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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________
FORM 10-Q
___________________________________________________________________
(Mark One)
x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File No. 001-38551
NEON THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________________________________________________________
Delaware
 
46-3915846
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
40 Erie St., Suite 110
Cambridge, MA
 
02139
(Address of principal executive offices)
 
(Zip Code)
___________________________________________________________________
(617) 337-4701
(Registrant’s telephone number, including area code)
___________________________________________________________________
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  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o
 
Accelerated Filer o
Non-Accelerated Filer x
 
Smaller Reporting Company x
Emerging Growth Company x
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trade Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
NTGN
The Nasdaq Global Select Market
As of July 31, 2019, there were 28,381,094 shares of common stock, $0.001 par value per share, outstanding.
 


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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
our ability and the potential to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved;
the potential for our identified research priorities to advance our platform, programs or product candidates;
the ability and willingness of our third-party research institution collaborators to continue research and development activities relating to our product candidates;
our ability to obtain and maintain regulatory approval of our lead product candidate, NEO-PV-01, and any other product candidates, and any related restrictions, limitations or warnings in the label of an approved product candidate;
the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;
our ability to commercialize our products in light of the intellectual property rights of others;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;
our plans to research and develop our product candidates;
the commercialization of our product candidates, if approved;
our ability to attract collaborators with development, regulatory and commercialization expertise;
future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
the rate and degree of market acceptance of our product candidates;
regulatory developments in the United States and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
our ability to produce our products or product candidates with advantages in turnaround times or manufacturing cost in an economically viable manner;
the success of competing therapies that are or may become available and changes in the standard of care;
our ability to attract and retain key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to continue as a going concern;
the impact of laws and regulations;
our use of the proceeds from our initial public offering and our ongoing at-the-market offering program;
our expectations regarding the time during which we will be an “emerging growth company” under the Jumpstart Our Business Startups Act; and
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
NOTE REGARDING TRADEMARKS
Neon Therapeutics, Inc. is the owner of the NEON THERAPEUTICS, RECON, NEO-STIM, Precision NEO-STIM and MAPTAC trademarks, as well as certain other trademarks, including design versions of some of these trademarks.  The symbols ™ and ® are not used in connection with the presentation of these trademarks in this report and their absence does not indicate a lack of trademark rights.  Certain other trademarks used in this report are the property of third-party trademark owners and may be presented with or without trademark references.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 
June 30, 2019
 
December 31, 2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
46,285

 
$
52,700

Marketable securities
14,714

 
50,611

Prepaid expenses and other current assets
1,998

 
2,116

Total current assets
62,997

 
105,427

Operating lease, right-of-use assets
8,148

 

Property and equipment, net
8,046

 
8,205

Other long-term assets
491

 
456

Total assets
$
79,682

 
$
114,088

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,751

 
$
4,268

Accrued expenses
6,371

 
8,422

Operating lease liabilities, current
1,153

 

Total current liabilities
10,275

 
12,690

Operating lease liabilities, net of current portion
7,185

 

Other liabilities
16

 
149

Total liabilities
17,476

 
12,839

Commitments and contingencies (Note 8)


 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 28,356,344 and 28,314,274 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
28

 
28

Additional paid-in capital
278,896

 
275,058

Accumulated other comprehensive loss

 
(75
)
Accumulated deficit
(216,718
)
 
(173,762
)
Total stockholders’ equity
62,206

 
101,249

Total liabilities and stockholders’ equity
$
79,682

 
$
114,088

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

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NEON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(In thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating expenses:
 

 
 

 
 

 
 

Research and development
$
16,735

 
$
14,804

 
$
32,907

 
$
27,962

General and administrative
5,580

 
4,313

 
10,988

 
7,912

Total operating expenses
22,315

 
19,117

 
43,895

 
35,874

Loss from operations
(22,315
)
 
(19,117
)
 
(43,895
)
 
(35,874
)
Other income (expense), net
 
 
 
 
 
 
 
Interest income
418

 
218

 
974

 
464

Other expense
(35
)
 

 
(35
)
 
(10
)
Total other income, net
383

 
218

 
939

 
454

Net loss
(21,932
)
 
(18,899
)
 
(42,956
)
 
(35,420
)
Accretion of redeemable convertible preferred stock to redemption value

 
(3,185
)
 

 
(6,371
)
Net loss attributable to common stockholders
$
(21,932
)
 
$
(22,084
)
 
$
(42,956
)
 
$
(41,791
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.79
)
 
$
(7.84
)
 
$
(1.55
)
 
$
(17.05
)
Weighted average common shares outstanding, basic and diluted
27,787,184

 
2,815,708

 
27,719,501

 
2,450,380

 
 
 
 
 
 
 
 
Comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(21,932
)
 
$
(18,899
)
 
$
(42,956
)
 
$
(35,420
)
Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains on marketable securities
8

 
6

 
75

 
11

Total other comprehensive income
8

 
6

 
75

 
11

Comprehensive loss
$
(21,924
)
 
$
(18,893
)
 
$
(42,881
)
 
$
(35,409
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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NEON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, CONTINGENTLY REDEEMABLE RESTRICTED COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
(In thousands, except share amounts)
 
Redeemable Convertible
Preferred Stock
 
Contingently
Redeemable
Restricted
Common Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
(Deficit)
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
Balance at December 31, 2018

 
$

 
$

 
 
28,314,274

 
$
28

 
$
275,058

 
$
(75
)
 
$
(173,762
)
 
$
101,249

Stock-based compensation expense

 

 

 
 

 

 
1,729

 

 

 
1,729

Exercise of stock options

 

 

 
 
17,070

 

 
45

 

 

 
45

Vesting of restricted common stock

 

 

 
 

 

 
5

 

 

 
5

Unrealized gains on marketable securities

 

 

 
 

 

 

 
67

 

 
67

Net loss

 

 

 
 

 

 

 

 
(21,024
)
 
(21,024
)
Balance at March 31, 2019

 
$

 
$

 
 
28,331,344

 
$
28

 
$
276,837

 
$
(8
)
 
$
(194,786
)
 
$
82,071

Stock-based compensation expense

 

 

 
 

 

 
2,054

 

 

 
2,054

Issuance of restricted common stock

 

 

 
 
25,000

 

 

 

 

 

Vesting of restricted common stock

 

 

 
 

 

 
5

 

 

 
5

Unrealized gains on marketable securities

 

 

 
 

 

 

 
8

 

 
8

Net loss

 

 

 
 

 

 

 

 
(21,932
)
 
(21,932
)
Balance at June 30, 2019

 
$

 
$

 
 
28,356,344

 
$
28

 
$
278,896

 
$

 
$
(216,718
)
 
$
62,206

Balance at December 31, 2017
93,222,418

 
$
174,895

 
$
355

 
 
3,302,927

 
$
3

 
$

 
$
(13
)
 
$
(93,562
)
 
$
(93,572
)
Stock-based compensation expense

 

 
99

 
 

 

 
1,551

 

 

 
1,551

Accretion of redeemable convertible preferred stock to redemption value

 
3,186

 

 
 

 

 
(1,557
)
 

 
(1,629
)
 
(3,186
)
Vesting of restricted common stock

 

 

 
 

 

 
6

 

 

 
6

Unrealized gains on marketable securities

 

 

 
 

 

 

 
5

 

 
5

Net loss

 

 

 
 

 

 

 

 
(16,520
)
 
(16,520
)
Balance at March 31, 2018
93,222,418

 
$
178,081

 
$
454

 
 
3,302,927

 
$
3

 
$

 
$
(8
)
 
$
(111,711
)
 
$
(111,716
)
Stock-based compensation expense

 

 
111

 
 

 

 
1,311

 

 

 
1,311

Accretion of redeemable convertible preferred stock to redemption value

 
3,185

 

 
 

 

 
(1,548
)
 

 
(1,638
)
 
(3,186
)
Conversion of redeemable convertible preferred stock and contingently redeemable restricted common stock to common stock
(93,222,418
)
 
(181,266
)
 
(565
)
 
 
18,644,462

 
19

 
181,812

 

 

 
181,831

Issuance of common stock upon completion of initial public offering, net of commissions, underwriting discounts and offering costs

 

 

 
 
6,250,000

 
6

 
89,661

 

 

 
89,667

Exercise of stock options

 

 

 
 
84,444

 

 
228

 

 

 
228

Cancellation of restricted common stock

 

 

 
 
(2,625
)
 

 

 

 

 

Vesting of restricted common stock

 

 

 
 

 

 
6

 

 

 
6

Unrealized gains on marketable securities

 

 

 
 

 

 

 
6

 

 
6

Net loss

 

 

 
 

 

 

 

 
(18,899
)
 
(18,899
)
Balance at June 30, 2018

 
$

 
$

 
 
28,279,208

 
$
28

 
$
271,470

 
$
(2
)
 
$
(132,248
)
 
$
139,248

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

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NEON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net loss
$
(42,956
)
 
$
(35,420
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization expense
833

 
692

Non-cash lease expense
580

 

Net amortization of premiums and discounts on marketable securities
(8
)
 
196

Stock-based compensation expense
3,783

 
3,072

Loss on disposal of property and equipment
35

 
10

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other current assets
118

 
22

Other long-term assets
(36
)
 
125

Accounts payable
(1,262
)
 
(1,132
)
Accrued expenses and other liabilities
(1,809
)
 
2,883

Lease liabilities
(514
)
 

Net cash used in operating activities
(41,236
)
 
(29,552
)
Cash flows from investing activities:
 
 
 
Purchases of marketable securities

 
(11,990
)
Sales and maturities of marketable securities
35,981

 
25,450

Purchases of property and equipment
(1,205
)
 
(2,275
)
Net cash provided by investing activities
34,776

 
11,185

Cash flows from financing activities:
 
 
 
Proceeds from initial public offering of common stock, net of commissions and underwriting discounts

 
93,000

Payment of initial public offering costs

 
(2,307
)
Proceeds from exercise of stock options
45

 
228

Net cash provided by financing activities
45

 
90,921

Net (decrease) increase in cash, cash equivalents and restricted cash
(6,415
)
 
72,554

Cash, cash equivalents and restricted cash, beginning of period
53,156

 
58,857

Cash, cash equivalents and restricted cash, end of period
$
46,741

 
$
131,411

 
 
 
 
Supplemental disclosure of non-cash items:
 
 
 
Accretion of redeemable convertible preferred stock to redemption value
$

 
$
6,371

Purchases of property and equipment included in accounts payable and accrued expenses
$

