10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2021


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

For the transition period from to

Commission File Number: 001-39662

SQZ BIOTECHNOLOGIES COMPANY

(Exact Name of Registrant as Specified in its Charter)


Delaware		46-2431115
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Arsenal Yards Blvd, Suite 210 Watertown, MA		02472
(Address of principal executive offices)		(Zip Code)

(617) 758-8672

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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	SQZ	New York Stock Exchange

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.

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

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

As of November 3, 2021, the registrant had 28,066,795 shares of common stock, $0.001 par value per share, outstanding.

SQZ BIOTECHNOLOGIES COMPANY

Table of Contents


		Page
	Forward-Looking Statements		1
PART I.	FINANCIAL INFORMATION		2
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets		2
	Condensed Consolidated Statements of Operations and Comprehensive Loss		3
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)		4
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		29
PART II.	OTHER INFORMATION		31
Item 1.	Legal Proceedings		31
Item 1A.	Risk Factors		31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3.	Defaults Upon Senior Securities		33
Item 4.	Mine Safety Disclosures		33
Item 5.	Other Information		33
Item 6.	Exhibits		34
Signatures			35

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our plans to develop, manufacture and commercialize our product candidates, the timing or outcome of our ongoing or planned clinical trials for SQZ-PBMC-HPV, SQZ-AAC-HPV, any of our other pipeline product candidates and any future product candidates, the clinical utility of our product candidates, the anticipated impact of the COVID-19 pandemic on our business and operations, including manufacturing, research and development, clinical trials and employees, our cash needs and availability, and the plans and objectives of management for future operations, are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those projected in the forward-looking statements, including, but not limited to, risks and uncertainties related to our limited operating history; our significant losses incurred since inception and expectation to incur significant additional losses for the foreseeable future; the development of our initial product candidates, upon which our business is highly dependent; the impact of the COVID-19 pandemic on our operations and clinical activities; our need for additional funding and our cash runway; the lengthy, expensive, and uncertain process of clinical drug development, including uncertain outcomes of clinical trials and potential delays in regulatory approval; our ability to maintain our relationships with our third party vendors and strategic collaborators; protection of our proprietary technology, intellectual property portfolio and the confidentiality of our trade secrets; and other important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and other filings with the U.S. Securities and Exchange Commission.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SQZ BIOTECHNOLOGIES COMPANY

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	SEPTEMBER 30,			DECEMBER 31,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	164,254		$	170,357
Accounts receivable		—			1,892
Prepaid expenses and other current assets		1,913			4,582
Total current assets		166,167			176,831
Property and equipment, net		3,319			3,645
Restricted cash		2,305			2,305
Operating lease right-of-use assets		72,282			48,360
Total assets	$	244,073		$	231,141
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,390		$	3,708
Accrued expenses		5,661			7,358
Current portion of deferred revenue		21,857			25,917
Current portion of operating lease liabilities		9,201			8,210
Total current liabilities		39,109			45,193
Deferred revenue, net of current portion		9,196			19,659
Operating lease liabilities, net of current portion		62,357			38,885
Other liabilities		205			205
Total liabilities		110,867			103,942
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2021 and December 31, 2020; No shares issued or outstanding.		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized at September 30, 2021 and December 31, 2020; 28,064,709 and 24,786,324 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.		28			25
Additional paid-in capital		316,866			253,943
Accumulated deficit		(183,688	)		(126,769	)
Total stockholders’ equity		133,206			127,199
Total liabilities and stockholders’ equity	$	244,073		$	231,141

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

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SQZ BIOTECHNOLOGIES COMPANY

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)


	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020			2021			2020
Collaboration revenue	$	4,755		$	6,121		$	14,748		$	18,511
Operating expenses:
Research and development		20,520			13,910			52,942			37,815
General and administrative		6,691			4,612			18,744			14,139
Total operating expenses		27,211			18,522			71,686			51,954
Loss from operations		(22,456	)		(12,401	)		(56,938	)		(33,443	)
Other income (expense):
Interest income	8				56		28				533
Other income (expense), net		(2	)		(6	)		(9	)		(10	)
Total other income, net		6			50			19			523
Net loss		(22,450	)		(12,351	)		(56,919	)		(32,920	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.80	)	$	(7.03	)	$	(2.08	)	$	(18.87	)
Weighted-average common shares outstanding, basic and diluted		28,050,130			1,758,039			27,421,839			1,744,948
Comprehensive loss:
Net loss	$	(22,450	)	$	(12,351	)	$	(56,919	)	$	(32,920	)
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities, net of tax of $0		—			(48	)		—			(15	)
Comprehensive loss	$	(22,450	)	$	(12,399	)	$	(56,919	)	$	(32,935	)

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

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SQZ BIOTECHNOLOGIES COMPANY

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)


	COMMON STOCK
	SHARES		AMOUNT		ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT			TOTAL STOCKHOLDERS’ EQUITY
Balances at June 30, 2021		28,031,404	$	28	$	313,914	$	(161,238	)	$	152,704
Issuance of common stock upon exercise of stock options		33,365		—		171		—			171
Stock-based compensation expense		—		—		2,781		—			2,781
Net loss		—		—		—		(22,450	)		(22,450	)
Balances at September 30, 2021		28,064,769	$	28	$	316,866	$	(183,688	)	$	133,206


	CONVERTIBLE PREFERRED STOCK				COMMON STOCK				ADDITIONAL		ACCUMULATED OTHER						TOTAL
	SHARES		AMOUNT		SHARES		AMOUNT		PAID-IN CAPITAL		COMPREHENSIVE INCOME (LOSS)			ACCUMULATED DEFICIT			STOCKHOLDERS’ DEFICIT
Balances at June 30, 2020		16,904,219	$	174,357		1,756,018	$	2	$	4,186	$	63		$	(96,817	)	$	(92,566	)
Issuance of common stock upon exercise of stock options		—		—		4,344		—		10		—			—			10
Stock-based compensation expense		—		—		—		—		796		—			—			796
Net loss		—		—		—		—		—		—			(12,351	)		(12,351	)
Unrealized gains on marketable securities, net of tax of $0		—		—		—		—		—		(48	)		—			(48	)
Balances at September 30, 2020		16,904,219	$	174,357		1,760,362	$	2	$	4,992	$	15		$	(109,168	)	$	(104,159	)


	COMMON STOCK
	SHARES		AMOUNT		ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT			TOTAL STOCKHOLDERS’ EQUITY
Balances at December 31, 2020		24,786,324	$	25	$	253,943	$	(126,769	)	$	127,199
Issuance of common stock upon public offering, net of issuance costs of $798		3,000,000		3		55,599		—			55,602
Issuance of common stock upon exercise of stock options		278,445		—		1,131		—			1,131
Stock-based compensation expense		—		—		6,193		—			6,193
Net loss		—		—		—		(56,919	)		(56,919	)
Balances at September 30, 2021		28,064,769	$	28	$	316,866	$	(183,688	)	$	133,206

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	CONVERTIBLE PREFERRED STOCK				COMMON STOCK				ADDITIONAL		ACCUMULATED OTHER						TOTAL
	SHARES		AMOUNT		SHARES		AMOUNT		PAID-IN CAPITAL		COMPREHENSIVE INCOME (LOSS)			ACCUMULATED DEFICIT			STOCKHOLDERS’ DEFICIT
Balances at December 31, 2019		13,869,027	$	132,109		1,737,388	$	2	$	2,701	$	30		$	(76,248	)	$	(73,515	)
Issuance of Series D convertible preferred stock, net of issuance costs of $43		3,035,192	$	42,248		—		—		—		—			—			—
Issuance of common stock upon exercise of stock options		—		—		22,974		—		44		—			—			44
Stock-based compensation expense		—		—		—		—		2,247		—			—			2,247
Net loss		—		—		—		—		—		—			(32,920	)		(32,920	)
Unrealized gains on marketable securities, net of tax of $0		—		—		—		—		—		(15	)		—			(15	)
Balances at September 30, 2020		16,904,219	$	174,357		1,760,362	$	2	$	4,992	$	15		$	(109,168	)	$	(104,159	)

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

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SQZ BIOTECHNOLOGIES COMPANY

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(56,919	)	$	(32,920	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		932			1,011
Amortization of operating lease right-of-use assets		7,384			7,154
Stock-based compensation expense		6,193			2,247
Accretion of discounts on marketable securities		—			(9	)
Loss on termination of operating lease		—			108
Loss on disposal of equipment		7			—
Changes in operating assets and liabilities:
Accounts receivable		1,892			(18	)
Prepaid expenses and other current assets		2,669			(243	)
Accounts payable		(507	)		(846	)
Accrued expenses		(1,402	)		(1,269	)
Deferred revenue		(14,523	)		7,236
Operating lease liabilities		(6,843	)		(6,630	)
Other liabilities		—			267
Net cash used in operating activities		(61,117	)		(23,912	)
Cash flows from investing activities:
Purchases of property and equipment		(613	)		(1,054	)
Sales and maturities of marketable securities		—			51,000
Net cash (used in) provided by investing activities		(613	)		49,946
Cash flows from financing activities:
Proceeds from follow-on public offering of common stock, net of commissions and underwriting discounts		56,400			—
Payment of follow-on public offering costs		(798	)		—
Payment of initial public offering costs of common stock issued in prior period		(1,106	)		—
Proceeds from issuance of convertible preferred stock, net of issuance costs paid in the period		—			42,248
Payment of initial public offering costs		—			(290	)
Payments of issuance costs of convertible preferred stock issued in prior period		—			(245	)
Proceeds from exercise of stock options		1,131			44
Net cash provided by financing activities		55,627			41,757
Net increase in cash, cash equivalents and restricted cash		(6,103	)		67,791
Cash, cash equivalents and restricted cash at beginning of period		172,662			41,574
Cash, cash equivalents and restricted cash at end of period	$	166,559		$	109,365
Supplemental disclosure of non-cash investing and financing activities:
Lease assets obtained in exchange for operating lease liabilities	$	31,306		$	17,049
Deferred offering costs included in accrued expenses at end of period	$	—		$	842

