UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended ~~June~~September 30, 2018

☐ 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 001-35050

ENDOCYTE, INC.

(Exact name of Registrant as specified in its charter)


Delaware	35-1969-140
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

3000 Kent Avenue, Suite A1-100

West Lafayette, IN 47906

(Address of Registrant’s principal executive offices)

Registrant’s telephone number, including area code: (765) 463-7175

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 ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ◻~~(Do~~ ~~not check if a smaller reporting company)~~ Smaller reporting company ◻ Emerging growth company ◻

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

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

Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on ~~July~~October 2726, 2018: 7082,~~013~~088,~~497~~638

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENDOCYTE, INC.

CONDENSED BALANCE SHEETS

	December 31,		~~June~~September 30,
	2017		2018
Assets				(unaudited)
Current assets:
Cash and cash equivalents	$	18,559,130	$	2567,~~044~~268,~~956~~340
Short-term investments		78,912,297		~~141~~276,~~747~~942,~~724~~151
Receivables		273,044		2548,~~790~~164
Prepaid expenses		751,255		1,~~564~~552,~~385~~085
Other assets		77,077		~~178~~5,~~374~~500,614
Total current assets		98,572,803		~~168~~351,~~561~~311,~~229~~354
Property and equipment, net		2,182,399		1,~~745~~556,~~806~~314
Other noncurrent assets		7,067		12,~~861~~336,~~770~~637
Total assets	$	100,762,269	$	~~172~~355,~~168~~204,~~805~~305
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	376,394	$	1,~~323~~095,~~324~~064
Accrued wages and benefits		2,533,133		2,~~120~~884,~~901~~474
Accrued clinical trial expenses		689,985		1,~~053~~512,~~650~~346
Accrued expenses and other liabilities		946,668		12,~~455~~182,~~953~~883
Total current liabilities		4,546,180		57,~~953~~674,~~828~~767
Deferred revenue, net of current portion		731,944		~~348~~332,~~800~~945
Total liabilities		5,278,124		68,~~302~~007,~~628~~712
Stockholders’ equity:
Common stock: $0.001 par value, 100,000,000 shares authorized; 48,203,529 and 69,996,070 shares issued and outstanding at December 31, 2017 and June 30, 2018		48,204		69,996
Common stock: $0.001 par value, 100,000,000 shares authorized; 48,203,529 and 81,323,300 shares issued and outstanding at December 31, 2017 and September 30, 2018		48,204		81,323
Additional paid-in capital		404,454,909		~~494~~688,~~612~~527,~~923~~897
Accumulated other comprehensive loss		(64,433)		(3422,~~324~~684)
Retained deficit		(308,954,535)		(~~328~~341,~~782~~389,~~418~~943)
Total stockholders’ equity		95,484,145		~~165~~347,~~866~~196,~~177~~593
Total liabilities and stockholders’ equity	$	100,762,269	$	~~172~~355,~~168~~204,~~805~~305

See accompanying notes.

ENDOCYTE, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2018		2017		2018
	(unaudited)				(unaudited)
Revenue:
Collaboration revenue	$	1232,500	$	1485,~~465~~855	$	2557,~~000~~500	$	30116,~~320~~175
Total revenue		1232,500		1485,~~465~~855		2557,~~000~~500		30116,~~320~~175
Operating expenses:
Research and development		84,~~655~~089,~~021~~677		78,~~624~~856,~~495~~028		1620,~~649~~739,~~493~~170		1221,~~879~~735,~~560~~588
General and administrative		3,~~305~~011,~~284~~176		4,~~631~~788,~~981~~918		710,~~050~~061,~~546~~722		813,~~409~~198,~~527~~445
Total operating expenses		11,960,305		12,256,476		23,700,039		21,289,087
Acquired in-process research and development		16,493,132		—		16,493,132		—
Loss from operations		(11,947,805)		(12,242,011)		(23,675,039)		(21,258,767)
Total operating expenses		23,593,985		13,644,946		47,294,024		34,934,033
Other income, net:
Loss from operations		(23,561,485)		(13,559,091)		(47,236,524)		(34,817,858)
Interest income, net		233,682		720,408		469,133		1,133,305
Other income (expense), net:
Other expense, net		(30,605)		(43,040)		(27,407)		(41,827)
Interest income, net		264,932		959,092		734,065		2,092,397
Net loss		(11,744,728)		(11,564,643)		(23,233,313)		(20,167,289)
Other income (expense), net		29,735		(7,526)		2,328		(49,353)
Net loss per share – basic and diluted	$	(0.28)	$	(0.17)	$	(0.55)	$	(0.32)
Net loss		(23,266,818)		(12,607,525)		(46,500,131)		(32,774,814)
Net loss per share – basic and diluted	$	(0.55)	$	(0.17)	$	(1.09)	$	(0.50)
Items included in other comprehensive income:
Unrealized gain on available-for-sale securities		1930,~~014~~303		4411,~~819~~640		636,~~333~~636		3041,~~109~~749
Other comprehensive income		1930,~~014~~303		4411,~~819~~640		636,~~333~~636		3041,~~109~~749
Comprehensive loss	$	(1123,~~725~~236,~~714~~515)	$	(1112,~~519~~595,~~824~~885)	$	(2346,~~226~~463,~~980~~495)	$	(2032,~~137~~733,~~180~~065)
Weighted-average number of common shares used in net loss per share calculation – basic and diluted		42,~~503~~636,~~584~~567		6972,~~712~~043,~~883~~113		42,~~469~~525,~~337~~693		6265,~~397~~648,~~454~~006

See accompanying notes.

ENDOCYTE, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

						Accumulated
				Additional		Other
	Common Stock			Paid-In		Comprehensive		Retained
	Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balances December 31, 2017	48,203,529	$	48,204	$	404,454,909	$	(64,433)	$	(308,954,535)	$	95,484,145
Cumulative effect of adoption of ASC 606 (See Note 3)	—		—		—		—		339,406		339,406
Balances at January 1, 2018	48,203,529	$	48,204	$	404,454,909	$	(64,433)	$	(308,615,129)	$	95,823,551
Exercise of stock options	1,~~073~~516,~~883~~796		1,~~074~~517		69,~~487~~837,~~057~~268		—		—		69,~~488~~838,~~131~~785
Issuance of common stock in connection with equity offering	20,535,714		20,536		80,880,045		—		—		80,900,581
Issuance of common stock in connection with equity offerings	31,414,093		31,414		269,794,204		—		—		269,825,618
Stock-based compensation	~~157~~163,~~592~~530		~~157~~163		24,~~695~~346,~~867~~471		—		—		24,~~696~~346,~~024~~634
Employee stock purchase plan	25,352		25		95,045		—		—		95,070
Net loss	—		—		—		—		(2032,~~167~~774,~~289~~814)		(2032,~~167~~774,~~289~~814)
Unrealized gain on securities	—		—		—		3041,~~109~~749		—		3041,~~109~~749
Balances June 30, 2018	69,996,070	$	69,996	$	494,612,923	$	(34,324)	$	(328,782,418)	$	165,866,177
Balances September 30, 2018	81,323,300	$	81,323	$	688,527,897	$	(22,684)	$	(341,389,943)	$	347,196,593

See accompanying notes.

ENDOCYTE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2017		2018
	(unaudited)
Operating activities
Net loss	$	(2346,~~233~~500,~~313~~131)	$	(2032,~~167~~774,~~289~~814)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		~~468~~701,~~994~~133		~~401~~597,~~670~~557
Stock-based compensation		12,~~960~~680,~~172~~873		24,~~800~~451,~~485~~096
Loss (gain) on disposal of property and equipment		144,578		(18,177)
Acquired in-process research and development		16,493,132		—
Accretion of bond premium (discount)		46,770		(596,273)
Loss (gain) on disposal of property and equipment		114,042		(6,029)
Accretion of bond premium (discount)		1,399		(1,282,175)
Change in operating assets and liabilities:
Receivables		~~173~~157,~~375~~805		~~145~~224,~~956~~880
Prepaid expenses and other assets		1770,~~034,660~~892		(28,~~050~~398,~~330~~316)
Accounts payable		(~~182~~1,~~338~~160,801)		~~422~~557,~~702~~027
Accrued wages, benefits and other liabilities		(~~179~~633,~~369~~288)		~~334~~2,~~078~~391,338
Deferred revenue		(2537,~~000~~500)		(3147,~~709~~565)
Net cash used in operating activities		(1927,~~791~~412,~~471~~444)		(1834,~~758~~287,~~887~~001)
Investing activities
Purchases of property and equipment		(4346,~~838~~833)		(1443,~~708~~094)
Proceeds from disposal of property and equipment		—		8990,~~144~~161
Purchases of investments		(2051,~~457~~318,~~875~~003)		(~~111~~308,~~009~~005,~~044~~868)
Proceeds from sale and maturities of investments		73,930,000		48,800,000
Purchase of acquired in-process research and development		(12,322,349)		—
Net cash provided by (used in) investing activities		53,428,287		(62,134,608)
Proceeds from sale and maturities of investments		102,430,000		111,300,000
Net cash provided by (used in) investing activities		38,742,815		(196,658,801)
Financing activities
Stock repurchase		(94,627)		(104,461)
Proceeds from issuance of common stock in connection with equity offering		—		80,900,581
Proceeds from exercise of warrant to purchase common stock		4,556,420		—
Proceeds from the exercise of stock options		109,742		6,488,131
Proceeds from issuance of common stock in connection with equity offerings		—		269,825,618
Proceeds from the exercise of stock options		109,742		9,838,785
Proceeds from stock purchases under employee stock purchase plan		48,407		95,070
Net cash provided by financing activities		634,~~522~~619,942		87279,~~379~~655,~~321~~012
Net increase in cash and cash equivalents		3315,~~700~~950,~~338~~313		648,~~485~~709,~~826~~210
Cash and cash equivalents at beginning of period		31,228,192		18,559,130
Cash and cash equivalents at end of period	$	6447,~~928~~178,~~530~~505	$	2567,~~044~~268,~~956~~340

See accompanying notes.

ENDOCYTE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Nature of Business and Organization

Endocyte, Inc. (the “Company”) is a biopharmaceutical company and leader in developing targeted therapies for the treatment of cancer. The Company uses drug conjugation technology to create novel therapeutics and companion imaging agents for personalized targeted therapies. The agents actively target receptors that are over-expressed on diseased cells relative to healthy cells, such as prostate specific membrane antigen (“PSMA”) in prostate cancer. This targeted approach is designed to safely enable the delivery of highly potent drug payloads. The companion imaging agents are designed to identify patients whose disease over-expresses the target of the therapy and who are therefore more likely to benefit from treatment.

InOn ~~September~~October ~~2017~~17, 2018, the Company entered into aan ~~Development~~Agreement and ~~License~~Plan ~~Agreement~~of Merger (the “~~License~~Merger Agreement”) with ~~ABX~~Novartis ~~advanced~~AG ~~biochemical compounds – Biomedizinische Forschungsreagenzien GmbH~~ (“~~ABX~~Novartis”), ~~pursuant to which the Company acquired exclusive worldwide rights to develop~~ and ~~commercialize~~Edinburgh ~~PSMA-617~~Merger ~~agents~~Corporation, ~~including~~a ~~the~~wholly ~~product~~owned ~~candidate~~subsidiary ~~known~~of asNovartis ~~177Lu-PSMA-617, a radioligand therapeutic~~ (“~~RLT~~Merger Sub”)., ~~Following~~subject ato ~~successful End of Phase 2 meeting with~~ the ~~U.S.~~terms ~~Food~~ and ~~Drug~~conditions ~~Administration~~of ~~(“FDA”),~~which the Company ~~finalized~~will ~~the~~be ~~phase~~acquired 3by ~~VISION~~Novartis ~~trial design and registration plan~~ for ~~177Lu-PSMA-617~~$24.00 Inper ~~the~~share ~~three~~in ~~months~~cash ~~ended~~through ~~June~~the ~~30,~~merger ~~2018,~~of ~~the~~Merger ~~Company~~Sub ~~initiated~~with ~~enrollment~~and ininto the ~~VISION trial~~Company, anwith ~~international,~~the ~~prospective,~~Company ~~open-label,~~continuing ~~multicenter,~~as ~~randomized~~the ~~phase~~surviving 3corporation ~~study~~and ofa ~~177Lu~~wholly-~~PSMA-617~~owned insubsidiary upof toNovartis ~~750 patients with progressive PSMA-positive metastatic castration-resistant prostate cancer~~ (the “~~mCRPC~~Merger”). The ~~who~~consummation ~~have~~of ~~received~~the atMerger ~~least~~is ~~one~~subject ~~novel~~to ~~androgen~~certain ~~axis~~closing ~~drug~~conditions, ~~(“NAAD”)~~including ~~and~~the atrequisite ~~least~~approval ~~one~~of ~~taxane~~our ~~regimen.~~stockholders ~~The~~and ~~trial~~the ~~will~~receipt ~~include two interim assessments~~ of ~~efficacy,~~certain ~~which~~antitrust ~~could~~and ~~potentially~~regulatory ~~lead~~approvals. toSee anNote ~~early~~13 ~~approval~~– ~~for~~Subsequent ~~177Lu-PSMA-617.~~Event Onof ~~October 2, 2017,~~ the ~~Company~~Notes ~~announced~~to ~~its~~Condensed ~~plan~~Financial toStatements ~~primarily~~contained ~~focus~~herein ~~its~~for ~~resources~~additional oninformation regarding the ~~development~~Merger, ~~of 177Lu-PSMA-617~~ and onsee a“Risk ~~targeted~~Factors” ~~effort~~in toPart ~~generate~~II, ~~proof-of-concept~~Item ~~data~~1A herein for ~~the~~important ~~EC17~~information ~~adaptor-controlled~~regarding ~~chimeric~~certain ~~antigen~~risks ~~receptor~~associated ~~T-cell~~with ~~(“EC17/CAR~~the ~~T-cell”)~~Merger ~~program,~~Agreement and tothe ~~explore out-licensing opportunities for all other development programs~~Merger.

In September 2017, the Company entered into a Development and License Agreement (the “License Agreement”) with ABX advanced biochemical compounds – Biomedizinische Forschungsreagenzien GmbH (“ABX”), pursuant to which the Company acquired exclusive worldwide rights to develop and commercialize PSMA-617 agents, including the product candidate known as 177Lu-PSMA-617, a radioligand therapeutic (“RLT”). Following a successful End of Phase 2 meeting with the U.S. Food and Drug Administration (the “FDA”), in early 2018, the Company finalized the initial phase 3 VISION trial design and registration plan for 177Lu-PSMA-617.

In the three months ended June 30, 2018, the Company initiated enrollment of the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients with progressive PSMA-positive metastatic castration-resistant prostate cancer (“mCRPC”). 177Lu-PSMA-617 utilizes a high affinity targeting ligand to direct potent radiotherapy to prostate cancer cells. The specific targeting of this therapy comes from the "ligand" portion of the RLT, which is a small molecule designed to bind to PSMA, a protein highly expressed on the cell surface of most prostate cancer cells but absent on most normal cells. The PSMA targeting ligand in 177Lu-PSMA-617 is chemically attached to a therapeutic radioactive atom called Lutetium-177 (177Lu), which releases an energetic beta particle designed to precisely deliver cell-killing radiation to the site of disease. Unlike traditional external beam radiotherapy, 177Lu-PSMA-617, which is administered as a systemic injection, has been designed to directly target multiple sites of PSMA-positive prostate cancer throughout the body, including the bone and soft tissue, while bypassing the PSMA-negative cells. Prior to treatment with 177Lu-PSMA-617, the patient's expression of PSMA can be determined using imaging technology, allowing for personalization of treatment so that the optimum course of therapy might be selected. As highlighted in roughly 20 peer reviewed publications of trials in the post-chemotherapy compassionate use setting, 177Lu-PSMA-617 demonstrated a prostate-specific antigen (“PSA”) response (defined as greater than 50% decline from baseline) in 40% to 60% of patients, and a Response Evaluation Criteria in Solid Tumors (“RECIST”) response rate in soft tissue disease of between 40% and 50%.

On September 10, 2018, the Company announced that, following a meeting with the FDA, it was determined that radiographic progression free survival (“rPFS”) is an appropriate efficacy endpoint in the ongoing phase 3 VISION trial to support the submission of a New Drug Application (“NDA”) for full FDA approval of 177Lu-PSMA-617 for the treatment of mCRPC. The updated trial protocol will reflect this determination on rPFS while retaining the final, fully powered overall survival (“OS”) analysis.

