StrongPoint
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-38662 SUTRO BIOPHARMA, INC.(Exact Name of Registrant as Specified in Its Charter) Delaware 47-0926186(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.) 310 Utah Avenue, Suite 150 South San Francisco, California 94080(Address of principal executive offices) (Zip Code)(650) 392-8412(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.001 par value The Nasdaq Global MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the issuer (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 suchshorter 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒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 thedefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer☐ Accelerated filer☐Non-accelerated filer☒ Smaller reporting company☐Emerging growth company☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided 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 ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of $15.20 per share of common stock on The NasdaqStock Market on September 27, 2018, was $214.4 million. The Registrant has elected to use September 27, 2018 as the calculation date, which was the initial trading date of the Registrant’s commonstock on The Nasdaq Stock Market, because on June 30, 2018 (the last business day of the Registrant’s second fiscal quarter), the Registrant was a privately-held company. Shares of common stockheld by each executive officer, director, and their affiliated holders have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes.The number of shares of the registrant’s common stock outstanding as of March 27, 2019, was 22,925,441. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement to be filed for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. Such proxy statement will be filed withthe Securities and Exchange Commission within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.  Sutro Biopharma, Inc.ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page PART I 4 ITEM 1. Business 4 ITEM 1A. Risk Factors 38 ITEM 1B. Unresolved Staff Comments 83 ITEM 2. Properties 83 ITEM 3. Legal Proceedings 83 ITEM 4. Mine Safety Disclosures 83 PART II 84 ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 84 ITEM 6. Selected Financial Data 87 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 88 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 101 ITEM 8. Financial Statements and Supplementary Data 102 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 137 ITEM 9A. Controls and Procedures 137 ITEM 9B. Other Information 137 PART III 138 ITEM 10. Directors, Executive Officers of the Registrant and Corporate Governance Matters 138 ITEM 11. Executive Compensation 138 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 138 ITEM 13. Certain Relationships and Related Transactions, and Director Independence 138 ITEM 14. Principal Accounting Fees and Services 138 PART IV 139 ITEM 15. Exhibits and Financial Statement Schedules 139 Signatures 142 2  Forward-Looking Statements This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act, and section 27A of the Securities Act of 1933, as amended, or the Securities Act. Allstatements contained in this Annual Report other than statements of historical fact, including statements regarding our future results of operationsand financial position, business strategy, market size, potential growth opportunities, nonclinical and clinical development activities, efficacy andsafety profile of our product candidates, our ability to maintain and recognize the benefits of certain designations received by product candidates,the timing and results of nonclinical studies and clinical trials, collaboration with third parties, and the receipt and timing of potential regulatorydesignations, approvals and commercialization of product candidates, are forward-looking statements. The words “believe,” “may,” “will,”“potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and similarexpressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A,“Risk Factors” and elsewhere in this Annual Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risksemerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business orthe extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-lookingstatements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in thisAnnual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-lookingstatements.You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected inthe forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events andcircumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations,except as required by law. You should read this Annual Report with the understanding that our actual future results, levels of activity, performanceand events and circumstances may be materially different from what we expect.Except where the context otherwise requires, in this Annual Report on Form 10-K, “we,” “us,” “our” and the “Company” refer to SutroBiopharma, Inc.TrademarksThis Annual Report on Form 10-K includes trademarks, service marks and trade names owned by us or other companies. All trademarks,service marks and trade names included in this Annual Report on Form 10-K are the property of their respective owners. We do not intend our useor display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by,these other companies. 3  PART IItem 1.BusinessOverviewWe are a clinical stage drug discovery, development and manufacturing company focused on deploying our proprietary integrated cell-freeprotein synthesis platform, XpressCF™, to create a broad variety of optimally designed, next-generation protein therapeutics initially for cancerand autoimmune disorders. We aim to design therapeutics using the most relevant and potent modalities, including cytokine-based targets,immuno-oncology, or I/O agents, antibody-drug conjugates, or ADCs, and bispecific antibodies that are directed primarily against clinicallyvalidated targets where the current standard of care is suboptimal. We believe our platform allows us to accelerate the discovery and developmentof potential first-in-class and best-in-class molecules by enabling the rapid and systematic evaluation of protein structure-activity relationships tocreate optimized homogeneous product candidates. Our mission is to transform the lives of patients by using our XpressCF™ Platform to createmedicines with improved therapeutic profiles for areas of unmet need.Our two most advanced product candidates are wholly owned: STRO-001, an ADC directed against CD74, for patients with multiple myelomaand non-Hodgkin lymphoma, or NHL, and STRO-002, an ADC directed against folate receptor-alpha, or FolRα, for patients with ovarian andendometrial cancers. STRO-001 is currently enrolling patients in a Phase 1 trial, with initial safety data expected in mid-2019 and initial efficacydata expected by year end 2019. In October 2018, we were granted Orphan Drug Designation by the FDA, for STRO-001 for the treatment ofmultiple myeloma. We began enrolling patients in a STRO-002 Phase 1 trial focused on ovarian and endometrial cancers in March 2019, with initialsafety data expected by year end 2019. We have also entered into multi-target, product-focused collaborations with leaders in the field ofoncology, including a cytokine derivatives collaboration with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ, orMerck, a B Cell Maturation Antigen, or BCMA, and an immuno-oncology directed alliance with Celgene Corporation, or Celgene, and an oncology-focused collaboration with Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”).We believe our XpressCF™ platform is the first and only current Good Manufacturing Practices, or cGMP, compliant and scalable cell-freeprotein synthesis technology that has resulted in product candidates in clinical development. We believe key advantages of our cell-free proteinsynthesis platform over conventional biologic drug discovery and development include: •ability to rapidly produce a wide variety of protein structures in-house; •ability to incorporate multiple, different non-natural amino acids in a single protein; •faster cycle time; •efficient drug discovery and early pharmacology and safety assessment; and •rapid and predictable scalability.We plan to leverage these capabilities to accelerate the discovery and development of potential first-in-class and best-in-class molecules.The benefits of our XpressCF™ Platform have resulted in collaborations with leaders in the field of oncology, including Merck, Celgene andEMD Serono. As a result of discovery efforts enabled through our XpressCF+™ Platform, Merck has the right to develop up to three cytokinederivatives for cancer and autoimmune disorders, with Merck to make a specific payment for the third product candidate. Additionally, Celgene hasthe worldwide right to develop an anti-cancer ADC and an anti-cancer bispecific antibody, with Celgene to make specific payments to us to obtainsuch worldwide rights to the second of the two product candidates, and development rights to two additional anti-cancer bispecific antibodiesoutside of the U.S. The lead candidate in this collaboration is a novel ADC therapeutic directed against BCMA for which an IND submission isexpected in the first half of 2019. Under the collaboration with EMD Serono, we are using our XpressCF+™ Platform to discover and developmono, bispecific or multispecific ADC product candidates against multiple cancer targets. The most advanced candidate in this collaboration is abispecific ADC that is currently undergoing preclinical studies. To date, we have received in aggregate approximately $355 million in paymentsfrom all of our collaborations, which includes approximately $54 million in investments in our stock. We intend to selectively enter into additionalcollaborations with partners who are seeking efficient and effective drug discovery, preclinical development and manufacturing capabilities for thecreation of novel therapeutics. 4  Our first internally developed product candidate is STRO-001, which we believe has the potential to be a first-in-class and best-in-class ADCdirected against CD74, an antigen that is highly expressed in many B cell malignancies. In multiple preclinical models, STRO-001 hasdemonstrated potent anti-tumor activity. In addition, the properties of STRO-001 suggest a low likelihood of off-target toxicity and potential for animproved therapeutic index. STRO-001 is currently enrolling patients in a Phase 1 trial for multiple myeloma and NHL and we expect initial safetydata in mid-2019 and expect initial efficacy data by year end 2019.We are also internally developing STRO-002, an ADC directed against FolRα, initially targeted for the treatment of ovarian and endometrialcancers. Our experiments show that FolRα expression can be detected in 90% or more of ovarian and endometrial cancers. In preclinical models,STRO-002 has demonstrated the potential for enhanced and selective activity against cells expressing FolRα, superior inhibition of tumor growthand greater linker stability, in comparison to experiments we conducted with a benchmark FolRα-targeting molecule. We began enrolling patients ina STRO-002 Phase 1 trial focused on ovarian and endometrial cancers in March 2019, with initial safety data expected by year end 2019.Although we believe our product candidates have the potential to be first-in-class and/or best-in-class and to provide potent anti-tumor activitywith reduced off-target toxicity, we will need to complete additional studies to determine the safety and efficacy of our product candidates. Theresults of these future studies may be different than the results of our earlier studies. We have not received regulatory approval for any of ourproduct candidates, and in order to obtain regulatory approval and commercialize our product candidates, the FDA or foreign regulatory agencieswill need to determine that our product candidates are safe and effective. We may not obtain regulatory approval on the timeline we currentlyexpect, or at all, and competing therapies and products may ultimately reach the market faster or have more favorable safety and efficacy profilesthan our products candidates.Beyond these wholly owned programs and collaborations, we are developing a broader pipeline of next-generation protein therapeutics usingour XpressCF™ Platform. Our protein engineering and chemistry efforts are focused on maximizing therapeutic indices, and our technology allowsus to rapidly test our therapeutic hypothesis in significantly more product candidates than conventional protein synthesis allows in order to identifythe best molecule to advance to the clinic. Our drug discovery teams are exploring novel immuno-oncology therapies, including cytokine-basedtherapies. We are also actively pursuing the discovery and development of other novel ADC and bispecific antibodies, including T cell-engagerdiscovery programs.Our StrategyOur goal is to use our proprietary XpressCF™ Platform to create cytokine-based immuno-oncology therapeutics, ADCs and bispecificantibodies primarily against clinically validated targets. Key elements of our strategy are to: •Advance STRO-001 and STRO-002 through clinical development. We are currently evaluating STRO-001 in a Phase 1 trial forpatients with advanced and/or refractory multiple myeloma and NHL. Based on compelling preclinical data, we believe STRO-001 hasthe potential to be a first-in-class and best-in-class ADC directed against CD74, which is highly expressed in many B cell malignancies.We expect initial safety data in mid-2019 and expect initial efficacy data by year end 2019. In October 2018, we were granted OrphanDrug Designation by the FDA, for STRO-001 for the treatment of multiple myeloma. We began enrolling patients in a STRO-002 Phase 1trial focused on ovarian and endometrial cancers in March 2019, with initial safety data expected by year end 2019. Given that FolRα isa clinically validated target for ovarian cancer, along with STRO-002’s homogeneous design, we believe it could be a best-in-classFolRα-targeted ADC and provide greater activity, stability and safety as compared to other investigational agents in development. •Develop a diverse pipeline of novel product candidates with optimal therapeutic profiles. We intend to build a broad pipeline ofoptimally designed, next-generation protein therapeutics for cancer and autoimmune disorders using our XpressCF™ Platform. Our cell-free-based protein synthesis system enables the rapid and systematic evaluation of protein structure-activity relationships, which webelieve will accelerate the discovery and development of molecules. We aim to take advantage of the most potent modalities, includingcytokines, ADCs and bispecifics, to create drugs that are directed primarily against clinically validated targets where the currentstandard of care is suboptimal. 5  •Strategically pursue additional collaborations to broaden the reach of our XpressCF™ Platform. To maximize the value of ourXpressCF™ Platform technology, we have entered into multi-target, product-focused collaborations with leaders in the field of oncology,including a cytokine derivatives collaboration with Merck, a BCMA and immuno-oncology directed alliance with Celgene and anoncology-focused ADC collaboration with EMD Serono. We intend to selectively enter into additional collaborations with partners who areseeking efficient and effective drug discovery and manufacturing capabilities for the development of novel therapeutics. As with some ofour current collaborations, we intend to retain certain development and commercial rights to maximize the future potential value ofproduct candidates discovered and developed using our XpressCF™ Platform. •Maintain worldwide rights to our core product candidates. We own the worldwide commercial rights to our lead productcandidates, STRO-001 and STRO-002. We have assembled a management team with extensive experience in the biopharmaceuticalindustry, including drug discovery and development through commercialization, and our plan is to independently pursue the developmentand commercialization of our product candidates. As we continue to advance our products, we may opportunistically pursue strategicpartnerships that maximize the value of our pipeline. •Selectively expand the scope of our XpressCF™ Platform into other therapeutic areas. Due to the versatility of our platform, wecan explore additional therapeutic areas outside of oncology, such as autoimmune diseases. We intend to make further investment inthe development of our XpressCF™ Platform to expand our pipeline of product candidates.Cancer Remains a Major Unmet Medical NeedCancer is the second leading cause of mortality in the United States, accounting for nearly one in every four deaths. Approximately 40% ofAmericans will develop cancer and, according to the American Cancer Society, there will be 1.8 million new cases of cancer and 607,000 deathsdue to cancer in the United States in 2019.Traditional Cancer TherapeuticsCancer treatment has traditionally included chemotherapy, radiation, surgery or a combination of these approaches. Chemotherapy agentsand other small molecule targeted therapies can be effective in certain types of cancer, but they can also cause toxicities that may lead to life-threatening consequences, lower quality of life or untimely termination of treatment. Furthermore, these agents offer limited efficacy in many typesof cancer.Over the last twenty years, new paradigms of cancer research and treatment have emerged to address the limitations of existing treatments.Some of the most promising new approaches involve biologic therapies, including monoclonal antibodies. Monoclonal antibodies are proteins thatbind to antigen targets on tumor cells and inhibit tumor growth, or block processes that provide nourishment for the tumor. As a drug class,monoclonal antibodies have transformed the treatment of oncology and represent some of the top selling therapies on the market. For example,Roche’s Avastin, Rituxan/CD20, and Herceptin/HER-2 franchises dominated the market with over $23 billion in combined 2018 annual sales.Despite the success of conventional monoclonal antibodies, they still have limitations. For example, the response seen with monoclonalantibodies can be variable, with some patients responding, while others do not. In addition, the response is often not durable and many patientsrelapse or become refractory to treatment. Also, safety and tolerability concerns often limit the use of higher, potentially more efficacious doses.We believe our XpressCF™ Platform will provide enhanced therapeutic approaches for treating cancer to address these unmet needs. A newgeneration of biologics is emerging, including immuno-oncology agents, ADCs and bispecific antibodies. The expectation is that multipletherapeutic modalities will be used in novel combinations to treat patients and provide the most potent anti-cancer effect.Immuno-OncologyThe immune system is capable of recognizing and eliminating tumor cells. However, some cancer cells over express proteins, called immunecheckpoints, which suppress the immune system, and enable the tumor cells to evade destruction. Immuno-oncology has emerged as a promisingnew therapeutic approach that aims to enhance anti-tumor immune responses by using monoclonal antibodies to overcome these immunecheckpoint blockades. 6  Monoclonal antibody immune checkpoint inhibitors, such as Opdivo, Keytruda and Yervoy, have been approved for the treatment of a numberof cancer indications such as, melanoma, non-small cell lung cancer, or NSCLC, renal cancer and bladder cancer. The 2018 combined sales ofthese three checkpoint inhibitors are projected to be $16 billion and by 2022, forecasted sales are projected to exceed $27 billion.Limitations to Current Immuno-Oncology ApproachesThe effectiveness of any cancer immunotherapy is dependent on the status of an individual patient’s immune system. While many single-agent immunotherapies have resulted in remarkable clinical results, only a minority of patients have realized durable benefits from thesetreatments. An immunotherapy cannot succeed if a patient’s immune cells are too impaired to benefit from a particular checkpoint inhibitor orcytokine-based therapeutic. As a result, combination therapies have been explored clinically and are designed to provide an additional boost torevive a patient’s ability to mount an immune response against their tumor. However, combination therapies will likely have to provide a significantrisk-benefit advantage in order to justify the cumulative costs of combining two separate immunotherapies. New single agent approaches toachieving combinatorial stimulation of a patient’s immune system may therefore create the preferred option for many patients and physicians.Antibody-Drug ConjugatesAfter two decades of industry efforts, several new modalities of highly potent monoclonal antibody-based therapies have emerged, includingADCs. The key components of ADCs include an antibody, a stable linker and a cytotoxic agent (warhead). The antibody is used to target anddeliver the cytotoxic agent to tumor cells. ADCs can be mono, bispecific or multi-specific. The intended result of this powerful and targetedapproach is greater tumor cell death and less systemic tolerability issues as compared to traditional chemotherapy. The following diagram showsthe component parts of an ADC. Currently, there are more than 100 ADCs being explored in clinical development. Kadcyla and Adcetris are ADCs that have been approved forthe treatment of specific subsets of breast cancer and lymphoma, respectively. In the second half of 2017, Besponsa and Mylotarg were approvedfor the treatment of specific subsets of leukemia. All four of these newly approved therapies demonstrate that ADCs have an emerging role in thearmamentarium of cancer therapeutics. 7  Limitations to Current ADC ApproachesDespite the approvals of these ADCs, there have been challenges in achieving the full clinical potential of this modality. We believe thesechallenges are directly related to the following: •Heterogeneity as a Result of Imprecise and Variable Conjugation. The approved ADCs and many that are in development useimprecise technologies that opportunistically attach the cytotoxic payload to naturally occurring amino acids within the antibody andresult in a heterogeneous mixture. In these mixtures, the number and site location of the linker-warhead can vary significantly fromantibody to antibody within the single ADC product. These many different forms in the final product are likely to perform differently, withsome forms carrying insufficient cytotoxin to kill the tumor, and some forms carrying too high a load resulting in unintended toxicities.The overall performance of the heterogeneous ADC is therefore the average activity of the different species within the ADC mixture,which may limit both efficacy and tolerability. For these reasons, we believe this current class of ADCs, which are heterogeneousmixtures, are suboptimal for effective cancer treatment. The figure below compares homogeneous and heterogeneous ADCs. •Suboptimal Linker-Warhead Positioning. Conventional ADC technologies use conjugation chemistry to attach linker-warheads tonaturally occurring amino acids within an antibody; therefore, the position is dictated by the pre-existing amino acid sequence. Publishedresearch studies have demonstrated that linker-warhead positioning along an antibody can have significant effect on the ability of anADC to kill tumor cells, with some positions resulting in suboptimal killing. This position effect also contributes to the challenge of aheterogeneous ADC mixture. We believe that superior ADCs can be developed using technologies that allow linker-warhead positioningto be fine-tuned to empirically determined sites for maximal therapeutic benefit. •Instability Due to Linker Design. One of the major challenges in ADC technology has been to develop linking chemistries that ensurethat warheads are only released from the antibody within a tumor cell, and not released within the blood or healthy tissue as the ADC isdelivered systemically and travels through the body. We believe that safer ADCs can be developed by utilizing non-natural amino acidsthat enable state-of-the-art chemistries to ensure that the warhead is not prematurely released. 8  Bispecific AntibodiesBispecific antibodies are engineered proteins that can simultaneously bind to two different types of antigens. Targeting two individual antigenssimultaneously is expected to drive a larger clinical impact than conventional monoclonal antibodies. As a class, bispecific antibodies areprojected to have potential sales on a worldwide basis of up to $4.4 billion by 2023 and over 40 molecules are currently in clinical development.Bispecific antibodies can be engineered in a variety of different formats as shown below. Bispecific antibodies come in a wide variety of structural formats that can be used in multiple therapeutic modalities, including dual blockingbispecific antibodies, T cell-engaging bispecific antibodies and dual antigen targeting bispecific antibodies. Given the potential synergistic nature ofthese approaches, they have the potential to provide a similar, if not improved, therapeutic benefit as compared to a traditional combinationapproach. In addition, they may also demonstrate an improved safety and tolerability profile. These characteristics could allow for a widertherapeutic index as compared to the comparable combination therapy approach. Additionally, combining two mechanisms in a single bispecificantibody could have advantages in manufacturing, clinical development and patient convenience.Limitations to Current Bispecific Antibody ApproachesBispecific antibodies are highly engineered proteins with structural features not found in nature. The generation of these molecules thereforepresents significant design and development challenges especially when using conventional cell-based technologies. These challenges include: •Optimization Challenges. Bispecific antibodies simultaneously engage two different targets and therefore have precise requirementsfor the binding properties and spatial orientation of each domain in order to have pharmacologic activity. Combinatorial pairing ofantibody binding arms to identify an optimized bispecific antibody requires many distinct cell lines that must be engineered during thediscovery process, a cumbersome process when using conventional cell-based technologies. •Challenges to T Cell-Engagers. Discovery of bispecific T cell-engagers is further limited by the challenge of designing bispecific pairsthat can safely activate T cells specifically in the tumor environment without activating peripheral T cells, which would result in severetoxicities. •Difficulties in Protein Expression and Manufacturing. Because bispecific antibodies are highly engineered proteins, conventional cell-based systems have significant difficulties in protein expression, particularly at a larger scale. 9  We believe that new protein engineering technologies will enable significantly broader design opportunities to discover new bispecificantibodies optimized for therapeutic activity, safety and manufacturability.Cytokine-Based Immuno-Oncology TherapeuticsCytokines are small biologically active proteins that play an essential role in immune cell function. Cytokines are important for cell-to-cellcommunication and are responsible for controlling immune cell growth and differentiation. Recombinant human cytokines were among the firstbiotechnology products engineered for therapeutic use, and, in the field of oncology, cytokines that stimulate the immune system to attack cancercells have been viewed as a potential new approach.Certain cytokines play a central role in T cell function, contributing to the careful balance between helpful and harmful immune responses.These can be powerful activators of the immune system but can also suppress immune responses through certain specialized T cells that havesuppressive functions. A previously approved cytokine therapeutic Proleukin had shown therapeutic benefit in a small number of cancer patientsbut its therapeutic use was limited due to toxicity. Scientists at other companies have focused research on finding ways to modify cytokines so asto reduce toxicity while maintaining therapeutic benefit. The observed efficacy of a modified cytokine in combination with an immune checkpointinhibitor indicates the potential of this new approach. In light of these data and our prior research into cytokines, we commenced a cytokine-basedresearch program using our XpressCF+™ Platform technology and are now collaborating with Merck on developing cytokine derivatives. Webelieve that recent advances in immuno-oncology combined with new protein engineering technologies create opportunities to identify novelcytokine-based therapeutics with superior therapeutic indexes.Our Proprietary XpressCF™ PlatformWhile cytokine-based immuno-oncology therapeutics, ADCs and bispecific antibodies hold significant promise, drug developers working withthese complex biologics face significant design and development challenges. Optimizing these complex biological structures is a challenging, trialand error process that requires the refinement of several properties in tandem. This iterative process is cumbersome and fraught with significantlimitations. As a result, the drug candidate nominated for development is often plagued by inefficient design properties, which then translates to asuboptimal therapeutic index when investigated in the clinic.Our XpressCF™ Platform seeks to address these significant shortcomings. We believe our cell-free-based protein synthesis technologyallows for efficient and proper design exploration to be conducted prior to nominating a lead drug candidate. In addition, we believe we canoptimally design these types of complex biologics in a manner that is ideal for subsequent production at relevant scale and manufacture. We arethe only company with products in clinical development that has the capability to produce cell-free-based protein synthesis at scale. We believewe have a significant advantage over other development approaches in this space.Limitations of Current Cell-Based Synthesis ApproachesAll existing therapeutic proteins rely on cell-based design, production and manufacturing technologies. The conventional biotechnologyapproach for the production of these complex biologics relies primarily on CHO cell lines. This first requires low yield transient production fromcells that enable characterization of a new protein over several months. This is then followed by development of stable cell lines over severalmonths to a year to enable larger scale preclinical, clinical and commercial production. The characterization process has to be reproduced forevery minor variant of the therapeutic protein, which may or may not result in improved properties. Each change requires development of new cell-based methods to generate protein of sufficient quality and quantity to evaluate. Therefore, it is extremely laborious and resource intensive toelucidate principles of structure-activity relationship, and drug discovery is limited by the number of cell lines that can be practically managed inparallel. In addition, they have limited ability to introduce non-natural amino acids into proteins. We believe these limitations hinder the efficiency ofdrug discovery and often result in suboptimal protein selection.Overview of Our XpressCF™ PlatformOur XpressCF™ Platform is fundamentally different from the conventional cell-based protein synthesis approach in that we separate theproduction of the cell mass from the production of the protein. 10  We first generate a cellular mass from our propriety cell line from which we harvest the inner cellular machinery for making proteins. Thecellular mass is generated from our highly engineered variant of Escherichia coli, or E.coli bacteria, and has been optimized to make extract thatproduces complex mammalian proteins. These cells are grown over the course of several days, harvested, broken apart, clarified and stored as acell mass for future production of our protein therapeutics. We refer to this proprietary cell mass as extract, or XtractCF. The extract includesnecessary components for energy production, transcription and translation and can be used to support cell-free protein synthesis. This extract canthen be used agnostically to manufacture a wide variety of therapeutic proteins and protein fragments without the need to generate further celllines.As a result, protein synthesis then becomes a predictable and reproducible biochemical reaction, independent of the constraints of a cell. Aspecific DNA sequence is added to the extract, which results in the coding and expression of the desired protein in less than 24 hours. Using thisprocess, we express hundreds or thousands of DNA sequences simultaneously within the same cell-free extract system and therefore can makeand purify hundreds or thousands of unique proteins at the same time. This allows us to perform rapid expression, testing and characterization ofmany variants early in discovery to elucidate structure-activity relationships. Structure-activity relationship refers to how changes to the structureof a protein can lead to improvements in a molecule’s properties, such as binding, internalization, functional activity and stability, which areproperties that are key to the therapeutic protein’s efficacy and tolerability in the patient. We are thereby able to optimize many properties with highspecificity including: binding efficiency to each antigen target, spatial orientation, linker design, target killing efficiency, immunological activity,protein expression and folding efficiency and stability.Advantages of Our XpressCF™ PlatformWe believe our drug discovery platform provides significant advantages over conventional cell-based protein synthesis approaches and hasthe ability to produce a large number of variants during the development stage, while preserving the ability to design and test large families ofmolecules for optimized efficacy and safety features. As a result, we believe that our drug discovery platform can accelerate time to IND by nineto fifteen months compared to conventional technologies.We believe the advantages of our cell-free-based protein synthesis technology platform include: •Ability to Rapidly Produce and Evaluate a Wide Variety of Protein Structures In-house. By decoupling the production of the cell-freeextract from the production of the protein, we are able to stockpile large quantities of cell-free extract from which we are able tomanufacture a wide variety of proteins without the need to generate individual cell lines, including cytokine-based immuno-oncologytherapeutics, ADCs and bispecific antibodies. •Ability to Incorporate Non-Natural Amino Acids. Our technology allows for efficient incorporation of a non-natural amino acid in anylocation in an antibody or protein with high precision and fidelity, which we believe allows for the design of optimized protein conjugates. •Faster Cycle Time. Our ability to produce thousands of protein variants in parallel overnight allows us to rapidly express, test andcharacterize many variants early in discovery to elucidate structure-activity relationships and identify opportunities for superiortherapeutic profiles, as well as new intellectual property. We are therefore able to efficiently optimize many properties with highspecificity in parallel. •Efficient Drug Discovery and Early Pharmacology and Safety Assessment. Our cell-free technology creates the opportunity foraccelerated pharmacology and safety assessments during the design and discovery phase of product development. This approachallows us to generate optimized proteins early in our discovery process, which can be transitioned seamlessly to clinical scaleproduction using the same cell-free process. •Rapid and Predictable Scalability. Our cell-free extract does not need to be modified in any manner as we scale from research topreclinical to clinical to commercial production. This enables us to move more rapidly to the clinic by eliminating master cell bankingactivities and significantly de-risks scale-up to manufacturing. 11  Our XpressCF™ Solution for cytokine, ADCs and bispecific antibodies-based drug therapeuticsAs a result, we believe our technology enables new approaches to cytokine, ADCs and bispecific antibody-based drug discovery,development and manufacturing. Key attributes are: •Homogeneous Design. Our XpressCF™ Platform enables precise and specific placement of non-natural amino acids in definednumbers and positions within our engineered proteins. These non-natural amino acids then serve as highly stable attachment sites, alsoknown as conjugation sites, for chemical functional groups. For example, we attach linker-warheads to non-natural amino acids withinour antibodies to create single-species, tumor-killing ADCs. Similarly, we attach polyethylene glycol polymers onto non-natural aminoacids within our cytokine-based therapeutics to create single-species immunotherapies designed for extended pharmacokinetics andsafety. •Experimentally Defined Structure-Activity Relationships. Our cell-free technology enables rational design of protein therapeuticsthrough a rapid, reiterative process that experimentally defines structure-activity relationship for cytokine-based therapeutics, ADCs andbispecific antibodies. This approach allows us to explore a wide variety of structural features and formats in parallel as we optimizetherapeutic candidates. For example, the precise location of chemical conjugation sites directly affects the activity of both ADCs andcytokine-based therapeutics. Our proprietary technology is key to our ability to define the best number and positions of non-naturalamino acids for conjugation based on: conjugation efficiency; functional activity/pharmacological properties; and pharmacokinetics andsafety. This design flexibility is also an important aspect of our discovery approach to other protein therapeutics. For example, we areable to make and directly compare a variety of pairings and structural formats for our immuno-oncology bispecific antibody andbispecific T cell-engager programs. This allows us to identify antibody pairs and formats with the best binding properties, spatialorientations and structural stability to create the optimal balance of therapeutic activity and safety. •Rapid and Efficient Transition from Discovery to the Clinic. Protein therapeutics can encounter obstacles, or even fail, during thetransition from research-grade cell lines to cGMP cell lines appropriate for clinical development and commercialization. Our XpressCF™Platform can rapidly produce different protein types from a single proprietary extract, which can be scaled for discovery, developmentand ultimately, we believe, commercialization of cytokine-based immuno-oncology therapeutics, ADCs and bispecific antibodies andbispecific T cell-engagers.Accordingly, we use our XpressCF™ Platform to discover and develop cancer therapeutics by empirically determining the optimum structure-activity relationships for cytokine-based immuno-oncology therapeutics, ADCs, bispecific antibodies, and transitioning those products to cGMPcompliant manufacturing. The following chart illustrates the applicability of these attributes across the range of modalities we are developing. XpressCF™ Attributes for Various Therapeutic ModalitiesXpressCF™ Attribute ADCs Bispecific I/O, Bispecific ADCsand Bispecific T cell-engagers Cytokine-basedtherapeuticsHomogeneous Design Stable, site-specific attachment of chemical functionality ✓ ✓(if needed) ✓Experimentally Defined Structure- Activity Relationships Rapid, direct comparison of a wide variety of protein variants ✓ ✓ ✓Rapid and Efficient Transition from Discovery to the Clinic Single-source scalability from discovery to clinical / commercial ✓ ✓ ✓ 12  Our Collaborations Demonstrate our CapabilitiesOur XpressCF™ Platform has garnered the attention of leading pharmaceutical and biopharmaceutical companies and resulted incollaborations to discover and develop novel therapeutics. We have leveraged these strategic partnerships to extend our own capabilities andbroaden the scope of our XpressCF™ Platform. To date, all of our collaborations have provided us with approximately $355 million in payments,which includes approximately $54 million in investments in our stock. Our collaborations include: •Merck Programs. We have granted Merck the right to jointly develop up to three research programs directed to cytokine derivativesfor cancer and autoimmune disorders, including rights to certain prior cytokine-based research efforts. •Celgene Programs. We have granted Celgene the right to jointly develop up to four anti-cancer bispecific antibodies and/or ADCsdirected primarily to immuno-oncology targets. The lead candidate generated for this collaboration is a novel ADC therapeutic directedagainst the target BCMA for which an IND submission is expected in the first half of 2019. •EMD Serono Programs. We have granted EMD Serono the right to designate up to six cancer targets against which we will discover,develop and optimize up to three mono, bispecific or multi-specific ADC product candidates per target. EMD Serono has selected all sixpossible target antigens under the strategic research and development partnership. The most advanced candidate in this collaboration isa bispecific ADC, which is currently in preclinical development.Our Pipeline of Product Candidates and Discovery/Preclinical ProgramsOur current product candidates and Discovery and Preclinical stage programs, all based on our proprietary XpressCF™ Platform, aresummarized in the chart below: (a)There are a total of four programs to which Celgene currently has ex-U.S. rights and we currently have U.S. rights. Celgene can obtainworldwide rights to the second product candidate to have an active IND in the United States by making certain payments to us. For theprograms that would potentially be the third and fourth to enter clinical development, we own U.S. rights and Celgene owns ex-U.S.rights. (b)EMD Serono is the U.S. healthcare business of Merck KGaA, Darmstadt, Germany. 13  Our Product CandidatesSTRO-001, an ADC Directed Against the Cancer Target CD74OverviewWe are developing STRO-001, an optimally designed ADC directed against the cancer target CD74, for multiple myeloma and NHL. STRO-001 was designed and optimized for maximal therapeutic index by placing linker-warheads at specific locations within the antibody using ourproprietary XpressCF+™ Platform. STRO-001 is currently enrolling patients in a Phase 1 trial and we expect initial safety data in mid-2019 andexpect initial efficacy data by year end 2019.CD74 Overview and Current LimitationsCD74 is a transmembrane glycoprotein, or a protein with an attached sugar that spans the inside and outside of a cell. While normal tissuesappear to have minimal CD74 expression levels, CD74 is an important B cell target for multiple myelomas and lymphomas. CD74 is expressed inapproximately 90% of B cell cancers, including multiple myeloma and lymphoma. Additionally, in a study conducted with a collaborator, we foundthat CD74 was highly expressed in 75% to 98% of tissues samples derived from individual patients with a variety of B cell malignancies, asillustrated in the table below. Comprehensive Immunohistochemistry Study Tumor Subtype Tissue SamplesCD74 Positive/ Total % Positive Follicular lymphoma 148 / 151 98% Multiple myeloma 101 / 134 75% Diffuse large B cell lymphoma 135 / 140 96% Mantle cell lymphoma 19 / 21 90% Currently, there are no approved therapeutics that specifically target CD74 for treatment of B cell malignancies. We believe earlier ADCsbeing developed against the target CD74 were ineffective either because they failed to achieve sufficient killing of malignant B cells or they wereunable to achieve a sufficient therapeutic benefit before toxicities limited further dose escalations.B Cell Malignancies Overview and Current LimitationsB cell malignancy tumor subtypes include multiple myeloma and NHL, which includes mantle cell lymphoma, diffuse large B cell lymphoma,or DLBCL, and follicular lymphoma. In the United States alone, there are approximately 100,000 new B cell malignancies cases annually, with aprevalence of more than 600,000 cases. Although several therapeutics have recently been approved for the treatment of specific B cellmalignancies, including immunotherapies and targeted kinase inhibitors, unmet need persists. These therapeutics are typically used incombination with other agents to provide the most potent anti-cancer effect. While these new therapies have demonstrated improvements insurvival, the majority of these patients ultimately relapse during treatment and some experience a resistance to therapy.Our Solution, STRO-001Our first internally developed product candidate is STRO-001, which we believe has the potential to be a first-in-class and best-in-class ADCdirected against the cancer target CD74, an antigen that is highly expressed in many B cell malignancies and is an attractive target for an ADCtherapeutic, given its rapid internalization by the cell. STRO-001 is an ADC targeting the CD74 protein antigen that was developed using ourproprietary XpressCF+™ Platform. STRO-001 is composed of an antibody stably conjugated to a highly potent cytotoxic drug, a maytansinoidderivative, at two specific sites on the antibody using a non-cleavable linker. STRO-001 degrades inside of tumor cells to release very potentintracellular catabolites whose hydrophilic nature results in poor permeability into surrounding cells. We believe this decreases the potential of off-target effect in normal tissues. From a safety perspective, we designed STRO-001 to have an optimal potency to toxicity ratio. We rationallyselected a homogeneous ADC with a drug-antibody ratio, or DAR, of two. Heterogeneous ADCs typically have DARs that range from zero to eight,with lower DARs generally being associated with less potency and higher DARs generally being associated with a negative impact onpharmacokinetics and toxicity. We chose a DAR of two after demonstrating that DARs of four or six did not increase the efficacy of STRO-001. 14  Preclinical DataWhile additional clinical testing will be needed to determine the safety and efficacy of STRO-001 and to obtain regulatory approval, if everachieved, STRO-001 has demonstrated potent in vitro cell killing activity across multiple B cell tumor lines. Based on these observations, we haveused murine tumor models to determine whether STRO-001 also demonstrates cell killing in vivo. In these models, human tumor cell lines areimplanted and allowed to grow in mice to subsequently test the activity of anti-cancer agents. Although these murine models do not addresssafety, they are commonly used to provide experimental proof-of-concept for anti-cancer activity against different tumor types. For example, intumor bearing mice, single intravenous doses of 1, 3, and 10 mg/kg STRO-001 significantly extended survival in the MM1S-luc bioluminescentdisseminated human multiple myeloma xenograft model as shown below on the right. The figure on the left shows bioluminescence imaging oftumor cells during the first month after dosing. This image shows that while the bioluminescent tumor cells disseminated throughout the body inthe vehicle treated mice, the tumor cells were cleared from the STRO-001 treated mice. Furthermore, at the high dose, when their bone marrowwas assessed at day 129, of the surviving five out of six animals, all appeared to be tumor-free. D7 D14 D21 D28 Vehicle 1 mg/kg STRO-001 Similar response with 3 and 10 mgkg STRO-001 Survival Percent Survivial 0 25 50 75 100 0 25 50 75 100 125 150 Days Post Inoculation Vehicle 1 mg/kg STRO-001 3 mg/kg STRO-001 10 mg/kg STRO-001 15  STRO-001 demonstrated similar potent efficacy in a murine xenograft model of human DLBCL, the most common form of NHL. In the studyshown below, seven out of seven mice exhibited complete tumor regression with no tumor regrowth 90 days after treatment with a single 10 mg/kgdose of STRO-001. Moderate anti-tumor activity was observed with lower doses of 1 or 3 mg/kg, demonstrating a clear dose-response relationship. Tumor Growth Curves Tumor Size (mm3) 0 500 1000 1500 Days Post Treatment 0 20 40 60 80 100 Vehicle 1 mg/kg STRO-001 3 mg/kg STRO-001 10 mg/kg STRO-001We also examined the potential for STRO-001 to treat human mantle cell lymphoma in a preclinical murine xenograft model. In the studyshown below, mice bearing mantle cell tumors had a mean survival of 81 days. In contrast, 90% to 100% of mice treated with a single dose of 3 or10 mg/kg STRO-001 survived to the end of the study at day 135. Taken together, these studies demonstrate that STRO-001 has potent anti-tumoractivity in three different murine models of human B cell malignancy. Survival Percent Survival 0 25 50 75 100 Treatment Days Post Inoculation 0 25 50 75 100 125 150 Vehicle control 3 mg/kg STRO-001 10 mg/kg STRO-001 16  We also investigated the safety of STRO-001 in a toxicology study in non-human primates at several dose levels administered on day 1 andday 15. Hematological toxicity was observed consistent with the known effects of the STRO-001 cytotoxic tubulin inhibitor component. No otherdrug-related toxicities were observed. Importantly, however, we observed clear evidence of STRO-001 pharmacodynamic activity as demonstratedby dose-dependent B cell ablation and recovery as shown below. Clinical Development PlanThe Phase 1 trial for STRO-001 is an open-label study that will evaluate STRO-001 as a monotherapy for patients with multiple myeloma andNHL. The trial will be conducted in two parts: dose escalation and dose expansion. The primary objectives of the trial are to determine the safetyand tolerability profile of STRO-001, determine the recommended Phase 2 dose and interval and evaluate preliminary anti-tumor activity. Thesecondary objectives are to characterize the human pharmacokinetics of STRO-001 and additional safety, tolerability and efficacy measures.Our Phase 1 trial of STRO-001 is enrolling adult patients with advanced and/or refractory multiple myeloma and NHL (including DLBCL,mantle cell lymphoma and follicular lymphoma) who are refractory to, or intolerant of, all established therapy known to provide clinical benefit fortheir condition. Multiple myeloma and NHL patients will be enrolled in two separate dose escalation cohorts, starting initially with an accelerateddose titration design. We estimate that there will be approximately 30 patients in each cohort and treatment is scheduled for days one and fifteenin a 28-day cycle.After the recommended Phase 2 dose level is determined, patients could be enrolled into four dose expansion cohorts (myeloma, DLBCL,mantle cell lymphoma and follicular lymphoma) if anti-tumor activity is observed during the dose escalation phase. We may enroll up to 40 patientsin each of the four dose expansion cohorts.We submitted our IND for STRO-001 in December 2017 and the first patient was dosed in April 2018. We expect initial safety data from ourongoing Phase 1 trial in mid-2019 and expect initial efficacy data by year end 2019. In October 2018, we were granted Orphan Drug Designationby the FDA for STRO-001 for the treatment of multiple myeloma.STRO-002, an ADC Directed Against the Target Folate Receptor-Alpha (FolRα)OverviewWe are developing STRO-002, an optimally designed ADC directed against the cancer target FolRα, initially targeted for ovarian andendometrial cancers. STRO-002 was designed and optimized for an improved therapeutic index by placing a precise number of linker-warheads atfour specific locations within the antibody using our proprietary XpressCF+™ Platform. We began enrolling patients in a STRO-002 Phase 1 trialfocused on ovarian and endometrial cancers in March 2019, with initial safety data expected by year end 2019. 17  FolRα OverviewFolRα is a cell-surface glycoprotein, which is believed to be important for supporting DNA synthesis in rapidly dividing cancer cells. FolRαexhibits limited expression and distribution in normal tissues.High levels of FolRα have been found in multiple cancer types, including epithelial ovarian cancer, endometrial adenocarcinoma, triplenegative breast cancer and non-small cell lung cancer. Expression appears to correlate with disease progression in ovarian cancer and continuesto be expressed following chemotherapy treatment.In order to better understand FolRα expression, we tested 187 samples in a tissue microarray from ovarian and endometrial cancer patients.The table below shows that more than 90% of ovarian and endometrial cancer tissue samples express FolRα. Furthermore, medium to high levelsof expression were observed for 80% of ovarian cancer samples and 78% of endometrial cancer samples. FolRα Expression Tumor Type Negative Low Medium High Ovarian Cancer (90 tissue samples) 10% 10% 16% 64%Endometrial Cancer (97 tissue samples) 7% 15% 24% 54% Ovarian Cancer OverviewOvarian cancer is the most common cause of cancer death from gynecologic tumors in the United States, and the fifth most common causeof cancer death in women. In the United States alone, the American Cancer Society estimates that there will be about 23,000 new cases ofovarian cancer in 2019, and approximately 14,000 women die of this disease. Given that early stages of the disease cause minimal, nonspecificsymptoms or is asymptomatic, 60% of patients with ovarian cancer are diagnosed in an advanced stage, for which the prognosis is poor. Standardpre- or post-operative chemotherapy for ovarian cancer is combination therapy with a platinum compound and a taxane, for example, carboplatinand paclitaxel, which achieves a complete response in between 70% to 80% of patients. Patients refractory or resistant to platinum-basedtreatments are then treated with a host of additional palliative chemotherapeutic agents, each showing only marginal benefit. This represents asignificant unmet need and multiple therapies are being tested in the clinic for treatment of these patients, including PARP inhibitors and PD-1checkpoint protein inhibitors.Endometrial Cancer OverviewThere is also a significant unmet need in the treatment of recurrent or metastatic endometrial cancer. In the United States alone, there areabout 60,000 new cases of endometrial cancer annually, and approximately 10,500 patients die of this disease each year. First-line treatment forstage III/IV disease is commonly paclitaxel/carboplatin, with no standard of care or FDA-approved treatment options for recurrent disease. Withthe lack of available therapies for these patients, long-term survival prospects are poor and novel treatments offering even a modest improvementin progression-free survival or overall survival may be considered for expedited regulatory approval.Limitations to Current FolRα -Targeted TherapeuticsThere have been a number of folate- or FolRα -targeted therapies in development including naked antibodies, small molecule drug conjugates,ADCs and T cell retargeting molecules. The most clinically active agent targeting FolRα to date has been Immunogen’s mirvetuximabsoravtansine (IMGN853), an ADC composed of a FolRα -binding antibody linked to the tubulin-disrupting maytansinoid, DM4, via a cleavablelinker.Immunogen’s IMGN853 monotherapy showed clinical activity in a Phase 1 trial of patients with platinum-resistant ovarian cancer, providingencouraging clinical validation for FolRα-targeting ADCs in this patient population. In early March 2019, Immunogen announced top-line resultsfrom its Phase 3 FORWARD I Study evaluating the safety and efficacy of mirvetuximab soravtansine compared to chemotherapy in patients withFRα-positive (with medium and high target expression levels), platinum-resistant ovarian cancer. The study did not meet its primary endpoint ofprogression-free survival, or PFS, in either the entire study population or in the pre-specified subset of patients with high FRα expression. 18  Our Solution, STRO-002STRO-002 is directed against the cancer target FolRα, which is highly expressed in multiple cancer types, including ovarian cancer andendometrial cancer. This property, together with the highly restricted expression of FolRα on normal tissues, make FolRα a promising ADCapproach.STRO-002 employs a cleavable linker that releases a cytotoxic drug inside of tumor cells, while being stable and resistant to cleavage ingeneral circulation. The cytotoxic drug used is our proprietary hemiasterlin moiety. From a safety perspective, we designed STRO-002 to have theoptimal potency to safety ratio. We rationally selected a homogenous ADC with an optimized DAR of four.Based on preclinical findings, we believe our efficient homogeneous design of STRO-002 could provide anti-tumor activity, stability andsafety with the potential to minimize off-target damage and improve clinical impact by reducing dose-limiting toxicities. We believe an improvedtherapeutic index could differentiate STRO-002 from conventional technology for the treatment of ovarian cancer and endometrial cancer. To testthis, we have created a benchmark FolRα -targeting surrogate molecule based on conventional technology that has a heterogeneous ADC, with asimilar DAR utilizing a DM4 linker-warhead. We have tested this benchmark molecule against STRO-002 in multiple preclinical models. However,additional preclinical and clinical testing will be needed to determine the safety and efficacy of STRO-002 and to obtain regulatory approval, if ever.STRO-002 may not ultimately provide a greater therapeutic benefit than the current standard of care.Preclinical DataSTRO-002, in comparison with the benchmark molecule that we created, has demonstrated: enhanced in vitro activity on cells expressingFolRα and improved specificity on cells that do not express FolRα; superior inhibition of tumor growth; and greater in vitro and in vivo linkerstability.STRO-002 has demonstrated potent in vitro cell killing activity across multiple ovarian cancer tumor cell lines. Based on these observations,we have used murine tumor models to determine whether STRO-002 also demonstrates cell killing in vivo. In these models, human tumor cells areimplanted and allowed to grow in mice to subsequently test the activity of anti-cancer agents. Although these murine models do not addresssafety, they are commonly used to provide experimental proof-of-concept for anti-cancer activity against different tumor types. As shown in thedata below, dose-dependent anti-tumor activity was observed in mice implanted with OVCAR3 human ovarian cancer tumor cells. Importantly, thisanti-tumor effect was observed in mice bearing large established tumors, with evidence of tumor regression following a single dose of 10 mg/kgSTRO-002. Tumor Growth Curves (~ 400 mm3) Tumor Size (mm3) 0 500 1000 1500 2000 Days Post Inoculation 20 40 60 80 100 Vehicle 5 mg/kg STRO-002 10 mg/kg STRO-002 Single Dose 19  In an effort to better understand the relative activity of our homogeneous STRO-002 molecule, we have performed experiments comparingSTRO-002 to a benchmark molecule that we created. STRO-002 and the benchmark molecule have comparable DAR and affinity for FolRαexpressing cells; however, the benchmark is made using conventional ADC technology and is therefore a heterogeneous mixture. The data belowdemonstrates STRO-002 has more potent in vitro cell killing activity compared to the benchmark molecule when tested on cells expressing FolRα.In contrast, STRO-002 has minimal if any activity on cells that do not express FolRα, while the benchmark molecule kills cells even in theabsence of FolRα. We believe that the data demonstrate that the homogeneous nature of STRO-002 drives more efficient tumor cell killing withbetter tolerability for normal tissues. We used a human ovarian cancer xenograft model to understand the in vivo stability of STRO-002 compared to our benchmark molecule. Inthis model we tested for free warhead, released from the ADC, in the blood or tumor tissue one, three or seven days after dosing. The data belowon the left show that the released, free warhead from STRO-002 is observed in the tumor starting one day after dosing, without evidence of freewarhead circulating in the blood at any time point. In contrast, the data on the right shows that free warhead derived from the benchmark moleculecan be observed circulating in the blood one day after dosing, which could contribute to unintended toxicities. In other preclinical studies, the freehemiasterlin warhead is cleared rapidly from the circulation. Taken together, we believe that these data demonstrate the stability of STRO-002 invivo, which we believe will contribute to a superior therapeutic index compared to ADCs made using conventional technology.Murine Tumor Model – Free Warhead in Tumor vs. Blood After Dosing We examined the safety of STRO-002 in an exploratory toxicology study in non-human primates. Hematological toxicity was observedconsistent with the known effects of the STRO-002 cytotoxic tubulin inhibitor component. No other drug-related toxicities were observed and,importantly, there were no observed ocular effects in the non-human primate study. 20  Clinical Development PlanWe began enrolling patients in a STRO-002 Phase 1 trial focused on ovarian and endometrial cancers in March 2019, with initial safety dataexpected by year end 2019. Our Phase 1 trial for STRO-002 is an open-label study that will evaluate STRO-002 as a monotherapy for patients withovarian and endometrial cancers. The trial is being conducted in two-parts, dose escalation and dose expansion. The primary objectives of theSTRO-002 clinical trial are to determine the safety and tolerability profile, to define the recommended Phase 2 dose level and interval and toevaluate preliminary anti-tumor activity. Our secondary objectives are to characterize the human pharmacokinetics and additional safety,tolerability and efficacy measures.We intend to seek to enroll adult patients with advanced and/or refractory ovarian cancer initially, for whom no suitable treatment exists.These patients are considered to have incurable disease and need repeated courses of life-prolonging and palliative treatment. We believe thatovarian cancer patients will be enrolled in a dose escalation cohort, with treatment frequency and duration yet to be determined. If anti-tumoractivity is observed during the dose escalation phase, we would then plan to enroll patients into two dose expansion cohorts (ovarian cancer andendometrial cancer).Additional Discovery EffortsOur technology allows us to rapidly incorporate non-natural amino acids in varying numbers and positions, to identify the best cytokinemodification for pharmacological activity, pharmacokinetics and safety. Furthermore, our technology enables rapid preclinical development andtransition to cGMP manufacturing, ensuring speed to clinic in a promising field. Our drug discovery teams are exploring novel immuno-oncologytherapies, including cytokine-based therapies.We are also actively researching to identify new ADCs to add to our pipeline. We have multiple ADC discovery programs ongoing using ourXpressCF+™ Platform. Our protein engineering and chemistry efforts are focused on maximizing therapeutic indices, and our technology allows usto rapidly test our therapeutic hypothesis in significantly more product candidates than conventional protein synthesis allows in order to identify thebest molecule to advance to the clinic.Our bispecific antibody drug discovery programs are focused on T cell-engagers. We are using our technology to find the optimum proteinstructure and T cell-engaging properties to maximize safety and efficacy for this promising class of cancer therapeutics.Collaboration and License AgreementsMerck CollaborationIn July 2018, we entered into the 2018 Merck Agreement with Merck to jointly develop up to three research programs focusing on cytokinederivatives for cancer and autoimmune disorders.Upon signing the 2018 Merck Agreement, Merck paid us an upfront payment of $60.0 million for the research and development of two targetprograms, and Merck purchased $20.0 million in Series E redeemable convertible preferred stock from us. Additionally, Merck purchased from us,concurrently with our initial public offering in a private placement, approximately $10.0 million of shares of our common stock at a price per shareequal to the initial public offering price. Under the 2018 Merck Agreement, we are eligible to receive financial support for our research anddevelopment efforts based on an agreed-upon level of full-time equivalent personnel effort and related reimbursement rate, and we are eligible toreceive another milestone payment if a third target program is selected. Under the terms of the 2018 Merck Agreement, we are eligible to receive aggregate milestone payments of up to $1.6 billion, assuming thedevelopment and sale of all therapeutic candidates and all possible indications identified under the collaboration. If one or more products from eachof the target programs are developed for non-oncology or a single indication, we will be eligible for reduced aggregate milestone payments. Inaddition, we are eligible to receive tiered royalties ranging from mid-single digit to low teen percentages on the worldwide sales of any commercialproducts that may result from the collaboration. 