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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2023

☐ 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: 001-38663

Gritstone bio, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		47-4859534
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

5959 Horton Street, Suite 300 Emeryville, California		94608
(Address of Principal Executive Offices)		(Zip Code)

(510) 871-6100

(Registrant’s Telephone Number, Including Area Code)

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

GRTS

The Nasdaq Global Select 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 May 8, 2023, there were 88,913,562 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Gritstone bio, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	40
Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45

SIGNATURES		47

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone bio, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share

amounts and par value)


	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	47,128		$	55,498
Marketable securities		98,680			116,389
Restricted cash		2,077			3,977
Prepaid expenses and other current assets		6,880			7,014
Total current assets		154,765			182,878
Long-term restricted cash		5,290			5,290
Property and equipment, net		20,365			21,335
Lease right-of-use assets		15,615			17,481
Deposits and other long-term assets		13,917			9,739
Long-term marketable securities		—			4,031
Total assets	$	209,952		$	240,754
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,975		$	8,694
Accrued compensation		4,697			8,215
Accrued liabilities		3,123			4,124
Accrued research and development expenses		3,448			3,343
Lease liabilities, current portion		4,628			5,294
Deferred revenue, current portion		2,801			5,131
Total current liabilities		24,672			34,801
Other liabilities, noncurrent		251			150
Lease liabilities, net of current portion		14,575			15,673
Debt, noncurrent		29,576			19,349
Total liabilities		69,074			69,973
Commitments and contingencies (Notes 6, 8 and 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 87,848,417 and 86,894,901 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		22			22
Additional paid-in capital		695,961			691,910
Accumulated other comprehensive loss		(52	)		(80	)
Accumulated deficit		(555,053	)		(521,071	)
Total stockholders’ equity		140,878			170,781
Total liabilities and stockholders’ equity	$	209,952		$	240,754

See accompanying notes to the unaudited condensed consolidated financial statements.

Gritstone bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended March 31,
	2023			2022
Revenues:
Collaboration and license revenues	$	542		$	4,745
Grant revenues		1,901			2,446
Total revenues		2,443			7,191
Operating expenses:
Research and development		30,514			28,199
General and administrative		6,745			7,955
Total operating expenses		37,259			36,154
Loss from operations		(34,816	)		(28,963	)
Interest income		1,678			71
Interest expense		(844	)		(24	)
Net loss		(33,982	)		(28,916	)
Other comprehensive loss:
Unrealized gain (loss) on marketable securities		28			(318	)
Comprehensive loss	$	(33,954	)	$	(29,234	)
Net loss per share, basic and diluted	$	(0.30	)	$	(0.34	)
Weighted-average number of shares used in computing net loss per share, basic and diluted		114,423,000			86,277,599

See accompanying notes to the unaudited condensed consolidated financial statements.

Gritstone bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

Three Months Ended March 31, 2023:


	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Gain (Loss)			Deficit			Equity
Balance at December 31, 2022		86,894,901	$	22	$	691,910		$	(80	)	$	(521,071	)	$	170,781
Unrealized gain on marketable securities		—		—		—			28			—			28
Issuance of common stock upon restricted stock units vesting		345,663		—		—			—			—			—
Tax payments related to shares withheld for vested restricted stock units		—		—		(742	)		—			—			(742	)
Issuance of common stock under at the market, ("ATM") equity offering program, net of issuance costs of $58		607,853		—		1,902			—			—			1,902
Stock-based compensation		—		—		2,891			—						2,891
Net loss		—		—		—			—			(33,982	)		(33,982	)
Balance at March 31, 2023		87,848,417	$	22	$	695,961		$	(52	)	$	(555,053	)	$	140,878

Three Months Ended March 31, 2022:


	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Loss			Deficit			Equity
Balance at December 31, 2021		69,047,878	$	20	$	617,523		$	(73	)	$	(401,384	)	$	216,086
Unrealized loss on marketable securities		—		—		—			(318	)		—			(318	)
Issuance of common stock upon restricted stock units vesting		215,350		—		—			—			—			—
Tax payments related to shares withheld for vested restricted stock units		—		—		(890	)		—			—			(890	)
Issuance of common stock for warrant exercises		3,442,567		—		34			—			—			34
Issuance of common stock upon exercise of stock options		73,713		—		64			—			—			64
Stock-based compensation		—		—		3,131			—						3,131
Net loss		—		—		—			—			(28,916	)		(28,916	)
Balance at March 31, 2022		72,779,508	$	20	$	619,862		$	(391	)	$	(430,300	)	$	189,191

See accompanying notes to the unaudited condensed consolidated financial statements.