Under the updated VISION trial design, the two interim assessments previously planned at 50% and 70% of OS events will be replaced with a single assessment of rPFS. This assessment is expected to occur at approximately the same time that the first interim OS assessment would have occurred under the prior trial design and shortly after the time the trial is fully enrolled. If 177Lu-PSMA-617 meets the primary endpoint in the rPFS assessment, no unexpected safety issues arise, and it demonstrates no detriment in OS relative to the control arm, the Company intends to submit an NDA to seek full approval in the United States. The rPFS analysis will include approximately 450 rPFS events. Regardless of the outcome of the rPFS assessment, the Company intends to continue to follow patients in the VISION trial in order to assess the final OS alternative primary endpoint. An efficacy analysis of OS will be conducted at approximately 490 events. Other aspects of the VISION trial design, including patient treatment and assessments, study size, overall duration, and follow up remain unchanged. Secondary endpoints include RECIST response and time to first symptomatic skeletal event.

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed financial statements have been included. Interim results for the three and ~~six~~nine months ended ~~June~~September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018 or any other future period. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Subsequent events have been evaluated through the date of issuance, which is the same as the date this Form 10-Q is filed with the Securities and Exchange Commission (“the “SEC”).

Segment Information

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. All long-lived assets are held in the U.S. The Company views its operations and manages its business in one operating segment.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts may differ from those estimates.

Cash and Cash Equivalents

The Company considers cash and all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market instruments, U.S. government treasury obligations, ~~corporate~~U.S. ~~debt~~government ~~securities~~agency obligations, corporate obligations and repurchase agreements that are maintained by an investment manager.

Investments

Investments consist primarily of investments in U.S. Treasuries and corporate debt securities, which could also include commercial paper, that are maintained by an investment manager. Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensive income (loss). Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other income (~~loss~~expense). The Company considers and accounts for other-than-temporary impairments according to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, Investments — Debt and Equity Securities (“ASC 320”). The cost of securities sold is based on the specific-identification method. Discounts and premiums on debt securities are amortized to interest income and expensed over the term of the security.

Revenue Recognition

Commencing with reporting periods beginning January 1, 2018, the Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company’s contract revenues consist of revenues from license and collaboration agreements. License and collaboration revenue is primarily generated through agreements with strategic partners for the development and potential commercialization of our product candidates. The terms of the agreement typically include non-refundable upfront fees, funding of research and development activities, payments based upon achievement of milestones and potential royalties on net product sales. Non-refundable upfront fees and funding of research and development activities are considered fixed consideration, while milestone payments and royalties are identified as variable consideration.

The Company recognizes revenues from license and collaboration agreements to depict the transfer of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In order to determine the appropriate amount of revenue to be recognized as the Company fulfills its obligations under a contract, the Company follows the following steps for in-scope transactions: 1) identification of the contract with a customer, 2) identification of the separate performance obligations in the contract, 3) determination of the transaction price, 4) allocation of the transaction price to the separate performance obligations in the contract, and 5) recognition of revenue when or as the Company satisfies a performance obligation.

The Company’s performance obligations may include license rights, research and development services, services associated with regulatory submission and approval processes and services related to potential commercialization processes. Significant judgment may be required to determine the level of effort required under an arrangement and the period over which the Company expects to satisfy its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are satisfied or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

License Agreements

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that may be bundled with other promises, the Company will utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. Because the drug development process is lengthy and the Company’s collaboration agreements typically cover activities over several years, this approach may result in the deferral of significant amounts of revenue into future periods. Each reporting period, the Company ~~will~~evaluates ~~evaluate~~ the measure of progress and, if necessary, ~~adjust~~adjusts the measure of performance and related revenue recognition.

Milestone Payments

At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission by the Company) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until those approvals are received. When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised good or service underlying each performance obligation and recorded in license, collaboration, and other revenues based upon when the customer obtains control of each element.

Royalty Payments

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, none of the Company’s products have been approved and therefore the Company has not earned any royalty revenue from product sales.

Research and Development Expenses

Research and development expenses represent costs associated with the ongoing development of novel therapeutics and companion imaging agents for personalized targeted therapies and include salaries and employee benefits, supplies, facility costs related to research activities, and expenses for clinical trials. The Company records accruals for clinical trial expenses based on the estimated amount of work completed. The Company monitors patient enrollment levels and related activities to the extent possible through internal reviews, correspondence, and discussions with research organizations. In the event that a clinical trial is terminated early, the Company records, in the period of termination, an accrual for the estimated remaining costs to complete and close out the trial pursuant to ASC Topic 420, Exit or Disposal Cost Obligations, as a terminated trial does not provide any future economic benefit to the Company. See Note 1011 – Restructuring Costs of the Notes to Condensed Financial Statements contained herein for ~~costs incurred and~~ amounts paid during the three and ~~six~~nine months ended ~~June~~September 30, 2018 related to the Company’s restructuring activities.

Upfront payments made in connection with business collaborations and research and development arrangements are evaluated under ASC Subtopic 730-20, Research and Development Arrangements. Amounts related to future research and development, including clinical drug supply, are capitalized as prepaid research and development and are expensed over the service period based upon the level of services provided. As of ~~June~~September 30, 2018, the Company had approximately $27.68 million of capitalized research and development costs included in prepaid expenses, other assets and other noncurrent assets.

Acquired In-Process Research and Development Expense

The Company has acquired and may continue to acquire the rights to develop and commercialize new drug candidates. In accordance with ASC Subtopic 730-25, Accounting for Research and Development Costs, the upfront payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired in-process research and development (“IPR&D”) in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Upon obtaining regulatory approval for marketing, any related milestone payments may be capitalized and amortized over the life of the asset.

Stock-Based Compensation

The Company accounts for its stock-based compensation pursuant to ASC Topic 718, Compensation — Stock Compensation (“ASC 718”), which requires the recognition of the fair value of stock-based compensation in net income (loss). Stock-based compensation consists of stock options, which are granted at exercise prices at or above the fair market value of the Company’s common stock on the dates of grant, service-based restricted stock units (“RSUs”) and shares available for purchase under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”). For RSUs and stock options issued by the Company, stock-based compensation expense is recognized ratably over the service period and forfeitures are accounted for as they occur. The Company recognizes compensation cost based on the grant date fair value estimated in accordance with the provisions of ASC 718.

shares available for purchase under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”). For RSUs and stock options issued by the Company, stock-based compensation expense is recognized ratably over the service period and forfeitures are accounted for as they occur. The Company recognizes compensation cost based on the grant date fair value estimated in accordance with the provisions of ASC 718.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. For purposes of this calculation, stock options, warrants, RSUs and shares to be purchased under the ESPP are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

Common stock equivalents

As of ~~June~~September 30, 2017 and 2018, the following number of potential common stock equivalents were outstanding:

	As of June 30,
	As of September 30,
	2017	2018
Outstanding common stock options	6,~~665~~265,~~541~~333	5,~~720~~309,~~507~~344
Outstanding warrants	34756,647	722,000
Outstanding RSUs	~~524~~478,~~793~~087	1,~~520~~510,~~898~~460
Shares to be purchased under the ESPP	218,~~467~~323	111,~~500~~410
Total	7,~~227~~518,~~448~~390	7,~~964~~553,~~905~~214

These common stock equivalents were excluded from the determination of diluted net loss per share ~~due~~in tothe ~~their~~three ~~anti-dilutive~~and ~~effect~~nine onmonth ~~earnings.~~periods ~~The~~ended ~~increase~~September in30, ~~outstanding~~2017 ~~warrants~~and ~~year-over-year~~2018 ~~was~~ due to ~~warrants~~their ~~issued~~anti-dilutive ineffect ~~connection~~on ~~with the License Agreement~~earnings. For additional information on the outstanding warrants, see Note 8 – Warrants of the Notes to Condensed Financial Statements contained herein.

910

3. New Accounting Pronouncements

Recently Issued Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, an update to ASC Topic 842, Leases. This guidance requires lessees to recognize leases as assets and liabilities on their balance sheets but recognize expenses on their income statements in a manner similar to the current accounting guidance. For lessors, the guidance also modifies the classification criteria and the accounting for sales-type and direct finance leases. This update is effective for the Company for interim and annual reporting periods beginning January 1, 2019 ~~unless it elects early adoption~~. The Company isdoes ~~currently~~not ~~evaluating~~expect the ~~impact, if any, the~~ adoption of this guidance ~~will~~to have a material impact on its financial statements.

Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09 as subsequently amended and clarified (“ASC 606”), an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In order to do so, an entity would follow the five-step process for in-scope transactions: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 was effective for the Company for interim and annual reporting periods beginning January 1, 2018. The Company adopted ASC 606 in the ~~six~~nine months ended ~~June~~September 30, 2018 using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained deficit. The cumulative effect related to the adoption of ASC 606 was a $0.3 million decrease to the opening balance of retained deficit at January 1, 2018. The Company had deferred revenue related to its agreement with Nihon Medi-Physic Co., LTD. (“NMP”) of approximately $0.4 million at ~~June~~September 30, 2018 and will continue to record the revenue on a straight-line basis over the remaining estimated performance obligation period of approximately six years. The Company currently has a limited number of contracts with customers and only one revenue stream, which relates to collaboration and licensing arrangements, and which represents all of the revenue earned in the three and ~~six~~nine months ended ~~June~~September 30, 2018. The adoption of ASC 606 did not have a material impact on the Company’s financial statements and is not expected to have a material impact on the Company’s financial statements on an ongoing basis.

4. Other Comprehensive Income

The following tables summarize the accumulated balances related to each component of other comprehensive income for the three months ended ~~June~~September 30, 2017 and 2018:

			Accumulated
	Unrealized Net		Other
	Gains (Losses)		Comprehensive
	on Securities		Gains (Losses)
Balance at March 31, 2017	$	(53,877)	$	(53,877)
Unrealized gain		19,014		19,014
Other comprehensive income		19,014		19,014
Balance at June 30, 2017	$	(34,863)	$	(34,863)
Unrealized gain		30,303		30,303
Other comprehensive income		30,303		30,303
Balance at September 30, 2017	$	(4,560)	$	(4,560)

			Accumulated
	Unrealized Net		Other
	Gains (Losses)		Comprehensive
	on Securities		Gains (Losses)
Balance at March 31, 2018	$	(79,143)	$	(79,143)
Unrealized gain		44,819		44,819
Other comprehensive income		44,819		44,819
Balance at June 30, 2018	$	(34,324)	$	(34,324)
Unrealized gain		11,640		11,640
Other comprehensive income		11,640		11,640
Balance at September 30, 2018	$	(22,684)	$	(22,684)

10The following tables summarize the accumulated balances related to each component of other comprehensive income for the nine months ended September 30, 2017 and 2018:

The following tables summarize the accumulated balances related to each component of other comprehensive income for the six months ended June 30, 2017 and 2018:


			Accumulated
	Unrealized Net		Other
	Gains (Losses)		Comprehensive
	on Securities		Gains (Losses)
Balance at December 31, 2016	$	(41,196)	$	(41,196)
Unrealized gain		36,636		36,636
Other comprehensive income		36,636		36,636
Balance at September 30, 2017	$	(4,560)	$	(4,560)

			Accumulated
	Unrealized Net		Other
	Gains (Losses)		Comprehensive
	on Securities		Gains (Losses)
Balance at December 31, 2016	$	(41,196)	$	(41,196)
Balance at December 31, 2017	$	(64,433)	$	(64,433)
Unrealized gain		641,~~333~~749		641,~~333~~749
Other comprehensive income		641,~~333~~749		641,~~333~~749
Balance at June 30, 2017	$	(34,863)	$	(34,863)
Balance at September 30, 2018	$	(22,684)	$	(22,684)

			Accumulated
	Unrealized Net		Other
	Gains (Losses)		Comprehensive
	on Securities		Gains (Losses)
Balance at December 31, 2017	$	(64,433)	$	(64,433)
Unrealized gain		30,109		30,109
Other comprehensive income		30,109		30,109
Balance at June 30, 2018	$	(34,324)	$	(34,324)

5. Investments

The Company applies the fair value measurement and disclosure provisions of ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. Investments consist primarily of investments with maturities greater than three months, but no longer than 24 months, when purchased.

ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon the transparency of inputs (observable and unobservable) to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Valuation is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Valuation is based on quoted prices for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for the full term of the financial instrument.

Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

The fair value of the Company’s fixed income securities is based on a market approach using quoted market values.

The following table summarizes the fair value of cash and cash equivalents and investments as of December 31, 2017:


							Fair Value
Description	Cost		Level 1		Level 2		(Carrying Value)
Cash
Cash	$	2,544,972	$	2,544,972	$	—	$	2,544,972
Cash equivalents (maturity of 3 months or less)
Repurchase agreements		10,000,000		—		10,000,000		10,000,000
Money market funds		6,014,158		6,014,158		—		6,014,158
Cash and cash equivalents	$	18,559,130	$	8,559,130	$	10,000,000	$	18,559,130
Short-term investments (due within 1 year)
U.S. government treasury obligations	$	63,034,548	$	62,970,115	$	—	$	62,970,115
Corporate obligations		15,942,182		—		15,942,182		15,942,182
Total short-term investments	$	78,976,730	$	62,970,115	$	15,942,182	$	78,912,297

The following table summarizes the fair value of cash and cash equivalents and investments as of ~~June~~September 30, 2018:

							Fair Value
Description	Cost		Level 1		Level 2		(Carrying Value)
Cash
Cash	$	57,~~466~~280,~~279~~004	$	57,~~466~~280,~~279~~004	$	—	$	57,~~466~~280,~~279~~004
Cash equivalents (maturity of 3 months or less)
Repurchase agreements		10,000,000		—		10,000,000		10,000,000
Money market funds		635,~~085~~004,~~782~~236		635,~~085~~004,~~782~~236		—		635,~~085~~004,~~782~~236
Corporate obligations		3,492,895		—		3,492,895		3,492,895
U.S. government agency obligations		14,984,175		—		14,984,100		14,984,100
Cash and cash equivalents	$	2567,~~044~~268,~~956~~415	$	1142,~~552~~284,~~061~~240	$	1324,~~492~~984,~~895~~100	$	2567,~~044~~268,~~956~~340
Short-term investments (due within 1 year)
U.S. government treasury obligations	$	~~102~~187,~~051~~315,~~027~~613	$	~~102~~187,~~023~~297,~~195~~850	$	—	$	~~102~~187,~~023~~297,~~195~~850
Corporate obligations		3989,~~731~~649,~~021~~086		—		3989,~~724~~644,~~529~~301		3989,~~724~~644,~~529~~301
Total short-term investments	$	~~141~~276,~~782~~964,~~048~~699	$	~~102~~187,~~023~~297,~~195~~850	$	3989,~~724~~644,~~529~~301	$	~~141~~276,~~747~~942,~~724~~151

All securities held at December 31, 2017 and ~~June~~September 30, 2018, were classified as available-for-sale as defined by ASC 320.

Total unrealized gross gains were $3,380 at June 30, 2018. There were no unrealized gross gains as of December 31, 2017. Total unrealized gross losses were $64,433 and $37,704 as of December 31, 2017 and June 30, 2018, respectively. The Company does not consider any of the unrealized losses to be other-than-temporary impairments because the Company has the intent and ability to hold investments until they recover in value. There were no total realized gross gains or total realized gross losses for the three or six months ended June 30, 2017 and 2018. 13

12Total unrealized gross gains were $2,464 at September 30, 2018. There were no unrealized gross gains as of December 31, 2017. Total unrealized gross losses were $64,433 and $25,148 as of December 31, 2017 and September 30, 2018, respectively. The Company does not consider any of the unrealized losses to be other-than-temporary impairments because the Company has the intent and ability to hold investments until they recover in value. There were no total realized gross gains or total realized gross losses for the three or nine months ended September 30, 2017 and 2018.

6. Collaboration and Other Arrangements

Isotope Technologies Garching GmbH Global Supply Agreement

In July 2018, the Company entered into a Global Supply Agreement (the “Supply Agreement”) with ITG Isotope Technologies Garching GmbH (“ITG”). The Supply Agreement supersedes the clinical supply agreement for the same product that the Company announced on February 26, 2018. Under the Supply Agreement, ITG agrees to supply the Company with, and the Company agrees to purchase, 100% of the no-carrier-added lutetium-177 (the “Product”), which is the therapeutic radioactive atom portion of 177Lu-PSMA-617, required for the Company’s phase 3 VISION trial. The Company also agrees to purchase, and ITG agrees to supply, at least 50%, and up to 100% at the Company’s request, of the Company’s Product needs for 177Lu-PSMA-617 during the commercial phase, which begins upon the first commercial country launch of 177Lu-PSMA-617 following receipt of a full marketing authorization allowing sale of such product in that first country.

The Supply Agreement also sets forth various terms relating to the manufacture, ordering, supply and payment regarding the Product. The Supply Agreement also includes provisions relating to, among others, delivery, inspection procedures, warranties, quality management, compliance, forecasts, intellectual property rights, indemnification, and confidentiality.