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

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SQZ BIOTECHNOLOGIES COMPANY

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of the Business and Basis of Presentation

SQZ Biotechnologies Company (the “Company”) is a clinical-stage biotechnology company developing cell therapies for patients with cancer, infectious diseases and other serious conditions. The Company uses its proprietary technology, Cell Squeeze, to physically squeeze cells through a microfluidic chip, temporarily opening the cell membrane and enabling biologic material of interest, or cargo, to diffuse into the cell. The Company is using Cell Squeeze technology to create multiple cell therapy platforms focused on directing specific immune responses. The Company was incorporated in March 2013 under the laws of the State of Delaware.

The Company is subject to a number of risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, the ability to obtain additional financing, protection of proprietary technology, dependence on key personnel, the ability to attract and retain qualified employees, compliance with government regulations, the impact of the COVID-19 coronavirus, and the clinical and commercial success of its product candidates. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On February 17, 2021, the Company completed a follow-on public offering (the “Follow-on Offering”) pursuant to which it issued and sold 3,000,000 shares of its common stock. The aggregate net proceeds received by the Company from the Follow-on Offering were approximately $56.4 million, after deducting underwriting discounts and commissions, but before deducting offering costs payable by the Company, which were approximately $0.8 million.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations primarily with proceeds from sales of convertible preferred stock, payments received in connection with collaboration agreements, proceeds from borrowings under a convertible promissory note, which converted into shares of convertible preferred stock, and, most recently, with proceeds from its initial public offering, (“IPO”) and the Follow-on Offering. The Company has incurred recurring losses since inception, including net losses of $56.9 million for the nine months ended September 30, 2021. As of September 30, 2021, the Company had an accumulated deficit of $183.7 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim condensed consolidated financial statements.

Impact of the COVID-19 Coronavirus

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government-imposed travel restrictions on travel between the United States, Europe and certain other countries. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on hospitals, businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.

The COVID-19 pandemic has impacted and may continue to impact personnel at third-party manufacturing facilities or the availability or cost of materials, which would disrupt the Company’s supply chain. It also has affected and may continue to affect the Company’s ability to enroll patients in and timely complete its ongoing Phase 1 clinical trials of SQZ-PBMC-HPV and SQZ-AAC-HPV and delay the initiation of future clinical trials, disrupt regulatory activities or have other adverse effects on its business and operations. For example, the Company has experienced delays in receiving supplies of raw materials for its preclinical activities due to the impact of COVID-19 on its suppliers’ ability to timely manufacture these materials, and it has experienced an increase in the transportation cost of its product candidates due to the decreased availability of commercial flights. In addition, the Company has experienced delays in opening clinical trial sites and sites that are open may also have challenges enrolling patients due to the COVID-19 pandemic. Further, staff shortages, including staff that are required to conduct certain testing, such as biopsies, at the Company’s clinical sites or at third-party vendors have resulted in delays in site initiations and in such tests not being properly or timely performed or being delayed. The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact the Company’s ability to raise additional funds to support its operations. Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on the Company’s business and operations.

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The Company is monitoring the potential impact of the COVID-19 pandemic on its business and financial statements. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these interim condensed consolidated financial statements. The extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SQZ Biotechnologies Security Corporation. All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The accompanying consolidated balance sheet as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Form 10-K filed with the SEC, on March 18, 2021. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2021, the consolidated results of operations for the three and nine months ended September 30, 2021 and 2020, and the consolidated cash flows for nine months ended September 30, 2021 and 2020 have been made. The Company’s consolidated results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the full year or any other subsequent interim period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses, the valuation of common stock and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, judgments and methodologies as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company is developing methods of engineering cell function and therapies for the treatment of patients across a range of indications. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance.

Recently Issued Accounting Pronouncements

The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

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The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in the earlier recognition of credit losses, if any. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”), which provides additional implementation guidance on the previously issued ASU 2016-13. For public entities, this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2016-13 and ASU 2019-05 will have on its consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). ASU 2018-18 makes targeted improvements to GAAP for collaborative arrangements, including (i) clarification that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (ii) adding unit-of-account guidance in ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 and (iii) a requirement that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is not a customer. For public entities, this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU 2018-18 as of January 1, 2021, and the standard did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions, including the approach for intraperiod tax allocation, the accounting for income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. For public entities, this guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the fiscal year of adoption. Additionally, entities that elect early adoption must adopt all changes as a result of ASU 2019-12. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

3. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	FAIR VALUE MEASUREMENTS AT SEPTEMBER 30, 2021 USING:
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Assets:
Cash equivalents:
Money market funds	$	163,908	$	—	$	—	$	163,908
	$	163,908	$	—	$	—	$	163,908


	FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2020 USING:
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Assets:
Cash equivalents:
Money market funds	$	170,097	$	—	$	—	$	170,097
	$	170,097	$	—	$	—	$	170,097

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Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. There were no changes to the valuation methods during the nine months ended September 30, 2021 The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1 or Level 2 during the nine months ended September 30, 2021.

4. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	SEPTEMBER 30,			DECEMBER 31,
	2021			2020
Machinery and equipment	$	6,660		$	6,139
Leasehold improvements		579			579
Furniture and fixtures	$	318			459
	$	7,557		$	7,177
Less: Accumulated depreciation and amortization		(4,238	)		(3,532	)
	$	3,319		$	3,645

Depreciation and amortization expense was $0.3 million for each of the three months ended September 30, 2021 and 2020. Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $0.9 million and $1.0 million, respectively.

In February 2020, as a result of the termination of the 2016 Lease (see Note 10), the Company removed from the consolidated balance sheet leasehold improvements with a cost of $2.7 million and accumulated depreciation related to those leasehold improvements of $1.3 million. The resulting $1.4 million loss was recognized by the Company as a component of the $0.1 million net loss on termination for the nine months ended September 30, 2020.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	SEPTEMBER 30,		DECEMBER 31,
	2021		2020
Accrued external research, development and manufacturing costs	$	1,661	$	3,085
Accrued employee compensation and benefits		2,512		2,682
Accrued licensing fees (Note 9)		786		743
Other		702		848
	$	5,661	$	7,358

6. Preferred Stock

In January and February 2020, the Company issued and sold an aggregate of 1,094,247 shares of Series D Preferred Stock at a price of $13.9365 per share for gross proceeds of $15.2 million. In May and June 2020, the Company issued and sold an additional 1,940,945 shares of Preferred Stock at a price of $13.9365 per share for gross proceeds of $27.0 million. All of the 16,904,219 shares of Preferred Stock outstanding as of September 30, 2020 as shown in the Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders’ Equity (Deficit) automatically converted into a total of 17,800,084 shares of common stock upon the closing of the IPO in November 2020.

7. Stock-Based Compensation

On October 20, 2020, the Company’s board of directors adopted, and on October 22, 2020 its stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), which became effective the day prior to the first public trading date of the Company’s common stock. Following the effectiveness of the 2020 Plan, no further awards are made under the Company’s previous 2014 Stock Incentive Plan (the “2014 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares reserved for issuance under the 2020 Plan was initially equal to 2,690,415 and is subject to an annual increase on the first day of each calendar year. The initial increase began on January 1, 2021 and ends on and includes January 1, 2030, equal to the lesser of (i) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as is determined by the board of directors. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon

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exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2020 Plan or following the effective date of the 2020 Plan, under the 2014 Plan are added back to the shares of common stock available for issuance under the 2020 Plan. As of September 30, 2021 and December 31, 2020, there were 2,552,357 and 2,079,230 shares available, respectively, for future issuance under the 2020 Plan.

On October 20, 2020, the Company’s board of directors adopted, and on October 22, 2020 its stockholders approved, the 2020 Employee Stock Purchase Plan (the ‘‘2020 ESPP’’), which became effective the day prior to the first public trading date of the Company’s common stock. A total of 275,886 shares of common stock was initially reserved for issuance under this plan. The number of shares of common stock that may be issued under the 2020 ESPP automatically increases on the first day of each calendar year. The initial increase began on January 1, 2021 and ends on and includes January 1, 2030, equal to the lesser of (i) 1% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as is determined by the board of directors, provided that not more than 3,724,461 shares of common stock may be issued under the 2020 ESPP. The initial six-month offering period commenced on July 1, 2021 and ends on December 31, 2021. As of September 30, 2021, no shares had been issued under the 2020 ESPP and there were 523,749 shares available for issuance.

