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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 March 31, 2024

or

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

For the transition period from               to

Commission File Number: 001-32979

Molecular Templates, Inc.

(Exact name of registrant as specified in its charter)

Delaware

94-3409596

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

9301 Amberglen Blvd

Suite 100

Austin, TX

(Address of principal executive offices)

78729

(Zip Code)

(512) 869-1555

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, $0.001 Par Value Per Share

MTEM

The Nasdaq Capital Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

On May 6, 2024, there were 6,583,880 shares of common stock, par value $0.001 per share, of Molecular Templates, Inc. outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical facts contained herein, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for MT-6402, MT-8421, MT-0169 and other engineered toxin body (“ETB”) biologic candidates;
our utilization of a de-immunized ETB scaffold that has been designed to reduce or eliminate the propensity for innate immunity, including capillary leak syndrome (“CLS”), via de-immunization of the Shiga-like Toxin A subunit (“SLTA”) as well as chemistry, manufacturing, and controls improvements;
the timing and our ability to advance the development of our biologic candidates;
our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;
our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of ETB biologic candidates;
our ability to obtain the benefits we anticipate from partnering, collaboration, or supply agreements that we may enter into;
our financial condition, including our ability to obtain the funding necessary to advance the development of our biologic candidates, and our ability to continue as a going concern;
our ability to comply with the terms of our Contingent Value Rights Agreement pursuant to which our obligations are secured, subject certain limited exceptions, by substantially all of our assets;
our ability to comply with applicable listing standards within the one year monitoring period that commenced on August 2, 2023 and to maintain the listing of shares of our common stock on the Nasdaq Capital Market;
the ongoing effect of the reverse stock split of our common stock that we completed in August 2023 on the price or trading of our common stock; including potential continued adverse impacts on the liquidity of our common stock;
the anticipated progress of our biologic candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;
our ability to generate data and conduct analyses to support the regulatory approval of our biologic candidates;
our ability to establish and maintain intellectual property rights for our biologic candidates;

2

whether any biologic candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;
our ability to discover and develop additional biologic candidates suitable for clinical testing;
our ability to identify, in-license or otherwise acquire additional drug or biologic candidates and development programs;
our anticipated research and development activities and projected expenditures;
our ability to complete preclinical and clinical testing successfully for new drug or biologic candidates that we may develop or license;
our ability to have manufactured active pharmaceutical ingredient and biologic product that meet required release and stability specifications;
our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;
our ability to obtain licenses to any necessary third-party intellectual property;
our anticipated use of proceeds from any financing activities;
potential uncertainty regarding the outcome of our exploration of strategic alternatives, and the impacts that it may have on our business;
the expected cost savings from our strategic restructurings, including the reduction in force we completed in April 2024;
the extent to which global economic and political developments, including the indirect and/or long-term impact of inflation, will affect our business operations, clinical trials, or financial condition;
the impact of laws and regulations;
our projected financial performance;
the sufficiency of our cash resources; and
other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors.”

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events

3

and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise indicates, references to “Molecular,” the “Company,” “we,” “our,” “us” or similar terms refer to Molecular Templates, Inc., and our wholly-owned subsidiary.

4

Molecular Templates, Inc.

TABLE OF CONTENTS

    

    

Page

PART I.

FINANCIAL INFORMATION

6

Item 1.

Financial Statements

6

 

Condensed Consolidated Balance Sheets (Unaudited)

6

 

Condensed Consolidated Statements of Operations (Unaudited)

7

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

8

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

9

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

10

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

94

Item 3.

Defaults Upon Senior Securities

94

Item 4.

Mine Safety Disclosures

94

Item 5.

Other Information

94

Item 6.

Exhibits

96

SIGNATURES

97

5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Molecular Templates, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

    

March 31,
2024 (unaudited)

    

December 31,
2023

ASSETS

Current assets:

Cash and cash equivalents

$

6,779

$

11,523

Prepaid expenses

1,200

2,195

Grants revenue receivable

412

250

Other current assets

2,299

2,804

Total current assets

10,690

16,772

Operating lease right-of-use assets

8,647

9,161

Property and equipment, net

6,284

7,393

Other assets

1,498

2,057

Total assets

$

27,119

$

35,383

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

2,681

$

1,523

Accrued liabilities

2,748

4,279

Deferred revenue, current

9,031

Other current liabilities

3,152

2,488

Total current liabilities

8,581

17,321

Operating lease liabilities, long term portion

9,075

9,742

Contingent value right liability

2,158

2,702

Other liabilities

1,435

1,406

Total liabilities

21,249

31,171

Commitments and contingencies (Note 9)

Stockholders’ equity

Preferred stock, $0.001 par value per share:

Authorized: 2,000,000 shares as of March 31, 2024 and December 31, 2023; Issued and outstanding: 250 shares as of March 31, 2024 and December 31, 2023

Common stock, $0.001 par value per share:

Authorized: 150,000,000 shares as of March 31, 2024 and December 31, 2023; Issued and outstanding: 5,374,268 shares as of March 31, 2024 and December 31, 2023

5

5

Additional paid-in capital

458,185

457,099

Accumulated deficit

(452,320)

(452,892)

Total stockholders’ equity

5,870

4,212

Total liabilities and stockholders’ equity

$

27,119

$

35,383

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

6

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

Three Months Ended
March 31,

 

    

2024

    

2023

Research and development revenue

$

10,924

$

33,627

Grant revenue

162

3,002

Total revenue

11,086

36,629

Operating expenses:

Research and development

7,405

19,042

General and administrative

3,731

5,802

Total operating expenses

11,136

24,844

Income/(loss) from operations

(50)

11,785

Interest and other income, net

109

455

Interest and other expense, net

(31)

(1,395)

Change in valuation of contingent value right (Note 4)

544

Net income attributable to common stockholders

$

572

$

10,845

Net income per share attributable to common stockholders:

Basic

$

0.11

$

2.89

Diluted

$

0.08

$

2.89

Weighted average number of shares used in net income per share calculations:

Basic

5,374,268

3,756,711

Diluted

7,015,864

3,756,711

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

7

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except share and per share data)

(unaudited)

Three Months Ended
March 31,

 

    

2024

    

2023

Net income

$

572

$

10,845

Other comprehensive income:

Unrealized gain on available-for-sale securities

67

Comprehensive income

$

572

$

10,912

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

8

MOLECULAR TEMPLATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

Three Months Ended
March 31,

    

2024

    

2023

Total Stockholders' Equity (Deficit), beginning balances

$

4,212

$

(15,132)

Common Stock (shares):1

Beginning balance

5,374,268

3,756,711

Ending balance

5,374,268

3,756,711

Common Stock (amount):1

Beginning balance

$

5

$

4

Ending balance

5

4

Additional Paid-In Capital:1

Beginning balance

457,099

429,698

Stock-based compensation

1,086

2,310

Ending balance

458,185

432,008

Accumulated Other Comprehensive Income/(Loss):

Beginning balance

(66)

Other comprehensive income/(loss)

67

Ending balance

1

Accumulated deficit:

Beginning balance

(452,892)

(444,768)

Net income

572

10,845

Ending balance

(452,320)

(433,923)

Total Stockholders' Equity (Deficit)

$

5,870

$

(1,910)

1. Prior period amounts have been retrospectively adjusted for the 1-for-15 reverse stock split that was effective August 11, 2023 (see Note 1).