 
$
72

Deferred offering costs included in accounts payable and accrued expenses
$

 
$
1,003

Conversion of redeemable convertible preferred stock and contingently redeemable restricted common stock to common stock upon closing of the initial public offering
$

 
$
181,831

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods shown above:
 
June 30,
 
2019
 
2018
Cash and cash equivalents
$
46,285

 
$
130,804

Restricted cash included in other long-term assets
456

 
607

Total cash, cash equivalents and restricted cash
$
46,741

 
$
131,411

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

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NEON THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of the Business
Neon Therapeutics, Inc. (the "Company") is a clinical-stage immuno-oncology company and a leader in the field of neoantigen-targeted therapies, dedicated to transforming the treatment of cancer by directing the immune system towards neoantigens. The Company is leveraging its neoantigen platform and over a decade of insights from its founders to develop neoantigen-targeted therapies that use two distinct approaches, NEON / ONE and NEON / SELECT. These approaches focus on targeting a prioritized set of what the Company believes are the most therapeutically-relevant neoantigens. In NEON / ONE, these neoantigens are specific to each individual. In NEON / SELECT, these neoantigens are shared across subsets of patients or tumor types. The Company is applying these two approaches to develop neoantigen-targeted product candidates using multiple treatment modalities.
NEO-PV-01, the Company's most advanced product candidate, is a personal neoantigen vaccine that is custom-designed and manufactured based on the unique mutational fingerprint of each individual patient. The neoantigen-targeted peptides in NEO-PV-01 are intended to generate an immune response that trains each patient's immune system to target his or her individual tumor's particular neoantigens and kill the cancer cells. NEO-PV-01 is currently being evaluated in multiple Phase 1b clinical trials.
In April 2019, the Company completed enrollment in NT-002, the Company’s Phase 1b clinical trial evaluating NEO-PV-01 in combination with the current standard of care, KEYTRUDA® (pembrolizumab) and chemotherapy, in first-line patients with untreated advanced or metastatic smoking-associated non-small cell lung cancer ("NSCLC"). The Company is conducting its NT-003 trial in melanoma to evaluate NEO-PV-01 and OPDIVO® (nivolumab) in combination with other agents, including a CD40 agonist or a CTLA-4 antagonist, to potentially further enhance NEO-PV-01-induced neoantigen immune response and improve clinical outcomes.
In July 2019, the Company reported top-line results, including at least 12-month median follow-up from NT-001, the Company’s ongoing, multi-center Phase 1b clinical trial evaluating NEO-PV-01 in combination with OPDIVO in patients with advanced or metastatic melanoma, NSCLC and bladder cancer. Across all three distinct tumor types, patients demonstrated prolonged and consistent improvements in progression-free survival compared to that observed in checkpoint inhibitor monotherapy, based on historical benchmark data.
NEO-PTC-01, the Company's personal neoantigen T cell therapy, consists of multiple T cell populations targeting what the Company predicts to be the most therapeutically-relevant neoantigens from each patient’s tumor. NEO-PTC-01 is currently in preclinical development, and the Company expects to file a clinical trial application in Europe in the second half of 2019 to evaluate NEO-PTC-01 in solid tumors in patients who are refractory to checkpoint inhibitors.
NEON / SELECT is the Company's precision medicine approach to neoantigen-targeted therapies. The Company's first product candidate using this approach, NEO-SV-01, is a neoantigen vaccine for the treatment of a genetically defined subset of hormone-receptor-positive breast cancer, for which an Investigational New Drug application was approved by the U.S. Food and Drug Administration in August 2019.
The Company is subject to risks common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the ability to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. Even if the Company's development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Initial Public Offering
On June 29, 2018, the Company completed an initial public offering ("IPO") of its common stock and issued and sold 6,250,000 shares of common stock at a public offering price of $16.00 per share, resulting in net proceeds of $89.9 million after deducting underwriting discounts, commissions and other offering costs. Upon the closing of the IPO in June 2018, all shares of the Company’s outstanding redeemable convertible preferred stock converted into an aggregate of 18,644,462 shares of common stock (see Note 9). In advance of the IPO, the board of directors and the stockholders of the Company approved a one-for-five reverse split of the Company’s issued and outstanding common stock that became effective on June 13, 2018. All common share and per share amounts in these condensed consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.

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Liquidity
In accordance with Accounting Standards Update ("ASU") No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, when considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
The Company's financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through June 30, 2019, the Company has funded its operations with net proceeds of $89.9 million from its IPO, as well as an aggregate of $161.1 million of net proceeds from sales of the Company’s preferred stock and convertible debt. Since inception, the Company has incurred recurring losses and negative cash flows from operations in each period and on an aggregate basis. As of June 30, 2019 and December 31, 2018, the Company had an accumulated deficit of $216.7 million and $173.8 million, respectively. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to develop, manufacture and commercialize its products.
As of June 30, 2019, the Company had cash, cash equivalents and marketable securities of $61.0 million. The Company expects that, based on its current operating plan, its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements into June 2020. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all.
The Company expects that it will continue to incur significant expenses in connection with its ongoing business activities. As a result, the Company will need substantial additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If the Company is unable to obtain funding on a timely basis, the Company may be required to curtail, delay or discontinue one or more of its research and development programs or may be unable to expand its operations or otherwise capitalize on its business opportunities, as desired, which could materially affect the Company's business, financial condition and results of operations.
The Company has determined that its cash runway of less than twelve months, along with its accumulated deficit, history of losses and future expected losses, raises substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of these interim condensed consolidated financial statements. While the Company has plans in place to mitigate this risk, which primarily consist of raising additional capital through a combination of equity or debt financings, and, depending on the availability and level of additional financings, potentially new collaborations and reducing cash expenditures, there is no guarantee that the Company will be successful in these mitigation efforts.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in conformity with the accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Neon Therapeutics, Inc. and its wholly owned subsidiary, Neon Securities Corporation. All intercompany transactions and balances have been eliminated. The Company consolidates entities in which it has a controlling financial interest.
Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2018, and notes thereto, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the "SEC") on March 11, 2019 (the "Annual Report on Form 10-K").

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The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position as of June 30, 2019, and the results of its operations for the three and six months ended June 30, 2019 and 2018, and its cash flows for the six months ended June 30, 2019 and 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.
Summary of Significant Accounting Policies
The significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. There have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2019, except as discussed below with respect to the adoption of ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), as amended.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates of accounting reflected in these condensed consolidated financial statements include, but are not limited to, estimates related to accrued expenses, the valuation of common stock prior to the completion of the Company's IPO, stock-based compensation, the present value of lease liabilities and the corresponding right-of-use assets and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results could differ from those estimates or assumptions.
Recently Adopted Accounting Pronouncements
ASU No. 2016-02, Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, which requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability, as well as provide disclosures with respect to certain qualitative and quantitative information related to a company's leasing arrangements. Leases are classified as either operating or finance based on criteria similar to existing lease accounting, with the classification affecting the pattern and classification of expense recognition in the statement of operations. The FASB subsequently issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which includes certain amendments to ASU 2016-02 intended to provide relief in implementing the new standard. Among these amendments is the option to not restate comparative periods presented in the financial statements. The Company adopted these amendments with ASU 2016-02 (collectively, the "New Leasing Standards") effective January 1, 2019.
The Company adopted the New Leasing Standards as of the effective date of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings. Comparative periods in the Company's financial statements will be presented in accordance with the existing guidance under Accounting Standards Codification ("ASC") Topic 840, Leases. Upon adoption, the Company took advantage of the transition package of practical expedients permitted within ASU 2016-02, which allowed the Company not to reassess previous accounting conclusions around whether arrangements are, or contain, leases, as well as to carry forward both the historical classification of leases and the treatment of initial direct costs for existing leases. In addition, the Company also has made an accounting policy election to exclude leases with an initial term of twelve months or less from its balance sheet. 
Under the New Leasing Standards, the Company determines whether an arrangement is or contains a lease at the inception of the contract based on the unique facts and circumstances around identified assets, if present, and control over those identified assets. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company uses the implicit rate when readily determinable and uses its estimated incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. The incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.
Adoption of the New Leasing Standards resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $8.7 million and $8.9 million, respectively, as of January 1, 2019. Upon adoption and as of June 30,

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2019, the Company did not have any finance leases. The adoption of the New Leasing Standards did not materially impact the Company's condensed consolidated statement of operations.
ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The standard expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. Under the amended guidance, equity-classified share-based payment awards issued to nonemployees will be measured at grant date fair value. Upon transition, the entity is required to remeasure these nonemployee awards at fair value as of the adoption date.
The Company adopted this standard as of the effective date of January 1, 2019. Prior to the adoption of ASU 2018-07, for share-based awards granted to nonemployees, compensation expense was recognized over the period during which services were rendered by such nonemployees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards was remeasured using the then-current fair value of the Company's common shares and updated assumption inputs in the Black-Scholes option-pricing model, as applicable. After the adoption of ASU 2018-07, equity-classified share-based payment awards issued to nonemployees are measured at grant date fair value similarly to those of employees and are no longer revalued as the equity instruments vest. The new standard allows entities to use the expected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. ASU 2016-13 is effective for the Company on January 1, 2020. Early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of this standard will have on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate a material impact to the condensed consolidated financial statements as a result of the adoption of this standard.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15")which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this amendment will have on its condensed consolidated financial statements.
3. Fair Value Measurement
The following tables present information about the Company’s 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 at June 30, 2019 Using:
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
46,165

 
$
46,165

 
$

 
$

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
14,714

 

 
14,714

 

 
$
60,879

 
$
46,165

 
$
14,714

 
$


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Fair Value Measurements at December 31, 2018 Using:
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash equivalents:
 

 
 

 
 

 
 

Money market funds
$
53,188

 
$
53,188

 
$

 
$

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
46,122

 

 
46,122

 

Commercial paper
4,489

 

 
4,489

 

 
$
103,799

 
$
53,188

 
$
50,611

 
$

There were no changes in valuation techniques or transfers between the fair value measurement levels during the three and six months ended June 30, 2019 or 2018. There were no liabilities measured at fair value on a recurring basis as of June 30, 2019 or December 31, 2018.
4. Marketable Securities
Marketable securities consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):
 
June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Short-term investments:
 

 
 

 
 

 
 

Corporate debt securities
$
14,714

 
$
1

 
$
(1
)
 
$
14,714

 
$
14,714

 
$
1

 
$
(1
)
 
$
14,714

 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Short-term investments:
 

 
 

 
 

 
 

Corporate debt securities
$
46,197

 
$

 
$
(75
)
 
$
46,122

Commercial paper
4,489

 

 

 
4,489

 
$
50,686

 
$

 
$
(75
)
 
$
50,611

The contractual maturities of all securities held at June 30, 2019 are one year or less. As of June 30, 2019 and December 31, 2018, the aggregate fair value of securities that were in an unrealized loss position for less than twelve months was $4.5 million and $46.1 million, respectively. The Company does not intend to sell the investments, and it is not more likely than not that the Company will be required to sell the investments, before recovery of their amortized cost bases. As a result, the Company determined that it did not hold any securities with any other-than-temporary impairment as of June 30, 2019.
There were no sales of available-for-sale securities during the three or six months ended June 30, 2019 or 2018. Net unrealized holding gains or losses for the period that have been included in accumulated other comprehensive loss were not material to the Company’s condensed consolidated results of operations.