The initial term of the Supply Agreement continues until December 31, 2035, subject to earlier termination as described below. After the initial term, the Supply Agreement will automatically be extended for successive periods of two years each unless either party terminates the Supply Agreement by giving prior written notice. Either party may terminate the Supply Agreement for cause if the other party: (i) becomes insolvent or has a receiver or liquidator appointed or enters into a composition or bankruptcy with its creditors; (ii) materially breaches its material obligations under the Supply Agreement and fails to commence to cure such breach within a specified time following receiving notice of breach; (iii) fails to pay any insurance premium or any amount under the Supply Agreement when due and fails to cure such breach within a specified time after becoming aware of such failure to pay; or (iv) fails to perform its obligations under the Supply Agreement by reason of Force Majeure for more than a specified time period. In addition, the Supply Agreement contains other termination provisions that may apply if certain restrictive conditions are met.

In August 2018, the Company paid ITG a one-time, non-refundable upfront payment under the Supply Agreement, which was $5.8 million. Under ASC Subtopic 730-20, Research and Development Arrangements, the Company capitalized the payment as other current and noncurrent assets and will be recognizing the expense over the service period, which is considered to be delivery of the Product, during the phase 3 VISION trial. The balance of other current and noncurrent assets related to the upfront payment under the Supply Agreement as of September 30, 2018 was $5.3 million and $0.5 million, respectively.

ABX Development and License Agreement

In September 2017, the Company entered into the License Agreement with ABX that grants the Company exclusive worldwide rights to develop and commercialize PSMA-617 agents. Under the terms of the License Agreement, the Company will be responsible for, and bear the future costs of, worldwide development and commercialization of PSMA-617. As consideration for the exclusive license, the Company made an upfront cash payment on September 29, 2017 of approximately $11.9 million to ABX, consisting of $12.0 million less an immaterial expense reimbursement amount, and issued to ABX 2,000,000 shares of the Company’s common stock (see Note 7 – Stockholders’ Equity (Deficit) of the Notes to Condensed Financial Statements for additional information regarding this issuance) and two warrants to purchase, in the aggregate, 4,000,000 shares of the Company’s common stock (see Note 8 – Warrants of the Notes to Condensed Financial Statements for additional information regarding the warrants). The License Agreement also obligates the Company to pay ABX regulatory milestone payments of up to $25.0 million, sales milestone payments of up to $135.0 million, and tiered royalties, beginning in the mid-teens and not to exceed the mid-twenties, based on percentages of net sales.

In addition, under a three-party agreement, entered into in October 2017, among the Company, the University of Sydney (the “University”) and ANZUP, a cooperative cancer trials group operating in Australia and New Zealand pursuing research in genito-urinary malignancies, ANZUP sponsors jointly with the University a randomized phase 2 multi-center TheraP trial of 177Lu-PSMA-617 versus cabazitaxel in 200 mCRPC patients. The TheraP trial commenced enrollment in the first quarter of 2018. Under the three-party agreement, the Company provides product and financial support for the trial. The Company will have access to data generated from the trial, which is a potentially important supportive trial for future regulatory submissions. The primary financial obligations of the trial, along with labeling PSMA-617 with Lutetium-177, will be the responsibility of the University and ANZUP.

NMP License and Commercialization Agreement

In August 2013, the Company entered into a license and commercialization agreement with NMP that grants NMP the right to develop and commercialize etarfolatide in Japan for use in connection with any folate receptor-targeted therapeutic drug in Japan. The Company received a $1.0 million non-refundable upfront payment, is eligible for up to $4.5 million based on the successful achievement of regulatory goals for etarfolatide in five different cancer indications and is eligible to receive double-digit percentage royalties on sales of etarfolatide in Japan.

For revenue recognition purposes, the Company historically viewed the agreement with NMP as a multiple element arrangement upon execution of the agreement in 2013. The Company’s deliverables were accounted for as a single unit of account, therefore the non-refundable upfront payment was being recognized on a straight-line basis over the performance period which had been determined to continue through the estimated termination date of the contract, or through the end of 2033. In the ~~six~~nine months ended ~~June~~September 30, 2018, the Company adopted ASC 606 and therefore analyzed the agreement with NMP using the five-step process as described in Note 3 – New Accounting Pronouncements of the Notes to Condensed Financial Statements contained herein. The Company determined that the upfront payment of $1.0 million relates to one performance obligation, which was determined to be the successful development and commercialization of etarfolatide in connection with a related folate receptor-targeted therapeutic drug in Japan, and should be allocated over the performance period that the Company estimates will be required to satisfy the combined performance obligation rather than the period over which the final undelivered item was estimated to be delivered, which was the life of the contract, under the previous standard. Under the modified retrospective method of adoption of ASC 606, the Company recorded a cumulative effect adjustment to reduce deferred revenue by $0.3 million and to decrease its retained deficit at January 1, 2018. The Company had deferred revenue related to the agreement with NMP of approximately $0.4 million at ~~June~~September 30, 2018 and will continue to record the revenue on a straight-line basis over the remaining estimated performance obligation period of approximately six years. The adoption of ASC 606 did not have a material effect on the Company’s financial statements.

1315

The arrangement with NMP includes milestone payments of up to approximately $4.5 million and the milestones are based on the commencement of clinical trials in Japan for specific and non-specific indications and filing for approval in Japan for specific and non-specific indications. The Company evaluated each of these milestone payments and believes that all of the milestones should be excluded from the transaction price due to substantial performance risk. In order for the milestones to be reached, the Company must complete additional clinical trials which show a positive outcome or receive approval from a regulatory authority. To date, the products have not been approved in Japan and no revenue has been recognized related to the regulatory milestones or royalties.

NMP has the right to terminate the collaboration agreement on 90 days notice prior to the first commercial sale in Japan and six months notice after the first commercial sale in Japan. NMP also has the right to terminate the agreement on six months notice if the Company fails to launch any folate receptor-targeted therapeutic drug after receiving regulatory approval in Japan. NMP and the Company each have the right to terminate the agreement due to the material breach or insolvency of the other party. Upon termination of the agreement depending on the circumstances, the parties have varying rights and obligations with respect to licensing and related regulatory materials and data.

7. Stockholders’ Equity (Deficit)

Public ~~Offering~~Offerings of Common Stock

On ~~March~~September 214, 2018, the Company closed an underwritten registered public offering of 2010,~~535~~878,~~714~~379 shares of its common stock, which included the underwriters’ exercise in full of their option to purchase additional shares. The shares were sold at a public offering price of $418.2050 per share. In the ~~six~~nine months ended ~~June~~September 30, 2018, the Company received aggregate net proceeds from ~~the~~this offering of approximately $80188.9 million, after deducting underwriting discounts and commissions of $512.21 million and offering expenses paid by the Company of $0.13 million.

On March 2, 2018, the Company closed an underwritten registered public offering of 20,535,714 shares of its common stock, which included the underwriters’ exercise in full of their option to purchase additional shares. The shares were sold at a public offering price of $4.20 per share. In the nine months ended September 30, 2018, the Company received aggregate net proceeds from this offering of approximately $80.9 million, after deducting underwriting discounts and commissions of $5.2 million and offering expenses paid by the Company of $0.1 million.

Issuances Related to the License Agreement

In connection with the License Agreement, the Company issued to ABX on September 29, 2017, 2,000,000 unregistered shares of the Company’s common stock and two warrants to purchase up to 4,000,000 shares of the Company’s common stock~~, one of which warrants to purchase 3,278,000 shares was exercised on that same day~~. Pursuant to a Registration Rights Agreement entered into with ABX, the Company registered for resale these 6,000,000 shares of the Company’s common stock with the SEC on a Form S-3 Registration Statement that was declared effective on October 24, 2017. One of the warrants to purchase 3,278,000 shares of the Company’s common stock was exercised on September 29, 2017, resulting in one outstanding warrant to purchase 722,000 shares of the Company’s common stock being outstanding on September 30, 2018. On October 19, 2018 the remaining outstanding warrant was exercised in part, with respect to 280,000 shares of the Company’s common stock, resulting in 442,000 shares of the Company’s common stock remaining subject to issuance under the outstanding warrant. See Note 8 – Warrants of the Notes to Condensed Financial Statements contained herein for additional information.

Stock-Based Compensation Plans

The Company had equity awards outstanding under two stock-based compensation plans at ~~June~~September 30, 2018. The awards made under the plan adopted in 2007 consisted of stock options. The 2010 Equity Incentive Plan (the “2010 Plan”), which is the only plan under which awards may currently be made, authorizes awards in the form of stock options, stock appreciation rights, restricted stock, RSUs, performance-based RSUs and performance units and performance shares. Awards under the 2010 Plan may be made to employees, directors and certain consultants as determined by the compensation committee of the board of directors. There were 11,850,563 and 13,296,563 shares of common stock authorized and reserved under these plans at December 31, 2017 and ~~June~~September 30, 2018, respectively.

Stock Options

Under the various plans, employees have been granted both incentive and non-qualified stock options, while directors and consultants have been granted non-qualified options. The plans allow the holder of an option to purchase common stock at the exercise price, which was at or above the fair value of the Company’s common stock on the date of grant.

Generally, options granted under the 2007 plan in connection with an employee’s commencement of employment vested over a four-year period with one-half of the shares subject to the grant vesting after two years of employment and the remaining options vesting monthly over the remainder of the four-year period. Options granted under the 2007 plan for performance or promotions vested monthly over a four-year period. Generally, options granted under the 2010 Plan vest annually over a three-year or four-year period. Unexercised stock options terminate on the tenth anniversary date after the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. The Company utilizes a Black-Scholes option-pricing model to estimate the value of stock options. The Black-Scholes model allows the use of a range of assumptions related to historical volatility, risk-free interest rate, employee exercise behavior and dividend yield.

The Company is using the “simplified” method for “plain vanilla” options to estimate the expected term of the stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate assumption is derived from the weighted-average yield of a U.S. Treasury security with the same term as the expected life of the options, the volatility is calculated based on volatility of the Company’s daily stock prices since the initial public offering over the same term as the expected life of the options and the dividend yield assumption is based on historical experience and the Company’s estimate of future dividend yields.

The weighted-average value of the individual options granted during the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2018 were determined using the following assumptions:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2018		2017		2018
Expected volatility	910.80	%	9790.76	%	92.7	%	100.94	%
Risk-free interest rate	20.2700	%	2.8678	%	2.15	%	2.71	%
Weighted-average expected life (in years)	90.20		86.73		6.9		76.09
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%

The Company’s stock option activity and related information are summarized as follows:

				Weighted-Average
				Remaining
		Weighted-Average		Contractual Term	Aggregate
	Options	Exercise Price		(In Years)	Intrinsic Value
Outstanding at January 1, 2018	5,878,660	$	5.93
Granted during period	688,192		3.07
Exercised during period	(561,088)		4.10
Expired during period	(8,993)		3.06
Outstanding at March 31, 2018	5,996,771	$	5.78	6.18	$	22,125,418
Exercisable at March 31, 2018	4,290,445	$	6.92	5.02	$	11,551,954
Outstanding at April 1, 2018	5,996,771		5.78
Granted during period	242,400		10.86
Exercised during period	(512,795)		8.16
Forfeited during period	(5,869)		2.82
Outstanding at June 30, 2018	5,720,507	$	5.79	6.28	$	45,908,925
Exercisable at June 30, 2018	3,970,287	$	6.56	5.09	$	28,812,888
Outstanding at July 1, 2018	5,720,507		5.79
Granted during period	48,700		16.74
Exercised during period	(442,913)		7.57
Forfeited during period	(16,950)		4.77
Outstanding at September 30, 2018	5,309,344	$	5.74	6.14	$	63,541,222
Exercisable at September 30, 2018	3,550,137	$	6.42	4.84	$	40,064,166

As of ~~June~~September 30, 2018, the total remaining unrecognized compensation cost related to stock options granted was $54.09 million, which is expected to be recognized over a weighted average period of approximately 1.7 years.

Restricted Stock Units

RSUs are service-based awards that will vest and be paid in the form of one share of the Company’s common stock for each RSU, generally in two, three or four equal annual installments beginning on the first anniversary of the date of grant of an RSU. As of ~~June~~September 30, 2018, the Company had 1,~~520~~510,~~898~~460 RSU awards outstanding. As of ~~June~~September 30, 2018, the total remaining unrecognized compensation cost related to RSUs was $5.4.6 million, which is expected to be recognized over a weighted average period of approximately 1.4 years.

1518

The following table sets forth the number of RSUs that were granted, vested and forfeited in the ~~period~~periods indicated:

	Restricted	Weighted-Average
	Stock	Grant
	Units	Date Fair Value
Outstanding at January 1, 2018	1,383,770	$	5.05
Granted during period	301,958		3.02
Vested during period	(161,147)		4.27
Outstanding at March 31, 2018	1,524,581	$	4.73
Outstanding at April 1, 2018	1,524,581	$	4.73
Granted during period	56,150		12.19
Vested during period	(30,150)		2.47
Forfeited during period	(29,683)		5.35
Outstanding at June 30, 2018	1,520,898	$	5.04
Outstanding at July 1, 2018	1,520,898	$	5.04
Granted during period	3,000		13.60
Vested during period	(5,938)		4.85
Forfeited during period	(7,500)		5.01
Outstanding at September 30, 2018	1,510,460	$	5.06

Employee Stock Purchase Plan

At January 1, 2018, 769,542 common shares were available for issuance under the ESPP. Shares may be issued under the ESPP twice a year. In the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2018, plan participants purchased 25,352 shares of common stock under the ESPP at an average purchase price of $3.75 per share. At ~~June~~September 30, 2018, there were 744,190 common shares available for issuance under the ESPP.

8. Warrants

In connection with the License Agreement, the Company issued to ABX on September 29, 2017, two warrants to purchase up to 4,000,000 shares of the Company’s common stock, at a per share exercise price of $1.39, which iswas equal to the average closing price of the Company’s common stock during the 30 calendar days prior to September 29, 2017. The Company accounted for the warrants at fair value in stockholders’ equity. ~~The warrants contain a conversion feature in the case of certain mergers or consolidations by the Company.~~ Immediately upon issuance, ABX assigned the warrants to an affiliate and certain related parties, which exercised a warrant for 3,278,000 shares of the Company’s common stock on September 29, 2017, resulting in proceeds to the Company in the amount of approximately $4.6 million. The remaining outstanding warrant, covering an aggregate of 722,000 shares of the Company’s common stock, remained outstanding as of ~~June~~September 30, 2018, is exercisable until September 29, 2027, and is subject to restrictions on transfer. This outstanding warrant was valued as of September 30, 2018 using the Black-Scholes model utilizing a ten-year term, the Company’s historic volatility of 91.1%, and an interest rate of 2.28% which is the risk -free interest rate of a treasury bond with the same term as the outstanding warrant, of which inputs are level 2 fair value measurements. There were no other outstanding warrants as of ~~June~~September 30, 2018.

16On October 19, 2018, the remaining outstanding warrant was exercised in part, with respect to 280,000 shares of the Company’s common stock, resulting in 442,000 shares of the Company’s common stock remaining subject to issuance under that outstanding warrant. The outstanding warrant contains a conversion feature in the case of certain mergers or consolidations by the Company. Pursuant to the terms of the Merger Agreement and the terms of the outstanding warrant, if the Merger is consummated, the outstanding warrant will be deemed to be automatically exercised immediately prior to the effective time of the Merger, and the holder of the outstanding warrant will participate in the Merger as a holder of the Company’s common stock on the same terms as other holders of the Company’s common stock, but the holder’s aggregate consideration received in the Merger will be reduced by the aggregate exercise price then in effect for the shares of the Company’s common stock purchasable under the outstanding warrant.