21  The 2018 Merck Agreement expires on a product-by-product and country-by-country basis upon the later of the expiration of the patentscovering products licensed under the 2018 Merck Agreement or ten years after the first commercial sale of a product covered by the 2018 MerckAgreement. Upon expiration, Merck will have a fully paid-up, royalty-free, perpetual, and irrevocable non-exclusive license, with the right to grantsublicenses, under certain of our intellectual property rights.Merck may terminate the 2018 Merck Agreement at any time with 60 days’ prior written notice. Either we or Merck has the right to terminatethe 2018 Merck Agreement based on the other party’s uncured material breach or bankruptcy.Celgene CollaborationIn September 2014, we entered into a Collaboration and License Agreement with Celgene, or the 2014 Celgene Agreement, to discover anddevelop bispecific antibodies and ADCs focused primarily on the field of immuno-oncology, using our proprietary integrated cell-free proteinsynthesis platform, XpressCF™. Under the 2014 Celgene Agreement, we received upfront payments totaling $95.0 million in September 2014,which included an $11.9 million equity investment, and additional payments totaling $60.0 million.In August 2017, we entered an Amended and Restated Collaboration and License Agreement with Celgene, or the 2017 Celgene Agreement,to refocus our 2014 Celgene Agreement on four programs that are advancing throughout preclinical development, which are: •BCMA ADC. The most advanced product candidate under collaboration is a BCMA ADC product candidate, which has beendesignated as a development candidate by Celgene for the treatment of multiple myeloma. We believe Celgene currently plans to submitan IND for this product candidate in the first half of 2019. We currently own the development and commercial rights in the United Statesto this BCMA ADC product candidate; however, assuming it is the first development candidate from our 2017 Celgene Agreement tohave an active IND in the United States, Celgene will then automatically own worldwide development and commercialization rights tosuch product. •Bispecific Antibodies. The other three product candidates subject to our Celgene collaboration are bispecific antibodies, all of whichhave been designated as development candidates by Celgene. We currently own the rights to develop and commercialize these productcandidates in the United States; however, assuming the second development candidate from our 2017 Celgene Agreement achieves anactive IND in the United States, and Celgene makes the required payments to us, then Celgene will automatically own worldwidedevelopment and commercialization rights to such second product.Upon signing of the 2017 Celgene Agreement, we received an option fee payment of $12.5 million in August 2017 and are eligible to receive asecond option fee payment of $12.5 million following the first IND clearance, if any, for one of the four programs, if Celgene desires to maintain itsoption to acquire the U.S. rights to develop and commercialize a second collaboration program to reach IND status. If Celgene exercises its optionto acquire from us U.S. rights to a second collaboration program, it will make an option exercise fee payment to us, the amount of which dependson which program reaches IND status.We have received and will be eligible to receive financial support for research and development services assigned to us by Celgene, basedon an agreed-upon level of full-time equivalent personnel effort and related reimbursement rate.Under the terms of the 2017 Celgene Agreement, we are entitled to earn development and regulatory contingent payments for each of the fourprograms under the collaboration, and royalties on sales of any commercial products that may result from the 2017 Celgene Agreement.Additionally, we received a $10.0 million payment in December 2018 for certain manufacturing activities. For licensed products for which Celgeneholds worldwide rights, we are eligible to receive aggregate milestone and option fee payments of up to $295.0 million for certain licensed productsand up to $393.7 million for certain other licensed products under the collaboration, if approved in multiple indications, and, depending on thelicensed product, tiered royalties ranging from single digit to low teen percentages on worldwide sales of any commercial products that may resultfrom the 2017 Celgene Agreement. Additionally, for licensed products for which Celgene holds ex-U.S. rights, we will also be eligible to receivepre-commercial contingent payments and tiered royalties ranging from mid to high single digit percentages.Celgene may terminate the 2017 Celgene Agreement at any time with 120 days’ prior written notice. Either we or Celgene has the right toterminate the 2017 Celgene Agreement based on the other party’s uncured material breach, challenge of the validity and enforceability ofintellectual property, or bankruptcy. 22  In January 2019, Bristol-Myers Squibb announced the entry into a definitive agreement to acquire Celgene with the intent of creating a leadingfocused specialty biopharma company. The transaction is expected to complete in the third quarter of 2019, subject to approval by companyshareholders, customary closing conditions, and regulatory approvals.EMD Serono CollaborationIn September 2014, we entered into a License Agreement with EMD Serono, or the MDA Agreement, to develop ADCs for multiple cancertargets, which replaced the Collaboration Agreement we had entered into with EMD Serono in May 2014, or the Collaboration Agreement. The mostadvanced program in the collaboration is a bispecific ADC drug candidate currently in preclinical development.Upon signing the Collaboration Agreement, we received $10.0 million in an upfront payment. In addition, upon signing the MDA Agreement,we received an additional $10.0 million in an upfront payment and receive financial support for our research and development services based on anagreed-upon level of full-time equivalent personnel effort and related reimbursement rate. As of December 31, 2018, we had receivedapproximately $9.3 million in funding support for research and development services. We anticipate entering into a manufacturing supplyagreement with EMD Serono to provide them with product candidate materials for IND-enabling and clinical studies.We are eligible to receive up to $52.5 million for each product developed under the MDA Agreement, primarily from pre-commercial contingentpayments. In addition, we are eligible to receive tiered royalties ranging from low to mid single digit percentages, along with certain additional one-time royalties, on worldwide sales of any commercial products that may result from the MDA Agreement. The MDA Agreement term expires on aproduct-by-product and country-by-country basis upon the later of the expiration of the patents covering products licensed under the MDAAgreement or ten years after the first commercial sale of a product covered under the MDA Agreement. Upon expiration, EMD Serono will have afully paid-up, royalty-free, perpetual, and irrevocable non-exclusive license, with the right to grant sublicenses, under certain of our intellectualproperty rights.EMD Serono may terminate the MDA Agreement at any time with 90 days’ prior written notice or upon our inability to provide EMD Seronoaccess to a specified number of cancer drug targets. Either we or EMD Serono has the right to terminate the MDA Agreement based on the otherparty’s uncured material breach or bankruptcy.Stanford LicenseIn October 2007, we entered into an Amended and Restated Exclusive Agreement, or the Stanford License, with the Board of Trustees of theLeland Stanford Junior University, or Stanford, that grants us an exclusive license, with the right to sublicense, under the patent rights owned byStanford covering certain technology rights related to our XpressCF™ expression system.Upon initiation of the agreement, we made a payment to Stanford of approximately $83,000, of which a portion was creditable against certainprior patent costs incurred by Stanford, reimbursement of certain out-of-pocket costs incurred by Stanford in patent filing, prosecution andmaintenance of approximately $184,000, and issued shares of our common stock to Stanford. We are required to make milestone payments toStanford of up to approximately $930,000 on the accomplishment of certain development and regulatory milestones, of which $180,000 has beenpaid through December 31, 2018, with a $750,000 payment due upon first commercial sale of the first licensed product consisting of a molecule orcompound covered by the licensed patent rights, or the 14th anniversary of the Stanford License in October 2021. Additionally, we owe Stanfordannual license maintenance fees of $75,000, which may be creditable against earned royalties in such year, and are required to reimburse Stanfordfor ongoing patent-related costs. We are also required to pay to Stanford low single digit royalties on net sales and to share any sublicensingincome received related to the licensed technology. We may terminate the agreement at any time upon 30 days’ written notice.SutroVax InvestmentIn 2013, we and Johnson & Johnson Innovation, through the Johnson & Johnson Development Corporation, provided initial co-funding for anew company called SutroVax, Inc., or SutroVax, with which we have a license agreement. Under the agreement, SutroVax has the right to usethe XpressCF+™ Platform to discover and develop vaccine candidates for the treatment or prophylaxis of infectious diseases. The lead programfor SutroVax is a broad-spectrum pneumococcal conjugate vaccine. SutroVax is responsible for performing all research and developmentactivities, and we provide technical support and supply XtractCF and other materials to SutroVax. 23  We retain an ownership interest in SutroVax and are eligible for single digit royalties on net sales of any vaccine candidates. Also, we retainthe right to discover and develop vaccines for the treatment or prophylaxis of any disease that is not caused by an infectious pathogen, includingcancer.ManufacturingWe have significant expertise in the production of therapeutic biologics. Our proprietary XpressCF™ Platform is a cell-free protein synthesistechnology that enables rapid and systematic process development, streamlined scale-up and cGMP manufacturing.Extract and ReagentsWe manufacture our cell-free extract, and expect to manufacture related reagents, in our cGMP manufacturing facility in San Carlos,California for our clinical trials and supply commitments. If we are successful in developing an effective strategic relationship with a contractmanufacturing organization, or CMO, we would consider supplementing our manufacturing capacity by outsourcing the production of cell-freeextract and related reagents to such CMO to cover our needs during product launch and for long-term commercial supply.Drug Substance and Drug ProductOur process development and manufacturing strategies are tailored to rapidly advance our product candidates, including the use of a supplychain of established CMOs to ensure successful execution. The production of antibodies will be done by either us or CMOs, depending on ourinternal cGMP production capacity. The production of all other necessary elements for the manufacture of our ADC product candidates, and thefinal manufacture of the ADC drug product, will be handled entirely by CMOs. Our XpressCF+™ Platform has been successfully used formanufacturing several antibodies and requires minimal process optimization to support early clinical phase manufacturing. We utilize industryestablished production steps for the purification of our antibodies. The CMOs we have selected have strong track records in cGMP manufacturingwith expertise in clinical or commercial drug manufacturing for the cytotoxic agent, conjugation and fill-finish of therapeutic biologics. All activitiesfrom cell-free extract production to formulated drug product are performed to maintain aggressive timelines and minimize delays.CompetitionThe biotechnology and biopharmaceutical industries, and the immuno-oncology subsector, are characterized by rapid evolution oftechnologies, fierce competition and strong defense of intellectual property. Any product candidates that we successfully develop andcommercialize will have to compete with existing therapies and new therapies that may become available in the future. While we believe that ourproprietary XpressCF™ Platform and scientific expertise in the field of biologics and immuno-oncology provide us with competitive advantages, awide variety of institutions, including large biopharmaceutical companies, specialty biotechnology companies, academic research departments andpublic and private research institutions, are actively developing potentially competitive products and technologies. We face substantial competitionfrom biotechnology and biopharmaceutical companies developing products in immuno-oncology. Our competitors include larger and better fundedbiopharmaceutical, biotechnological and therapeutics companies, including companies focused on cancer immunotherapies, such as AstraZenecaPLC, Bristol-Myers Squibb Company, or BMS, GlaxoSmithKline PLC, Merck & Co., Inc., Novartis AG, Pfizer Inc., or Pfizer, Roche Holding Ltd,Sanofi S.A and companies focused on ADCs, such as Pfizer, ImmunoGen, Inc., Seattle Genetics, Inc. and Genentech, Inc., or Genentech, aswell as numerous small companies. Moreover, we also compete with current and future therapeutics developed at universities and other researchinstitutions.If our lead product candidates are approved, they will compete with a range of therapeutic treatments that are either in development orcurrently marketed. Currently marketed oncology drugs and therapeutics range from ADCs, such as Genentech’s Kadcyla, to immune checkpointinhibitors, such as BMS’s Opdivo, to T cell-engager immunotherapies, such as Amgen, Inc.’s Blincyto. In addition, numerous compounds are inclinical development for cancer treatment. With respect to B cell based malignancies, such as multiple myeloma, the most common treatmentsare chemotherapeutic compounds, radiation therapy, stem cell transplantation and immunomodulating agents. The clinical development pipeline forcancer includes small molecules, antibodies, vaccines, cell therapies and immunotherapies from a variety of companies and institutions. 24  Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical and human resources than wedo. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread marketacceptance, rendering our treatments obsolete or non-competitive. Accelerated merger and acquisition activity in the biotechnology andbiopharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Thesecompanies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites andpatient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stagecompanies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize products that are moreeffective, safer, less toxic, more convenient or less expensive than our comparable products. In geographies that are critical to our commercialsuccess, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance ofthe entry of our products. We believe the factors determining the success of our programs will be the efficacy, safety and convenience of ourproduct candidates.ReimbursementThe regulations that govern pricing and reimbursement for new drugs and therapeutic biologics vary widely from country to country. Somecountries require approval of the sale price of a drug or therapeutic biologic before it can be marketed. In many countries, the pricing review periodbegins after marketing approval is granted. In some foreign markets, prescription biopharmaceutical pricing remains subject to continuinggovernmental control even after initial approval is granted. As a result, a drug company can obtain regulatory approval for a product in a particularcountry, but then be subject to price regulations that delay commercial launch of that product.A drug company’s ability to commercialize any products successfully will also depend in part on the extent to which coverage and adequatereimbursement for these products and related treatments will be available from government authorities, private health insurers and otherorganizations. Even if one or more products are successfully brought to the market, these products may not be considered cost-effective, and theamount reimbursed for such products may be insufficient to allow them to be sold on a competitive basis. Increasingly, third-party payors whoreimburse patients or healthcare providers, such as government and private insurance plans, are requiring that drug companies provide them withpredetermined discounts from list prices, and are seeking to reduce the prices charged or the amounts reimbursed for biopharmaceutical products.Significant delays can occur in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limitedthan the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities. Moreover, eligibility forreimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers a drug company’s costs,including research, development, manufacture, sale and distribution.Interim reimbursement levels for new drugs or therapeutic biologics, if applicable, may also be insufficient to cover a drug company’s costsand may not be made permanent. Reimbursement rates may be based on payments allowed for lower cost drugs or therapeutic biologics that arealready reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections inMedicare data. Net prices for drugs or therapeutic biologics may be reduced by mandatory discounts or rebates required by government healthcareprograms or private payors and by any future relaxation of laws that presently restrict imports of drugs or therapeutic biologics from countrieswhere they may be sold at lower prices than in the United States. Further, no uniform policy for coverage and reimbursement exists in the UnitedStates. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but alsohave their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement can differ significantlyfrom payor to payor. 25  Intellectual PropertyWe strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business,including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek toprotect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outsideof the United States related to our proprietary technology, inventions, improvements, platforms and product candidates that are important to thedevelopment and implementation of our business. Our patent portfolio is intended to cover, but is not limited to, our technology platforms, ourproduct candidates and components thereof, their methods of use and processes for their manufacture, our proprietary reagents and assays, andany other inventions that are commercially important to our business. We also rely on trade secret protection of our confidential information andknow-how relating to our proprietary technology, platforms and product candidates, continuing innovation, and in-licensing opportunities to develop,strengthen, and maintain our proprietary position in our XpressCF™ Platform and product candidates. We expect to rely on data exclusivity,market exclusivity, patent term adjustment and patent term extensions when available. Our commercial success may depend in part on our abilityto obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality ofour trade secrets; to maintain our licenses to use intellectual property owned or controlled by third parties; to defend and enforce our proprietaryrights, including our patents; to defend against and challenge the assertion by third parties of their purported intellectual property rights; and tooperate without the unauthorized infringement on the valid and enforceable patents and other proprietary rights of third parties.We believe that we have a strong global intellectual property position and substantial know-how and trade secrets relating to our XpressCF™platform technology, platform and product candidates. Our patent portfolio as of December 31, 2018 contained 12 U.S. issued patents and 78patents issued in ex-U.S. jurisdictions including Europe, China, Japan, Australia and Singapore and 30 U.S. pending applications as well as 79patent applications pending in ex-U.S. jurisdictions including Europe, China, Japan, Australia and Singapore owned solely by us. These patentsand patent applications include claims relating: •bacterial strains, and extracts prepared therefrom, comprising an engineered Release Factor 1 protein, which facilitates incorporation ofnon-natural amino acids into proteins; •bacterial strains, and extracts prepared therefrom, comprising combinations of chaperone proteins, which facilitate expression ofcomplex eukaryotic proteins in bacterial extracts; •antibodies targeting receptors of interest, including CD74 and FolRα; •ADCs targeting receptors of interest, including CD74 and FolRα; •hemiasterlin, both as a cytotoxin and as a linker-warhead, which is used in our STRO-002 product candidate; and •para-azidomethylphenylalanine, or pAMF, and proteins comprising pAMF, our workhorse non-natural amino acid which is primarily usedwhen we conjugate molecules to proteins produced with our XpressCF+™ Platform.Our issued patents, and any patents that may issue from our pending patent applications, in our solely owned patent portfolio are expected toexpire between January 2030 and October 2039, absent any patent term adjustments or extensions.In addition, we have exclusively licensed the following patent portfolio from Stanford: 15 U.S. issued patents and 44 patents issued in ex-U.S. jurisdictions including Europe, China, Canada, India, Australia, South Korea, Eurasia and Singapore. This patent portfolio includes claimsrelating to methods related to in vitro protein synthesis that we use in our XpressCF™ Platform when discovering, developing and manufacturingour product candidates.Patents in our patent portfolio licensed from Stanford are expected to expire between March 2019 and January 2028, absent any patent termadjustments or extensions.As for the XpressCF™ Platform, product candidates and processes we develop and commercialize, in the normal course of business, weintend to pursue, where appropriate, patent protection or trade secret protection relating to compositions, methods of manufacture, assay methods,methods of use, treatment of indications, dosing and formulations. We may also pursue patent protection with respect to product developmentprocesses and technology. 26  The following table describes the material patents and patent applications owned or licensed by us. Patent RelevanceOwnershipType ofPatentProtectionExpiration orAnticipatedExpiration(absent patentterm extensionor adjustment)PendingJurisdictionsIssuedJurisdictionsXpressCF™ PlatformIn licensed fromStanfordUtility2023NoneUS, AU, CA, EP, JPXpressCF™ PlatformOwned by SutroUtility2033US, CA, CN, IL, IN, JP,KR,US, AU, EP, SGXpressCF™ PlatformOwned by SutroUtility2034US, CA, CN, EP, HK,IL, IN, JP, KR, SGAUXpressCF™ PlatformOwned by SutroUtility2034USEPXpressCF™ PlatformOwned by SutroUtility2035NoneUS, EPSTRO-001 and STRO-002Owned by SutroUtility2033US, BR, CA, CN, EP,JP, IN, HK, KRUS, AU, SGSTRO-001 and STRO-002Owned by SutroUtility2033US, BR, CA, EP, HK,IL, IN, JP, KRUS, AU, CN, SGSTRO-001Owned by SutroUtility2035US, EPNoneSTRO-001Owned by SutroUtility2037PCTNoneSTRO-001Owned by SutroUtility2037PCTNoneSTRO-001Owned by SutroProvisional2038PCTNoneSTRO-002Owned by SutroUtility2037PCTNoneSTRO-002Owned by SutroProvisional2038USNoneSTRO-002Owned by SutroUtility2036US, AU, BR, CA, CN,EP, IL, IN, JP, KR, SGNone We continually assess and refine our intellectual property strategy as we develop new platform technologies and product candidates. To thatend, we are prepared to file additional patent applications if our intellectual property strategy requires such filings, or where we seek to adapt tocompetition or seize business opportunities. Further, we are prepared to file patent applications, as we consider appropriate under thecircumstances, relating to the new technologies that we develop. In addition to filing and prosecuting patent applications in the United States, weoften file counterpart patent applications in the European Union and in additional countries where we believe such foreign filing is likely to bebeneficial, including but not limited to any or all of Australia, Brazil, Canada, China, Hong Kong, India, Israel, Japan, Mexico, New Zealand,Singapore and South Korea. 27  The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we file, thepatent term is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of United States patents may beextended for delays incurred due to compliance with the FDA requirements or by delays encountered during prosecution that are caused by theUnited States Patent and Trademark Office, or the USPTO. For example, the Hatch-Waxman Act permits a patent term extension for FDA-approved drugs of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time thedrug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of productapproval, and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions toextend the term of a patent that covers an approved drug. In the future, if and when our biopharmaceutical product candidates receive FDAapproval, we expect to apply for patent term extensions on patents covering those product candidates. We intend to seek patent term extensionsto any of our issued patents in any jurisdiction where these are available; however there is no guarantee that the applicable authorities, includingthe USPTO and FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of suchextensions. Our currently issued patents will likely expire on dates ranging from 2030 to 2035, unless we receive patent term extension or patentterm adjustment, or both. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates rangingfrom 2033 to 2039, unless we receive patent term extension or patent term adjustment, or both. However, the actual protection afforded by apatent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope ofits coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity andenforceability of the patent.The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policyregarding the scope of claims allowable in patents in the field of immunotherapy has emerged in the United States. The patent situation outside ofthe United States is even more uncertain. Changes in the patent laws and rules, either by legislation, judicial decisions, or regulatory interpretationin the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and moregenerally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell,or importing any of our patented inventions, either directly or indirectly, will depend in part on our success in obtaining, defending, and enforcingpatent claims that cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property,we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filedby us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commerciallyuseful in protecting our platforms and product candidates and the methods used to manufacture those platforms and product candidates.Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our platform’sproduct candidates. However, the area of patent and other intellectual property rights in biotechnology is an evolving one with many risks anduncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our patented XpressCF™technology, platforms and product candidates and practicing our proprietary technology. Our issued patents and those that may issue in the futuremay be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related platforms or productcandidates or limit the length of the term of patent protection that we may have for our XpressCF™ technology, platforms and product candidates.In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors withsimilar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition forour XpressCF™ technology, platforms and product candidates. Moreover, because of the extensive time required for development, testing andregulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any related patent mayexpire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. For this and morecomprehensive risks related to our proprietary technology, inventions, improvements, platforms and product candidates, please see the sectionentitled “Risk Factors—Risks Related to Intellectual Property.”We intend to file applications for trademark registrations in connection with our product candidates in various jurisdictions, including theUnited States. We have filed for trademark protection of the Sutro Biopharma mark, the XpressCF™ mark and the XpressCF+™ mark with theUSPTO. XpressCF™ refers to our cell-free protein synthesis technology as a whole, and XpressCF+™ refers specifically to cell-free proteinsynthesis incorporating one or more non-natural amino acids. The Sutro Biopharma mark was registered by the USPTO in 2014 and theXpressCF™ and XpressCF+™ marks were registered by the USPTO in 2017. 28  We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our confidential andproprietary information as trade secrets, including through contractual means with our employees and consultants, third parties may independentlydevelop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology.Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientificcollaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment orconsulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developedor made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third partiesexcept in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and which arerelated to our current or planned business or research and development or made during normal working hours, on our premises or using ourequipment or proprietary information, are our exclusive property. In many cases our confidentiality and other agreements with consultants, outsidescientific collaborators, sponsored researchers and other advisors require them to assign or grant us licenses to inventions they invent as a resultof the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions.We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of ourpremises and physical and electronic security of our information technology systems. Although we have confidence in these individuals,organizations, and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. To theextent that our employees, contractors, consultants, collaborators, and advisors use intellectual property owned by others in their work for us,disputes may arise as to the rights in related or resulting know-how and inventions.Government RegulationGovernment authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions extensively regulate,among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling,advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. Theprocesses for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance withapplicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.FDA Approval ProcessIn the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, orthe FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture,storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import andexport of pharmaceutical products. Biological products used for the prevention, treatment, or cure of a disease or condition of a human being aresubject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of new drug applications, or NDAs.Biological products are approved for marketing under provisions of the Public Health Service Act, or PHS Act, via a Biologics License Application,or BLA. However, the application process and requirements for approval of BLAs are very similar to those for NDAs, and biologics are associatedwith similar approval risks and costs as drugs. Failure to comply with applicable U.S. requirements may subject a company to a variety ofadministrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending BLAs, warning or untitled letters, product recalls, productseizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.Biological product development for a new product or certain changes to an approved product in the United States typically involves preclinicallaboratory and animal tests, the submission to the FDA of an investigational new drug application, or IND, which must become effective beforeclinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the biologic for eachindication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual timerequired may vary substantially based upon the type, complexity, and novelty of the product or disease. 29  Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess thecharacteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations andrequirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with otherinformation, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinicaltests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after thesubmission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questionedthe IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigationalbiologic to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance withfederal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health ofpatients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of thetrial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S.patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes thatthe clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients.The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, forapproval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’srequirements, or may impose other conditions.Clinical trials to support BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. InPhase 1, the initial introduction of the biologic into healthy human subjects or patients, the product is tested to assess metabolism,pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Inoncology clinical trials, efficacy endpoints are also often explored in Phase 1. Phase 2 usually involves trials in a limited patient population todetermine the effectiveness of the drug or biologic for a particular indication, dosage tolerance, and optimum dosage, and to identify commonadverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations,Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically atgeographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug or biologic and to provideadequate information for the labeling of the product. In some instances, trial phases may be truncated or combined into one or more combined-phase or adaptive design trials. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate theefficacy of the biologic. A single Phase 3 trial with other confirmatory evidence may be sufficient in certain oncological conditions where the trial isa large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality,irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would bepractically or ethically impossible.The manufacturer of an investigational drug in a Phase 2 or 3 clinical trial for a serious or life-threatening disease is required to makeavailable, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.After completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required beforemarketing of the product may begin in the United States. The BLA must include the results of all preclinical, clinical, and other testing and acompilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting a BLA issubstantial. The submission of most BLAs is additionally subject to a substantial application user fee, currently exceeding $2,588,000 for FiscalYear 2019. The applicant under an approved BLA is also subject to an annual program fee, currently exceeding $309,000 per prescription drugproduct for Fiscal Year 2019. Beginning in Fiscal Year 2018, this annual program fee replaced the annual product and establishment fees. Thesefees are typically increased annually. The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted forfiling based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is acceptedfor filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most such applications forstandard review biologic products are reviewed within 10 months of the date the FDA files the BLA; most applications for priority review biologicsare reviewed within six months of the date the FDA files the BLA. Priority review can be applied to a biologic that the FDA determines has thepotential to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared toavailable therapies. The review process for both standard and priority review may be extended by the FDA for three additional months to considercertain late-submitted information, or information intended to clarify information already provided in the submission. 30  The FDA may also refer applications for novel biologic products, or biologic products that present difficult questions of safety or efficacy, toan advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whetherthe application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows suchrecommendations. Before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally,the FDA will inspect the facility or the facilities at which the biologic product is manufactured. The FDA will not approve the product unlesscompliance with current Good Manufacturing Practices, or cGMPs, is satisfactory and the BLA contains data that provide substantial evidencethat the biologic is safe, pure, potent and effective in the indication studied.After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A completeresponse letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for theFDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, theFDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type ofinformation included. An approval letter authorizes commercial marketing of the biologic with specific prescribing information for specificindications. As a condition of BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that thebenefits of the biologic outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, andelements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materiallyaffect the potential market and profitability of the product. Moreover, product approval may require substantial post-approval testing andsurveillance to monitor the product’s safety or efficacy.Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identifiedfollowing initial marketing. Changes to some of the conditions established in an approved application, including changes in indications, labeling, ormanufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can beimplemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses thesame procedures and actions in reviewing BLA supplements as it does in reviewing BLAs.Fast Track Designation and Accelerated ApprovalThe FDA is required to facilitate the development, and expedite the review, of biologics that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs forthe condition. Under the fast track program, the sponsor of a new biologic candidate may request that the FDA designate the candidate for aspecific indication as a fast track biologic concurrent with, or after, the filing of the IND for the candidate. The FDA must determine if the biologiccandidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. Under the fast track program and FDA’saccelerated approval regulations, the FDA may approve a biologic for a serious or life-threatening illness that provides meaningful therapeuticbenefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinicalendpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidityor mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternativetreatments.In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a directmeasurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinicalendpoints. A biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion ofPhase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval trials, or confirm aclinical benefit during post-marketing trials, will allow the FDA to withdraw the biologic from the market on an expedited basis. All promotionalmaterials for biologic candidates approved under accelerated regulations are subject to prior review by the FDA.In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with the FDA, the FDAmay initiate review of sections of a fast track product’s BLA before the application is complete. This rolling review is available if the applicantprovides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees.However, the FDA’s time period goal for reviewing an application does not begin until the last section of the BLA is submitted. Additionally, thefast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in theclinical trial process. 31  Orphan Drug DesignationUnder the Orphan Drug Act, the FDA may grant orphan drug designation to biological products intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in theUnited States, there is no reasonable expectation that the cost of developing and making a product available in the United States for such diseaseor condition will be recovered from sales of the product. In October 2018, we were granted Orphan Drug Designation by the FDA, for STRO-001 forthe treatment of multiple myeloma.Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity ofthe biological product and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in,or shorten the duration of, the regulatory review and approval process. The first BLA applicant to receive FDA approval for a product with particularprincipal molecular structural features to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusivemarketing period in the United States for that product for that indication. During the seven-year exclusivity period, the FDA may not approve anyother applications to market a biological product containing the same active moiety for the same disease, except in limited circumstances, suchas a showing of clinical superiority to the product with orphan drug exclusivity. A product is clinically superior if it is safer, more effective or makesa major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biological product for thesame disease or condition, or the same biological product for a different disease or condition. Among the other benefits of orphan drug designationare tax credits for certain research and a waiver of the BLA user fee.Disclosure of Clinical Trial InformationSponsors of clinical trials of FDA-regulated products, including biological products, are required to register and disclose certain clinical trialinformation. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of theclinical trial are then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials aftercompletion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of thetrial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.Pediatric InformationUnder the Pediatric Research Equity Act, or PREA, BLAs or supplements to BLAs must contain data to assess the safety and effectivenessof the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for eachpediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submissionof data. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation hasbeen granted, except a product with a new active ingredient that is molecularly targeted cancer product intended for the treatment of an adultcancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that issubject to an NDA or BLA submitted on or after August 18, 2020.Additional Controls for BiologicsTo help reduce the increased risk of the introduction of adventitious agents, the PHS Act emphasizes the importance of manufacturingcontrols for products whose attributes cannot be precisely defined. The PHS Act also provides authority to the FDA to immediately suspendlicenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical publichealth needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in theUnited States and between states. 32  After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturingprocess, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product issubject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocolshowing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA mayalso perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by themanufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, andeffectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, aresubject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.Post-Approval RequirementsOnce a BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Biologics may be marketed only for the approvedindications and in accordance with the provisions of the approved labeling.Adverse event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may placeconditions on an approval that could restrict the distribution or use of the product. In addition, quality control, biological product manufacture,packaging, and labeling procedures must continue to conform to cGMPs after approval. Biologic manufacturers and certain of their subcontractorsare required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodicunannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly,manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs.Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if itencounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.FDA Regulation of Companion DiagnosticsA biologic product may rely upon an in vitro companion diagnostic for use in selecting the patients that will respond to a therapy. If an in vitrodiagnostic is essential to the safe and effective use of the therapeutic product, then the FDA generally will require approval or clearance of thediagnostic at the same time that FDA approves the therapeutic product.Pursuing FDA approval of an in vitro companion diagnostic usually would require a pre-market approval, or PMA, for that diagnostic. Basedon a final FDA guidance document, and the FDA’s past treatment of companion diagnostics, the FDA will likely require PMA approval of an in vitrocompanion diagnostics to identify patient populations suitable for a cancer therapy. The review of these in vitro companion diagnostics involvescoordination of review by the FDA’s Center for Biologics Evaluation and Research and by the FDA’s Center for Devices and Radiological Health.Approval of a companion diagnostic is generally required at the time of new drug approval.The PMA process, including the gathering of clinical and nonclinical data and the submission to and review by the FDA, can take severalyears or longer. The applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness, includinginformation about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications aresubject to an application fee, which exceeds $322,000 for most PMAs for Fiscal Year 2019. In addition, PMAs for devices must generally includethe results from extensive preclinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device foreach indication for which FDA approval is sought. In particular, for a diagnostic, the applicant must demonstrate that the diagnostic producesreproducible results between multiple users at multiple laboratories. As part of the PMA review, the FDA will typically inspect the manufacturer’sfacilities for compliance with the Quality System Regulation, or QSR, which imposes elaborate testing, control, documentation and other qualityassurance requirements. 33  PMA approval is not guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based ondeficiencies in the application and require additional clinical trial or other data that may be expensive and time consuming to generate and that cansubstantially delay or prevent approval. If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for theapproved indications, which can be more limited than those originally sought by the applicant. The PMA can include post-approval conditions thatthe FDA believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling,promotion, sale and distribution.After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only forthe uses and indications for which they are cleared or approved. Device manufacturers must also register with FDA and list their devices. Amedical device manufacturer’s manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methodsand documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices.Domestic facility records and manufacturing processes are subject to periodic inspections by the FDA.Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the followingsanctions: warning or untitled letters, fines, injunctions, civil or criminal penalties, recall or seizure of current or future products, operatingrestrictions, partial suspension or total shutdown of production, denial of submissions for new products, or withdrawal of PMA approvals.Other Healthcare LawsIn addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied torestrict certain general business and marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickbackstatutes, false claims statutes and other healthcare laws and regulations.The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remunerationto induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursableunder Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act as amended by theHealth Care and Education Reconciliation Act, collectively, the ACA, amended the intent element of the federal statute so that a person or entityno longer needs to have actual knowledge of the statute or specific intent to violate it in order to commit a violation. This statute has beeninterpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managerson the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities fromprosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended toinduce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.Federal civil and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity from knowinglypresenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a falsestatement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as wellas programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, severalpharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricingservices, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product tocustomers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, includingoff-label promotion, may also violate false claims laws. Additionally, the ACA amended the federal Anti-Kickback Statute such that a violation ofthat statute can serve as a basis for liability under the federal False Claims Act. The majority of states also have statutes or regulations similar tothe federal Anti-Kickback Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs,or, in several states, apply regardless of the payor. 34  Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among otherthings, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely toinfluence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutescreated by the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfullyexecuting or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses,representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the deliveryof or payment for healthcare benefits, items or services.In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, imposesobligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their businessassociates that perform certain services involving the storage, use or disclosure of individually identifiable health information, including mandatorycontractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information, and requirenotification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information.Further, pursuant to the ACA, the Centers for Medicare & Medicaid Services, or CMS, has issued a final rule that requires manufacturers ofprescription drugs to collect and report information on certain payments or transfers of value to physicians and teaching hospitals, as well asinvestment interests held by physicians and their immediate family members. The reports must be submitted on an annual basis and the reporteddata are posted in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetarypenalties. Effective January 1, 2022, transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registerednurse anesthetists, and certified nurse-midwives must also be reported.In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drugproducts and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-relatedactivities, such as the provision of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies andtheir outcomes. Some states require the reporting of certain pricing information, including information pertaining to and justifying price increases, orprohibit prescription drug price gouging. In addition, states such as California, Connecticut, Nevada, and Massachusetts require pharmaceuticalcompanies to implement compliance programs and/or marketing codes. Additional jurisdictions, such as the City of Chicago and the District ofColumbia, require pharmaceutical sales representatives to be licensed and meet continuing education requirements. Several additional states areconsidering similar proposals. Certain states and local jurisdictions also require the registration of pharmaceutical sales representatives.Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.Efforts to ensure that business arrangements with third parties comply with applicable healthcare laws and regulations involve substantialcosts. If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, includingcivil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss ofeligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other governmentprograms, including Medicare and Medicaid, integrity oversight and reporting obligations and reputational harm. Although effective complianceprograms can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any actionfor an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert management’s attention from theoperation of the business, even if such action is successfully defended. 35  U.S. Healthcare ReformIn the United States, there have been, and continue to be, proposals by the federal government, state governments, regulators and third-partypayors to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system. For example, in March2010, the ACA was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, andsignificantly impacts the U.S. pharmaceutical industry. The ACA, among other things, (i) subjected therapeutic biologics to potential competitionby lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (ii) proscribed a new methodology by which rebatesowed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused,instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program andextended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual fees and taxes onmanufacturers of certain branded prescription drugs and therapeutic biologics, (v) established a new Medicare Part D coverage gap discountprogram, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices (increased to 70% beginning in 2019) ofapplicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’soutpatient drugs and therapeutic biologics to be covered under Medicare Part D, (vi) expanded eligibility criteria for Medicaid programs by, amongother things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individualswith income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vii) expanded theentities eligible for discounts under the Public Health program (viii) created a new Patient-Centered Outcomes Research Institute to oversee,identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (ix) established a Centerfor Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentiallyincluding prescription drug spending.The current U.S. presidential administration and Congress have, and we expect they will continue to, seek to modify, repeal, or otherwiseinvalidate all, or certain provisions of, the ACA. Since January 2017, the current U.S. presidential administration has issued two executive ordersand other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements forhealth insurance mandated by the ACA. For example, on October 12, 2017, the current U.S. presidential administration issued an executive orderthat expands the use of association health plans and allows anyone to purchase short-term health plans that provide temporary, limited insurance.This executive order also calls for the halt of federal payments to health insurers for cost-sharing reductions previously available to lower-incomeAmericans to afford coverage. There is still uncertainty with respect to the impact this executive order could have on coverage and reimbursementfor healthcare items and services covered by plans that were authorized by the ACA. Concurrently, Congress has considered legislation that wouldrepeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting theimplementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, among other things, includes aprovision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail tomaintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22,2018, the current U.S. presidential administration signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, theannual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medicaldevices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to increasefrom 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and toclose the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. More recently, in July 2018, CMS published a finalrule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA riskadjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this riskadjustment. There is still uncertainty with respect to the impact the current U.S. presidential administration and the Congress may have, if any,and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and servicescovered by plans that were authorized by the ACA. However, we cannot predict the ultimate content, timing or effect of any healthcare reformlegislation or the impact of potential legislation on us. 36  In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce healthcareexpenditures. U.S. federal government agencies also currently face potentially significant spending reductions, which may further impacthealthcare expenditures. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions byCongress. A joint select committee on deficit reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additionalCongressional action is taken. Moreover, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among otherthings, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, andincreased the statute of limitations period for the government to recover overpayments to providers from three to five years. If federal spending isfurther reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes ofHealth to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. Thesereductions, as well as potential future shutdowns of the U.S. federal government, may also impact the ability of relevant agencies to timely reviewand approve research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell anyproducts we may develop. Moreover, payment methodologies, including payment for companion diagnostics, may be subject to changes in healthcare legislation andregulatory initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the wayMedicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly andintroduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislationprovided authority for limiting the number of drugs that will be covered in any therapeutic class. While the MMA only applies to drug benefits forMedicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. Inaddition, CMS has begun bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospitaloutpatient setting and, beginning in 2018, CMS will pay for clinical laboratory services based on a weighted average of reported prices that privatepayors, Medicare Advantage plans, and Medicaid Managed Care plans pay for laboratory services. Further, on March 16, 2018, CMS finalized itsNational Coverage Determination, or NCD, for certain diagnostic laboratory tests using next generation sequencing, or NGS, that are approved bythe FDA as a companion in vitro diagnostic and used in a cancer with an FDA-approved companion diagnostic indication. Under the NCD,diagnostic tests that gain FDA approval or clearance as an in vitro companion diagnostic will automatically receive full coverage and be availablefor patients with recurrent, metastatic relapsed, refractory or stages III and IV cancer. Additionally, the NCD extended coverage to repeat testingwhen the patient has a new primary diagnosis of cancer.Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform governmentprogram reimbursement methodologies for drug products. At the federal level, the current U.S. presidential administration’s budget proposal forfiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation,including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow somestates to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, on May 11,2018, the current U.S. presidential administration laid out the administration’s “Blueprint” to reduce the cost of prescription medications whilepreserving innovation and cures. While the Department of Health and Human Services, or HHS, is soliciting feedback on some of these measures,other actions may be immediately implemented by HHS under existing authority. Although a number of these, and other potential, proposals willrequire authorization through additional legislation to become effective, Congress and the current U.S. presidential administration have eachindicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures areincreasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price orpatient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,and, in some cases, designed to encourage importation from other countries and bulk purchasing. 37  Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 wassigned into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug productsthat have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patientscan seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program.EmployeesAs of December 31, 2018, we had 147 full-time employees, 9 full-time contract employees and 2 part-time contract employees. Of theseemployees, 41 have an M.D. or a Ph.D. None of our employees are represented by a labor union or covered by collective bargaining agreements,and we believe our relationship with our employees is good.Corporate InformationWe were incorporated under the laws of the State of Delaware in April 2003 under the name Fundamental Applied Biology, Inc. Wesubsequently changed our name to Sutro Biopharma, Inc. Our principal executive offices are located at 310 Utah Avenue, Suite 150, South SanFrancisco, California 94080, and our telephone number is (650) 392-8412. Our website address is www.sutrobio.com. The information containedon, or that can be accessed through, our website is not part of, and is not incorporated by reference into, this report.Available InformationWe file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission, or SEC,under the Securities Exchange Act of 1934, as amended, or Exchange Act. The SEC maintains an Internet website that contains reports, proxyand information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain anydocuments that we file with the SEC at www.sec.gov. Copies of each of our filings with the SEC can also be viewed and downloaded free ofcharge at our website, ir.sutrobio.com, after the reports and amendments are electronically filed with or furnished to the SEC. Item 1A.Risk FactorsInvesting in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, youshould carefully consider the risks described below, together with the other information contained in this annual report, including our financialstatements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The risks anduncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believeare not material, may also become important factors that affect us. We cannot assure you that any of the events discussed below will not occur.These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were tohappen, the trading price of our common stock could decline, and you could lose all or part of your investment.Risks Related to Our BusinessWe are a clinical stage biopharmaceutical company with a limited operating history and no products approved for commercial sale.We have a history of significant losses, expect to continue to incur significant losses for the foreseeable future and may never achieve ormaintain profitability, which could result in a decline in the market value of our common stock.We are a clinical stage biopharmaceutical company with a limited operating history on which to base your investment decision. Biotechnologyproduct development is a highly speculative undertaking and involves a substantial degree of risk.To date, we have enrolled a limited number of patients in our initial clinical trials, evaluating the safety of our first and second clinical stageproduct candidates, STRO-001 and STRO-002, have no products approved for commercial sale, have not generated any revenue from commercialproduct sales and, as of December 31, 2018, had an accumulated deficit of $150.3 million. For the year ended December 31, 2018 and 2017, ournet loss was $35.3 million and $19.7 million, respectively, and for the year ended December 31, 2016, our net income was $1.7 million.Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from generaland administrative costs associated with our operations. Our technologies and product candidates are in early stages of development, and we aresubject to the risks of failure inherent in the 38  development of product candidates based on novel technologies. In addition, we have limited experience as a clinical stage company and have notyet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidlyevolving fields, particularly in the biotechnology industry. Furthermore, we do not expect to generate any revenue from commercial product salesfor the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research anddevelopment, preclinical studies and clinical trials and the regulatory approval process for our product candidates. We expect our net losses toincrease substantially as we progress further into clinical development of our lead programs and create additional infrastructure to supportoperations as a public company. However, the amount of our future losses is uncertain. Our ability to achieve profitability, if ever, will depend on,among other things, our, or our existing or future collaborators’, successful development of product candidates, evaluating the related commercialopportunities, obtaining regulatory approvals to market and commercializing product candidates, manufacturing any approved products oncommercially reasonable terms, establishing a sales and marketing organization or suitable third-party alternatives for any approved product andraising sufficient funds to finance business activities. If we, or our existing or future collaborators, are unable to develop our technologies andcommercialize one or more of our product candidates or if sales revenue from any product candidate that receives approval is insufficient, we willnot achieve profitability, which could have a material and adverse effect on our business, financial condition, results of operations and prospects.Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.We will need substantial additional funds to advance development of our product candidates. This additional financing may not beavailable on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate ourproduct development programs, commercialization efforts or other operations.The development of biopharmaceutical product candidates is capital-intensive. If our product candidates enter and advance throughpreclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, manufacturing, marketingand sales capabilities. We have used substantial funds to develop our technology and product candidates and will require significant funds toconduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for ourproduct candidates and to manufacture and market products, if any, which are approved for commercial sale. In addition, we expect to incuradditional costs associated with operating as a public company.Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities forour two product candidates STRO-001, our initial clinical program, and STRO-002, our second clinical program, and the development of our in-house manufacturing capabilities. Clinical trials for our product candidates will require substantial funds to complete. As of December 31, 2018, wehad $204.5 million in cash, cash equivalents and marketable securities. We expect to incur substantial expenditures in the foreseeable future aswe seek to advance STRO-001 and STRO-002 and any future product candidates through clinical development, manufacturing, the regulatoryapproval process and, if approved, commercial launch activities, as well as in connection with the continued development of our manufacturingcapabilities. Based on our current operating plan, we believe that our available cash, cash equivalents and marketable securities will be sufficientto fund our operations through at least the next 12 months. However, our future capital requirements and the period for which we expect ourexisting resources to support our operations may vary significantly from what we expect and we may need to seek additional funds sooner thanplanned. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities. Because thelength of time and activities associated with successful research and development of our product candidates is highly uncertain, we are unable toestimate the actual funds we will require for development and any marketing and commercialization activities for approved products. The timingand amount of our operating expenditures will depend largely on: •the timing and progress of preclinical and clinical development activities; •the costs associated with the development of our internal manufacturing facility and processes; •the number and scope of preclinical and clinical programs we decide to pursue; •the progress of the development efforts of parties with whom we have entered or may in the future enter into collaborations and researchand development agreements; •the timing and amount of milestone and other payments we may receive under our collaboration agreements; 39  •our ability to maintain our current licenses and research and development programs and to establish new collaboration arrangements; •the costs involved in prosecuting and enforcing patent and other intellectual property claims; •the costs of manufacturing our product candidates and those of our collaborators using our proprietary XpressCF+™ Platform; •the cost and timing of regulatory approvals; •the cost of commercialization activities if our product candidates or any future product candidates are approved for sale, includingmarketing, sales and distribution costs; and •our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our productcandidates and satisfy our obligations as a public company.If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce or terminate our research anddevelopment programs and preclinical studies or clinical trials, limit strategic opportunities or undergo reductions in our workforce or othercorporate restructuring activities. We also could be required to seek funds through arrangements with collaborators or others that may require us torelinquish rights to some of our technologies or product candidates that we would otherwise pursue on our own. We do not expect to realizerevenue from sales of commercial products or royalties from licensed products in the foreseeable future, if at all, and, in no event, before ourproduct candidates are clinically tested, approved for commercialization and successfully marketed. To date, we have primarily financed ouroperations through payments received under our collaboration agreements, the sale of equity securities and debt financing. We will be required toseek additional funding in the future and currently intend to do so through additional collaborations and/or licensing agreements, public or privateequity offerings or debt financings, credit or loan facilities, or a combination of one or more of these funding sources. Our ability to raise additionalfunds will depend on financial, economic and other factors, many of which are beyond our control. Additional funds may not be available to us onacceptable terms or at all. Subject to limited exceptions, the loan and security agreement, or the Loan and Security Agreement, we entered intowith Oxford and SVB in August 2017 under which we borrowed $15.0 million prohibits us from incurring indebtedness without the prior writtenconsent of Oxford or SVB. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of anyfinancing may adversely affect the rights of our stockholders. If we raise additional funds through licensing or collaboration arrangements with thirdparties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. In addition, asa condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders.Our current debt financing involves, and future debt financings, if available, are likely to involve, restrictive covenants limiting our flexibility inconducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receiveany distribution of our corporate assets. Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate ourproduct development and commercialization of our current or future product candidates, which could have a material and adverse effect on ourbusiness, financial condition, results of operations and prospects.Our product candidates are in early stages of development and may fail in development or suffer delays that materially andadversely affect their commercial viability. If we or our collaborators are unable to complete development of or commercialize ourproduct candidates or experience significant delays in doing so, our business will be materially harmed.We have no products on the market and all of our product candidates for cancer therapy are in early stages of development. In particular, ourmost advanced product candidate, STRO-001, is in the initial stages of dose escalation in clinical trial patients. We began enrolling patients in aSTRO-002 Phase 1 trial in March 2019. Additionally, we have programs that are in earlier stages of discovery and preclinical development andmay never advance to clinical-stage development. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for andsuccessfully commercializing our product candidates, either alone or with third parties, and we cannot guarantee you that we will ever obtainregulatory approval for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary toobtain regulatory approvals, including approval by the FDA. Before obtaining regulatory approval for the commercial distribution of our productcandidates, we or an existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the safety andefficacy in humans of our product candidates. 40  We may not have the financial resources to continue development of, or to modify existing or enter into new collaborations for, a productcandidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including: •negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to adecision or requirement to conduct additional preclinical testing or clinical trials or abandon a program; •product-related side effects experienced by patients in our clinical trials or by individuals using drugs or therapeutic biologics similar toour product candidates; •difficulty achieving successful continued development of our internal manufacturing processes, including process development andscale-up activities to supply products for preclinical studies, clinical trials and commercial sale; •our inability to transfer successfully our manufacturing expertise and techniques to third-party contract manufacturers; •inability of us or any third-party contract manufacturer to scale up manufacturing of our product candidates and those of ourcollaborators to supply the needs of clinical trials and commercial sales, and to manufacture such products in conformity with regulatoryrequirements using our proprietary XpressCF™ Platform; •delays in submitting investigational new drug applications, or INDs, or comparable foreign applications or delays or failures in obtainingthe necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; •conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; •delays in enrolling patients in our clinical trials; •high drop-out rates of our clinical trial patients; •inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinicaltrials; •inability to obtain alternative sources of supply for which we have a single source for product candidate components or materials; •greater than anticipated costs of our clinical trials; •harmful side effects or inability of our product candidates to meet efficacy endpoints during clinical trials; •failure to demonstrate a benefit-risk profile acceptable to the FDA or other regulatory agencies; •unfavorable FDA or other regulatory agency inspection and review of one or more of our clinical trial sites or manufacturing facilities; •failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractualobligations in a timely manner, or at all; •delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight aroundclinical testing generally or with respect to our technology in particular; or •varying interpretations of our data by the FDA and similar foreign regulatory agencies.We or our collaborators’ inability to complete development of or commercialize our product candidates or significant delays in doing so due toone or more of these factors, could have a material and adverse effect on our business, financial condition, results of operations and prospects.Our business is dependent on the success of our product candidates based on our proprietary XpressCF™ Platform and, inparticular, our lead product candidates, STRO-001 and STRO-002. Existing and future preclinical studies and clinical trials of our productcandidates may not be successful. If we are unable to commercialize our product candidates or experience significant delays in doingso, our business will be materially harmed.We have invested a significant portion of our efforts and financial resources in the development of our proprietary XpressCF™ Platform andour lead product candidates, STRO-001 and STRO-002. Our ability to generate commercial product revenues, which we do not expect will occurfor many years, if ever, will depend heavily on the successful development and eventual commercialization of STRO-001 and STRO-002. We havenot previously submitted a new drug application, or NDA, or a biologics license application, or BLA, to the FDA, or similar regulatory approvalfilings to comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful inclinical trials or receive regulatory approval. Further, our 41  product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals forour product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our productcandidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and havecommercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significantrevenues from sales of such products, if approved.We plan to seek regulatory approval to commercialize our product candidates both in the United States and in selected foreign countries.While the scope of regulatory approvals generally is similar in other countries, in order to obtain separate regulatory approvals in other countries,we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy. Other countries also havetheir own regulations governing, among other things, clinical trials and commercial sales, as well as pricing and distribution of our productcandidates, and we may be required to expend significant resources to obtain regulatory approval and to comply with ongoing regulations in thesejurisdictions.The success of STRO-001 and STRO-002 and our other product candidates will depend on many factors, including the following: •successful enrollment of patients in, and the completion of, our clinical trials; •receiving required regulatory approvals for the development and commercialization of our product candidates; •establishing our commercial manufacturing capabilities or making arrangements with third-party manufacturers; •obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates and their components; •enforcing and defending our intellectual property rights and claims; •achieving desirable therapeutic properties for our product candidates’ intended indications; •launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with third parties; •acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors; •effectively competing with other therapies; and •maintaining an acceptable safety profile of our product candidates through clinical trials and following regulatory approval.If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability tosuccessfully commercialize our product candidates, which would materially harm our business.Additionally, we have created a benchmark folate receptor-alpha, or FolRα, targeting ADC, using conventional technology that results in aheterogeneous ADC mixture. We have compared STRO-002 to this benchmark molecule in multiple preclinical models. We believe the results ofthese tests help us understand how the therapeutic index of STRO-002 compares to competitors. However, we cannot be certain that ourbenchmark molecule is the same as the molecule we are attempting to recreate, and the results of the tests comparing our benchmark molecule toSTRO-002 may be different than the actual results of a head-to-head test of STRO-002 against a competitor molecule. Additional preclinical andclinical testing will be needed to evaluate the therapeutic index of STRO-002 and to understand its therapeutic potential relative to other productcandidates in development. While we believe our ADCs may be superior to other investigative agents in development, without head-to-headcomparative data, we will not be able to make claims of superiority to other products in our promotional materials, if our product candidates areapproved. 42  If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of ourproducts may be delayed and, as a result, our stock price may decline.From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other productdevelopment goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientificstudies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some ofthese milestones. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can varydramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publiclyannounced, or at all, the commercialization of our products may be delayed or never achieved and, as a result, our stock price may decline.Our approach to the discovery and development of our therapeutic treatments is based on novel technologies that are unproven andmay not result in marketable products.We are developing a pipeline of product candidates using our proprietary XpressCF™ Platform. We believe that product candidates identifiedwith our product discovery platform may offer an improved therapeutic approach by taking advantage of precision design and rapid empiricaloptimization, thereby reducing the dose-limiting toxic effects associated with existing products. However, the scientific research that forms thebasis of our efforts to develop product candidates based on our XpressCF™ Platform is ongoing. Further, the scientific evidence to support thefeasibility of developing therapeutic treatments based on our XpressCF™ Platform is both preliminary and limited.To date, we have tested our first clinical stage product candidates, STRO-001 and STRO-002, in a limited number of clinical trial patients. Wemay ultimately discover that our XpressCF™ Platform and any product candidates resulting therefrom do not possess certain properties requiredfor therapeutic effectiveness. XpressCF™ product candidates may also be unable to remain stable in the human body for the period of timerequired for the drug to reach the target tissue or they may trigger immune responses that inhibit the ability of the product candidate to reach thetarget tissue or that cause adverse side effects in humans. We currently have only limited data, and no conclusive evidence, to suggest that wecan introduce these necessary properties into these product candidates derived from our XpressCF™ Platform. We may spend substantial fundsattempting to introduce these properties and may never succeed in doing so. In addition, product candidates based on our XpressCF™ Platformmay demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Although our XpressCF™Platform and certain product candidates have produced successful results in animal studies, they may not demonstrate the same chemical andpharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result, wemay never succeed in developing a marketable product, we may not become profitable and the value of our common stock will decline.The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, betterknown or extensively studied product candidates. We are not aware of any company currently developing a therapeutic using our approach to ADCdevelopment and no regulatory authority has granted approval for such a therapeutic. We believe the FDA has limited experience with therapeuticsin oncology or other disease areas developed in cell-free-based synthesis systems, which may increase the complexity, uncertainty and length ofthe regulatory approval process for our product candidates. For example, our XpressCF™ ADC product candidates contain cleavable or non-cleavable linker-warhead combinations or novel warheads that may result in unforeseen events when administered in a human. We and ourexisting or future collaborators may never receive approval to market and commercialize any product candidate. Even if we or an existing or futurecollaborator obtains regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as weintended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or an existing or futurecollaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testingrequirements to maintain regulatory approval. If the products resulting from our XpressCF™ Platform prove to be ineffective, unsafe orcommercially unviable, our entire platform and pipeline would have little, if any, value, which would have a material and adverse effect on ourbusiness, financial condition, results of operations and prospects. 43  Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results ofclinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries havesuffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks.The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may notbecome apparent until the clinical trial is well advanced. While certain relevant members of our company have significant clinical experience, we ingeneral have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval.In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their productcandidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the productcandidates. Even if we, or future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, theFDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same productcandidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patientpopulations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial patients.If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval andcommercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would benegatively impacted.The market may not be receptive to our product candidates based on a novel therapeutic modality, and we may not generate anyfuture revenue from the sale or licensing of product candidates.Even if regulatory approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due tofactors such as whether the product can be sold at a competitive cost, competition in the therapeutic area(s) we have received or may receiveapproval for, and whether it will otherwise be accepted in the market. Historically, there have been concerns regarding the safety and efficacy ofADCs, and an ADC drug was voluntarily withdrawn from the market. These historical concerns may negatively impact the perception marketparticipants have on ADCs, including our product candidates. Additionally, the product candidates that we are developing are based on ourproprietary XpressCF™ Platform, which is a new technology. Market participants with significant influence over acceptance of new treatments,such as physicians and third- party payors, may not adopt an ADC product, or a product or treatment based on our novel cell-free productiontechnologies, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorablereimbursement for, any product candidates developed by us or our existing or future collaborators. Market acceptance of our product candidateswill depend on, among other factors: •the timing of our receipt of any marketing and commercialization approvals; •the terms of any approvals and the countries in which approvals are obtained; •the safety and efficacy of our product candidates; •the prevalence and severity of any adverse side effects associated with our product candidates; •limitations or warnings contained in any labeling approved by the FDA or other regulatory authority; •relative convenience and ease of administration of our product candidates; •the willingness of patients to accept any new methods of administration; •the success of our physician education programs; •the availability of coverage and adequate reimbursement from government and third-party payors; •the pricing of our products, particularly as compared to alternative treatments; and •the availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relativerisks, benefits and costs of those treatments. 44  Because our product candidates are based on new technology, we expect that they will require extensive research and development andhave substantial manufacturing and processing costs. In addition, our estimates regarding potential market size for any indication may bematerially different from what we discover to exist at the time we commence commercialization, if any, for a product, which could result insignificant changes in our business plan and have a material adverse effect on our business, financial condition, results of operations andprospects. Moreover, if any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effecton our business, financial condition, results of operations and prospects.We have entered, and may in the future seek to enter, into collaborations with third parties for the development andcommercialization of our product candidates using our XpressCF™ Platform. If we fail to enter into such collaborations, or suchcollaborations are not successful, we may not be able to capitalize on the market potential of our XpressCF™ Platform and resultingproduct candidates.Since 2014, we have entered into collaborations with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ, USA,or Merck, Celgene Corporation, or Celgene, and Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name“EMD Serono”) to develop certain cancer and other therapeutics. In addition, we may in the future seek third-party collaborators for research,development and commercialization of other therapeutic technologies or product candidates. Biopharmaceutical companies are our prior and likelyfuture collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements. With respect to our existingcollaboration agreements, and what we expect will be the case with any future collaboration agreements, we have and would expect to have limitedcontrol over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates.Moreover, our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functionsassigned to them in these arrangements.Collaborations involving our product candidates currently pose, and will continue to pose, the following risks to us: •collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; •collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renewdevelopment or commercialization programs based on preclinical studies or clinical trial results, changes in the collaborators’ strategicfocus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities; •collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a productcandidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; •collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our productcandidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercializedunder terms that are more economically attractive than ours; •collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing anddistribution of such product or products; •collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way asto invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation orpotential liability; •collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; •disputes may arise between the collaborators and us that result in the delay or termination of the research, development orcommercialization of our product candidates or that result in costly litigation or arbitration that diverts management attention andresources; and •collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development orcommercialization of the applicable product candidates. 45  As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of ourproduct candidates in the most efficient manner or at all. Moreover, if a collaborator of ours were to be involved in a business combination, thecontinued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated. Forexample, in January 2019, Bristol-Myers Squibb announced the entry into a definitive agreement to acquire Celgene, with the intent of creating aleading focused specialty biopharma company. The transaction is expected to complete in the third quarter of 2019, subject to approval bycompany shareholders, customary closing conditions, and regulatory approvals. Any failure to successfully develop or commercialize our productcandidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our business, financialcondition, results of operations and prospects.To date, no product developed on a cell-free manufacturing platform has received approval from the FDA, so the requirements forthe manufacturing of products using our XpressCF™ Platform are uncertain.We have invested in our own current Good Manufacturing Practices, or cGMP, compliant manufacturing facility in San Carlos, California. Inthis facility, we are developing and implementing novel cell-free production technologies to supply our planned preclinical and clinical trials.However, before we may initiate a clinical trial or commercialize any of our product candidates, we must demonstrate to the FDA that thechemistry, manufacturing and controls for our product candidates meet applicable requirements, and in the European Union, or EU, amanufacturing authorization must be obtained from the appropriate EU regulatory authorities. The FDA has allowed Phase 1 clinical trial use of ourproduct candidates STRO-001 and STRO-002, portions of which are manufactured in our San Carlos manufacturing facility; however, because noproduct manufactured on a cell-free manufacturing platform has yet been approved in the United States, there is no manufacturing facility that hasdemonstrated the ability to comply with FDA requirements for later stage clinical development or commercialization, and, therefore, the time framefor demonstrating compliance to the FDA’s satisfaction is uncertain. Delays in establishing that our manufacturing process and facility comply withcGMPs or disruptions in our manufacturing processes, implementation of novel in-house technologies or scale-up activities, may delay or disruptour development efforts.We expect that development of our own manufacturing facility will provide us with enhanced control of material supply for preclinical studies,clinical trials and the commercial market, enable the more rapid implementation of process changes and allow for better long-term margins.However, we have limited experience as a company in establishing and operating a manufacturing facility and there exist only a small number ofcontract manufacturing organizations, or CMOs, with the experience necessary to manufacture our product candidates. We may have difficultyhiring experts for internal manufacturing or finding and maintaining relationships with external CMOs and, accordingly, our production capacitycould be limited.Our existing collaborations with Merck, Celgene and EMD Serono are important to our business. If our collaborators ceasedevelopment efforts under our existing or future collaboration agreements, or if any of those agreements are terminated, thesecollaborations may fail to lead to commercial products and we may never receive milestone payments or future royalties under theseagreements.We have entered into collaborations with other biotechnology companies to develop several of our product candidates, and suchcollaborations currently represent a significant portion of our product pipeline and discovery and preclinical programs. Substantially all of ourrevenue to date has been derived from our existing collaboration agreements with Merck, Celgene and EMD Serono, and a significant portion ofour future revenue and cash resources is expected to be derived from these agreements or other similar agreements into which we may enter inthe future. Revenue from research and development collaborations depends upon continuation of the collaborations, payments for research anddevelopment services and product supply, and the achievement of milestones, contingent payments and royalties, if any, derived from futureproducts developed from our research. If we are unable to successfully advance the development of our product candidates or achieve milestones,revenue and cash resources from milestone payments under our collaboration agreements will be substantially less than expected. 46  We are unable to predict the success of our collaborations and we may not realize the anticipated benefits of our strategic collaborations. Ourcollaborators have discretion in determining and directing the efforts and resources, including the ability to discontinue all efforts and resources,they apply to the development and, if approval is obtained, commercialization and marketing of the product candidates covered by suchcollaborations. As a result, our collaborators may elect to de-prioritize our programs, change their strategic focus or pursue alternative technologiesin a manner that results in reduced, delayed or no revenue to us. Our collaborators may have other marketed products and product candidatesunder collaboration with other companies, including some of our competitors, and their corporate objectives may not be consistent with our bestinterests. Our collaborators may also be unsuccessful in developing or commercializing our products. If our collaborations are unsuccessful, ourbusiness, financial condition, results of operations and prospects could be adversely affected. In addition, any dispute or litigation proceedings wemay have with our collaborators in the future could delay development programs, create uncertainty as to ownership of intellectual property rights,distract management from other business activities and generate substantial expense.Moreover, to the extent that any of our existing or future collaborators were to terminate a collaboration agreement, we may be forced toindependently develop these product candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costsand defending intellectual property rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change toour business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.We may not successfully engage in strategic transactions, including any additional collaborations we seek, which could adverselyaffect our ability to develop and commercialize product candidates, impact our cash position, increase our expenses and presentsignificant distractions to our management.From time to time, we may consider strategic transactions, such as additional collaborations, acquisitions of companies, asset purchasesand out- or in-licensing of product candidates or technologies that we believe will complement or augment our existing business. In particular, wewill evaluate and, if strategically attractive, seek to enter into additional collaborations, including with major biotechnology or biopharmaceuticalcompanies. The competition for collaborators is intense, and the negotiation process is time-consuming and complex. Any new collaboration maybe on terms that are not optimal for us, and we may not be able to maintain any new collaboration if, for example, development or approval of aproduct candidate is delayed, sales of an approved product candidate do not meet expectations or the collaborator terminates the collaboration. Inaddition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in areduced number of potential future strategic partners. Our ability to reach a definitive agreement for a collaboration will depend, among otherthings, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and theproposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood ofapproval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costsand complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence ofuncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits ofthe challenge and industry and market conditions generally. Moreover, if we acquire assets with promising markets or technologies, we may not beable to realize the benefit of acquiring such assets due to an inability to successfully integrate them with our existing technologies and mayencounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic acquisition that delay orprevent us from realizing their expected benefits or enhancing our business. 47  We cannot assure you that following any such collaboration, or other strategic transaction, we will achieve the expected synergies to justifythe transaction. For example, such transactions may require us to incur non-recurring or other charges, increase our near- and long-termexpenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions wouldentail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of ourmanagement’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrenceof substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration,acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost infacilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers,manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees ofany acquired business. Also, such strategic alliance, joint venture or acquisition may be prohibited. For example, our Loan and SecurityAgreement, in the absence of the related lenders’ prior written consent, restricts our ability to pursue certain mergers, acquisitions, amalgamationsor consolidations that we may believe to be in our best interest.Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature describedabove, any transactions that we do complete may be subject to the foregoing or other risks and would have a material and adverse effect on ourbusiness, financial condition, results of operations and prospects. Conversely, any failure to enter any additional collaboration or other strategictransaction that would be beneficial to us could delay the development and potential commercialization of our product candidates and have anegative impact on the competitiveness of any product candidate that reaches market.We expect to rely on third parties to conduct certain of our preclinical studies or clinical trials. If those third parties do not performas contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could bedelayed with potentially material and adverse effects on our business, financial condition, results of operations and prospects.We have relied in some cases and intend to rely in the future on third-party clinical investigators, clinical research organizations, or CROs,clinical data management organizations and consultants to assist or provide the design, conduct, supervision and monitoring of preclinical studiesand clinical trials of our product candidates. Because we intend to rely on these third parties and will not have the ability to conduct all preclinicalstudies or clinical trials independently, we will have less control over the timing, quality and other aspects of preclinical studies and clinical trialsthan we would have had we conducted them on our own. These investigators, CROs and consultants will not be our employees and we will havelimited control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationshipswith other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with which wemay contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in the preclinical studies orclinical trials being delayed or unsuccessful.If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out theircontractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, ourclinical development programs could be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that each ofour preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols for the trial. The FDArequires preclinical studies to be conducted in accordance with good laboratory practices and clinical trials to be conducted in accordance withgood clinical practices, including for designing, conducting, recording and reporting the results of preclinical studies and clinical trials to assure thatdata and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. Ourreliance on third parties that we do not control will not relieve us of these responsibilities and requirements. Any adverse development or delay inour preclinical studies or clinical trials as a result of our reliance on third parties could have a material and adverse effect on our business, financialcondition, results of operations and prospects. 48  If we are unable to obtain sufficient raw and intermediate materials on a timely basis or if we experience other manufacturing orsupply difficulties, our business may be adversely affected.The manufacture of certain of our product candidates requires the timely delivery of sufficient amounts of raw and intermediate materials. Wework closely with our suppliers to ensure the continuity of supply, but cannot guarantee these efforts will always be successful. Further, whileefforts are made to diversify our sources of raw and intermediate materials, in certain instances we acquire raw and intermediate materials from asole supplier. While we believe that alternative sources of supply exist where we rely on sole supplier relationships, there can be no assurance thatwe will be able to quickly establish additional or replacement sources for some materials. A reduction or interruption in supply, and an inability todevelop alternative sources for such supply, could adversely affect our ability to manufacture our product candidates in a timely or cost-effectivemanner.We currently manufacture a portion of our product candidates internally and also rely on third-party manufacturing and supplypartners to supply components of our product candidates. Our inability to manufacture sufficient quantities of our product candidates,or the loss of our third-party suppliers, or our or their failure to comply with applicable regulatory requirements or to supply sufficientquantities at acceptable quality levels or prices, or at all, would materially and adversely affect our business.Manufacturing is a vital component of our business strategy. To ensure timely and consistent product supply we currently use a hybridproduct supply approach wherein certain elements of our product candidates are manufactured internally at our manufacturing facilities in SanCarlos, California, and other elements are manufactured at qualified third-party CMOs. Since our own manufacturing facilities may be limited orunable to manufacture certain of our preclinical and clinical trial product materials and supplies, we rely on third-party contract manufacturers tomanufacture such clinical trial product materials and supplies for our or our collaborator’s needs. There can be no assurance that our preclinicaland clinical development product supplies will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices.In particular, any replacement of our manufacturer could require significant effort and expertise because there may be a limited number of qualifiedreplacements.The manufacturing process for a product candidate is subject to FDA and foreign regulatory authority review. We, and our suppliers andmanufacturers, must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatoryauthorities in order to comply with regulatory standards, such as cGMPs. If we or our contract manufacturers cannot successfully manufacturematerial that conforms to our specifications and the strict regulatory requirements of the FDA or comparable foreign regulatory authorities, we maynot be able to rely on our or their manufacturing facilities for the manufacture of elements of our product candidates. Moreover, we do not controlthe manufacturing process at our contract manufacturers, and are completely dependent on them for compliance with current regulatoryrequirements. In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations in relation to quality,timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced tomanufacture the materials ourselves or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if atall. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the originalmanufacturer and we may have difficulty applying such skills or technology ourselves, or in transferring such to another third party. These factorswould increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to enable us, or to have anotherthird party, manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that thenew manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines; and wemay be required to repeat some of the development program. The delays associated with the verification of a new manufacturer could negativelyaffect our ability to develop product candidates in a timely manner or within budget.We expect to continue to rely on third-party manufacturers if we receive regulatory approval for any product candidate. To the extent that wehave existing, or enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligationsin a timely manner consistent with contractual and regulatory requirements, including those related to quality control and assurance. If we areunable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able todevelop and commercialize our product candidates successfully. Our or a third party’s failure to execute on our manufacturing requirements andcomply with cGMPs could adversely affect our business in a number of ways, including: •an inability to initiate or continue clinical trials of product candidates under development; •delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates; •loss of the cooperation of an existing or future collaborator; 49  •subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities; •requirements to cease distribution or to recall batches of our product candidates; and •in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.Additionally, we and our contract manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labordisputes or unstable political environments. If we or our contract manufacturers were to encounter any of these difficulties, our ability to provideour product candidates to patients in pre-clinical and clinical trials, or to provide product for treatment of patients once approved, would bejeopardized.We, or third-party manufacturers, may be unable to successfully scale-up manufacturing of our product candidates in sufficientquality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products,if any.In order to conduct clinical trials of our product candidates, we will need to manufacture them in large quantities. We, or any manufacturingpartners, may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effectivemanner, or at all. In addition, quality issues may arise during scale-up activities. If we, or any manufacturing partners, are unable to successfullyscale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing, and clinical trials of that productcandidate may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained,which could significantly harm our business.The manufacture of biologics is complex and we or our third-party manufacturers may encounter difficulties in production. If we orany of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials,our ability to obtain marketing approval, or our ability to provide supply of our products for patients, if approved, could be delayed orstopped.Our product candidates are considered to be biologics and the process of manufacturing biologics is complex, time-consuming, highlyregulated and subject to multiple risks. We and our contract manufacturers must comply with cGMPs, regulations and guidelines for themanufacturing of biologics used in clinical trials and, if approved, marketed products. To date, we and our contract manufacturers have limitedexperience in the manufacturing of cGMP batches of our product candidates.Manufacturing biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation ofequipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process.Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supplydisruptions. If microbial, viral or other contaminations are discovered at our manufacturing facilities or those of our third-party manufacturers, suchfacilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials andadversely harm our business. Moreover, if the FDA determines that our manufacturing facilities or those of our third-party manufacturers are not incompliance with FDA laws and regulations, including those governing cGMPs, the FDA may deny BLA approval until the deficiencies are correctedor we replace the manufacturer in our BLA with a manufacturer that is in compliance.In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, costoverruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timelyavailability of raw materials. Even if we or our collaborators obtain regulatory approval for any of our product candidates, there is no assurance thatmanufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produceit in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturersare unable to produce sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which wouldhave an adverse effect on our business, financial condition, results of operations and prospects. 50  Scaling up a biologic manufacturing process is a difficult and uncertain task, and we may not be successful in transferring our productionsystem or our third-party manufacturers may not have the necessary capabilities to complete the implementation and development process. If weare unable to adequately validate or scale-up the manufacturing process at our own manufacturing facilities or those of our current manufacturers,we will need to transfer to another manufacturer and complete the manufacturing validation process, which can be lengthy. If we are able toadequately validate and scale-up the manufacturing process for our product candidates at our manufacturing facility or with a contractmanufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will beable to come to agreement on terms acceptable to us.We cannot assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not occurin the future. If we or our third-party manufacturers were to encounter any of these difficulties, our ability to provide any product candidates topatients in planned clinical trials and products to patients, once approved, would be jeopardized. Any delay or interruption in the supply of clinicaltrial supplies could delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and,depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Anyadverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment delays,inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our product candidates or products. We mayalso have to take inventory write-offs and incur other charges and expenses for product candidates or products that fail to meet specifications,undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of oursupply chain could adversely affect our business and delay or impede the development and commercialization of any of our product candidates orproducts, if approved, and could have an adverse effect on our business, prospects, financial condition and results of operations.As part of our process development efforts, we also may make changes to our manufacturing processes at various points duringdevelopment, for various reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rateor other reasons. Such changes carry the risk that they will not achieve their intended objectives, and any of these changes could cause ourproduct candidates to perform differently and affect the results of our ongoing clinical trials or future clinical trials. In some circumstances,changes in the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior toundertaking more advanced clinical trials. For instance, changes in our process during the course of clinical development may require us to showthe comparability of the product used in earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or laterportions of the trial.We may not be successful in our efforts to use our XpressCF™ Platform to expand our pipeline of product candidates and developmarketable products.The success of our business depends in large part upon our ability to identify, develop and commercialize products based on our XpressCF™Platform. STRO-001 and STRO-002 are our most advanced clinical stage programs and our preclinical and research programs may fail to identifyother potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifyingpotential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics thatmay make the products unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to abandon ourdevelopment efforts for a program or for multiple programs, which would materially harm our business and could potentially cause us to ceaseoperations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus ourefforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that maybe more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we focus our research and development efforts on certain selected productcandidates. As a result, we may forgo or delay pursuit of opportunities with other product candidates that later prove to have greater commercialpotential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Ourspending on current and future research and development programs and product candidates for specific indications may not yield anycommercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular productcandidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases inwhich it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. 51  Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for our product candidatescould harm our drug development strategy and operational results.If companion diagnostics are developed in conjunction with clinical programs, the FDA may require regulatory approval of a companiondiagnostic as a condition to approval of the product candidate. For example, if we use a diagnostic test to determine which patients are most likelyto benefit from STRO-001 for the treatment of multiple myeloma and non-Hodgkin lymphoma by designing our pivotal trial or trials of STRO-001 inthat indication to require that clinical trial patients have elevated CD74 expression as a criterion for enrollment, then we will likely be required toobtain FDA approval or clearance of a companion diagnostic, concurrent with approval of STRO-001, to test for elevated CD74 expression; wemay also be required to demonstrate to the FDA the predictive utility of the companion diagnostic—namely, that the diagnostic selects for patientsin whom the biologic therapy will be effective or more effective compared to patients not selected for by the diagnostic. Similarly, as we aredeveloping STRO-002 for a potential indication in patients with elevated FolRα expression levels, we may be required to obtain FDA approval orclearance of a companion diagnostic, concurrent with approval of STRO-002, to test for elevated FolRα expression. We do not have experience orcapabilities in developing or commercializing diagnostics and plan to rely in large part on third parties to perform these functions. We do notcurrently have any agreement in place with any third party to develop or commercialize companion diagnostics for any of our product candidates.Companion diagnostics are subject to regulation by the FDA and foreign regulatory authorities as medical devices and require separate regulatoryapproval or clearance prior to commercialization.If we or our collaborators, or any third party, are unable to successfully develop companion diagnostics for our product candidates, orexperience delays in doing so: •the development of our product candidates may be adversely affected if we are unable to appropriately select patients for enrollment inour planned clinical trials; •our product candidates may not receive marketing approval if their safe and effective use depends on a companion diagnostic; and •we may not realize the full commercial potential of any product candidates that receive marketing approval if, among other reasons, weare unable to appropriately identify patients with the specific genetic alterations targeted by our product candidates.In addition, although we believe genetic testing is becoming more prevalent in the diagnosis and treatment of various diseases andconditions, our product candidates may be perceived negatively compared to alternative treatments that do not require the use of companiondiagnostics, either due to the additional cost of the companion diagnostic or the need to complete additional procedures to identify genetic markersprior to administering our product candidates. If any of these events were to occur, our business would be harmed, possibly materially.We face competition from entities that have developed or may develop product candidates for cancer, including companiesdeveloping novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidlythan we do or their technologies are more effective, our ability to develop and successfully commercialize product candidates may beadversely affected.The development and commercialization of drugs and therapeutic biologics is highly competitive. Our product candidates, if approved, willface significant competition and our failure to effectively compete may prevent us from achieving significant market penetration. Most of ourcompetitors have significantly greater resources than we do and we may not be able to successfully compete. We compete with a variety ofmultinational biopharmaceutical companies, specialized biotechnology companies and emerging biotechnology companies, as well as withtechnologies and product candidates being developed at universities and other research institutions. Our competitors have developed, aredeveloping or will develop product candidates and processes competitive with our product candidates and processes. Competitive therapeutictreatments include those that have already been approved and accepted by the medical community and any new treatments, including thosebased on novel technology platforms, that enter the market. We believe that a significant number of products are currently under development, andmay become commercially available in the future, for the treatment of conditions for which we are trying, or may try, to develop productcandidates. There is intense and rapidly evolving competition in the biotechnology, biopharmaceutical and antibody and immunoregulatorytherapeutics fields. While we believe that our XpressCF™ Platform, associated intellectual property and our scientific and technical know-how giveus a competitive advantage in this space, competition from many sources exists or may arise in the future. Our competitors include larger andbetter funded biopharmaceutical, biotechnological and therapeutics companies, including companies focused on cancer immunotherapies, such asAstraZeneca PLC, Bristol-Myers Squibb 52  Company, or BMS, GlaxoSmithKline PLC, Merck & Co., Inc., or Merck, Novartis AG, Pfizer Inc., or Pfizer, Roche Holding Ltd, Sanofi S.A andcompanies focused on ADCs, such as Pfizer, ImmunoGen, Inc., or Immunogen, Seattle Genetics, Inc., or Seattle Genetics, and Genentech, Inc.,or Genentech, as well as numerous small companies. Moreover, we also compete with current and future therapeutics developed at universitiesand other research institutions.We are aware of several companies that are developing ADCs, cytokine derivatives, bispecific antibodies and cancer immunotherapies. Manyof these companies are well-capitalized and, in contrast to us, have significant clinical experience, and may include our existing or futurecollaborators. In addition, these companies compete with us in recruiting scientific and managerial talent.Our success will depend partially on our ability to develop and protect therapeutics that are safer and more effective than competingproducts. Our commercial opportunity and success will be reduced or eliminated if competing products are safer, more effective, or less expensivethan the therapeutics we develop.If our lead product candidates are approved, they will compete with a range of therapeutic treatments that are either in development orcurrently marketed. Currently marketed oncology drugs and therapeutics range from ADCs, such as Genentech’s Kadcyla, to immune checkpointinhibitors such as BMS’s Opdivo to T cell-engager immunotherapies such as Amgen, Inc.’s Blincyto. In addition, numerous compounds are inclinical development for cancer treatment. With respect to B cell-based malignancies, such as multiple myeloma, the most common treatmentsare chemotherapeutic compounds, radiation therapy, stem cell transplantation and immunomodulating agents. The clinical development pipeline forcancer includes small molecules, antibodies, vaccines, cell therapies and immunotherapies from a variety of companies and institutions.Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experiencethan we have. If we successfully obtain approval for any product candidate, we will face competition based on many different factors, including thesafety and effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relativelynew routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketingand sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives,including by being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitiveproducts may make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing ourproduct candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability toexecute our business plan.Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement ourbusiness plan.Our success largely depends on the continued service of key management, advisors and other specialized personnel, including William J.Newell, our chief executive officer, Edward Albini, our chief financial officer, Trevor J. Hallam, Ph.D., our chief scientific officer, Arturo Molina,M.D., our chief medical officer and Shabbir T. Anik, Ph.D., our chief technical operations officer. The loss of one or more members of ourmanagement team or other key employees or advisors could delay our research and development programs and have a material and adverseeffect on our business, financial condition, results of operations and prospects. The relationships that our key managers have cultivated within ourindustry make us particularly dependent upon their continued employment with us. We are dependent on the continued service of our technicalpersonnel because of the highly technical nature of our product candidates and XpressCF™ Platform technologies and the specialized nature ofthe regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, theycould terminate their employment with us at any time without penalty. Our future success will depend in large part on our continued ability toattract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing,manufacturing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public andprivate research institutions, government entities and other organizations. If we are unable to continue to attract and retain high-quality personnel,the rate and success at which we can discover and develop product candidates will be limited which could have a material and adverse effect onour business, financial condition, results of operations and prospects. 