Stock Option Valuation

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer public companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the option. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The expected dividend yield of 0% is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The following table summarizes the Company’s stock option activity since December 31, 2020:


	NUMBER OF SHARES			WEIGHTED- AVERAGE EXERCISE PRICE		WEIGHTED- AVERAGE REMAINING CONTRACTUAL TERM		INTRINSIC VALUE
						(in years)		(in thousands)
Outstanding at December 31, 2020		4,039,894		$	7.69		8.41	$	85,993
Granted		1,218,982			15.79
Exercised		(278,445	)		4.06
Forfeited or canceled		(452,789	)		10.38
Outstanding at September 30, 2021		4,527,642		$	9.83		8.16	$	24,441
Vested and expected to vest at September 30, 2021		4,527,642		$	9.83		8.16	$	24,441
Options exercisable at September 30, 2021		1,742,018		$	5.13		6.99	$	16,223

Stock-Based Compensation Expense

Stock-based compensation expense related to stock options was classified in the consolidated statements of operations as follows (in thousands):


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		2021		2020
Research and development expenses	$	1,423	$	296	$	2,670	$	811
General and administrative expenses		1,358		500		3,523		1,436
	$	2,781	$	796	$	6,193	$	2,247

In September 2021, the Company modified the terms of stock options previously granted to an executive officer, and due to expire in December 2021. As a result of the modification, the Company recorded an expense of approximately $0.9 million to account for the incremental change in the fair value of the stock options before and after the modification, which was recognized as compensation cost within research and development expenses.

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As of September 30, 2021, total unrecognized stock-based compensation expense related to unvested stock-based awards was $21.3 million, which is expected to be recognized over a weighted-average period of 2.7 years.

8. Income Taxes

For the three and nine months ended September 30, 2021 and 2020, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each period, due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.

9. Commitments and Contingencies

Leases

The Company’s commitments under its leases are described in Note 10.

License and Supply Agreements

License Agreement with Massachusetts Institute of Technology

In December 2015, the Company entered into an exclusive patent license agreement with the Massachusetts Institute of Technology (“MIT”) (the “MIT Agreement”). The MIT Agreement replaced a May 2013 exclusive agreement with MIT. Under the MIT Agreement, the Company received an exclusive license under the licensed patent rights to develop, manufacture and commercialize any products related to certain intracellular delivery methods that were developed at MIT.

As of September 30, 2021 and December 31, 2020, the Company had liabilities of $0.8 million and $0.7 million, respectively, included within accrued expenses (see Note 5). During each of the nine months ended September 30, 2021 and 2020, the Company did not recognize any research and development expense under the sublicense terms of the MIT Agreement.

Manufacturing Services Agreements

The Company has entered into agreements with a contract manufacturing organization to provide manufacturing services related to its product candidates. As of September 30, 2021 the Company had no non-cancelable payments under these agreements, as amended, other than the amounts included in the current portion of operating lease liabilities on the Company's consolidated balance sheets.

401(k) Plan

The Company sponsors a 401(k) defined contribution benefit plan (the “401(k) Plan”), which covers all employees who meet certain eligibility requirements as defined in the 401(k) Plan and allows participants to defer a portion of their annual compensation on a pre-tax basis. Contributions to the 401(k) Plan may be made at the discretion of management. For each of the three months ended September 30, 2021 and 2020, the Company contributed $0.1 million to the 401(k) Plan. For each of the nine months ended September 30, 2021 and 2020, the Company contributed $0.3 million to the 401(k) Plan.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to its vendors, lessors, contract research organizations, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its executive officers and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnification agreements and is not currently aware of any indemnification claims.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

10. Leases

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As of September 30, 2021, the Company leases its office and laboratory facilities under a non-cancelable operating lease entered into in December 2018, which included lease incentives, payment escalations and rent holidays. The Company had not entered into any financing leases or any short-term operating leases as of September 30, 2021 and December 31, 2020.

2018 Lease

In December 2018, the Company entered into a lease for office and laboratory space in Watertown, Massachusetts (the “2018 Lease”). The 2018 Lease term commenced in December 2019 and expires in November 2029. Under the 2018 Lease, the Company has one five-year option to extend the term of the lease. The initial annual base rent was $3.8 million upon entering into the lease, with such base rent increasing during the initial term by 3% annually on the anniversary of the commencement date. The Company is obligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. In connection with the lease, the Company maintains a letter of credit for the benefit of the landlord in the amount of $2.3 million, for which the Company is required to maintain a separate cash balance of the same amount. The 2018 Lease Agreement includes a landlord-provided tenant improvement allowance of $9.8 million that was applied to the costs of the construction of leasehold improvements.

2016 Lease

In September 2016, the Company entered into a lease for office and laboratory space in Watertown, Massachusetts (the “2016 Lease”). The 2016 Lease was set to expire in September 2023; however, in February 2020, the Company and the landlord jointly terminated the 2016 Lease. Accordingly, as of February 2020, the Company had no further obligations under the 2016 Lease. As a result of this termination, the Company removed from the consolidated balance sheet the associated operating lease right-of-use asset of $2.1 million, leasehold improvements with a net carrying value of $1.4 million (see Note 4) and operating lease liabilities of $3.4 million. The Company therefore recognized a net loss on termination of the 2016 Lease of $0.1 million in the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2020.

Embedded Lease

The Company evaluated its vendor contracts to identify embedded leases, if any, and noted that an agreement entered into in April 2019 with a contract manufacturing supplier constituted a lease under ASC 842 because the Company has the right to substantially all of the economic benefits from the use of the asset and can direct the use of the asset. The embedded lease commenced in September 2019 and had an initial term of two years. In September 2020, the Company amended the lease to extend the term of the lease by an additional two years with the agreement to end in August 2022. In September 2021, the Company amended the terms of its agreement to allow for an increase in manufacturing runs, and to extend the term of the agreement through December 2026. This resulted in an increase in the estimated future payments to be made by the Company to the contract manufacturing supplier. The Company determined that the amendment constituted a modification of the existing agreement under ASC 842, rather than a separate contract. Upon the modification in September 2021, the Company recorded increases in right-of-use assets and operating lease liabilities in equal amounts of $31.3 million.

Right-of-use assets under operating leases at September 30, 2021 and December 31, 2020 totaled $72.3 million and $48.4 million, respectively. The leases do not include any restrictions or covenants that had to be accounted for under applicable lease guidance.

Lease Portfolio

The components of lease cost and other information for the Company’s lease portfolio were as follows (in thousands, except term and discount rate amounts):


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		2021		2020
Lease cost:
Operating lease cost	$	3,430	$	3,231	$	9,965	$	9,345
Variable lease cost		425		306		1,428		908
Short-term lease cost		—		—		—		21
	$	3,855	$	3,537	$	11,393	$	10,274


	SEPTEMBER 30, 2021			DECEMBER 31, 2020
Other information:
Weighted-average remaining lease term (in years)		6.4			6.7
Weighted-average discount rate		7.6	%		7.2	%

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


	NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	9,424	$	8,820

11. License and Collaboration Agreements

2017 License and Collaboration Agreement with Roche

In April 2017, the Company entered into a license and collaboration agreement with Roche (the “2017 Roche Agreement”) to allow Roche to use the Company’s Cell Squeeze technology to enable gene editing of immune cells to discover new targets in cancer immunotherapy. The 2017 Roche Agreement includes several licenses granted by Roche to the Company and by the Company to Roche in order to conduct a specified research program in accordance with a specified research plan. The 2017 Roche Agreement has a term that ends upon the earlier to occur of (i) the completion of all work under the research plan or (ii) two years after the effective date of the agreement. The collaboration term is subject to Roche’s right to extend the collaboration term for up to two additional one-year periods. Roche has the right to terminate the agreement, in whole or on a workstream-by-workstream basis, upon a specified amount of notice to the Company. The Company or Roche may terminate the agreement if the other party fails to cure its material breach within a specified period after receiving notice of such breach.

Under the agreement, the Company received an upfront payment of $5.0 million as a technology access fee and is entitled to (i) payments of up to $1.0 million, in two tranches of $0.5 million, as reimbursement for the Company’s research costs; (ii) milestone payments of up to $7.0 million upon the achievement of specified development milestones; and (iii) annual maintenance fees ranging from $0.5 million to $0.9 million for each year following the fifth anniversary of the effective date, subject to specified prepayment discounts.

The Company assessed its accounting for the 2017 Roche Agreement under ASC 606 as the transactions underlying the agreement were deemed to be transactions with a customer. The Company identified the following promises under the 2017 Roche Agreement: (i) a non-exclusive license granted to Roche to perform research related to and use of the Company’s Cell Squeeze technology for gene editing of immune cells; (ii) specified research and development services related to gene editing of immune cells through the research term; (iii) manufacturing activities to support the specified research plan; and (iv) participation on a joint research committee (“JRC”). The annual maintenance fees described above were determined by the Company to be optional renewal payments. The Company concluded that each of the promises under the agreement was not distinct from the other promises in the arrangement. The research license was determined to not be distinct from the research and manufacturing activities primarily as a result of Roche being unable to benefit on its own or with other resources reasonably available in the marketplace because the license to the Company’s intellectual property requires significant specialized capabilities in order to be further developed, the research services necessary to develop the product are highly specialized, and the Company’s proprietary Cell Squeeze technology is a key capability of that development. The research and manufacturing services were determined not to be distinct because the promise under the agreement is to complete research and development, inclusive of the manufacturing. In addition, the Company determined that the impact of participation on the JRC was insignificant and had an immaterial impact on the accounting model. As such, the Company concluded that the first three promises should be combined into a single performance obligation. Based on these assessments, the Company identified one distinct performance obligation at the outset of the 2017 Roche Agreement.