9. Income Taxes

The Company accounts for income taxes under the liability method in accordance with the provisions of ASC Topic 740, Income Taxes. The Company recognizes future tax benefits, such as net operating losses, to the extent those benefits are expected to be realized in future periods. Due to uncertainty surrounding the realization of its deferred tax assets, the Company has recorded a valuation allowance against its net deferred tax assets. The Company experienced a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code (the “Code”) in August 2011. As a result, the future use of its net operating losses and credit equivalents, after giving effect to net unrealized built-in gains, was previously limited, but the limitations associated with the change in ownership in August 2011 ended as of December 31, 2017. All amounts are available for use if the Company generates future taxable income prior to expiration of the net operating losses, which will begin in 2021. The utilization of the net operating loss carryforwards could be limited beyond the Company's generation of taxable income if an additional change in the underlying ownership of the Company's common stock has occurred subsequent to August 2011, resulting in a limitation on the amounts that could be utilized in any given period under Section 382 of the Code.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “2017 Tax Act”) which, among other provisions, reduced the corporate income tax rate from 35% to 21% effective January 1, 2018. During the fourth quarter of 2017, the Company revalued its net deferred tax assets using the newly enacted rate, resulting in a reduction of its net deferred tax assets of $33.1 million. The Company also reduced its valuation allowance by $33.1 million, resulting in no income tax expense being recognized as a result of the revaluation. The Company’s estimate of the impacts of the 2017 Tax Act are provisional and are based upon its analysis and interpretations of currently available information. Uncertainties remain regarding the impact of the 2017 Tax Act due to future regulatory and rulemaking processes, prospects of additional corrective or supplemental legislation, and potential trade or other litigation. These uncertainties, along with the Company’s completion of the calculations and potential changes in its initial assumptions as new information becomes available, could cause the actual charge to ultimately differ from the provisional amount recorded in 2017 related to the enactment of the 2017 Tax Act. All provisional amounts recorded by the Company are fully reserved. There were no adjustments in the nine months ended September 30, 2018 to the provisional amount recorded in the fourth quarter of 2017.

10. ~~Restructuring~~Commitments ~~Costs~~and Contingencies

InOn ~~June~~November ~~2017~~6, 2018, a lawsuit captioned Elaine Wang v. Endocyte, Inc., et al., Civil Action No. 4:18-cv-00085, was filed by a purported stockholder of the Company ~~refocused~~in ~~its~~the ~~clinical~~United ~~development~~States ~~efforts~~District ~~and~~Court, ~~aligned~~Northern ~~its~~District ~~resources~~of toIndiana, ~~focus~~against onthe Company and the members of the Company’s ~~highest~~Board ~~value~~of ~~opportunities~~Directors. ~~while~~The ~~maintaining~~complaint ~~key~~alleges, ~~capabilities.~~among ~~The~~other things, that the preliminary proxy statement filed by the Company with the SEC on October 31, 2018 related to the special meeting of the Company’s ~~restructuring~~stockholders ~~activities~~to ~~included~~be aheld ~~reduction~~in connection with the Merger, contained untrue statements of ~~its~~fact ~~workforce~~and/or byomitted ~~approximately~~material ~~40%,~~facts asnecessary ~~well~~to asmake ~~stopping~~the ~~enrollment~~statements made in ~~its~~such ~~EC1456~~preliminary ~~phase~~proxy 1bstatement ~~trial~~not asmisleading, and that therefore the ~~assessment~~Company and the members of ~~trial~~the ~~data~~Company’s ~~did~~Board ~~not~~of ~~yield~~Directors violated Section 14(a) of the ~~level~~Securities Exchange Act of ~~clinical~~1934, ~~activity~~as ~~necessary~~amended to(the ~~support~~“Exchange ~~continued~~Act”), ~~advancement~~and ofRule ~~EC1456~~14a-9 thereunder. InThe ~~December~~lawsuit ~~2017,~~further alleges that the members of the Company’s ~~stopped~~Board ~~enrollment~~of inDirectors ~~its~~violated ~~EC1456~~Section ~~ovarian~~20(a) ~~cancer~~of ~~surgical~~the ~~trial~~Exchange Act. ~~Pursuant~~The lawsuit seeks, among other things, injunctive relief: (i) enjoining the consummation of the Merger unless and until material information that was allegedly omitted from the Company’s preliminary proxy statement is disclosed; (ii) rescinding, to ~~ASC~~the ~~Topic~~extent ~~420~~already implemented, ~~Exit~~the Merger Agreement or ~~Disposal~~any ~~Cost~~of ~~Obligations~~the terms thereof, or granting plaintiff rescissory damages; and (iii) awarding plaintiff the ~~Company~~costs ~~recorded~~and $2disbursements of the action, including reasonable attorneys’ and expert fees and expenses.3 ~~million~~The Company and the members of ~~restructuring~~the ~~expenses~~Company’s inBoard of Directors believe the ~~three~~lawsuit ~~and~~is ~~six~~without ~~months~~merit ~~ended~~and ~~June~~intend ~~30,~~to ~~2017~~vigorously asdefend ~~follows:~~against it.

11. Restructuring Costs

In June 2017, the Company refocused its clinical development efforts and aligned its resources to focus on the Company’s highest value opportunities while maintaining key capabilities. The Company’s restructuring activities included a reduction of its workforce by approximately 40%, as well as stopping enrollment in its EC1456 phase 1b trial as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, the Company stopped enrollment in its EC1456 ovarian cancer surgical trial. Pursuant to ASC Topic 420, Exit or Disposal Cost Obligations, the Company recorded $2.3 million of restructuring expenses in the nine months ended September 30, 2017 as follows:

included in research and development expenses were expenses for employee termination benefits of $0.9 million, $0.9 million for the remaining EC1456 phase 1b trial expenses, including site close-out expenses, $0.3 million related to other restructuring expenses, and $0.1 million related to fixed asset impairment charges; and

included in general and administrative expenses were expenses for employee termination benefits of $0.1 million.

As of June 30, 2018, the Company had paid all severance and other costs related to the restructuring activities.

At December 31, 2017, the Company had a clinical trial accrual balance related to the EC1456 phase 1b trial termination of $106,900. There were no material adjustments to the EC1456 phase 1b trial termination accrual balance during the three and ~~six~~nine months ended ~~June~~September 30, 2018, and payments made against the accrual in those periods were $814,~~500~~800 and $92106,~~100~~900, respectively. ~~The~~As ~~remaining~~of ~~accrual~~September ~~balance at June~~ 30, 2018, isthere ~~immaterial~~was ~~and~~no isremaining ~~expected~~accrual balance related to bethe ~~paid~~restructuring byactivities ~~the~~and ~~end~~all ofpayments ~~2018~~had been made.

1712. Related Party

~~11.~~BlinkBio ~~Subsequent~~Clinical ~~Event~~Supply and License Option Agreement

OnIn ~~July~~August 5, 2018, the Company entered into a ~~Global~~Clinical Supply and License Option Agreement (the “~~Supply~~BlinkBio Agreement”) with ~~ITG~~BlinkBio ~~Isotope~~to ~~Technologies~~provide ~~Garching~~a ~~GmbH~~clinical ~~(“ITG”).~~supply ~~The~~of ~~Supply~~etarfolatide, ~~Agreement~~the ~~supersedes~~Company’s ~~the~~imaging ~~clinical~~agent ~~supply~~that ~~agreement~~targets the folate receptor, for ~~the~~use ~~same~~in ~~product~~a ~~that~~phase ~~the~~1 ~~Company~~clinical ~~announced~~trial onand ~~February~~regulatory, 26clinical and manufacturing consulting support, ~~2018~~as well as an option to enter into an exclusive license to use etarfolatide. ~~Under~~Colin Goddard, who is the ~~Supply~~Chairman ~~Agreement~~and Chief Executive Officer and a significant stockholder of BlinkBio, ~~ITG~~currently ~~agrees~~serves toas ~~supply~~a member of the Company’s ~~with,~~Board ~~and~~of Directors. The BlinkBio Agreement provides for BlinkBio to pay the Company ~~agrees~~an toannual ~~purchase~~fee of $50,000, ~~100%~~payable ofbeginning on the ~~no-carrier-added~~effective ~~lutetium-177~~date ~~(“Product”),~~of ~~which~~the isBlinkBio ~~the~~Agreement ~~therapeutic~~and ~~radioactive~~each ~~atom~~year ~~portion~~thereafter on the anniversary of ~~177Lu-PSMA-617,~~the ~~required~~effective date, for the Company’s ~~phase~~consulting 3support ~~VISION~~under ~~trial~~the BlinkBio Agreement. The ~~Company~~BlinkBio ~~also~~Agreement ~~agrees~~provides tofor ~~purchase,~~milestone and ~~ITG~~license ~~agrees~~option amounts to ~~supply,~~be atpayable ~~least~~by ~~50%~~BlinkBio to the Company upon certain occurrences, ~~and~~as upwell toas ~~100%~~for atBlinkBio to reimburse the Company’s ~~request~~for certain costs. The Company received the nonrefundable, annual fee of $50,000 from BlinkBio in the three months ended September 30, 2018. The Company’s ~~volume~~has ~~Product~~determined ~~needs~~that the deliverables under the BlinkBio Agreement meet the criteria required for ~~177Lu-PSMA-617~~separate ~~during~~performance units for the ~~commercial~~purposes ~~phase~~of revenue recognition, ~~which~~and ~~begins~~as ~~upon~~a result, the ~~first~~Company ~~commercial~~recognized ~~country~~revenue ~~launch~~from ofthe ~~177Lu-PSMA-617~~nonrefundable, ~~following~~annual ~~receipt~~fee when the performance obligation of adelivering ~~full~~certain ~~marketing~~consultation ~~authorization~~services ~~allowing~~had ~~sale~~been ofachieved ~~such~~and ~~product~~there inwas ~~that~~reasonable ~~first~~assurance ~~country~~of collectability.

The Supply Agreement provides that the Company will make a one-time, upfront payment of 5 million Euros to ITG within 30 days following the effective date of the Supply Agreement. The Supply Agreement also sets forth various terms relating to the manufacture, ordering, supply and payment regarding the Product.1

~~The initial term of the Supply Agreement continues until December 31, 2035, subject to earlier termination as described below~~13. ~~After~~Subsequent the initial term, the Supply Agreement will automatically be extended for successive periods of two years each unless either party terminates the Supply Agreement by giving prior written notice. Either party may terminate the Supply Agreement for cause if the other party: (i) becomes insolvent or has a receiver or liquidator appointed or enters into a composition or bankruptcy with its creditors; (ii) materially breaches its material obligations under the Supply Agreement and fails to commence to cure such breach within a specified time following receiving notice of breach; (iii) fails to pay any insurance premium or any amount under the Supply Agreement when due and fails to cure such breach within a specified time after becoming aware of such failure to pay; or (iv) fails to perform its obligations under the Supply Agreement by reason of Force Majeure for more than a specified time period. In addition, the Supply Agreement contains other termination provisions that may apply if certain restrictive conditions are met.Event

~~The~~On ~~Supply~~October 17, 2018, the Company entered into the Merger Agreement ~~also~~with ~~includes~~Novartis ~~provisions~~and ~~relating~~Merger Sub. Subject to, ~~among~~the ~~others,~~terms ~~delivery,~~and ~~inspection~~conditions ~~procedures,~~of ~~warranties,~~the ~~quality~~Merger ~~management~~Agreement, ~~compliance,~~Merger ~~forecasts,~~Sub ~~intellectual~~will ~~property~~be ~~rights,~~merged ~~indemnification~~with and into the Company, with the Company continuing as the surviving corporation and ~~confidentiality~~a wholly-owned subsidiary of Novartis.

18Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of Company common stock, par value $0.001 per share (other than such shares owned by the Company, Novartis or Merger Sub immediately prior to the Effective Time (which shares will be canceled) and such shares with respect to which the holder thereof properly exercises appraisal rights (and does not validly withdraw, waive or otherwise lose such rights) under Delaware law), will automatically be converted into the right to receive $24.00 in cash, without interest and less any applicable withholding taxes (the “Merger Consideration”).

At the Effective Time, each Company option to purchase shares of Company common stock (a “stock option”) that is outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will (i) if the exercise price of such stock option is less than the Merger Consideration, be canceled, with the holder of such stock option becoming entitled to receive an amount in cash, without interest, equal to (a) the excess of the Merger Consideration over the exercise price of the stock option, multiplied by (b) the number of shares of Company common stock subject to such stock option as of immediately prior to the Effective Time (subject to any applicable withholding taxes); or (ii) if the exercise price of such stock option is equal to or greater than the Merger Consideration, be canceled without any consideration being payable.

Also at the Effective Time, each restricted stock unit of the Company (“RSU”) that is outstanding and not settled immediately prior to the Effective Time, whether vested or unvested, will be canceled and converted into the right to receive an amount in cash, without interest, equal to the Merger Consideration multiplied by the number of shares of Company common stock subject to such RSU as of immediately prior to the Effective Time (subject to any applicable withholding taxes).

The consummation of the Merger is subject to certain closing conditions, including (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Company common stock (the “Stockholder Approval”), (ii) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under Section 721 of the Defense Production Act of 1950, as amended, (iii) the receipt of certain other required regulatory approvals, if such approvals are required to complete the merger, and (iv) the absence of any legal restraints that have the effect of preventing the consummation of the Merger. Moreover, each party’s obligation to consummate the Merger is subject to certain other conditions, including the accuracy of the other party’s representations and warranties in the Merger Agreement (subject to certain materiality qualifiers) and the other party’s compliance in all material respects with its obligations under the Merger Agreement. In addition, Novartis’ and Merger Sub’s obligation to consummate the Merger is subject to the absence of a Company Material Adverse Effect (as defined in the Merger Agreement). Consummation of the Merger is not subject to a financing condition.

The Merger Agreement contains customary representations and warranties of each of the Company, Novartis and Merger Sub relating to their respective businesses and certain matters related to the Merger Agreement. The Merger Agreement contains certain covenants, including covenants providing (i) for each of the parties to use reasonable best efforts to cause the transactions under the Merger Agreement to be consummated, (ii) for the Company to carry on its business in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and completion of the Merger and (iii) for the Company not to engage in certain kinds of transactions during that period.

The Merger Agreement obliges the Company to abide by customary “no-shop” restrictions on its ability to solicit alternative takeover proposals from third parties and to provide non-public information to and enter into discussions or negotiations with third parties regarding alternative takeover proposals. Notwithstanding this obligation, prior to the receipt of the Stockholder Approval, if the Company receives an unsolicited alternative takeover proposal that the Company’s Board of Directors determines in good faith (after consultation with the Company’s legal counsel and financial advisor) constitutes, or would reasonably be expected to lead to, a Superior Proposal (as defined in the Merger Agreement and summarized below) and that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, the Company may under certain circumstances furnish information to and engage in discussions or negotiations with the third party making such alternative takeover proposal. A “Superior Proposal” generally is any bona fide written takeover proposal to acquire at least a majority of the outstanding shares of Company common stock or of the assets of the Company, which proposal, in the good faith determination of the Company’s Board of Directors (after consultation with the Company’s legal counsel and financial advisor), (i) is more favorable from a financial point of view to the Company’s stockholders than the transactions under the Merger Agreement, taking into account changes to the Merger Agreement proposed by Novartis in response thereto, and (ii) is reasonably capable of being completed, taking into account all aspects of such proposal. Prior to the Company entering into a written definitive agreement for, or effecting a change in recommendation of the Company’s Board of Directors in connection with, a Superior Proposal, the Company must provide Novartis with advance written notice of its intention to do so and Novartis will generally have at least four business days after receipt of such notice to negotiate with the Company to make such adjustments in the terms and conditions of the Merger Agreement as would permit the Company’s Board of Directors not to enter into such a definitive agreement or change its recommendation.

The Merger Agreement contains certain customary termination rights for the Company and Novartis, including a right to terminate the Merger Agreement if the Merger is not completed by July 17, 2019, (as such date may be extended to April 17, 2020 pursuant to the terms of the Merger Agreement, the “Outside Date”). The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances, including, among others, the Company’s termination of the Merger Agreement to enter into a written definitive agreement for a Superior Proposal or following a change in recommendation of the Company’s Board of Directors, the Company will be obligated to pay Novartis a termination fee of $73.5 million. If the Merger Agreement is terminated due to the Stockholder Approval not being obtained at a meeting of the Company’s stockholders at which a vote is taken, the Company would be required to reimburse Novartis’ reasonable out-of-pocket fees and expenses, up to $5.0 million, and any amounts reimbursed will be deducted from the amount of the termination fee payable by the Company, if any.

The Merger Agreement also provides that Novartis will be required to pay the Company a reverse termination fee of $150.0 million under certain specified circumstances, including, among others, the termination of the Merger Agreement if certain required regulatory approvals have not been obtained by the Outside Date or the termination of the Merger Agreement due to certain types of legal restraints on the Merger being imposed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~This~~Cautionary ~~quarterly~~Note ~~report~~Regarding on Form 10-Q contains certain statements that are forward-looking statements within the meaning of federal securities laws. When used in this report, the words “may,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “target,” “forecast,” “intend,” “working to” and similar expressions are intended to identify forward-looking statements. Forward-~~looking~~Looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include the important risks and uncertainties that may affect our future operations as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018, in this Quarterly Report on Form 10-Q and in any other filings made with the Securities and Exchange Commission. Readers of this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.Statements

~~Certain~~This ~~amounts~~quarterly ~~presented~~report on Form 10-Q contains certain statements that are forward-looking statements within the meaning of federal securities laws. When used in this ~~discussion~~report, the words “may,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “target,” “forecast,” “intend,” “working to” and ~~analysis~~similar expressions are ~~presented~~intended into ~~thousands~~identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include the important risks and uncertainties that may beaffect ~~rounded~~our future operations as discussed in our Annual Report on Form 10-K for ~~purposes~~the fiscal year ended December 31, 2017, in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018, in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, in this Quarterly Report on Form 10-Q and in any other filings made with the Securities and Exchange Commission. Readers of ~~calculating~~this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the ~~summed~~assumptions ~~rounded~~on ~~amount~~which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. We undertake no obligation to revise or update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations, except as otherwise required by law. This cautionary statement is applicable to all forward-looking statements contained in this report.