Gritstone bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023			2022
Operating activities
Net loss	$	(33,982	)	$	(28,916	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,799			1,589
Net amortization of premiums and discounts on marketable securities		(973	)		196
Amortization of debt discount and issuance costs		342			—
Stock-based compensation		2,891			3,131
Non-cash operating lease expense		2,243			2,332
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		134			(3,273	)
Deposits and other long-term assets		(4,177	)		787
Accounts payable		327			1,861
Accrued compensation		(3,518	)		(2,640	)
Accrued and other non-current liabilities		(869	)		121
Accrued research and development expenses		105			(105	)
Lease liability		(2,082	)		(2,034	)
Deferred revenue		(2,330	)		(6,500	)
Net cash used in operating activities		(40,090	)		(33,451	)
Investing activities
Purchase of marketable securities		(15,874	)		(28,342	)
Maturities of marketable securities		38,614			37,788
Purchase of property and equipment		(1,567	)		(1,812	)
Net cash provided by investing activities		21,173			7,634
Financing activities
Proceeds from issuance of common stock from ATM equity offering program		1,960			—
Proceeds from long-term debt, net of debt discount and issuance costs		9,977			—
Proceeds from issuance of common stock upon exercise of stock options, warrants, and other		—			98
Payments of financing costs		(2,489	)		(69	)
Payments of financing lease		(59	)		(56	)
Tax payments related to shares withheld for vested restricted stock units		(742	)		(890	)
Net cash provided by (used in) financing activities		8,647			(917	)
Net decrease in cash, cash equivalents and restricted cash		(10,270	)		(26,734	)
Cash, cash equivalents and restricted cash at beginning of period		64,765			110,577
Cash, cash equivalents and restricted cash at end of period	$	54,495		$	83,843
Supplemental disclosures of non-cash investing and financing information
Property and equipment purchases accrued but not yet paid	$	407		$	1,182
Remeasurement of operating lease right-of-use asset for lease modification	$	—		$	228
Cash paid for interest on debt	$	436		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

Gritstone bio, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Description of Business

Gritstone bio, Inc. (“Gritstone” or “the Company”) is a clinical stage biotechnology company developing targeted immunotherapies for cancer and infectious disease. The Company was incorporated in the state of Delaware in August 2015, and is based in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

Liquidity

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had net losses of $34.0 million and $28.9 million for the three months ended March 31, 2023 and 2022, respectively. Cash used by operating activities was $40.1 million and $33.5 million during the three months ended March 31, 2023 and 2022, respectively. The Company had an accumulated deficit of $555.1 million and $521.1 million as of March 31, 2023 and December 31, 2022, respectively. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from sales of commercial products. Management expects operating losses to continue for the foreseeable future. The Company has funded its operations to date primarily through private placements of its convertible preferred stock, the sale of common stock in public offerings and under its “at the market” offering programs, the private placement of common stock and pre-funded warrants, and through proceeds received from its collaboration arrangements. As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of $145.8 million, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the filing date of this report.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited and are comprised of the consolidation of the Company and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

The accompanying interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting.

The interim condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation for interim reporting. The results of operations for any interim period are not necessarily indicative of results of operations for any future period.

Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 9, 2023.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent

liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Fair Value of Financial Instruments

U.S. GAAP establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

Fair value is established as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, an established three-tier fair value hierarchy distinguishes between the following:

•

Level 1 inputs are quoted prices in active markets that are accessible at the market date for identical assets or liabilities.

•

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•

Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the assets or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.

The carrying amounts reflected on the condensed consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued compensation and accrued liabilities approximate their fair values due to their short-term nature.

Debt Issuance Costs and Debt Discounts

Debt issuance costs include legal fees, accounting fees and other direct costs incurred in connection with the execution of the Company’s debt financing. Debt discounts represent costs paid to the lenders. Debt issuance costs and debt discounts are deducted from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt using the effective interest method.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. The Company maintains cash equivalents and marketable securities with various high-credit-quality and capitalized financial institutions. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the condensed consolidated balance sheets. As of March 31, 2023, the Company has no off-balance sheet concentrations of credit risk.

Other Risks and Uncertainties

The Company is subject to a number of risks similar to those of other clinical-stage biotechnology companies, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its products. The Company currently depends on third-party suppliers for key materials and services used in its research and development manufacturing process and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services. Further, the Company is subject to broad market risks and uncertainties resulting from recent events, such as the COVID-19 pandemic, the Russian invasion of Ukraine, inflation, rising interest rates and recession risks, as well as supply chain and labor shortages.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with original maturities of three (3) months or less when purchased, are stated at fair value. These assets include investments in money market funds that invest in U.S. Treasury obligations and certificates of deposit, which are stated at fair value.

The Company has issued letters of credit under certain lease agreements that have been collateralized by cash deposits for an equal amount and are recorded within short-term restricted cash and deposits and other long-term assets on the condensed consolidated balance sheets based on the term of the underlying lease. Additionally, the Company’s restricted cash includes payments received under the Coalition for Epidemic Preparedness Innovations (“CEPI”) Funding Agreement, dated as of August 14, 2021 (the “CEPI Funding Agreement”) and the Gates Foundation Grant Agreement (see Note 9). The Company will utilize the CEPI and Gates Foundation funds as it incurs expenses for services performed under the agreements.

The following table provides a reconciliation of cash, cash equivalents and short-term and long-term restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):


	March 31,		December 31,
	2023		2022
Cash and cash equivalents	$	47,128	$	55,498
Restricted cash		2,077		3,977
Long-term restricted cash		5,290		5,290
Total cash, cash equivalents and restricted cash	$	54,495	$