The Company recognizes revenue associated with the performance obligation as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the performance obligation. The transfer of control to the customer occurs over the time period that the research and development services are to be provided by the Company, and this cost-to-cost method is, in management’s judgment, the best measure of progress towards satisfying the performance obligation. The amounts received from Roche that have not yet been recognized as revenue are deferred as a contract liability in the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied.

During the three and nine months ended September 30, 2021, the total costs expected to be incurred to satisfy the performance obligation under the 2017 Roche Agreement decreased by $0.1 million and $0.4 million, respectively. During the three and nine months ended September 30, 2020, there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligation. The Company recognized revenue of $0.3 million and $0.1 million, respectively, during the three months ended September 30, 2021 and 2020 under the 2017 Roche Agreement. The Company recognized revenue of $1.0 million and $0.4 million, respectively, during the nine months ended September 30, 2021 and 2020 under this agreement. As of September 30, 2021, the Company recorded as a contract liability deferred revenue related to the 2017 Roche Agreement of $0.2 million, all of which was a current liability.

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As of September 30, 2021, the research and development services related to the performance obligation were expected to be performed over a remaining period of approximately nine months.

2018 License and Collaboration Agreement with Roche

In October 2018, the Company entered into a license and collaboration agreement with Roche (the “2018 Roche Agreement”) to jointly develop certain products based on mononuclear antigen presenting cells (“APCs”), including human papilloma virus (“HPV”), using the SQZ APC platform for the treatment of oncology indications. The Company granted Roche a non-exclusive license to its intellectual property, and Roche granted the Company a non-exclusive license to its and its affiliates’ intellectual property for the purpose of performing research activities. In connection with this agreement, the parties terminated an earlier agreement. The 2018 Roche Agreement has a term that extends until all royalty, profit-share and other payment obligations expire or have been satisfied. Roche has the right to terminate the 2018 Roche Agreement, in whole or on a product-by-product basis, upon a specified amount of notice to the Company. The Company or Roche may terminate the agreement if the other party fails to cure its material breach within a specified period after receiving notice of such breach.

Under the 2018 Roche Agreement, Roche was granted option rights to obtain an exclusive license to develop APC products or products derived from the collaboration programs on a product-by-product basis. These option rights are exercisable upon the achievement of clinical Phase 1 proof of concept and expire, if unexercised, as of a date specified in the agreement. In addition, Roche was granted an option right to obtain an exclusive license to develop a Tumor Cell Lysate (“TCL”) product. This option right is exercisable upon the achievement of clinical proof of concept and expires, if unexercised, as of a date specified in the agreement. For each of the APC products and TCL product, once Roche exercises its option and pays a specified incremental amount ranging from $15.0 million to $50.0 million for APC products and of $100.0 million for the TCL product, Roche will receive worldwide, exclusive commercialization rights for the licensed products, subject to the Company’s alternating option to retain U.S. APC commercialization rights. The Company will retain worldwide commercialization rights to any APC products or the TCL product for which Roche elects not to exercise its applicable option. For the first APC product that Roche exercises its option, Roche will receive worldwide, exclusive commercialization rights for the licensed product. On a product-by-product basis for the APC products, after the first product option is exercised by Roche and for every other product for which Roche exercises its option, the Company will retain an option to obtain the exclusive commercialization rights in the United States. Upon exercise of the TCL option by Roche, (i) the Company will be entitled to receive the aforementioned milestone payment of $100.0 million and (ii) profits from the TCL product will be shared equally by the Company and Roche. Through September 30, 2021, Roche had not exercised any of its options under the 2018 Roche Agreement.

Under the 2018 Roche Agreement, the Company received an upfront payment of $45.0 million and is eligible to receive (i) reimbursement of a mid-double-digit percentage of its development costs; (ii) aggregate milestone payments on a product-by-product basis of up to $1.6 billion upon the achievement of specified milestones, consisting of up to $217.0 million of development milestone payments, up to $240.0 million of regulatory milestone payments and up to $1.2 billion of sales milestone payments; and (iii) tiered royalties on annual net sales of APC and TCL products licensed under the agreement, as described below. The Company received the upfront payment of $45.0 million in October 2018 upon execution of the agreement. In addition, during the second quarter of 2019, the Company received a payment of $10.0 million following the achievement of the first development milestone under the 2018 Roche Agreement related to submission by the Company of preclinical data to the U.S. Food and Drug Administration (“FDA”), and during the first quarter of 2020, the Company received a payment of $20.0 million following the achievement of the second development milestone under the 2018 Roche Agreement related to first-patient dosing in a Phase 1 clinical trial.

Roche will pay tiered royalties based on annual net sales of APC and TCL products. If Roche exercises its option to obtain a license to commercialize an APC product, Roche will pay the Company tiered royalties on annual net sales of that licensed product at rates ranging from a mid-single-digit percentage to a mid-teens percentage, depending on net sales of the product. If the Company exercises its option to obtain a license to commercialize an APC product in the United States, it will pay Roche tiered royalties on annual net sales of that licensed product at rates ranging from a mid-single-digit percentage to a mid-teens percentage, depending on net sales of the product in the United States. For APC products selected by Roche, rather than mutually, Roche will pay the Company royalties on annual net sales of that licensed product at rates ranging from a mid-single-digit percentage to a high single-digit percentage, depending on net sales of the product. For APC products that are selected mutually and for which the Company has not exercised its option to commercialize the product in the United States, Roche will pay the Company tiered royalties on annual net sales of that licensed product at a rate ranging from a high single-digit percentage to a mid-teens percentage, depending on net sales of the product. For TCL products, Roche will pay the Company tiered royalties on the aggregate net sales of all TCL products at rates ranging from either a mid-single digit percentage to a percentage in the low twenties, with the caveat that the rates for sales in the United States may instead range from a low-teens percentage to a percentage in the mid-twenties, depending on whether and when the Company opts out of sharing certain profits and costs of commercializing the TCL product in the United States with Roche.

The Company identified three performance obligations at the outset of the 2018 Roche Agreement: (1) the license to the Company’s intellectual property, the research and development activities related to HPV through Phase 1 clinical trials under a specified research

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plan, and the manufacturing of the Company’s SQZ APC platform and equipment in order to support the HPV research plan (the “first performance obligation”); (2) the license to the Company’s intellectual property and the research and development activities on next-generation APCs (the “second performance obligation”); and (3) the license to the Company’s intellectual property and the research and development activities on TCL (the “third performance obligation”).

During the second quarter of 2019, the Company received a payment of $10.0 million following the achievement of the first development milestone under the 2018 Roche Agreement related to submission by the Company of preclinical data to the U.S. Food and Drug Administration, or FDA. During the first quarter of 2020, the Company received a payment of $20.0 million following the achievement of the second development milestone under the 2018 Roche Agreement related to first-patient dosing in a Phase 1 clinical trial. These milestones were added to the transaction price in the period that it was “most likely” and that it was probable that a significant reversal in the amount of cumulative revenue recognized would not occur.

During the fourth quarter of 2019, the Company evaluated its overall program priorities and determined that it would continue to focus its resources on progressing the specified APC programs related to the 2018 Roche Agreement as well as its Activating Antigen Carriers (“AAC”) and Tolerizing Antigen Carriers (“TAC”) platforms. As a result of its continuing focus on these specific programs, the Company reduced the level of priority of the TCL research activities under the 2018 Roche Agreement and expects to perform such TCL research activities over a longer time period than as originally expected under the specified research plan of the agreement. Since the fourth quarter of 2019, the Company has classified $9.2 million as non-current deferred revenue, which will remain unrecognized as revenue until TCL research activities resume or the 2018 Roche Agreement is modified by the Company and Roche.

The Company separately recognizes revenue associated with each of the three performance obligations as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy each performance obligation. The transfer of control to the customer occurs over the time period that the research and development services are to be provided by the Company, and this cost-to-cost method is, in management’s judgment, the best measure of progress towards satisfying each performance obligation. The amounts received that have not yet been recognized as revenue are deferred as a contract liability in the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until each performance obligation is satisfied.

During the three and nine months ended September 30, 2021, the estimated costs expected to be incurred to satisfy the performance obligations increased by $0.4 million. During the three and nine months ended September 30, 2020, there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligations under the 2018 Roche Agreement. The Company recognized revenue of $4.5 million and $6.0 million during the three months ended September 30, 2021 and 2020, respectively, under this agreement. The Company recognized revenue of $13.6 million and $18.1 million during the nine months ended September 30, 2021 and 2020, respectively, under the 2018 Roche Agreement. As of September 30, 2021, the Company recorded as a contract liability deferred revenue related to the 2018 Roche Agreement of $30.4 million, of which $21.2 million was a current liability. As of September 30, 2021, the research and development services related to the performance obligations were expected to be performed over remaining periods ranging from three to nine months. As of December 31, 2020, the Company recorded as a contract liability deferred revenue related to the 2018 Roche Agreement of $44.0 million, of which $24.7 million was a current liability.