Factors that could cause actual results to differ materially from those in the forward-looking statements include:

we or independent investigators may experience delays in the initiation, availability of data from, or completion of clinical trials and development programs (whether caused by competition, adverse events, patient enrollment rates, shortage of clinical trial materials, regulatory issues or other factors);

suppliers or other third-party contractors may not fulfill their contractual obligations on a timely basis or at all;

data from prior clinical trials may not be indicative of subsequent clinical trial results;

lack of safety and/or efficacy of our product candidates;

early stage pre-clinical data may not be indicative of subsequent data when expanded to additional pre-clinical models or to subsequent clinical data;

evolving competitive activity and intellectual property landscape may impair our ability to capture value for the technology;

our inability to maintain, protect and enhance our intellectual property;

costs associated with defending intellectual property infringement and other claims;

risks that expectations and estimates turn out to be incorrect, including estimates of the potential markets for our product candidates, estimates of the capacity of manufacturing and other facilities required to support our product candidates, supply chain issues of any type, including timing of supply, projected cash needs, projected timing of the use of cash, and expected future revenues, operations, expenditures and cash position; and

risks and uncertainties related to the proposed acquisition, or the Merger, of us by Novartis AG, or Novartis, pursuant to the Agreement and Plan of Merger, or the Merger Agreement, among us, Novartis and Edinburgh Merger Corporation, a wholly owned subsidiary of Novartis:

the risk that we are unable to consummate the Merger within the anticipated time period, or at all, due to the failure to obtain stockholder approval of the adoption of the Merger Agreement or failure to obtain the required regulatory approvals or satisfy the other conditions to the completion of the Merger;

the risk that the Merger Agreement may be terminated in circumstances requiring us to pay Novartis a termination fee of $73.5 million;

the risk of any event, change or other circumstances occurring that could give rise to the termination of the Merger Agreement;

the risks that the proposed Merger disrupts our current plans and operations or affects our ability to retain or recruit key employees;

the effect of the announcement or pendency of the Merger on our business relationships, operating results and business generally;

the amount of the costs, fees, expenses and charges related to the Merger Agreement or the Merger;

the risks related to diverting management’s or employees’ attention from ongoing business operations;

the risks associated with limitations placed on our ability to operate our business under the Merger Agreement;

the risk that our stock price may decline significantly if the Merger is not completed or may suffer as a result of uncertainty surrounding the Merger;

the nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against us and others; and

the possibility that the companies may be adversely affected by other economic, business and/or competitive factors.

Overview

Certain amounts presented in this discussion and analysis are presented in thousands and may be rounded for purposes of calculating to the summed rounded amount.

Pending Merger

On October 17, 2018, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Novartis AG, or Novartis, and Edinburgh Merger Corporation, a wholly owned subsidiary of Novartis, or Merger Sub, subject to the terms and conditions of which we will be acquired by Novartis for $24.00 per share in cash through the merger of Merger Sub with and into us, with us continuing as the surviving corporation and a wholly-owned subsidiary of Novartis, or the Merger. The consummation of the Merger is subject to certain closing conditions, including the requisite approval of our stockholders and the receipt of certain antitrust and regulatory approvals. See Note 13 –Subsequent Event of the Notes to Condensed Financial Statements contained herein for additional information regarding the Merger, and see “Risk Factors” in Part II, Item 1A herein for important information regarding certain risks associated with the Merger Agreement and the Merger.

We did not record significant expenses related to the Merger in the three or nine months ended September 30, 2018. However, we expect general and administrative expenses will increase for the three months ending December 31, 2018 and thereafter compared to the same prior year periods due to significant professional and legal costs that we have incurred, and expect to incur, related to the Merger.

Business Overview

We are a biopharmaceutical company and leader in developing targeted therapies for the treatment of cancer. We use drug conjugation technology to create novel therapeutics and companion imaging agents for personalized targeted therapies. Our agents actively target receptors that are over-expressed on diseased cells relative to healthy cells, such as prostate specific membrane antigen, or PSMA, in prostate cancer. This targeted approach is designed to safely enable the delivery of highly potent drug payloads. The companion imaging agents are designed to identify patients whose disease over-expresses the target of the therapy and who are therefore more likely to benefit from treatment.

OnIn September ~~29,~~ 2017, we entered into a Development and License Agreement, or the License Agreement, with ABX advanced biochemical compounds –— Biomedizinische Forschungsreagenzien GmbH, or ABX, pursuant to which we acquired exclusive worldwide rights to develop and commercialize PSMA-617 agents, including the product candidate known as 177Lu-PSMA-617, a radioligand therapeutic, or RLT. Under the terms of the License Agreement, we will be responsible for, and bear the future costs of, worldwide development and commercialization of PSMA-617. As consideration for the exclusive license, we made an upfront cash payment on September 29, 2017 of approximately $11.9 million to ABX, consisting of $12.0 million less an immaterial expense reimbursement amount, and issued to ABX 2,000,000 shares of our common stock and warrants to purchase, in the aggregate, 4,000,000 shares of our common stock. The License Agreement also obligates us to pay ABX regulatory milestone payments of up to $25.0 million, sales milestone payments of up to $135.0 million, and tiered royalties, beginning in the mid-teens and not to exceed the mid-twenties, based on percentages of net sales. We recorded $16.5 million of acquired in-process research and development, or IPR&D, expenses related to the License Agreement in 2017 consisting of the following:

$12.0 million related to the upfront payment to ABX;

$3.8 million related to the fair value of common stock and warrant shares issued; and

$0.7 million of acquisition costs consisting primarily of legal and professional fees.

In October 2017, we announced our plan to focus our resources on the development of 177Lu-PSMA-617 and on a targeted effort to generate proof-of-concept data for our EC17 adaptor-controlled chimeric antigen receptor T-cell, or EC17/CAR T-cell, therapy program, and to explore out-licensing opportunities for all other development programs.

19In the three months ended June 30, 2018, we initiated enrollment of the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients with progressive PSMA-positive metastatic castration-resistant prostate cancer, or mCRPC. 177Lu-PSMA-617 utilizes a high affinity targeting ligand to direct potent radiotherapy to prostate cancer cells. The specific targeting of this therapy comes from the "ligand" portion of the RLT, which is a small molecule designed to bind to PSMA, a protein highly expressed on the cell surface of most prostate cancer cells but absent on most normal cells. The PSMA targeting ligand in 177Lu-PSMA-617 is chemically attached to a therapeutic radioactive atom called Lutetium-177 (177Lu), which releases an energetic beta particle designed to precisely deliver cell-killing radiation to the site of disease. Unlike traditional external beam radiotherapy, 177Lu-PSMA-617, which is administered as a systemic injection, has been designed to directly target multiple sites of PSMA-positive prostate cancer throughout the body, including the bone and soft tissue, while bypassing the PSMA-negative cells. Prior to treatment with 177Lu-PSMA-617, the patient's expression of PSMA can be determined using imaging technology, allowing for personalization of treatment so that the optimum course of therapy might be selected. As highlighted in roughly 20 peer reviewed publications of trials in the post-chemotherapy compassionate use setting, 177Lu-PSMA-617 demonstrated a prostate-specific antigen, or PSA, response (defined as greater than 50% decline from baseline) in 40% to 60% of patients, and a Response Evaluation Criteria in Solid Tumors, or RECIST, response rate in soft tissue disease of between 40% and 50%.

In ~~the~~October ~~three months ended June 30~~2017, ~~2018,~~ we ~~initiated~~entered ~~enrollment~~into ~~of the VISION trial,~~ an ~~international,~~agreement ~~prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients~~ with ~~progressive PSMA-positive metastatic castration-resistant prostate cancer~~RadioMedix, ~~or mCRPC~~ Inc., ~~177Lu-PSMA-617 utilizes~~ a ~~high~~biotechnology ~~affinity~~company ~~targeting~~focused ~~ligand~~on toinnovative ~~direct~~targeted ~~potent~~radiopharmaceuticals ~~radiotherapy~~for todiagnosis, ~~prostate~~monitoring ~~cancer~~and ~~cells. The specific targeting of this~~ therapy ~~comes from the “ligand” portion~~ of ~~the RLT~~cancer, which ~~is a~~enabled ~~small molecule designed to bind to PSMA, a protein highly expressed on~~ the ~~cell~~transfer ~~surface~~ of ~~most~~a ~~prostate cancer cells but absent on most normal cells~~U.S. ~~The~~Investigational ~~PSMA~~New Drug, ~~targeting~~or ~~ligand in 177Lu-PSMA-617 is chemically attached to a therapeutic radioactive atom called Lutetium-177 (177Lu)~~IND, ~~which~~application ~~releases an energetic beta particle designed to precisely deliver cell-killing radiation to the site~~ of ~~disease. Unlike traditional external beam radiotherapy,~~ 177Lu-PSMA-617, ~~which~~from isthe ~~administered~~prior assponsor, ~~a systemic injection~~RadioMedix, ~~has been designed~~ to ~~directly target multiple sites of PSMA-positive prostate cancer throughout the body, including the bone and soft tissue, while bypassing the PSMA-negative cells~~us. ~~Prior~~This totransfer ~~treatment~~helped ~~with~~accelerate ~~177Lu-PSMA-617,~~our ~~the~~successful ~~patient’s~~End ~~expression~~ of ~~PSMA~~Phase 2 ~~can~~trial bemeeting ~~determined~~with ~~using imaging technology, allowing for personalization of treatment so that~~ the ~~optimum~~FDA ~~course of therapy might be selected. As highlighted~~ in ~~roughly~~early 202018 ~~peer~~to ~~reviewed~~confirm ~~publications~~our ofphase 3 ~~trials~~trial indesign ~~the~~and ~~post-chemotherapy~~registration ~~compassionate~~plan ~~use~~for ~~setting,~~ 177Lu-PSMA-617 demonstrated a prostate-specific antigen, or PSA, response (defined as greater than 50% decline from baseline) in 40% to 60% of patients, and a Response Evaluation Criteria in Solid Tumors, or RECIST, response rate in soft tissue disease of between 40% and 50%.

In ~~October 2017~~September 2018, we ~~entered~~announced ~~into an agreement with RadioMedix~~that, ~~Inc.,~~following a ~~biotechnology~~meeting ~~company~~with ~~focused on innovative targeted radiopharmaceuticals for diagnosis, monitoring and therapy of cancer, which enabled~~ the ~~transfer of a~~ U.S. ~~Investigational~~Food ~~New~~and Drug Administration, or ~~IND, application of 177Lu-PSMA-617 from~~ the ~~prior sponsor~~FDA, ~~RadioMedix,~~it towas ~~us.~~determined ~~This~~that ~~transfer~~radiographic ~~helped~~progression ~~accelerate~~free ~~our successful End of Phase 2 trial meeting with the U.S Food and Drug Administration~~survival, or ~~FDA~~rPFS, inis ~~early~~an ~~2018~~appropriate toefficacy ~~confirm~~endpoint in our ~~phase 3 trial design and registration plan for 177Lu-PSMA-617.~~

On July 5, 2018, we entered into a Global Supply Agreement, or the Supply Agreement, with ITG Isotope Technologies Garching GmbH, or ITG. The Supply Agreement supersedes the clinical supply agreement for the same product that we announced on February 26, 2018. Under the Supply Agreement, ITG agrees to supply us with, and we agree to purchase, 100% of the no-carrier-added lutetium-177, or Product, required for our phase 3 VISION trial. We also agree to purchase, and ITG agrees to supply, at least 50%, and up to 100% at the our request, of our volume Product needs for 177Lu-PSMA-617 during the commercial phase, which begins upon the first commercial country launch of 177Lu-PSMA-617 following receipt of a full marketing authorization allowing sale of such product in that first country. The Supply Agreement provides that we will make a one-time, upfront payment of 5 million Euros to ITG within 30 days following the effective date of the Supply Agreement. The Supply Agreement also sets forth various terms relating to the manufacture, ordering, supply and payment regarding the Product.

ongoing phase 3 VISION trial to support the submission of a New Drug Application, or NDA, for full FDA approval of 177Lu-PSMA-617 for the treatment of mCRPC. The updated trial protocol will reflect this determination on rPFS while retaining the final, fully powered overall survival, or OS, analysis. We expect to complete the analysis of rPFS before the end of 2019 and to complete the analysis of OS near the end of 2020.

Under the updated VISION trial design, the two interim assessments previously planned at 50% and 70% of OS events will be replaced with a single assessment of rPFS. This assessment is expected to occur at approximately the same time that the first interim OS assessment would have occurred under the prior trial design and shortly after the time the trial is fully enrolled. If 177Lu-PSMA-617 meets the primary endpoint in the rPFS assessment, no unexpected safety issues arise, and it demonstrates no detriment in OS relative to the control arm, we intend to submit an NDA to seek full approval in the United States. The rPFS analysis will include approximately 450 rPFS events. Regardless of the outcome of the rPFS assessment, we intend to continue to follow patients in the VISION trial in order to assess the final OS alternative primary endpoint. An efficacy analysis of OS will be conducted at approximately 490 events. Other aspects of the VISION trial design, including patient treatment and assessments, study size, overall duration, and follow up remain unchanged. Secondary endpoints include RECIST response and time to first symptomatic skeletal event.

In July 2018, we entered into a Global Supply Agreement, or the Supply Agreement, with ITG Isotope Technologies Garching GmbH, or ITG. The Supply Agreement supersedes the clinical supply agreement for the same product that we announced on February 26, 2018. Under the Supply Agreement, ITG agrees to supply us with, and we agree to purchase, 100% of the no-carrier-added lutetium-177, or the Product, required for our phase 3 VISION trial. We also agree to purchase, and ITG agrees to supply, at least 50%, and up to 100% at our request, of our Product needs for 177Lu-PSMA-617 during the commercial phase, which begins upon the first commercial country launch of 177Lu-PSMA-617 following receipt of a full marketing authorization allowing sale of such product in that first country. Pursuant to the Supply Agreement we made a one-time, upfront payment of 5 million Euros, or $5.8 million, to ITG on August 2, 2018. The Supply Agreement also sets forth various terms relating to the manufacture, ordering, supply and payment regarding the Product.

In October 2017, we entered into a three-party agreement with the University of Sydney, or the University, and ANZUP, a cooperative cancer trials group operating in Australia and New Zealand pursuing research in genito-urinary malignancies, in which ANZUP sponsors jointly with the University a randomized phase 2 multi-center TheraP trial of 177Lu-PSMA-617 versus cabazitaxel in 200 mCRPC patients. The TheraP trial commenced enrollment in the first quarter of 2018. Under the three-party agreement, we provide product and financial support for the trial. We will have access to data generated from the trial, which is a potentially important supportive trial for future regulatory submissions. The primary financial obligations of the trial, along with labeling PSMA-617 with Lutetium-177, will be the responsibility of the University and ANZUP.

In May 2018, The Lancet Oncology published updated data from a phase 2 investigator-initiated trial of 30 patients with PSMA-positive mCRPC treated with 177Lu-PSMA-617. Preliminary results of this trial were previously announced at the 2017 European Society for Medical Oncology, or ESMO, Congress and presented by Professor Michael Hofman of the Peter MacCallum Cancer Centre in Melbourne, Australia. This publication provided a more comprehensive summary than previously disclosed of patient characteristics, treatment regimen and more mature outcome data, including updated Kaplan-Meier curves estimating OS and PSA progression-free survival, or PFS, as well as a swimmer's plot of the 30 patients. This study evaluated a heavily pre-treated patient population, 87% of which had received ≥ 1 line of prior chemotherapy (80% docetaxel and 47% cabazitaxel) and 83% of which had received prior treatment with abiraterone acetate and/or enzalutamide. Observations in this study included a PSA reduction of at least 50% from baseline, or PSA50, in 57% of patients, a PSA reduction of at least 80% from baseline, or PSA80, in 43% of patients and a PSA reduction of ≥ 96% in 20 % of patients which were identified as "exceptional responders". Regarding disease progression and survival, a median PSA PFS of 7.6 months and a median OS of 13.5 months were observed. Both the median PSA PFS and the median OS reflect improved outcomes versus the 6.3 months and 12.7 months for each endpoint, respectively, previously presented at the 2017 ESMO Congress. Notably, patients with a PSA50 response had improved median PSA PFS of 9.9 months and median OS of 17.0 months compared to PSA PFS of 4.1 months and median OS of 9.9 months for those patients who did not achieve a PSA50 response. Additionally, clinically meaningful improvements in quality of life measures were observed. Seventeen patients (57%) had prostate cancer working group 2, or PCWG2, RECIST 1.1 evaluable nodal or visceral target lesions following CT scan at baseline. Confirmed objective responses were seen in 14 (82%) of these 17 patients, including complete and partial response rates of 29% and 53%, respectively. The journal noted that 177Lu-PSMA-617 was well tolerated, with no significant dose-limiting toxicities observed. The most common treatment-related toxicity was Grade 1 xerostomia, commonly referred to as dry mouth, seen in 87% of patients, which is higher than previously reported (63%), but generally did not require any intervention.

