surf-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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

For the transition period from ________________ to ________________.

Commission File Number: 001-38459

SURFACE ONCOLOGY, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware			46-5543980
( State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
50 Hampshire Street, 8th Floor Cambridge, MA			02139
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (617) 714-4096

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


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common stock, $0.0001	SURF	The Nasdaq Global Market

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Small reporting company	☒
Emerging growth Company	☒

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

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

As of August 2, 2021, the registrant had 45,452,450 shares of common stock $0.0001 par value per share, outstanding.

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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 these 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 timing, progress and results of preclinical studies and clinical trials for our current product candidates and other product candidates we may develop, 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;

•the timing, scope or likelihood of regulatory filings and approvals, including timing of Investigational New Drug application and Biological Licensing Application filings for, and final U.S. Food and Drug Administration approval of, our current product candidates and any other future product candidates;

•the timing, scope or likelihood of foreign regulatory filings and approvals;

•our ability to use our understanding of the tumor microenvironment to identify product candidates and to match immunotherapies to select patient subsets;

•our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

•our ability to develop combination therapies, whether on our own or in collaboration with third parties;

•the impact of COVID-19 on our business operations and that of our third-party manufacturers and suppliers;

•our manufacturing, commercialization and marketing capabilities and strategy;

•the pricing and reimbursement of our current product candidates and other product candidates we may develop, if approved;

•the rate and degree of market acceptance and clinical utility of our current product candidates and other product candidates we may develop;

•the potential benefits of and our ability to maintain our collaborations with Novartis and GSK, and establish or maintain future collaborations or strategic relationships or obtain additional funding;

•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

•our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current product candidates and other product candidates we may develop, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

•our competitive position, and developments and projections relating to our competitors and our industry;

•our expectations related to the use of our existing cash, cash equivalents and marketable securities;

•our ability to raise capital to fund operations;

•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

•the impact of laws and regulations.

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 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.

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		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	37
Signatures		38

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share data)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	83,335	$	175,141
Marketable securities	80,945		—
Prepaid expenses and other current assets	6,493		5,368
Total current assets	170,773		180,509
Property and equipment, net	5,862		6,664
Operating lease right-of-use asset	26,904		27,911
Restricted cash	1,595		1,595
Other assets	385		459
Total assets	$	205,519	$	217,138
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,187	$	1,674
Accrued expenses and other current liabilities	8,744		10,448
Convertible note payable	3,271		—
Operating lease liability	5,494		5,529
Total current liabilities	18,696		17,651
Operating lease liability, non-current	27,930		28,981
Convertible note payable, non-current	10,804		14,759
Total liabilities	57,430		61,391
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at June 30, 2021 and December 31, 2020; no shares issued and outstanding at June 30, 2021 and December 31, 2020	—		—
Common stock, $0.0001 par value; 150,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 44,335,609 and 40,707,047 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	5		4
Additional paid-in capital	244,893		218,001
Accumulated other comprehensive loss	(9)		—
Accumulated deficit	(96,800)		(62,258)
Total stockholders’ equity	148,089		155,747
Total liabilities and stockholders’ equity	$	205,519	$	217,138

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

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SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands, except share and per share data)


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Collaboration revenue - related party	$	—	$	—	$	—	$	38,592
License related revenue	515		—		2,141		—
Total revenue	$	515	$	—	$	2,141	$	38,592
Operating expenses:
Research and development	12,669		9,548		23,213		20,836
General and administrative	6,434		4,995		12,076		9,782
Total operating expenses	19,103		14,543		35,289		30,618
Income (loss) from operations	(18,588)		(14,543)		(33,148)		7,974
Interest expense	(416)		(427)		(1,440)		(767)
Other income (expense), net	23		163		46		556
Net income (loss)	(18,981)		(14,807)		(34,542)		7,763
Net income (loss) per share attributable to common stockholders— basic	$	(0.44)	$	(0.44)	$	(0.81)	$	0.25
Weighted average common shares outstanding— basic	43,634,346		33,418,412		42,632,421		30,697,779
Net income (loss) per share attributable to common stockholders— diluted	$	(0.44)	$	(0.44)	$	(0.81)	$	0.24
Weighted average common shares outstanding— diluted	43,634,346		33,418,412		42,632,421		33,763,452
Comprehensive income (loss):
Net income (loss)	$	(18,981)	$	(14,807)	$	(34,542)	$	7,763
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities, net of tax of $0	(8)		(116)		(9)		(49)
Comprehensive income (loss)	$	(18,989)	$	(14,923)	$	(34,551)	$	7,714

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

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SURFACE ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Balances at December 31, 2020	40,707,047	$	4	$	218,001	$	—	$	(62,258)	$	155,747
Issuance of common stock upon exercise of stock options	55,761	—		148		—		—		148
Issuance of common stock under stock purchase plan	19,377	—		118		—		—		118
Issuance of common stock upon public offering, net of issuance costs	1,677,118	1		14,715		—		—		14,716
Issuance of common stock upon conversion of convertible note payable	961,538	—		1,500		—		—		1,500
Stock-based compensation expense	—	—		2,380		—		—		2,380
Unrealized loss on marketable securities	—	—		—		(1)		—		(1)
Net loss	—	—		—		—		(15,561)		(15,561)
Balances at March 31, 2021	43,420,841	$	5	$	236,862	$	(1)	$	(77,819)	$	159,047
Issuance of common stock upon exercise of stock options

SEC Form 10-Q filed by Surface Oncology, Inc.