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

9

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

Three Months Ended
March 31,

 

    

2024

    

2023

Cash flows from operating activities:

Net income

$

572

$

10,845

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

Depreciation, amortization and other

1,122

1,928

Stock-based compensation expense

1,086

2,310

Amortization of debt discount and accretion related to debt

234

Accretion of asset retirement obligations

29

27

Change in valuation of contingent value right

(544)

Changes in operating assets and liabilities:

Prepaid expenses

995

1,450

Grants revenue receivable

(162)

(2,838)

Other assets

551

(1,258)

Operating lease right-of-use assets and liabilities

(79)

(12)

Accounts payable

1,158

2,201

Accrued liabilities

(1,531)

(3,281)

Other liabilities

590

Deferred revenue

(9,031)

(30,967)

Net cash used in operating activities

(5,244)

(19,361)

Cash flows from investing activities:

Purchases of property and equipment

(183)

Purchase of marketable securities

(2,364)

Sales of marketable securities

28,500

Net cash provided by investing activities

25,953

Net (decrease)/increase in cash, cash equivalents, and restricted cash

(5,244)

6,592

Cash, cash equivalents and restricted cash, beginning of period

12,838

34,679

Cash, cash equivalents and restricted cash, end of period

$

7,594

$

41,271

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents

$

6,779

$

38,782

Restricted cash included in other assets

815

2,489

Total cash, cash equivalents and restricted cash

$

7,594

$

41,271

Supplemental Cash Flow Information

Cash paid for interest

$

$

1,111

Non-Cash Investing Activities

Fixed asset additions in accounts payable and accrued expenses

$

$

13

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

10

Molecular Templates, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

Molecular Templates, Inc. (the “Company”) is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to estimates and impact future operating results. Certain accounts in the prior financial statements have been reclassified for comparative purposes to conform to the presentation in the current financial statements. These reclassifications have no material effect on previously reported financials. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024.

On August 11, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to effect a one-time reverse stock split of the Company’s common stock, at a ratio of 1-for-15 (the “Reverse Stock Split”). The Reverse Stock Split was effective at 5 p.m. Eastern Time, after the close of trading on the Nasdaq Capital Market, on August 11, 2023 (the “Effective Time”). At the Effective Time, every 15 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock, without any change in the par value per share. Any stockholder who was entitled to a fractional share of common stock created as a result of the Reverse Stock Split received a cash payment in lieu thereof equal to the fractional share to which the stockholder was entitled multiplied by the closing sales price of a share of common stock on August 11, 2023, as adjusted for the Reverse Stock Split. All common stock, per share and related information presented in the condensed consolidated financial statements and notes prior to the Reverse Stock Split have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented, to the extent applicable.

Going Concern

The Company has adopted as required the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern, which requires that management contemplate the realization of assets and liquidation of liabilities in the normal course of business, and evaluate whether there are relevant conditions and events that in the aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that

11

the financial statements are issued. Under this standard, management’s assessment shall not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.

As of March 31, 2024, the Company had an accumulated deficit of $452.3 million and had unrestricted cash and cash equivalents of $6.8 million. Based on the Company’s unrestricted cash and cash equivalents as of March 31, 2024 and subsequent to the closing of the amended and restated second tranche of the July 2023 Private Placement (as defined below), management anticipates that the Company will be able to fund its planned operating expenses and capital expenditure requirements into the fourth quarter of 2024. The Company has not yet established an ongoing source of revenues sufficient to cover its operating and cash expenditure requirements or to cover any potential payments that may become due and payable pursuant to the CVR Agreement as described in Note 7 “Borrowing Arrangements and Debt Extinguishment” to provide sufficient certainty that it will continue as a going concern. For these reasons, there is substantial doubt about the Company’s ability to continue as a going concern as of the issuance of these financial statements.

Historically, the Company financed its operations to date primarily through partnerships, funds received from public offerings of common and preferred stock, private placements of equity securities, a reverse merger, upfront and milestone payments received from its prior and current collaboration agreements, a debt financing facility, as well as funding from governmental bodies and bank and bridge loans. The Company plans to address this condition through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including collaborations with other companies or other strategic transactions, but there is no assurance these plans will be completed successfully or at all.

If the Company is unable to obtain additional capital when and as needed to continue as a going concern, it might have to further reduce or scale back its operations, cease operations entirely, and/or liquidate its assets, and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

These financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, as compared to the significant accounting policies disclosed in Note 1 “Organization and Summary of Significant Accounting Policies,” to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Cash and Cash Equivalents

The Company considers temporary investments having original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire. Other assets include $0.8 million and $1.3 million of restricted cash as of March 31, 2024 and December 31, 2023, respectively, related to letters of credit in lieu of a cash deposit for the Company’s leases.

Fair Value Measurement

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value

12

hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach or probability approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available. Level 3 securities utilize a probability weighted expected return method or Black-Scholes option-pricing model. Significant estimates and assumptions required for these valuations include, but are not limited to, probabilities related to the timing and outcome of future financing and/or liquidity events. These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. As of March 31, 2024, the Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Bristol-Myers Squibb Company (“Bristol-Myers Squibb”). Bristol-Myers Squibb accounted for approximately 99% and 92% of total revenues for the three months ended March 31, 2024 and 2023, respectively.

Biologic candidates developed by the Company require approvals or clearances from the U.S. Food and Drug Administration (the “FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s biologic candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, using a modified retrospective approach. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

13

In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (Topic 740: Income Taxes). The new guidance requires that public entities disclose more consistent categories and greater disaggregation of information in the income tax rate reconciliations and further disaggregate income taxes paid by jurisdiction. The amendment is effective for the Company for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

NOTE 2 — NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period utilizing the two-class method. Preferred stockholders participate equally with common stockholders in earnings, but do not participate in losses, and are excluded from the basic net income calculation. Diluted net income per share is computed by giving effect to all potential dilutive common shares, including outstanding options, warrants, convertible common shares related to the Conversion Right, as defined in the CVR Agreement and described in Note 4 “Fair Value Measurements,” and convertible preferred stock.

The shares excluded from the diluted net income per share calculation were 881,000 and 579,000 for the three months ended March 31, 2024 and 2023, respectively. The effect of those shares was antidilutive under the treasury stock method, as the assumed proceeds of the options and the common warrants per unit were above the Company’s average share price during those periods.