On May 9, 2018, The Lancet Oncology published updated data from a phase 2 investigator-initiated trial of 30 patients with PSMA-positive mCRPC treated with 177Lu-PSMA-617. Preliminary results of this trial were previously announced at the 2017 European Society for Medical Oncology, or ESMO, Congress and presented by Professor Michael Hofman of the Peter MacCallum Cancer Centre in Melbourne, Australia. This publication provided a more comprehensive summary than previously disclosed of patient characteristics, treatment regimen and more mature outcome data, including updated Kaplan-Meier curves estimating overall survival, or OS, and PSA progression-free survival, or PFS, as well as a swimmer’s plot of the 30 patients. This study evaluated a heavily pre-treated patient population, 87% of which had received > 1 line of prior chemotherapy (80% docetaxel and 47% cabazitaxel) and 83% of which had received prior treatment with abiraterone acetate and/or enzalutamide. Observations in this study included a PSA reduction of at least 50% from baseline, or PSA50, in 57% of patients, a PSA reduction of at least 80% from baseline, or PSA80, in 43% of patients and a PSA reduction of > 96% in 20% of patients which were identified as “exceptional responders”. Regarding disease progression and survival, a median PSA PFS of 7.6 months and a median OS of 13.5 months were observed. Both the median PSA PFS and the median OS reflect improved outcomes versus the 6.3 months and 12.7 months for each endpoint, respectively, previously presented at the 2017 ESMO Congress. Notably, patients with a PSA50 response had improved median PSA PFS of 9.9 months and median OS of 17.0 months compared to PSA PFS of 4.1 months and median OS of 9.9 months for those patients who did not achieve a PSA50 response. Additionally, clinically meaningful improvements in quality of life measures were observed. Seventeen patients (57%) had prostate cancer working group 2, or PCWG2, RECIST 1.1 evaluable nodal or visceral target lesions following CT scan at baseline. Confirmed objective responses were seen in 14 (82%) of these 17 patients, including complete and partial response rates of 29% and 53%, respectively. The journal noted that 177Lu-PSMA-617 was well tolerated, with no significant dose-limiting toxicities observed. The most common treatment-related toxicity was Grade 1 xerostomia, commonly referred to as dry mouth, seen in 87% of patients, which is higher than previously reported (63%), but generally did not require any intervention. The occurrence of treatment-related Grade 3-4 hematologic toxicity was low and comparable to the largest retrospective published cohort. On May 16, 2018, we announced updated data on the additional 20 patient expansion cohort in the phase 2 trial of 177Lu-PSMA-617. In the 50 patients receiving 177Lu-PSMA-617, 62% had a greater than 50% reduction in their PSA levels and 44% had a PSA reduction of 80% or greater.27

WeThe ~~are~~occurrence ~~also developing a unique therapeutic approach that involves the re-targeting~~ of ~~potent immune cells, called CAR T~~treatment-~~cells,~~related ~~to fight cancer. CAR T~~Grade 3-~~cell~~4 ~~therapies~~hematologic ~~may~~toxicity bewas ~~characterized~~low asand ~~either~~comparable ~~allogeneic~~to ~~CAR~~the ~~T-cells,~~largest ~~which~~retrospective ~~are~~published ~~those that are engineered using T-cells from a single donor that are utilized in multiple patients, or autologous CAR T-cells, which are those that are engineered using a patient’s own T-cells~~cohort. ~~Our~~On ~~program utilizes an autologous approach. Traditional CAR T-cell therapies rely on the activity and specificity of T-cells that have been engineered to recognize~~May ~~a single naturally expressed target that~~16, ~~ideally~~2018, iswe ~~only~~announced ~~present~~updated ondata ~~cancer cells, with no cross-reactivity to or targeting of healthy tissues. Our alternative strategy relies~~ on ~~a single universal CAR T-cell that expresses a high affinity for a molecule called fluorescein isothiocyanate, or FITC, which is not naturally present in~~ the ~~human~~additional ~~body. The activity and specificity of these universal CAR T-cells is dependent upon the administration of our proprietary CAR T adaptor molecules, or CAMs, that “paint” a~~ 20 patient’s ~~cancer~~expansion ~~cells~~cohort ~~with~~in ~~FITC by conjugating it to a tumor-targeting ligand. The FITC molecule then attracts~~ the ~~universal~~phase 2 ~~CAR~~trial ~~T-cell to the site~~ of ~~disease, causing the anti~~177Lu-~~cancer immune response of a traditional CAR T~~PSMA-~~cell therapy~~617. ~~However,~~ unlike existing CAR T-cell technologies, our unique CAM-dependent technology makes possible the engineering of a single universal CAR T-cell that can be used to treat a wide range of cancer types. This is accomplished through the use of multiple CAMs, each of which is designed to bind the FITC molecule to a specific cancer type. In ~~addition to enabling~~ the treatment of multiple cancer types with a single universal CAR T-cell, this adaptor technology is also designed to facilitate novel control strategies intended to increase the safety of CAR T-cell therapy. In March50 ~~2017,~~patients wereceiving ~~announced our collaboration with Seattle Children’s Research Institute, or SCRI, and Dr. Michael Jensen for the development of our technology in the CAR T~~177Lu-~~cell immunotherapy setting, in which we use EC17 as the CAM. The aim of the research collaboration is to join our adapter technology with the CAR T~~PSMA-~~cell immunotherapy research efforts at the Ben Towne Center for Childhood Cancer Research at SCRI~~617, to62% ~~move~~had ~~these~~a ~~potentially~~greater ~~enabling~~than ~~technologies~~50% ~~more~~reduction ~~quickly to patients~~ in ~~the~~their ~~clinic.~~PSA Inlevels ~~October 2017,~~and we44% ~~announced~~had ~~that we are limiting the scope of our EC17/CAR T-cell therapy program to~~ a ~~targeted~~PSA ~~effort~~reduction ~~to generate proof-~~of~~-concept~~ ~~data.~~80% ~~Pre-clinical~~or ~~evaluations have been completed, and the IND application is expected to be filed in the fourth quarter of 2018~~greater.

21We are also developing a unique therapeutic approach that involves the re-targeting of potent immune cells, called CAR T-cells, to fight cancer. CAR T-cell therapies may be characterized as either allogeneic CAR T-cells, which are those that are engineered using T-cells from a single donor that are utilized in multiple patients, or autologous CAR T-cells, which are those that are engineered using a patient's own T-cells. Our program utilizes an autologous approach. Traditional CAR T-cell therapies rely on the activity and specificity of T-cells that have been engineered to recognize a single naturally expressed target that, ideally, is only present on cancer cells, with no cross-reactivity to or targeting of healthy tissues. Our alternative strategy relies on a single universal CAR T-cell that expresses a high affinity for a molecule called fluorescein isothiocyanate, or FITC, which is not naturally present in the human body. The activity and specificity of these universal CAR T-cells is dependent upon the administration of our proprietary CAR T adaptor molecules, or CAMs, that "paint" a patient's cancer cells with FITC by conjugating it to a tumor-targeting ligand. The FITC molecule then attracts the universal CAR T-cell to the site of disease, causing the anti-cancer immune response of a traditional CAR T-cell therapy. However, unlike existing CAR T-cell technologies, our unique CAM-dependent technology makes possible the engineering of a single universal CAR T-cell that can be used to treat a wide range of cancer types. This is accomplished through the use of multiple CAMs, each of which is designed to bind the FITC molecule to a specific cancer type. In addition to enabling the treatment of multiple cancer types with a single universal CAR T-cell, this adaptor technology is also designed to facilitate novel control strategies intended to increase the safety of CAR T-cell therapy. In March 2017, we announced our collaboration with Seattle Children's Research Institute, or SCRI, and Dr. Michael Jensen for the development of our technology in the CAR T-cell immunotherapy setting, in which we use EC17 as the CAM. The aim of the research collaboration is to join our adapter technology with the CAR T-cell immunotherapy research efforts at the Ben Towne Center for Childhood Cancer Research at SCRI, to move these potentially enabling technologies more quickly to patients in the clinic. In October 2017, we announced that we are limiting the scope of our EC17/CAR T-cell therapy program to a targeted effort to generate proof-of-concept data. Pre-clinical evaluations have been completed, and the IND application is expected to be filed in the fourth quarter of 2018.

In June 2017, we ended clinical development of EC1456, our second-generation folate-targeted product candidate, and stopped enrollment in our EC1456 phase 1b trial as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, we stopped enrollment in our EC1456 ovarian cancer surgical trial. In addition, in June 2017, we narrowed the focus of our phase 1 EC1169 (a PSMA-targeted product candidate) development program (for which enrollment was completed in October 2017, but for which we currently do not intend to invest further resources beyond the completion of the phase 1 taxane-exposed cohort), refocused our efforts on pre-clinical programs, and reduced our workforce by approximately 40% to align resources to focus on our highest value opportunities while maintaining key capabilities. We recorded $2.3 million of restructuring expenses in the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2017, as follows:

included in general and administrative expenses were expenses for employee termination benefits of $0.1 million.

As of June 30, 2018, we had paid all severance and other costs related to the restructuring activities.

At December 31, 2017, we had a clinical trial accrual balance related to the EC1456 phase 1b trial termination of $106,900. There were no material adjustments to the EC1456 phase 1b trial termination accrual balance during the three and ~~six~~nine months ended ~~June~~September 30, 2018, and payments made against the accrual in those periods were $814,~~500~~800 and $92106,~~100~~900, respectively. ~~The~~As ~~remaining~~of ~~accrual~~September ~~balance at June~~ 30, 2018, isthere ~~immaterial~~was ~~and~~no isremaining ~~expected~~accrual balance related to bethe ~~paid~~restructuring byactivities ~~the~~and ~~end~~all ofpayments ~~2018~~had been made.

For the six months ended June 30, 2018, we had a net loss of $20.2 million compared to a net loss of $23.2 million for the six months ended June 30, 2017. We had a retained deficit of $328.8 million at June 30, 2018. We expect to continue to incur significant operating expenses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and, potentially, the commercialization processes. Our operating costs were lower for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to decreases in expenses related to pre-clinical work and general research, decreases in trial and manufacturing expenses for EC1456 and EC1169 and decreases in compensation expenses as a result of employee terminations since June 30, 2017. These decreases were partially offset by increases in expenses related to PSMA-617 development, including expenses related to the phase 3 VISION trial, increases in expenses related to the EC17/CAR T-cell therapy program, and increases in general and administrative fees, including legal and professional fees.28

AsSummary of ~~June 30, 2018,~~Financial our cash, cash equivalents and investments were $166.8 million, which included $80.9 million of net proceeds from our public offering of 20,535,714 shares of our common stock that closed in March 2018. Results

For the nine months ended September 30, 2018, we had a net loss of $32.8 million compared to a net loss of $46.5 million for the nine months ended September 30, 2017. We had a retained deficit of $341.4 million at September 30, 2018. We expect to continue to incur significant operating expenses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and, potentially, the commercialization processes. Our operating costs were lower for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily due to a decrease in acquired IPR&D expenses related to the License Agreement for PSMA-617 that we entered into in September 2017, decreases in trial related expenses for EC1169 and EC1456 and decreases in pre-clinical work and general research. These decreases were partially offset by increases in expenses related to PSMA-617 development, including expenses related to the phase 3 VISION trial, increases in stock-based compensation expense, increases in general and administrative fees, including legal and professional fees and increases in expenses related to the EC17/CAR T-cell therapy program.

As of September 30, 2018, our cash, cash equivalents and investments were $344.2 million, which included $269.8 million of net proceeds from our public offerings of 20,535,714 and 10,878,379 shares of our common stock that closed in March and September of 2018, respectively.

Critical Accounting Policies

Our significant accounting policies are described in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in Note 2 – Significant Accounting Policies of the Notes to Condensed Financial Statements contained in Part I, Item 1 herein. Other than the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606, effective January 1, 2018 as discussed in Note 3 – New Accounting Pronouncements of the Notes to Condensed Financial Statements contained in Part I, Item 1 herein, there were no changes in the three and ~~six~~nine months ended ~~June~~ September 30, 2018 to the application of the accounting policies that are critical to the judgments and estimates used in the preparation of our condensed financial statements.

Results of Operations

Comparison of Three Months Ended ~~June~~September 30, 2017 to Three Months Ended ~~June~~September 30, 2018

	Three Months Ended June 30,				$ Increase/		% Increase/
	Three Months Ended September 30,				$ Increase/		% Increase/
	2017		2018		(Decrease)		(Decrease)
	(In thousands)
Statement of operations data:
Collaboration revenue	$	1333	$	1486	$	153		8161	%
Operating expenses:
Research and development		84,~~655~~090		78,~~625~~856		(14,~~030)~~766		~~(12)~~117	%
General and administrative		3,~~306~~011		4,~~631~~789		1,~~325~~778		4059	%
Total operating expenses		11,961		12,256		295		2	%
Acquired in-process research and development		16,493		—		(16,493)		(100)	%
Loss from operations		(11,948)		(12,242)		(294)		(2)	%
Total operating expenses		23,594		13,645		(9,949)		(42)	%
Interest income, net		234		720		486		208	%
Loss from operations		(23,561)		(13,559)		10,002		42	%
Other expense, net		(30)		(42)		(12)		(40)	%
Interest income, net		265		959		694		262	%
Net loss	$	(11,744)	$	(11,564)	$	180		2	%
Other income (expense), net		29		(8)		(37)		(128)	%
Net loss	$	(23,267)	$	(12,608)	$	10,659		46	%

Revenue

Our revenue ~~of $12,500~~ in the three months ended ~~June~~September 30, 2017 and ~~$14,465 in~~ the three months ended ~~June~~September 30, 2018 ~~related~~included to the amortization of the $1.0 million non-refundable upfront payment from Nihon Medi-Physic Co., LTD, or NMP., ~~The~~as ~~slight~~well ~~increase~~as inan ~~the~~annual ~~revenue~~minimum ~~recognized~~royalty inpayment ~~the~~of ~~three months ended June 30~~$20,000 ~~2018~~received ~~compared~~in toeach of the three months ended ~~June~~September 30, 2017 ~~was~~and ~~related~~2018. In toaddition, ~~the~~revenue ~~change~~for in the ~~period~~three ~~over~~months ~~which~~ended ~~the~~September ~~upfront~~30, ~~payment~~2018 ~~should~~included bea ~~recognized~~$50,000 inannual ~~connection~~fee ~~with~~that ~~the~~we ~~adoption~~received ofpursuant ~~ASC~~to ~~606~~the asClinical ~~described~~Supply ~~in Note 3 – New Accounting Pronouncements~~ and ~~Note~~License 6Option –Agreement ~~Collaboration~~that ~~and~~we ~~Other~~entered ~~Arrangements~~into ofin ~~the~~August ~~Notes~~2018 towith ~~Condensed Financial Statements contained herein~~BlinkBio.

Research and Development

The ~~decrease~~increase in research and development expenses for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 was primarily attributable to: aan ~~decrease~~increase of $14.5 million in expenses related to the ~~EC1456~~development ~~trial; a decrease~~ of ~~$1.3~~PSMA-617, ~~million~~including in expenses related to ~~pre-clinical~~the ~~work~~phase ~~and~~3 ~~general~~VISION ~~research~~trial; aan ~~decrease~~increase of $1.02 million in ~~EC1169~~compensation ~~trial~~expense, ~~expenses; a decrease~~ of which $0.54 million inrelated ~~compensation~~to ~~expense~~stock-based ascompensation ~~a result of employee terminations since June 30, 2017~~charges; and aan ~~decrease~~increase of $0.21 million inrelated ~~manufacturing~~to ~~expense~~our ~~for~~EC17/CAR ~~EC1169~~T-cell ~~and~~therapy ~~EC1456~~program. The ~~decreases~~increases were partially offset by: ana ~~increase~~decrease of $30.38 million in ~~expenses~~EC1169 ~~related to the development of PSMA-617, of which $3.2 million related to~~ trial ~~and manufacturing costs for the phase 3 VISION trial~~expenses; and ana ~~increase~~decrease of $0.2 million ~~related~~for togeneral ~~our EC17/CAR T-cell therapy program~~research.