53  We will need to grow our organization, and we may experience difficulties in managing our growth and expanding our operations.As of December 31, 2018, we had 147 full-time employees. As our development and commercialization plans and strategies develop, and aswe transition into operating as a public company, we expect to expand our employee base for managerial, operational, financial and otherresources. In addition, we have limited experience in product development and have just begun our first clinical trials for our first two productcandidates. As our product candidates enter and advance through preclinical studies and clinical trials, we will need to expand our development,regulatory and manufacturing capabilities or contract with other organizations to provide these capabilities for us. In the future, we expect to haveto manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and futuregrowth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may notbe able to implement improvements to our management information and control systems in an efficient or timely manner and may discoverdeficiencies in existing systems and controls. Our inability to successfully manage our growth and expand our operations could have a materialand adverse effect on our business, financial condition, results of operations and prospects.If any of our product candidates are approved for marketing and commercialization and we are unable to develop sales, marketingand distribution capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, wewill be unable to commercialize successfully any such future products.We currently have no sales, marketing or distribution capabilities or experience. If any of our product candidates are approved, we will need todevelop internal sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time consuming, orenter into collaborations with third parties to perform these services. If we decide to market our products directly, we will need to commitsignificant financial and managerial resources to develop a marketing and sales force with technical expertise and supporting distribution,administration and compliance capabilities. If we rely on third parties with such capabilities to market our products or decide to co-promoteproducts with collaborators, we will need to establish and maintain marketing and distribution arrangements with third parties, and there can be noassurance that we will be able to enter into such arrangements on acceptable terms or at all. In entering into third-party marketing or distributionarrangements, any revenue we receive will depend upon the efforts of the third parties and there can be no assurance that such third parties willestablish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are notsuccessful in commercializing any product approved in the future, either on our own or through third parties, our business, financial condition,results of operations and prospects could be materially and adversely affected.Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additionalregulatory burdens and other risks and uncertainties.Our future growth may depend, in part, on our ability to develop and commercialize our product candidates in foreign markets for which wemay rely on collaboration with third parties. We are not permitted to market or promote any of our product candidates before we receive regulatoryapproval from the applicable regulatory authority in that foreign market, and may never receive such regulatory approval for any of our productcandidates. To obtain separate regulatory approval in many other countries, we must comply with numerous and varying regulatory requirements ofsuch countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of ourproduct candidates, and we cannot predict success in these jurisdictions. If we fail to comply with the regulatory requirements in internationalmarkets and do not receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential ofour product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timelybasis, if at all. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may significantly diminishthe commercial prospects of that product candidate and our business, financial condition, results of operations and prospects could be materiallyand adversely affected. Moreover, even if we obtain approval of our product candidates and ultimately commercialize our product candidates inforeign markets, we would be subject to the risks and uncertainties, including the burden of complying with complex and changing foreignregulatory, tax, accounting and legal requirements and reduced protection of intellectual property rights in some foreign countries. 54  Price controls imposed in foreign markets may adversely affect our future profitability.In some countries, particularly member states of the EU, the pricing of prescription drugs is subject to governmental control. In thesecountries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. Inaddition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of costcontainment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations maycontinue after reimbursement has been obtained. Reference pricing used by various EU member states and parallel distribution, or arbitragebetween low-priced and high-priced member states, can further reduce prices. In some countries, we or current or future collaborators may berequired to conduct a clinical trial or other studies that compare the cost-effectiveness of our therapeutic candidates to other available therapies inorder to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to furtherpressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of any product candidateapproved for marketing is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition,results of operations or prospects could be materially and adversely affected.Price Controls imposed in the U.S. may affect our future profitability.Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform governmentprogram reimbursement methodologies for drug products. Current and future presidential budget proposals and future legislation may containfurther drug price control measures that could be enacted. Congress and current and future U.S. presidential administrations may continue to seeknew legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation andimplementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed toencourage importation from other countries and bulk purchasing. If such pricing controls are enacted and are set at unsatisfactory levels, ourbusiness, financial condition, results of operations or prospects could be materially and adversely affected.Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have amaterial and adverse effect on our business, financial condition, results of operations and prospects.As we are conducting clinical trials of our product candidates we may be exposed to significant product liability risks inherent in thedevelopment, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of ourdevelopment programs. If we succeed in marketing products, such claims could result in an FDA investigation of the safety and effectiveness ofour products, our manufacturing processes and facilities or our marketing programs and potentially a recall of our products or more seriousenforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless ofthe merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend therelated litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline inour stock price. While we currently have product liability insurance that we believe is appropriate for our stage of development, we may need toobtain higher levels prior to later stages of clinical development or marketing any of our product candidates. Any insurance we have or may obtainmay not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasinglyexpensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by productliability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects. 55  Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards andrequirements.As with all companies, we are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentionalfailures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, complywith federal and state healthcare fraud and abuse laws and regulations, inappropriately share confidential and proprietary information externally,report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangementsin the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusivepractices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtainedin the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify anddeter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown orunmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be incompliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves orasserting our rights, those actions could have a material and adverse effect on our business, financial condition, results of operations andprospects, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, thecurtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in governmentcontracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, integrity oversight and reportingobligations, or reputational harm.We depend on our information technology systems, and any failure of these systems, or those of our CROs or other contractors orconsultants we may utilize, could harm our business. Security breaches, loss of data, and other disruptions could compromise sensitiveinformation related to our business or prevent us from accessing critical information and expose us to liability, which could adverselyaffect our business, results of operations, financial condition and prospects.We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent oninformation technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmitlarge amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical thatwe do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronicand organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems,software, tools, and monitoring to provide security for our information technology systems and the processing, transmission and storage of digitalinformation. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party vendors mayor could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current andany future collaborators, contractors and consultants and other third parties on which we rely, are vulnerable to damage from computer viruses,malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet,attachments to emails, persons inside our organization, or persons with access to systems inside our organization.The risk of a security breach or disruption or data loss, particularly through cyber-attacks or cyber intrusion, including by computer hackers,foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusionsfrom around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk ofdata security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate networksecurity problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we haveimplemented security measures to protect our data security and information technology systems, our efforts to address these problems may notbe successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our business and ourcompetitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our productdevelopment programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in ourregulatory approval efforts and significantly increase our costs to recover or reproduce the data. Moreover, if a computer security breach affectsour systems or results in the unauthorized release of personally identifiable information, our reputation could be materially damaged. In addition,such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and 56  security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the HealthInformation Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing rules and regulations, as well asregulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of loss orlitigation and potential liability, which could materially adversely affect our business, results of operations, financial condition and prospects.Our information technology systems could face serious disruptions that could adversely affect our business.Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to theInternet, face the risk of systemic failure that could disrupt our operations. A significant disruption in the availability of our information technologyand other internal infrastructure systems could cause interruptions and delays in our research and development and manufacturing work.The terms of our Loan and Security Agreement require us to meet certain covenants and place restrictions on our operating andfinancial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability tooperate our business.The Loan and Security Agreement is secured by a lien covering all of our assets, excluding our intellectual property and certain other assets.Subject to the terms of the Loan and Security Agreement, we have the option to prepay all, but not less than all, of the amounts borrowed underthe Loan and Security Agreement, subject to certain penalty payments, prior to the August 1, 2021 maturity date, at which time all amountsborrowed will be due and payable.The Loan and Security Agreement contains customary affirmative and negative covenants, indemnification provisions and events of default.The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, delivercertain financial reports and maintain certain intellectual property rights. The negative covenants include, among others, restrictions on transferringor licensing our assets, changing our business, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or makingother distributions, and creating other liens on our assets, in each case subject to customary exceptions. If we default under the Loan and SecurityAgreement, the lenders will be able to declare all obligations immediately due and payable and take control of our collateral, potentially requiring usto renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the rights of Oxfordand SVB to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Oxford,acting as collateral agent for the lenders, could declare a default under the Loan and Security Agreement upon the occurrence of any event thatOxford and SVB interpret as a material adverse change as defined under the Loan and Security Agreement, thereby requiring us to repay the loanimmediately or to attempt to reverse the declaration of default through negotiation or litigation. Any declaration by the collateral agent of an eventof default could significantly harm our business and prospects and could cause the price of our common stock to decline. If we raise anyadditional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.If we do not comply with laws regulating the protection of the environment and health and human safety, our business could beaffected adversely.Our research, development and manufacturing involve the use of hazardous chemicals and materials, including radioactive materials. Wemaintain quantities of various flammable and toxic chemicals in our facilities in South San Francisco and San Carlos, California that are requiredfor our research, development and manufacturing activities. We are subject to federal, state and local laws and regulations governing the use,manufacture, storage, handling and disposal of these hazardous chemicals and materials. We believe our procedures for storing, handling anddisposing these materials in our South San Francisco and San Carlos facilities comply with the relevant guidelines of the two municipalities, thecounties of San Francisco and San Mateo, the state of California and the Occupational Safety and Health Administration of the U.S. Departmentof Labor. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated byapplicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could beheld liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety lawsand regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of animals andbiohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuriesto our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. 57  While we maintain pollution legal liability insurance for our manufacturing facility in San Carlos, California, we do not maintain insurance forenvironmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardousmaterials in our other locations. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. Wemay incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.Our current operations are in two cities in the San Francisco Bay Area, and we, or the third parties upon whom we depend, may beadversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequatelyprotect us from a serious disaster.Our current operations are located in our facilities in South San Francisco and San Carlos, California. Any unplanned event, such asearthquake, flood, fire, explosion, extreme weather condition, medical epidemic, power shortage, telecommunication failure or other natural or man-made accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contractmanufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significantnegative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in thedevelopment of our product candidates or interruption of our business operations. Earthquakes or other natural disasters could further disrupt ouroperations, and have a material and adverse effect on our business, financial condition, results of operations and prospects. If a natural disaster,power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged criticalinfrastructure, such as our research or manufacturing facilities or the manufacturing facilities of our third-party contract manufacturers, or thatotherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. Wemay incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have amaterial adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe areappropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you that the amounts ofinsurance will be sufficient to satisfy any damages and losses. If our facilities, or the manufacturing facilities of our third-party contractmanufacturers, are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of ourresearch and development programs may be harmed. Any business interruption could have a material and adverse effect on our business,financial condition, results of operations and prospects.Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownershipchange” (generally defined as a greater than 50 percentage points change (by value) in the ownership of its equity over a rolling three-year period),the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards and certain other pre-change tax attributes to offset itspost-change income and taxes may be limited. We have experienced such ownership changes in the past and may experience such ownershipchanges in the future, some of which are outside our control.As of December 31, 2018, we had federal NOL carryforwards of approximately $114.0 million, and our ability to utilize those NOLcarryforwards could be limited by an “ownership change” as described above, which could result in increased tax liability to our company.On December 22, 2017, the current U.S. presidential administration, signed into law the Tax Cuts and Jobs Act of 2017, or the Tax ReformAct. The legislation significantly changes U.S. tax law by, among other things, lowering the corporate income tax rates. The Tax Reform Actpermanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Additionally, theTax Reform Act will no longer allow deductions for compensation in excess of $1.0 million for certain employees, even if paid as commissions orperformance-based compensation. We may be subject to these limitations as provided for under Section 162(m) of the Code in the future. The TaxReform Act also limits the amount taxpayers are able to deduct for federal NOL carryforwards generated in taxable years beginning afterDecember 31, 2017 to 80% of the taxpayer’s taxable income. The law also generally repeals all carrybacks. However, any NOLs generated intaxable years after December 31, 2017 can be carried forward indefinitely. Losses arising in taxable years beginning before December 31, 2017may still be carried back two years and are subject to their current expiration period. As of December 31, 2018, we had approximately$88.7 million of federal NOLs that were generated prior to 2018, which will expire at various dates beginning in 2032, if not used to reduce incometaxes payable in the future. Federal NOLs generated by us subsequent to 2017 may only offset 80% of taxable income. 58  Our financial results may be adversely affected by changes in accounting principles generally accepted in the United States.Generally accepted accounting principles in the United States (U.S. GAAP) is subject to interpretation by the Financial Accounting StandardsBoard (FASB), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriateaccounting principles. For example, in May 2014, the FASB issued accounting standards update No. 2014-09 (Topic 606), Revenue fromContracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. We will be required to implementthis guidance in the first quarter of our fiscal year 2019. Any difficulties in implementing this guidance could cause us to fail to meet our financialreporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. Additionally, the implementation of thisguidance or a change in other principles or interpretations could have a significant effect on our financial results, and could affect the reporting oftransactions completed before the announcement of a change. Furthermore, we will be adopting Topic 606 through the modified retrospectivemethod. This will impact the comparability of our financial results which might lead investors to draw incorrect conclusions which could harminvestor interest in holding or purchasing our equity.Risks Related to Intellectual PropertyIf we are not able to obtain and enforce patent protection for our technologies or product candidates, development andcommercialization of our product candidates may be adversely affected.Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licensesof intellectual property rights of others, for our product candidates, methods used to manufacture our product candidates and methods for treatingpatients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon ourproprietary rights and to operate without infringing upon the proprietary rights of others. We may not be able to apply for patents on certain aspectsof our product candidates in a timely fashion or at all. Further, we may not be able to prosecute all necessary or desirable patent applications, ormaintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is alsopossible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Wemay not have the right to control the preparation, filing and prosecution of all patent applications that we license from third parties, or to maintainthe rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a mannerconsistent with the best interests of our business. Our existing issued and granted patents and any future patents we obtain may not besufficiently broad to prevent others from using our technology or from developing competing products and technology. There is no guarantee thatany of our pending patent applications will result in issued or granted patents, that any of our issued or granted patents will not later be found to beinvalid or unenforceable or that any issued or granted patents will include claims that are sufficiently broad to cover our product candidates or toprovide meaningful protection from our competitors. Moreover, the patent position of biotechnology and biopharmaceutical companies can behighly uncertain because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use bythird parties only to the extent that our current and future proprietary technology and product candidates are covered by valid and enforceablepatents or are effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially andadversely affect our position in the market.The U.S. Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number ofprocedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result inabandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such anevent, competitors might be able to enter the market earlier than would otherwise have been the case. The standards applied by the USPTO andforeign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policyregarding patentable subject matter or the scope of claims allowable in biotechnology and biopharmaceutical patents. As such, we do not know thedegree of future protection that we will have on our proprietary products and technology. While we will endeavor to try to protect our productcandidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time consuming, expensive andsometimes unpredictable. 59  Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification orderivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third partiescan raise objections against such initial grant. In the course of such proceedings, which may continue for a protracted period of time, the patentowner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. Inaddition, there can be no assurance that: •others will not or may not be able to make, use or sell compounds that are the same as or similar to our product candidates but that arenot covered by the claims of the patents that we own or license; •we or our licensors, or our existing or future collaborators are the first to make the inventions covered by each of our issued patents andpending patent applications that we own or license; •we or our licensors, or our existing or future collaborators are the first to file patent applications covering certain aspects of ourinventions; •others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing ourintellectual property rights; •a third party may not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable and infringed; •any issued patents that we own or have licensed will provide us with any competitive advantages, or will not be challenged by thirdparties; •we may develop additional proprietary technologies that are patentable; •the patents of others will not have a material or adverse effect on our business, financial condition, results of operations and prospects;and •our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights andthen use the information learned from such activities to develop competitive products for sale in our major commercial markets.If we or our licensors or collaborators fail to maintain the patents and patent applications covering our product candidates, our competitorsmight be able to enter the market, which could have a material and adverse effect on our business, financial condition, results of operations andprospects.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.In addition to seeking patent protection for certain aspects of our product candidates, we also consider trade secrets, including confidentialand unpatented know-how important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatentedknow-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as ouremployees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties.We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them tomaintain confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose ourproprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim thata party illegally disclosed or misappropriated a trade secret is difficult, expensive and time- consuming, and the outcome is unpredictable. Inaddition, some courts in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our tradesecrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using thattechnology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, ourcompetitive position would be harmed which could have a material and adverse effect on our business, financial condition, results of operationsand prospects.Other companies or organizations may challenge our or our licensors’ patent rights or may assert patent rights that prevent us fromdeveloping and commercializing our products.Therapeutics in oncology or other disease areas developed in cell-free-based synthesis systems are a relatively new scientific field. We haveobtained grants and issuances of, and have obtained a license from a third party on an exclusive basis to, patents related to our proprietaryXpressCF™ Platform. The issued patents and pending patent applications in the United States and in key markets around the world that we ownor license claim many different methods, compositions and processes relating to the discovery, development, manufacture and commercializationof antibody-based and other therapeutics. 60  As the field of antibody-based therapeutics continues to mature, patent applications are being processed by national patent offices around theworld. There is uncertainty about which patents will issue and, if they do, as to when, to whom, and with what claims. In addition, third parties mayattempt to invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes could lead to the weakening of ourintellectual property rights. Our defense against any attempt by third parties to circumvent or invalidate our intellectual property rights could becostly to us, could require significant time and attention of our management and could have a material and adverse effect on our business,financial condition, results of operations and prospects or our ability to successfully compete.We may not be able to protect our intellectual property rights throughout the world.Obtaining a valid and enforceable issued or granted patent covering our technology in the United States and worldwide can be extremelycostly, and our or our licensors’ or collaborators’ intellectual property rights may not exist in some countries outside the United States or may beless extensive in some countries than in the United States. In jurisdictions where we or our licensors or collaborators have not obtained patentprotection, competitors may seek to use our or their technology to develop their own products and further, may export otherwise infringing productsto territories where we or they have patent protection, but where it is more difficult to enforce a patent as compared to the United States.Competitor products may compete with our future products in jurisdictions where we do not have issued or granted patents or where our or ourlicensors’ or collaborators’ issued or granted patent claims or other intellectual property rights are not sufficient to prevent competitor activities inthese jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforce patents and suchcountries may not recognize other types of intellectual property protection, particularly relating to biopharmaceuticals. This could make it difficultfor us or our licensors or collaborators to prevent the infringement of our or their patents or marketing of competing products in violation of our ortheir proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantialcost and divert our and our licensors’ or collaborators’ efforts and attention from other aspects of our business, could put our and our licensors’ orcollaborators’ patents at risk of being invalidated or interpreted narrowly and our and our licensors’ or collaborators’ patent applications at risk ofnot issuing and could provoke third parties to assert claims against us or our licensors or collaborators. We or our licensors or collaborators maynot prevail in any lawsuits that we or our licensors or collaborators initiate, and the damages or other remedies awarded, if any, may not becommercially meaningful.We generally file a provisional patent application first (a priority filing) at the USPTO. An international application under the PatentCooperation Treaty, PCT, is usually filed within twelve months after the priority filing. Based on the PCT filing, national and regional patentapplications may be filed in the United States, EU, Japan, Australia and Canada and, depending on the individual case, also in any or all of, interalia, Brazil, China, Hong Kong, India, Israel, Mexico, New Zealand, Russia, South Africa, South Korea and other jurisdictions. We have so far notfiled for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to abandonnational and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceedingwhich may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted byothers. It is also quite common that depending on the country, various scopes of patent protection may be granted on the same product candidateor technology.The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States, and manycompanies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensors orcollaborators encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important forour business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in thosejurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Inaddition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patentowner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors or collaborators are forcedto grant a license to third parties with respect to any patents relevant to our business, our competitive position in the relevant jurisdiction may beimpaired and our business, financial condition, results of operations and prospects may be adversely affected. 61  We, our licensors or collaborators, or any future strategic partners may need to resort to litigation to protect or enforce our patentsor other proprietary rights, all of which could be costly, time consuming, delay or prevent the development and commercialization ofour product candidates, or put our patents and other proprietary rights at risk.Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce apatent covering one of our products or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patentlitigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challengecould be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Groundsfor an unenforceability assertion could be an allegation that an individual connected with prosecution of the patent withheld relevant informationfrom the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceabilityduring patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating priorart, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity orunenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of ourplatform technology. Such a loss of patent protection could have a material and adverse effect on our business, financial condition, results ofoperations and prospects. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may benecessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us tocease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailingparty does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gainaccess to the same technology. Furthermore, because of the substantial amount of discovery required in connection with intellectual propertylitigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There couldalso be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investorsperceive these results to be negative, it could have a material adverse effect on the price of our common stock. Patents and other intellectualproperty rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents orother intellectual property rights.Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we, ourlicensors or collaborators, or any future strategic partners may become subject to third party claims or litigation alleging infringement ofpatents or other proprietary rights or seeking to invalidate patents or other proprietary rights. We might be required to litigate or obtainlicenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or notavailable on commercially reasonable terms.We, our licensors or collaborators, or any future strategic partners may be subject to third-party claims for infringement or misappropriation ofpatent or other proprietary rights. There is a substantial amount of litigation, both within and outside the United States, involving patent and otherintellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositionsand inter partes review proceedings before the USPTO, and corresponding foreign patent offices. There are many issued and pending patents thatmight claim aspects of our product candidates and modifications that we may need to apply to our product candidates. There are also manyissued patents that claim antibodies, portions of antibodies, cytokines, half-life extending polymers, linkers, cytotoxins, or other warheads thatmay be relevant for the products we wish to develop. Thus, it is possible that one or more organizations will hold patent rights to which we willneed a license. If those organizations refuse to grant us a license to such patent rights on reasonable terms, we may not be able to marketproducts or perform research and development or other activities covered by these patents which could have a material and adverse effect on ourbusiness, financial condition, results of operations and prospects. We are obligated under certain of our license and collaboration agreements toindemnify and hold harmless our licensors or collaborators for damages arising from intellectual property infringement by use. For example, we areobligated under the Stanford Agreement to indemnify and hold harmless Stanford for damages arising from intellectual property infringement by usresulting from exercise of the license from Stanford. If we, our licensors or collaborators, or any future strategic partners are found to infringe athird-party patent or other intellectual property rights, we could be required to pay damages, potentially including treble damages, if we are found tohave infringed willfully. In addition, we, our licensors or collaborators, or any future strategic partners may choose to seek, or be required to seek,a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, therights may be non-exclusive, which could give our competitors access to the 62  same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we or our existing or future collaborators maybe unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieveprofitability and possibly prevent us from generating revenue sufficient to sustain our operations. In addition, we may find it necessary to pursueclaims or initiate lawsuits to protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigationor other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation could divert ourmanagement’s attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we canbecause they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or otherproceedings could delay our research and development efforts and limit our ability to continue our operations.Because the antibody-based therapeutics landscape is still evolving, it is difficult to conclusively assess our freedom to operate withoutinfringing on third-party rights. There are numerous companies that have pending patent applications and issued patents broadly coveringantibodies generally, covering antibodies directed against the same targets as, or targets similar to, those we are pursuing, or covering linkers andcytotoxic warheads similar to those that we are using in our product candidates. For example, we are aware of an issued patent, expected toexpire in 2023, which has claims relating to methods of treating CD74-positive multiple myeloma with an ADC targeting CD74. If valid and not yetexpired when, and if, we receive marketing approval for STRO-001, we may need to seek a license to this patent, which may not be available oncommercially reasonable terms or at all. Failure to receive a license could delay commercialization of STRO-001. Our competitive position maysuffer if patents issued to third parties or other third-party intellectual property rights cover our products or product candidates or elements thereof,or our manufacture or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products orproduct candidates until such patents expire or unless we successfully pursue litigation to nullify or invalidate the third-party intellectual propertyright concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. Theremay be issued patents of which we are not aware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringedby our XpressCF™ Platform and related technologies and product candidates. There also may be pending patent applications of which we are notaware that may result in issued patents, which could be alleged to be infringed by our XpressCF™ Platform and related technologies and productcandidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, includingpotentially treble damages and attorneys’ fees for willful infringement, and we may be forced to abandon our product candidates or seek a licensefrom any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.It is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. applications filed beforeNovember 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential untilpatents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for whichpriority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering ourproducts or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications that have beenpublished can, subject to certain limitations, be later amended in a manner that could cover our platform technology, our products or the use of ourproducts. Third-party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will beable to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptableto us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experiencesubstantial delays in marketing our products. Parties making claims against us may be able to sustain the costs of complex patent litigation moreeffectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery requiredin connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could becompromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverseeffect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial conditionand prospects. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited fromcommercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidatesso that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require usto divert substantial financial and management resources that we would otherwise be able to devote to our business and could have a material andadverse effect on our business, financial condition, results of operations and prospects. 63  Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normalresponsibilities.Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive andtime consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnelfrom their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual propertylitigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts orinvestors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Moreover, suchlitigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or anyfuture sales, marketing or distribution activities.We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors maybe able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and moremature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringingupon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuationof patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damagesand could lose intellectual property rights that are necessary for developing and protecting our product candidates or we could losecertain rights to grant sublicenses.Our current licenses impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding,milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement and/or other obligations on us. If we breach any ofthese obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensormay have the right to terminate the license, which could result in us being unable to develop, manufacture and sell any future products that arecovered by the licensed technology or enable a competitor to gain access to the licensed technology. Moreover, our licensors may own or controlintellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringingor otherwise violating the licensor’s rights. In addition, while we cannot determine currently the amount of the royalty obligations we would berequired to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on thetechnology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfullydevelop and commercialize products, we may be unable to achieve or maintain profitability.Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: •the scope of rights granted under the license agreement and other interpretation-related issues; •the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subjectto the licensing agreement; •the sublicensing of patent and other rights under our collaborative development relationships; •our diligence obligations under the license agreement and what activities satisfy those diligence obligations; •the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by ourlicensors and us and our partners; and •the priority of invention of patented technology. 64  In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certainprovisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that mayarise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe tobe our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financialcondition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability tomaintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize theaffected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, andprospects.We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets ofour employees’ or consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully doso, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.Many of our employees were previously employed at universities or biotechnology or biopharmaceutical companies, including our competitorsor potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we haveinadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary todefend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectualproperty rights or personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us fromcommercializing, our product candidates, which could severely harm our business. Even if we are successful in defending against these claims,litigation could result in substantial costs and be a distraction to management.Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, islimited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition fromcompetitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review ofnew product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result,our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar oridentical to ours.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, feepayment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminatedfor non-compliance with these requirements.Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to bepaid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/orapplications. We have systems in place to remind us to pay these fees, and we employ an outside firm and/or rely on our outside counsel to paythese fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number ofprocedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and otherprofessionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordancewith the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enterthe market and this circumstance would have a material adverse effect on our business. 65  Changes in U.S. patent and ex-U.S. patent laws could diminish the value of patents in general, thereby impairing our ability toprotect our products.Changes in either the patent laws or interpretation of the patent laws in the United States or in other ex-U.S. jurisdictions could increase theuncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. In the United States,numerous recent changes to the patent laws and proposed changes to the rules of the USPTO that may have a significant impact on our ability toprotect our technology and enforce our intellectual property rights. For example, the America Invents Act, enacted within the last several yearsinvolves significant changes in patent legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, some of whichcases either narrow the scope of patent protection available in certain circumstances or weaken the rights of patent owners in certain situations.For example, the decision by the U.S. Supreme Court in Association for Molecular Pathology v. Myriad Genetics, Inc. precludes a claim to anucleic acid having a stated nucleotide sequence that is identical to a sequence found in nature and unmodified. We currently are not aware of animmediate impact of this decision on our patents or patent applications because we are developing product candidates that contain modificationsthat we believe are not found in nature. However, this decision has yet to be clearly interpreted by courts and by the USPTO. We cannot assureyou that the interpretations of this decision or subsequent rulings will not adversely impact our patents or patent applications. In addition toincreasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect tothe value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, and similar legislative andregulatory bodies in other countries in which we may pursue patent protection, the laws and regulations governing patents could change inunpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in thefuture.If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marketsof interest and our business may be adversely affected.Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks.We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need forname recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition based on ourtrademarks and trade names, we may not be able to compete effectively, which could have a material and adverse effect on our business,financial condition, results of operations and prospects.Risks Related to Government RegulationClinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trialsmay not be predictive of future trial results. If we are unable to develop, obtain regulatory approval for and commercialize our productcandidates, or experience significant delays in doing so, our business will be materially harmed.All of our product candidates are in preclinical or early clinical development and their risk of failure is high. It is impossible to predict when orif any of our product candidates will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of anyproduct candidate, we must complete preclinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of ourproduct candidates in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failurecan occur at any time during the development process. The results of preclinical studies and early clinical trials of our product candidates may notbe predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety andefficacy traits, despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceuticalindustry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety profiles, notwithstanding promising results inearlier trials.We commenced a Phase 1 clinical trial of STRO-001, an ADC directed against CD74, for certain cancers in April 2018. We began enrollingpatients in a STRO-002 Phase 1 trial focused on ovarian and endometrial cancers in March 2019. Commencing our future clinical trials is subjectto finalizing the trial design and submitting an IND or similar submission with the FDA or similar foreign regulatory authority. Even after we submitour IND or comparable submissions in other jurisdictions, the FDA or other regulatory authorities could disagree that we have satisfied theirrequirements to commence our clinical trials or disagree with our study design, which may require us to complete additional preclinical studies oramend our protocols or impose stricter conditions on the commencement of clinical trials. 66  We or our collaborators may experience delays in completing our preclinical studies and initiating or completing clinical trials of our productcandidates. We do not know whether planned preclinical studies and clinical trials will be completed on schedule or at all, or whether plannedclinical trials will begin on time, need to be redesigned, have patients enrolled on time or be completed on schedule, if at all. We or ourcollaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receivemarketing approval to commercialize our product candidates. Our development programs may be delayed for a variety of reasons, including delaysrelated to: •the FDA or other regulatory authorities requiring us or our collaborators to submit additional data or imposing other requirements beforepermitting us to initiate a clinical trial; •obtaining regulatory approval to commence a clinical trial; •the FDA or other regulatory authorities placing a clinical trial on clinical hold; •a temporary U.S. federal government shutdown; •reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensivenegotiation and may vary significantly among different CROs and clinical trial sites; •clinical trials of our product candidates producing negative or inconclusive results, and we or our collaborators deciding, or regulatorsrequiring us, to conduct additional clinical trials, including testing in more subjects, or abandoning product development programs; •third-party contractors used by us or our collaborators failing to comply with regulatory requirements or meeting their contractualobligations in a timely manner, or at all; •obtaining institutional review board, or IRB, approval at each clinical trial site; •recruiting suitable patients to participate in a clinical trial; •developing and validating any companion diagnostic that would be used in a clinical trial; •cost of clinical trials being greater than anticipated; •the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates beinginsufficient or inadequate; •having patients complete a clinical trial or return for post-treatment follow-up; •clinical trial sites deviating from trial protocol or dropping out of a trial; •adding new clinical trial sites; or •manufacturing sufficient quantities of our product candidates for use in clinical trials.Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patientpopulation, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials andclinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies,including any new drugs or therapeutic biologics that may be approved for the indications being investigated by us. Furthermore, we expect to relyon our collaborators, CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we expect to enter intoagreements governing their committed activities, we have limited influence over their actual performance.We could encounter delays if prescribing physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials ofour product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.Further, a clinical trial may be suspended or terminated by us, our collaborators, the IRBs of the institutions in which such trials are beingconducted, the Data Safety Monitoring Board for such trial or placed on clinical hold by the FDA or other regulatory authorities due to a number offactors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinicaltrial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues oradverse side effects, failure to demonstrate a benefit from using a drug or therapeutic biologic, changes in governmental regulations oradministrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, anyclinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate productrevenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slowdown our product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of theseoccurrences could materially and adversely affect our business, financial condition, results of operations and prospects. In addition, many of thefactors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatoryapproval of our product candidates. 67  We and/or our collaborators may be unable to obtain, or may be delayed in obtaining, U.S. or foreign regulatory approval and, as aresult, unable to commercialize our product candidates.Our product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development,manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing anddistribution of drugs and therapeutic biologics. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process arerequired to be completed successfully in the United States and in many foreign jurisdictions before a new drug or therapeutic biologic can bemarketed. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It ispossible that none of the product candidates we may develop, either alone or with our collaborators, will obtain the regulatory approvals necessaryfor us or our existing or future collaborators to begin selling them.Although our employees have experience in conducting and managing clinical trials from prior employment at other companies, we, as acompany, have no prior experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval bythe FDA. The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the commencement ofclinical trials, depending upon the type, complexity and novelty of the product candidate, and may be further delayed due to one or more temporaryfederal government shutdowns. The standards that the FDA and its foreign counterparts use when regulating us require judgment and can change,which makes it difficult to predict with certainty their application. Any analysis we perform of data from preclinical and clinical activities is subjectto confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We or our collaborators mayalso encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or administrativeaction, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. It is impossible to predictwhether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be changed, or the impact ofsuch changes, if any. Given that the product candidates we are developing, either alone or with our collaborators, represent a new approach to themanufacturing and type of therapeutic biologics, the FDA and its foreign counterparts have not yet established any definitive policies, practices orguidelines in relation to these product candidates. Moreover, the FDA may respond to any BLA that we may submit by defining requirements thatwe do not anticipate. Such responses could delay clinical development of our product candidates. In addition, because there may be approvedtreatments for some of the diseases for which we may seek approval, in order to receive regulatory approval, we may need to demonstrate throughclinical trials that the product candidates we develop to treat these diseases, if any, are not only safe and effective, but safer or more effectivethan existing products. Furthermore, in recent years, there has been increased public and political pressure on the FDA with respect to theapproval process for new drugs and therapeutic biologics, and FDA standards, especially regarding product safety, appear to have become morestringent.Any delay or failure in obtaining required approvals could have a material and adverse effect on our ability to generate revenues from theparticular product candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject tolimitations on the approved uses for which we may market the product or on the labeling or other restrictions. In addition, the FDA has the authorityto require a risk evaluation and mitigation strategies, or REMS, plan as part of a BLA or after approval, which may impose further requirements orrestrictions on the distribution or use of an approved biologic, such as limiting prescribing to certain physicians or medical centers that haveundergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry.These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-party payors.We are also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturingand marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and mayinclude all of the risks associated with FDA approval process described above, as well as risks attributable to the satisfaction of local regulationsin foreign jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. FDA approval does notensure approval by regulatory authorities outside the United States and vice versa. Any delay or failure to obtain U.S. or foreign regulatoryapproval for a product candidate could have a material and adverse effect on our business, financial condition, results of operations and prospects. 68  Delays in obtaining regulatory approval of our manufacturing process may delay or disrupt our commercialization efforts. To date,no product using a cell-free manufacturing process in the United States has received approval from the FDA.Before we can begin to commercially manufacture our product candidates in third-party or our own facilities, we must obtain regulatoryapproval from the FDA for a BLA that describes in detail the chemistry, manufacturing, and controls for the product. A manufacturing authorizationmust also be obtained from the appropriate EU regulatory authorities. The timeframe required to obtain such approval or authorization is uncertain.In addition, we must pass a pre-approval inspection of our manufacturing facility by the FDA before any of our product candidates can obtainmarketing approval, if ever. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are compliant withcGMP, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers isfound to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work with these third parties toremedy the violation or while we work to identify suitable replacement vendors. The cGMP requirements govern quality control of themanufacturing process and documentation policies and procedures. In complying with cGMP, we will be obligated to expend time, money andeffort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements. If we failto comply with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any products that we maydevelop.Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations andcontinued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, couldbe subject to labeling and other restrictions and market withdrawal. We may also be subject to penalties if we fail to comply withregulatory requirements or experience unanticipated problems with our products.Any regulatory approvals that we or our existing or future collaborators obtain for our product candidates may also be subject to limitations onthe approved indicated uses for which a product may be marketed or to the conditions of approval, or contain requirements for potentially costlypost-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate.In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes,labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising, promotion and recordkeeping for the product will besubject to extensive and ongoing regulatory requirements. The FDA has significant post-market authority, including the authority to require labelingchanges based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of aproduct or to require withdrawal of the product from the market. The FDA also has the authority to require a REMS plan after approval, which mayimpose further requirements or restrictions on the distribution or use of an approved drug or therapeutic biologic. The manufacturing facilities weuse to make a future product, if any, will also be subject to periodic review and inspection by the FDA and other regulatory agencies, including forcontinued compliance with cGMP requirements. The discovery of any new or previously unknown problems with our third-party manufacturers,manufacturing processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from themarket. If we rely on third-party manufacturers, we will not have control over compliance with applicable rules and regulations by suchmanufacturers. Any product promotion and advertising will also be subject to regulatory requirements and continuing regulatory review. If we or ourexisting or future collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the UnitedStates or foreign jurisdictions in which we seek to market our products, we or they may be subject to, among other things, fines, warning letters,holds on clinical trials, delay of approval or refusal by the FDA or similar foreign regulatory bodies to approve pending applications or supplementsto approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, administrative detention of products,refusal to permit the import or export of products, operating restrictions, injunction, civil penalties and criminal prosecution. 