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5. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Software
$
1,181

 
$
1,180

Laboratory equipment
8,928

 
8,230

Computer equipment
102

 
102

Furniture and fixtures
317

 
371

Leasehold improvements
674

 
592

Assets under construction
439

 
511

 
11,641

 
10,986

Less: Accumulated depreciation and amortization
(3,595
)
 
(2,781
)
 
$
8,046

 
$
8,205

Depreciation and amortization expense for the three and six months ended June 30, 2019 was $0.4 million and $0.8 million, respectively, and for three and six months ended June 30, 2018 was $0.4 million and $0.7 million, respectively.
6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Accrued compensation costs
$
2,442

 
$
3,364

Accrued professional services
807

 
1,262

Accrued external research and manufacturing costs
2,536

 
3,001

Accrued additions of property and equipment

 
243

Other accrued expenses
586

 
552

 
$
6,371

 
$
8,422

7. Leases
On January 21, 2016, the Company entered into an operating lease agreement for office and laboratory space at its current headquarters in Cambridge, Massachusetts. The lease commenced on September 28, 2016 and expires on September 27, 2024. The Company has the right to extend the lease for one additional five-year period at a market rental rate as determined by the landlord and agreed to by the Company. Per the terms of the lease agreement, the Company does not have any residual value guarantees. In connection with the lease agreement, the Company issued a letter of credit to the landlord for $0.5 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which is reported as restricted cash, and which is classified within other long-term assets.
The Company identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liability related to the lease:
Expected lease term - The expected lease term includes the contractual lease period. The lease agreement contains a renewal option, which was not included in the calculation of the right-of-use asset and lease liabilities as the renewal is not reasonably certain.
Incremental borrowing rate- As the Company’s lease does not provide a readily determinable implicit rate, nor is it available from the lessor, the Company estimated the incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.
The Company recognized the right-of-use asset and corresponding lease liability on January 1, 2019 by calculating the present value of lease payments, discounted at 10%, the Company’s estimated incremental borrowing rate, over the 5.7 years expected remaining lease term. Amortization of the operating lease right-of-use asset for the lease was $0.3 million and $0.6 million for the three and six months ended June 30, 2019 and was included in operating expenses. The variable lease expense, which includes common area maintenance, utility charges and management fees was $0.2 million and $0.5 million for the three and six months ended June 30, 2019. As of June 30, 2019 the remaining lease term was 5.20 years.

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The Company also, from time to time, enters into short-term operating lease arrangements for certain laboratory and office equipment. Leases with a term of twelve months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, the Company has elected to combine lease and non-lease components for all classes of underlying assets.
The components of lease expense and related cash flows were as follows (in thousands):
 
Three Months Ended
June 30, 2019
 
Six Months Ended June 30, 2019
Lease cost
 
 
 
Operating lease cost
$
502

 
$
1,004

Variable lease cost
234

 
477

Short-term lease cost
105

 
213

Total lease cost
$
841

 
$
1,694

 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
$
469

 
$
938

Future lease payments for the Company's operating leases as of June 30, 2019 were as follows (in thousands):
Year Ending December 31,
 
2019 (remaining six months)
$
953

2020
1,948

2021
2,006

2022
2,066

2023
2,128

Thereafter
1,632

Total future minimum lease payments
$
10,733

Less: interest
(2,395
)
Present value of operating lease liabilities
$
8,338

Under the prior lease guidance, future minimum lease payments for the Company's operating leases as of December 31, 2018 were as follows (in thousands):
Year Ending December 31
 
2019
$
1,891

2020
1,948

2021
2,006

2022
2,066

2023
2,129

Thereafter
1,632

Total future minimum lease payments
$
11,672

8. Commitments and Contingencies
Significant Agreements
Manufacturing Agreement
In December 2015, the Company entered into a manufacturing agreement (the "Manufacturing Agreement") with an independent third party (the "vendor") whereby the vendor performs manufacturing, analytical testing and quality assurance services related to the manufacture of drug product for use in the Company's preclinical and clinical activities. The Manufacturing Agreement included the development and establishment of a manufacturing suite (a "Cell") at the vendor's facility that would be used in the manufacturing process to fill orders of peptides ordered by the Company. All amounts incurred under the Manufacturing Agreement and subsequent amendments are recognized as research and development expense as incurred.

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In October 2016, the Company and the vendor amended the Manufacturing Agreement (hereinafter the "2016 Manufacturing Agreement") to modify the payment due for the establishment of a second Cell and amend the fixed pricing for drug product produced by the vendor. The 2016 Manufacturing Agreement had a three-year term and was able to be terminated by the Company for convenience with six-months' notice.
In July 2017, the Company and the vendor further amended the 2016 Manufacturing Agreement (hereinafter the "2017 Manufacturing Agreement"). Under the 2017 Manufacturing Agreement, the Company will reimburse the vendor for specified manufacturing costs incurred in the manufacture of the peptides, plus a fixed profit margin. The 2017 Manufacturing Agreement has a five-year term and can be terminated by the Company for convenience with three-months' notice.
Other Agreements
License Agreement with the Broad Institute, Inc.
On November 13, 2015, the Company entered into a license agreement with the Broad Institute, Inc. (the "Broad"), a related party (see Note 12) and, in January and November 2018, the Company entered into amendments to the license agreement (as amended to date, the "Broad Agreement"). Under the Broad Agreement, the Company has been granted an exclusive worldwide license to certain intellectual property rights owned or controlled by the Broad, Dana-Farber Cancer Institute (the "DFCI") and The General Hospital Corporation d/b/a Massachusetts General Hospital ("MGH") to develop and commercialize any diagnostic, prognostic, preventative or therapeutic product for humans, including any neoantigen vaccine product. In particular, the Company has been granted both exclusive and non-exclusive licenses to a patent portfolio comprised of twelve patent families, including certain granted patents and pending patent applications in the United States and foreign jurisdictions.
Pursuant to the terms of the Broad Agreement, the Company has also been granted (i) a non-exclusive license under each institution's respective interest in certain of its patent rights to exploit the licensed products in the field in the territory during the term of the license and (ii) a non-exclusive license under each institution's licensed know-how, to exploit any diagnostic, prognostic, preventative or therapeutic product in the field in the territory during the term of the license. The Company is also entitled to sub-license the rights granted to it under the Broad Agreement. In connection with the Broad Agreement, the Company has also entered into a non-exclusive software license with the Broad under which it licenses certain object and source codes for several software programs. These licenses and rights are subject to certain limitations and retained rights, including field restrictions.
As consideration for the license, the Company paid the Broad a non-refundable license fee of $0.1 million. As additional consideration for the license, the Company must pay the Broad immaterial annual license maintenance fees. Additionally, the Company granted 60,000 shares of restricted common stock to each of the Broad, DFCI and MGH, which were determined to have an aggregate fair value of $0.2 million, and reimbursed the Broad $0.6 million for a portion of its past patent expenses related to the in-licensed patent rights. In June 2018, to align with institutional policies in place between the Broad, DFCI and MGH, DFCI and MGH transferred certain of the shares of restricted common stock that they had previously received to the Broad. Under the Broad Agreement, the Company agreed to reimburse the Broad for future patent expenses related to the patents covered by the license agreement. The Company could be obligated to make up to $12.6 million of developmental milestone payments to the Broad if certain development milestones are achieved over the term of the license agreement. Additionally, under the terms of the license agreement, the Company could be obligated to make up to an aggregate of $97.5 million of payments upon the achievement of specified sales milestones and to pay tiered royalties of low to mid single-digit percentages on net sales of products licensed under the agreement. The Company is required to pay the Broad a low double-digit percentage of any consideration received by the Company from a sublicensee in consideration for a sublicense. No developmental or commercial milestones have been achieved to date. The Company has the right to terminate the agreement for any reason, with or without cause.
License Agreement with the Dana-Farber Cancer Institute
On August 5, 2016, the Company entered into a license agreement with the DFCI to grant the Company an exclusive, royalty-free license to provide certain licensed know-how. The know-how in this agreement has particular utility in connection with the development of the licensed products referred to in the Broad Agreement. The agreement also grants a non-exclusive, royalty free right to certain clinical data being generated by the DFCI. In consideration for the licenses, the Company granted 120,000 shares of common stock to each of the Broad and the DFCI. The shares issued to the Broad were unrestricted and fully vested. The 120,000 shares issued to the DFCI contained a contingent repurchase option whereby, if the DFCI failed to achieve three specific milestones, the Company could repurchase the shares (one-third for each milestone) at the original purchase price, which is at zero cost. The Company has accounted for these awards consistent with equity awards with performance-based vesting conditions and, upon it being probable that the Company would not repurchase the award associated with a milestone, the expense associated with the equity grant would be recognized. During the six months ended June 30, 2018, the repurchase option associated with one-third of the shares expired due to the achievement of the specified criteria and the Company recognized $0.4 million of incremental stock-based compensation expense, which was reflected within research and development expenses in the accompanying condensed consolidated financial statements. Through June 30, 2019, the repurchase option on 80,000 of these