Included in research and development expenses were stock-based compensation charges of $0.43 million and $0.67 million for the three months ended ~~June~~September 30, 2017 and 2018, respectively.

Research and development expenses included expenses of $0.12 million for each of the three months ended ~~June~~September 30, 2017 and 2018, for company-funded research at Purdue University, the primary employer of our Chief Science Officer.

General and Administrative

The increase in general and administrative expenses for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 was primarily attributable to: an increase of $0.58 million in compensation expense, of which $0.45 million related to stock-based compensation charges; an increase of $0.56 million in legal and professional fees; and an increase of $0.34 million in other general and administrative fees.

23Included in general and administrative expenses were stock-based compensation charges of $0.4 million and $0.9 million for the three months ended September 30, 2017 and 2018, respectively.

~~Included~~Acquired ~~in general and administrative expenses were stock~~In-~~based~~Process ~~compensation~~Research ~~charges of $0.4 million~~ and ~~$0.8 million for the three months ended June 30, 2017 and 2018, respectively.~~Development

The acquired IPR&D expenses in the three months ended September 30, 2017 related to the expenses incurred as a result of the License Agreement. We recorded $16.5 million of acquired IPR&D expenses in the three months ended September 30, 2017, which included $12.0 million for an upfront payment to ABX, $3.8 million related to the fair value of common stock and warrant shares issued, and $0.7 million related to acquisition costs consisting primarily of legal and professional fees. We did not record any acquired IPR&D expenses in the three months ended September 30, 2018.

Interest Income, Net

The increase in interest income, net in the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 resulted from an increase of $0.36 million indue ~~the~~to ~~interest~~higher ~~rate~~average ~~yield~~short-term ~~during~~investment balances in the three months ended ~~June~~September 30, 2018 as compared to the ~~three~~same ~~months~~prior ~~ended~~year ~~June~~period ~~30, 2017~~ and an increase of $0.21 million ~~due~~in the interest rate yield during the three months ended September 30, 2018 as compared to the ~~higher~~three ~~average~~months ~~short-term~~ended ~~investment~~September ~~balances~~30, 2017. There were no long-term investment balances at ~~June~~September 30, 2017 or 2018.

~~Other Expense, Net~~30

~~The~~Other ~~increase~~Income ~~in other expense~~(Expense), net in the three months ended June 30, 2018, compared to the three months ended June 30, 2017 was primarily due to an increase in charitable contributions in the three months ended June 30, 2018 compared to the three months ended June 30, 2017.Net

~~Comparison~~The ofchange ~~Six~~in ~~Months~~other ~~Ended~~expense, ~~June~~ net in the three months ended September 30, 2018, compared to other income, net in the three months ended September 30, 2017 was primarily due to ~~Six~~a ~~Months~~loss ~~Ended~~on ~~June~~ the disposal of property and equipment in the three months ended September 30, 2018 compared to a gain on the disposal of property and equipment in the three months ended September 30, 2017.

	Six Months Ended June 30,				$ Increase/		% Increase/
	2017		2018		(Decrease)		(Decrease)
	(In thousands)
Statement of operations data:
Collaboration revenue	$	25	$	30	$	5		20	%
Operating expenses:
Research and development		16,649		12,880		(3,769)		(23)	%
General and administrative		7,051		8,409		1,358		19	%
Total operating expenses		23,700		21,289		(2,411)		(10)	%
Loss from operations		(23,675)		(21,259)		2,416		10	%
Interest income, net		469		1,133		664		142	%
Other expense, net		(27)		(41)		(14)		(52)	%
Net loss	$	(23,233)	$	(20,167)	$	3,066		13	%

Comparison of Nine Months Ended September 30, 2017 to Nine Months Ended September 30, 2018


	Nine Months Ended September 30,				$ Increase/		% Increase/
	2017		2018		(Decrease)		(Decrease)
	(In thousands)
Statement of operations data:
Collaboration revenue	$	58	$	116	$	58		100	%
Operating expenses:
Research and development		20,739		21,736		997		5	%
General and administrative		10,062		13,198		3,136		31	%
Acquired in-process research and development		16,493		—		(16,493)		(100)	%

Total operating expenses		47,294		34,934		(12,360)		(26)	%

Loss from operations		(47,236)		(34,818)		12,418		26	%
Interest income, net		734		2,092		1,358		185	%
Other income (expense), net		2		(49)		(51)		(2,550)	%
Net loss	$	(46,500)	$	(32,775)	$	13,725		30	%

Revenue

Our revenue ~~of $25,000~~ in the ~~six~~nine months ended ~~June~~September 30, 2017 and ~~$30,320 in~~ the ~~six~~nine months ended ~~June~~September 30, 2018 ~~related~~included to the amortization of the $1.0 million non-refundable upfront payment from NMP., ~~The~~as ~~slight~~well ~~increase~~as inan ~~the~~annual ~~revenue~~minimum ~~recognized~~royalty inpayment ~~the~~of ~~six months ended June 30~~$20,000 ~~2018~~received ~~compared~~in toeach of the ~~six~~nine months ended ~~June~~September 30, 2017 ~~was~~and ~~related~~2018. toIn ~~the~~addition, ~~change~~revenue infor the ~~period~~nine ~~over~~months ~~which~~ended ~~the~~September ~~upfront~~30, ~~payment~~2018, ~~should~~included bea ~~recognized~~$50,000 inannual ~~connection~~fee ~~with~~that ~~the~~we ~~adoption~~received ofpursuant ~~ASC~~to ~~606~~the asClinical ~~described~~Supply ~~in Note 3 – New Accounting Pronouncements~~ and ~~Note~~License 6Option –Agreement ~~Collaboration~~that ~~and~~we ~~Other~~entered ~~Arrangements~~into ofin ~~the~~August ~~Notes~~2018 towith ~~Condensed Financial Statements contained herein~~BlinkBio.

Research and Development

The ~~decrease~~increase in research and development expenses for the ~~six~~nine months ended ~~June~~September 30, 2018 compared to the ~~six~~nine months ended ~~June~~September 30, 2017 was primarily attributable to: aan ~~decrease~~increase of $28.6 million in expenses related to ~~pre-clinical~~the ~~work~~development ~~and general research; a decrease~~ of ~~$2.1~~PSMA-617, ~~million~~including in expenses related to the ~~EC1456~~phase ~~trial;~~3 aVISION ~~decrease of $1.8 million in EC1169~~ trial ~~expenses~~; aan ~~decrease~~increase of $10.15 million in ~~compensation~~expenses ~~expense~~related asto athe ~~result~~EC17/CAR ofT-cell ~~employee~~therapy ~~terminations since June 30, 2017~~program; and aan ~~decrease~~increase of $0.72 million in ~~manufacturing~~compensation expense ~~for EC1169 and EC1456~~. ~~The~~These ~~decreases~~expenses were ~~partially~~in large part offset by: ana ~~increase~~decrease of $43.1 million in ~~expenses~~EC1169 ~~related~~trial toexpenses; ~~the~~a ~~development~~decrease of ~~PSMA-617, of which~~ $32.78 million in expenses related to ~~trial~~pre-clinical work and ~~manufacturing~~general ~~costs for the phase 3 VISION trial~~research; and ana ~~increase~~decrease of $02.4 million in expenses related to ~~our~~the ~~EC17/CAR~~EC1456 ~~T-cell therapy program~~trial.

Included in research and development expenses were stock-based compensation charges of $1.14 million and $12.30 million for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2018, respectively.

24Research and development expenses included expenses of $0.6 million and $0.5 million for the nine months ended September 30, 2017 and 2018, respectively, for company-funded research at Purdue University, the primary employer of our Chief Science Officer.

Research and development expenses included expenses of $0.4 million and $0.3 million for the six months ended June 30, 2017 and 2018, respectively, for company-funded research at Purdue University, the primary employer of our Chief Science Officer.

General and Administrative

The increase in general and administrative expenses for the ~~six~~nine months ended ~~June~~September 30, 2018 compared to the ~~six~~nine months ended ~~June~~September 30, 2017 was primarily due to: an increase of $01.76 million in compensation expense, of ~~which $0.6 million related to stock-based compensation; an increase of $0.4 million related to legal and professional fees and an increase of $0.3 million in other general and administrative fees.~~

~~Included in general and administrative expenses were stock-based compensation charges of $0.8 million and $1.4 million for the six months ended June 30, 2017 and 2018, respectively.~~31

which $1.1 million related to stock-based compensation; an increase of $1.2 million related to legal and professional fees; and an increase of $0.3 million in other general and administrative fees.

Included in general and administrative expenses were stock-based compensation charges of $1.2 million and $2.3 million for the nine months ended September 30, 2017 and 2018, respectively.

Acquired In-Process Research and Development

The acquired IPR&D expenses in the nine months ended September 30, 2017 related to the expenses incurred as a result of the License Agreement. We recorded $16.5 million of acquired IPR&D expenses in the nine months ended September 30, 2017, which included $12.0 million for an upfront payment to ABX, $3.8 million related to the fair value of common stock and warrant shares issued, and $0.7 million related to acquisition costs consisting primarily of legal and professional fees. We did not record any acquired IPR&D expenses in the nine months ended September 30, 2018.

Interest Income, Net

The increase in interest income, net in the ~~six~~nine months ended ~~June~~September 30, 2018 compared to the ~~six~~nine months ended ~~June~~September 30, 2017 resulted from an increase of $0.69 million in the interest rate yield during the ~~six~~nine months ended ~~June~~September 30, 2018 as compared to the ~~six~~nine months ended ~~June~~September 30, 2017 and an increase of $0.15 million due to ~~the~~ higher average short-term investment balances. There were no long-term investment balances at ~~June~~September 30, 2017 or 2018.

Other Income (Expense), Net

The ~~increase~~change in other expense, net in the ~~six~~nine months ended ~~June~~September 30, 2018, compared to other income, net in the ~~six~~nine months ended ~~June~~September 30, 2017 was primarily due to an increase in charitable contributions in the ~~six~~nine months ended ~~June~~September 30, 2018 compared to the ~~six~~nine months ended ~~June~~September 30, 2017.

Liquidity and Capital Resources

We have funded our operations principally through sales of equity and debt securities, revenue from strategic collaborations, grants, and loans. As of ~~June~~September 30, 2018, we had cash, cash equivalents and investments of $~~166~~344.82 million, which included $80269.98 million of net proceeds from our public ~~offering~~offerings of 20,535,714 and 10,878,379 shares of our common stock that closed in March and September of 2018, respectively. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2017		2018
		(in thousands)
Net cash used in operating activities	$	(1927,~~792~~413)	$	(1834,~~759~~287)
Net cash provided by (used in) investing activities		5338,~~428~~743		(62196,~~135~~659)
Net cash provided by financing activities		644,620		87279,~~379~~655
Net increase in cash and cash equivalents	$	3315,~~700~~950	$	648,~~485~~709

Operating Activities

The cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2018 primarily resulted from our net loss adjusted for non-cash items and changes in operating assets and liabilities, which included the $5.8 million upfront payment to ITG.

Investing Activities

The cash provided by investing activities during the ~~six~~nine months ended ~~June~~ September 30, 2017 was due to the net result of maturities and purchases of investments of approximately $51.1 million, which was partially offset by the purchase of acquired IPR&D of approximately $12.3 million and capital expenditures for equipment of approximately $4447,000. The cash used in investing activities during the ~~six~~nine months ended ~~June~~September 30, 2018 was due to the net result of maturities and purchases of investments, which included capital expenditures for equipment of approximately $15,000, and which was partially offset by proceeds of approximately $89,000 from the disposal of equipment.

2532

result of purchases and maturities of investments of approximately $196.7 million, resulting primarily from the use of funds from our equity offerings, capital expenditures for equipment of approximately $43,000, and proceeds of approximately $90,000 from the disposal of property and equipment.

Financing Activities

The cash provided by financing activities during the ~~six~~nine months ended ~~June~~September 30, 2017 consisted of approximately $4.6 million of net proceeds from the exercise of a warrant, approximately $0.1 million of net proceeds from the exercise of stock options and approximately $48,000 of net proceeds from stock purchases under our employee stock purchase plan, which were partially offset by approximately $0.1 million of stock repurchases for restricted stock units, or RSUs, that vested during the period. The cash provided by financing activities during the ~~six~~nine months ended ~~June~~September 30, 2018 consisted of approximately $80269.98 million of net proceeds from our public ~~offering~~offerings of common stock that closed in March and September of 2018, approximately $69.58 million of net proceeds from the exercise of stock options, and approximately $0.1 million of net proceeds from stock purchases under our employee stock purchase plan, which were partially offset by approximately $0.1 million of stock repurchases for RSUs that vested during the period.

Operating Capital Requirements

We expect to continue to incur significant operating losses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and, potentially, the commercialization processes.

As of ~~June~~September 30, 2018, our cash, cash equivalents and investments were $~~166~~344.82 million, which included $80269.98 million of net proceeds from our public ~~offering~~offerings of 20,535,714 and 10,878,379 shares of our common stock that closed in March and September of 2018, respectively. We believe that our current cash balance will be sufficient to fund our activities for at least the next 12 months, which include our focus on clinical development of 177Lu-PSMA-617 and our effort to generate proof-of-concept data for our EC17/CAR T-cell therapy program, but because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including but not limited to:

the number and characteristics of the product candidates we pursue;

the scope, progress, results and costs of researching and developing our product candidates and conducting pre-clinical and clinical trials;

the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;

the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;

the cost of manufacturing any product candidates we successfully commercialize;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

the timing, payments, receipts and amount of sales of, or royalties on, our product candidates, if any; and

the costs we may incur and revenues we may generate in connection with in-licensing and out-licensing activities.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings or other sources, such as strategic partnerships or licensing arrangements. The sale of additional equity securities by us would result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or convertible preferred stock, these securities may have rights senior to those of our common stock and could contain covenants that would restrict our operations. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs, or enter into collaboration or other arrangements with other companies to provide such funding for one or more of such clinical trials or programs in exchange for our affording such partner commercialization or other rights to the product candidates that are the subject of such clinical trials or programs. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

Contractual Obligations and Commitments

There have been no significant changes during the ~~six~~nine months ended ~~June~~September 30, 2018 to the items that we disclosed as our contractual obligations and commitments in our Form 10-K for the year ended December 31, 2017.

Off-Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates. As of ~~June~~September 30, 2018, we had cash, cash equivalents and investments of $~~166~~344.82 million. The investments consisted primarily of U.S. Treasuries, corporate debt securities and cash equivalents. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our short-term investments are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we believe that an immediate 10 percent change in interest rates would not have a material effect on the fair market value of our portfolio. We have the ability to hold our short-term investments until maturity, and therefore we do not expect that our results of operations or cash flows would be adversely affected by any change in market interest rates on our investments. We carry our investments based on publicly available information. We do not currently have any investment securities for which a market is not readily available or active.

We do not believe that any credit risk is likely to have a material impact on the value of our assets and liabilities.

We contract with contract research organizations, contract manufacturing organizations and investigational sites globally. We may be subject to fluctuations in foreign currency rates in connection with these agreements. AWe ~~ten~~believe that a 10 percent fluctuation in foreign currency rates would not have a material impact on our financial statements. We currently do not hedge our foreign currency exchange risk, but as our operations in foreign countries expand we may consider the use of hedges.

Item 4. Controls and Procedures

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended ~~June~~ September 30, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2734

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~None~~See Note 10 – Commitments and Contingencies of the Notes to Condensed Financial Statements contained herein for information regarding certain legal proceedings affecting us, which information is incorporated herein by reference.

Item 1A. Risk Factors

Risk factors which could cause actual results to differ from our expectations and which could negatively impact our financial condition and results of operations are discussed below and elsewhere in this report. Additional risks and uncertainties not presently known to us or that are currently not believed to be significant to our business may also affect our actual results and could harm our business, financial condition, results of operations, cash flows or stock price. If any of these risks or uncertainties actually occurs, our business, financial condition, results of operations, cash flows or stock price could be materially and adversely affected.

Risk factors below that did not appear, or have been modified from the version of that risk factor as it appeared, in our Quarterly Report on Form 10-Q for the fiscal quarter ended ~~March~~June 3130, 2018, are noted with an “*” preceding such risk factor.