As of September 30, 2021 and December 31, 2020, the expected remaining period of performance of the Company’s research and development services related to the third performance obligation was not determinable, and it will not become determinable until TCL research activities resume or the 2018 Roche Agreement is modified by the Company and Roche.

Contract Liability

The changes in the total contract liability (deferred revenue) balances related to the Company’s license and collaboration agreements were as follows (in thousands):


	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020			2021			2020
Balance at beginning of period	$	35,308		$	51,918		$	45,201		$	40,453
Deferral of revenue		—			1,891			—			25,746
Other		—			—			100			—
Recognition of deferred revenue		(4,755	)		(6,121	)		(14,748	)		(18,511	)
Balance at end of period	$	30,553		$	47,688		$	30,553		$	47,688

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12. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):


	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020			2021			2020
Numerator:
Net loss	$	(22,450	)	$	(12,351	)	$	(56,919	)	$	(32,920	)
Denominator:
Weighted-average common shares outstanding, basic and diluted		28,050,130			1,758,039			27,421,839			1,744,948
Net loss per share attributable to common stockholders, basic and diluted	$	(0.80	)	$	(7.03	)	$	(2.08	)	$	(18.87	)

The Company’s potential dilutive securities, which in the current period consist of common stock options and in the previous period included convertible preferred stock, a warrant to purchase common stock and common stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		2021		2020
Convertible preferred stock (as converted to common stock)		—		17,800,084		—		17,800,084
Warrant to purchase common stock		—		2,038		—		2,038
Stock options to purchase common stock		4,527,642		3,744,451		4,527,642		3,744,451
		4,527,642		21,546,573		4,527,642		21,546,573

13. Subsequent Events

In October 2021, an independent panel recommended that the Company’s SQZ-PBMC-HPV-101 clinical trial advance to combination therapy with checkpoint inhibitors. Upon initiation of a combination therapy cohort, the Company is entitled to receive a $3.0 million milestone payment from Roche in accordance with the terms of the Accord related to the 2018 Roche Agreement.

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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 our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission, or SEC, on March 18, 2021 (the “2020 Form 10-K”). 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 and related financing, 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 elsewhere in this Quarterly Report on Form 10-Q and our 2020 Form 10-K, 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

We are a clinical-stage biotechnology company developing cell therapies for patients in multiple therapeutic areas, including cancer, infectious diseases and other serious conditions. We use our proprietary technology, Cell Squeeze®, to physically squeeze cells through a microfluidic chip, temporarily opening the cell membrane and enabling biologic material of interest, or cargo, to diffuse into the cell. This technology allows us to create a broad pipeline of product candidates for different diseases. We believe our Cell Squeeze technology has the potential to create well-tolerated cell therapies that can provide therapeutic benefit for patients. Our potential differentiation includes accelerated timelines with production time under 24 hours, compared to four to six weeks for other existing cell therapies, improved patient experience by eliminating the need for pre-conditioning or lengthy hospital stays, and broadened therapeutic impact. Our goal is to use the Cell Squeeze approach to establish a new paradigm for cell therapies.

We are currently using Cell Squeeze to create multiple cell therapy platforms focused on directing specific immune responses. Our most advanced platform in development, SQZTM Antigen Presenting Cells, or SQZ APCs, is currently in a Phase 1 trial Human Papillomavirus positive, or HPV+, tumors. We presented initial results from the first three cohorts of this ongoing Phase 1 clinical trial of SQZ-PBMC-HPV at the 2021 American Society of Clinical Oncology annual meeting in June 2021. In these cohorts, the investigational cell therapy was observed to be well-tolerated and to stimulate immune responses in certain patients with advanced or metastatic HPV16+ tumors. The trial also demonstrated that our clinical stage manufacturing process of our autologous cell therapy was fast and reliable with production times consistently under 24 hours. Data from the fourth and highest monotherapy dose cohort of this trial will be presented in an oral presentation at the European Society for Medical Oncology Immuno-Oncology Congress in December 2021. As recommended by the independent Data and Safety Monitoring Board, the trial will now advance to the combination stage with checkpoint inhibitors. We have also been developing a next generation SQZ APC platform, enhanced APCs, or eAPCs, that use mRNA as the cargo, which we believe could enhance the functionality of the SQZ APCs to activate CD8 T cells and would be agnostic to patient HLA type. Our additional platforms currently in development are SQZ Activating Antigen Carriers, or SQZ AACs, also entering a Phase 1 trial in HPV+ tumors, and SQZ Tolerizing Antigen Carriers, or SQZ TACs. We have selected Celiac disease as the first autoimmune indication for the SQZ TAC platform with an IND submission targeted for the third quarter of 2022. We are leveraging each of these platforms to create differentiated product candidates that have applicability across multiple disease areas and we are also planning to expand certain of our clinical trials geographically to sites outside of the United States, including in Europe and Asia.

Since our inception, we have focused substantially all of our resources on building our Cell Squeeze technology, establishing and protecting our intellectual property portfolio, conducting research and development activities, developing our manufacturing process and manufacturing product candidate materials, preparing for and initiating clinical trials of our product candidates, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. Through September 30, 2021, we have funded our operations from sales of common and preferred stock, upfront and milestone payments under our collaboration agreements with Roche and with proceeds from our initial public offering, or IPO, and follow-on public offering of common stock, or the Follow-on Offering. In November 2020, we completed our IPO pursuant to which we issued and sold 5,073,529 shares of common stock, inclusive of 661,764 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received aggregate net proceeds of approximately $75.5 million from the IPO, after deducting underwriting discounts and commissions, but before deducting offering costs payable by us, which were $2.6 million. In February 2021, we completed the Follow-on Offering pursuant to which we issued and sold 3,000,000 shares of common stock. We received aggregate net proceeds of approximately $56.4 million in the Follow-on Offering, after deducting underwriting discounts and commissions, but before deducting offering costs payable by us, which were approximately $0.8 million.

Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. We reported a net loss of $56.9 million for the nine months ended September 30, 2021. As of September 30, 2021, we had an accumulated deficit of $183.7 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

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

conduct clinical trials for our product candidates, including our ongoing Phase 1 clinical trial of SQZ-PBMC-HPV and SQZ-AAC-HPV;



further develop our Cell Squeeze technology;



continue to develop additional product candidates;



maintain, expand and protect our intellectual property portfolio;



hire additional clinical, scientific manufacturing and commercial personnel;



expand external and/or establish internal commercial manufacturing sources and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval;



acquire or in-license other product candidates and technologies;



seek regulatory approvals for any product candidates that successfully complete clinical trials;



establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and



add operational, financial and management information systems and personnel to support our product development, clinical execution and planned future commercialization efforts, as well as to continue to support our status as a public company.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, and distribution.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we would have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with cell therapy product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2023. See “—Liquidity and Capital Resources.”

Impact of the COVID-19 Coronavirus

The COVID-19 pandemic has impacted and may continue to impact personnel at third-party manufacturing facilities or the availability or cost of materials, which would disrupt our supply chain. It also has affected and may continue to affect our ability to enroll patients in and timely complete our ongoing Phase 1 clinical trials of SQZ-PBMC-HPV and SQZ-AAC-HPV and delay the initiation of future clinical trials, disrupt regulatory activities or have other adverse effects on our business and operations. For example, we have experienced delays in receiving supplies of raw materials for our preclinical activities due to the impact of COVID-19 on our suppliers’ ability to timely manufacture these materials, and we have experienced an increase in the transportation cost of our product candidates due to the decreased availability of commercial flights. In addition, we have experienced delays in opening clinical trial sites and sites that are open may also have challenges enrolling patients due to the COVID-19 pandemic. Further, staff shortages, including staff that are required to conduct certain testing, such as biopsies, at the Company’s clinical sites or at third-party vendors have resulted in delays in site initiations and in such tests not being properly or timely performed or being delayed. In response to the public health directives and to help reduce the risk to our employees, we took precautionary measures, including implementing work-from-home policies for our administrative employees and staggered work times for our lab employees. We plan to continue these measures and are assessing when and how to resume normal operations. The effects of the public health directives and our work-from-home policies may negatively

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impact productivity, disrupt our business and delay our clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, results of operations and financial condition, including our ability to obtain financing.

The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds to support our operations. Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on our business and operations. We are monitoring the potential impact of the COVID-19 pandemic on our business and financial statements. To date, we have not incurred impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our interim condensed consolidated financial statements. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and people. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition, and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to do so for the next several years. All of our revenue to date has been derived from three collaboration agreements with Roche, which we entered into in 2015, 2017 and 2018, and, to a lesser extent, from government grants.

If our development efforts for our product candidates are successful and result in regulatory approval, or in license or additional collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from additional collaboration or license agreements that we may enter into with third parties, or any combination thereof. We expect that our revenue for the next several years will be derived primarily from our collaboration agreements with Roche as well as any additional collaborations that we may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.

Collaboration Revenue

2017 License and Collaboration Agreement with Roche

In April 2017, we entered into a license and collaboration agreement with Roche, or the 2017 Roche Agreement, to allow Roche to use our Cell Squeeze technology to enable gene editing of immune cells to discover new targets in cancer immunotherapy. The 2017 Roche Agreement includes several licenses granted by Roche to us and by us to Roche in order to conduct a specified research program in accordance with a specified research plan.