The following table provides the calculation of diluted weighted-average shares outstanding:

Three Months Ended
March 31,

2024

2023

Basic weighted-average shares outstanding

5,374,268

3,756,711

Prefunded Warrants

1,216,663

Shares issuable under Conversion Right of CVR Agreement

408,267

Preferred shares

16,666

Diluted weighted-average shares outstanding

7,015,864

3,756,711

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Bristol-Myers Squibb Collaboration Agreement

In February 2021, the Company entered into a Collaboration Agreement, as amended (the “BMS Collaboration Agreement”), with Bristol-Myers Squibb to perform strategic research collaboration leveraging the Company’s engineered toxin body (“ETB”) technology platform to discover and develop novel products containing ETBs directed to multiple targets. On March 13, 2024, Bristol-Myers Squibb notified the Company that it does not intend to continue the research collaboration it entered into with the Company pursuant to the BMS Collaboration Agreement and would be terminating the BMS Collaboration Agreement in its entirety. The termination will be effective on June 13, 2024, or 90 days following the Company’s receipt of Bristol-Myers Squibb’s written notice of termination.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol-Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol-Myers Squibb.

Bristol-Myers Squibb paid the Company an upfront payment of $70.0 million. In addition to the upfront payment, the Company would have been eligible to receive near term and development and regulatory milestone payments of up to $874.5 million. The Company would also have been eligible to receive up to an additional $450.0 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

14

The Company would have been responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol-Myers Squibb would have been responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate, subject to the terms of the BMS Collaboration Agreement.

Unless earlier terminated, the BMS Collaboration Agreement would have expired (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol-Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol-Myers Squibb had the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party had the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company had the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol-Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

The Company identified multiple performance obligations at the inception of the BMS Collaboration Agreement consisting of research and development services and material rights related to additional developmental targets. The transaction price of $70.0 million was allocated to the performance obligations based upon their relative stand-alone selling price and was recognized over time as the underlying research and development services are performed.

The Company recognized revenue for research and development services under the BMS Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company would use actual costs incurred relative to budgeted costs expected to be incurred. These costs consisted primarily of internal employee efforts and third-party contract costs. Revenue was recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completed its performance obligation over the estimated service period.

For the three months ended March 31, 2024 and 2023, the Company recognized $10.9 million and $33.6 million, respectively, of research and development revenue related to the BMS Collaboration Agreement, which was primarily related to the completion of the research program for one of the collaboration’s targets and the completion of the related performance obligation by the Company under the BMS Collaboration Agreement, resulting in recognition of $25.8 million of research and development revenue in the quarter ended March 31, 2023, offset by the termination of the BMS Collaboration Agreement and the completion of the remaining research programs and related performance obligations, resulting in recognition of $10.9 million of research and development revenue in the quarter ended March 31, 2024.

The Company had zero and $9.0 million of deferred revenue, current, as of March 31, 2024 and December 31, 2023, respectively, related to the BMS Collaboration Agreement. The Company had no deferred revenue, non-current, as of March 31, 2024 and December 31, 2023, related to the BMS Collaboration Agreement.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”) which was extended in September 2023, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. As of March 31, 2024, the Company has cumulatively recognized $14.3 million of grant revenue related to the CD38 CPRIT Agreement. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

For the three months ended March 31, 2024 and 2023, the Company recognized grant revenue under this award of $0.2 million and $3.0 million, respectively. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in grant revenue receivable. As of March 31, 2024 and December 31, 2023, the

15

Company recorded grant revenue receivable of $0.4 million and $0.3 million, respectively. As of both March 31, 2024 and December 31, 2023, the Company recorded no deferred revenue related to CD38 CPRIT Agreement.

NOTE 4 — FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents) at fair value on a recurring basis (in thousands):

Basis of Fair Value Measurements

    

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

Money market funds

$

5,896

$

5,896

$

$

Total

$

5,896

$

5,896

$

$

Amounts included in:

Cash and cash equivalents

$

5,896

Total cash equivalents

$

5,896

Basis of Fair Value Measurements

    

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

Money market funds

$

11,395

$

11,395

$

$

Total

$

11,395

$

11,395

$

$

Amounts included in:

Cash and cash equivalents

$

11,395

Total cash equivalents

$

11,395

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities (in thousands):

March 31, 2024

    

Cost Basis

    

Unrealized
Gain

    

Unrealized
Loss

    

Fair
Value

Cash equivalents - money market funds

$

5,896

$

$

$

5,896

December 31, 2023

    

Cost Basis

    

Unrealized
Gain

    

Unrealized
Loss

    

Fair
Value

Cash equivalents - money market funds

$

11,395

$

$

$

11,395

As of both March 31, 2024 and December 31, 2023, all of the Company’s available-for-sale investments were due in one year or less.

The Company received no proceeds from the sale of available-for-sale securities for the three months ended March 31, 2024 and 2023, and no realized gain for the three months ended March 31, 2024 and 2023.

Contingent Value Right and Common Stock Warrant Valuation

On June 16, 2023, the Company entered into a Convertible Secured Contingent Value Right Agreement (the “CVR Agreement”) with K2 HealthVentures LLC (“K2HV”), as further described in Note 7 “Borrowing Arrangements and Debt Extinguishment.” ASC 815 “Derivatives and Hedging” requires the Conversion Right, as defined in the CVR Agreement, and Contingent Value Right, as defined in the CVR Agreement, to be accounted for as liabilities and changes to their fair value recognized in the condensed consolidated statement of operations. The Conversion Right and Contingent Value Right liability will be remeasured each reporting period. The Company utilized a probability weighted expected return method to value the Conversion Right and Contingent Value Right liability (collectively, the “CVR”). The CVR was split into two components: (a) the Conversion Right of the holder to convert $3.0 million of the Remaining Value, as defined below, into shares and (b) the Contingent Value Right liability, as defined in the CVR Agreement. Various payoff scenarios were projected and weighted to determine the payoff of the CVR. Within each

16

scenario, the stock price at each event was forecasted to determine if K2VH would convert $3.0 million of the Remaining Value into shares of the Company’s common stock. If K2HV elected to convert any amount up to $3.0 million into shares of the Company’s common stock, then the value of the Conversion Right was the expected stock price times the number of conversion shares; otherwise, the value was determined to be zero. The Contingent Value Right liability component was calculated as the Remaining Value less $3.0 million conversion amount if converted at the time of the event, discounted back to present value. As of June 16, 2023, the value of the Conversion Right and Contingent Value Right liability were calculated within each scenario and probability weighted to derive the total fair value of the Conversion Right and the Contingent Value Right liability was $3.3 million and $1.9 million, respectively. As of March 31, 2024, the fair value of the Conversion Right and the Contingent Value Right liability was $0.9 million and $1.2 million, respectively. As of December 31, 2023, the fair value of the Conversion Right and the Contingent Value Right liability was $1.5 million and $1.2 million, respectively. For the three months ended March 31, 2024, the total change in fair value of the Contingent Value Right liability was $0.5 million.