Risks Related to the Merger

*Uncertainties associated with the Merger may cause a loss of management and other key employees and disrupt our business relationships, which could adversely affect our business.

Uncertainty about the effects of the Merger on our employees, partners and suppliers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the Merger, which could materially adversely affect our business and operations.

If key employees depart, our business relationships may be subject to disruption as third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in completing the Merger.

*We are subject to contractual restrictions while the Merger is pending, which could adversely affect our business.

The Merger Agreement requires us to act in the ordinary course of business and restricts us, without the consent of Novartis, from taking certain specified actions until the proposed Merger occurs or the Merger Agreement is terminated. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement.

*We have incurred, and will continue to incur, significant transaction and related costs in connection with the Merger.

We have incurred and expect to continue to incur significant costs, fees and expenses in connection with the proposed Merger, most of which are payable by us regardless of whether or not the Merger is consummated. If the Merger is not consummated, we may under certain circumstances be required to pay to Novartis a termination fee of $73.5 million. If the Merger is not consummated as a result of the failure to obtain the requisite vote of our stockholders adopting the Merger Agreement, we will be required to pay to Novartis an amount equal to Novartis’ reasonable out-of-pocket fees and expenses incurred in connection with the Merger, up to a maximum amount of $5.0 million. Our financial position and results of operations would be adversely affected if we were required to pay the termination fee to Novartis.

*A failure to complete the Merger or a significant delay in completing the Merger could negatively impact the price of our common stock, as well as our future business and financial results.

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger. We cannot assure you that all of the conditions to the Merger will be so satisfied or waived. If the conditions to the Merger are not satisfied or waived, or if other events intervene that delay or result in the termination of the Merger Agreement, we may be unable to complete the Merger or to complete the Merger in a timely manner. We cannot guarantee that the Merger will be completed, or that it will be completed as currently proposed, or at any particular time.

Legal proceedings instituted against us and others relating to the Merger also could delay or prevent the Merger from being completed. To date, one complaint relating to the Merger has been filed by a purported stockholder of the Company seeking, among other things, injunctive relief enjoining the consummation of the Merger unless and until material information that was allegedly omitted from the Company’s preliminary proxy statement related to the Merger is disclosed. If the lawsuit is not resolved on a timely basis, it could delay consummation of the Merger and result in additional costs to the Company. There can be no assurance that there will not be any additional lawsuits filed against the Company and/or its directors and officers in connection with the Merger.

If the Merger is not completed, our ongoing business may be adversely affected by negative reactions from the financial markets (including negative impacts on the market price of our common stock) and from our employees, business partners and other third parties.

Additionally, in approving the Merger Agreement, our Board of Directors and the Special Committee of our Board of Directors considered a number of factors and potential benefits, including the fact that the consideration to be received by holders of our common stock in the Merger represented a 54% premium to the closing price of our common stock of $15.56 on October 17, 2018. If the Merger is not completed, the holders of our common stock will not realize this potential benefit of the Merger.

*The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what Novartis has agreed to pay.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than Novartis. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction. If we or Novartis terminate the Merger Agreement and we agree to be or are subsequently acquired by another company, we may in some circumstances be required to pay to Novartis a termination fee of $73.5 million. Further, our Board of Directors has agreed in the Merger Agreement, subject to limited exceptions, that it will not withdraw or modify in a manner adverse to Novartis its recommendation that our stockholders adopt the Merger Agreement.

These provisions might discourage a third party that has an interest in acquiring all or a significant part of our company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the cash value of the Merger consideration, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Risks Related to Our Business and Industry

* We have incurred significant losses in each year since our inception, other than in 2014, and we anticipate that we will continue to incur significant losses for the foreseeable future. We may never again achieve or sustain profitability.

We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have not generated any revenue from product sales to date. For the ~~six~~nine months ended ~~June~~September 30, 2018, we had a net loss of $2032.28 million and a retained deficit of $~~328~~341.84 million. We expect to continue to incur significant operating expenses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and commercialization processes. As such, we are subject to all of the risks incident to the creation of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If our product candidates fail in clinical trials, or do not gain regulatory approval, or fail to achieve market acceptance, we may never again be profitable. Even if we achieve profitability again in the future, we may not be able to sustain profitability in subsequent periods.

*We currently have no approved products, which makes it difficult to assess our future viability.

To date, we have not derived any revenue from the sales of our products. Our operations to date have been limited to acquiring, developing and securing our technology, undertaking pre-clinical studies and clinical trials of our product candidates and engaging in research and development under collaboration agreements. We have not yet demonstrated an ability to obtain regulatory approval, formulate and manufacture commercial-scale products, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, it is difficult to predict our future success and the viability of any commercial programs that we may choose to take forward. ~~While~~We we have ~~in the past derived revenues from payments under collaboration agreements, all of such agreements have been terminated, and we have~~ no current sources of revenue except for the recognition of remaining deferred revenue related to the upfront payment under the agreement with Nihon Medi-Physic Co., LTD and annual payments under agreements with On Target Laboratories, L.L.C. and BlinkBio.

28We are highly dependent on the success of PSMA-617 product candidates, and we cannot give any assurance that we will successfully complete its clinical development, or that it will receive regulatory approval or be successfully commercialized.

* We are highly dependent on the success of PSMA-617 product candidates, and we cannot give any assurance that we will successfully complete its clinical development, or that it will receive regulatory approval or be successfully commercialized.

In September 2017, we entered into a License Agreement with ABX, pursuant to which we acquired exclusive worldwide rights to develop and commercialize PSMA-617, including the drug candidate known as 177Lu-PSMA-617, an RLT. In the three months ended June 30, 2018, we initiated enrollment of the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients with progressive PSMA-positive mCRPC. The VISION trial may not be successful, and 177Lu-PSMA-617 may never receive regulatory approval or be successfully commercialized. We may fail to obtain necessary marketing approvals for 177Lu-PSMA-617 from the FDA or other regulatory authorities if our clinical development programs for 177Lu-PSMA-617 fail to demonstrate that it is safe and effective to the satisfaction of such authorities, or if we have inadequate financial or other resources to advance 177Lu-PSMA-617 through the necessary development activities. Even if 177Lu-PSMA-617 receives regulatory approval, we may not be successful in marketing it for a number of reasons, including the introduction by our competitors of more clinically-effective or cost-effective alternatives or failure in our sales and marketing efforts. Any failure to obtain approval of 177Lu-PSMA-617 and successfully commercialize it would have a material and adverse impact on our business.

We cannot give any assurance that we will successfully complete the clinical development of any of our other product candidates, or that they will receive regulatory approval or be successfully commercialized.

We have terminated or significantly limited the development programs for product candidates other than PSMA-617 and EC17/CAR T-cell therapy product candidates. With respect to any other product candidates that we may pursue, they may never receive regulatory approval or be successfully commercialized. We may fail to obtain necessary marketing approvals from the FDA or other regulatory authorities if our clinical development programs fail to demonstrate that they are safe and effective to the satisfaction of such authorities, or if we have inadequate financial or other resources to advance our product candidates through the necessary development activities. Even if any of our product candidates receive regulatory approval, we may not be successful in marketing them for a number of reasons, including the introduction by our competitors of more clinically-effective or cost-effective alternatives or failure in our sales and marketing efforts.

* The results of clinical trials may not be predictive of future results, and those trials may not satisfy the requirements of the FDA or other regulatory authorities.

The clinical trials of our product candidates are, and the manufacturing and marketing of any approved products will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States, Europe and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each indication for which we intend to market such product candidate. This process takes many years and requires the expenditure of substantial financial and human resources and may include post-marketing trials and surveillance. To date, we have not completed any randomized phase 3 clinical trials.

Positive results from pre-clinical studies and early clinical trials, such as those of 177Lu-PSMA-617, should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. Like our past history with respect to certain product candidates, a number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, even after promising results in earlier trials. We will be required to demonstrate with substantial evidence through adequate and well-controlled clinical trials that our product candidates are safe and effective for use in the target population before the regulatory authorities will approve our product candidates for commercial sale, and we cannot assure you that we will be able to do so.

In addition to the phase 3 clinical trial of 177Lu-PSMA-617 that we initiated in the three months ended June 30, 2018, certain third party investigators, including Dr. Michael Hofman of the Peter MacCallum Cancer Center in Melbourne, Australia, are conducting clinical trials of 177Lu-PSMA-617 and other product candidates containing PSMA-617. In addition, the German institutions that own the patent rights to PSMA-617 have retained the right, under their license to ABX (under which we are the exclusive sublicensee), to conduct clinical trials of compounds containing PSMA-617 at their premises in Heidelberg, Germany, subject to our approval of the trial protocol. Current or possible future clinical trials of compounds containing PSMA-617 that are conducted by third party investigators outside of our control (in whole or in part) may generate clinical data that hinders our ability to obtain regulatory approvals for the development and/or commercialization of 177Lu-PSMA-617.

Further, our product candidates may not be approved even if they achieve the primary endpoints in phase 3 clinical trials or registration trials. The FDA or other regulatory authorities may disagree with our trial design or the interpretation of data from pre-clinical studies and clinical trials. In addition, the FDA and other regulatory authorities may change requirements for the approval of our product candidates even after reviewing and providing non-binding comments on a protocol for a pivotal phase 3 clinical trial that has the potential to result in approval. Regulatory authorities may also approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

There is a high risk that our development and clinical activities will not result in commercial products, and we may be required to invest significant additional resources in our current development and clinical programs, to the exclusion of others, before it is known whether one or more of our product candidates will receive regulatory approval or be commercially introduced.

Our product candidates are in various stages of development and are prone to the risks of failure inherent in biopharmaceutical development. Development of our product candidates could be discontinued due to insufficient efficacy or unacceptable toxicity. In many cases, even if we ultimately obtain regulatory approval to market a product candidate, we will need to complete significant additional clinical trials before we can demonstrate that the product candidate is safe and effective to the satisfaction of the regulatory authorities involved. Clinical trials are expensive and uncertain processes that take years to complete. Failure can occur at any stage of the process. Further, even if a product candidate receives the required regulatory approvals, we cannot assure you that it will be successful commercially. In addition, while we invest in the technology and indications that we believe are most promising, financial and resource constraints may require us to forego or delay opportunities that may ultimately have greater commercial potential than those programs we are currently actively developing.

We may not achieve research, development and commercialization goals in the time frames that we publicly estimate, which could have an adverse impact on our business and could cause our stock price to decline.

We set goals, and make public statements regarding our expectations, regarding the timing of certain accomplishments, developments and milestones under our research and development programs. The actual timing of these events can vary significantly due to a number of factors, including, without limitation, the amount of time, effort and resources committed to our programs by us and any collaborators and the uncertainties inherent in the regulatory approval process. As a result, there can be no assurance that we or any collaborators will make regulatory submissions or receive regulatory approvals as planned or that we or any collaborators will be able to adhere to our current schedule for the achievement of key milestones under any of our programs. If we or any collaborators fail to achieve one or more of the milestones described above as planned, our business could be materially adversely affected and the price of our common stock could decline.

The coverage and reimbursement status of newly approved biopharmaceuticals is uncertain, and failure to obtain adequate coverage and adequate reimbursement of our product candidates could limit our ability to generate revenue.

There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. The commercial success of our product candidates, if approved, in both domestic and international markets will depend in 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. Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or later introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease providing coverage and reimbursement for these product candidates. Consolidation and integration among healthcare providers and health plans has increased their purchasing power and impacted reimbursement, and could continue to do so in the future. Because each country has one or more payment systems, obtaining reimbursement in the United States and internationally may take significant time and cause us to spend significant resources. The failure to obtain coverage and adequate reimbursement for our product candidates or healthcare cost containment initiatives that limit or deny reimbursement for our product candidates may significantly reduce any future product revenue.

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are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or later introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease providing coverage and reimbursement for these product candidates. Consolidation and integration among healthcare providers and health plans has increased their purchasing power and impacted reimbursement, and could continue to do so in the future. Because each country has one or more payment systems, obtaining reimbursement in the United States and internationally may take significant time and cause us to spend significant resources. The failure to obtain coverage and adequate reimbursement for our product candidates or healthcare cost containment initiatives that limit or deny reimbursement for our product candidates may significantly reduce any future product revenue.

In the United States and in other countries, there have been and we expect there will continue to be a number of legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business. International, federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Such government-adopted reform measures may adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other third-party payors. In addition, in some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. The continuing efforts of U.S. and other governments, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce healthcare costs may adversely affect our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain profitability.

In some countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.

Our development activities could be delayed or stopped for a number of reasons, many of which are outside our control, which could materially harm our financial results and the commercial prospects for our product candidates.

Each of our clinical trials requires the investment of substantial expense and time, and the timing of the commencement, continuation and completion of these clinical trials may be subject to significant delays relating to various causes. We do not know whether our current clinical trials will be completed on schedule, or at all, and we cannot guarantee that our future planned clinical trials will begin on time, or at all. Clinical trials must be conducted in accordance with FDA or applicable foreign government guidelines and are subject to oversight by the FDA, foreign governmental agencies and independent institutional review boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current Good Manufacturing Practice, or cGMP, and other requirements in foreign countries, and may require large numbers of test patients. Our current and planned clinical trials could be substantially delayed or prevented by several factors, including:

limited number of, and competition for, suitable sites to conduct our clinical trials;

government or regulatory delays and changes in regulatory requirements, policy and guidelines;

delay or failure to obtain sufficient supplies of the product candidate for, or other drugs used in, our clinical trials as a result of our suppliers’ non-compliance with cGMP, or for other reasons;

delay or failure to reach agreement on acceptable clinical trial agreement terms with prospective sites or investigators; and

delay or failure to obtain IRB approval to conduct a clinical trial at a prospective site.

The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:

slower than expected rates of patient recruitment and enrollment;

unforeseen safety issues;

lack of efficacy evidenced during clinical trials, which risk may be heightened given the advanced state of disease and lack of response to prior therapies of patients in certain clinical trials;

termination of our clinical trials by an IRB at one or more clinical trial sites;

inability or unwillingness of patients or medical investigators to follow our clinical trial protocols; and

inability to monitor patients adequately during or after treatment or high patient dropout rates.

Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities or us. For example, in June 2017 we ended clinical development of EC1456 and stopped enrollment in our EC1456 phase 1b trial, as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, we stopped enrollment in our EC1456 ovarian cancer surgical trial. We cannot assure you that we will not terminate our current and future development programs.

Failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization.

Common side effects of our product candidates include abdominal pain, vomiting, constipation, nausea, fatigue, loss of appetite, hematologic events and peripheral sensory neuropathy. Because our product candidates have been tested in relatively small patient populations and for limited durations to date, additional side effects may be observed as their development progresses.

177Lu-PSMA-617 is designed to target PSMA, a protein highly expressed on the surface of most prostate cancer cells but absent on most normal cells. However, the fact that PSMA is expressed on some normal cells may result in off-target toxicity due to the delivery of 177Lu, the cell-killing radioactive atom in 177Lu-PSMA-617, to those normal cells.

Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or discontinue clinical trials and could result in the denial, cancellation or withdrawal of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications. This, in turn, could prevent us from commercializing our product candidates and generating revenues from their sale. In addition, if one of our products receives marketing approval and we or others later identify undesirable side effects caused by that product:

regulatory authorities may withdraw their approval of the product;

we may be required to recall the product, change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

the product may be rendered less competitive and sales may decrease; or

our reputation may suffer generally both among clinicians and patients.

Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating revenues from the sale of the product.

We may not obtain government regulatory approval to market our product candidates.

We may seek approval to market certain of our product candidates in both the United States and in non-U.S. jurisdictions. Prior to commercialization, each product candidate will be subject to an extensive and lengthy governmental regulatory approval process in the United States and in other countries. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. We may not receive the approvals necessary to commercialize our product candidates in any market and we may withdraw applications for approval before acted upon by the regulatory authority.

We may not be able to obtain regulatory approval for any product candidates, or even if approval is obtained, the labeling for such products may place restrictions on their use that could materially negatively impact the marketability and profitability of the product subject to such restrictions. Satisfaction of these regulatory requirements, which includes satisfying regulatory authorities that the product is both safe and effective for its intended uses, typically takes several years or more depending upon the type, complexity, novelty and safety profile of the product and requires the expenditure of substantial resources. Uncertainty with respect to meeting the regulatory requirements governing our product candidates may result in excessive costs or extensive delays in the regulatory approval process, adding to the already lengthy review process.

Also, the approval procedure varies among countries and can involve additional testing and data review. The time and safety and efficacy data required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in any jurisdiction could materially harm our business.

We may require substantial additional funding which may not be available to us on acceptable terms, or at all.

As we work to advance product candidates through pre-clinical and clinical development, our future funding requirements will depend on many factors, including but not limited to:

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