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shares has expired. The Company has the right to terminate the license agreement with the DFCI for any reason, with or without cause.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters arising out of the relationship between the parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and certain executive officers and other employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of these indemnification obligations. The Company does not believe that the outcome of any existing claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to its obligations under these agreements in its condensed consolidated financial statements as of June 30, 2019 or December 31, 2018.
Legal Proceedings
The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings.
9. Preferred Stock and Common Stock
Preferred Stock
The Company's amended and restated certificate of incorporation authorizes the Company to issue up to 10,000,000 shares of undesignated preferred stock, $0.001 par value per share, none of which was issued or outstanding as of June 30, 2019 or December 31 2018.
Upon completion of the Company’s IPO on June 29, 2018, all shares of the Company's previously issued Redeemable Convertible Preferred Stock converted into an aggregate of 18,644,462 shares of common stock. As of June 30, 2019 and December 31, 2018, there were no shares of Redeemable Convertible Preferred Stock issued or outstanding.
Common Stock
As of June 30, 2019 and December 31, 2018, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 shares of common stock with a par value of $0.001 per share.
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors, if any. No dividends have been declared or paid during the three or six months ended June 30, 2019 or 2018.
As of June 30, 2019 and December 31, 2018 the Company has reserved for future issuance the following number of shares of common stock:
 
June 30, 2019
 
December 31, 2018
Shares reserved for exercise of outstanding stock options
3,686,242

 
2,548,073

Shares reserved for vesting of restricted stock units
471,119

 

Shares reserved for future issuance under the 2018 Stock Option and Grant Plan
241,840

 
760,628

Shares reserved for future issuance under the 2018 Employee Stock Purchase Plan
553,142

 
270,000

 
4,952,343

 
3,578,701

10. Stock-Based Compensation
2015 Stock Option and Grant Plan
The Company’s 2015 Stock Option and Grant Plan, as amended (the "2015 Plan"), provided for the Company to grant incentive or nonqualified stock options, restricted stock awards, unrestricted stock awards or restricted stock units to employees, directors and consultants of the Company. As of June 26, 2018, the effective date of the 2018 Stock Option and Incentive Plan, and as of June 30, 2019 and December 31, 2018, no shares remained available for future issuance under the 2015 Plan.

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2018 Stock Option and Incentive Plan
On June 13, 2018, the Company’s stockholders approved the 2018 Stock Option and Incentive Plan (the "2018 Plan"), which became effective on June 26, 2018. The 2018 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards and dividend equivalent rights to the Company’s officers, employees, directors and other key persons (including consultants). The number of shares initially reserved for issuance under the 2018 Plan was 1,215,000 shares, which was cumulatively increased on January 1, 2019 and which will be cumulatively increased each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s compensation committee. Effective January 1, 2019, 1,132,570 additional shares were automatically added to the shares authorized for issuance under the 2018 Plan and these shares were subsequently registered on a Registration Statement on Form S-8.
As of the effective date of the 2018 Plan, the Company will not grant any further awards under the 2015 Plan. However, the shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2018 Plan and the 2015 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.
The terms of stock options and restricted stock awards, including vesting requirements, are determined by the board of directors or its delegates, subject to the provisions of the 2018 Plan.
As of June 30, 2019, there were 241,840 shares available for future issuance under the 2018 Plan.
2018 Employee Stock Purchase Plan
On June 13, 2018, the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (the "ESPP"), which became effective on June 26, 2018. A total of 270,000 shares of common stock were reserved for issuance under the ESPP. In addition, the number of shares of common stock that may be issued under the ESPP will automatically increase on January 1, 2019, and each January 1 thereafter through January 1, 2028, by the lesser of (i) 405,000 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares determined by the administrator of the Company’s ESPP. Effective January 1, 2019, 283,142 additional shares were automatically added to the shares authorized for issuance under the ESPP and these shares were subsequently registered on a Registration Statement on Form S-8. No offering periods under the 2018 ESPP had been initiated as of June 30, 2019.
Stock Options
The following table summarizes changes in stock option activity during the six months ended June 30, 2019:
 
Number
of
Shares
 
Weighted
Average
Exercise Price
 
Weighted
Average
Contractual
Term
 
Aggregate
Intrinsic
Value
 
 
 
 
 
(in years)
 
(in thousands)
Outstanding as of December 31, 2018
2,548,073

 
$
7.11

 
8.68
 
$
1,965

Granted
1,231,128

 
6.01

 
 
 
 
Exercised
(17,070
)
 
2.65

 
 
 
 
Forfeited
(75,889
)
 
7.29

 
 
 
 
Outstanding as of June 30, 2019
3,686,242

 
$
6.76

 
8.60
 
$
1,689

Options vested or expected to vest as of June 30, 2019
3,686,242

 
$
6.76

 
8.60
 
$
1,689

Options exercisable as of June 30, 2019
1,148,127

 
$
6.34

 
7.76
 
$
1,025

The weighted average grant-date fair value per share of stock options granted during the three and six months ended June 30, 2019 was $3.73 per share and $4.65 per share, respectively. The weighted average grant-date fair value per share of stock options granted during the three and six months ended June 30, 2018 was $9.71 per share and $8.33 per share, respectively.
There were no stock options exercised during the three months ended June 30, 2019. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2019 was $0.1 million. The aggregate intrinsic value of stock options exercised during the three and six months ended June 30, 2018 was $0.8 million.

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Stock Option Valuation
The assumptions that the Company used to determine the fair value of the stock options granted to employees and directors were as follows, presented on a weighted average basis:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Expected volatility
84.92
%
 
103.62
%
 
94.77
%
 
102.49
%
Risk-free interest rate
1.95
%
 
2.84
%
 
2.37
%
 
2.57
%
Expected dividend yield
%
 
%
 
%
 
%
Expected life (in years)
5.71

 
6.09

 
6.01

 
6.07

There were no stock option awards granted to nonemployees during the three or six months ended June 30, 2019 or 2018.
Restricted Stock Units
During the six months ended June 30, 2019, under the 2018 Plan, the Company granted restricted stock units ("RSUs"), as part of the Company's equity compensation program it provides to its employees. Pursuant to the terms of the applicable award agreements, each RSU represents the right to receive one share of the Company’s common stock and the RSUs generally vest in equal annual installments over three years, provided the employee remains continuously employed with the Company through the vesting period. Upon vesting, shares of the Company's common stock are delivered to the employee, subject to the payment of applicable withholding taxes. The fair value of RSUs is based on the market value of the Company's common stock on the date of grant. Compensation expense is recognized over the applicable service period.
The following table summarizes RSU activity for the six months ended June 30, 2019:
 
Number of
Shares
 
Weighted
Average Grant-
Date Fair Value
per Share
Unvested as of December 31, 2018

 
$

Granted
484,339

 
$
6.25

Vested

 
$

Cancelled
(13,220
)
 
$
6.46

Unvested as of June 30, 2019
471,119

 
$
6.24

Restricted Stock Awards
Restricted stock awards originally issued under the terms of the 2015 Plan allow the Company, at its discretion, to repurchase unvested shares at the initial purchase price if the employee or nonemployee terminates his or her service relationship with the Company. No restricted stock awards were issued under the 2015 Plan during the three and six months ended June 30, 2019 or June 30, 2018.
The 2018 Plan provides for the grant of restricted stock awards to the Company’s officers, employees, directors and other key persons (including consultants). During the three months ended June 30, 2019, the Company issued restricted stock awards for 25,000 shares of common stock to certain nonemployee founders and collaborators. The shares were granted under the terms of the 2018 Plan and the respective award agreements governing these awards. These awards vest quarterly over a one-year period.
The following table summarizes the Company’s restricted common stock activity since December 31, 2018:
 
Number of
Shares
 
Weighted
Average Grant-
Date Fair Value
per Share
Unvested restricted common stock as of December 31, 2018
383,964

 
$
1.97

Granted
25,000

 
$
4.64

Vested
(149,318
)
 
$
1.78

Unvested restricted common stock as of June 30, 2019
259,646

 
$
2.34

The aggregate fair value of restricted common stock awards that vested during the three and six months ended June 30, 2019, based upon the fair values of the stock underlying the restricted stock awards on the applicable vesting dates, was $0.4 million

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and $0.8 million, respectively. The aggregate fair value of restricted common stock awards that vested during the three and six months ended June 30, 2018, based upon the fair values of the stock underlying the restricted stock awards on the applicable vesting dates, was $0.9 million and $1.7 million, respectively.
Restricted Stock Awards Issued Outside of Equity Plans
From May 2015 through July 2016, the Company issued 1,510,000 shares of restricted common stock outside of the 2015 Plan to nonemployee founders and collaborators. The shares were issued under the terms of the respective restricted common stock agreements and unvested shares are subject to repurchase by the Company upon the holder’s termination of their relationship with the Company. The unvested shares of restricted common stock are subject to the Company’s right to repurchase at the original purchase price per share. The Company did not issue any shares of restricted common stock outside of the Company's 2015 Plan and 2018 Plan during the three or six months ended June 30, 2019 and 2018.
Of the total shares of restricted common stock awarded to founders and collaborators, 300,000 shares vested immediately upon grant; 910,000 shares vest quarterly over a four-year period based on each grantee’s continued service relationship with the Company in varying advisory capacities; and 180,000 shares vest upon the achievement of specified performance milestones. Additionally, 120,000 shares were issued as fully vested awards, but are subject to a repurchase option that expires upon the achievement of specified milestones. Through June 30, 2019, the repurchase option on 80,000 of these shares has expired (see Note 8).
Of these awards, the underlying restricted common stock agreement for 180,000 shares of restricted common stock provided for a put option whereby the recipient was able to sell its vested shares back to the Company at a price per share equal to the fair value of the Company’s common stock upon both (i) the termination of the consulting agreement between the recipient and the Company for any reason and (ii) the determination by the recipient’s employer that the ownership of the restricted common stock was in violation of the employer’s conflict of interest policy. Prior to the closing of the Company’s IPO, these awards were classified in the consolidated balance sheet as contingently redeemable common stock and were presented outside of permanent equity. As of December 31, 2017, $0.4 million was recorded in temporary equity related to these awards. Upon the closing of the Company’s IPO, this put option expired and the amount recorded in temporary equity was recorded to additional paid in capital.
A summary of the changes in the Company’s unvested restricted common stock awards granted to founders and collaborators outside of the Company's 2015 Plan or 2018 Plan since December 31, 2018 is as follows:
 
Number of
Shares
 
Weighted
Average Grant-
Date Fair Value
per Share
Unvested restricted common stock as of December 31, 2018
350,625

 
$
1.29

Vested
(113,750
)
 