Under the agreement, we received an upfront payment of $5.0 million as a technology access fee and are entitled to (i) payments of up to $1.0 million as reimbursement for our research costs; (ii) milestone payments of up to $7.0 million upon the achievement of specified development milestones; and (iii) annual maintenance fees ranging from $0.5 million to $0.9 million for each year following the fifth anniversary of the effective date, subject to specified prepayment discounts.

We assessed our accounting for the 2017 Roche Agreement under Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606, and identified the following promises under the agreement: (i) a non-exclusive license granted to Roche to perform research related to and use our Cell Squeeze technology for gene editing of immune cells; (ii) specified research and development services related to gene editing of immune cells through the research term; (iii) manufacturing activities to support the specified research plan; and (iv) participation on a joint research committee, or JRC. We concluded at the outset of the 2017 Roche Agreement that the first three promises should be combined into a single performance obligation and that the JRC participation had an immaterial impact on the accounting model.

We received the upfront payment of $5.0 million in April 2017 upon execution of the 2017 Roche Agreement. We also received the payments of $0.5 million in each of 2017 and 2018 related to our reimbursable research costs. In addition, during the third quarter of 2018, we received a payment of $2.0 million following the achievement of the first development milestone under the agreement related to Roche’s validation of preclinical proof of concept.

We recognize revenue associated with the performance obligation as the research and development services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the performance obligation. The amounts received from Roche that have not yet been recognized as revenue are deferred as a contract liability in our

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consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied.

During the three and nine months ended September 30, 2021, the total costs expected to be incurred to satisfy the performance obligation under the 2017 Roche Agreement decreased by $0.1 million and $0.4 million, respectively. During the three and nine months ended September 30, 2020, there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligation. We recognized revenue of $0.3 million and $0.1 million, under the 2017 Roche Agreement during the three months ended September 30, 2021 and 2020, respectively. We recognized revenue of $1.0 million and $0.4 million, respectively, during the nine months ended September 30, 2021 and 2020 under this agreement.

As of September 30, 2021, we recorded as a contract liability deferred revenue related to the 2017 Roche Agreement of $0.2 million, all of which was a current liability. As of September 30, 2021, the research and development services related to the performance obligation were expected to be performed over a remaining period of approximately nine months.

2018 License and Collaboration Agreement with Roche

In October 2018, we entered into a license and collaboration agreement with Roche, or the 2018 Roche Agreement, to jointly develop certain products based on mononuclear antigen presenting cells, or APCs, including human papilloma virus, or HPV, using our SQZ APC platform for the treatment of oncology indications. We granted Roche a non-exclusive license to our intellectual property, and Roche granted us a non-exclusive license to its and its affiliates’ intellectual property for the purpose of performing research activities. In connection with this agreement, the parties terminated an earlier agreement.

Under the 2018 Roche Agreement, Roche was granted option rights to obtain an exclusive license to develop APC products or products derived from the collaboration programs on a product-by-product basis and to develop a Tumor Cell Lysate, or TCL, product. For each of the APC products and TCL product, once Roche exercises its option and pays a specified incremental amount, Roche will receive worldwide, exclusive commercialization rights for the licensed products. Through September 30, 2021, Roche had not exercised any of its options under the 2018 Roche Agreement.

Under the 2018 Roche Agreement, we received an upfront payment of $45.0 million and are eligible to receive (i) reimbursement of a mid-double-digit percentage of our development costs; (ii) aggregate milestone payments on a product-by-product basis of up to $1.6 billion upon the achievement of specified milestones, consisting of up to $217.0 million of development milestone payments, up to $240.0 million of regulatory milestone payments and up to $1.2 billion of sales milestone payments; and (iii) tiered royalties on annual net sales of APC and TCL products licensed under the agreement at specified rates ranging from a mid-single-digit percentage to a percentage in the mid-twenties. We received the upfront payment of $45.0 million in October 2018 upon execution of the agreement. In addition, during the second quarter of 2019, we received a payment of $10.0 million following the achievement of the first development milestone under the 2018 Roche Agreement related to submission by us of preclinical data to the U.S. Food and Drug Administration, or FDA, and during the first quarter of 2020, we received a payment of $20.0 million following the achievement of the second development milestone under the 2018 Roche Agreement related to first-patient dosing in a Phase 1 clinical trial.

We identified three performance obligations at the outset of the 2018 Roche Agreement: (1) the license to our intellectual property, the research and development activities related to HPV through Phase 1 clinical trials under a specified research plan, and the manufacturing of our SQZ APC platform and equipment in order to support the HPV research plan (the “first performance obligation”); (2) the license to our intellectual property and the research and development activities on next-generation APCs (the “second performance obligation”); and (3) the license to our intellectual property and the research and development activities on TCL (the “third performance obligation”).

In addition, we determined that the upfront payment of $45.0 million as well as the reimbursable costs of $10.8 million estimated by us constituted the entirety of the consideration to be included in the transaction price. This transaction price of $55.8 million was initially allocated to the three performance obligations based on the relative standalone selling price of each obligation. The potential milestone payments that we may be eligible to receive were excluded from the transaction price at the outset of the arrangement. We reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, we will adjust our estimate of the transaction price.

During the second quarter of 2019, we received a payment of $10.0 million following the achievement of the first development milestone under the 2018 Roche Agreement related to submission by us of preclinical data to the FDA. During the first quarter of 2020, we received a payment of $20.0 million following the achievement of the second development milestone under the 2018 Roche Agreement related to first-patient dosing in a Phase 1 clinical trial. These milestones were added to the transaction price in the period that it was “most likely” and that it was probable that a significant reversal in the amount of cumulative revenue recognized would not occur.

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We separately recognize revenue associated with each of the three performance obligations as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy each performance obligation. The amounts received from Roche that have not yet been recognized as revenue are deferred as a contract liability in our consolidated balance sheet and will be recognized over the remaining research and development period until each performance obligation is satisfied.

During the fourth quarter of 2019, we evaluated our overall program priorities and determined that we would continue to focus our resources on progressing the specified APC programs related to the 2018 Roche Agreement as well as our SQZ AAC and SQZ TAC platforms. As a result of its continuing focus on these specific programs, we reduced the level of priority of the TCL research activities under the 2018 Roche Agreement and expect to perform such TCL research activities over a longer time period than as originally expected under the specified research plan of the agreement. Since the fourth quarter of 2019, we have classified $9.2 million as non-current deferred revenue, which will remain unrecognized as revenue until TCL research activities resume or the 2018 Roche Agreement is modified by us and Roche.

During the three and nine months ended September 30, 2021, the estimated costs expected to be incurred to satisfy the performance obligations under the 2018 Roche Agreement increased by $0.4 million. During the three and nine months ended September, 30, 2020, there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligations under the 2018 Roche Agreement. We recognized revenue of $4.5 million and $6.0 million during the three months ended September 30, 2021 and 2020, respectively, under this agreement. We recognized revenue of $13.6 million and $18.1 million during the nine months ended September 30, 2021 and 2020, respectively, under the 2018 Roche Agreement. As of September 30, 2021, we recorded as a contract liability deferred revenue related to the 2018 Roche Agreement of $30.4 million, of which $21.2 million was a current liability. As of September 30, 2021, the research and development services related to the performance obligations were expected to be performed over remaining periods ranging from three to nine months.

As of September 30, 2021, the expected remaining period of performance of the Company’s research and development services related to the third performance obligation was not determinable, and it will not become determinable until TCL research activities resume or the 2018 Roche Agreement is modified by the Company and Roche.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including development of our product candidates and costs incurred under our collaboration arrangements with Roche, which include:



employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;



expenses incurred in connection with the preclinical and clinical development of our product candidates and research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations, or CROs;



the costs of developing and scaling our manufacturing process and of manufacturing our product candidates for use in our preclinical studies and clinical trials, including the costs under agreements with third parties, such as consultants, contractors and contract manufacturing organizations, or CMOs;



laboratory and consumable materials and research materials;



facilities, depreciation and other expenses, which include direct and allocated expenses for rent and utilities; and



payments made under third-party licensing agreements.

We expense research and development costs as incurred. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.

Our direct research and development expenses are tracked on a program-by-program basis and consist of external costs and fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development and manufacturing activities. Such program costs also include the external costs of laboratory and consumable materials and costs of raw materials that are directly attributable to and incurred for any single program. We do not allocate employee costs, costs associated with our platform development

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and discovery efforts, payments made under third-party licensing agreements, costs of laboratory supplies and consumable materials that are not directly attributable to any single program, and facilities expenses, including rent, depreciation and other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform technology and, as such, are not separately classified.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future, particularly should Roche determine not to exercise its options and we decide to continue clinical development of a product candidate. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:



the timing and progress of preclinical and clinical development activities, including geographic expansion of our clinical sites into Europe and Asia;



the number and scope of preclinical and clinical programs we decide to pursue;



raising additional funds necessary to complete preclinical and clinical development of our product candidates;



the progress of the development efforts of parties with whom we have entered, or may enter, into collaboration arrangements;



our ability to maintain our current research and development programs and to establish new ones;



our ability to establish new licensing or collaboration arrangements;



the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;



the receipt and related terms of regulatory approvals from applicable regulatory authorities;



the availability of specialty raw materials for use in production of our product candidates;



our ability to consistently manufacture our product candidates for use in clinical trials;



our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships with third parties;



our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally; and



our ability to protect our rights in our intellectual property portfolio.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. In addition, we may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on our cash equivalents and marketable securities balances.