69  Subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, orwith our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among otherthings: •restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatoryproduct recalls; •fines, warning or untitled letters or holds on clinical trials; •refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners; •suspension or revocation of product license approvals; •product seizure or detention or refusal to permit the import or export of products; and •injunctions or the imposition of civil or criminal penalties.The FDA policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval ofour product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, amongother things, is intended to modernize the regulation of drugs and biologics and to spur innovation, but its ultimate implementation is unclear. If weare slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintainregulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, whichwould adversely affect our business.We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative orexecutive action, either in the United States or abroad. For example, certain policies of the current U.S. presidential administration may impact ourbusiness and industry. Namely, the current U.S. presidential administration has taken several executive actions, including the issuance of anumber of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routineregulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketingapplications. Notably, on January 23, 2017, the current U.S. presidential administration ordered a hiring freeze for all executive departments andagencies, including the FDA, which prohibited the FDA from filling employee vacancies or creating new positions. Under the terms of the executiveorder, the freeze was to remain in effect until implementation of a plan recommended by the Director for the Office of Management and Budget, orOMB, in consultation with the Director of the Office of Personnel Management, to reduce the size of the federal workforce through attrition. Whilethe general hiring freeze was lifted on April 12, 2017, the FDA remained under a hiring freeze until May 25, 2017. However, the fiscal 2018 budgetproposal for the FDA still calls for overall reductions in the FDA workforce, mostly through attrition. We believe an under-staffed FDA could resultin delays in the FDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or implement orenforce regulatory requirements in a timely fashion or at all. Moreover, on January 30, 2017, the current U.S. presidential administration issued anexecutive order, applicable to all executive agencies, including the FDA, which requires that for each notice of proposed rulemaking or finalregulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law.These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that requires thetotal incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limitedcircumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of anew regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issuedby the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisionsmay apply not only to agency regulations, but also to significant agency guidance documents. It is difficult to predict how these requirements willbe implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions imposeconstraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negativelyimpacted.We may face difficulties from healthcare legislative reform measures.Existing regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatoryapproval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from futurelegislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements orthe adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that wemay have obtained and we may not achieve or sustain profitability. 70  In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, inMarch 2010, the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act, or together, theACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantlyimpacts the U.S. pharmaceutical industry. The ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-costbiosimilars by creating a licensure framework for follow on biologic products, (ii) proscribed a new methodology by which rebates owed bymanufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled,implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program andextended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual fees and taxes onmanufacturers of certain branded prescription drugs and therapeutic biologics, (v) established a new Medicare Part D coverage gap discountprogram, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs and therapeuticbiologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs and therapeutic biologicsto be covered under Medicare Part D, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offerMedicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of thefederal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vii) expanded the entities eligible for discounts underthe Public Health program (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conductcomparative clinical effectiveness research, along with funding for such research and (ix) established a Center for Medicare Innovation at theCenters for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaidspending, potentially including prescription drug spending.The current U.S. presidential administration and U.S. Congress have sought, and we expect they will continue to, seek to modify, repeal, orotherwise invalidate all, or certain provisions of, the ACA. Since January 2017, the current U.S. presidential administration has issued twoexecutive orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of therequirements for health insurance mandated by the ACA. For example, on October 12, 2017, the current U.S. presidential administration issued anexecutive order that expands the use of association health plans and allows anyone to purchase short-term health plans that provide temporary,limited insurance. This executive order also calls for the halt of federal payments to health insurers for cost-sharing reductions previously availableto lower-income Americans to afford coverage. There is still uncertainty with respect to the impact this executive order could have on coverageand reimbursement for healthcare items and services covered by plans that were authorized by the ACA. Concurrently, Congress has consideredlegislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, twobills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Reform Act, among other things, includes aprovision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail tomaintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22,2018, the current U.S. presidential administration signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, theannual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medicaldevices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to increasefrom 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close thecoverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. More recently, in July 2018, CMS published a final rulepermitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA riskadjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this riskadjustment. There is still uncertainty with respect to the impact the current U.S. presidential administration and Congress may have, if any, andany changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services coveredby plans that were authorized by the ACA. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation orthe impact of potential legislation on us. 71  In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce healthcareexpenditures. U.S. federal government agencies also currently face potentially significant spending reductions, which may further impacthealthcare expenditures. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions byCongress. A joint select committee on deficit reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additionalCongressional action is taken. Moreover, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among otherthings, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, andincreased the statute of limitations period for the government to recover overpayments to providers from three to five years. If federal spending isfurther reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes ofHealth to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductionsmay also impact the ability of relevant agencies to timely review and approve research and development, manufacturing, and marketing activities,which may delay our ability to develop, market and sell any products we may develop.Moreover, payment methodologies, including payment for companion diagnostics, may be subject to changes in healthcare legislation andregulatory initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the wayMedicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly andintroduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislationprovided authority for limiting the number of drugs that will be covered in any therapeutic class. While the MMA only applies to drug benefits forMedicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. Inaddition, CMS has begun bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospitaloutpatient setting and, beginning in 2018, CMS will pay for clinical laboratory services based on a weighted average of reported prices that privatepayors, Medicare Advantage plans, and Medicaid Managed Care plans pay for laboratory services. Further, on March 16, 2018, CMS finalized itsNational Coverage Determination, or NCD, for certain diagnostic laboratory tests using next generation sequencing that are approved by the FDAas a companion in vitro diagnostic and used in a cancer with an FDA-approved companion diagnostic indication. Under the NCD, diagnostic teststhat gain FDA approval or clearance as an in vitro companion diagnostic will automatically receive full coverage and be available for patients withrecurrent, metastatic relapsed, refractory or stages III and IV cancer. Additionally, the NCD extended coverage to repeat testing when the patienthas a new primary diagnosis of cancer.Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform governmentprogram reimbursement methodologies for drug products. At the federal level, the current U.S. presidential administration’s budget proposal forfiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation,including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow somestates to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, on May 11,2018, the current U.S. presidential administration laid out the administration’s “Blueprint” to reduce the cost of prescription medications whilepreserving innovation and cures. While the Department of Health and Human Services, or HHS, is soliciting feedback on some of these measures,other actions may be immediately implemented by HHS under existing authority. Although a number of these, and other potential, proposals willrequire authorization through additional legislation to become effective, Congress and the current U.S. presidential administration have eachindicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures areincreasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price orpatient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional state and federalhealthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay forhealthcare products and services, which could result in reduced demand for our product candidates or companion diagnostics or additional pricingpressures. 72  Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 wassigned into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug productsthat have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patientscan seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program.We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorouscoverage criteria and in additional downward pressure on the price that we receive for any approved product. The implementation of costcontainment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize ourproducts.Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party payors will besubject to applicable anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which couldexpose us to, among other things, enforcement actions, criminal sanctions, civil penalties, contractual damages, reputational harm,administrative burdens and diminished profits and future earnings.Our current and future arrangements with healthcare providers, healthcare organizations, third-party payors and customers expose us tobroadly applicable anti-bribery, fraud and abuse and other healthcare laws and regulations that may constrain the business or financialarrangements and relationships through which we research, market, sell and distribute our product candidates. In addition, we may be subject topatient data privacy and security regulation by the U.S. federal government and the states and the foreign governments in which we conduct ourbusiness. Restrictions under applicable federal and state anti-bribery and healthcare laws and regulations, include the following: •the federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting,offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either thereferral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under afederal and state healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of thestatute or specific intent to violate it in order to have committed a violation; •the federal criminal and civil false claims and civil monetary penalties laws, including the federal False Claims Act, which can beimposed through civil whistleblower or qui tam actions against individuals or entities, prohibits, among other things, knowinglypresenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent, knowingly making,using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making afalse statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, certain marketingpractices, including off-label promotion, may also violate false claims laws. Moreover, the government may assert that a claim includingitems and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes ofthe federal False Claims Act; •HIPAA, which imposes criminal and civil liability, prohibits, among other things, knowingly and willfully executing, or attempting toexecute a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a materialfact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intentto violate it in order to have committed a violation; •HIPAA, as amended by HITECH, which impose obligations on certain healthcare providers, health plans, and healthcare clearinghouses,known as covered entities, as well as their business associates that perform certain services involving the storage, use or disclosure ofindividually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, andtransmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities ofcertain breaches of security of individually identifiable health information; •the federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the ACA, and its implementingregulations, which requires certain manufacturers of covered drugs, devices, biologics and medical supplies that are reimbursable underMedicare, Medicaid, or the Children’s Health Insurance Program, with certain exceptions, to report annually to CMS information relatedto certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists andchiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and theirimmediate family members, with the information made publicly available on a searchable website; effective January 1, 2022, transfers ofvalue to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives must also be reported; 73  •the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their employeesand agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else ofvalue to foreign government officials, employees of public international organizations and foreign government owned or affiliated entities,candidates for foreign political office, and foreign political parties or officials thereof; •analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, that may apply to sales ormarketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, includingprivate insurers; and •certain state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelinesand the relevant compliance guidance promulgated by the federal government in addition to requiring drug and therapeutic biologicsmanufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures andpricing information, state and local laws that require the registration of pharmaceutical sales representatives, and state laws governingthe privacy and security of health information in certain circumstances, many of which differ from each other in significant ways andoften are not preempted by HIPAA, thus complicating compliance efforts.If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, wecould be subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm ourreputation and lead to reduced acceptance of our products by the market. These enforcement actions include, among others: •exclusion from participation in government-funded healthcare programs; and •exclusion from eligibility for the award of government contracts for our products.Efforts to ensure that our current and future business arrangements with third parties comply with applicable healthcare laws and regulationscould involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current orfuture statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If ouroperations are found to be in violation of any such requirements, we may be subject to significant penalties, including civil, criminal andadministrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtainapprovals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs,including Medicare and Medicaid, integrity oversight and reporting obligations, or reputational harm, any of which could adversely affect ourfinancial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, theserisks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expensesand could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving andsustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.Even if we are able to commercialize any product candidate, such product candidate may become subject to unfavorable pricingregulations or third-party coverage and reimbursement policies, which would harm our business.The regulations that govern regulatory approvals, pricing and reimbursement for new drugs and therapeutic biologics vary widely from countryto country. Some countries require approval of the sale price of a drug or therapeutic biologic before it can be marketed. In many countries, thepricing review period begins after marketing approval is granted. In some foreign markets, prescription biopharmaceutical pricing remains subjectto continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in aparticular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods andnegatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder ourability to recoup our investment in one or more product candidates, even if our product candidates obtain regulatory approval. 74  Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursementfor these products and related treatments will be available from government authorities, private health insurers and other organizations. Even if wesucceed in bringing one or more products to the market, these products may not be considered cost-effective, and the amount reimbursed for anyproducts may be insufficient to allow us to sell our products on a competitive basis. Because our programs are in the early stages of development,we are unable at this time to determine their cost effectiveness or the likely level or method of coverage and reimbursement. Increasingly, thethird-party payors who reimburse patients or healthcare providers, such as government and private insurance plans, are requiring that drugcompanies provide them with predetermined discounts from list prices, and are seeking to reduce the prices charged or the amounts reimbursedfor biopharmaceutical products. If the price we are able to charge for any products we develop, or the coverage and reimbursement provided forsuch products, is inadequate in light of our development and other costs, our return on investment could be affected adversely.There may be significant delays in obtaining reimbursement for newly approved drugs or therapeutic biologics, and coverage may be morelimited than the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities. Moreover,eligibility for reimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers our costs,including research, development, manufacture, sale and distribution.Interim reimbursement levels for new drugs or therapeutic biologics, if applicable, may also be insufficient to cover our costs and may not bemade permanent. Reimbursement rates may be based on payments allowed for lower cost drugs or therapeutic biologics that are alreadyreimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicaredata. Net prices for drugs or therapeutic biologics may be reduced by mandatory discounts or rebates required by government healthcare programsor private payors and by any future relaxation of laws that presently restrict imports of drugs or therapeutic biologics from countries where theymay be sold at lower prices than in the United States. Further, no uniform policy for coverage and reimbursement exists in the United States, andcoverage and reimbursement can differ significantly from payor to payor. Third-party payors often rely upon Medicare coverage policy and paymentlimitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations.Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for new drugs ortherapeutic biologics that we develop and for which we obtain regulatory approval could have a material and adverse effect on our business,financial condition, results of operations and prospects.If in the future we are unable to establish U.S. or global sales and marketing capabilities or enter into agreements with third partiesto sell and market our product candidates, we may not be successful in commercializing our product candidates if they are approvedand we may not be able to generate any revenue.We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able toobtain regulatory approval. To commercialize any product candidates after approval, we must build on a territory-by-territory basis marketing,sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we maynot be successful in doing so. If our product candidates receive regulatory approval, we may decide to establish an internal sales or marketingteam with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and timeconsuming and will require significant attention of our executive officers to manage. For example, some state and local jurisdictions have licensingand continuing education requirements for pharmaceutical sales representatives, which requires time and financial resources. Any failure or delayin the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our productcandidates that we obtain approval to market.With respect to the commercialization of all or certain of our product candidates, we may choose to collaborate, either globally or on aterritory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own salesforce and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements whenneeded on acceptable terms, or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatoryapproval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates,either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significantadditional losses. 75  Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval ofbiosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA toreview and approve biosimilar biologics, including the possible designation of a biosimilar as interchangeable based on its similarity to an existingreference product. The BPCIA provides a period of exclusivity for products granted “reference product exclusivity,” under which an application for abiosimilar product referencing such products cannot be approved by the FDA until 12 years after the original branded product is approved under aBLA. On March 6, 2015, the FDA approved the first biosimilar product under the BPCIA. FDA has accelerated licensure of biosimilar productssince the first biosimilar was approved in 2015. However, FDA has yet to deem a biosimilar product interchangeable with the reference product.While FDA has implemented certain procedures intended to implement the BPCIA, other processes remain in development and may be adopted bythe FDA; any such processes could have a material adverse effect on the future commercial prospects for our biological products.We believe that if any of our product candidates are approved as a biological product under a BLA, it should qualify for the 12-year period ofexclusivity. However, there is a risk that the FDA will not consider any of our product candidates to be reference products for competing products,potentially creating the opportunity for biosimilar competition sooner than anticipated. Additionally, this period of regulatory exclusivity does notapply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated pathway. Moreover, the extent towhich a biosimilar, once approved, will be substituted for any one of our reference products that may be approved in a way that is similar totraditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors thatare still developing.If any of our product candidates receives marketing approval and we or others later identify undesirable side effects caused by theproduct candidates, our ability to market and derive revenue from the product candidates could be compromised.Undesirable side effects caused by our product candidates could cause regulatory authorities to interrupt, delay or halt clinical trials and couldresult in more restrictive labeling or the delay or denial of regulatory approval by the FDA or other regulatory authorities. We have only recentlyinitiated our first clinical trials for our first two product candidates. Given the nature of ADCs, it is likely that there may be side effects associatedwith their use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, ourclinical trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease furtherdevelopment of or deny approval of our product candidates for any or all targeted indications. Such side effects could also affect patientrecruitment or the ability of enrolled patients to complete the clinical trials or result in potential product liability claims. Any of these occurrencesmay materially and adversely affect our business, financial condition, results of operations and prospects.Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited durationof exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposedto the product candidate.In the event that any of our product candidates receive regulatory approval and we or others identify undesirable side effects caused by oneof our products, any of the following adverse events could occur: •regulatory authorities may withdraw their approval of the product or seize the product; •we may be required to recall the product or change the way the product is administered to patients; •additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or anycomponent thereof; •we may be subject to fines, injunctions or the imposition of civil or criminal penalties; •regulatory authorities may require the addition of labeling statements, such as a black boxed warning or a contraindication; •we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients; •we could be sued and held liable for harm caused to patients; •the product may become less competitive; and •our reputation may suffer. 76  Any of these occurrences could have a material and adverse effect on our business, financial condition, results of operations and prospects.If we decide to pursue a Fast Track Designation by the FDA, it may not lead to a faster development or regulatory review or approvalprocess.We may seek Fast Track Designation for one or more of our product candidates. If a drug or biologic is intended for the treatment of a seriousor life-threatening condition and the drug or biologic demonstrates the potential to address unmet medical needs for this condition, the productsponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe aparticular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive FastTrack Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDAmay withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.While we have been granted Orphan Drug Designation by the FDA for STRO-001 for the treatment of multiple myeloma, if we decideto seek Orphan Drug Designation for some of our other product candidates, we may be unsuccessful or may be unable to maintain thebenefits associated with Orphan Drug Designation, including the potential for orphan drug exclusivity.We have been granted Orphan Drug Designation by the FDA for STRO-001 for the treatment of multiple myeloma. As part of our businessstrategy, we may seek Orphan Drug Designation for our other product candidates, and we may be unsuccessful. Regulatory authorities in somejurisdictions, including the United States and Europe, may designate drugs and therapeutic biologics for relatively small patient populations asorphan drugs. Under the Orphan Drug Act, the FDA may designate a drug or therapeutic biologic as an orphan drug if it is a drug or therapeuticbiologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in theUnited States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost ofdeveloping the drug or therapeutic biologic will be recovered from sales in the United States. In the United States, Orphan Drug Designationentitles a party to financial incentives such as opportunities for grant funding toward clinical trial costs, tax advantages and user fee waivers. Inaddition, if a product that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has suchdesignation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a fullBLA, to market the same product for the same indication for seven years, except in limited circumstances, such as a showing of clinicalsuperiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.Even if we obtain Orphan Drug Designation for our product candidates in specific indications, we may not be the first to obtain marketingapproval of these product candidates for the orphan-designated indication due to the uncertainties associated with developing pharmaceuticalproducts. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer isunable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtainorphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs ortherapeutic biologics with different principal molecular structural features can be approved for the same condition. Even after an orphan product isapproved, the FDA can subsequently approve the same drug or therapeutic biologic with the same principal molecular structural features for thesame condition if the FDA concludes that the later drug or therapeutic biologic is safer, more effective or makes a major contribution to patientcare. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug or therapeutic biologic nor gives the drugor therapeutic biologic any advantage in the regulatory review or approval process. In addition, while we may seek Orphan Drug Designation for ourproduct candidates, we may never receive such designations.The recent tax reform legislation, which was signed into law on December 22, 2017 reduced the amount of the qualified clinical researchcosts for a designated orphan product that a sponsor may claim as a credit from 50% to 25%. This may further limit the advantage and mayimpact our future business strategy of seeking the Orphan Drug Designation. 77  Risks Related to Our Common StockOur quarterly and annual operating results may fluctuate significantly or may fall below the expectations of investors or securitiesanalysts, each of which may cause our stock price to fluctuate or decline.We expect our operating results to be subject to quarterly and annual fluctuations. Our net loss and other operating results will be affected bynumerous factors, including: •variations in the level of expense related to the ongoing development of our XpressCF™ Platform, our product candidates or futuredevelopment programs; •results of preclinical and clinical trials, or the addition or termination of clinical trials or funding support by us, or existing or futurecollaborators or licensing partners; •our execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receiveunder existing or future arrangements or the termination or modification of any such existing or future arrangements; •any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; •additions and departures of key personnel; •strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments orchanges in business strategy; •if any of our product candidates receives regulatory approval, the terms of such approval and market acceptance and demand for suchproduct candidates; •regulatory developments affecting our product candidates or those of our competitors; and •changes in general market and economic conditions.If our quarterly and annual operating results fall below the expectations of investors or securities analysts, the price of our common stockcould decline substantially. Furthermore, any quarterly and annual fluctuations in our operating results may, in turn, cause the price of our commonstock to fluctuate substantially. We believe that quarterly and annual comparisons of our financial results are not necessarily meaningful andshould not be relied upon as an indication of our future performance.The market price of our stock may be volatile, and you could lose all or part of your investment.The trading price of our common stock may be highly volatile and subject to wide fluctuations in response to various factors, some of whichwe cannot control. As a result of this volatility, investors may not be able to sell their common stock at or above the purchase price. The marketprice for our common stock may be influenced by many factors, including the other risks described in this section and the following: •results of preclinical studies and clinical trials of our product candidates, or those of our competitors or our existing or futurecollaborators; •regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to ourproduct candidates; •the success of competitive products or technologies; •introductions and announcements of new products by us, our future commercialization partners, or our competitors, and the timing ofthese introductions or announcements; •actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms; •actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; •the success of our efforts to acquire or in-license additional technologies, products or product candidates; •developments concerning current or future collaborations, including but not limited to those with our sources of manufacturing supplyand our commercialization partners; •market conditions in the pharmaceutical and biotechnology sectors; •announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments; 78  •developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtainpatent protection for our product candidates and products; •our ability or inability to raise additional capital and the terms on which we raise it; •the recruitment or departure of key personnel; •changes in the structure of healthcare payment systems; •actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock,other comparable companies or our industry generally; •our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; •fluctuations in the valuation of companies perceived by investors to be comparable to us; •announcement and expectation of additional financing efforts; •speculation in the press or investment community; •trading volume of our common stock; •sales of our common stock by us or our stockholders; •the concentrated ownership of our common stock; •changes in accounting principles; •terrorist acts, acts of war or periods of widespread civil unrest; •natural disasters and other calamities; •a temporary federal government shutdown; and •general economic, industry and market conditions.In addition, the stock market in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, haveexperienced extreme price and volume fluctuations that have been often unrelated or disproportionate to the operating performance of the issuer.These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operatingperformance. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors”section, could have a dramatic and adverse impact on the market price of our common stock.The future sale and issuance of equity or of debt securities that are convertible into equity will dilute our share capital.We may choose to raise additional capital in the future, depending on market conditions, strategic considerations and operationalrequirements. To the extent that additional capital is raised through the sale and issuance of shares or other securities convertible into shares, ourstockholders will be diluted. Future issuances of our common stock or other equity securities, or the perception that such sales may occur, couldadversely affect the trading price of our common stock and impair our ability to raise capital through future offerings of shares or equity securities.No prediction can be made as to the effect, if any, that future sales of common stock or the availability of common stock for future sales will haveon the trading price of our common stock.A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or themarket perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market before or after the lock-upand other legal restrictions on resale lapse in connection with our IPO, the market price of our common stock could decline significantly. Each ofour officers, directors, substantially all of our stockholders and participants in our directed share program entered into lock-up agreements with theunderwriters that restricted their ability to sell or transfer their shares. These lock-up agreements pertaining to our IPO expired March 25, 2019.Due to this expiration of the lock-up agreements, a substantial number of shares of common stock recently became eligible for sale in the publicmarket.We cannot predict what effect, if any, sales of our shares in the public market or the availability of shares for sale will have on the marketprice of our common stock. However, future sales of substantial amounts of our common stock in the public market, including shares issued uponexercise of outstanding options or warrants, or the perception that such sales may occur, could adversely affect the market price of our commonstock. 79  We also expect that significant additional capital may be needed in the future to continue our planned operations. To raise capital, we maysell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from timeto time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the marketprice of our common stock.If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleadingopinion regarding our stock, our stock price and trading volume could decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about usor our business. We do not have any control over the analysts or the content and opinions included in their reports. If any of the analysts whocover us issue an adverse or misleading opinion regarding us, our business model, financial condition and results of operations, our intellectualproperty or our stock performance, or if our preclinical studies and clinical trials and operating results fail to meet the expectations of analysts, ourstock price would likely decline. If one or more of such analysts cease coverage of us or fail to publish reports on us regularly, we could losevisibility in the financial markets, which in turn could cause a decline in our stock price or trading volume.Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant controlover matters subject to stockholder approval.Based on the beneficial ownership of our common stock as of December 31, 2018, our executive officers, directors and affiliates beneficiallyowned 38.2% of our outstanding voting stock. As a result, these stockholders, if acting together, could have significant influence over theoutcome of corporate actions requiring stockholder approval, including the election of directors, amendment of our organizational documents, anymerger, consolidation or sale of all or substantially all of our assets and any other significant corporate transaction. The interests of thesestockholders may not be the same as or may even conflict with your interests. For example, these stockholders could delay or prevent a changeof control of our company, even if such a change of control would benefit our other stockholders, which could deprive our stockholders of anopportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing marketprice of our common stock. The significant concentration of stock ownership may adversely affect the trading price of our common stock due toinvestors’ perception that conflicts of interest may exist or arise.We are an “emerging growth company” and we cannot be certain if the reduced reporting requirements applicable to emerginggrowth companies will make our common stock less attractive to investors.We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as wecontinue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable toother public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirementsof Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executivecompensation in our periodic reports, registration statements and proxy statements and (iii) exemptions from the requirements of holdingnonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not approvedpreviously.We could be an emerging growth company for up to five years following the completion of the initial public offering, although circumstancescould cause us to lose that status earlier, including if we are deemed to be a “large accelerated filer,” which occurs when the market value of ourcommon stock that is held by non-affiliates exceeds $700 million as of the prior June 30, or if we have total annual gross revenue of $1.07 billionor more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the followingDecember 31, or if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case we would nolonger be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a“smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including notbeing required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligationsregarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock lessattractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a lessactive trading market for our common stock and our share price may be more volatile. 80  Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financialstatements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the datethat we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of theSecurities Act, upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effectivedate for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date onwhich we will adopt the recently issued accounting standard.Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may bebeneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our currentmanagement.Our restated certificate of incorporation and our restated bylaws contain provisions that could delay or prevent a change in control of ourcompany. These provisions could also make it difficult for stockholders to elect directors who are not nominated by current members of our boardof directors or take other corporate actions, including effecting changes in our management. These provisions: •establish a classified board of directors so that not all members of our board are elected at one time; •permit only the board of directors to establish the number of directors and fill vacancies on the board; •provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders; •require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws; •authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan; •eliminate the ability of our stockholders to call special meetings of stockholders; •prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; •prohibit cumulative voting; and •establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon bystockholders at annual stockholder meetings.In addition, our restated certificate of incorporation, to the fullest extent permitted by law, provides that the Court of Chancery of the State ofDelaware is the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; anyaction asserting a claim against us arising pursuant to the Delaware General Corporation Law, or the DGCL, our restated certificate ofincorporation, or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Furthermore, ouramended and restated bylaws also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts ofthe United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us orany of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to findthe choice of forum provisions contained in our restated certificate of incorporation or amended and restated bylaws to be inapplicable orunenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm ourbusiness, operating results and financial condition.In addition, Section 203 of the DGCL may discourage, delay or prevent a change in control of our company. Section 203 imposes certainrestrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. 81  We will incur increased costs as a result of operating as a public company, and our management will be required to devotesubstantial time to new compliance initiatives and corporate governance practices.As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting andother expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and ConsumerProtection Act, the listing requirements of the Nasdaq Global Market and other applicable securities rules and regulations impose variousrequirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporategovernance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives.Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activitiesmore time consuming and costly. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to theserequirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our boardof directors, our board committees or as executive officers. Moreover, these rules and regulations are often subject to varying interpretations, inmany cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided byregulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated byongoing revisions to disclosure and governance practices.We are not currently required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore notrequired to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Pursuant to Section 404,we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerginggrowth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independentregistered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process todocument and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue todedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy ofinternal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls arefunctioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite ourefforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reportingis effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financialmarkets due to a loss of confidence in the reliability of our financial statements. In addition, if we are not able to continue to meet theserequirements, we may not be able to remain listed on the Nasdaq Global Market.Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any,will be your sole source of gain.We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to financethe growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for theforeseeable future.We may be subject to securities litigation, which is expensive and could divert management attention.The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price oftheir stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigationagainst us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm ourbusiness. 82  Item 1B.Unresolved Staff CommentsNoneItem 2.Properties and FacilitiesOur principal executive office is located in South San Francisco, California, where we lease a total of approximately 52,200 square feet ofoffice and laboratory space in two buildings that we use for our administrative, research and development and other activities. The lease undereach of our South San Francisco buildings expires in November 2021, unless we exercise our option to extend each lease term through November2026. We also have a manufacturing facility and manufacturing-support facility in San Carlos, California, where we lease a total of approximately29,600 square feet of space in two buildings. The lease on one of our San Carlos buildings expires in July 2021, for which we have two three-yearoptions to extend our lease to July 2027. The lease on the second San Carlos building expires in June 2021, for which we have two three-yearoptions to extend the lease to June 2027.Item 3.Legal ProceedingsFrom time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party toany legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigationcan have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputationalharm, and other factors.Item 4.Mine Safety DisclosuresNot applicable. 83  PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesMarket Information for Common StockOur common stock has been listed on The Nasdaq Global Market under the symbol “STRO” since September 27, 2018. Prior to that therewas no public trading market for our common stock.Holders of RecordAs of March 27, 2019, there were approximately 171 stockholders of record of our common stock. The actual number of stockholders isgreater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name bybrokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by otherentities.Dividend PolicyWe currently intend to retain future earnings, if any, for use in operation of our business and to fund future growth. We have never declared orpaid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. Payment of cashdividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financialcondition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deemrelevant. 84  Stock Performance GraphThe following graph shows the total stockholder’s return on an investment of $100 in cash at market close on September 27, 2018 (the firstday of trading of our common stock), through December 31, 2018 for (i) our common stock, (ii) the Nasdaq Composite Index and (iii) the NasdaqBiotechnology Index. Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of pre-tax amount of alldividends; however, no dividends have been declared on our common stock to date. The stockholder return shown on the graph below is notnecessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder return. This graph shall notbe deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 as amended, or ExchangeAct, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings underthe Securities Act of 1933, as amended, or Securities Act, whether made before or after the date hereof and irrespective of any generalincorporation language in any such filing. Trade Date SutroBiopharma(STRO) NasdaqCompositeIndex (IXIC) NasdaqBiotechIndex (^NBI) 9/27/2018 100.00 100.00 100.00 10/31/2018 78.16 90.85 85.53 11/30/2018 69.01 91.15 89.54 12/31/2018 59.34 82.51 79.47 Securities Authorized for Issuance Under Equity Compensation PlansThe information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in PART IIIItem 12 of this Annual Report on Form 10-K. 85  Unregistered Sales of Equity SecuritiesFrom January 1, 2018 through December 31, 2018, we sold and issued the following unregistered securities: 1.Prior to filing our registration statement on Form S-8 in September 2018, we issued and sold to our directors, officers, employees andconsultants an aggregate of 18,700 unregistered shares of common stock upon exercise of stock options under our 2004 Stock Plan, orthe 2004 Plan at per share exercise prices ranging from $3.99 to $14.88. 2.In July 2018, we issued 319,305,718 shares of Series E redeemable convertible preferred stock that resulted in gross proceeds of $85.4million. 3.In 2018, we issued an aggregate of 733 shares of common stock at a price of $5.81 per share upon the exercise of common stockwarrants by four individuals. 4.In 2018, we issued an aggregate of 559,564 shares of Series C preferred stock at a price of $0.4797 per share upon the exercise ofSeries C preferred stock warrants, which shares converted into 20,700 shares of common stock in connection with our initial publicoffering. 5.In October 2018, we issued to Merck 666,666 shares of our common stock at a price per share equal to the initial public offering price of$15.00 per share that resulted in gross proceeds of approximately $10,000,000.The offers, sales and issuances of the securities described in paragraph (1) above were deemed to be exempt from registration under theSecurities Act under Rule 701 promulgated under the Securities Act as offers and sale of securities pursuant to certain compensatory benefitplans and contracts relating to compensation in compliance with Rule 701.The offers, sales, and issuances of the securities described in paragraphs (2), (3) and (4) above were deemed to be exempt from registrationunder the Securities Act in reliance on Section 4(a)(2) of the Securities Act. The recipients of securities in each of these transactions acquired thesecurities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed tothe securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated personand had adequate access, through employment, business or other relationships, to information about us.Use of Proceeds from Registered SecuritiesOn October 1, 2018, we completed our IPO and sold 5,667,000 shares of common stock at an IPO price of $15.00 per share. The offer andsale of all of the shares in the IPO were registered under the Securities Act pursuant to registration statements on Form S-1 (File Nos. 333-227103and 333-227548), which was declared effective by the SEC on September 26, 2018. No additional shares were registered.We received net proceeds from the IPO of approximately $74.4 million, after deducting underwriting discounts and commissions ofapproximately $6.0 million and estimated offering expenses of approximately $4.6 million. Cowen and Company, LLC and Piper Jaffray & Co.acted as joint book-running managers of the offering and as representatives of the underwriters. None of the expenses associated with the IPOwere paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates, or to our affiliates.There has been no material change in the planned use of proceeds from our IPO as described in the Prospectus filed with the SEC pursuantto Rule 424(b)(4) under the Securities Act on September 27, 2018.Issuer Purchases of Equity SecuritiesNone. 86  Item 6.Selected Financial DataThe following tables summarize our selected financial data for the periods and as of the dates indicated. We have derived our selectedstatements of operations data for the years ended December 31, 2018, 2017, and 2016 and the balance sheet data as of December 31, 2018 and2017 from our audited financial statements included elsewhere in this report. The selected balance sheet data as of December 31, 2016 has beenderived from our audited financial statements which are not included in this report.Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the selected financialdata below together with the information under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”and our financial statements and related notes included elsewhere in this report. Year Ended December 31, 2018 2017 2016 (In thousands, except share and per share amounts) Statements of Operations Data: Revenue: Collaboration revenue (including amounts from related parties of $13,541, $44,606 and $54,001 during the years ended December 31, 2018, 2017 and 2016, respectively) $32,387 $51,741 $59,731 Other revenue (including amounts from related parties of $5,425 during the year ended December 31, 2018) 6,032 - - Total revenue 38,419 51,741 59,731 Operating expenses: Research and development 54,262 54,639 43,550 General and administrative 21,380 16,374 14,817 Total operating expenses 75,642 71,013 58,367 (loss) Income from operations (37,223) (19,272) 1,364 Interest income 1,616 273 251 Interest expense (1,623) (612) - Other income (expense), net 1,913 (77) 87 Net (loss) income $(35,317) $(19,688) $1,702 Net loss per share attributable to common stockholders, basic and diluted (1) $(6.13) $(43.95) $- Weighted-average shares used in computing net loss per share (1) 5,758,875 447,946 407,735 (1)See Notes 1 and 13 to our audited financial statements included elsewhere in this report for an explanation of the calculations of our basic anddiluted net loss per share and the weighted-average number of shares used in computing the per share amounts. As of December 31, 2018 2017 2016 (in thousands) Balance Sheet Data: Cash and cash equivalents $125,298 $22,020 $11,593 Marketable securities 79,194 - 35,928 Working capital (deficit) (1) 173,523 (6,327) (493)Total assets 223,139 40,769 69,277 Debt 14,724 14,563 - Redeemable convertible preferred stock warrant liability - 1,708 1,193 Redeemable convertible preferred stock - 102,505 102,505 Accumulated deficit (150,328) (115,011) (95,323)Total stockholders’ equity (deficit) 131,539 (109,001) (90,901) (1)We define working capital as current assets less current liabilities. See our financial statements for further details regarding our current assets andcurrent liabilities. 87  Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form10-K, including the following sections, contains forward-looking statements within the meaning of the federal securities laws. These statements aresubject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see the “Risk Factors” section in Item 1A of this Annual Report onForm 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only asof the date of this Form 10-K. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurringafter the date of this Form 10-K.OverviewWe are a clinical stage drug discovery, development and manufacturing company focused on deploying our proprietary integrated cell-freeprotein synthesis and site-specific conjugation platform, XpressCF™, to create a broad variety of optimally designed, next-generation proteintherapeutics initially for cancer and autoimmune disorders. We aim to design therapeutics using the most relevant and potent modalities, includingcytokine-based targets, immuno-oncology, or I/O, agents, antibody-drug conjugates, or ADCs, and bispecific antibodies that are directed primarilyagainst clinically validated targets where the current standard of care is suboptimal. We believe our platform allows us to accelerate the discoveryand development of potential first-in-class and best-in-class molecules by enabling the rapid and systematic evaluation of protein structure-activityrelationships to create optimized homogeneous product candidates. Our mission is to transform the lives of patients by using our XpressCF™Platform to create medicines with improved therapeutic profiles for areas of unmet need.Once identified, production of protein drug candidates can be rapidly and predictably scaled in our current Good Manufacturing Practicescompliant manufacturing facility. We have the ability to manufacture our cell-free extract that supports our production of proteins on a large scaleusing a semi-continuous fermentation process. Our two most advanced product candidates are wholly owned: STRO-001, an ADC directed againstCD74, for patients with multiple myeloma and non-Hodgkin lymphoma, or NHL, and STRO-002, an ADC directed against folate receptor-alpha, orFolRα, for patients with ovarian and endometrial cancers. STRO-001 is currently enrolling patients in a Phase 1 trial, with initial safety dataexpected in mid-2019 and initial efficacy data expected by year end 2019. In October 2018, we were granted Orphan Drug Designation by the U.S.Food and Drug Administration (“FDA”), for STRO-001 for the treatment of multiple myeloma. We began enrolling patients in a STRO-002 Phase 1trial focused on ovarian and endometrial cancers in March 2019, with initial safety data expected by year end 2019. We have also entered intomulti-target, product-focused collaborations with leaders in the field of oncology, including a cytokine derivatives collaboration with Merck Sharp &Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ, USA, or Merck, a B Cell Maturation Antigen, or BCMA, and an immuno-oncologydirected alliance with Celgene Corporation, or Celgene, and an oncology-focused collaboration with Merck KGaA, Darmstadt, Germany (operatingin the United States and Canada under the name “EMD Serono”).Since the commencement of our operations, we have devoted substantially all of our resources to performing research and development andmanufacturing activities in support of our own product development efforts and those of our collaborators, raising capital to support and expandsuch activities and providing general and administrative support for these operations. We have funded our operations to date primarily from upfront,milestone and other payments under our collaboration agreements with Merck, Celgene and EMD Serono, the issuance and sale of redeemableconvertible preferred stock, our initial public offering, or IPO, of common stock and debt proceeds.On September 26, 2018, our registration statements on Form S-1 (File Nos. 333-227103 and 333-227548) relating to our IPO, were declaredeffective by the Securities and Exchange Commission, or SEC, and shares of our common stock began trading on the Nasdaq Global Market onSeptember 27, 2018. Upon the closing of the IPO on October 1, 2018, we issued and sold an aggregate of 5,667,000 shares of common stock ata price of $15.00 per share for gross proceeds of approximately $85.0 million. We received net proceeds from the IPO of approximately $74.4million, after underwriting discounts, commissions and offering expenses. In addition to the shares of common stock sold in the IPO, weconcurrently sold in a private placement to Merck, 666,666 shares of common stock at the IPO offering price of $15.00 per share, for proceeds ofapproximately $10.0 million. 88  We have no products approved for commercial sale and have not generated any revenue from commercial product sales. We had a net lossof $35.3 million and $19.7 million for the years ended December 31, 2018 and 2017, respectively. Although we had net income for the year endedDecember 31, 2016 of $1.7 million, we cannot assure you that we will ever have net income again or that we will generate positive cash flow fromoperating activities. As of December 31, 2018, we had an accumulated deficit of $150.3 million. We do not expect to generate any revenue fromcommercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our productcandidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incursignificant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect our operating expenses tosignificantly increase as we continue to develop, and seek regulatory approvals for, our product candidates, engage in other research anddevelopment activities, expand our pipeline of product candidates, continue to develop our manufacturing facility and capabilities, maintain andexpand our intellectual property portfolio, seek regulatory and marketing approval for any product candidates that we may develop, acquire or in-license other assets or technologies, ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for whichwe may obtain marketing approval and operate as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other research and development activities and the timing of achievementand receipt of upfront, milestones and other collaboration agreement payments.Recent DevelopmentsIn October 2018, the FDA granted orphan drug designation for STRO-001, for the treatment of multiple myeloma. The FDA’s Orphan DrugDesignation Program provides orphan status to drugs and biologics, which are defined as those intended for the safe and effective treatment,diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the United States, or that affect more than 200,000persons but are not expected to recover the costs of developing and marketing a treatment drug.We began enrolling patients in a STRO-002 Phase 1 trial focused on ovarian and endometrial cancers in March 2019. In December 2018, we earned a $10.0 million milestone payment from Celgene triggered by the successful development of a dry powderXtractCFTM formulation, using spray drying technology, which has been in general use for many years in the pharmaceutical industry. Financial Operations OverviewTotal RevenueWe have no products approved for commercial sale and have not generated any revenue from commercial product sales. Our total revenue todate has been generated principally from our collaboration and license agreements with Celgene, Merck and EMD Serono, and to a lesser extent,from manufacturing, supply and services and products we provide to Celgene and SutroVax, Inc., or SutroVax.Collaboration RevenueCollaboration revenue consists of revenue received from upfront, milestone and contingent payments received from our collaborators. Werecognize revenue from nonrefundable upfront license payments over the term of our estimated period of performance under the agreements. Inaddition to receiving upfront payments, we may also be entitled to milestone and other contingent payments upon achieving predefined objectives.Revenue from milestones, if they are nonrefundable and deemed substantive, are recognized upon successful accomplishment of the performanceobligations. To the extent that non-substantive milestones are achieved, and we have remaining performance obligations, such payments aredeferred and recognized as revenue over the estimated remaining period of performance.We expect that any collaboration revenue we generate principally from our current collaboration and license agreements with Celgene, Merckand EMD Serono, and from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestonesand other collaboration agreement payments. We began recognizing revenue under the 2018 Merck Agreement in the third quarter of 2018. 