth in Section 4.38.

 

“Common Stock” has the meaning set forth in the recitals to this Agreement.

 

“Company Data” has the meaning set forth in Section 9.7.

 

“Company IT Assets” has the meaning set forth in Section 4.37.

 

“Company Securities” has the meaning set forth in Section 4.3(ii)

 

“Companys Knowledge” means the actual knowledge, after reasonable inquiry, of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company.

 

“Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Debt Repayment Triggering Event” has the meaning set forth in Section 4.10.

 

“Default” has the meaning set forth in Section 4.10.

 

“Environmental Laws” has the meaning set forth in Section 4.16.

 

“ERISA” has the meaning set forth in Section 4.38.

 

“ERISA Affiliates” has the meaning set forth in Section 4.38.

 

“Existing Instrument” has the meaning set forth in Section 4.10.

 

“FCPA” has the meaning set forth in Section 4.25.

 

“GAAP” has the meaning set forth in Section 4.18.

 

“GDPR” has the meaning set forth in Section 4.37.

 

“Governmental Entity” means any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations.

 

“Hazardous Materials” has the meaning set forth in Section 4.16.

 

“Health Care Laws” has the meaning set forth in Section 4.34.

 

“HIPAA” has the meaning set forth in Section 4.34.

 

“Intellectual Property” has the meaning set forth in Section 4.15.

 

“Investor Questionnaire” has the meaning set forth in Section 5.8.

 

“Licenses” has the meaning set forth in Section 4.13.

 

“Losses” has the meaning set forth in Section 8.2.

 

 

 

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“Material Adverse Effect” means any effect, change, event or occurrence that has or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on (i) the assets, liabilities, results of operations, prospects, condition (financial or otherwise) or business of the Company and its subsidiaries taken as a whole, (ii) the legality or enforceability of any of the Transaction Documents or (iii) the ability of the Company to timely perform its obligations under the Transaction Documents.

 

“Material Contract” means any contract, instrument or other agreement to which the Company is a party or by which it is bound which is material to the business of the Company, including those that have been filed or were required to have been filed as an exhibit to the SEC Filings pursuant to Item 601(b)(10) of Regulation S-K.

 

“Minimum Original Amount” means 3,894,075 shares of Common Stock held, directly or indirectly, by Commander Aggregator, LP, as adjusted for any stock splits, recapitalizations and other similar events.

 

“Money Laundering Laws” has the meaning set forth in Section 4.35.

 

“Nasdaq” means the Nasdaq Global Select Market.

 

“OFAC” has the meaning set forth in Section 4.36.

 

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

 

“Personal Data” has the meaning set forth in Section 4.37.