Other Income (Expense), Net

Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.

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Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was passed by the U.S. Congress and signed into United States law. The CARES Act, among other things, includes certain provisions for individuals and corporations (including a suspension on the application of the 80% limitation described above for taxable years beginning prior to January 1, 2021), and technical amendments for qualified improvement property, or QIP. While we accelerated tax depreciation expenses due to the technical amendments made by the CARES Act to QIP, this and other CARES Act benefits did not materially impact our income tax provisions in the periods presented.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020:


	THREE MONTHS ENDED SEPTEMBER 30,
	2021	2020	CHANGE
	(in thousands)
Collaboration revenue	$4,755	$6,121	$(1,366)
Operating expenses:
Research and development	20,520	13,910	6,610
General and administrative	6,691	4,612	2,079
Total operating expenses	27,211	18,522	8,689
Loss from operations	(22,456)	(12,401)	(10,055)
Other income (expense):
Interest income	8	56	(48)
Other income (expense), net	(2)	(6)	4
Total other income, net	6	50	(44)
Net loss	$(22,450)	$(12,351)	$(10,099)

Revenue

Collaboration revenue decreased by $1.4 million to $4.8 million for the three months ended September 30, 2021, compared to $6.1 million for the three months ended September 30, 2020. The decrease in revenue was primarily due to the following:



a decrease of $1.5 million to $4.5 million from $6.0 million in revenue recognized under the 2018 Roche Agreement due to a change in estimate (made as of December 2020) of the expected performance period of one of the performance obligations under the 2018 Roche Agreement, resulting in lower revenues being recognized in the third quarter of 2021.

Research and Development Expenses


	THREE MONTHS ENDED SEPTEMBER 30,
	2021	2020	CHANGE
	(in thousands)
Direct research and development expenses by program:
SQZ-PBMC-HPV	$4,187	$3,908	$279
SQZ-AAC-HPV	895	2,893	(1,998)
eAPC	6,393	399	5,994
Other programs	1,369	864	505
Unallocated research and development expenses:
Personnel related (including stock-based compensation)	5,317	3,792	1,525
Facility related	1,251	1,204	47
Laboratory and consumable materials	389	218	171
Platform-related external services and other	719	632	87
Total research and development expenses	$20,520	$13,910	$6,610

Research and development expenses increased by $6.6 million to $20.5 million for the three months ended September 30, 2021, from $13.9 million for the three months ended September 30, 2021. The net increase was primarily due to the following:

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

SQZ-PBMC-HPV program costs increased by $0.3 million primarily as a result of an increase in clinical batch manufacturing and patient costs.



SQZ-AAC-HPV costs decreased by $2.0 million primarily as a result of a decrease in start up manufacturing costs which were primarily incurred in 2020.



eAPC costs increased by $6.0 million due to higher manufacturing and materials costs incurred.



Other program costs increased by $0.5 million due to spending on our infectious disease program, as well as other manufacturing costs.



The increase in personnel-related costs of $1.5 million was primarily due to a $1.1 million increase in stock-based compensation expense and a $0.4 million increase in salary and benefit costs as a result of increased headcount in our research and development function.



Laboratory and consumable materials expenses increased by $0.2 million as a result of expected fluctuations from period to period based on the timing of our purchases made.



Platform-related external services and other costs increased by $0.1 million as a result of higher consulting, equipment and information technology costs.

General and Administrative Expenses


	THREE MONTHS ENDED SEPTEMBER 30,
	2021	2020	CHANGE
	(in thousands)
Personnel related (including stock-based compensation)	$3,207	$2,026	$1,181
Professional, consultant and patent related costs	1,709	1,673	36
Facility related and other	1,775	913	862
Total general and administrative expenses	$6,691	$4,612	$2,079

General and administrative expenses increased by $2.1 million during the three months ended September 30, 2021 to $6.7 million, compared to $4.6 million for the three months ended September 30, 2020. The increase was primarily due to:



an increase of $1.2 million in personnel-related costs due to a $0.9 million increase in stock-based compensation expense and a $0.3 million increase in salary and benefit costs as a result of increased headcount.

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:


	NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020			CHANGE
	(in thousands)
Revenue:
Collaboration revenue	$	14,748		$	18,511		$	(3,763	)
Operating expenses:
Research and development		52,942			37,815			15,127
General and administrative		18,744			14,139			4,605
Total operating expenses		71,686			51,954			19,732
Loss from operations		(56,938	)		(33,443	)		(23,495	)
Other income (expense):
Interest income		28			533			(505	)
Other income (expense), net		(9	)		(10	)		1
Total other income, net		19			523			(504	)
Net loss	$	(56,919	)	$	(32,920	)	$	(23,999	)

Revenue

Collaboration revenue decreased by $3.8 million to $14.7 million for the nine months ended September 30, 2021, compared to $18.5 million for the nine months ended September 30, 2020. The decrease in revenue was primarily due to the following:



a decrease of $4.5 million to $13.6 million from $18.1 million in revenue recognized under the 2018 Roche Agreement due to a change in estimate (made as of December 2020) of the expected performance period of one of the performance obligations under the 2018 Roche Agreement, resulting in lower revenues being recognized in the nine months ended September 30, 2021.

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The above decrease was partially offset by:



an increase of $0.6 million in revenue recognized under the 2017 Roche Agreement during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase in revenue was due to a decrease in remaining expected costs required to complete the performance obligations under the 2017 Roche Agreement.

Research and Development Expenses


	NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		CHANGE
	(in thousands)
Direct research and development expenses by program:
SQZ-PBMC-HPV	$	11,314	$	11,501	$	(187	)
SQZ-AAC-HPV		3,005		5,322		(2,317	)
eAPC		11,607		1,365		10,242
Other programs		5,870		2,357		3,513
Unallocated research and development expenses:
Personnel related (including stock-based compensation)		13,991		10,530		3,461
Facility related		3,816		3,806		10
Laboratory and consumable materials		985		748		237
Platform-related external services and other		2,354		2,186		168
Total research and development expenses	$	52,942	$	37,815	$	15,127

Research and development expenses increased by $15.1 million to $52.9 million for the nine months ended September 30, 2021, compared to $37.8 million for the nine months ended September 30, 2020. The net increase was primarily due to the following:



SQZ-PBMC-HPV costs decreased by $0.2 million primarily as a result of our transferring certain externally performed services in-house.



SQZ-AAC-HPV costs decreased by $2.3 million primarily as a result of the timing of materials and manufacturing costs.



eAPC costs increased by $10.2 million due to higher manufacturing costs incurred.



Other program costs increased by $3.5 million due to spending on our infectious disease program and expenses incurred on developing a point-of-care solution to manufacture our product candidates.



an increase of $3.5 million in personnel-related costs was primarily due to a $1.6 million increase in salary and benefit costs as a result of increased headcount and salary costs in our research and development function, and a $1.9 million increase in stock-based compensation expense.



Laboratory and consumable materials costs increased by $0.2 million as a result of expected fluctuations from period to period based on the timing of our purchases made.



Platform-related external services increased by $0.2 million due to an increase in professional services costs.

General and Administrative Expenses


	NINE MONTHS ENDED SEPTEMBER 30,
	2021		2020		CHANGE
	(in thousands)
Personnel related (including stock-based compensation)	$	9,141	$	6,195	$	2,946
Professional, consultant and patent related costs		4,398		5,417		(1,019	)
Facility related and other		5,205		2,527		2,678
Total general and administrative expenses	$	18,744	$	14,139	$	4,605

General and administrative expenses increased by $4.6 million for the nine months ended September 30, 2021 to $18.7 million, compared to $14.1 million for the nine months ended September 30, 2020. The increase was primarily due to the following:



an increase of $2.9 million in personnel-related costs due to a $2.1 million increase in stock-based compensation expense and a $0.8 million increase in salary and benefit costs as a result of increased headcount.



a decrease of $1.0 million in professional, consultant and patent related costs as the costs incurred in the prior year period were primarily incurred to support our preparation to become a public company.



an increase of $2.7 million in facility-related and other costs primarily due to an increase in insurance expense as a public company for the nine months ended September 30, 2021.

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Interest Income

Interest income for the nine months ended September 30, 2021, was less than $0.1 million as compared to $0.5 million for the nine months ended September 30, 2020. The decrease in interest income was due to the decrease in average interest rates during the respective periods.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for the next several years, if at all. Through September 30, 2021, we have funded our operations from the sales of our common and preferred stock, upfront and milestone payments under our collaboration agreements with Roche, and with proceeds from our IPO and Follow-on Offering. In November 2020, we completed our IPO pursuant to which we received aggregate net proceeds of approximately $72.9 million from the sale of common stock. In February 2021, we completed the Follow-on Offering pursuant to which we received aggregate net proceeds of approximately $55.6 million from the sale of common stock. As of September 30, 2021, we had cash and cash equivalents of $164.3 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:


	NINE MONTHS ENDED SEPTEMBER 30,
	2021			2020
	(in thousands)
Net cash used in operating activities	$	(61,117	)	$	(23,912	)
Net cash (used in) provided by investing activities		(613	)		49,946
Net cash provided by financing activities		55,627			41,757
Net increase in cash, cash equivalents and restricted cash	$	(6,103	)	$	67,791

Operating Activities

During the nine months ended September 30, 2021, operating activities used $61.1 million of cash, primarily resulting from our net loss of $56.9 million and changes in our operating assets and liabilities of $18.7 million, partially offset by net non-cash charges of $14.5 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2021 consisted primarily of a $14.5 million decrease in deferred revenue, a $6.8 million decrease in operating lease liabilities, a $1.4 million decrease in accrued expenses, all of which were partially offset by a $2.7 million decrease in prepaid expenses and other current assets and a $1.9 million decrease in accounts receivable. The decrease in deferred revenue during the nine months ended September 30, 2021 was due to the revenue we recognized in that same period under the 2018 Roche Agreement.