$
1.29

Unvested restricted common stock as of June 30, 2019
236,875

 
$
1.29

The aggregate fair value of restricted common stock awards issued outside of the Company's 2015 Plan or 2018 Plan that vested during the three and six months ended June 30, 2019, based upon the fair values of the stock underlying the restricted stock awards on the applicable vesting dates, was $0.3 million and $0.6 million, respectively. The aggregate fair value of restricted common stock awards issued outside of the Company's 2015 Plan or 2018 Plan that vested during the three and six months ended June 30, 2018, based upon the fair values of the stock underlying the restricted stock awards on the applicable vesting dates, was $0.7 million and $1.3 million, respectively.
Stock-Based Compensation Expense
The Company recorded stock-based compensation expense related to all stock-based awards in the following expense categories of its condensed consolidated statements of operations and comprehensive loss (in thousands):
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2019
 
2018
 
2019
 
2018
Research and development expenses
$
1,008

 
$
947

 
$
1,828

 
$
2,175

General and administrative expenses
1,046

 
476

 
1,955

 
897

 
$
2,054

 
$
1,423

 
$
3,783

 
$
3,072


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During the six months ended June 30, 2018, the Company recognized stock-based compensation expense of $0.4 million for awards with performance-based vesting conditions related to the expiration of an additional repurchase option on a portion of the unvested restricted common shares issued to DFCI (see Note 8).
As of June 30, 2019, the Company had an aggregate of $13.1 million of unrecognized stock-based compensation expense related to unvested stock option awards, excluding awards with performance-based vesting conditions, which is expected to be recognized over a weighted-average period of approximately 2.69 years. As of June 30, 2019, the Company also had an aggregate of $0.7 million of unrecognized stock-based compensation expense related to unvested restricted common stock awards, excluding awards with performance-based vesting conditions, which is expected to be recognized over a weighted-average period of approximately 0.81 years. Additionally as of June 30, 2019, the Company had an aggregate of $2.6 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.70 years.
11. Net Loss per Share
The Company excluded 496,521 shares of restricted common stock for the three and six months ended June 30, 2019 and 1,010,152 shares of restricted common stock for the three and six months ended June 30, 2018 from the calculation of basic net loss per share because these shares had not vested.
The Company’s potential dilutive securities, which include stock options, unvested restricted common stock and redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Outstanding stock options
3,686,242

 
2,223,147

 
3,686,242

 
2,223,147

Unvested restricted stock units
471,119

 

 
471,119

 

Unvested restricted common stock
496,521

 
1,010,152

 
496,521

 
1,010,152

 
4,653,882

 
3,233,299

 
4,653,882

 
3,233,299

12. Related Parties
A member of the Company’s board of directors is a founding director and the current president of the Broad. In November 2015, the Company entered into the Broad Agreement with the Broad (see Note 8) and, as consideration, the Company granted 60,000 shares of restricted common stock to the Broad, which were determined to have a fair value of $0.1 million. Additionally, the Company must pay the Broad immaterial annual license maintenance fees. At the time the Company entered into the Broad Agreement, the Company reimbursed the Broad $0.6 million for a portion of past patent expenses and, under the terms of the license agreement, the Company is required to reimburse Broad for future patent expenses related to patents covered by the license agreement. The Company could be obligated to make up to $12.6 million of developmental milestone payments to the Broad if certain development milestones are achieved over the term of the license agreement. Additionally, under the terms of the license agreement, the Company could be obligated to make up to an aggregate of $97.5 million of payments upon the achievement of specified sales milestones and to pay tiered royalties of low to mid single-digit percentages on net sales of products licensed under the agreement. The Company is required to pay the Broad a low double-digit percentage of any consideration received by the Company from a sublicensee in consideration for a sublicense. No developmental or commercial milestones have been achieved to date.
In August 2016, the Company entered into a license agreement with the DFCI in connection with the development of licensed products referred to in the 2015 Broad Agreement. As consideration, the Company granted 120,000 shares of restricted common stock to the Broad, which were determined to have a fair value of $0.2 million. In June 2018, to align with institutional policies in place between the Broad, the DFCI and MGH, the DFCI and MGH transferred certain of the shares of restricted common stock that they had previously received to the Broad. The Company recorded expenses related to payments to the Broad of $0.6 million and $1.1 million during the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.5 million during the three and six months ended June 30, 2018, respectively. At June 30, 2019 and December 31, 2018, the Company had $0.6 million and $2.0 million in accounts payable and accrued expenses due to the Broad, respectively.

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13. Subsequent Events
On July 1, 2019, the Company filed a Registration Statement on Form S-3 (Registration No. 333-232487) with the SEC, which was declared effective on July 8, 2019, pursuant to which it registered for sale up to $200.0 million of any combination of common stock, preferred stock, warrants and/or units from time to time and at prices and on terms that the Company may determine, including up to $50.0 million of its common stock available for issuance pursuant to a Controlled Equity OfferingSM Sales Agreement (the "Sales Agreement") that it entered into with Cantor Fitzgerald & Co. ("Cantor"). Under the Sales Agreement, Cantor may sell shares of the Company’s common stock by any method permitted by law deemed to be an "at the market" offering as defined in Rule 415 of the Securities Act, subject to the terms of the Sales Agreement. The Company will pay to Cantor cash commissions of 3.0 percent of the aggregate gross proceeds of sales of common stock under the Sales Agreement. No shares have been sold under this "at the market" program.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview
We are a clinical-stage immuno-oncology company and a leader in the field of neoantigen-targeted therapies, dedicated to transforming the treatment of cancer by directing the immune system towards neoantigens. Genetic mutations, which are a hallmark of cancer, can result in specific immune targets called neoantigens. The presence of neoantigens in cancer cells and their absence in normal cells makes them compelling, untapped targets for cancer therapy. By directing the immune system towards these targets, we believe our neoantigen-targeted therapies will offer a new level of patient and tumor specificity in the field of cancer immunotherapy that will drive a strong risk-benefit profile to dramatically improve patient outcomes.
We are leveraging our neoantigen platform and over a decade of insights from our founders to develop neoantigen-targeted therapies that use two distinct approaches, NEON / ONE and NEON / SELECT. These approaches focus on targeting a prioritized set of what we believe are the most therapeutically-relevant neoantigens. In NEON / ONE, these neoantigens are specific to each individual. In NEON / SELECT, these neoantigens are shared across subsets of patients or tumor types. We are applying these two approaches to develop neoantigen-targeted product candidates using multiple treatment modalities.
NEO-PV-01, our most advanced product candidate, is a personal neoantigen vaccine that is custom-designed and manufactured based on the unique mutational fingerprint of each individual patient. The neoantigen-targeted peptides in NEO-PV-01 are intended to generate an immune response that trains each patient's immune system to target his or her individual tumor's particular neoantigens and kill the cancer cells. NEO-PV-01 is currently being evaluated in multiple Phase 1b clinical trials.
In April 2019, we completed enrollment in NT-002, our Phase 1b clinical trial evaluating NEO-PV-01 in combination with the current standard of care, KEYTRUDA® (pembrolizumab) and chemotherapy, in first-line patients with untreated advanced or metastatic smoking-associated non-small cell lung cancer, or NSCLC. We are conducting our NT-003 trial in melanoma to evaluate NEO-PV-01 and OPDIVO® (nivolumab) in combination with other agents, including a CD40 agonist or a CTLA-4 antagonist, to potentially further enhance NEO-PV-01-induced neoantigen immune response and improve clinical outcomes.
In July 2019, we reported top-line results, including at least 12-month median follow-up from NT-001, our ongoing, multi-center Phase 1b clinical trial evaluating NEO-PV-01 in combination with OPDIVO in patients with advanced or metastatic melanoma, NSCLC and bladder cancer. Across all three distinct tumor types, patients demonstrated prolonged and consistent improvements in progression-free survival compared to that observed in checkpoint inhibitor monotherapy, based on historical benchmark data.
NEO-PTC-01, our personal neoantigen T cell therapy, consists of multiple T cell populations, targeting what we predict to be the most therapeutically-relevant neoantigens from each patient's tumor. NEO-PTC-01 is currently in preclinical development, and we expect to file a clinical trial application, or CTA, in Europe in the second half of 2019 to evaluate NEO-PTC-01 in solid tumors in patients who are refractory to checkpoint inhibitors.
NEON / SELECT is our precision medicine approach to neoantigen-targeted therapies. Our first product candidate using this approach, NEO-SV-01, is a neoantigen vaccine for the treatment of a genetically defined subset of hormone-receptor-positive breast cancer, for which an Investigational New Drug application, or IND, was approved by the U.S. Food and Drug Administration, or FDA, in August 2019.
To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring and discovering product candidates, securing related intellectual property rights and conducting research and development activities related to our product candidates.
On June 29, 2018, we completed our initial public offering, or IPO, in which we issued and sold 6,250,000 shares of our common stock at a public offering price of $16.00 per share in exchange for net proceeds of $89.9 million after deducting

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underwriting discounts, commissions and other offering costs. Upon the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding converted into an aggregate of 18,644,462 shares of common stock.
From inception through June 30, 2019, we have funded our operations primarily through an aggregate of $89.9 million of net proceeds from our IPO, as well as an aggregate of $161.1 million of net proceeds from sales of our preferred stock and convertible debt. To date, we have not generated any revenue from product sales and do not expect to do so for several years, if at all. Due to our significant research and development expenditures, we have generated substantial operating losses in each period since inception, including net losses of $21.9 million and $43.0 million in the three and six months ended June 30, 2019, respectively, and $18.9 million and $35.4 million in the three and six months ended June 30, 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $216.7 million. We expect to incur substantial additional losses in the foreseeable future as we expand our research and development activities.
We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
advance NEO-PV-01 into later-stage clinical development;
advance our development programs into and through preclinical and clinical development;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
hire additional clinical, quality assurance and scientific personnel;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
maintain, expand and protect our intellectual property portfolio;
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with third parties; and
acquire or in-license other product candidates and technologies.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or the timing of 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.
As of June 30, 2019, we had cash, cash equivalents and marketable securities of $61.0 million. We believe that, based on our current operating plan, our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into June 2020. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our available capital resources sooner than we expect. See "—Liquidity and Capital Resources." To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern. See Note 1 to our condensed consolidated financial statements included within Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our assessment.
Components of Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

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Operating Expenses
Research and Development Expenses
Research and development expenses represent costs incurred by us for the discovery, development and manufacture of our product candidates and include:
expenses incurred under agreements with third parties, including contract research organizations, contract manufacturing organizations and suppliers;
license fees to acquire and maintain in-process technology and data;
costs associated with the development of our Real-time Epitope Computation for ONcology, or RECON, bioinformatics engine;
personnel-related costs, including salaries, benefits and non-cash stock-based compensation expense, for personnel engaged in research and development functions;
costs of outside consultants, including their fees, related travel expenses and stock-based compensation expense;
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
costs related to compliance with regulatory requirements; and
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and general support services.
We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials and manufacturing costs, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment or other information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued external research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. These 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.
We use our employee and infrastructure resources across our multiple research and development programs directed toward developing our NEON / ONE and NEON / SELECT approaches, as well as identifying and developing product candidates. We track outsourced development and manufacturing costs, including external clinical and regulatory costs, by development product candidates, but we do not allocate costs such as personnel costs or other internal costs to specific development of product candidates. These external and unallocated research and development expenses are summarized in the table below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
NEO-PV-01
$
6,071