The following table sets forth the Company’s financial liabilities (convertible secured contingent value right) at fair value on a recurring basis (in thousands):

Basis of Fair Value Measurements

    

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

Conversion right and contingent value right

$

2,158

$

$

$

2,158

Total

$

2,158

$

$

$

2,158

Basis of Fair Value Measurements

    

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

Conversion right and contingent value right

$

2,702

$

$

$

2,702

Total

$

2,702

$

$

$

2,702

The following table is a reconciliation of the change in fair value of the Conversion Right and Contingent Value Right liability for the three months ended March 31, 2024 (in thousands):

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Conversion right and contingent value right liability

Total

Balance as of December 31, 2023

$

2,702

$

2,702

Change in valuation included in net income

(544)

(544)

Balance as of March 31, 2024

$

2,158

$

2,158

In satisfaction of its obligations to issue the warrant to K2HV’s affiliated holder pursuant to the CVR Agreement, the Company issued a warrant to purchase up to 340,222 shares of the Company’s common stock at an exercise price of $5.8785 per share. The warrant has a term of 10 years. The Company accounted for its common stock warrants under the guidance in ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging,” that clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock. The warrants were classified as equity and were fair valued as the date of the transaction. The fair value of these warrants was determined using a Black-Scholes option-pricing model with the following key inputs:

June 16, 2023

Risk-free interest rate

3.77

%  

Expected term (in years)

10.0

Dividend yield

Volatility

80.00

%  

Stock price

$

0.53

On June 16, 2023, the Company determined the fair value of the warrants to be $2.3 million and classified that amount to additional paid in capital.

17

NOTE 5 — BALANCE SHEET COMPONENTS

Accrued liabilities consisted of the following (in thousands):

    

March 31,
2024

    

December 31,
2023

Accrued liabilities:

  

General and administrative

  

$

291

$

225

Clinical trial related costs

2,105

3,574

Non-clinical research and manufacturing operations

  

301

404

Payroll related

  

43

60

Other accrued expenses

  

8

16

Total Accrued liabilities

  

$

2,748

$

4,279

NOTE 6—PROPERTY AND EQUIPMENT

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

March 31,

December 31,

    

2024

    

2023

Laboratory equipment

$

20,695

$

20,695

Leasehold improvements

12,974

12,974

Furniture and fixtures

518

518

Computer and equipment

254

254

34,441

34,441

Less: Accumulated depreciation

(28,157)

(27,048)

Total property and equipment, net

$

6,284

$

7,393

Depreciation expense was $1.1 million and $2.0 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023, the Company had net Asset Retirement Obligation (“ARO”) assets totaling $0.2 million and $0.2 million, respectively. The ARO assets are included in leasehold improvements.

NOTE 7 — BORROWING ARRANGEMENTS AND DEBT EXTINGUISHMENT

K2 HealthVentures Loan and Security Agreement

In May 2020, the Company entered into a Loan and Security Agreement with K2HV (the “K2 Loan and Security Agreement”) in the amount of $45.0 million. The K2 Loan and Security Agreement was drawable in three tranches and the Company had drawn down $35.0 million with the remaining tranche of $10.0 million having lapsed as of December 31, 2021. Pursuant to the terms of the K2 Loan and Security Agreement, the principal accrued interest at an annual rate equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2%. In April 2022, the K2 Loan and Security Agreement was amended in exchange for a $0.3 million amendment fee so that (i) payments would be interest only until the loan’s maturity date of June 1, 2024, and (ii) the Financial Covenant would apply for the entire term of the K2 Loan and Security Agreement. This amendment resulted in a debt modification with the $0.3 million amendment fee recorded as a debt discount.

On June 16, 2023, the Company entered into the CVR Agreement with K2HV to fully discharge and satisfy the Company’s outstanding loan obligations under the K2 Loan and Security Agreement, and to terminate the K2 Loan and Security Agreement, in exchange for an aggregate repayment in cash of $27.5 million, the granting of a contingent value right to K2HV, and the issuance of a warrant to purchase shares of common stock to K2HV’s affiliated holder. These contingent value rights require payments to K2HV if certain Contingent Payment Events, as defined in the CVR

18

Agreement, occur, or if there is an Acceleration Event, as defined in the CVR Agreement. The payment due upon any Contingent Payment Event or an Acceleration Event is capped at an amount (the “Remaining Value”) which is initially $10,303,646, which amount, to the extent not repaid is subject to escalating multipliers which increases from the closing date by multiplying the Remaining Value by a multiplier ranging between 1.0 at closing to 2.5x for any Remaining Value not yet paid as of September 16, 2024, resulting in a potential maximum payment obligation of $25,759,115. In addition, upon a Change in Control, as defined in the CVR Agreement, the Company is required to pay an additional payment of $2,500,000.

For Contingent Payment Events, the Company must pay K2HV either a specified percentage of the proceeds received, up to an amount equaling the applicable Remaining Value, 50% of such Remaining Value, or 100% of the Remaining Value, depending on the Contingent Payment Event which occurred. Upon the occurrence and continuation of any Acceleration Event, the applicable Remaining Value shall, at the election of K2HV, be due and payable in full. The Company may at any time elect to repay some or all of the Remaining Value without penalty. In lieu of a portion of these contingent value rights, K2HV may convert up to $3,000,000 of the Remaining Value into an aggregate of 408,267 shares of common stock, subject to adjustment for any stock splits and similar events so long as the number of shares of common stock underlying such conversion right, together with the shares of common stock underlying the warrants described below, do not exceed 19.99% of the number of shares of common stock outstanding immediate prior to the execution of the CVR Agreement.

In satisfaction of its obligations to issue the warrant to K2HV’s affiliated holder pursuant to the CVR Agreement, the Company issued a warrant to purchase up to 340,222 shares of the Company’s common stock at an exercise price of $5.8785 per share. The warrant has a term of 10 years. To protect its interest in any potential payment of the Remaining Value, K2HV has a security interest in, subject to certain limited exceptions, all assets (including intellectual property) of the Company. Further, the Company may not (i) incur any indebtedness for borrowed money that is structured as senior or pari passu to K2HV’s outstanding contingent payments without K2HV’s consent or (ii) permit any other liens (other than customary permitted liens) on this collateral without K2HV’s consent.

In accordance with ASC Topic 740-50 “Debt – Modifications and Extinguishments,” the transaction noted above was determined to be an extinguishment of the existing long-term debt. As a result, the Company recorded a gain on the extinguishment of long-term debt in the amount of $1.8 million in the line item “Gain on the extinguishment of debt” in the condensed consolidated statement of operations.

NOTE 8 — LEASES

The Company has operating leases for administrative offices and research and development facilities, and certain finance leases for equipment. The operating leases have remaining terms of less than two years to less than six years. Leases with an initial term of 12 months or less will not be recorded on the condensed consolidated balance sheets as operating leases or finance leases, and the Company will recognize lease expense for these leases on a straight-line basis over the lease term. Certain leases include options to renew, with renewal terms that can extend the lease term for seven years. The exercise of lease renewal options for the Company’s existing leases is at the Company’s sole discretion and not included in the measurement of lease liability and right-of-use assets as they are not reasonably certain to be exercised. Certain finance leases also include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The leases do not contain any residual value guarantees or material restrictive covenants.