89  Other RevenueOther revenue consists of revenue received from development, manufacturing and supply chain management services, including clinicalproduct supply, that we provide to Celgene and from extracts and custom reagents that we provide to SutroVax. We recognize revenue when theservices or products are provided. We expect other revenue will fluctuate from period to period as a result of the timing of ordering and providingsuch services and products.Operating ExpensesResearch and DevelopmentResearch and development expenses represent costs incurred in performing research, development and manufacturing activities in support ofour own product development efforts and those of our collaborators, and include salaries, employee benefits, stock-based compensation,laboratory supplies, outsourced research and development expenses, professional services and allocated facilities-related costs. We expense bothinternal and external research and development costs as they are incurred. Non-refundable advance payments for services that will be used orrendered for future research and development activities are recorded as prepaid expenses and recognized as expenses as the related services areperformed.We expect our research and development expenses to increase in the future as we advance our product candidates into and throughpreclinical studies and clinical trials, pursue regulatory approval of our product candidates, expand our pipeline of product candidates and continueto develop our manufacturing facility and capabilities. The process of conducting the necessary preclinical and clinical research to obtainregulatory approval is costly and time consuming. The actual probability of success for our product candidates may be affected by a variety offactors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, the ability ofcollaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. We maynever succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unableto determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenuefrom the commercialization and sale of our product candidates.The following table summarizes our research and development expenses incurred during the periods indicated. The internal costs includepersonnel, facility costs and research and scientific related activities associated with our pipeline. The external program costs reflect externalcosts attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party costs for preclinical and clinical studies and research services, and other consulting costs. Year Ended December 31, 2018 2017 2016 Internal costs: Research and drug discovery 15,541 15,636 17,040 Process and product development 8,537 8,195 8,224 Manufacturing 16,872 19,769 14,496 Clinical development 1,357 843 - Total internal costs 42,307 44,443 39,760 External Program Costs: Research and drug discovery 1,001 1,090 1,650 Toxicology and translational science 2,239 3,767 138 Process and product development 1,080 208 158 Manufacturing 4,530 4,198 1,844 Clinical development 3,105 933 - Total external program costs 11,955 10,196 3,790 Total research and development expenses $54,262 $54,639 $43,550 90  General and AdministrativeOur general and administrative expenses consist primarily of personnel costs, expenses for outside professional services, including legal,human resource, audit, accounting and tax services and allocated facilities-related costs. Personnel costs include salaries, employee benefits andstock-based compensation. We expect to incur additional expenses operating as a public company, including expenses related to compliance withthe rules and regulations of the SEC and listing standards applicable to companies listed on the Nasdaq Global Market, additional insuranceexpenses, investor relations activities and other administrative and professional services. We also expect to increase the size of ouradministrative function to support the anticipated growth of our business.Interest IncomeInterest income consists primarily of interest received on our invested funds.Interest ExpenseInterest expense includes interest incurred on our debt and amortization of debt issuance costs.Other Income (Expense), NetOther income (expense), net primarily includes gains and losses from the remeasurement of our liabilities related to our redeemableconvertible preferred stock warrants. We adjusted the liability for changes in estimated fair value until the earlier of the exercise of the warrants,expiration of the warrants, or conversion of the redeemable convertible preferred stock warrants upon the completion of our IPO, into commonstock warrants. With the completion of our IPO on October 1, 2018, the redeemable convertible preferred stock warrant liability was reclassified toadditional paid-in-capital and we will no longer record any related periodic fair value adjustments.Comparison of the Years Ended December 31, 2018 and 2017 Year ended December 31, Change 2018 2017 $ % (in thousands) Revenue: Collaboration revenue (including amounts from related parties of $13,541 and $44,606 during the years ended December 31, 2018 and 2017, respectively) $32,387 $51,741 $(19,354) (37)%Other revenue (including amounts from related parties of $5,425 during the year ended December 31, 2018) 6,032 - 6,032 * Total revenue 38,419 51,741 (13,322) (26)%Operating expenses: Research and development 54,262 54,639 (377) (1)%General administrative 21,380 16,374 5,006 31%Total operating expenses 75,642 71,013 4,629 7%Loss from operations (37,223) (19,272) (17,951) 93%Interest income 1,616 273 1,343 * Interest expense (1,623) (612) (1,011) 165%Other income (expense), net 1,913 (77) 1,990 * Net loss $(35,317) $(19,688) $(15,629) 79% *Percentage not meaningful 91  RevenueWe have recognized revenue as follows during the periods indicated: Year Ended December 31, Change 2018 2017 $ % (in thousands) Collaboration revenue: Celgene Corporation (“Celgene”) (1) Recognition of up-front payments $6,567 $16,694 $(10,127) (61)%Research and development services 119 660 (541) (82)%Milestones and contingent payments 10,000 27,252 (17,252) (63)%Total 16,686 44,606 (27,920) (63)%Merck Sharp & Dohme Corporation (“Merck”)— related party: Recognition of up-front payments 6,985 - 6,985 * Research and development services 1,541 - 1,541 * Total 8,526 - 8,526 * Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”): Recognition of up-front payments 4,142 4,120 22 1%Research and development services 3,033 3,015 18 1%Total 7,175 7,135 40 1%Total collaboration revenue $32,387 $51,741 $(19,354) (37)%Other revenue Celgene Corporation (1): Development and manufacturing services and clinical product supply $4,501 $- $4,501 * SutroVax—related party: Supply and other 1,531 - 1,531 * Total other revenue $6,032 $- $6,032 * Total revenue $38,419 $51,741 $(13,322) (26)% (1)Includes $5.0 million of collaboration revenue and $3.9 million of other revenue from Celgene as related party revenue. Celgene was arelated party through September 30, 2018 as it held more than 10% of our common stock for the periods presented until the closing ofour IPO. *Percentage not meaningfulTotal revenue decreased by $13.2 million, or 26%, during year ended December 31, 2018 compared to the year ended December 31, 2017,due to the decline in collaboration revenue of $19.4 million, offset partially by a $6.0 million increase in other revenue-related parties.The decline in collaboration revenue was due primarily to a net decrease of $27.9 million in revenues related to lower revenue from the 2017Celgene Agreement as compared to revenue earned under the 2014 Celgene Agreement. The up-front payment under the 2017 CelgeneAgreement, together with the remaining deferred revenue balance of the 2014 Celgene Agreement, are being recognized ratably, commencing inAugust 2017 and estimated to be completed in September 2020. The decline was partially offset by a $8.5 million increase in research anddevelopment services provided to Merck and the recognition of collaboration revenue from the up-front nonrefundable payment of $60.0 millionreceived in 2018. Under the 2018 Merck Agreement, the upfront fee is being recognized as revenue on a proportion of performance basis, usingfull-time equivalents (FTEs) as the basis of measurement.Other revenue in 2018 was due primarily to development and clinical manufacturing services and supplies provided to Celgene for $4.5 millionand supplies and other revenue related to SutroVax for $1.5 million. There were no such services during the year ended December 31, 2017. 92  Research and Development ExpenseResearch and development expense remained flat during the year ended December 31, 2018 compared to the year ended December 31,2017. Lower overall spending on manufacturing materials of $3.4 million, a $2.7 million impairment cost taken in 2017, and the $0.7 millioninclusion of personnel-related costs previously in research and development expense, were offset by a $2.9 million increase in compensation-related expenses due to higher headcount, a $2.2 million increase in external services attributable to clinical trial costs related to STRO-001 andSTRO-002, and a $1.4 million increase in consulting services related to supply chain management.General and Administrative ExpenseGeneral and administrative expense increased by $5.0 million, or 31%, during the year ended December 31, 2018 compared to the yearended December 31, 2017. The increase was due primarily to increases of $2.6 million in personnel-related expenses, $1.0 million in legal,insurance and audit fees, a $0.4 million fee related to the Merck transaction, $0.2 million of fees paid to a third party in relation to the Celgenemilestone payment, and $0.7 million from the inclusion of personnel-related costs previously in research and development expense effective inJanuary 2018.Interest IncomeInterest income increased by $1.3 million during the year ended December 31, 2018 compared to the year ended December 31, 2017, dueprimarily to a higher cash balance resulting from the proceeds from the May 2018 and July 2018 closings of the Series E financing, the up-frontpayment of $60.0 million received under the 2018 Merck Agreement, and the combined net proceeds of $84.4 million from the completion of ourIPO and the concurrent private placement of common stock to Merck.Interest ExpenseInterest expense increased by $1.0 million during the year ended December 31, 2018 compared to the year ended December 31, 2017, due tointerest incurred under a loan and security agreement that we entered into with Oxford and SVB in August 2017.Other Income (Expense), NetOther income (expense), net changed by $2.0 million during the year ended December 31, 2018 compared to the year ended December 31,2017. The change was primarily due to a $1.0 million increase in the estimated fair value and conversion of our redeemable convertible preferredstock warrants during the year ended December 31, 2018 upon the completion of our initial public offering, and a $0.9 million increase inconnection with the associated income attributable to the arrangement with the Leukemia & Lymphoma Society, Inc.Comparison of the Years Ended December 31, 2017 and 2016 Year ended December 31, Change 20172016 $ % (in thousands) Revenue: Collaboration revenue $51,741 $59,731 $(7,990) (13)%Total revenue 51,741 59,731 (7,990) (13)%Operating expenses: Research and development 54,639 43,550 11,089 25%General administrative 16,374 14,817 1,557 11%Total operating expenses 71,013 58,367 12,646 22%(Loss) Income from operations (19,272) 1,364 (20,636) * Interest income 273 251 22 9%Interest expense (612) - (612) * Other (expense) income, net (77) 87 (164) * Net (loss) income $(19,688) $1,702 $(21,390) * *Percentage not meaningful 93  Collaboration RevenueWe have recognized revenue from our collaboration agreements as follows during the periods indicated: Year Ended December 31, Change 2017 2016 $ % (in thousands) Collaboration revenue: Celgene Corporation (“Celgene”)—related party: Recognition of up-front payments $16,694 $27,730 $(11,036) (40)%Research and development services 660 - 660 * Milestones and contingent payments 27,252 26,271 981 4%Total 44,606 54,001 (9,395) (17)%Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”): Recognition of up-front payments 4,120 4,120 - 0%Research and development services 3,015 1,610 1,405 87%Total 7,135 5,730 1,405 25%Total collaboration revenue $51,741 $59,731 $(7,990) (13)%Total revenue $51,741 $59,731 $(7,990) (13)% *Percentage not meaningfulRevenue decreased by $8.0 million, or 13%, during the year ended December 31, 2017 compared to the year ended December 31, 2016. Thedecrease was due to the decline in collaboration revenue of $11.0 million recognized from the up-front nonrefundable payment of $83.1 millionreceived in 2014 under the 2014 Celgene Agreement, as the remaining deferred revenue balance, as of the effective date of the 2017 CelgeneAgreement, along with the payments under the 2017 Celgene Agreement, are being recognized ratably starting in August 2017 and ending inSeptember 2020. The decrease was partially offset by a $1.0 million increase in revenue recognized from milestones and contingent paymentsfrom Celgene and an increase of an aggregate of $2.1 million in research and development services for Celgene and EMD Serono.Research and Development ExpenseResearch and development expense increased by $11.1 million, or 25%, during the year ended December 31, 2017 compared to the yearended December 31, 2016. The increase was due to an increase of $3.4 million in personnel-related expenses due to headcount growth, anincrease of $2.4 million in consulting and other external services, an increase of $1.7 million in facilities-related costs, as a result of increasedresearch and development activities in support of our own product development efforts and those of our collaborators, and a net increase of$0.9 million in preclinical and pharmacology research spending as well as manufacturing supplies and production materials. The increase inresearch and development expense also reflects an impairment charge of $2.7 million pertaining to certain custom-built manufacturing equipmentthat failed to meet our acceptance criteria.General and Administrative ExpenseGeneral and administrative expense increased by $1.6 million, or 11%, during the year ended December 31, 2017 compared to the yearended December 31, 2016. The increase was due to an increase of $0.5 million in equipment-related expenses and an increase of $0.7 million inpersonnel-related expenses due to higher headcount. In addition, we incurred an additional $0.4 million related to external investor relationsservices and professional services fees.Interest ExpenseInterest expense increased by $0.6 million during the year ended December 31, 2017 compared to the year ended December 31, 2016. Theincrease was due to the interest incurred under a loan and security agreement that we entered into in August 2017. We had no outstanding debt in2016. 94  Other Income (Expense), NetOther income (expense), net changed by $0.2 million during the year ended December 31, 2017 compared to the year ended December 31,2016. The change was primarily due to the change in estimated fair value of our Series B and Series C redeemable convertible preferred stockwarrants.Liquidity and Capital ResourcesSources of LiquidityTo date, we have incurred significant net losses, except for 2016, and negative cash flows from operations. Our operations have beenfunded primarily by payments received from our collaborators, and net proceeds from equity sales and debt. As of December 31, 2018, we had$204.5 million in cash, cash equivalents and marketable securities, and outstanding debt of $14.7 million, which is net of $0.3 million inunamortized debt discount, and an accumulated deficit of $150.3 million.Funding RequirementsBased upon our current operating plan, we believe that our existing capital resources will enable us to fund our operating expenses andcapital expenditure requirements through at least the next twelve months after the date of this filing. We have based this estimate on assumptionsthat may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to requireadditional financing to advance our current product candidates into and through clinical development, to develop, acquire or in-license otherpotential product candidates, pay our obligations and to fund operations for the foreseeable future.We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings,collaborations, strategic alliances, licensing arrangements, marketing and distribution arrangements, or other sources of financing. Adequateadditional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negativeimpact on our financial condition and on our ability to pursue our business plans and strategies, and may cause us to delay, reduce the scope of orsuspend one or more of our pre-clinical and clinical studies, research and development programs or commercialization efforts, and maynecessitate us to delay, reduce or terminate planned activities in order to reduce costs. Because of the numerous risks and uncertaintiesassociated with the development and commercialization of our product candidates and the extent to which we may enter into additionalcollaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increasedcapital outlays and operating expenditures associated with our current and anticipated clinical studies.To the extent we raise additional capital through new collaborations, strategic alliances or licensing arrangements with third parties, we mayhave to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenseson terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, theownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences thatadversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restrictingour ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Cash FlowsThe following table summarizes our cash flows during the periods indicated: Year Ended December 31, 2018 2017 2016 (in thousands) Cash provided by (used in) operating activities $12,683 $(37,073) $(13,153)Cash (used in) provided by investing activities (80,190) 32,602 9,591 Cash provided by financing activities 170,785 14,638 177 Increase in cash and cash equivalents $103,278 $10,167 $(3,385) 95  Cash Flows from Operating ActivitiesCash provided by operating activities for the year ended December 31, 2018 was $12.7 million. Our net loss of $35.3 million was decreasedby non-cash charges of $4.5 million for depreciation and amortization and $2.9 million for stock-based compensation, which were offset partially bythe gain of $1.0 million for the change in fair value of our redeemable convertible preferred stock warrant liability and a $0.9 million reduction of theliability attributable to the arrangement with the Leukemia & Lymphoma Society, Inc. Cash provided in operating activities reflected a net increasein operating assets and liabilities of $42.6 million, primarily due to an increase in our deferred revenue balance of $60.0 million from the upfrontpayment related to the 2018 Merck Agreement, net of $17.7 million recognized in revenue under our collaboration agreements during prior periods,an increase in $0.6 million in other liabilities, of which $0.4 million was contributions received from participants of our employee stock purchaseplan and $0.2 million was due to an increase in interest expense related to our loan with Oxford/SVB, an increase in accounts payable of $0.2million due to timing of payments, and an increase of $2.6 million in accrued bonus compensation due to increased headcount and certain goalachievements. This was offset partially by an increase in accounts receivable of $0.9 million due to higher research and development servicesrevenues from our collaborators, and an increase in $2.2 million in prepaid expenses and other current assets due to payments made to contractresearch organizations mainly related to STRO-001.Cash used in operating activities for the year ended December 31, 2017 was $37.1 million. Our net loss of $19.7 million was decreased bynon-cash charges of $5.0 million for depreciation and amortization, $2.7 million for an impairment charge on certain equipment, $1.4 million forstock-based compensation and $0.4 million in other non-cash charges. Cash used in operating activities reflected a change in net operating assetsof $26.9 million, primarily due to a decrease in our deferred revenue balance of $25.6 million from the recognition of revenue pertaining topayments received from our collaborators Celgene and EMD Serono during prior periods, and an increase in accounts receivable of $1.0 milliondue to higher research and development services revenues from our collaborators Celgene and EMD Serono.Cash used in operating activities for the year ended December 31, 2016 was $13.2 million. Our net income of $1.7 million was increased bynon-cash charges of $5.7 million for depreciation and amortization, $1.0 million for stock-based compensation and $0.2 million for amortization ofpremium on marketable securities. Cash used in operating activities reflected a decrease in net operating assets of $21.7 million, primarily due toa decrease in our deferred revenue balance of $23.1 million from the recognition of revenue pertaining to payments received from our collaboratorsCelgene and EMD Serono during prior periods, an increase in accrued bonus compensation of $1.2 million driven primarily by higher headcount andan increase of $0.9 million in accounts payable due to a higher level of research and development activities.Cash Flows from Investing ActivitiesCash used in investing activities of $80.2 million for the year ended December 31, 2018 was related to purchases of marketable securities of$81.5 million and purchases of property and equipment of $1.6 million, principally for laboratory and manufacturing equipment, offset partially bymaturities of marketable securities of $2.8 million.Cash provided by investing activities of $32.6 million for the year ended December 31, 2017 was related to proceeds from maturities ofmarketable securities of $34.9 million and sales of marketable securities of $15.2 million, partially offset by purchases of marketable securities of$14.2 million and purchases of property and equipment of $3.3 million, principally for laboratory and manufacturing equipment and leaseholdimprovements.Cash provided by investing activities of $9.6 million for the year ended December 31, 2016 was related to proceeds from maturities ofmarketable securities of $57.8 million and sales of marketable securities of $8.5 million, partially offset by purchases of marketable securities of$52.3 million and purchases of property and equipment of $4.4 million, principally for laboratory and manufacturing equipment and leaseholdimprovements.Cash Flows from Financing ActivitiesCash provided by financing activities of $170.8 million for the year ended December 31, 2018 was primarily related to the proceeds from oursale of Series E redeemable convertible preferred stock, net of issuance costs, of $84.7 million, proceeds of $84.4 million from the issuance ofcommon stock upon our IPO, net of issuance costs, and the concurrent private placement of common stock to Merck, proceeds of $0.4 millionrelated to the exercise of common stock options and preferred stock warrants, proceeds of $1.0 million in connection with a research, developmentand commercialization agreement, and proceeds of $0.2 million from the payment of a note receivable from a stockholder. 96  Cash provided by financing activities of $14.6 million for the year ended December 31, 2017 was primarily related to the proceeds from ourdebt with Oxford and SVB, net of issuance costs, of $14.8 million, partially offset by the payment of $0.3 million in financing costs related to theIPO.Cash provided by financing activities of $0.2 million for the year ended December 31, 2016 was related to proceeds from the issuances ofcommon stock from the exercise of stock options.Contractual Obligations and Other CommitmentsThe following table summarizes our contractual obligations as of December 31, 2018: Payments Due by Period Lessthan 1year 1 to 3years 3 to 5years Morethan 5years Total (in thousands) Contractual obligations: Debt, principal (1) $5,000 $10,000 $- $- $15,000 Debt, interest (2) 983 1,189 - - 2,172 Operating lease obligations 3,655 6,966 - - 10,621 Total contractual obligations $9,638 $18,155 $- $- $27,793 (1)Represents principal payments only. We will pay interest on outstanding indebtedness based on the rates and terms summarized inNote 7 to our audited financial statements included elsewhere in this filing. (2)Represents interest expense expected to be incurred on our debt based on obligations outstanding and rates effective at December 31,2018, including a final one-time payment of $0.6 million.In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendorsfor preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice. These paymentsare not included in this table of contractual obligations.Off-Balance Sheet ArrangementsWe have not entered into any off-balance sheet arrangements, as defined under SEC rules. While we have an investment classified asvariable interest entity, its purpose is not to provide off-balance sheet financing.Critical Accounting Policies and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, whichhave been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assetsand liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under different assumptions or conditions.While our significant accounting policies are described in the notes to our financial statements included elsewhere in this filing, we believethat the following critical accounting policies are most important to understanding and evaluating our reported financial results.Revenue RecognitionWe generate revenue from collaboration and license agreements for the development and commercialization of our product candidates. Underour collaboration agreements, we may receive non-refundable upfront payments, funding for research and development services, milestones, othercontingent payments and royalties. In assessing the appropriate revenue recognition related to a collaboration agreement, we first determinewhether an arrangement includes multiple elements, such as the delivery of intellectual property rights and research and development services. 97  For revenue agreements with multiple-elements, we identify the deliverables included within the agreement and evaluate which deliverablesmay represent separate units of accounting, based on the achievement of certain criteria, including whether the deliverable has stand-alone valueto the collaborator. Upfront payments received in connection with licenses to our technology rights are deferred if facts and circumstances dictatethat the license does not have stand-alone value, and are recognized as license revenue over the estimated period of performance that is generallyconsistent with the terms of the research and development obligations contained in the specific collaboration and license agreement. Weperiodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of anychanges in estimated periods of performance on a prospective basis. Typically, access to the intellectual property rights under our collaborationagreements do not have stand-alone value from the other elements within the arrangement. As such, upfront payments are recorded as deferredrevenue in the balance sheet and are recognized as collaboration revenue over the estimated period of performance that is consistent with theterms of the research and development obligations contained in the collaboration, or on a proportion of performance basis.Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the priceis fixed or determinable and collectability is reasonably assured. For multiple-element arrangements, each deliverable within a multiple-deliverablerevenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (i) the delivered item or items hasvalue to the customer on a stand-alone basis and (ii) for an arrangement that includes a general right of return relative to the delivered item,delivery or performance of the undelivered item is considered probable and substantially in management’s control.We recognize revenue from milestone payments when: (i) the milestone event is substantive and its achievability has substantive uncertaintyat the inception of the agreement and (ii) we have completed our performance obligations related to the achievement of the milestone. Milestonepayments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either ourperformance subsequent to the inception of the arrangement to achieve the milestone or the enhancement of the value of the delivered item oritems as a result of a specific outcome resulting from our performance subsequent to the inception of the arrangement to achieve the milestone,(b) relates solely to past performance and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestoneconsideration) within the arrangement.Determining whether and when these revenue recognition criteria have been satisfied often involves assumptions and judgments that canhave a significant impact on the timing and amount of reported revenue. Changes in assumptions or judgments or changes to the elements in anarrangement could cause a material increase or decrease in the amount of revenue that is reported in a particular period.Under certain collaborative arrangements, we are entitled to payments for certain research and development activities, including providingproduct and other related materials. Our policy is to account for such payments by our collaboration partners as collaboration revenue.In May 2014, the FASB issued ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers. In August 2015, the FASB issuedASU No. 2015-14 (Topic 606), Revenue from Contracts with Customers: Deferral of the Effective Date, which delayed the effective date of ASU2014-09 by one year. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be requiredwithin the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. We continue to assessthe impact of the new revenue standard on our financial statements. We will adopt the new standard and its related amendments effective January1, 2019 using the modified retrospective method.Research and DevelopmentWe record accrued expenses for estimated costs of our research and development activities conducted by third party service providers,which include outsourced research and development expenses, professional services and contract manufacturing activities. We record theestimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includethese costs in current liabilities in the balance sheets and within research and development expense in the statements of operations. 98  Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities aredeferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.For outsourced research and development expenses, such as professional fees payable to third parties for preclinical studies, clinical trialsand research services and other consulting costs, we estimate the expenses based on the services performed, pursuant to contracts withresearch institutions that conduct and manage preclinical studies, clinical trials and research services on our behalf. We estimate these expensesbased on discussions with internal management personnel and external service providers as to the progress or stage of completion of servicesand the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from theoriginal estimates, we will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the performanceof the related services by the third parties are recorded as prepaid expenses until the services are rendered.Stock-Based CompensationWe recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the dateof grant, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisiteservice period, which is generally the vesting period of the respective awards.The Black-Scholes option-pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards,including the expected term and the price volatility of the underlying stock. These assumptions include: ▪Expected term—The expected term represents the period that the stock-based awards are expected to be outstanding. We use the“simplified” method to determine the expected life of options granted, which calculates the expected term as the average of theweighted-average vesting term and the contractual term of the option. ▪Expected volatility—Since we have limited information available on the volatility of our common stock due to its short trading history,the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded entitiesover a period equal to the expected term of the stock option grants. We will continue to apply this process until a sufficient amount ofhistorical information regarding the volatility of our own stock price becomes available. ▪Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S.Treasury notes with maturities approximately equal to the expected term of the options. ▪Expected dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock.Therefore, we use an expected dividend yield of zero. In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture ratesutilized for our stock-based compensation calculations on a prospective basis.Historically, for all periods prior to our IPO, the fair value of the shares of common stock underlying our share-based awards was estimatedon each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, given the absenceof a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective andsubjective factors to determine the best estimate of the fair value of our common stock, including timely valuations of our common stock preparedby an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public AccountantsPractice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, important developments in our operations, ourstage of development, sales of our redeemable convertible preferred stock, actual operating results and financial performance, the conditions inthe biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, the lack ofliquidity of our common stock, and the likelihood of achieving a liquidity event, such as an initial public offering or sale. 99  For each of the valuation dates during the years ended December 31, 2017 and 2016, we applied the Guideline Publicly Traded CompanyAnalysis (Life Science Expected Compound Method) for the valuation of our equity. We were at an early stage of development and future liquidityevents were difficult to forecast. We therefore used the option-pricing method, or OPM, to determine the estimated fair value of our common stock.In an OPM framework, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences andconversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options. Forthe valuation dates during the nine months ended September 30, 2018, the equity value was allocated using the OPM and the Probability WeightedExpected Return Method, or PWERM, or the hybrid method. The hybrid method applied the PWERM utilizing the probability of going public and theOPM was utilized in the remaining private scenario. The hybrid method was used commencing May 31, 2018 because of a near-term potential IPOscenario, which also factored in the inherent uncertainty associated with being able to complete an IPO.For stock options granted after the completion of the IPO, the closing sale price per share of our common stock as reported on the NasdaqGlobal Market on the date of grant is used to determine the exercise price per share of our share-based awards to purchase common stock.Redeemable Convertible Preferred Stock WarrantsIn the past, we have issued freestanding warrants to purchase shares of redeemable convertible preferred stock. We accounted for thesewarrants as a liability in our financial statements and they were recorded at their estimated fair value, because the warrants may have conditionallyobligated us to transfer assets at some point in the future due to redemption provisions that were outside our control.The fair value of the warrants at the issuance date, at September 30, 2018 (immediately prior to our IPO) and December 31, 2017 wasdetermined using the OPM. The warrants were re-measured at each financial reporting period with any changes in fair value being recognized inother income (expense), net in the statement of operations. We continued to adjust the liability for changes in fair value until the earlier of theexpiration of the warrants, exercise of the warrants, or conversion of the redeemable convertible preferred stock warrants into common stockwarrants upon the completion of a liquidation event, including the completion of an IPO, which occurred on October 1, 2018. Beginning in the fourthquarter of 2018, there was no longer any warrant-related liability.Income TaxesAs of December 31, 2018, we had federal net operating loss, or NOL, carryforwards of $114.0 million and federal general business creditsfrom research and development expenses totaling $10.9 million, as well as state NOL carryforwards of $73.4 million and state research anddevelopment credits of $9.5 million. If not utilized, the federal NOL carryforwards will expire at various dates beginning in 2032, and the federalcredits will expire at various dates beginning in 2023. The state NOL carryforwards will expire at various dates beginning in 2030, if not utilized.The state research and development tax credits can be carried forward indefinitely.Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitationsprovided by the Tax Reform Act of 1986, or the Tax Reform Act, as amended, and similar state provisions. The annual limitation may result in theexpiration of NOLs and credits before utilization. We have performed a Section 382 study for the period of June 16, 2003 through December 31,2018 and concluded that it is more likely than not that we experienced an ownership change on April 9, 2007. This change does not limit our abilityto use our existing NOLs within the carryforward period provided by the Internal Revenue Code, subject to availability of taxable income. We mayexperience ownership changes in the future as a result of equity offerings or other shifts in our stock ownership, some of which are outside ourcontrol. If there is a subsequent event or further change in ownership, these losses may be subject to limitations, resulting in their expirationbefore they can be utilized.We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are stillsubject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of theposition’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimatesettlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (i) the factorsunderlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition andmeasurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might changeas new information becomes available. 100  JOBS Act Accounting ElectionWe are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBSAct, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Actuntil such time as those standards apply to private companies.We have elected to use this extended transition period for complying with new or revised accounting standards that have different effectivedates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively andirrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable tocompanies that comply with new or revised accounting pronouncements as of public company effective dates.We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) following the fifth anniversary of thecompletion of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion, or (ii) in which we are deemed to be a largeaccelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30thand (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.Recent Accounting PronouncementsSee Note 2 to our financial statements included elsewhere in this report for more information.Item 7A.Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. The primaryobjective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investmentswithout assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securitiesof high credit quality.We had cash, cash equivalents and marketable securities $204.5 million and $22.0 million as of December 31, 2018 and 2017, respectively,which consisted of money market funds, commercial paper, corporate debt securities, asset-based securities and U.S. government agencysecurities. Such interest earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not beensignificant.We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage ourinterest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. Ahypothetical 10% change in market interest rates would not have a material impact on our financial statements. We do not believe that our cash,cash equivalents or marketable securities have significant risk of default or illiquidity.As of December 31, 2018 and 2017, we had $14.7 million and $14.6 million, respectively, in debt outstanding, net of debt discount. Our debtwith Oxford and SVB bears interest at a floating rate that equals the greater of 7.39% or the sum of the 30-day U.S. Dollar LIBOR plus 6.40% andhas a maturity date of August 1, 2021. Such interest-bearing debt carries a limited degree of interest rate risk. If overall interest rates hadincreased or decreased by 100 basis points during the periods presented our interest expense would not have been materially affected. 101  Item 8.Financial Statements and Supplementary DataSUTRO BIOPHARMA, INC.ANNUAL REPORT ON FORM 10-KINDEX TO AUDITED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 103 Financial Statements Balance Sheets 104 Statements of Operations 105 Statements of Comprehensive Loss 106 Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity 107 Statements of Cash Flows 108 Notes to Financial Statements 109 102  Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Sutro Biopharma, Inc.Opinion on the Financial StatementsWe have audited the accompanying balance sheets of Sutro Biopharma, Inc. (the Company) as of December 31, 2018 and 2017, the relatedstatements of operations, comprehensive (loss) income, redeemable convertible preferred stock and stockholders’ (deficit) equity and cash flowsfor each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). Inour opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017,and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S.generally accepted accounting principles. Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Companyis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we arerequired to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectivenessof the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error orfraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding theamounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonablebasis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2007.Redwood City, CaliforniaMarch 29, 2019 103  SUTRO BIOPHARMA, INC.BALANCE SHEETS(in thousands, except share and per share data) December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $125,298 $22,020 Marketable securities 79,194 - Accounts receivable, net (including amounts from related parties of $959 and $784 as of December 31, 2018 and 2017, respectively) 2,489 1,624 Prepaid expenses and other current assets 2,965 1,985 Total current assets 209,946 25,629 Property and equipment, net 10,934 13,997 Other non-current assets 2,244 1,128 Restricted cash 15 15 Total assets $223,139 $40,769 Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $3,061 $2,902 Accrued compensation 6,217 3,639 Deferred revenue—current 21,574 10,709 Debt—current 4,724 14,563 Other current liabilities 847 143 Total current liabilities 36,423 31,956 Deferred revenue, non-current 44,599 13,159 Deferred rent 476 428 Redeemable convertible preferred stock warrant liability - 1,708 Debt—non-current 10,000 - Other noncurrent liabilities 102 14 Total liabilities 91,600 47,265 Commitments and Contingencies Redeemable convertible preferred stock, $0.001 par value — zero and 177,082,393 shares authorized as of December 31, 2018 and 2017, respectively; zero and 173,750,421 shares issued and outstanding as of December 31, 2018 and 2017, respectively; no aggregate liquidation preference as of December 31, 2018 - 102,505 Stockholders’ equity (deficit): Common stock, $0.001 par value — 300,000,000 and 271,000,000 shares authorized as of December 31, 2018 and 2017, respectively; 22,848,184 and 465,330 shares issued and outstanding as of December 31, 2018 and 2017, respectively 23 - Preferred stock, $0.001 par value — 10,000,000 and no shares authorized as of December 31, 2018 and 2017, respectively; no shares issued and outstanding as of December 31, 2018 and 2017, respectively - - Note receivable from stockholder - (208)Additional paid-in-capital 281,891 6,218 Accumulated other comprehensive loss (47) - Accumulated deficit (150,328) (115,011)Total stockholders’ equity (deficit) 131,539 (109,001)Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) $223,139 $40,769 See accompanying notes to financial statements 104  SUTRO BIOPHARMA, INC.STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended December 31, 2018 2017 2016 Revenue: Collaboration revenue (including amounts from related parties of $13,541, $44,606 and $54,001 during the years ended December 31, 2018, 2017 and 2016, respectively) (1) $32,387 $51,741 $59,731 Other revenue (including amounts from related parties of $5,425 during the year ended December 31, 2018) (1) 6,032 - - Total revenue 38,419 51,741 59,731 Operating expenses Research and development 54,262 54,639 43,550 General and administrative 21,380 16,374 14,817 Total operating expenses 75,642 71,013 58,367 (Loss) income from operations (37,223) (19,272) 1,364 Interest income 1,616 273 251 Interest expense (1,623) (612) - Other income (expense), net 1,913 (77) 87 Net (loss) income $(35,317) $(19,688) $1,702 Net (loss) income per share, attributable to common stockholders, basic and diluted $(6.13) $(43.95) $- Weighted-average shares used in computing net (loss) income per share attributable to common stockholders 5,758,875 447,946 407,735 (1)Includes $5.0 million of collaboration revenue and $3.9 million of other revenue from Celgene as related party revenue. Celgene was arelated party through September 30, 2018 as it held more than 10% of our common stock for the periods presented until the closing ofour IPO. See accompanying notes to financial statements 105  SUTRO BIOPHARMA, INC.STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(in thousands) Year Ended December 31, 2018 2017 2016 Net (loss) income $(35,317) $(19,688) $1,702 Other comprehensive income (net of tax): Unrealized (loss) gain on available-for-sale securities (47) 17 34 Comprehensive (loss) income $(35,364) $(19,671) $1,736 See accompanying notes to financial statements 106  SUTRO BIOPHARMA, INC.Statements of Redeemable Convertible Preferred Stockand Stockholders’ (Deficit) Equity(in thousands, except share amounts) Note Accumulated Redeemable Convertible Receivable Additional Other Total Preferred Stock Common Stock from Paid-In- Comprehensive Accumulated Stockholders’ Shares Amount Shares Amount Stockholder Capital Loss Deficit (Deficit) Equity Balances at December 31, 2015 173,750,421 $102,505 416,279 $- $(200) $3,378 $(51) $(97,025) $(93,898)Exercise of common stock options for cash - - 35,552 - - 184 - - 184 Stock-based compensation expense - - - - - 968 - - 968 Vesting of early exercised shares - - - - - 116 - - 116 Interest on note receivable from stockholder - - - - (7) - - - (7)Net unrealized gain on available-for-salesecurities - - - - - - 34 - 34 Net income - - - - - - - 1,702 1,702 Balances at December 31, 2016 173,750,421 102,505 451,831 - (207) 4,646 (17) (95,323) (90,901)Exercise of common stock options for cash - - 13,499 - - 95 - - 95 Stock-based compensation expense - - - - - 1,391 - - 1,391 Vesting of early exercised shares - - - - - 86 - - 86 Interest on note receivable from stockholder - - - - (1) - - - (1)Net unrealized gain on available-for-salesecurities - - - - - - 17 - 17 Net loss - - - - - - - (19,688) (19,688)Balances at December 31, 2017 173,750,421 102,505 465,330 - (208) 6,218 - (115,011) (109,001)Issuance of Series C and E redeemableconvertible preferred stock, net of issuance costs of$644 319,865,282 84,739 - - - - - - - Conversion of redeemable convertible preferred stock warrants to common stock warrants in connection with initial public offering - - - - - 734 - - 734 Conversion of redeemable convertible preferred stock and warrants to common stock in connection with initial public offering (493,615,703) (187,244) 16,007,762 16 - 187,228 - - 187,244 Exercise of preferred stock warrants for cash - - 20,700 - - 268 - - 268 Exercise of common stock options andcommon stock warrants for cash - - 20,726 - - 134 - - 134 Issuance of common stock in connection withinitial public offering, net of issuance costs of$10,564 - - 5,667,000 6 - 74,430 - - 74,436 Issuance of common stock in connection withprivate placement - - 666,666 1 - 9,999 - - 10,000 Stock-based compensation expense - - - - - 2,872 - - 2,872 Vesting of early exercised shares - - - - - 8 - - 8 Payment of note receivable by stockholder - - - - 208 - - - 208 Net unrealized loss on available-for- salesecurities - - - - - - (47) - (47)Net loss - - - - - - - (35,317) (35,317)Balances at December 31, 2018 - $- 22,848,184 $23 $- $281,891 $(47) $(150,328) $131,539 See accompanying notes to financial statements 107  SUTRO BIOPHARMA, INC.STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2018 2017 2016 Operating activities Net (loss) income $(35,317) $(19,688) $1,702 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 4,539 4,990 5,662 Amortization of premium (accretion of discount) on marketable securities (527) 106 168 Stock-based compensation 2,872 1,391 968 Revaluation of redeemable convertible preferred stock warrant liability (973) 186 (88)Reduction of the liability attributable to a research, development and commercialization agreement (854) - - Accretion of debt discount 162 133 - Other 175 (30) 98 Impairment of long-lived assets - 2,742 - Changes in operating assets and liabilities: Accounts receivable (865) (1,047) (171)Prepaid expenses and other assets (2,220) (354) (371)Accounts payable 209 (473) 874 Accrued compensation 2,578 451 1,238 Other liabilities 551 - (18)Deferred rent 48 86 (95)Deferred revenue 42,305 (25,566) (23,120)Net cash provided by (used in) operating activities 12,683 (37,073) (13,153)Investing activities Purchases of marketable securities (81,463) (14,220) (52,304)Maturities of marketable securities 2,750 34,850 57,773 Sales of marketable securities - 15,208 8,500 Purchases of property and equipment (1,557) (3,316) (4,394)Proceeds from sale of property and equipment - - 16 Proceeds from exercise of options for SutroVax shares 80 80 - Net cash provided by (used in) investing activities (80,190) 32,602 9,591 Financing activities Proceeds from issuance of debt - 15,000 - Payment of debt issuance fees - (170) - Proceeds (interest) from payment of note receivable by stockholder 208 (1) (7)Proceeds from issuances of redeemable convertible preferred stock, net of issuance costs 84,739 - - Proceeds from issuances of common stock upon initial public offering, net of issuance costs 74,436 - - Payment of deferred offering costs - (286) - Proceeds from issuance of common stock in private placement 10,000 - - Proceeds from exercise of preferred stock warrants 268 - - Proceeds from exercise of common stock options and common stock warrants 134 95 184 Proceeds from a research, development and commercialization agreement 1,000 - - Net cash provided by financing activities 170,785 14,638 177 Net increase (decrease) in cash, cash equivalents and restricted cash 103,278 10,167 (3,385)Cash, cash equivalents and restricted cash at beginning of year 22,035 11,868 15,253 Cash, cash equivalents and restricted cash at end of year $125,313 $22,035 $11,868 Supplemental disclosure of cash flow information Cash paid for interest $1,275 $479 $- Supplemental Disclosures of Non-cash Investing and Financing Information Vesting of early exercised shares $8 $86 $116 Conversion of redeemable convertible preferred stock and warrants into common stock upon IPO, net of issuance costs $187,244 $- $- Reclassification of redeemable convertible preferred stock warrant liability to equity $734 $- $- Purchase of property and equipment included in accounts payable $205 $255 $532 Deferred initial public offering costs included in accounts payable $- $259 $- See accompanying notes to financial statements 108  SUTRO BIOPHARMA, Inc.Notes to Financial Statements1.Organization and Principal ActivitiesDescription of BusinessSutro Biopharma, Inc. (the “Company”) is a clinical stage drug discovery, development and manufacturing company focused on leveraging itsintegrated cell-free protein synthesis and site-specific conjugation platform, XpressCF™, to create a broad variety of optimally designed, next-generation protein therapeutics for cancer and autoimmune disorders. The Company was incorporated on April 21, 2003, and was formerly knownas Fundamental Applied Biology, Inc. The Company is headquartered in South San Francisco, California.The Company operates in one business segment, the development of biopharmaceutical products.Initial Public OfferingOn September 26, 2018, the Company’s registration statements on Form S-1 (File No. 333-227103 and 333-227548) relating to its initialpublic offering (“IPO”) of its common stock were declared effective by the Securities and Exchange Commission (“SEC”) and the shares of itscommon stock began trading on the Nasdaq Global Market on September 27, 2018. The public offering price of the shares sold in the IPO was$15.00 per share. The IPO closed on October 1, 2018, pursuant to which the Company sold 5,667,000 shares of common stock, for grossproceeds of approximately $85.0 million. The Company received net proceeds from the IPO of approximately $74.4 million, after underwritingdiscounts, commissions and estimated offering expenses. In addition to the shares of common stock sold in the IPO, the Company concurrentlysold in a private placement to Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ, USA (“Merck”), 666,666 shares ofcommon stock at the IPO offering price of $15.00 per share, for proceeds of approximately $10.0 million.Immediately prior to the completion of the IPO on October 1, 2018, all outstanding shares of redeemable convertible preferred stock wereconverted into 16,028,462 shares of common stock. Subsequent to the closing of the IPO, there were no shares of redeemable convertiblepreferred stock outstanding. In addition, subsequent to the closing of the IPO, all of the outstanding redeemable convertible preferred stockwarrants converted into common stock warrants resulting in the reclassification of the redeemable convertible preferred stock warrant liability tostockholder’s equity at its then fair value.Reverse Stock SplitOn September 14, 2018, the Company effected a reverse split of all shares of its common stock at a ratio of 36.3-for-1. Upon theeffectiveness of the reverse stock split, (i) all shares of outstanding common stock were adjusted; (ii) the number of shares of common stock forwhich each outstanding option to purchase common stock is exercisable were adjusted; (iii) the exercise price of each outstanding option topurchase common stock were adjusted; (iv) the conversion ratio for each share of outstanding redeemable convertible preferred stock which isconvertible into the Company’s common stock was proportionately reduced; (v) the number of shares of common stock for which each outstandingwarrant to purchase common stock is exercisable was proportionally decreased; (vi) the conversion ratio for each outstanding warrant to purchaseredeemable convertible preferred stock which is convertible into warrants to purchase the Company’s common stock after the offering wasproportionally decreased; and (vii) the exercise price of each outstanding warrant was proportionally increased. All of the outstanding commonstock share numbers (including shares of common stock subject to the Company’s options, as converted for the outstanding redeemableconvertible preferred stock shares and warrants), share prices, exercise prices and per share amounts contained in the financial statements havebeen retroactively adjusted in the financial statements to reflect this reverse stock split for all periods presented. The par value per share and theauthorized number of shares of common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. 109  Series E Redeemable Convertible Preferred Stock SplitIn July 2018, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporationto effect a 1-for-1.1940912491 split (“Split”) of shares of the Company’s Series E redeemable convertible preferred stock, which was effected onJuly 26, 2018. The par value and authorized shares of redeemable convertible preferred stock and the other outstanding shares of redeemableconvertible preferred stock were not adjusted as a result of the Split. All of the outstanding Series E redeemable convertible preferred shares andper share information included in the accompanying financial statements have been adjusted to reflect the Split and were converted to shares ofcommon stock upon the closing of the Company’s initial public offering on October 1, 2018.LiquidityThe Company has incurred significant losses, except for the year ended December 31, 2016, and has negative cash flows from operations.As of December 31, 2018, there was an accumulated deficit of $150.3 million. Management expects to continue to incur additional substantiallosses in the foreseeable future as a result of the Company’s research and development activities.As of December 31, 2018, the Company had unrestricted cash, cash equivalents and marketable securities of $204.5 million, which isavailable to fund future operations.The Company believes that its unrestricted cash, cash equivalents and marketable securities as of December 31, 2018 will be sufficient forthe Company to continue as a going concern for at least one year from the issuance date of its financial statements.In August 2017, the Company entered into a loan and security agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”)under which it borrowed $15.0 million (the “August 2017 Loan”) (see Note 7). The August 2017 Loan provides that an event of default will occur if,among other triggers, there occurs any circumstances that could reasonably be expected to result in a material adverse effect on the Company’sbusiness, operations or condition, or on its ability to perform its obligations under the loan. The Company disclosed in its audited financialstatements as of December 31, 2017 that it believed that there was substantial doubt about its ability to continue as a going concern given itscontinuing operating losses and its then available capital resources, which could have been deemed to be an event of default if such condition wasconsidered to have a material adverse effect on the Company’s business, operations or condition. As a result, the Company classified the entiredebt balance as a current liability as of December 31, 2017 given that a determination of such an event of default was outside of the Company’scontrol. 2. Basis of Presentation and Summary of Significant Accounting PoliciesBasis of Presentation and Use of EstimatesThe accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience andmarket-specific or other relevant assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilitiesreported in the Company’s balance sheets and the amounts of expenses and income reported for each of the periods presented are affected byestimates and assumptions, which are used for, but are not limited to, determining research and development periods under multiple elementarrangements, stock-based compensation expense, fair value of redeemable convertible preferred stock warrant liabilities (prior to closing of theCompany’s IPO), fair value of common stock, (prior to closing of the Company’s IPO), income taxes and certain accrued liabilities. Actual resultscould differ from such estimates or assumptions.ReclassificationsCertain reclassifications have been made to prior period amounts to conform to the current year presentation. 110  Cash, Cash Equivalents, Marketable Securities and Restricted CashThe Company considers all highly liquid investments with original maturities of 90 days or less from the date of purchase to be cashequivalents. Investments with original maturities of greater than 90 days from the date of purchase but less than one year from the balance sheetdate are classified as current, while investments with maturities in one year or beyond one year from the balance sheet date are classified as long-term investments. Available-for-sale marketable securities are carried at fair value, with unrealized gains and losses reported as a component ofaccumulated other comprehensive income (loss). Realized gains and losses are included in interest income in the Company’s Statement ofOperations. There were no material realized gains or losses in the periods presented. The cost of securities sold is based on the specific-identification method.The Company invests in money market funds, commercial paper, corporate debt securities, asset-based securities and U.S. governmentagency securities with high credit ratings. The Company has established guidelines regarding diversification of its investments and their maturities,with the objectives of maintaining safety and liquidity while maximizing yield.Under certain lease and credit agreements, the Company has pledged cash and cash equivalents as collateral. Restricted cash related tosuch agreements was $15,000 as of both December 31, 2018 and December 31, 2017.The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the balance sheets that sum tothe total of the same amounts shown in the statements of cash flows. December 31, 2018 2017 2016 (in thousands) Cash and cash equivalents $125,298 $22,020 $11,593 Restricted cash 15 15 275 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $125,313 $22,035 $11,868 Concentrations of Credit RiskCash and cash equivalents and marketable securities consist of financial instruments that potentially subject the Company to a concentrationof credit risk, to the extent of the amounts recorded on the balance sheets. The Company minimizes the amount of credit exposure by investingcash that is not required for immediate operating needs in money market funds, government obligations and/or commercial paper with shortmaturities.The Company regularly reviews the outstanding accounts receivable, including consideration of factors such as the age of the receivablebalance. As of December 31, 2018 and 2017, there was no allowance for doubtful accounts deemed necessary. As of December 31, 2018 and2017, the Company had an accounts receivable balance of $2.5 million and $1.6 million, respectively, attributable to the Company’s collaborationagreements.Deferred Offering CostsThe Company had deferred offering costs consisting of legal, accounting and other fees and costs directly attributable to the Company’s IPO.The deferred offering costs were offset against the proceeds received upon the completion of the IPO. As of December 31, 2018, no amountswere deferred. As of December 31, 2017, $0.5 million of deferred offering costs were recorded within other non-current assets on the balancesheet.Property and Equipment, NetProperty and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-linemethod over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on astraight-line basis over the shorter of their estimated useful lives or the term of the lease. Maintenance and repairs are charged to expense asincurred and costs of improvement are capitalized. 