 
$
6,632

 
$
10,166

 
$
11,990

NEO-PTC-01
775

 
546

 
2,363

 
1,148

Other early-stage development expenses
1,741

 
589

 
4,456

 
1,151

Unallocated expenses
8,148

 
7,037

 
15,922

 
13,673

Total research and development expenses
$
16,735

 
$
14,804

 
$
32,907

 
$
27,962

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our products, if approved. This is due to the numerous risks and uncertainties associated with developing our product candidates, including the uncertainty related to:
the addition and retention of key research and development personnel;
successful enrollment in and completion of our current clinical trials for NEO-PV-01, as well as the cost of future clinical trials for NEO-PV-01, NEO-PTC-01 and NEO-SV-01;
costs associated with the preclinical development and clinical trials for our early discovery product candidates;
maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
receipt of marketing approvals from applicable regulatory authorities;

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commercializing products, if and when approved, whether alone or in collaboration with others;
the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our products if and when approved; and
continued acceptable safety profiles of our products following approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase over the next several years as we continue to implement our business strategy, which includes advancing clinical development of NEO-PV-01 and progressing NEO-PTC-01 and NEO-SV-01 into clinical development, expanding our research and development efforts, seeking regulatory approvals for any product candidates that successfully complete clinical trials, accessing and developing additional product candidates and hiring additional personnel to support our research and development efforts. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development.
General and Administrative Expenses
General and administrative expenses consist of personnel-related costs, including salaries, benefits and non-cash stock-based compensation expense, for our personnel in executive, legal, finance and accounting, human resources, business operations and other administrative functions, legal fees related to patent, intellectual property and corporate matters, fees paid for accounting, regulatory and tax services, insurance costs, consulting fees and facility-related costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and the increased costs of operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, additional insurance costs, investor and public relations costs and other administration and professional services.
Other Income, Net
Other income, net consists primarily of interest income related to our investments in cash equivalents and marketable securities.
Results of Operations
Comparison of the Three Months Ended June 30, 2019 and 2018
The following table summarizes our results of operations for the three months ended June 30, 2019 and 2018, along with the changes in those items in dollars:
 
Three Months Ended
June 30,
 
 
 
2019
 
2018
 
Change
 
(in thousands)
Operating expenses:
 

 
 

 
 

Research and development
$
16,735

 
$
14,804

 
$
1,931

General and administrative
5,580

 
4,313

 
1,267

Total operating expenses
22,315

 
19,117

 
3,198

Loss from operations
(22,315
)
 
(19,117
)
 
(3,198
)
Other income (expense), net
383

 
218

 
165

Net loss
$
(21,932
)
 
$
(18,899
)
 
$
(3,033
)

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Research and Development
Research and development expenses increased by $1.9 million from $14.8 million for the three months ended June 30, 2018 to $16.7 million for the three months ended June 30, 2019 due primarily to the following increases:
$1.5 million of external research and development costs to support our ongoing NEO-PV-01 clinical trials, as well as costs related to the preparation for additional planned clinical trials;
$0.8 million for personnel-related costs due to increased headcount;
$0.2 million for external costs related to advancing our preclinical development candidates;
$0.2 million in purchases of laboratory supplies and consumables for the advancement of our product candidates; and
$0.2 million in facility-related costs, including occupancy costs, as well as depreciation and other maintenance costs.
These increases were partially offset by the following:
the non-recurrence of a $0.6 million expense incurred during the three months ended June 30, 2018 that related to a one-time milestone payable under one of our collaboration agreements as a result of the closing of our IPO; and
$0.6 million of decreased external manufacturing costs to support NEO-PV-01, NEO-PTC-01 and NEO-SV-01.
General and Administrative
General and administrative expenses increased by $1.3 million from $4.3 million for the three months ended June 30, 2018 to $5.6 million for the three months ended June 30, 2019 due primarily to the following:
$1.0 million for increased personnel-related costs, including $0.6 million of increased non-cash stock-based compensation expense; and
$0.3 million for increased expenses associated with obtaining and maintaining intellectual property protection.
Other Income (Expense), Net
Other income increased from $0.2 million for the three months ended June 30, 2018 to $0.4 million for the three months ended June 30, 2019 primarily as a result of the interest and investment income related to the investment of the net proceeds received from our IPO.
Comparison of the Six Months Ended June 30, 2019 and 2018
The following table summarizes our results of operations for the six months ended June 30, 2019 and 2018, along with the changes in those items in dollars:
 
Six Months Ended
June 30,
 
 
 
2019
 
2018
 
Change
 
(in thousands)
Operating expenses:
 

 
 

 
 

Research and development
$
32,907

 
$
27,962

 
$
4,945

General and administrative
10,988

 
7,912

 
3,076

Total operating expenses
43,895

 
35,874

 
8,021

Loss from operations
(43,895
)
 
(35,874
)
 
(8,021
)
Other income (expense), net
939

 
454

 
485

Net loss
$
(42,956
)
 
$
(35,420
)
 
$
(7,536
)
Research and Development
Research and development expenses increased by $4.9 million from $28.0 million for the six months ended June 30, 2018 to $32.9 million for the six months ended June 30, 2019 due primarily to the following increases:
$2.2 million of external research and development costs to support our ongoing NEO-PV-01 clinical trials, as well as costs related to the preparation for additional planned clinical trials;
$1.4 million for personnel-related costs due to increased headcount;
$0.6 million of external manufacturing costs to support NEO-PV-01, NEO-PTC-01 and NEO-SV-01;

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$0.6 million for external costs related to advancing our preclinical development candidates;
$0.3 million in purchases of laboratory supplies and consumables for the advancement of our product candidates; and
$0.2 million in facility-related costs, including occupancy costs, as well as depreciation and other maintenance costs.
These increases were partially offset by the non-recurrence of a $0.6 million expense incurred during the six months ended June 30, 2018 related to a one-time milestone payable under one of our collaboration agreements as a result of the closing of our IPO.
General and Administrative
General and administrative expenses increased by $3.1 million from $7.9 million for the six months ended June 30, 2018 to $11.0 million for the six months ended June 30, 2019 due primarily to the following:
$1.8 million for increased personnel-related costs, including $1.1 million of increased non-cash stock-based compensation expense;
$0.9 million for increased expenses associated with obtaining and maintaining intellectual property protection; and
$0.3 million of increased other general and administrative costs primarily due to the increased costs of being a public company, as well as additional professional fees, insurance and tax related expenditures.
Other Income (Expense), Net
Other income increased from $0.5 million for the six months ended June 30, 2018 to $0.9 million for the six months ended June 30, 2019 primarily as a result of the interest and investment income related to the investment of the net proceeds received from our IPO.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred significant losses in each period and on an aggregate basis. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. We have funded our operations through June 30, 2019 with aggregate net proceeds of $89.9 million from our IPO, as well as an aggregate of $161.1 million of net proceeds from sales of our preferred stock and convertible debt. As of June 30, 2019, we had cash, cash equivalents and marketable securities of $61.0 million.
Historical Cash Flows
The following table provides information regarding our cash flows for each of the periods presented (in thousands):
 
Six Months Ended June 30,
 
2019
 
2018
 
(in thousands)
Net cash provided by (used in):
 

 
 
Operating activities
$
(41,236
)
 
$
(29,552
)
Investing activities
34,776

 
11,185

Financing activities
45

 
90,921

Net (decrease) increase in cash, cash equivalents and restricted cash
$
(6,415
)
 
$
72,554

Cash Used in Operating Activities
The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital, which are primarily the result of increased expenses and timing of vendor payments.
During the six months ended June 30, 2019, operating activities used $41.2 million of cash, primarily resulting from our net loss of $43.0 million and net cash used by changes in our operating assets and liabilities of $3.5 million, partially offset by net non-cash charges of $5.2 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted primarily of a $1.8 million decrease in accrued expenses and other liabilities, a $1.3 million decrease in accounts payable and a $0.5 million decrease in operating lease liabilities.

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During the six months ended June 30, 2018, operating activities used $29.5 million of cash, primarily resulting from our net loss of $35.4 million, partially offset by net non-cash charges of $4.0 million and changes in our operating assets and liabilities of $1.9 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2018 consisted primarily of a $2.9 million increase in accrued expenses and other liabilities, partially offset by a $1.1 million decrease in accounts payable.
Cash Provided by Investing Activities
During the six months ended June 30, 2019, net cash provided by investing activities was $34.8 million, consisting of proceeds from the sales and maturities of marketable securities of $36.0 million, partially offset by purchases of property and equipment of $1.2 million.
During the six months ended June 30, 2018, net cash provided by investing activities was $11.2 million, consisting of proceeds from the sales and maturities of marketable securities of $25.5 million, partially offset by purchases of marketable securities of $12.0 million and purchases of property and equipment of $2.3 million.
Cash Provided by Financing Activities
During the six months ended June 30, 2019, net cash provided by financing activities was $0.1 million, consisting entirely of proceeds from the exercise of stock options.
During the six months ended June 30, 2018, net cash provided by financing activities was $90.9 million, consisting of $93.0 million of net proceeds from our IPO, after deducting underwriting discounts and commissions, and $0.2 million in proceeds from the exercise of stock options, partially offset by payments of initial public offering costs of $2.3 million.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Based on our current operating plan, we expect that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into June 2020. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with the development of our product candidates or programs and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend largely on:
the initiation, progress, scope, timing, costs and results of preclinical or nonclinical testing and studies and clinical trials for our product candidates;
the clinical development plans we establish for these product candidates;
the number and characteristics of product candidates that we develop or may in-license;
the terms of any collaboration agreements we may choose to execute;
the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medicines Agency, or the EMA, and other comparable foreign regulatory authorities;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including any patent infringement actions that may be brought by third parties in the future against us or our product candidates;
the effect of competing technological and market developments;
the cost and timing of formulation development and manufacturing, including the completion of commercial-scale outsourced manufacturing activities; and
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our