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The following table summarizes the components of lease expense for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended
March 31,

    

2024

    

2023

Operating leases

Operating lease expense

$

725

$

727

Variable lease expense

145

104

Total operating lease expense

$

870

$

831

The following table summarizes the balance sheet classification of leases as of March 31, 2024 (in thousands):

March 31,

    

2024

Operating leases

Operating lease right-of-use assets

$

8,647

Operating lease liabilities, current1

$

2,561

Operating lease liabilities, non-current

9,075

Total operating lease liabilities

$

11,636

1.Included in other current liabilities.

The following table presents other information on leases as of March 31, 2024 and December 31, 2023:

March 31,

December 31,

    

2024

    

2023

 

Weighted average remaining lease term, operating leases

4.44

years 

4.65

years

Weighted average discount rate, operating leases

8.21

%

8.21

%

Maturities of lease liabilities were as follows as of March 31, 2024 (in thousands):

    

Operating Leases

2024 (remaining)

$

2,535

2025

3,299

2026

2,564

2027

2,636

2028

2,148

Thereafter

724

Total lease payments

$

13,906

Less:

Imputed interest

(2,270)

Total lease liabilities

$

11,636

Supplemental cash flow information related to the Company’s leases were as follows (in thousands):

Three Months Ended
March 31,

    

2024

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows operating leases

$

834

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NOTE 9 — CONTRACTUAL COMMITMENTS

The Company has entered into project work orders for each of its clinical trials with clinical research organizations (each, a “CRO”) and related laboratory vendors. Under the terms of these agreements, the Company is required to pay certain upfront fees for direct services costs. Based on the particular agreement some of the fees may be for services yet to be rendered and are reflected as a current prepaid asset and have an unamortized balance of approximately zero as of March 31, 2024. The Company has entered into agreements with CROs and other external service providers for services, primarily in connection with the clinical trials and development of the Company’s biologic candidates. The Company was contractually obligated for up to approximately $35.1 million of future services under these agreements as of March 31, 2024, for which amounts have not been accrued as services have not been performed. The Company’s actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.

The Company has entered into estimated purchase obligations. These estimated purchase obligations total in range from $3.8 million to $4.1 million.

NOTE 10 — STOCK-BASED COMPENSATION

Stock-based compensation expense, which consists of the compensation cost for employee stock options and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative in the consolidated statements of operations as follows (in thousands):

 

Three Months Ended
March 31,

 

    

2024

    

2023

Research and development

$

376

$

1,233

General and administrative

710

1,077

Total stock-based compensation

$

1,086

$

2,310

As of March 31, 2024, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plans was approximately $3.7 million. This cost will be recorded as compensation expense on a ratable basis over the remaining weighted average requisite service period of approximately 2.8 years.

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

 

Three Months Ended
March 31,

 

    

2024

    

2023

    

Employee Stock Options:

Risk-free interest rate

3.92

%  

3.94

%  

Expected term (in years)

6.08

6.08

Dividend yield

Volatility

77.14

%  

77.17

%  

Weighted-average fair value of stock options granted

$

2.50

$

5.10

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Equity Incentive Plans

These plans consist of the 2018 Equity Incentive Plan; the 2014 Equity Incentive Plan, as amended; the 2004 Amended and Restated Equity Incentive Plan; and the Amended and Restated 2004 Employee Stock Purchase Plan. As of May 31, 2018, the 2014 Equity Incentive Plan and the 2004 Amended and Restated Equity Incentive Plan were terminated, and no further shares will be granted from those plans.

The following table summarizes stock option activity under the Company’s equity incentive plans:

    

Outstanding Options
Number of Shares

    

Weighted Average
Exercise Price

    

Weighted Average
Remaining
Contractual Term

    

Aggregate Intrinsic
Value (in millions):

Balances, December 31, 2022

562,878

$

115.50

7.09

$

Granted

236,651

$

7.25

Exercised

(192)

$

7.20

Cancelled

(285,273)

$

88.62

Balances, December 31, 2023

514,064

$

80.62

7.03

$

Granted

100,298

$

3.59

Exercised

$

Cancelled

(6,739)

$

27.35

Balances, March 31, 2024

607,623

$

68.50

$

Vested and expected to vest, March 31, 2024

607,623

$

68.50

7.20

$

Exercisable at March 31, 2024

330,945

$

110.50

5.54

$

The total intrinsic value of stock options exercised during the three months ended both March 31, 2024 and 2023, was zero, as determined at the date of the option exercise.

Cash received from stock option exercises was zero, for both the three months ended March 31, 2024 and 2023. The Company issues new shares of common stock upon exercise of options.

NOTE 11 – RESTRUCTURING RELATED EXPENSES

On March 29, 2023 and June 16, 2023, the Company implemented a strategic reprioritization and corresponding reduction in workforce, by approximately 68%, designed to focus on the clinical development programs for MT-6402, MT-8421 and MT-0169, and preclinical activities related to the Company’s collaboration with Bristol-Myers Squibb (the “Restructuring”). The Restructuring reduced the Company’s workforce, ceased further development of the Company’s MT-5111 clinical development program, and refocused the majority of the Company’s pre-clinical efforts around activities related to the Bristol-Myers Squibb collaboration. On April 11, 2024, the Company approved a reduction in force, (the “Reduction in Force”) in order to extend its resources to better position the organization and to allow the Company to continue to support its clinical studies for MT-6402, MT-8421 and MT-0169, as further described in Note 13 “Subsequent Events.” For the three months ended March 31, 2024 and 2023, the Company incurred zero and $0.3 million, respectively, in expenses related to the Restructuring, which is included in research and development and general and administrative expenses in the condensed consolidated statement of operations. The expenses related to the Restructuring related to severance pay and other related termination benefits.

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The following table summarizes the activity for expenses related to the Restructuring accruals, which are included in Accrued liabilities in the Company’s condensed consolidated balance sheets (in thousands):

Balance, December 31, 2022

    

$

Expenses related to the Restructuring

276

Cash payments

(276)

Balance, December 31, 2023

    

$

Expenses related to the Restructuring

Cash payments

Balance, March 31, 2024

$

NOTE 12 — STOCKHOLDERS’ EQUITY (DEFICIT)

K2HV CVR Agreement and Related Warrants

On June 16, 2023, in satisfaction of its obligations to issue the warrant to K2HV’s affiliated holder pursuant to the CVR Agreement, as further described in Note 7 “Borrowing Arrangements and Debt Extinguishment,” the Company issued a warrant to purchase up to 340,222 shares of the Company’s common stock at an exercise price of $5.8785 per share. The warrant is exercisable upon issuance and have a term of ten years. The Company determines whether the warrant should be classified as a liability or equity according to ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging.” Upon issuance of the outstanding warrants, the Company determined that equity classification was appropriate. For warrants classified as equity, the Company records the value of the warrants in additional paid-in capital on the condensed consolidated balance sheet. As of March 31, 2024, there were 340,222 warrants issued related to the CVR Agreement. On June 16, 2023, the warrant was valued at $2.3 million using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model inputs used were: (i) expected dividend yield of 0%, (ii) expected volatility of 80%, (iii) risk free interest rate of 3.77%, and (iv) expected term of 10.0 years.