During the nine months ended September 30, 2020, operating activities used $23.9 million of cash, primarily resulting from our net loss of $32.9 million and changes in our operating assets and liabilities of $1.5 million, partially offset by net non-cash charges of $10.5 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2020 consisted primarily of a $6.6 million decrease in operating lease liabilities, a $2.1 million decrease in accounts payable and accrued expenses and a $0.2 million increase in prepaid expenses and other current assets, all as partially offset by a $0.3 million decrease in other liabilities and a $7.2 million increase in deferred revenue. The increase in deferred revenue during the nine months ended September 30, 2020 was due to our receipt of a $20.0 million milestone payment, partially offset by the related revenue we recognized in that same period, under the 2018 Roche Agreement.

In all periods presented, other changes in prepaid expenses and other current assets, accounts receivable, accounts payable, accrued expenses and other liabilities not described above were generally due to growth in our business, the advancement of our research programs and the timing of vendor invoicing and payments. In all periods presented, decreases in operating lease liabilities were primarily due to our recurring payments made under recorded operating lease liabilities, including those arising from embedded leases.

Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities was $0.6 million, consisting of purchases of property and equipment.

During the nine months ended September 30, 2020, net cash provided by investing activities was $49.9 million, consisting of maturities of marketable securities of $51.0 million, partially offset by purchases of property and equipment of $1.1 million

The purchases of property and equipment in each period were primarily for equipment purchases and leasehold improvements related to the expansion of our research and development activities and the growth of our business.

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Financing Activities

During the nine months ended September 30, 2021, net cash provided by financing activities was $55.6 million, consisting of net proceeds from the Follow-on Offering in February 2021, of $56.4 million, in addition to proceeds of $1.1 million from stock option exercises during the period, offset by the payment of $1.9 million of IPO and Follow-on Offering costs.

During the nine months ended September 30, 2020, net cash provided by financing activities was $41.8 million, consisting primarily of net proceeds from our issuances of Series D preferred stock, partially offset by $0.3 million of payments of IPO costs and $0.2 million of payments of issuance costs related to Series D preferred stock that we issued and sold in December 2019.

Funding Requirements

We expect that our expenses will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. The timing and amount of our operating and capital expenditures will depend largely on:



the timing and progress of preclinical and clinical development activities, including geographic expansion of our clinical sites into Europe and Asia;



the commencement, enrollment or results of the planned clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;



the timing and outcome of regulatory review of our product candidates;



our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial as well as Roche’s decision whether to exercise its options;



changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;



adverse developments concerning our manufacturers;



our ability to obtain materials to produce adequate product supply for any approved product or inability to do so at acceptable prices;



our ability to establish collaborations if needed;



the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we obtain marketing approval;



the legal patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims;



additions or departures of key scientific or management personnel;



unanticipated serious safety concerns related to the use of our product candidates;



the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; and



the severity, duration and impact of the COVID-19 pandemic, which may adversely impact our business.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, a current common stockholder’s interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we would be required to delay, scale back or discontinue our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Contractual Obligations and Commitments

There have been no material changes to our contractual obligations from those described in our 2020 Form 10-K. For additional information, see Note 9 to our consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our 2020 Form 10-K. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting policies from those described in the 2020 Form 10-K.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of September 30, 2021, we had cash and cash equivalents of $164.3 million, which consisted of cash and money market funds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these balances, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents.

We are not currently exposed to significant market risk related to changes in interest rates or foreign currency exchange rates. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. Our operations may be subject to inflation in the future.

Item 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Evaluation 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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934). Based on that evaluation, our Principal Executive Officer and Principal

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Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not subject to any material legal proceedings.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. In addition to the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition”, you should carefully consider the factors described in the section titled “Risk Factors” in our 2020 Form 10-K. Other than as disclosed below, there have been no material changes to our risk factors as previously disclosed in our 2020 Form 10-K.

Preclinical and clinical development are lengthy and uncertain, and our preclinical programs or product candidates may be delayed or terminated, or may never advance to the clinic, any of which may affect our ability to obtain funding and may have a material adverse impact on our platforms or our business.

Much of our pipeline is in preclinical development, and these programs could be delayed or not advance into the clinic. Before we can initiate clinical trials for a product candidate, we must complete extensive preclinical studies, including good laboratory practice toxicology testing, that support our planned investigational new drug applications, or INDs, in the United States, or similar applications in other jurisdictions. We must also complete extensive work on Chemistry, Manufacturing, and Controls, or CMC, activities, including yield, purity and stability data, to be included in the IND filing. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the U.S. Food and Drug Administration, or FDA, or other regulatory authorities will accept the results of our preclinical testing or our proposed clinical programs or if the outcome of our preclinical testing, studies, and CMC activities will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.

Further, we may perform preclinical and clinical development activities outside the United States. Conducting preclinical development and clinical trials in foreign countries, as we plan to do for certain of our product candidates, presents additional risks that may delay development of our product candidates or completion of our clinical trials. These risks include availability of and competition for skilled local personnel, the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to these foreign countries.

We plan to conduct certain of our clinical trials for our product candidates in sites outside of the United States, including Europe and Asia. However, the FDA and other foreign equivalents may not accept data from foreign trials, in which case our development plans will be delayed, which could materially harm our business.

We may conduct certain of our clinical trials for our product candidates, other pipeline product candidates, or any of our future product candidates outside the United States, including in Europe and Asia. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the trials were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.

For clinical trials that are conducted only at sites outside of the United States and not subject to an IND, the FDA requires the clinical trial to have been conducted in accordance with the FDA’s or other regulatory authority’s good clinical practice requirements, or GCPs, and the FDA must be able to validate the data from the clinical trial through an on-site inspection if it deems such inspection necessary. For such trials not subject to an IND, the FDA generally does not provide advance comment on the clinical protocols for the trials, and therefore there is an additional potential risk that the FDA could determine that the trial design or protocol for a non-U.S. clinical trial was inadequate, which could require us to conduct additional clinical trials. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept data from our clinical trials of our product candidates, it would likely result in the need for additional clinical trials, which would be costly and time consuming and delay or permanently halt our development of our product candidates.

In addition, there are risks inherent in conducting clinical trials in multiple jurisdictions, inside and outside of the United States, such as:

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	•	additional foreign regulatory requirements;


	•	variability in expense due to local labor rates, availability of skilled personnel and foreign exchange fluctuations;


	•	compliance with foreign manufacturing, customs, shipment and storage requirements;


	•	cultural differences in medical practice and clinical research; and


	•	diminished protection of intellectual property in some countries.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On October 29, 2020, the SEC declared effective our registration statement on Form S-1 (File No. 333-249422), as amended, filed in connection with our IPO, or the Registration Statement. Pursuant to the Registration Statement, we registered the offer and sale of 5,073,529 shares of our common stock with a proposed maximum aggregate offering price of approximately $91.3 million. On November 3, 2020, we issued and sold 4,411,765 shares of our common stock at a price to the public of $16.00 per share. Upon completion of the IPO on November 3, 2020, we received net proceeds of approximately $65.6 million, after deducting underwriting discounts and commissions, but before deducting offering costs payable by us, which were $2.6 million. On November 12, 2020, in connection with the full exercise of the over-allotment option granted to the underwriters of our IPO, we issued and sold 661,764 additional shares of common stock at a price of $16.00 per share, generating additional net proceeds of $9.8 million after deducting underwriting discounts of $0.7 million.

The net proceeds of approximately $72.5 million have been invested in money market funds. There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus relating to the Registration Statement, filed with the SEC on October 30, 2020 pursuant to Rule 424(b)(4).

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit

Number

Description

Form

File No.

Exhibit

Filing

Date

Filed/

Furnished

Herewith

3.1

Restated Certificate of Incorporation of SQZ Biotechnologies Company.

8-K

001-39662

3.1

11/04/2020

3.2

Amended and Restated Bylaws of SQZ Biotechnologies Company.

S-1/A

333-249422

3.4

10/26/2020

4.1

Amended and Restated Investors’ Rights Agreement, dated as of December 19, 2019, as amended.

S-1

333-252889

4.1

02/09/2021

4.2

Specimen Stock Certificate.

S-1/A

333-249422

4.2

10/26/2020

10.1

Separation Agreement between Oliver Rosen and SQZ Biotechnologies Company, dated September 2, 2021

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SQZ Biotechnologies Company

Date: November 10, 2021	By:	/s/ Armon Sharei, Ph.D.
		Armon Sharei, Ph.D.
		President and Chief Executive Officer

Date: November 10, 2021	By:	/s/ Teri Loxam
		Teri Loxam
		Chief Financial Officer