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operating plans may change in the future and we may need additional funds to meet operational needs and capital requirements associated with these changed operating plans.
In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements or other strategic transactions in the future, we may have to relinquish valuable rights to our technologies, future revenue streams 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 when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.
Off-Balance Sheet Arrangements
During the periods presented we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
Contractual Obligations and Commitments
During the six months ended June 30, 2019, there have been no material changes from the contractual obligations and commitments previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 11, 2019.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Effective January 1, 2019, we adopted Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU 2016-02, with no restatement of prior periods or cumulative adjustment to retained earnings. Comparative periods in the Company's financial statements will be presented in accordance with the existing guidance under Accounting Standards Codification Topic 840, or ASC 840. Adoption of the new standard resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $8.7 million and $8.9 million, respectively, as of January 1, 2019. The adoption of the new standard did not materially impact the Company's condensed consolidated statement of operations. See Note 2 and Note 7 to our condensed consolidated financial statements included within Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the application of ASU 2016-02.
During the six months ended June 30, 2019, there were no other material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 11, 2019.
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2019, we had cash, cash equivalents and marketable securities of $61.0 million. This amount was comprised of cash and cash equivalents of $46.3 million and short-term marketable securities of $14.7 million. Our cash and cash equivalents consist primarily of money market funds that are invested in U.S. government-backed securities. Our short-term marketable

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securities consist of corporate debt securities with an original maturity greater than ninety days and less than one year from the balance sheet date. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term nature of our cash equivalents and marketable securities, a sudden change in interest rates would not be expected to have material effect on our business, financial condition or results of operations. Because of the short-term nature of the investments in our portfolio, an immediate change by 100 basis points in market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates. However, we have contracted with and may continue to contract with vendors that are located in Europe. We may be subject to fluctuations in foreign currency rates in connection with certain of these agreements. Transactions denominated in currencies other than the United States dollar are recorded based on exchange rates at the time such transactions arise. While we have not engaged in the hedging of our foreign currency transactions to date, we are evaluating the costs and benefits of initiating such a program and may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operation and our risk grows.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the six months ended June 30, 2019.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial and accounting officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) as of June 30, 2019. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our 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 June 30, 2019, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
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 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
From time to time, we may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters which arise in the ordinary course of business. While the outcome of any such proceedings cannot be predicted with certainty, as of June 30, 2019, we were not party to any legal proceedings that we would expect to have a material adverse impact on our financial position, results of operations or cash flow.
Item 1A. Risk Factors
In evaluating the Company and our business, careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC. Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations.
Risks Related to Our Business, Technology and Industry
We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.
We are a clinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in October 2013. For the year ended December 31, 2018 and the six months ended June 30, 2019, we reported net losses of $76.9 million and $43.0 million, respectively. As of June 30, 2019, we had an accumulated deficit of $216.7 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. We anticipate that our expenses will increase substantially if, and as, we:
advance NEO-PV-01 into later-stage clinical development;
advance our development programs into and through preclinical and clinical development;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
hire additional clinical, quality assurance and scientific personnel;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
maintain, expand and protect our intellectual property portfolio;
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with third parties; and
acquire or in-license other product candidates and technologies.
To become and remain profitable, we or any potential future collaborator must develop and eventually commercialize products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval for product candidates, manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our

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future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
To date, we have not generated any product revenue, have a history of losses and will need to raise additional capital to fund our operations. If we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash since our inception. We expect to continue to spend substantial amounts to conduct further research and development and preclinical or nonclinical testing and studies and clinical trials of our current and future programs, to seek regulatory approvals for our product candidates and to launch and commercialize any products for which we receive regulatory approval, including potentially building our own commercial organization. As of June 30, 2019, we had approximately $61.0 million in cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities as of June 30, 2019, will be sufficient to fund our operating expenses and capital expenditure requirements into June 2020. However, our future capital requirements and the period for which our existing resources will support our operations may vary significantly from what we expect. We will in any event require additional capital in order to complete clinical development of any of our current programs. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities.
As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. The report from our independent registered public accounting firm for the year ended December 31, 2018 included an emphasis of matter paragraph stating that we will require additional financing to fund future operations. In the future, reports from our independent registered public accounting firm may also contain statements about our requirement to secure additional financing or expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all. In the future, reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all. Going forward, if we are unable to obtain sufficient funding to support our operations, we could be forced to delay, reduce or eliminate all of our research and development programs, product portfolio expansion or commercialization efforts, and our financial condition and results of operations will be materially and adversely affected.
Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
the initiation, progress, timing, costs and results of preclinical or nonclinical testing and studies and clinical trials for our product candidates;
the clinical development plans we establish for these product candidates;
the number and characteristics of product candidates that we develop or may in-license;
the terms of any collaboration agreements we may choose to execute;
the outcome, timing and cost of meeting regulatory requirements established by the FDA the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including any patent infringement actions that may be brought by third parties in the future against us or our product candidates;
the effect of competing technological and market developments;
the cost and timing of formulation development and manufacturing, including the completion of commercial-scale outsourced manufacturing activities; and
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.
We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of

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public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products or product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.
Our most advanced product candidates are uniquely manufactured for each patient and we may encounter difficulties in production, particularly with respect to scaling our manufacturing capabilities. If we or any of our third-party manufacturers with whom we contract encounter these types of difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
The manufacturing process used to produce our product candidates is complex and novel and has not been validated for clinical or commercial production. For example, for NEO-PV-01, we custom design and manufacture up to 20 individually selected peptides with a proprietary formulation to construct a unique vaccine for each patient. Similarly, for NEO-PTC-01, we will harvest T cells from a patient and activate and expand these T cells ex vivo and ultimately infuse the T cells back into the patient’s body. As a result of these complexities, the cost to manufacture our product candidates is generally higher than traditional small molecule chemical compounds and the manufacturing process is less reliable and is more difficult to reproduce.
Our manufacturing process will be susceptible to product loss or failure due to logistical issues associated with the collection of a patient’s tumor and blood or other samples, shipping that material to analytical laboratories, and shipping the final product back to the location using cold chain distribution where it will be administered to the patient, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, lot failures, product defects, product delays, product recalls, product liability claims and other supply disruptions. If for any reason we lose a patient’s starting material or one of our custom manufactured products at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, the manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could result in our inability to produce or ship product. Because our product candidates are manufactured for each particular patient, we will be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process and back to the patient. Maintaining this type of chain of identity is difficult and complex and the failure to do so could result in adverse patient outcomes, loss of product, or regulatory action, including withdrawal of any approved products from the market. Further, as product candidates are developed through preclinical to later-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered in an effort to optimize processes and results. If we make these types of changes, we may not achieve our intended objectives and any of these changes could cause our product candidates to perform differently than we expect, potentially affecting the results of clinical trials.
Although we continue to optimize our manufacturing process, doing so is a difficult and uncertain task and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency and timely availability of reagents or raw materials. If we are unable to adequately validate or scale-up the manufacturing process with our current manufacturer, we will need to transfer to another manufacturer and complete the manufacturing validation process, which can be a lengthy process. We ultimately may not be successful in transferring our production system or the manufacturer on whom we rely may not have the necessary capabilities to complete the implementation and development process. If we are able to adequately validate and scale-up the manufacturing process for our product candidates with a contract manufacturer, we will still need to negotiate an agreement for commercial supply with that contract manufacturer and it is not certain we will be able to come to

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agreement on terms acceptable to us. As a result, we may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are approved and commercialized.
The manufacturing process for any products that we may develop is subject to the FDA and foreign regulatory authority approval processes and we will need to contract with manufacturers who we believe can meet applicable FDA and foreign regulatory authority requirements on an ongoing basis. If we or our contract manufacturing organizations, or CMOs, are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize our products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications and under required good manufacturing practices acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates, impair commercialization efforts, increase our cost of goods and have an adverse effect on our business, financial condition, results of operations and growth prospects.
Our future success depends on our ability to manufacture our products on a timely basis with acceptable manufacturing costs, while at the same time maintaining good quality control and complying with applicable regulatory requirements and an inability to do so could have a material adverse effect on our business, financial condition, prospects and results of operations. In addition, we could incur higher manufacturing costs if manufacturing processes or standards change and we could need to replace, modify, design or build and install equipment, all of which would require additional capital expenditures. Specifically, because our product candidates may have a higher cost of goods than conventional therapies and may require long-term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.
We expect to evaluate the use of one or more CMOs, as well as the possibility of establishing our own capabilities and infrastructure, including a manufacturing facility. If we choose to build our own manufacturing facility, we will need significant funding and will need to select an adequate location. We expect that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes and allow for better long-term margins. However, we have no experience in developing a manufacturing facility and may never be successful in developing our own manufacturing facility or capability. If we determine to establish our own manufacturing capabilities and infrastructure, we will also need to hire additional personnel to manage our operations and facilities and develop the necessary infrastructure to continue the research and development and eventual commercialization, if approved, of our product candidates. If we fail to select the correct location, complete the construction in an efficient manner, recruit the required personnel and generally manage our growth effectively, the development and production of our product candidates could be curtailed or delayed. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or could prove costly. Even if we are successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product, together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturing process could restrict our ability to meet market demand for our products.
We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.