July 2023 Private Placement and Related Warrants

On July 12, 2023, the Company entered into a securities purchase agreement (the “July 2023 Purchase Agreement”) with certain institutional and accredited investors (the “July 2023 Purchasers”) which provided for the private placement (the “July 2023 Private Placement”) of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock in two tranches, as described below.

The closing of the initial tranche occurred on July 17, 2023 and consisted of the issuance of (i) 1,617,365 shares of the Company’s common stock and at a price of $7.05 per share and (ii) pre-funded warrants exercisable for up to 1,222,100 shares of the Company’s common stock (the “July 2023 Pre-Funded Warrants”). The price of the July 2023 Pre-Funded Warrants was $7.035 per underlying share of the Company’s common stock, and the exercise price for the Pre-Funded Warrants was $0.015 per underlying share. The Company received approximately $20.0 million in gross proceeds in connection with the closing of the initial tranche and net proceeds, following the payment of related offering expenses, of approximately $18.4 million.

The Company has assessed the July 2023 Pre-Funded Warrants for appropriate equity or liability classification. The July 2023 Pre-Funded Warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company's common stock and (vi) meet the equity classification criteria.

In addition, the July 2023 Pre-Funded Warrants do not provide any guarantee of value or return and do not provide the warrant holders with the option to settle any unexercised warrants for cash outside of the Company's control. The July 2023 Pre-Funded Warrants also include a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 19.99% of the

23

Company’s common stock. The Company valued the pre-funded common stock warrants at issuance, concluding that their sale price approximated their fair value. Accordingly, the July 2023 Pre-Funded Warrants are accounted for as a component of additional paid-in capital at the time of issuance.

Pursuant to the July 2023 Purchase Agreement, the Company granted to the July 2023 Purchasers certain registration rights, pursuant to which, among other things, the Company agreed to (i) file with the SEC a registration statement on Form S-3 after each of the initial tranche and the second tranche to register for resale the shares of common stock issued (and the shares issuable upon exercise of any pre-funded warrants or Second Closing Warrants issued) in the applicable closing, within 30 calendar days following each closing, and (ii) use its commercially reasonable efforts to have each registration statement declared effective as soon as practicable, and in any event no later than 90 days following the applicable closing date (or 120 days following the applicable closing date if the applicable registration statement is reviewed by the SEC). The registration rights covenants are subject to customary terms and conditions for a transaction of this type, including certain customary cash penalties on the Company for its failure to satisfy specified filing and effectiveness time periods. On August 10, 2023, the Company filed with the SEC a registration statement on Form S-3 (File No. 333-273864), which became effective on August 18, 2023, registering for resale up to 2,839,465 shares of the Company’s common stock, which consist of 1,617,365 shares of the Company’s common stock and 1,222,100 shares of the Company’s common stock issuable upon the exercise of the July 2023 Pre-Funded Warrants. Additionally, the July 2023 Purchase Agreement contains customary representations and warranties and agreements of the Company and the July 2023 Purchasers and customary indemnification rights and obligations of the parties.

Second Closing of July 2023 Private Placement

On March 28, 2024, the Company and certain institutional and accredited investors (the “March 2024 Purchasers”) entered into an Amended and Restated July 2023 Purchase Agreement, pursuant to which the Company issued, at closing, common stock, prefunded warrants, and common warrants with an aggregate purchase price of $9.5 million on amended and restated second tranche terms. The closing of the second tranche occurred on April 2, 2024. The second tranche, as amended and restated, consisted of the sale and issuance of (i) 1,209,612 shares of the Company’s common stock (and, in lieu thereof, prefunded warrants to purchase 2,460,559 shares of the Company’s common stock (the “March 2024 Prefunded Warrants”) for a purchase price of $2.35 per share of the Company’s common stock (the closing price of our common stock on March 27, 2024 as reported by the Nasdaq Capital Market) and $2.349 per March 2024 Prefunded Warrant, and (ii) common stock warrants (the “March 2024 Common Warrants”) to purchase up to 7,340,342 shares of the Company’s common stock (or March 2024 Prefunded Warrants in lieu thereof) at an exercise price of $2.35 per share of the Company’s common stock underlying the March 2024 Common Warrants. The March 2024 Common Warrants were sold at a price of $0.125 per underlying share of common stock and have a term of five years. The March 2024 Prefunded Warrants will expire when fully exercised in accordance with their terms. The March 2024 Prefunded Warrants and March 2024 Common Warrants may not be exercised if the aggregate number of shares of our common stock beneficially owned by the holder thereof immediately following such exercise would exceed a specified beneficial ownership limitation (4.99%/9.99%/19.99%); provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 61 days’ notice to the Company, but not to any percentage in excess of 19.99%. The Amended and Restated July 2023 Purchase Agreement contains customary representations and warranties and agreements of the Company and the March 2024 Purchasers and customary indemnification rights and obligations of the parties. The second tranche included gross proceeds of approximately $9.5 million and net proceeds, following the payment of related offering expenses, of approximately $8.8 million.

The Company has assessed the March 2024 Prefunded Warrants and March 2024 Common Warrants for appropriate equity or liability classification. The March 2024 Prefunded Warrants and March 2024 Common Warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company's common stock, and (vi) meet the equity classification criteria.

In addition, the March 2024 Prefunded Warrants and March 2024 Common Warrants do not provide any guarantee of value or return and do not provide the warrant holders with the option to settle any unexercised warrants for cash outside of the Company's control. The March 2024 Prefunded Warrants and March 2024 Common Warrants also

24

include a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than a specified percentage limitation (4.99%/9.99%/19.99%) of the Company’s common stock. The Company valued the prefunded stock warrants and common stock warrants at issuance, concluding that their sale price approximated their fair value. Accordingly, the March 2024 Prefunded Warrants and March 2024 Common Warrants are accounted for as a component of additional paid-in capital at the time of issuance on April 2, 2024.