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Our business is highly dependent on the success of our lead product candidate, NEO-PV-01, as well as NEO-PTC-01, NEO-SV-01 and our other preclinical programs. All of our product candidates will require significant additional nonclinical and clinical development before we can seek regulatory approval for and launch a product commercially.
Our business and future success depends on our ability to obtain regulatory approval of and then successfully launch and commercialize our lead product candidate, NEO-PV-01, as well as NEO-PTC-01, NEO-SV-01 and our other preclinical programs. NEO-PV-01 is currently being investigated in three Phase 1b clinical trials, and we plan to initiate one additional exploratory clinical trial evaluating NEO-PV-01. We recently received approval on an IND submitted to the FDA for NEO-SV-01, a neoantigen vaccine for the treatment of a genetically defined subset of hormone-receptor-positive breast cancer. In addition, we are currently conducting additional research and development to optimize the manufacturing process for NEO-PTC-01 and NEO-SV-01 and to determine the other indications that we will be targeting with our NEON / SELECT approach. In particular, given that NEO-PV-01 is our first clinical program, we may be exposed to additional risks related to trial execution, difficulties with patient enrollment, trial design and establishing trial protocols. Meanwhile, NEO-PTC-01 involves the activation and expansion of neoantigen-specific T cells ex vivo, an approach that may be less effective than anticipated. Finally, the success of our NEON / SELECT program (including NEO-SV-01) depends on our ability to validate high priority shared neoantigen targets and to develop neoantigen-targeted therapies for these shared targets that are therapeutically-relevant across subsets of patients or tumor types. We may, however, be unable to achieve either or both of these goals.
All of our product candidates will require additional clinical and nonclinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity, and significant marketing efforts before we can generate any revenue from product sales. In addition, because NEO-PV-01 is our most advanced product candidate, if NEO-PV-01 encounters safety or efficacy problems, developmental delays or regulatory issues or other problems, our development plans and business would be significantly harmed.
The successful development of biopharmaceuticals, such as neoantigen-targeted therapies, is highly uncertain.
Successful development of biopharmaceuticals, such as neoantigen-targeted therapies, is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Neoantigen-targeted therapies that appear promising in the early phases of development may fail to reach the market for several reasons including:
nonclinical or preclinical testing or study results may show the neoantigen-targeted therapies to be less effective than desired or to have harmful or problematic side effects;
clinical trial results may show the neoantigen-targeted therapies to be less effective than expected (e.g., a clinical trial could fail to meet its primary endpoint(s)) or could have unacceptable side effects or toxicities;
we may fail to receive the necessary regulatory approvals or experience a delay in receiving those approvals, including delays that may be caused by slow enrollment in clinical trials, patients dropping out of trials, the required length of time to achieve trial endpoints, additional time requirements for data analysis or biologics license application, or BLA, preparation, discussions with the FDA, an FDA request for additional nonclinical or clinical data, or unexpected safety or manufacturing issues;
manufacturing costs, turnaround time, formulation issues, pricing or reimbursement issues, or other factors that make the neoantigen-targeted therapy uneconomical; and
the proprietary rights of others and their competing products and technologies that may prevent the neoantigen-targeted therapy from being commercialized.
The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority may vary significantly from one therapy to the next and may be difficult to predict.
Even if we are successful in getting market approval for our product candidates, commercial success of any approved products will also depend in large part on the availability of coverage and adequate reimbursement from third-party payors, including government payors such as the Medicare and Medicaid programs and managed care organizations, which may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. In order to qualify for reimbursement, third-party payors could require us to conduct additional studies, including post-marketing studies related to the cost effectiveness of a product, which could be costly and divert our resources. If government and other healthcare payors were not to provide adequate coverage and reimbursement levels for any of our products once approved, market acceptance and commercial success would be reduced.
In addition, if any of our products is approved for marketing, we will be subject to significant regulatory obligations regarding the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure that our third-party providers comply) with current good manufacturing practices, or cGMPs, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval. In addition, there is always the risk that we or a regulatory authority

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might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated severity or frequency. Compliance with these requirements is costly and any failure to comply or other issues with our product candidates post-approval could have a material adverse effect on our business, financial condition, prospects and results of operations.
Clinical development is a lengthy and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates.
To obtain the requisite regulatory approvals to commercialize any product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe, pure and potent or effective in humans. Clinical testing is expensive and can take many years to complete and the outcome of any clinical trial is inherently uncertain. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful and a clinical trial can fail at any stage of testing. The outcome of nonclinical studies and early clinical trials, or interim analyses of these trials, may not be predictive of the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. For example, our ongoing Phase 1b clinical trials of NEO-PV-01 are open-label and not all enrolled patients have completed the trial. Further, we expect later-stage clinical trials of NEO-PV-01 will require placebo comparison or comparison with an active comparator. Differences in trial design between early stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
Successful completion of clinical trials is a prerequisite to submitting a BLA to the FDA, a Marketing Authorization Application, or MAA, to the EMA, and similar marketing applications to comparable foreign regulatory authorities for each product candidate and, consequently, the ultimate approval and commercial marketing of any product candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all.
We may experience delays in completing our preclinical or nonclinical testing and studies and initiating or completing clinical trials. We also may experience numerous unforeseen events or circumstances during, or as a result of, any future clinical trials that we may conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, as the terms of these agreements can be subject to extensive negotiation and vary significantly among different CROs and trial sites;
clinical trials of any product candidates may fail to show safety, purity or potency, or produce negative or inconclusive results, which may cause us to decide, or regulators to require us, to conduct additional nonclinical studies or clinical trials or which may cause us to decide to abandon product development programs;
the number of patients required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipated or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipated;
our CROs and other third-party contractors involved in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or they may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;
we may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research or trials for various reasons, including noncompliance with regulatory requirements or a finding that participants are being exposed to unacceptable health risks;
the cost of preclinical or nonclinical testing and studies and clinical trials of any product candidates may be greater than we anticipate;
the potential insufficiency or inadequacy of the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates;
our ability to manufacture and supply product to patients consistent with clinical trial protocols;
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate trials, or reports may arise from nonclinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our product candidates; and
the FDA or other regulatory authorities may require us to submit additional data such as long-term toxicology studies, or impose other requirements on us, before permitting us to initiate a clinical trial.

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We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which these clinical trials are being conducted, or the FDA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the relevant Data Safety Monitoring Board, or DSMB. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities that results in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that could cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.
Our product development costs will increase if we experience delays in conducting clinical testing or receiving marketing approvals. We do not know whether any of our preclinical or nonclinical testing and studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or nonclinical testing and studies or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business, financial condition, prospects and results of operations. Any delays in our nonclinical or future clinical development programs may harm our business, financial condition, prospects and results of operations significantly.
Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
With the exception of NEO-PV-01, all of our other product candidates are still in the preclinical discovery stage and their risk of failure is high. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned Investigational New Drug applications, or INDs, in the United States, or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcomes of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcomes of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.
Our planned clinical trials or those of our future collaborators may reveal significant adverse events not seen in our preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. In addition, initial success in clinical trials may not be indicative of results obtained when those trials are completed. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. Companies in the biopharmaceutical industry have suffered significant setbacks in later-stage clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates.
We intend to develop NEO-PV-01, and may develop future product candidates, in combination with one or more cancer therapies. This combination may have additional side effects that were not present in initial clinical trials of our product candidates with other cancer therapies. The uncertainty resulting from the use of our product candidates in combination with other cancer therapies may make it difficult to accurately predict side effects in future clinical trials.
If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. We, the FDA or other applicable regulatory authorities, or an IRB, may suspend clinical trials of a product candidate at any time for various reasons, including a belief that trial subjects

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are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects presented do not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition, prospects and results of operations.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:
the patient eligibility and exclusion criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to trial sites;
the design of the trial;
the ability to recruit clinical trial investigators with the appropriate competencies and experience;
the ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
In addition, our clinical trials will compete with other clinical trials for product candidates that are similar therapeutic areas as our product candidates, which may reduce the number and types of patients available to us. In addition, since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at those sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and bone marrow transplantation, rather than enroll patients in a clinical trial. This may be particularly true for patients with late-stage disease who may perceive that our approach is not effective for patients with that disease profile.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our planned clinical trials. These delays could also prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.
We expect to develop NEO-PV-01 and, potentially future product candidates, in combination with other therapies, and safety or supply issues with combination use products may delay or prevent development and approval of our product candidates.
We intend to develop NEO-PV-01, and likely other product candidates, in combination with one or more approved or unapproved cancer therapies.
Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies. If the therapies we use in combination with our product candidates are replaced as the standard of care for the indications we choose for any of our product candidates, the FDA or similar regulatory authorities outside of the United States may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially.
We also plan to evaluate NEO-PV-01 or any other future product candidates in combination with one or more cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell NEO-PV-01 or any product candidate we develop in combination with an unapproved cancer therapy if that unapproved cancer therapy does not ultimately obtain marketing approval. In addition, unapproved cancer therapies face the same risks described with respect to our product candidates currently in development and clinical trials, including the potential for serious adverse effects, delay in their clinical trials and lack of FDA approval.
If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with NEO-PV-01 or any product candidate we develop, we may be unable to obtain approval of or market NEO-PV-01 or any product candidate we develop.

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Neoantigen-targeted therapies are a novel approach and negative perception of the efficacy or safety of any of our product candidates could adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
Neoantigen-targeted therapies remain novel and unproven technologies, with no neoantigen-targeted therapy approved to date in the U.S. or EU. Neoantigen vaccines, neoantigen T cell therapies or any other modality that we seek to use may not gain the acceptance of the public or the medical community. For example, earlier cancer vaccines attempted to direct the immune system against a class of molecules found predominantly, but not exclusively, at the tumor site. Since the targets of these cancer vaccines were are also found on normal cells, they were regarded as ‘self’, which caused the immune system to prohibit destruction of the cancerous cells. As a result, these cancer vaccines did not generate potent immune responses. Our neoantigen vaccines may be perceived to face the same challenges as the earlier cancer vaccines, which could limit our ability to enroll patients in our clinical trials or if approved, negatively impact our vaccines’ market acceptance. Further, with respect to our NEO-PTC-01 program, the use of T cells as a potential cancer treatment is a recent scientific development and may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers and others in the medical community.
Our success will depend upon physicians who specialize in the treatment of diseases targeted by our product candidates prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Adverse events in clinical trials of our product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of neoantigen-targeted therapies cancer vaccines, or T cell therapies, could result in a decrease in demand for any product that we may develop. In addition, responses by the U.S., state or foreign governments to negative public perception may result in new legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, prospects and results of operations and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop.
NEO-PV-01 includes a development-stage vaccine adjuvant, poly-ICLC. It is difficult for us to predict how our use of poly-ICLC will be viewed by the FDA or other regulatory agencies as we attempt to demonstrate the safety of NEO-PV-01.
We use an adjuvant, poly-ICLC, with our NEO-PV-01 vaccine product candidate, which makes it difficult to predict how the FDA and applicable other regulatory agencies will evaluate the safety of NEO-PV-01. Adjuvants are compounds that are added to vaccines to enhance the activation of and improve the immune response and efficacy of vaccines. Any vaccine, because of the presence of an adjuvant, may have side effects that may pose too great a safety risk to warrant approval of the vaccine. Development-stage vaccine adjuvants, such as poly-ICLC, may pose an increased safety risk to patients. Poly-ICLC has been used as an adjuvant in other investigational vaccine trials but has never been approved by the FDA for commercial use. The existence of additional trials using this adjuvant may provide support for approval of our product candidates, however, negative safety or efficacy results from other trials using poly-ICLC could similarly jeopardize the continued development of our product candidates that use poly-ICLC as an adjuvant.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research and development activities involve the use of biological and hazardous materials and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of cont