Pursuant to the Amended and Restated July 2023 Purchase Agreement, the Company granted to the March 2024 Purchasers certain registration rights, pursuant to which, among other things, the Company agreed to (i) file with the SEC a registration statement on Form S-3 after the second tranche of the July 2023 Private Placement to register for resale the shares of common stock (and the shares of common stock issuable upon exercise of the prefunded warrants and common warrants) issued in the second tranche of the July 2023 Private Placement, within 30 calendar days following the second tranche closing (the “Second Closing”), and (ii) use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable, and in any event no later than 90 days following the Second Closing date (or 120 days following the Second Closing date if the registration statement is reviewed by the SEC). The registration rights covenants are subject to customary terms and conditions for a transaction of this type, including certain customary cash penalties on the Company for its failure to satisfy specified filing and effectiveness time periods. On April 25, 2024, the Company filed with the SEC a registration statement on Form S-3 (File No. 333-278932), which was declared effective by the SEC on May 3, 2024, registering for resale up to 11,010,513 shares of the Company’s common stock, which consist of 1,209,612 shares of the Company’s common stock, 2,460,559 shares of the Company’s common stock issuable upon the exercise of the March 2024 Prefunded Warrants, and 7,340,342 shares of the Company’s common stock issuable upon the exercise of the March 2024 Warrants. Additionally, the Amended and Restated July 2023 Purchase Agreement contains customary representations and warranties and agreements of the Company and the March 2024 Purchasers and customary indemnification rights and obligations of the parties.

NOTE 13 — SUBSEQUENT EVENTS

Reduction in Force

On April 11, 2024, the Company and Board of Directors approved the Reduction in Force in order to extend its resources to better position the organization and to allow the Company to continue to support its clinical studies for MT-6402, MT-8421 and MT-0169. The Reduction in Force reduced the Company’s current workforce by approximately 30%. The Company estimates that it will incur aggregate pre-tax charges of approximately $0.1 million in connection with the Reduction in Force, primarily consisting of legal fees and other related termination costs. The Reduction in Force was completed by the end of April 2024 and the Company expects that the one-time charges will be incurred in the second quarter of 2024.

Second Closing of the July 2023 Private Placement

As described in Note 12 “Stockholders’ Equity (Deficit) - Second Closing of the July 2023 Private Placement,” the closing of the second tranche of the July 2023 Private Placement occurred on April 2, 2024.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial information and the notes thereto included appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

Molecular Templates is a clinical-stage biopharmaceutical company focused on the discovery and development of targeted biologic therapeutics. Our proprietary biologic drug platform technology, known as engineered toxin bodies (“ETBs”), leverages the resident biology of a genetically engineered form of Shiga-like Toxin A subunit (“SLTA”) to create novel therapies with potent and differentiated mechanisms of action for cancer.

Recent Developments

Restructuring Related Activities

On April 11, 2024, we and our Board of Directors approved a reduction in force (the “Reduction in Force”) in order to extend our resources to better position the organization and to allow us to continue to support our clinical studies for MT-6402, MT-8421 and MT-0169. The Reduction in Force reduced our current workforce by approximately 30%. We estimate that we will incur aggregate pre-tax charges of approximately $0.1 million in connection with the Reduction in Force, primarily consisting of legal fees and other related termination costs. The Reduction in Force was completed by the end of April 2024 and we expect that the one-time charges will be incurred in the second quarter of 2024.

July 2023 Private Placement

On July 12, 2023 and as described in Note 12 “Stockholders’ Equity (Deficit)” of the financial statements included in Item 1 of this Quarterly Report on Form 10-Q, we entered into a securities purchase agreement (the “July 2023 Purchase Agreement”) with certain institutional and accredited investors (the “July 2023 Purchasers”) which provided for the private placement of shares of our common stock and warrants to purchase shares of our common stock in two tranches (the “July 2023 Private Placement”). The initial tranche of the July 2023 Private Placement closed on July 17, 2023, and consisted of the issuance of (i) 1,617,365 shares of our common stock at a price of $7.05 per share (the closing price per share of our common stock as reported by the Nasdaq Capital Market on July 12, 2023), and (ii) pre-funded warrants (the “July 2023 Pre-Funded Warrants”) exercisable for up to 1,222,100 shares of our common stock. The price of the July 2023 Pre-Funded Warrants was $7.035 per underlying share of our common stock, and these warrants contain an exercise price of $0.015 per share. We received approximately $20 million in gross proceeds in connection with the closing of the initial tranche and net proceeds, following the payment of related offering expenses, of approximately $18.4 million.

On March 28, 2024, we and certain institutional and accredited investors (the “March 2024 Purchasers”) entered into an Amended and Restated July 2023 Purchase Agreement pursuant to which we issued, at closing, common stock, prefunded warrants, and common warrants with an aggregate purchase price of $9.5 million on amended and restated second tranche terms. The second tranche, as amended and restated, consisted of the sale and issuance of (i) 1,209,612 shares of our common stock (and, in lieu thereof, prefunded warrants to purchase 2,460,559 shares of our common stock (the “March 2024 Prefunded Warrants”) for a purchase price of $2.35 per share of our common stock (the closing price

26

of our common stock on March 27, 2024 as reported by the Nasdaq Capital Market) and $2.349 per March 2024 Prefunded Warrant, and (ii) common stock warrants (the “March 2024 Common Warrants”) to purchase up to 7,340,342 shares of our common stock (or March 2024 Prefunded Warrants in lieu thereof) at an exercise price of $2.35 per share of our common stock underlying the March 2024 Common Warrants. The March 2024 Common Warrants were sold at a price equal to $0.125 per underlying share of common stock and have a term of five years. The March 2024 Prefunded Warrants will expire when fully exercised in accordance with their terms. The March 2024 Prefunded Warrants and March 2024 Common Warrants may not be exercised if the aggregate number of shares of our common stock beneficially owned by the holder thereof immediately following such exercise would exceed a specified beneficial ownership limitation (4.99%/9.99%/19.99%); provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 61 days’ notice to us, but not to any percentage in excess of 19.99%. The Amended and Restated July 2023 Purchase Agreement contains customary representations and warranties and agreements of us and the Purchasers and customary indemnification rights and obligations of the parties. The second tranche included gross proceeds of approximately $9.5 million and net proceeds, following the payment of related offering expenses, of approximately $8.8 million.

The second tranche of the July 2023 Private Placement closed on April 2, 2024. The Company intends to use the net proceeds from the second tranche of the July 2023 Private Placement to fund its ongoing clinical studies, working capital and for general corporate purposes.

Nasdaq Compliance and Reverse Stock Split

In connection with the deficiency and delisting notices received from the Nasdaq Stock Market LLC (“Nasdaq”), as previously disclosed on April 13, 2023, we presented our plan to the Nasdaq Hearings Panel (the “Panel”) to regain compliance with both the bid price and stockholders’ equity requirements as needed for continued listing on the Nasdaq Capital Market. We were granted an extension on May 8, 2023, to regain compliance with both requirements by August 28, 2023, subject to certain conditions as set forth by the Panel. On July 28, 2023 and regarding the stockholders’ equity requirement, we submitted an update to the Panel informing the Panel that we did meet an alternative continued listing standard, the market value of listed securities standard, which requires a company to have at least $35 million in market value of listed securities. On August 2, 2023, Nasdaq notified us that we had demonstrated compliance with this market value of listed securities standard but will be subject to a one-year monitoring period commencing on August 2, 2023. As of the date of this Quarterly Report on Form 10-Q, we no longer have at least $35 million in market value of listed securities and must therefore maintain at least $2.5 million in stockholders’ equity to retain compliance. As of March 31, 2024, our reported stockholders’ equity was greater than $2.5 million.

In connection with the bid price requirement, we effected a 1-for-15 reverse stock split, (the “Reverse Stock Split”) on August 11, 2023. On August 28, 2023, Nasdaq notified us that the Company has regained compliance with the bid price requirement. If Nasdaq again finds that we are not in compliance with the market value of listed securities standard (or an alternative continued listing standard) within the one year monitoring period, a delisting determination letter will be triggered without any grace period. We would then have the opportunity to respond to the Panel pursuant to applicable Nasdaq rules, following which, if our efforts are unsuccessful, our securities may be delisted from Nasdaq. In addition, the Panel may reconsider the matters described in the Panel decisions and notices, and any matters related to our efforts to regain compliance, which may be based upon future events, conditions or circumstances that may arise with the Company, which in the opinion of the Panel, may make continued listing on the Nasdaq Capital Market inadvisable.

Bristol-Myers Squibb Collaboration Agreement

On February 10, 2021, we entered into a Collaboration Agreement, as amended (the “BMS Collaboration Agreement”), with Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) to perform strategic research collaboration leveraging our ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets. On March 13, 2024, Bristol-Myers Squibb notified us that it does not intend to continue the research collaboration it entered into with us pursuant to the BMS Collaboration Agreement and would be terminating the BMS Collaboration Agreement in its entirety. The termination will be effective on June 13, 2024, or 90 days following our receipt of Bristol-Myers Squibb’s written notice of termination.

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Pursuant to the BMS Collaboration Agreement, Bristol-Myers Squibb paid us an upfront payment of $70.0 million. We would have been eligible to receive near term and development and regulatory milestone payments of up to an additional $874.5 million and would have been eligible to receive up to an additional $450.0 million in milestone payments upon the achievement of certain sales milestone events. We would have also been entitled to receive, subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

Pipeline and Technology Overview

ETBs use a genetically engineered version of the SLTA, a ribosome inactivating bacterial protein. In its wild-type form, Shiga-like Toxin is thought to induce its own entry into a cell when proximal to the cell surface membrane, self-route to the cytosol, and enzymatically and irreversibly shut down protein synthesis via ribosome inactivation. SLTA is normally coupled to its cognate Shiga-like Toxin B subunit (“SLTB”) to target the CD77 cell surface marker, a non-internalizing glycosphingolipid. In our scaffold, a genetically engineered SLTA subunit with no cognate SLTB component is genetically fused to antibody domains or fragments specific to a target, resulting in a biologic therapeutic that can identify the particular target and specifically kill the cell. The antibody domains may be substituted with other antibody domains having different specificities to allow for the rapid development of new drugs to selected targets in cancer.

ETBs combine the specificity of an antibody with SLTA’s potent mechanism of cell destruction. Based on the disease setting, we have created ETBs that have a reduced propensity for triggering innate immunogenicity and attendant toxicities like capillary leak syndrome (“CLS”). To date, there have been no instances of CLS or other manifestations of innate immunity observed with any of our next-generation ETBs.

ETBs have relatively predictable pharmacokinetic profiles and can be rapidly screened for desired activity in robust cell-based and animal-model assays. Because SLTA can induce internalization against non- and poorly-internalizing receptors, the universe of targets for ETBs should be substantially larger than that seen with antibody drug conjugates (“ADCs”), which are not likely to be effective if the target does not readily internalize the ADC payload.

ETBs have a differentiated mechanism of cell kill in cancer therapeutics (the inhibition of protein synthesis via ribosome destruction), and we have preclinical and clinical data demonstrating the utility of these molecules in chemotherapy-refractory cancers. ETBs have shown good tolerability in multiple animal models as well as a generally favorable tolerability profile in our clinical studies to date. We believe the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their tolerability profile provide opportunities for the clinical development of these agents to address multiple cancer types.

We have developed ETBs to various targets, including PD-L1, CD38, and CTLA-4. PD-L1 and CTLA-4 are key immune checkpoint pathways and are validated targets expressed in a variety of solid tumor cancers and immune cells. The differentiated mechanism of action of our ETBs allows for a novel approach to mediating anti-tumor T-cell activity against immuno-oncology targets by: (i) dismantling the tumor micro-environment (“TME”) through the depletion of immunosuppressive immune cells and (ii) delivering high avidity major histocompatibility complex-I antigens to the

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tumor to directly alter the tumor’s immunophenotype. The altering of the tumor’s immunophenotype is unique and leverages the intrinsic intracellular routing properties of ETBs through a mechanism we call Antigen Seeding.

Graphic

Immuno-Oncology ETBs

MT-6402 – ETB Targeting PD-L1

We filed an Investigational New Drug (“IND”) application for MT-6402, our ETB targeting PD-L1, in December 2020 and the IND was accepted in January 2021. A Phase I study of MT-6402 in relapsed/refractory patients with PD-L1 expressing tumors began in July 2021 at a starting dose of 16 mcg/kg. The Phase I study for MT-6402 is a multi-center, open-label, dose escalation and dose expansion trial. Patients with confirmed PD-L1 expressing tumors or confirmed PD-L1 expression in the TME are eligible for enrollment, irrespective of HLA genotype or CMV status. In November 2021, MT-6402 was granted Fast Track designation for the treatment of patients with advanced with non-small cell lung cancer (“NSCLC”) expressing PD-L1.

The Part A dose escalation of the Phase I study for MT-6402 has been completed. 48 patients have been dosed across seven dose escalation cohorts of 16, 24, 32, 42, 63, 83, and 100 mcg/kg in the MT-6402 study of in patients with relapsed/refractory solid tumors.

The 100 mcg/kg dose was deemed not tolerable based on two dose limiting toxicities (“DLTs”) of a grade 3 rash and a grade 1 high sensitivity troponin elevation without clinical sequalae that led to drug interruption for more than two weeks. Rash and high sensitivity troponin elevation are immune-related adverse events (“AEs”) that have been documented with approved checkpoint therapies. No grade 4 or grade 5 drug-related AEs have been observed to date. We continue to observe pharmacodynamic (“PD”) effects including the depletion of PD-L1+ monocytes, MDSCs, PD-L1+ dendritic cells, as well as concomitant T cell activation, which were observed at dose levels above 42 mcg/kg in a dose dependent manner. Further, monotherapy activity (partial responses) was observed during dose escalation with MT-6402 in checkpoint experienced relapsed/refractory solid tumor patients. The 63 and 83 mcg/kg doses will be further explored in the Part B dose expansion study.

In the Part A dose escalation, nine patients with head and neck cancer were treated. All patients had progressed after numerous lines of therapy including checkpoint therapy. Two of these patients were not evaluable for the cycle 1

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DLT period because of early progression and came off study after only receiving one or two doses of MT-6402, respectively. Of the remaining seven head and neck cancer patients, best re