111  Impairment of Long-Lived AssetsThe Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in businesscircumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when theestimated, undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carryingamount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.The Company did not recognize any impairment charges during the years ended December 31, 2018 and 2016. During the year endedDecember 31, 2017, the Company recognized within research and development expenses in the statement of operations, an impairment charge of$2.7 million pertaining to manufacturing equipment that had been custom built for the Company, and failed to meet the acceptance criteria;therefore, the Company believed the carrying value may not be recoverable. As of December 31, 2018 and 2017, management believes that norevision to the remaining useful lives or write down of the remaining long-lived assets is required.Redeemable Convertible Preferred Stock WarrantsThe Company accounted for its redeemable convertible preferred stock warrants as a liability, recorded at their estimated fair value, becausethe warrants may conditionally have obligated the Company to transfer assets at some point in the future. At the end of each reporting period,changes in the estimated fair value during the period were recorded in other income (expense), net in the statement of operations. The Companycontinued to adjust the liability for changes in estimated fair value until the earlier of the expiration of the warrants, exercise of the warrants, orconversion of the redeemable convertible preferred stock warrants into common stock warrants upon the completion of the Company’s IPO. OnOctober 1, 2018, all redeemable convertible preferred stock warrants were converted into common stock warrants upon the closing of the IPO andwill no longer be revalued to fair value.LeasesThe Company enters into lease agreements for its laboratory and office facilities. These leases are classified as operating leases. Rentexpense is recognized on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities leases, includingallowances to fund leasehold improvements and rent holidays, are recorded as a deferred rent liability and are recognized as reductions to rentalexpense on a straight-line basis over the remaining term of the lease.Revenue RecognitionRevenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the priceis fixed or determinable and collectability is reasonably assured.For revenue agreements with multiple-elements, the Company identifies the deliverables included within the agreement and evaluates whichdeliverables may represent separate units of accounting, based on the achievement of certain criteria, including whether the deliverable has stand-alone value to the collaborator. Upfront payments received in connection with licenses of our technology rights are deferred if facts andcircumstances dictate that the license does not have stand-alone value, and are recognized as license revenue over the estimated period ofperformance that is generally consistent with the terms of the research and development obligations contained in the specific collaboration andlicense agreement, or on a proportion of performance basis. The Company periodically reviews the estimated periods of performance based on theprogress under each arrangement and accounts for the impact of any changes in estimated periods of performance on a prospective basis.The Company recognizes revenue from milestone payments when: (i) the milestone event is substantive and its achievability has substantiveuncertainty at the inception of the agreement, and (ii) the Company has completed its performance obligations related to the achievement of themilestone. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensuratewith either the Company’s performance subsequent to the inception of the arrangement to achieve the milestone or the enhancement of the valueof the delivered item or items as a result of a specific outcome resulting from the Company’s performance subsequent to the inception of thearrangement to achieve the milestone, (b) relates solely to past performance, and (c) is reasonable relative to all of the deliverables and paymentterms (including other potential milestone consideration) within the arrangement. 112  Determining whether and when these revenue recognition criteria have been satisfied often involves assumptions and judgments that canhave a significant impact on the timing and amount of reported revenue. Changes in assumptions or judgments or changes to the elements in anarrangement could cause a material increase or decrease in the amount of revenue that is reported in a particular period.Under certain collaborative arrangements, the Company is entitled to payments for certain research and development activities and forproviding product and other related materials. The Company’s policy is to account for such payments by its collaboration partners as collaborationrevenue.Stock-Based CompensationThe Company maintains a stock-based compensation plan as a long-term incentive for employees, consultants, and members of theCompany’s Board of Directors. The plan allows for the issuance of restricted stock units, non-statutory and incentive stock options to employeesand non-statutory stock options (“NSOs”) to nonemployees. The Company also maintains an employee stock purchase plan.Share-based payments, including purchases under the Company’s employee stock purchase plan, are measured using fair-value-basedmeasurements and recognized as compensation expense over the service period in which the awards are expected to vest. The Company’s fair-value-based measurements of awards to employees and directors as of the grant date utilize the single-option award-valuation approach, and theCompany uses the straight-line method for expense attribution. The fair-value-based measurements of options granted to nonemployees areremeasured at each period end until the options vest and are amortized to expense as earned. The valuation model used for calculating theestimated fair value of stock awards is the Black-Scholes option-pricing model. The Black-Scholes model requires the Company to makeassumptions and judgments about the variables used in the calculations, including the expected term (weighted-average period of time that theoptions granted are expected to be outstanding), the expected volatility of the Company’s common stock, the related risk-free interest rate and theexpected dividend.Research and DevelopmentResearch and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performingresearch and development activities: salaries, employee benefits, laboratory supplies, outsourced research and development expenses,professional services and allocated facilities-related costs. Amounts incurred in connection with collaboration arrangements are also included as aresearch and development expense.Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities aredeferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.For outsourced research and development expenses, such as professional fees payable to third parties for preclinical studies, clinical trialsand research services, and other consulting costs, the Company estimates the expenses based on the services performed, pursuant to contractswith research institutions that conduct and manage preclinical studies, clinical trials and research services on its behalf. The Company estimatesthese expenses based on discussions with internal management personnel and external service providers as to the progress or stage ofcompletion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level ofeffort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to third parties under thesearrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services arerendered.Income TaxesThe Company provides for income taxes under the asset and liability method. Current income tax expense or benefit represents the amountof income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based ondifferences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards, andare measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets arereduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits willnot be realized. 113  The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) 740-10, Accounting forUncertainty in Income Taxes. The Company assesses all material positions taken in any income tax return, including all significant uncertainpositions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax positionbegins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percentlikely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and theCompany will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized taxbenefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognitionand measurement of a tax benefit might change as new information becomes available.The Company includes any penalties and interest expense related to income taxes as a component of other income (expense), net andinterest expense as necessary.Fair Value MeasurementsFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal ormost advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date, andestablishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use ofunobservable inputs when measuring fair value. The Company determined the fair value of financial assets and liabilities using the fair valuehierarchy that describes three levels of inputs that may be used to measure fair value, as follows:Level 1—Quoted prices in active markets for identical assets and liabilities;Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities,quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities; andLevel 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities.The carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation andbenefits approximate fair value due to the short-term nature of these items.The fair value of the Company’s outstanding loan (See Note 7) is estimated using the net present value of the payments, discounted at aninterest rate that is consistent with market interest rate, which is a Level 2 input. The estimated fair value of the Company’s outstanding loanapproximates the carrying amount, as the loan bears a floating rate that approximates the market interest rate.Net (Loss) Income Per Share Attributable to Common StockholdersBasic and diluted net (loss) income per share attributable to common stockholders is presented in conformity with the two-class methodrequired for participating securities. The Company considers its redeemable convertible preferred stock to be participating securities. The holdersof the Company’s redeemable convertible preferred stock are entitled to receive non-cumulative dividends, payable prior and in preference to anydividends on any shares of the Company’s common stock. In the event a cash dividend is paid on common stock, the holders of redeemableconvertible preferred stock are also entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-ifconverted basis). The holders of the redeemable convertible preferred stock do not have a contractual obligation to share in losses. In accordancewith the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participatingsecurities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and dilutednet loss per share attributable to common stockholders.Basic net (loss) income per share attributable to common stockholders is calculated by dividing the net (loss) income attributable to commonstockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutivecommon shares. Basic net loss per share is the same as diluted net loss per share as the inclusion of all potentially dilutive securities would havebeen anti-dilutive given the net loss of the Company. 114  Shares of common stock subject to repurchase are excluded from the computation of weighted-average shares as the continued vesting ofsuch shares is contingent upon the holders’ continued service to the Company. For the computation of net (loss) income per share attributable tocommon stockholders for the years ended December 31, 2018, 2017 and 2016, 0, 9,889 and 26,353 shares subject to repurchase, respectively,were excluded from the computation of net (loss) income per share.Recent Accounting PronouncementsFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standardsetting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issuedstandards that are not yet effective will not have a material impact on the Company’s financial statements upon adoption. Under the Jumpstart OurBusiness Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company, and has electedthe extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.In May 2014, the FASB issued ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers. In August 2015, the FASB issuedASU No. 2015-14 (Topic 606), Revenue from Contracts with Customers: Deferral of the Effective Date, which delayed the effective date of ASU2014-09 by one year. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers inan amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 definesa five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenuerecognition process than required under existing U.S. generally accepted accounting pronouncements. All of the Company’s revenue is currentlygenerated from up-front payments, research, development and manufacturing services, supplies of clinical product and other research anddevelopment materials, and milestone and contingent payments under its collaboration arrangements.The Company continues to assess the impact of the new revenue standard on the Company’s financial statements. The Company will adoptthe new standard and its related amendments effective January 1, 2019 using the modified retrospective method. Therefore, comparativeinformation will not be adjusted and will continue to be reported under ASC 605 with the impact of the adoption reflected in opening accumulateddeficit. The most significant impact of the standard relates to our collaboration agreement with Celgene, primarily regarding the recognition ofrevenue from milestone payments and the method of revenue recognition for performance obligations that are delivered over time. Under the newstandard, milestone payments are included in the transaction price as variable consideration, subject to a constraint, and are allocated to theperformance obligations in the contract. Therefore, the milestone payments will be recognized over the performance period rather than whenachieved. In addition, legacy guidance permitted straight-line recognition of revenue for performance obligations that are delivered over time. Thenew standard requires an entity to recognize revenue based on the pattern of transfer of the services.In January 2016, the FASB issued ASU 2016-01 (Topic 825), Recognition and Measurement of Financial Assets and Financial Liabilities,which will change how to recognize, measure, present and make disclosures about certain financial assets and financial liabilities. Under ASU2016-01, if an entity designates a financial liability under the fair value option (“FVO”) in accordance with ASC 825, the entity shall measure thefinancial liability at fair value with qualifying changes in fair value recognized in net income. The entity shall present separately in othercomprehensive income the portion of the total change in the fair value of the liability that results from a change in the instrument-specific creditrisk.For public business entities, ASU 2016-01 was effective for fiscal years beginning after December 15, 2017, including interim periods withinthose fiscal years. For all other entities other than public entities, the guidance is effective for fiscal years beginning after December 15, 2018, andinterim periods within fiscal years beginning after December 15, 2019. As a result of the Company having elected the extended transition period forcomplying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-01 will be effective for the Companyfor the year ended December 31, 2019, and all interim periods thereafter. The Company expects to adopt this standard on January 1, 2019. TheCompany does not expect the adoption of this amendment will have a material impact on its financial statements. 115  In February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases. ASC 842 supersedes the lease recognition requirements in ASC 840,Leases. ASC 842 clarifies the definition of a lease and requires lessees to recognize right-of-use assets and lease liabilities for all leases,including those classified as operating leases under previous lease accounting guidance. For public entities, ASU 2016-02 is effective for fiscalyears beginning after December 15, 2018. The guidance is effective for nonpublic business entities for fiscal years and interim periods beginningafter December 15, 2019, with early adoption permitted. As a result of the Company having elected the extended transition period for complyingwith new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 will be effective for the Company fromJanuary 1, 2020. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition method. However, in July 2018,the FASB issued ASU 2018-11 (Topic 842), Leases: Targeted Improvements, which provides entities with an additional transition method. UnderASU 2018-11, entities have the option of initially applying ASC 842 at the adoption date, rather than at the beginning of the earliest periodpresented, and recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year ofadoption while continuing to present all prior periods under previous lease accounting guidance. The Company expects to elect this transitionmethod at the adoption date of January 1, 2020. The Company is currently evaluating the impact of adopting this guidance on the Company’sfinancial statements. The Company currently expects that its operating lease commitments will be subject to the new standard and recognized asright-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the total assets and total liabilities that itreports relative to such amounts prior to adoption. In June 2018, the FASB issued ASU 2018-07 (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees,with certain exceptions. Some of the areas of simplification apply only to nonpublic entities. For all entities, the amendments are effective forannual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption ispermitted for any entity in any interim or annual period for which financial statements haven’t been issued or made available for issuance, but notbefore an entity adopts ASC 606. The Company plans to adopt this standard on January 1, 2019.In November 2018, the FASB issued ASU 2018-18 (Topic 808), Collaborative Arrangements, Clarifying the interaction between Topic 808 andTopic 606. The amendments in ASU 2018-18 provide guidance on whether certain transactions between collaborative arrangement participantsshould be accounted for with revenue under Topic 606. For public business entities, the amendments in ASU 2018-18 are effective for fiscal yearsbeginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscalyears beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption ispermitted. An entity may not adopt the amendments earlier than its adoption date of Topic 606. The Company plans to early adopt ASU 2018-18concurrent with the adoption of Topic 606 and does not expect the adoption to have a material effect on the financial statements.New Accounting Pronouncements Recently adoptedIn August 2016, the FASB issued ASU 2016-15 (Topic 230), Statement of Cash Flows, Classification of Certain Cash Receipts and CashPayments, that modifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidancewas effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with earlier adoption permitted. ASU2016-15 was adopted by the Company effective January 1, 2018 on a retrospective basis with the adoption reflected as of January 1, 2016, withno material changes reflected in the Statements of Cash Flows. 116  3. Fair Value Measurements and Short-Term InvestmentsThe following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within thefair value hierarchy: December 31, 2018 Total Level 1 Level 2 Level 3 (in thousands) Assets: Money market funds $116,202 $116,202 $- $- Commercial paper 26,625 - 26,625 - Corporate debt securities 11,774 - 11,774 - Asset-backed securities 16,899 - 16,899 - U.S. government agency securities 23,896 - 23,896 - Total $195,396 $116,202 $79,194 $- December 31, 2017 Total Level 1 Level 2 Level 3 (in thousands) Assets: Money market funds $6,578 $6,578 $- $- Commercial paper 7,689 - 7,689 - Corporate debt securities 800 - 800 - U.S. government agency securities 3,893 - 3,893 - Total $18,960 $6,578 $12,382 - Liabilities: Redeemable convertible preferred stock warrant liability $1,708 $- $- $1,708 Total $1,708 $- $- $1,708 Where applicable, the Company uses quoted market prices in active markets for identical assets to determine fair value. This pricingmethodology applies to Level 1 investments, which are composed of money market funds.If quoted prices in active markets for identical assets are not available, then the Company uses quoted prices for similar assets or inputsother than quoted prices that are observable, either directly or indirectly. These investments are included in Level 2 and consist of commercialpaper, corporate debt securities, and U.S. government agency securities. These assets are valued using market prices when available, adjustingfor accretion of the purchase price to face value at maturity.A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair valuemeasurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requiresmanagement to make judgments and consider factors specific to the asset or liability.In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within thevaluation hierarchy. Level 3 liabilities that are measured at estimated fair value on a recurring basis consist of the redeemable convertible preferredstock warrant liability. Refer to Note 10 for the valuation techniques used to measure fair value and a description of the inputs and the informationused to develop the inputs to the valuation models.Generally, increases or decreases in the fair value of the underlying redeemable convertible preferred stock would result in a directionallysimilar impact in the fair value measurement of the associated warrant liability. There were no transfers within the hierarchy during the years endedDecember 31, 2018 and 2017. 117  Upon closing of the IPO on October 1, 2018, a majority of the outstanding redeemable convertible preferred stock warrants either expired orwere converted into common stock warrants, which resulted in the reclassification of the redeemable convertible preferred stock warrant liability toother income and additional paid-in-capital. The following table sets forth a summary of the changes in the estimated fair value of the Company’sredeemable convertible preferred stock warrant liability: RedeemableConvertiblePreferred StockWarrant Liability (in thousands) Balance as of December 31, 2016 $1,193 Estimated fair value of warrants issued 329 Changes in estimated fair value of warrant liability included in other income (expense), net 186 Balance as of December 31, 2017 1,708 Change in estimated fair value of warrant liability included in other income (expense), net, immediately prior to conversion of redeemable convertible preferred stock warrants to common stock warrants. (841)Reclassification of redeemable convertible preferred stock warrant liability to other income upon expiration (133)Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in-capital due to conversion to common stock warrants upon completion of IPO (734)Balance as of December 31, 2018 $- 4. Cash Equivalents and Marketable SecuritiesCash equivalents and marketable securities consisted of the following: December 31, 2018 AmortizedCost Basis UnrealizedGains UnrealizedLosses FairValue (in thousands) Money market funds $116,202 $- $- $116,202 Commercial paper 26,625 - - 26,625 Corporate debt securities 11,795 - (21) 11,774 Asset-based securities 16,920 - (21) 16,899 U.S. government agencies 23,901 - (5) 23,896 Total 195,443 - (47) 195,396 Less amounts classified as cash equivalents (116,202) - - (116,202)Total marketable securities $79,241 $- $(47) $79,194 118  December 31, 2017 AmortizedCost Basis UnrealizedGains UnrealizedLosses FairValue (in thousands) Money market funds $6,578 $- $- $6,578 Commercial paper 7,689 - - 7,689 Corporate debt securities 800 - - 800 U.S. government agencies 3,893 - - 3,893 Total 18,960 - - 18,960 Less amounts classified as cash equivalents (18,960) - - (18,960)Total marketable securities $- $- $- $- As of December 31, 2018, some of the Company’s marketable securities were in an unrealized loss position. The Company determined that itdoes have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, thus therehas been no recognition of any other-than-temporary impairment in the year ended December 31, 2018. All marketable securities with unrealizedlosses have been in a loss position for less than twelve months or the loss is not material. All of the Company’s short-term marketable securities have an effective maturity date of less than one year. No securities have contractualmaturities of longer than one year. 119  5. Collaboration and License AgreementsThe Company has recognized revenue from its collaboration and license agreements as follows: Year Ended December 31, 2018 2017 2016 (in thousands) Collaboration revenue: Celgene Corporation (“Celgene”) (1) Recognition of up-front payment $6,567 $16,694 $27,730 Research and development services 119 660 - Milestones and contingent payments 10,000 27,252 26,271 Total 16,686 44,606 54,001 Merck Sharp & Dohme Corporation (“Merck”)— related party: Recognition of up-front payment 6,985 - Research and development services 1,541 - Total 8,526 - - Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”): Recognition of up-front payment 4,142 4,120 4,120 Research and development services 3,033 3,015 1,610 Total 7,175 7,135 5,730 Total collaboration revenue $32,387 $51,741 $59,731 Other revenue Celgene Corporation (1): Development and manufacturing services and clinical product supply $4,501 $- SutroVax—related party: Supply and other 1,531 - Total other revenue $6,032 $- $- Total revenue $38,419 $51,741 $59,731 (1)Includes $5.0 million of collaboration revenue and $3.9 million of other revenue from Celgene as related party revenue. Celgene was arelated party through September 30, 2018 as it held more than 10% of our common stock for the periods presented until the closing ofour IPO. 2014 Celgene AgreementIn September 2014, the Company signed a Collaboration and License Agreement with Celgene (the “2014 Celgene Agreement”) to discoverand develop bispecific antibodies and/or antibody-drug conjugates (“ADCs”), focused primarily on the field of immuno-oncology, using theCompany’s proprietary integrated cell-free protein synthesis platform, XpressCF™. 120  Upon signing the 2014 Celgene Agreement, the Company received an up-front, nonrefundable payment totaling $83.1 million. The Companywas recognizing revenues from the up-front payment ratably over an approximate three-year period starting in September 2014 prior to entering intothe Amended and Restated Collaboration and License Agreement with Celgene (the “2017 Celgene Agreement”).In March 2015, the Company received a $15.0 million contingent payment (“March 2015 payment”) from Celgene under the 2014 CelgeneAgreement that provided Celgene a right to access certain of the Company’s technology for use in conjunction with certain Celgene intellectualproperty. In June 2016, the Company received a $25.0 million milestone (“June 2016 payment”) upon completion of certain preclinical activities.The March 2015 and June 2016 payments were being recognized as revenue over the remaining portion of the estimated period of the researchterm prior to entering into the 2017 Celgene Agreement. Additionally, in June 2016, the Company earned a $10.0 million substantive milestone forcertain manufacturing accomplishments. The entire $10.0 million amount was recognized as revenue when earned, as the Company hadcompleted its performance obligations related to the achievement of the substantive milestone.2017 Celgene AgreementIn August 2017, the Company entered into the 2017 Celgene Agreement to refocus its 2014 Celgene Agreement on four programs that areadvancing through preclinical development, including an ADC program targeting B cell maturation antigen.Upon signing of the 2017 Celgene Agreement, the Company received an option fee payment of $12.5 million in August 2017 and is entitled toreceive a second option fee payment of $12.5 million following the first investigational new drug (“IND”) clearance, if any, for one of the fourprograms, if Celgene desires to maintain its option to acquire the U.S. rights to develop and commercialize a second collaboration program toreach IND status. If Celgene exercises its option to acquire from the Company U.S. rights to a second collaboration program, it will make an optionexercise fee payment to the Company, the amount of which depends on which program reaches IND status. The Company determined that theinitial $12.5 million payment should be deferred and recognized over the entire potential period during which Celgene has an option to acquireworldwide rights to a second collaboration program. Consequently, the Company is recognizing revenue from such payment ratably over anapproximate three-year period starting in August 2017 and ending in September 2020. In September 2017, the Company earned a $10.0 millionmilestone for certain manufacturing accomplishments, which payment was received from Celgene in October 2017. The entire $10.0 millionamount was recognized as revenue when earned, as the Company had completed its performance obligations related to the achievement of thesubstantive milestone. In December 2018, the Company earned a $10.0 million milestone for certain manufacturing accomplishments, whichpayment was received from Celgene in the same month. The entire $10.0 million amount was recognized as revenue when earned, as theCompany had completed its performance obligations related to the achievement of the substantive milestone.The Company evaluated the terms of the 2017 Celgene Agreement, relative to the 2014 Celgene Agreement, and determined the 2017Celgene Agreement to be a material modification to the 2014 Celgene Agreement for financial reporting purposes. As a result, the Companydetermined that the remaining deferred revenue balance of $8.2 million as of the date of entering into the 2017 Celgene Agreement, related tocertain Celgene payments to the Company under the 2014 Celgene Agreement, will also be recognized ratably over an approximate three-yearperiod starting in August 2017 and ending in September 2020 (the “Celgene Agreements”). The Company has received and will be eligible toreceive financial support for research and development services assigned to the Company by Celgene, based on an agreed-upon level of full-timeequivalent personnel effort and related reimbursement rate, which will be recognized as revenue as the related reimbursable activities approved byCelgene and the Company are performed by the Company.Under the terms of the 2017 Celgene Agreement, the Company is entitled to earn development and regulatory contingent payments for eachof the four programs under the collaboration, and royalties on sales of any commercial products that may result from the 2017 CelgeneAgreement. For licensed products for which Celgene holds worldwide rights, the Company is eligible to receive aggregate milestone and option feepayments of up to $295.0 million for certain licensed products and up to $393.7 million for certain other licensed products under the collaboration, ifapproved in multiple indications, and, depending on the licensed product, tiered royalties ranging from mid-single digits to low teen percentages onworldwide sales of any commercial products that may result from the 2017 Celgene Agreement. Additionally, for licensed products for whichCelgene holds ex-U.S. rights, the Company will also be eligible to receive pre-commercial contingent payments and tiered royalties ranging frommid to high single digit percentages. The contingent payments under the 2017 Celgene Agreement are not considered to be substantive milestonesbecause the receipt of such payments is based solely on the performance of Celgene. 121  Celgene may terminate the 2017 Celgene Agreement at any time with 120 days’ prior written notice. Either the Company or Celgene has theright to terminate the 2017 Celgene Agreement based on the other party’s uncured material breach, challenge of the validity and enforceability ofintellectual property, or bankruptcy.As of December 31, 2018 and 2017, there was $11.4 million and $18.0 million, respectively, of deferred revenue related to payments receivedby the Company under the Celgene Agreements.As of December 31, 2018 and 2017, the Company had $0.6 million and $0.8 million, respectively, of receivables from Celgene related to theCelgene Agreements, which are included in accounts receivable on the balance sheet.2018 Celgene Master Services AgreementIn March 2018, the Company entered into a Master Development and Clinical Manufacturing Services Agreement (the “2018 Celgene MasterServices Agreement”) with Celgene, wherein Celgene requested the Company to provide development, manufacturing and supply chainmanagement services, including clinical product supply. The consideration for the services is based on an agreed-upon level of full-time equivalentpersonnel effort and related reimbursement rate in addition to agreed-upon pricing for the clinical product supply. For the year ended December 31, 2018, the Company earned $4.5 million in other revenue under the Master Services Agreement.2018 Merck Agreement – Related PartyIn July 2018, the Company entered into an Exclusive Patent License and Research Collaboration Agreement (the “2018 Merck Agreement”)with Merck, a related party of the Company, to jointly develop up to three research programs focusing on cytokine derivatives for cancer andautoimmune disorders.Under the 2018 Merck Agreement, the Company received from Merck a non-refundable, non-creditable, upfront payment of $60.0 million inAugust 2018 for access to the Company’s technology and the identification of the preclinical research and development of two target programs,with an option for Merck to engage the Company to continue these activities for a third program upon the payment of an additional amount. TheCompany identified multiple deliverables under the 2018 Merck Agreement, which include access to certain intellectual property rights,performance of research and development services, and joint project team participation, and the value of the arrangement was allocated amongstthe units of accounting using the Company’s best estimate of selling price (BESP) of the associated deliverables. The BESP of the deliverableswas developed using an estimate of the costs to provide access to the technology and personnel as described in the agreement and developedwith reference to the workplans created by the parties and the associated profit margin developed by management. The Company allocated $4.4million of the upfront payment received to the contingent third program, with such allocation representing the estimated significant incrementaldiscount associated with the contingent deliverable. Recognition of the $4.4 million as revenue will begin upon commencement of the thirdprogram. The remaining $55.6 million of the upfront payment received was allocated to each of the units of accounting proportionately, based onBESP. The allocated revenue pertaining to the research and development services is being recognized on a proportion of performance basis, usingthe number of full-time equivalent (FTE) personnel effort as the basis of measurement, with such performance expected to occur over eachprogram estimated duration of approximately three years. The allocated amount pertaining to the intellectual property rights and joint project teamparticipation is being recognized over the total estimated term of the 2018 Merck Agreement. For the year ended December 31, 2018, theCompany recognized $7.0 million of revenue associated with the upfront payment received. Additionally, the Company recognized revenue ofapproximately $1.5 million for FTE funding provided by Merck.The Company is also eligible to receive aggregate milestone payments of up to $1.6 billion, assuming the development and sale of alltherapeutic candidates and all possible indications identified under the collaboration. If one or more products from each of the target programs aredeveloped for non-oncology or a single indication, the Company will be eligible for reduced aggregate milestone payments. In addition, theCompany is eligible to receive tiered royalties ranging from mid-single digit to low teen percentages on the worldwide sales of any commercialproducts that may result from the collaboration.Merck may terminate the 2018 Merck Agreement at any time with 60 days’ prior written notice. Either the Company or Merck has the right toterminate the 2018 Merck Agreement based on the other party’s uncured material breach or bankruptcy. 122  As of December 31, 2018, there was $53.0 million of deferred revenue related to the upfront payment received by the Company under the2018 Merck Agreement. As of December 31, 2018, the Company had a $0.9 million receivable from Merck related to the 2018 Merck Agreement,which is included in accounts receivable on the balance sheet.During 2018, Merck purchased 74,794,315 shares of the Company’s Series E redeemable convertible preferred stock at a price per share of$0.2674, resulting in gross proceeds of $20.0 million in July 2018. In a private placement concurrent with the Company’s IPO, which wascompleted on October 1, 2018, Merck purchased 666,666 shares of common stock at a price per share of $15.00, resulting in proceeds ofapproximately $10.0 million. As a result of the investments in the Company’s equity, Merck is a related party.EMD Serono AgreementThe Company signed a Collaboration Agreement and a License Agreement with EMD Serono in May 2014 and September 2014, respectively,which were entered into in contemplation of each other and therefore treated as a single agreement for accounting purposes. The CollaborationAgreement was terminated upon execution of the License Agreement (the “MDA Agreement”), which agreement is to develop ADCs for multiplecancer targets.Upon signing the Collaboration Agreement, the Company received an up-front, nonrefundable, non-creditable payment totaling $10.0 million.Upon signing the MDA Agreement, the Company received an additional up-front, nonrefundable payment totaling $10.0 million and will receivefinancial support for research and development services to be provided by the Company, based on an agreed-upon level of full-time equivalentpersonnel effort and related reimbursement rate.The Company identified multiple deliverables under the MDA Agreement, which include access to certain intellectual property rights,performance of research and development services, and joint project team participation. The Company considered the provisions of the multiple-element arrangement guidance in determining whether access to the intellectual property rights under the arrangement has stand-alone value.Based on the Company’s expertise in applying its proprietary technology, it concluded that there is no stand-alone value of the intellectual propertyrights accessed by EMD Serono. Consequently, the Company determined that the identified deliverables comprise a single unit of accounting, andthe up-front cash payments will be deferred and recognized over the relevant estimated period during which the Company has significantobligations to perform research and development services and participate in joint project team activities for EMD Serono. Consequently, theCompany is recognizing revenues from the up-front payments ratably over an estimated five-year period starting in June 2014. Revenue forresearch and development services under the MDA Agreement will be recognized as revenue as the related reimbursable activities approved byEMD Serono and the Company are performed by the Company.The Company is eligible to receive up to $52.5 million for each product developed under the MDA Agreement, primarily from pre-commercialcontingent payments. In addition, the Company is eligible to receive tiered royalties ranging from low-to-mid single digit percentages, along withcertain additional one-time royalties, on worldwide sales of any commercial products that may result from the MDA Agreement. The MDAAgreement term expires on a product-by-product and country-by-country basis upon the later of the expiration of the patents covering productslicensed under the MDA Agreement or ten years after the first commercial sale of a product covered under the MDA Agreement. Upon expiration,EMD Serono will have a fully paid-up, royalty-free, perpetual, and irrevocable non-exclusive license, with the right to grant sublicenses, undercertain Company intellectual property rights.EMD Serono may terminate the MDA Agreement at any time with 90 days’ prior written notice or upon the inability of the Company to provideEMD Serono access to a specified number of cancer drug targets. Either the Company or EMD Serono has the right to terminate the MDAAgreement based on the other party’s uncured material breach or bankruptcy.As of December 31, 2018 and 2017, there was $1.7 million and $5.9 million, respectively, of deferred revenue related to the upfront paymentsreceived by the Company under the MDA Agreement. As of December 31, 2018 and 2017, the Company had $0.9 million and $0.8 million,respectively, of receivables from EMD Serono related to the MDA Agreement, which are included in accounts receivable on the balance sheet. 123  SutroVax, Inc. Supply Agreement – Related PartyIn May 2018, the Company entered into a Supply Agreement (the “Supply Agreement”) with SutroVax, Inc., (“SutroVax”), wherein SutroVaxengaged the Company to supply extracts and custom reagents, as requested by SutroVax. The pricing is based on an agreed upon cost plusarrangement. For the year ended December 31, 2018, the Company recognized $1.5 million in other revenue-related parties under the SupplyAgreement. As of December 31, 2018, the Company had a $49,000 receivable from SutroVax related to the Supply Agreement, which is includedin accounts receivable on the balance sheet.The Leukemia & Lymphoma Society, Inc.In August 2018, the Company entered into a Research, Development and Commercialization Agreement (the “LLS Agreement”) with TheLeukemia & Lymphoma Society (“LLS”), under which LLS has agreed to contribute up to $6.0 million in clinical development funding for STRO-001,the Company’s CD74-targeting ADC to treat relapsed and/or refractory multiple myeloma and non-Hodgkin lymphoma. The funding will be providedin installments based upon the achievement of funding milestones, with any excess funding above actual expenditures refundable to LLS. Theinitial payment of $0.5 million was received by the Company upon execution of the LLS Agreement. As of December 31, 2018, the Company hadreceived total payments from LLS of $1.0 million, of which $0.9 million was reflected as an offset against other income (expense) and theremaining $0.1 million was recorded in other current liabilities. In consideration for the funding to the Company under the LLS Agreement, theCompany may be required in the future to make payments to LLS, contingent upon reaching certain pre-specified late-stage clinical development,regulatory and commercialization milestones and should the Company enter into certain transactions relating to STRO-001 with a third party, whichpayments in aggregate could total up to a maximum $19.5 million, assuming receipt by the Company from LLS of the entire $6.0 million in clinicaldevelopment funding for STRO-001. As of December 31, 2018, no events have occurred that would require such payments to LLS. The LLSAgreement terminates upon the earlier of (a) fulfillment of all payment obligations by both parties or (b) 12 years after the effective date. LLS mayterminate the LLS Agreement at any time with 60 days’ prior written notice. Either the Company or LLS has the right to terminate the LLSAgreement based on the other party’s uncured material breach.The Company concluded that the contingent payments were an embedded derivative and recorded a related liability of approximately $0.1million as part of other noncurrent liabilities as of December 31, 2018, with the corresponding amount recorded in the statement of operations asother income (expense), net. The value of the embedded derivative was estimated based on the probability-adjusted and discounted value of futurepayments. 6. Property and Equipment, NetProperty and equipment, net, consists of the following: December 31, 2018 2017 (in thousands) Computer equipment and software $1,484 $1,372 Furniture and office equipment 492 492 Laboratory equipment 22,464 21,375 Leasehold improvements 15,790 15,772 Total 40,230 39,011 Less accumulated depreciation and amortization (29,296) (25,014)Total property and equipment, net $10,934 $13,997 7. Loan and Security AgreementIn August 2017, the Company entered into a loan and security agreement with Oxford and SVB under which it borrowed $15.0 million (the“August 2017 Loan”). The loan is due in 30 monthly installments from March 2019 through its repayment in August 2021, with interest-only monthlypayments until March 2019. If certain qualified funding events occur, the loan will be due in 24 monthly installments from September 2019 throughits repayment in August 2021, with interest-only payments until September 2019. While the aforementioned qualified funding events occurredduring the year ended December 31, 2018, the Company commenced monthly principal and interest installment payments in March 2019. 124  The August 2017 Loan is secured by all assets of the Company, excluding intellectual property and certain other assets. The August 2017Loan contains customary affirmative and restrictive covenants, including with respect to fundamental transactions, the incurrence of additionalindebtedness, grant liens, pay any dividend or make any distributions to the Company’s holders, make investments, merge or consolidate with anyother person, or engage in transactions with its affiliates, but does not include any financial covenants. The loan agreement provides that an eventof default will occur if, among other triggers, there occurs any circumstances that could reasonably be expected to result in a material adverseeffect on the Company’s business, operations or condition, or on its ability to perform its obligations under the loan. The loan agreement alsoincludes customary representations and warranties, other events of default and termination provisions.As discussed in Note 1, the Company disclosed in its audited financial statements as of December 31, 2017 there was substantial doubtabout the Company’s ability to continue as a going concern given its continuing operating losses and its then available capital resources, whichcould be deemed to be an event of default if such condition was considered to have a material adverse effect on the Company’s business,operations or condition. As a result, the Company classified the entire debt balance as a current liability as of December 31, 2017, given that adetermination of such an event of default is outside of the Company’s control. As of December 31, 2018, the Company has classified $4.7 millionof the outstanding debt balance as current and $10.0 million as non-current, which reflects the scheduled repayment terms under the August 2017Loan.The interest charges on the loan are based on a floating rate that equals the greater of 7.39% or the sum of the 30-day U.S. Dollar LondonInterbank Offered Rate (“LIBOR”) plus 6.40%. For the year ended December 31, 2018, the average interest rate was 8.39%. In addition, theCompany will make a final payment equal to 3.83% of the original principal amount of the loan, or $0.6 million, which will be accrued over the termof the loan using the effective-interest method. As of December 31, 2018, total interest expense accrued was $0.3 million.In connection with the August 2017 Loan, the Company issued to Oxford and SVB a warrant to purchase 454,820 shares and 227,410shares, respectively, of Series D-2 redeemable convertible preferred stock at an exercise price of $0.6596 per share (the “2017 Warrant”). If therewas a subsequent convertible preferred stock or other senior equity securities financing with a per share price less than the Series D-2 redeemableconvertible preferred per share price, then the warrant would instead be to purchase such class of shares, based on the per share price of such. InMay and July 2018, the Company raised a total of $85.4 million in funding through the sale and issuance of 319,305,718 shares of Series Eredeemable convertible preferred stock at $0.2674 per share. Given that the price per share of the Series E redeemable convertible preferred stockwas less than the Series D-2 redeemable convertible preferred per share price, the 2017 Warrant converted into a warrant to purchase a total of1,682,871 shares of Series E redeemable convertible preferred stock at an exercise price of $0.2674 per share. Upon the closing of the Company’sIPO on October 1, 2018, all Series E redeemable convertible preferred stock warrants were converted on a 1-for-0.0275 basis to 46,359 shares ofwarrants to purchase common stock . The warrants were exercisable from the date of issuance and have a 10-year term. As of December 31,2018, no warrant was exercised. The estimated fair value upon issuance of the 2017 Warrant based on Series D-2 redeemable convertiblepreferred stock was $0.3 million, which was recorded as redeemable convertible preferred stock warrant liability. The fair value of the warrant at thedate of issuance was determined using an Option Pricing Method and was recorded as a redeemable convertible preferred stock warrant liabilitywith an offset to debt discount on the associated borrowings on the Company’s balance sheet. The debt discount is being amortized to interestexpense over the repayment period of the loan using the effective-interest method.During the years ended December 31, 2018 and 2017, the Company recorded interest expense related to this loan of $1.6 million and $0.6million, respectively. During the years ended December 31, 2018 and 2017, the Company recorded accretion of debt discount of $0.2 million and$0.1 million, respectively. 125  As of December 31, 2018, the Company’s scheduled future principal payments for the loan are as follows: Amount (in thousands) Year ending December 31, 2019 $5,000 Year ending December 31, 2020 6,000 Year ending December 31, 2021 4,000 Total future maturities 15,000 Less unamortized debt discount as of December 31, 2018 (276)Ending debt balance as of December 31, 2018 $14,724 8. Commitments and ContingenciesOperating LeaseThe Company leases its South San Francisco facility under an operating lease. The landlord provided the Company with an Extended TermTenant Work Allowance of $0.9 million related to tenant improvements under the lease amendment entered in May 2012. The allowance was repaidthrough November 2016, in the form of an increased base rent amount. In May 2016, the Company exercised an option to extend the lease term ofits South San Francisco facility, with fixed rental payments from December 2016 through November 2021. Under the amended lease agreement,the Company has an option to extend the lease term through November 2026. Additionally, the landlord provided the Company with a tenantimprovement allowance of $0.2 million through December 1, 2017, which the Company has not accessed. If the Company elected to access thetenant improvement allowance, the related amount would be repaid through November 2021, in the form of an increased monthly base rent amount.In May 2011, the Company entered into a lease agreement for a facility in San Carlos, California, which in August 2012 was amended toinclude an adjoining space in the same building, with fixed rental payments through July 31, 2016. In December 2014, the lease term wasextended through July 2021. Under the lease agreement, the Company has two three-year options to extend the lease term, potentially throughJuly 2027.In August 2013, the Company entered into an agreement to sublease a second facility in South San Francisco, California, with fixed rentalpayments through March 2017. In May 2016, the Company entered into an agreement for a lease on the second facility in South San Francisco,with fixed rental payments from May 2017 through November 2021, following the end of the sublease term for the same facility. Under the leaseagreement, the Company has an option to extend the lease term through November 2026.In March 2015, the Company entered into an agreement to lease a second facility in San Carlos, California, with fixed rental paymentsthrough June 2021. Under the lease agreement, the Company has two three-year options to extend the lease term, potentially through June 2027.As of December 31, 2018, the Company’s future minimum payments under the noncancelable operating leases for the facilities are asfollows: Year Ending December 31, Amount (in thousands) 2019 $3,655 2020 3,771 2021 3,195 Total future minimum lease payments $10,621 Rent expense was $3.6 million, $3.2 million and $2.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. 126  IndemnificationIn the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, businesspartners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach ofsuch agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, orfrom intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements withdirectors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities thatmay arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provideindemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on theCompany’s balance sheets, statements of operations, or statements of cash flows. The Company currently has directors’ and officers’ insurance.9. Related-Party TransactionsUpon the Company’s IPO, Celgene’s ownership of the Company’s outstanding equity interest decreased to less than 10%. As a result,starting October 1, 2018, the Company ceased to reflect balances and transactions associated with Celgene as a related party in its financialstatements. As of December 31, 2017, Celgene owned 15.4% of the Company’s outstanding equity interest. Transactions with Celgene, as ofDecember 31, 2018 and 2017, respectively, are described in Note 5. Related party transactions with Merck, which owned 11.9% and 0% of the Company’s outstanding equity interest as of December 31, 2018and 2017, respectively, are described in Note 5.Three directors of the Company have performed consulting services for the Company, which consulting services were terminated prior to theCompany’s IPO in September 2018. Subsequent to his appointment to the Company’s Board of Directors, the Company paid to one of the directors $40,000, $60,000 and $60,000during the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, such director was granted options to purchase 9,805 sharesof the Company’s common stock from 2009 to 2015, at the then-current fair values of the common stock ranging from $4.36 to $11.98 per share,related to his consulting services, which vest ratably over four years. As of December 31, 2018, all of such shares were vested.There were $0.2 million, $0.5 million and $0.7 million in transaction advisory fees during the years ended December 31, 2018, 2017 and 2016,respectively, earned and subsequently paid to a firm of which such director is a managing executive, related to the Celgene agreements.Additional payments, based on a single digit percentage of any future payments, will be made to such transaction advisory firm upon receipt offuture payments under the 2017 Celgene Agreement (see Note 5). In June 2018, the Company made an addendum to the consulting agreement with such director, pursuant to which the Company agreed topay such director a one-time success fee of $0.4 million within 30 days of the execution of a definitive collaboration agreement with a third-partypharmaceutical company. Following the execution of the 2018 Merck Agreement in July 2018, the Company paid such director $0.4 million. TheCompany terminated the consulting agreement and side letter with such director prior to the Company’s IPO in September 2018.The Company paid to the second director $20,000, $30,000 and $30,000 during the years ended December 31, 2018, 2017 and 2016,respectively. Additionally, such director was granted an option to purchase 3,269 shares of the Company’s common stock in September 2015 atthe then-current fair value of the common stock, related to his consulting services, which vest ratably over four years.The Company paid to the third director $20,000, $25,000 and $0 during the years ended December 31, 2018, 2017 and 2016, respectively. 127  On August 30, 2010, the Company received a promissory note with recourse from its chief executive officer, which was used to purchasecommon stock. The principal amount of the note was approximately $0.2 million, which accrued interest at 0.53%, compounding semiannually.The note could have been prepaid without penalty and was due on August 30, 2019. As of December 31, 2017, the outstanding balance was $0.2million and the note and related interest receivable were recorded as a component of stockholders’ deficit. The promissory note, including accruedinterest, was paid in full by the chief executive officer in August 2018.Investment in SutroVax, Inc. (“SutroVax”)In December 2013, the Company and Johnson & Johnson Innovation, through the Johnson & Johnson Development Corporation, providedinitial co-funding for a new company, SutroVax. SutroVax leverages the Company’s proprietary integrated cell-free protein synthesis platform,XpressCF™, to develop novel vaccines for a broad range of disease targets. The Company had $49,000 and $34,000 in receivables due fromSutroVax as of December 31, 2018 and 2017, respectively, which were included in accounts receivable on the condensed balance sheet.As of December 31, 2018 and 2017, the Company held a 5.6% and 7.8% common stock ownership interest in SutroVax, respectively, on afully-diluted basis, with a carrying value of $0. The Company’s investment in SutroVax was accounted for under the cost method as of bothDecember 31, 2018 and 2017.SutroVax qualifies as a variable interest entity. However, the Company maintains only shared power to direct the activities that mostsignificantly impact the performance of SutroVax. Therefore, the Company is not considered the primary beneficiary and consolidation is notrequired.See Note 5, SutroVax, Inc. Supply Agreement for discussion of the supply arrangement entered into with SutroVax in May 2018 and relatedrevenue recognized for the year ended December 31, 2018.In May 2018, the Company entered into amendments to the license agreement with SutroVax, which primarily clarified, under certain limitedfuture circumstances SutroVax’s ability to manufacture extract pursuant to the license agreement. The Company received a warrant for thepurchase of 100,000 shares of SutroVax preferred stock which was valued at $0.1 million. The value of the warrants received has been recognizedas other revenue-related parties during the year ended December 31, 2018 as there are no remaining deliverables under the license agreement.10. Stockholders’ Equity (Deficit)Redeemable Convertible Preferred StockIn May, June and July 2018, the Company raised an aggregate total of $85.4 million in funding through the sale and issuance of 319,305,718shares of Series E redeemable convertible preferred stock at $0.2674 per share. Redeemable convertible preferred stock, $0.001 par value, as of December 31, 2017 consisted of: SharesAuthorized SharesIssued andOutstanding OriginalIssuePrice PerShare CarryingValue LiquidationPreference (in thousands, except for share and per share amounts) Series A 3,503,692 3,503,692 $0.5900 $1,992 $2,067 Series B 24,515,966 24,345,936 0.8822 19,865 21,478 Series C 78,582,049 76,102,337 0.4797 38,035 36,506 Series C-2 8,338,892 8,338,892 0.5996 4,845 5,000 Series D 43,362,233 43,362,233 0.5996 25,900 26,000 Series D-2 18,779,561 18,097,331 0.6596 11,868 11,937 Balance at December 31, 2017 177,082,393 173,750,421 $102,505 $102,988 128  In connection with the completion of the Company’s IPO in October 2018, all outstanding shares of Series A, Series B, Series C, Series C-2,Series D, Series D-2 and Series E were converted into 16,028,462 shares of common stock. As such, no redeemable convertible preferred stockshares were outstanding as of December 31, 2018.WarrantsDuring the period from 2008 to 2012, the Company issued various warrants for the purchase of redeemable convertible preferred stock inconnection with debt financings and the issuance of redeemable convertible preferred stock.In August 2017, the Company issued warrants to Oxford and SVB to purchase an aggregate of 682,230 shares of Series D-2 redeemableconvertible preferred stock at an exercise price of $0.6596 per share in connection with the issuance of August 2017 Loan (see Note 7). If therewas a subsequent convertible preferred stock or other senior equity securities financing with a per share price less than the Series D-2 redeemableconvertible preferred per share price, then the warrant would automatically convert to a warrant to purchase such class of shares, based on the pershare price of such equity. Given that the price per share of the Series E redeemable convertible preferred stock described above was less thanthe price per share of the Series D-2 redeemable convertible preferred stock, the 2017 Warrant converted into a warrant to purchase a total of1,682,871 shares of Series E redeemable convertible preferred stock at an exercise price of $0.2674 per share. The warrant is exercisable fromthe original date of issuance and has a 10-year term.The Company adjusted the warrant liability for changes in fair value until the completion of its IPO on October 1, 2018, at which time certainconvertible preferred stock warrants were converted into warrants for the purchase of common stock and the related convertible preferred stockwarrant liability was reclassified to additional paid-in capital and others expired. On October 1, 2018, 1,232,220 shares of the Series C redeemableconvertible preferred warrants were canceled, and the remaining 687,928 shares were converted to warrants to purchase common stock on a 1-for-0.0370 basis. All Series E redeemable convertible preferred warrants were converted to warrants to purchase common stock on a 1-for-0.0275basis.As of December 31, 2018 and 2017, the warrants related to redeemable convertible preferred stock outstanding and exercisable and theirestimated fair value were as follows: ExercisePricePer Share Shares as ofDecember 31, Estimated FairValue as ofDecember 31, Stock Expiration Date 2018 2018 2017 2018 2017 (in thousands except for share and per share amounts) Series B redeemable convertible preferred June 2018 $- - 170,030 $- $116 Series C redeemable convertible preferred September 2018 - - 2,479,712 - 1,263 Series D-2 redeemable convertible preferred September 2018 - - 682,230 - 329 Series E redeemable convertible preferred September 2018 - - - - Total - 3,331,972 $- $1,708 129  Upon the completion of IPO on October 1, 2018, a majority of the redeemable convertible preferred stock warrants were converted into 71,813shares of common stock warrants and were no longer revalued to fair value. As of September 30, 2018 and years ended December 31, 2017 and2016, the warrants were valued using the Option Pricing Method and were estimated using the following assumptions: Nine monthsEnded Year Ended December 31, September 30,2018 2017 2016 Average expected life (in years) 3.1-8.8 2.5 2.5 Expected volatility 62.42%-71.21% 85.3% 84.7%Risk-free interest rate 2.88%-3.40% 1.55% 0.83%Expected dividend - - - Common StockHolders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company.As of December 31, 2018, the Company had reserved common stock, on an if-converted basis, for issuance as follows: December 31, 2018 2017 Redeemable convertible preferred stock - 5,063,404 Common stock options issued and outstanding 3,111,718 835,320 Common stock award issued and outstanding 311,240 - Remaining shares reserved for issuance under 2004 and 2018 Equity Incentive Plan 2,525,610 91,149 Shares reserved for issuance under 2018 Employee Stock Purchase Plan 230,000 - Warrants to purchase redeemable convertible preferred stock - 93,527 Warrant to purchase common stock 71,813 1,099 Total 6,250,381 6,084,499 Preferred Stock Effective October 30, 2018, the Company had 10,000,000 shares of preferred stock authorized with a par value of $0.001. No shares ofpreferred stock were outstanding as of December 31, 2018.11. Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation2004 Equity Incentive Plan and 2018 Equity Incentive PlanIn September 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”), which became effective on September 25, 2018. Asa result, the Company will not grant any additional awards under the 2004 Equity Incentive Plan (“2004 Plan”). The terms of the 2004 Plan andapplicable award agreements will continue to govern any outstanding awards thereunder. In addition to the shares of common stock reserved forfuture issuance under the 2004 Plan that were added to the 2018 Plan upon its effective date, the Company has initially reserved 2,300,000 sharesof common stock for issuance under the 2018 Plan. In addition, the number of shares of common stock reserved for issuance under the 2018 Planwill automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2019, in an amount equal to 5%of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of sharesdetermined by the Company’s board of directors. As of December 31, 2018, the Company had 2,525,610 shares available for grant under the 2018Plan. 130  The following table summarizes option activities under the Company’s 2004 Plan and 2018 Plan: OutstandingOptions Weighted-AverageExercise Price Weighted-AverageRemainingContract Term(Years) AggregateIntrinsic Value Balances at December 31, 2016 796,907 $10.05 7.61 $2,685 Granted 62,392 $13.10 Exercised (13,499) $7.06 Canceled (10,480) $12.46 Balances at December 31, 2017 835,320 $10.31 6.84 $3,813 Granted 2,312,821 $14.85 Exercised (20,009) $6.53 Canceled (16,414) $14.49 Balances at December 31, 2018 3,111,718 $13.74 8.76 $1,088 Exercisable at December 31, 2018 896,818 $10.99 6.44 $1,088 Vested and expected to vest at December 31, 2018 896,818 $10.99 6.44 $1,088 The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock priceon the last trading day of fiscal year 2018 and the exercise prices, multiplied by the number of in-the-money options) that would have beenreceived by the stock option holders had all stock option holders exercised their stock options on December 31, 2018. For the years endedDecember 31, 2018, 2017 and 2016, the aggregate intrinsic value of stock options exercised was $0.2 million, $0.1 million and 0.3 million,respectively, determined at the date of the option exercise. Employee Stock Options ValuationFor determining stock-based compensation expense under the Plan, the fair-value-based measurement of our share-based payments wereestimated as of the date of grant using the Black-Scholes option pricing model with assumptions as follows: Year Ended December 31, 2018 2017 2016 Expected term (in years) 5.3-6.1 5.5-6.1 5.7-6.1 Expected volatility 54.57%-62.38% 56.52%-58.55% 58.00%-59.00% Risk-free interest rate 2.67%-3.11% 1.89%-2.18% 1.24%-2.09% Expected dividend - - - Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company usedthe “simplified” method to determine the expected term of options granted, which calculates the expected terms as the average of the weighted-average vesting term and the contractual term of the option.Expected Volatility—Since the Company has limited information available on the volatility of its common stock due to its short tradinghistory, the expected volatility was estimated based on the average historical volatilities of common stock of comparable publicly traded entitiesover a period equal to the expected term of the stock option grants. The Company will continue to apply this process until a sufficient amount ofhistorical information regarding the volatility of its own stock price becomes available. 131  Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S.Treasury notes with maturities approximately equal to the expected term of the options.Expected Dividend—The Company has never paid dividends on its common stock. Therefore, the Company used an expected dividend yieldof zero.Using the Black-Scholes option-valuation model, the weighted-average estimated grant-date fair value of employee stock options grantedduring the years ended December 31, 2018, 2017 and 2016 was $9.48, $7.26 and $7.62 per share, respectively. The total fair value of optionsvested during the years ended December 31, 2018, 2017 and 2016 was $2.3 million, $1.6 million and $0.9 million, respectively. Restricted Stock UnitsIn September 2018, the Company granted 312,400 shares of restricted common stock, or RSUs, to certain employees. These restrictedshares will become fully vested over three years in September 2021. As December 31, 2018, no RSUs had vested.A summary of the status and activity of non-vested RSUs at December 31, 2018 is as follows: Number ofshares WeightedAverageGrant-DateFair Value Non-vested December 31,2017 - - Granted 312,400 $15.20 Canceled (1,160) $15.20 Non-vested December 31,2018 311,240 $15.20 2018 Employee Stock Purchase PlanIn September 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on September 26,2018, the day that the Form S-1 related to the IPO was declared effective, in order to enable eligible employees to purchase shares of theCompany’s common stock. The Company initially reserved 230,000 shares of common stock for sale under the ESPP. The aggregate number ofshares reserved for sale under the ESPP will increase automatically on January 1st of each of the first ten calendar years after the effective dateby the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediatelypreceding December 31 (rounded to the nearest whole share) or a number of shares as may be determined by the Company’s board of directors.The aggregate number of shares issued over the term of the Company’s ESPP, subject to stock-splits, recapitalizations or similar events, may notexceed 2,300,000 shares of the Company’s common stock. The initial ESPP purchase date by the Company’s eligible employees was March 15,2019.The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. For the year ended December 31, 2018, thefair value of ESPP shares was estimated using the following assumptions: Year EndedDecember 31, 2018 Expected term (in years) 0.5 Expected volatility 55.28%Risk-free interest rate 2.37%Expected dividend -As of December 31, 2018, no purchase has been made and 230,000 shares were available for future issuance under the ESPP. 132  Stock-Based Compensation ExpenseThe Company believes that the fair value of the stock options, RSUs and ESPP shares is more reliably measurable than the fair value ofservices received.For the year ended December 31, 2018, the Company recorded $2.4 million stock-based compensation expense related to the stock optionsgranted under the Company’s Equity Incentive Plans, $0.4 million of stock-based compensation expense related to the RSUs and $0.1 millionstock-based compensation expense related to the ESPP. As of December 31, 2018, unrecognized stock-based compensation expense related tothe unvested stock options and RSUs granted was $18.2 million and $3.9 million, respectively. The remaining unrecognized compensation cost isexpected to be recognized over a weighted-average period of 3.5 years and 2.5 years, respectively. As of December 31, 2018, unrecognizedstock-based compensation expense related to the ESPP was $0.1 million.Total stock-based compensation expense recognized was as follows: Year Ended December 31, 2018 2017 2016 (in thousands) Research and development $619 $119 $104 General and administrative 2,253 1,272 864 Total $2,872 $1,391 $968 Non-Employee Stock-Based Compensation ExpenseThe fair value of options granted to non-employees was estimated using the Black-Scholes method. The stock-based compensation expenserelated to non-employees for the years ended December 31, 2018, 2017 and 2016 was immaterial.2017 Call Option PlanIn February 2017, the Company adopted a 2017 Call Option Plan to grant selected employees, officers, directors and consultants(collectively, the “Participants”) options to purchase shares of the common stock of SutroVax, an unconsolidated investee of the Company (seeNote 9). The Company has reserved 450,000 shares of SutroVax common stock as of December 31, 2018 for issuance under the program. Thecall options vest 25% on each of January 1, 2017, 2018, 2019, and 2020, and expire one year from the vesting date.Using the Black-Scholes option pricing model, the call options are measured at fair value on the grant date and at each reporting period priorto their vesting, with cost recognized over the requisite service period as compensation cost. Any changes in the fair value subsequent to thevesting date are recognized in other income (expense), net in the statement of operations. Call options covering 420,000 shares have been grantedwith an exercise price of $0.76 per share, 210,000 of such options had vested and were exercised and 210,000 were outstanding and unvested, asof December 31, 2018 and 105,000 of such options had vested and were exercised and 315,000 of such options were outstanding and unvested,as of December 31, 2017 The amounts recognized as compensation expense related to the 2017 Call Option Plan were $65,000, and $79,000 for the year endedDecember 31, 2018 and 2017, respectively.The amounts recognized as other income (expense) related to the 2017 Call Option Plan were $133,000 and $109,000 for the year endedDecember 31, 2018 and 2017, respectively. 133  12. Income TaxesNo provision for income taxes was recorded for the years ended December 31, 2018 and 2017. The Company has established a full valuationallowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. All losses to date have been incurreddomestically.The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows: Year Ended December 31, 2018 2017 2016 Federal statutory rate 21.0% 34.0% 34.0%State tax - - - Change in valuation allowance (32.7) 20.8 53.0 Tax credits 7.5 3.8 (21.6)Stock compensation (0.5) - - Remeasurement of federal tax rate change - (63.4) - Other 4.7 4.8 (65.4)Total 0.0% 0.0% 0.0% The components of the Company’s deferred tax assets consist of the following: December 31 2018 2017 (in thousands) Deferred tax assets: Net operating loss carryforwards $29,296 $23,820 Research and development credits 15,680 11,244 Deferred revenue 3,027 3,004 Accruals and other 2,342 1,103 Fixed asset basis 363 - Total deferred tax assets 50,708 39,171 Valuation allowance (50,708) (39,135)Net deferred tax assets - 36 Deferred tax liability - (36)Net deferred tax assets $- $- Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforwardperiod. Due to the Company’s history of operating losses and future sources of taxable income, the Company believes that the recognition of thedeferred tax assets is currently not more likely than not to be realized and, accordingly, have provided a full valuation allowance against netdeferred tax assets. For the year ended December 31, 2018, the net increase in the valuation allowance was $11.6 million, and for the year endedDecember 31, 2017, the net decrease in the valuation allowance was $4.0 million.As of December 31, 2018, the Company had federal net operating loss carryforwards of $114.0 million and federal general business creditsfrom research and development expenses totaling $10.9 million, as well as state net operating loss carryforwards of $73.4 million and stateresearch and development credits of $9.5 million.The federal net operating loss carryforwards will expire at various dates beginning in 2032, and the federal credits will expire at various datesbeginning in 2023, if not utilized. The state net operating loss carryforwards will expire at various dates beginning in 2030, if not utilized. The stateresearch and development tax credits can be carried forward indefinitely. 134  Under the Tax Reform Act, the amount of benefit from net operating loss carryforwards may be impaired or limited in certain circumstances.Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to,a cumulative ownership change of more than 50%, as defined, over a three-year testing period. Such limitations may result in limitations upon theCompany’s ability to utilize the losses in future periods. The Company has performed a Section 382 study for the period of June 16, 2003 throughDecember 31, 2018, and concluded that it is more likely than not that the Company experienced an ownership change on April 9, 2007. Thischange does not limit the Company’s ability to use its existing net operating losses within the carryforward period provided by the Internal RevenueCode, subject to availability of taxable income. However, if there is subsequent event or further change in ownership, these losses may be subjectto limitations, resulting in their expiration before they can be utilized.The Company files U.S. federal and state tax returns with varying statutes of limitations. Due to net operating loss and credit carryforwards,all of the tax years since inception through the 2018 tax year remain subject to examination by the U.S. federal and some state authorities. Theactual amount of any taxes due could vary significantly depending on the ultimate timing and nature of any settlement. The amount ofunrecognized tax benefits, if recognized, that would affect the effective tax rate is $2.8 million, $2.3 million and $1.6 million as of December 31,2018, 2017 and 2016, respectively. One or more of these unrecognized tax benefits could be subject to a valuation allowance if and whenrecognized in a future period, which could impact the timing of any related effective tax rate benefit. The Company believes that the amount bywhich the unrecognized tax benefits may increase or decrease within the next 12 months is not estimable.The Company has elected to recognize, if incurred, interest and penalties related to liabilities for uncertain tax positions as a part of incometax expense. No such interest and penalties have been incurred to date.The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by theCompany in its tax filings is more likely than not to be sustained upon examination by the relevant income tax authorities.A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: December 31 2018 2017 2016 (in thousands) Gross unrecognized tax benefit at January 1 $2,305 $1,635 $1,205 Additions for tax positions taken in the current year 741 670 430 Reductions for tax positions of prior years (251) - - Gross unrecognized tax benefit at December 31 $2,795 $2,305 $1,635 Impact of The Tax Cuts and Jobs ActOn December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act reduces the corporate tax ratefrom a top marginal rate of 35% to a flat rate of 21%. The Tax Act also contains a number of provisions, many of which differ significantly fromthose contained in previous U.S. tax law. The Company accounts for changes in tax law in accordance with ASC 740 which requires companies torecognize the effect of such changes in the period of enactment. However, on December 22, 2017, the Securities Exchange Committee staffissued Staff Accounting Bulletin No. 118 (“SAB 118”) which allowed companies to record provisional amounts during a measurement period thatwas similar to the measurement period used when accounting for business combinations. Accordingly, the Company adjusted its deferred taxesand related valuation allowances on a provisional basis to reflect the reduction in U.S. federal corporate tax rate from 35% to 21%, based oncurrent understanding of the new law. The primary impact of the Tax Act resulted from the re-measurement of deferred tax assets and liabilitiesdue to the change in the corporate tax rate, reducing the Company’s deferred tax assets by $12.3 million with a corresponding reduction in itsvaluation allowance, which had no effect on the Company’s effective tax rate. As of December 31, 2018, the Company has completed its analysisof the income tax effects of the Tax Act and there was no material impact to the Company’s financial statements when the analysis wascomplete. 135  13. Net (Loss) Income Per Share Attributable to Common StockholdersThe following table sets forth the computation of the Company’s basic and diluted net (loss) income per share attributable to commonstockholders. Year Ended December 31, 2018 2017 2016 (in thousands, except share and per shareamounts) Numerator: Net (loss) income $(35,317) $(19,688) $1,702 Noncumulative dividends on redeemable convertible preferred stock - - (1,702)Net loss attributable to common stockholders, basic and diluted $(35,317) $(19,688) $- Denominator: Shares used in computing net loss per share attributable to common stockholders, basic and diluted 5,758,875 447,946 407,735 Net loss per share, attributable to common stockholders, basic and diluted $(6.13) $(43.95) $- The following common stock equivalents were excluded from the computation of diluted net income (loss) per share for the year endedDecember 31, 2016 as net income attributable to common stock holders was nil, and for the years ended December 31, 2018 and 2017 becauseincluding them would have been antidilutive: Year Ended December 31, 2018 2017 2016 Redeemable convertible preferred stock - 5,063,404 5,063,404 Common stock options and award issued and outstanding 3,422,958 835,320 796,907 Warrants to purchase redeemable convertible preferred stock - 93,527 74,767 Warrants to purchase common stock 71,813 1,099 1,099 Early exercised shares of common stock - 2,374 17,140 Shares to be issued under ESPP 29,416 - - Total 3,524,187 5,995,724 5,953,317 14. Supplementary Data – Quarterly Financial Data (unaudited)The following table represents certain unaudited financial information for each of the quarters ended December 31, 2018 and 2017: Three Months Ended (in thousands, except per share data) December 31,2018 September 30,2018 June 30,2018 March 31,2018 Revenue $19,086 $7,836 $5,704 $5,793 Net loss $(1,493) $(10,237) $(11,541) $(12,046)Net loss per share attributable to common stockholders, basic and diluted $(0.07) $(21.26) $(24.17) $(25.76) Three Months Ended (in thousands, except per share data) December 31,2017 September 30,2017 June 30,2017 March 31,2017 Revenue $4,040 $17,499 $15,357 $14,845 Net loss $(15,344) $(1,418) $(1,812) $(1,114)Net loss per share attributable to common stockholders, basic and diluted $(33.51) $(3.14) $(4.07) $(2.55) 136  Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A.Controls and ProceduresConclusions Regarding the Effectiveness of Disclosure Controls and ProceduresAs of December 31, 2018, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed anevaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we fileor submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the ChiefFinancial Officer, to allow timely decisions regarding required disclosures.Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desiredcontrol objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, the design andoperation of our disclosure controls and procedures were effective at a reasonable assurance level.This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting oran attestation report of our independent registered public accounting firm due to a transition period established by the rules of the Securities andExchange Commission for newly public companies. Additionally, for as long as we remain an “emerging growth company” as defined inSection 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, we intend totake advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm providean attestation on the effectiveness of our internal control over financial reporting.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d)and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting.Item 9B.Other InformationNone. 137  PART IIIItem 10.Directors, Executive Officers and Corporate GovernanceThe information required by this Item will be set forth in our proxy statement with respect to our 2019 Annual Meeting of Stockholders, orProxy Statement to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein byreference.We have adopted a code of business conduct and ethics that applies to all employees, including our principal executive officer, principalfinancial officer, principal accounting officer or controller, or persons performing similar functions. The code of business conduct and ethics isavailable on our website at www. sutrobio.com. Amendments to, and waivers from, the code of business conduct and ethics that apply to anydirector, executive officer or persons performing similar functions will be disclosed at the website address provided above and, to the extentrequired by applicable regulations, on a Current Report on Form 8-K filed with the SEC.Item 11.Executive CompensationThe information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within120 days after our fiscal year end and is incorporated herein by reference.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within120 days after our fiscal year end and is incorporated herein by reference.Item 13.Certain Relationships and Related Transactions and Director IndependenceThe information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within120 days after our fiscal year end and is incorporated herein by reference.Item 14.Principal Accountant Fees and ServicesInformation required by this item will be set forth in the Proxy Statement to be filled with the Securities and Exchange Commission within 120days after our fiscal year end and is incorporated herein by reference. 138  PART IVItem 15.Exhibits and Financial Statement Schedules(1)Financial Statements:The financial statements required by Item 15(a) are filed as part of this Annual Report on Form 10-K under Item 8 “Financial Statements andSupplementary Data.”(2)Financial Statement SchedulesThe financial statement schedules required by Item 15(a) are omitted because they are not applicable, not required or the required informationis included in the financial statements or notes thereto as filed in Item 8 of this Annual Report on Form 10-K.(3)Exhibits. Incorporated by ReferenceExhibitNumber Exhibit Description Form Date Number FiledHerewith 3.1* Amended and Restated Certificate of Incorporation of SutroBiopharma, Inc. S-1/A 333-227103 9/17/2018 X 3.2* Amended and Restated Bylaws of Sutro Biopharma, Inc. S-1/A 333-227103 9/17/2018 X 4.1 Third Amended and Restated Investors’ Rights Agreement, datedMay 24, 2018, by and among the Registrant and certain of itsstockholders. S-1 333-227103 8/29/2018 4.2 Omnibus Amendment Agreement, dated July 26, 2018, by and amongthe Registrant and certain of its stockholders. S-1 333-227103 8/29/2018 4.3 Form of Warrant to Purchase Shares of Common Stock. S-1 333-227103 8/29/2018 4.4 Forms of Warrant to Purchase Series C Redeemable ConvertiblePreferred Stock. S-1 333-227103 8/29/2018 10.1 Form of Indemnity Agreement by and between the Registrant and itsdirectors and officers S-1/A 333-227103 9/17/2018 10.2‡ 2018 Equity Incentive Plan and form of award agreements thereunder S-1/A 333-227103 9/17/2018 10.3‡ 2018 Employee Stock Purchase Plan and form of award agreementsthereunder S-1/A 333-227103 9/17/2018 10.4‡ 2004 Stock Plan, as amended, and forms of award agreements. S-1 333-227103 8/29/2018 10.5‡ 2017 Call Option Plan and forms of award agreements. S-1 333-227103 8/29/2018 139  10.6† Exclusive Patent License and Research Collaboration Agreement,dated July 23, 2018, by and between the Registrant and Merck Sharp& Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ. S-1/A 333-227103 9/17/2018 10.7 Loan and Security Agreement, dated August 4, 2017, among OxfordFinance LLC, Silicon Valley Bank, and the Registrant. S-1 333-227103 8/29/2018 10.8* First Amendment to Loan and Security Agreement dated December 5,2018 among Oxford Finance LLC, Silicon Valley Bank and theRegistrant. X 10.9‡ Offer Letter, dated December 29, 2008, by and between theRegistrant and William J. Newell, as amended. S-1 333-227103 8/29/2018 10.10‡ Offer Letter, dated December 11, 2015, by and between theRegistrant and Arturo Molina, as amended. S-1 333-227103 8/29/2018 10.11‡ Offer Letter, dated November 12, 2010, by and between theRegistrant and Trevor Hallam, as amended. S-1 333-227103 8/29/2018 10.12 Edgewater Business Park Lease, dated May 18, 2016, by andbetween the Registrant and HCP, Inc. S-1 333-227103 8/29/2018 10.13 Standard Industrial/Commercial Multi-Tenant Lease-Net, dated May18, 2011, by and between the Registrant and Lydia Tseng and/orAlemany Plaza LLC, as amended. S-1 333-227103 8/29/2018 10.14† Amended and Restated Collaboration and License Agreement, datedAugust 2, 2017, by and among Celgene Corporation, Celgene AlpineInvestment Company II, LLC, and the Registrant, as amended. S-1/A 333-227103 9/17/2018 10.15† License Agreement, dated September 16, 2014, by and betweenMerck KGaA, Darmstadt, Germany (operating in the United Statesand Canada under the name “EMD Serono”) and the Registrant, asamended. S-1 333-227103 8/29/2018 10.16† Amended and Restated Exclusive Agreement, dated October 3, 2007,between The Board of Trustees of The Leland Stanford JuniorUniversity and Fundamental Applied Biology, Inc., as amended. S-1/A 333-227103 9/17/2018 21.1 Subsidiaries of the Registrant. S-1 333-227103 8/29/2018 23.1 Consent of independent registered public accounting firm. X 24.1 Power of Attorney. Reference is made to the signature page hereto. X 140  31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)and 15d-14(a) under the Securities Exchange Act of 1934, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 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. X 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. X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Extension Label Linkbase Document X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X *Filed herewith.**This certification is deemed not filed for purposes of section 18 of the Exchange Act or otherwise subject to the liability of that section, norshall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.‡Indicates management contract or compensatory plan.†Confidential treatment has been granted for portions of this exhibit pursuant to Rule 406 of the Securities Act, or Rule 24b-2 of the ExchangeAct. The Registrant has omitted and filed separately with the SEC the confidential portions of this exhibit. Item 16.Form 10-K Summary.Registrants may voluntarily include a summary of information required by Form 10-K under Item 16. We have elected not to include suchsummary. 141  SIGNATURESPursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this RegistrationStatement to be signed on its behalf by the undersigned, thereunto duly authorized. SUTRO BIOPHARMA, INC. Date: March 29, 2019By: /s/ William J. Newell Name: William J. Newell Title: Chief Executive Officer Date: March 29, 2019By: /s/ Edward C. Albini Name: Edward C. Albini Title: Chief Financial Officer 142  POWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints William J. Newell and Edward C. Albini and each ofthem, with full power of substitution and resubstitution, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place andstead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendmentsto this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securitiesand Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing,ratifying and confirming all that said attorney-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtuethereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. /s/ William J. Newell President, Chief Executive Officer and Director March 29, 2019William J. Newell (Principal Executive Officer) /s/ Edward C. Albini Chief Financial Officer March 29, 2019Edward C. Albini (Principal Financial and Accounting Officer) /s/ Michael Dybbs, Ph.D. Director March 29, 2019Michael Dybbs, Ph.D. /s/ John G. Freund, M.D. Director March 29, 2019John G. Freund, M.D. /s/ Daniel Janney Director March 29, 2019Daniel Janney /s/ V. Bryan Lawlis, Ph.D. Director March 29, 2019V. Bryan Lawlis, Ph.D. /s/ Joseph M. Lobacki Director March 29, 2019Joseph M. Lobacki /s/ Daniel H. Petree Director March 29, 2019Daniel H. Petree /s/ Michael Ross, Ph.D. Director March 29, 2019 Michael Ross, Ph.D. /s/ Shalini Sharp Director March 29, 2019Shalini Sharp 143  Exhibit 3.1SUTRO BIOPHARMA, INC.RESTATED CERTIFICATE OF INCORPORATIONSutro Biopharma, Inc., a Delaware corporation, hereby certifies as follows:1.The name of the corporation is Sutro Biopharma, Inc. The date of the filing of its original Certificate ofIncorporation with the Secretary of State was April 21, 2003 under the name Fundamental Applied Biology, Inc.2.The Restated Certificate of Incorporation of the corporation attached hereto as Exhibit “A”, which is incorporatedherein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of thiscorporation as previously amended and/or restated, has been duly adopted by this corporation’s Board of Directors and by thestockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, with the approval ofthe corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the GeneralCorporation Law of the State of Delaware.IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its dulyauthorized officer and the foregoing facts stated herein are true and correct.Dated: October 1, 2018SUTRO BIOPHARMA, INC. By:/s/ William Newell Name: William Newell Title: Chief Executive Officer 1 EXHIBIT “A” SUTRO BIOPHARMA, INC.RESTATED CERTIFICATE OF INCORPORATIONARTICLE I: NAMEThe name of the corporation is Sutro Biopharma, Inc. (the “Corporation”).ARTICLE II: AGENT FOR SERVICE OF PROCESSThe address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street,Wilmington, County of New Castle, Delaware 19801. The name of the registered agent of the Corporation at that address is TheCorporation Trust Company.ARTICLE III: PURPOSEThe purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under theGeneral Corporation Law of the State of Delaware (the “General Corporation Law”).ARTICLE IV: AUTHORIZED STOCK1.Total Authorized. The total number of shares of all classes of stock that the Corporation has authority to issue isThree Hundred Ten Million (310,000,000) shares, consisting of two classes: Three Hundred Million (300,000,000) shares ofCommon Stock, $0.001 par value per share (“Common Stock”), and Ten Million (10,000,000) shares of Preferred Stock, $0.001 parvalue per share (“Preferred Stock”).2.Designation of Additional Series.2.1.The Board of Directors of the Corporation (the “Board”) is authorized, subject to any limitationsprescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and,by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware (“Certificate of Designation”), toestablish from time to time the number of shares to be included in each such series, to fix the designation, vesting, powers (includingvoting powers), preferences and relative, participating, optional or other special rights, if any, of the shares of each such series and anyqualifications, limitations or restrictions thereof, and, except where otherwise provided in the applicable Certificate of Designation, tothereafter increase (but not above the total number of authorized shares of the Preferred Stock) or decrease (but not below the numberof shares of such series then outstanding) the number of shares of any such series. The number of authorized shares of Preferred Stockmay also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holdersof two-thirds of the voting power of all of the then-outstanding2 shares of capital stock of the Corporation entitled to vote thereon, without a separate vote of the holders of the Preferred Stock,irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, unless a separate vote of the holders of one ormore series is required pursuant to the terms of any Certificate of Designation; provided, however, that if two-thirds of the WholeBoard (as defined below) has approved such increase or decrease of the number of authorized shares of Preferred Stock, then only theaffirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of the capital stock of theCorporation entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of theholders of the Preferred Stock (unless a separate vote of the holders of one or more series is required pursuant to the terms of anyCertificate of Designation), shall be required to effect such increase or decrease. For purposes of this Restated Certificate ofIncorporation (as the same may be amended and/or restated from time to time, including pursuant the terms of any Certificate ofDesignation designating a series of Preferred Stock, this “Certificate of Incorporation”), the term “Whole Board” shall mean the totalnumber of authorized directors whether or not there exist any vacancies in previously authorized directorships.2.2Except as otherwise expressly provided in any Certificate of Designation designating any series ofPreferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed anddetermined as provided herein by the Board without approval of the holders of Common Stock or the holders of Preferred Stock, orany series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting powers,dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of theCommon Stock, any series of Preferred Stock or any future class or series of capital stock of the Corporation.2.3Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matterproperly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law,holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Certificateof Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of PreferredStock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more othersuch series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation relating to any seriesof Preferred Stock).ARTICLE V: AMENDMENT OF BYLAWSThe Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation (as the same may be amendedand/or restated from time to time, the “Bylaws”). Any adoption, amendment or repeal of the Bylaws by the Board shall require theapproval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws; provided,however, that notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwisepermit a lesser or no vote, but in addition to any vote of the holders of any class or series of stock of the Corporation required byapplicable law or by this Certificate of Incorporation (including any Preferred Stock issued pursuant to a Certificate of Designation),the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock ofthe Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for thestockholders to3 adopt, amend or repeal any provision of the Bylaws; provided further, that, in the case of any proposed adoption, amendment or repealof any provisions of the Bylaws that is approved by the Board and submitted to the stockholders for adoption thereby, if two-thirds ofthe Whole Board has approved such adoption, amendment or repeal of any provisions of the Bylaws, then only the affirmative vote ofthe holders of a majority of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to votegenerally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of theBylaws.ARTICLE VI: MATTERS RELATING TO THE BOARD OF DIRECTORS1.Director Powers. Except as otherwise provided by the General Corporation Law or this Certificate ofIncorporation, the conduct of the affairs of the Corporation shall be managed by or under the direction of the Board. In addition to thepowers and authority expressly conferred upon them by applicable law or by this Certificate of Incorporation or the Bylaws of theCorporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised ordone by the Corporation. 2.Number of Directors. Subject to the special rights of the holders of any series of Preferred Stock to electadditional directors under specified circumstances, the total number of directors constituting the Whole Board shall be fixed from timeto time exclusively by resolution adopted by a majority of the Whole Board.3.Classified Board. Subject to the special rights of the holders of one or more series of Preferred Stock to electadditional directors under specified circumstances, the directors shall be divided, with respect to the time for which they severally holdoffice, into three classes designated as Class I, Class II and Class III, respectively (the “Classified Board”). The Board may assignmembers of the Board already in office to the Classified Board, which assignments shall become effective at the same time theClassified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted bythe Board. The number of directors in each class shall be divided as nearly equal as reasonably possible. The initial term of office ofthe Class I directors shall expire at the Corporation’s first annual meeting of stockholders following the closing of the Corporation’sinitial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, relating to the offerand sale of Common Stock to the public (the “Initial Public Offering”), the initial term of office of the Class II directors shall expire atthe Corporation’s second annual meeting of stockholders following the closing of the Initial Public Offering and the initial term ofoffice of the Class III directors shall expire at the Corporation’s third annual meeting of stockholders following the closing of the InitialPublic Offering. At each annual meeting of stockholders following the closing of the Initial Public Offering, directors elected tosucceed those directors of the class whose terms then expire shall be elected for a term of office expiring at the third succeeding annualmeeting of stockholders after their election.4.Term and Removal. Each director shall hold office until the annual meeting at which such director’s term expiresand until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation, disqualification orremoval. Any director may resign at any time upon notice to the Corporation given in writing or by any electronic transmissionpermitted in the Bylaws. Subject to the special rights of the holders of any series of Preferred4 Stock, no director may be removed from the Board except for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together asa single class. No decrease in the authorized number of directors constituting the Whole Board shall shorten the term of any incumbentdirector.5.Board Vacancies and Newly Created Directorships. Subject to the special rights of the holders of any series ofPreferred Stock, any vacancy occurring in the Board for any cause, and any newly created directorship resulting from any increase inthe authorized number of directors, shall, unless (a) the Board determines by resolution that any such vacancies or newly createddirectorships shall be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative vote of a majorityof the directors then in office, even if less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders.Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting ofstockholders at which the term of office of the class to which the director has been assigned expires and until such director’s successorshall have been duly elected and qualified, or until such director’s earlier death, resignation, disqualification or removal. 6.Vote by Ballot. Election of directors need not be by written ballot unless the Bylaws shall so provide.ARTICLE VII: DIRECTOR LIABILITY1.Limitation of Liability. To the fullest extent permitted by law, no director of the Corporation shall be personallyliable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if theGeneral Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then theliability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, asso amended.2.Change in Rights. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of thisCertificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on thepersonal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistentprovision.ARTICLE VIII: MATTERS RELATING TO STOCKHOLDERS1.No Action by Written Consent of Stockholders. Subject to the rights of any series of Preferred Stock thenoutstanding, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting ofstockholders and no action shall be taken by the stockholders of the Corporation by written consent in lieu of a meeting.2.Special Meeting of Stockholders. Special meetings of the stockholders of the Corporation may be called only bythe Chairperson of the Board, the Chief Executive Officer, the Lead Independent Director (as defined in the Bylaws), the President, orthe Board acting pursuant to a resolution adopted by a majority of the Whole Board and may not be called by any other person orpersons.5 3.Advance Notice of Stockholder Nominations and Business Transacted at Special Meetings. Advance noticeof stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before anymeeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws. Business transacted at specialmeetings of stockholders shall be limited to the purpose or purposes stated in the notice of meeting.ARTICLE IX: CHOICE OF FORUMUnless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State ofDelaware, to the fullest extent permitted by law, shall be the sole and exclusive forum for: (a) any derivative action or proceedingbrought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by,any director, officer, stockholder, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders; (c) anyaction asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation arisingpursuant to any provision of the General Corporation Law, this Certificate of Incorporation or the Bylaws or as to which the GeneralCorporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; (d) any action to interpret, apply, enforce ordetermine the validity of this Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim against the Corporation orany director, officer, stockholder, employee or agent of the Corporation governed by the internal affairs doctrine. The provision wouldnot apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934.Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporationshall be deemed to have notice of and to have consented to the provisions of this Article IX.ARTICLE X: AMENDMENT OF CERTIFICATE OF INCORPORATIONIf any provision of this Certificate of Incorporation becomes or is declared on any ground by a court of competentjurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary,shall be severed from this Certificate of Incorporation, and the court will replace such illegal, void or unenforceable provision of thisCertificate of Incorporation with a valid and enforceable provision that most accurately reflects the Corporation’s intent, in order toachieve, to the maximum extent possible, the same economic, business and other purposes of the illegal, void or unenforceableprovision. The balance of this Certificate of Incorporation shall be enforceable in accordance with its terms.The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in themanner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to thisreservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of lawthat might otherwise permit a lesser vote or no vote (but subject to Section 2 of Article IV hereof), but in addition to any vote of theholders of any class or series of the stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative voteof the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporationentitled to vote generally in the election of directors, voting together as a single class,6 shall be required to amend or repeal this Article X or Article V, Article VI, Article VII or Article VIII; provided, further, that if two-thirds of the Whole Board has approved such amendment or repeal of any provisions of this Certificate of Incorporation, then only theaffirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of theCorporation entitled to vote generally in the election of directors, voting together as a single class (in addition to any other vote of theholders of any class or series of stock of the Corporation required by law of by this Certificate of Incorporation), shall be required toamend or repeal such provisions of this Certificate of Incorporation.* * * * * * * * * * * 7 Exhibit 3.2 SUTRO BIOPHARMA, INC.(a Delaware corporation) RESTATED BYLAWS As Adopted September 26, 2018 andAs Effective October 1, 2018  SUTRO BIOPHARMA, INC.(a Delaware corporation)RESTATED BYLAWSTABLE OF CONTENTSArticle I: STOCKHOLDERS1Section 1.1:Annual Meetings1Section 1.2:Special Meetings1Section 1.3:Notice of Meetings1Section 1.4:Adjournments2Section 1.5:Quorum2Section 1.6:Organization3Section 1.7:Voting; Proxies3Section 1.8:Fixing Date for Determination of Stockholders of Record3Section 1.9:List of Stockholders Entitled to Vote4Section 1.10:Inspectors of Elections4Section 1.11:Conduct of Meetings5Section 1.12:Notice of Stockholder Business; Nominations.6Article II: BOARD OF DIRECTORS13Section 2.1:Number; Qualifications13Section 2.2:Election; Resignation; Removal; Vacancies13Section 2.3:Regular Meetings13Section 2.4:Special Meetings14Section 2.5:Remote Meetings Permitted14Section 2.6:Quorum; Vote Required for Action14Section 2.7:Organization14Section 2.8:Unanimous Action by Directors in Lieu of a Meeting14Section 2.9:Powers15Section 2.10:Compensation of Directors15Section 2.11:Confidentiality15Article III: COMMITTEES15Section 3.1:Committees15Section 3.2:Committee Rules15Article IV: OFFICERS; CHAIRPERSON; LEAD INDEPENDENT DIRECTOR16Section 4.1:Generally16Section 4.2:Chief Executive Officer16Section 4.3:Chairperson of the Board17Section 4.4:Lead Independent Director17Section 4.5:President17Section 4.6:Chief Financial Officer17Section 4.7:Treasurer18Section 4.8:Vice President18Section 4.9:Secretary18i Section 4.10:Delegation of Authority18Section 4.11:Removal18Article V: STOCK18Section 5.1:Certificates; Uncertificated Shares18Section 5.2:Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares19Section 5.3:Other Regulations19Article VI: INDEMNIFICATION19Section 6.1:Indemnification of Officers and Directors19Section 6.2:Advancement of Expenses20Section 6.3:Non-Exclusivity of Rights20Section 6.4:Indemnification Contracts20Section 6.5:Right of Indemnitee to Bring Suit21Section 6.6:Nature of Rights21Section 6.7:Insurance21Article VII: NOTICES22Section 7.1:Notice22Section 7.2:Waiver of Notice23Article VIII: INTERESTED DIRECTORS23Section 8.1:Interested Directors23Section 8.2:Quorum23Article IX: MISCELLANEOUS23Section 9.1:Fiscal Year23Section 9.2:Seal23Section 9.3:Form of Records24Section 9.4:Reliance upon Books, Records and Experts24Section 9.5:Certificate of Incorporation Governs24Section 9.6:Severability24Section 9.7:Time Periods24Article X: AMENDMENT24Article XI: EXCLUSIVE FORUM25 ii SUTRO BIOPHARMA, INC.(a Delaware corporation)RESTATED BYLAWSAs Adopted September 26, 2018 andAs Effective October 1, 2018ARTICLE I: STOCKHOLDERSSection 1.1:Annual MeetingsIf required by applicable law, an annual meeting of stockholders shall be held for the election of directors at such date andtime as the Board of Directors (the “Board”) of Sutro Biopharma, Inc. (the “Corporation”) shall each year fix. The meeting may beheld either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the “DGCL”),or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at theannual meeting.Section 1.2:Special MeetingsSpecial meetings of stockholders for any purpose or purposes shall be called in the manner set forth in the RestatedCertificate of Incorporation of the Corporation (as the same may be amended and/or restated from time to time, the “Certificate ofIncorporation”). The special meeting may be held either at a place, within or without the State of Delaware, or by means of remotecommunication as the Board in its sole discretion may determine. Business transacted at any special meeting of stockholders shall belimited to matters relating to the purpose or purposes stated in the notice of the meeting.Section 1.3:Notice of MeetingsNotice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided byapplicable law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, ofthe meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present inperson and vote at such meeting, and the record date for determining the stockholders entitled to vote at the meeting (if such date isdifferent from the record date for stockholders entitled to notice of the meeting). In the case of a special meeting, such notice shall alsoset forth the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate ofIncorporation, notice of any meeting of stockholders shall be given not less than ten (10), nor more than sixty (60), days before the dateof the meeting to each stockholder of record entitled to vote at such meeting as of the record date for determining the stockholdersentitled to notice of the meeting. - 1 - Section 1.4:AdjournmentsThe chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Anymeeting of stockholders, annual or special, may be adjourned from time to time, and notice need not be given of any such adjournedmeeting if the time, date and place (if any) thereof and the means of remote communication (if any) by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which theadjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, a notice of the adjourned meetingshall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date fordetermination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determiningstockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholdersentitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the recorddate so fixed for notice of such adjourned meeting. At the adjourned meeting, the Corporation may transact any business that mighthave been transacted at the original meeting. To the fullest extent permitted by law, the Corporation may postpone, reschedule orcancel any previously scheduled special or annual meeting of stockholders before it is to be held, regardless of whether any notice orpublic disclosure with respect to any such meeting has been sent or made pursuant to Section 1.3 hereof or otherwise, in which casenotice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.Section 1.5:QuorumExcept as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, at each meeting ofstockholders the holders of a majority of the voting power of the shares of stock issued and outstanding and entitled to vote at themeeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business; provided, however, thatwhere a separate vote by a class or classes or series of stock is required by applicable law or the Certificate of Incorporation, theholders of a majority of the voting power of the shares of such class or classes or series of the stock issued and outstanding and entitledto vote on such matter, present in person or represented by proxy at the meeting, shall constitute a quorum entitled to take action withrespect to the vote on such matter. If a quorum shall fail to attend any meeting, the chairperson of the meeting or, if directed to bevoted on by the chairperson of the meeting, the holders of a majority of the voting power of the shares entitled to vote who are presentin person or represented by proxy at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to theCorporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporationare held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided,however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’sstock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum. A quorum, once established at ameeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. - 2 - Section 1.6:OrganizationMeetings of stockholders shall be presided over by (a) such person as the Board may designate, or (b) in the absence of sucha person, the Chairperson of the Board, or (c) in the absence of such person, the Lead Independent Director, or, (d) in the absence ofsuch person, the Chief Executive Officer of the Corporation, or (e) in the absence of such person, the President of the Corporation, or(f) in the absence of such person, by a Vice President. Such person shall be chairperson of the meeting and, subject to Section 1.10hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting andthe conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting,but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.Section 1.7:Voting; ProxiesEach stockholder of record entitled to vote at a meeting of stockholders may authorize another person or persons to act forsuch stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicablelaw. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast by theholders of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. At anymeeting of stockholders at which a quorum is present, unless a different or minimum vote is required by applicable law, rule orregulation applicable to the Corporation or its securities, the rules or regulations of any stock exchange applicable to the Corporation,the Certificate of Incorporation or these Bylaws, in which case such different or minimum vote shall be the applicable vote on thematter, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of thevoting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting andare voted for or against the matter (or if there are two or more classes or series of stock entitled to vote as separate classes, then in thecase of each class or series, the holders of a majority of the voting power of the shares of stock of that class or series present in personor represented by proxy at the meeting voting for or against such matter).Section 1.8:Fixing Date for Determination of Stockholders of RecordIn order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or anyadjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing therecord date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor lessthan ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determiningthe stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on orbefore the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record datefor determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day nextpreceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on whichthe meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply toany adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholdersentitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of suchadjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith atthe adjourned meeting.- 3 - In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or otherdistribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or forthe purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not precede the date upon which theresolution fixing the record date is adopted by the Board and which shall not be more than sixty (60) days prior to such action. If nosuch record date is fixed by the Board, then the record date for determining stockholders for any such purpose shall be at the close ofbusiness on the day on which the Board adopts the resolution relating thereto.Section 1.9:List of Stockholders Entitled to VoteThe Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of stockholdersentitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten(10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before themeeting date), arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in thename of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for aperiod of at least ten (10) days prior to the meeting, either (a) on a reasonably accessible electronic network as permitted by applicablelaw (provided that the information required to gain access to the list is provided with the notice of the meeting), or (b) during ordinarybusiness hours, at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attendin person, a list of stockholders entitled to vote at the meeting shall also be produced and kept at the time and place of the meetingduring the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely bymeans of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meetingon a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of themeeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled toexamine the list of stockholders required by this Section 1.9 or to vote in person or by proxy at any meeting of stockholders.Section 1.10:Inspectors of Elections1.10.1Applicability. Unless otherwise required by the Certificate of Incorporation or by applicable law, thefollowing provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on anational securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securitiesassociation; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions ofthis Section 1.10 shall be optional, and at the discretion of the Board.1.10.2Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or moreinspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons asalternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, theperson presiding at the meeting shall appoint one or more inspectors to act at the meeting.- 4 - 1.10.3Inspector’s Oath. Each inspector of election, before entering upon the discharge of his or her duties, shall takeand sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.1.10.4Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall (a) ascertain the number ofshares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies andballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of anychallenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at themeeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectorsin the performance of the duties of the inspectors.1.10.5Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matterupon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot,proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unlessthe Court of Chancery upon application by a stockholder shall determine otherwise.1.10.6Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limitedto an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxiespursuant to Section 211(a)(2)b.(i) of the DGCL, or in accordance with Sections 211(e) or 212(c)(2) of the DGCL, ballots and theregular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purposeof reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent morevotes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If theinspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make theircertification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including theperson or persons from whom they obtained the information, when the information was obtained, the means by which the informationwas obtained and the basis for the inspectors’ belief that such information is accurate and reliable.Section 1.11:Conduct of MeetingsThe date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at ameeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rulesand regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with suchrules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authorityto convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and todo all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules,regulations or procedures, whether adopted by the Board or prescribed by the presiding person of the meeting, may include, withoutlimitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures formaintaining order at the meeting and the safety of those present; (iii) limitations on attendance at- 5 - or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such otherpersons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for thecommencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at anymeeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, ifthe facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and ifsuch presiding person should so determine, such presiding person shall so declare at the meeting and any such matter or business notproperly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or theperson presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules ofparliamentary procedure.Section 1.12:Notice of Stockholder Business; Nominations.1.12.1Annual Meeting of Stockholders.(a)Nominations of persons for election to the Board and the proposal of other business to be considered by thestockholders may be made at an annual meeting of stockholders only: (i) pursuant to the Corporation’s notice of such meeting (or anysupplement thereto), (ii) by or at the direction of the Board or any committee thereof or (iii) by any stockholder of the Corporation whowas a stockholder of record at the time of giving of the notice provided for in this Section 1.12 (the “Record Stockholder”), who isentitled to vote at such meeting and who complies with the notice and other procedures set forth in this Section 1.12 in all applicablerespects. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations orpropose business (other than business included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the SecuritiesExchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “Exchange Act”)), at anannual meeting of stockholders, and such stockholder must fully comply with the notice and other procedures set forth in this Section1.12 to make such nominations or propose business before an annual meeting.(b)For nominations or other business to be properly brought before an annual meeting by a Record Stockholderpursuant to Section 1.12.1(a) of these Bylaws:(i)the Record Stockholder must have given timely notice thereof in writing to the Secretary of theCorporation and provide any updates or supplements to such notice at the times and in the forms required by this Section 1.12;(ii)such other business (other than the nomination of persons for election to the Board) must otherwise be aproper matter for stockholder action;(iii)if the Proposing Person (as defined below) has provided the Corporation with a Solicitation Notice (asdefined below), such Proposing Person must, in the case of a proposal other than the nomination of persons for election to the Board,have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares requiredunder applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement andform of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such Proposing Person to besufficient to elect the nominee or nominees proposed to be nominated by such Record Stockholder, and must, in either case, haveincluded in such materials the Solicitation Notice; and- 6 - (iv)if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 1.12, theProposing Person proposing such business or nomination must not have solicited a number of proxies sufficient to have required thedelivery of such a Solicitation Notice under this Section 1.12.To be timely, a Record Stockholder’s notice must be delivered to the Secretary at the principal executive offices of theCorporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred andtwentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting (except in the case of the Corporation’s firstannual meeting following its initial public offering, for which such notice shall be timely if delivered in the same time period as if suchmeeting were a special meeting governed by Section 1.12.2 of these Bylaws); provided, however, that in the event that the date of theannual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the RecordStockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and twentieth fifth (120th)day prior to such annual meeting and (B) no later than the close of business on the later of the ninetieth (90th) day prior to such annualmeeting or the close of business on the tenth (10th) day following the day on which Public Announcement (as defined below) of thedate of such meeting is first made by the Corporation. In no event shall an adjournment or postponement of an annual meetingcommence a new time period (or extend any time period) for providing the Record Stockholder’s notice. Such Record Stockholder’snotice shall set forth:(x)as to each person whom the Record Stockholder proposes to nominate for election or reelection as a director:(i)the name, age, business address and residence address of such person;(ii)the principal occupation or employment of such nominee;(iii)the class, series and number of any shares of stock of the Corporation that are beneficially owned orowned of record by such person or any Associated Person (as defined below);(iv)the date or dates such shares were acquired and the investment intent of such acquisition;(v)all other information relating to such person that would be required to be disclosed in solicitations ofproxies for election of directors in an election contest (even if an election contest is not involved), or would be otherwiserequired, in each case pursuant to and in accordance with Section 14(a) (or any successor provision) under the ExchangeAct and the rules and regulations thereunder;(vi)such person’s written consent to being named in the Corporation’s proxy statement as a nominee, to thepublic disclosure of information regarding or related to such person provided to the Corporation by such person or otherwisepursuant to this Section 1.12 and to serving as a director if elected; and(vii)whether such person meets the independence requirements of the stock exchange upon which theCorporation’s Common Stock is primarily traded.- 7 - (y)as to any other business that the Record Stockholder proposes to bring before the meeting, a brief description ofthe business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutionsproposed for consideration and in the event that such business includes a proposal to amend the Bylaws, the text of the proposedamendment), the reasons for conducting such business at the meeting and any material interest in such business of such ProposingPerson, including any anticipated benefit to any Proposing Person therefrom; and(z)as to each Proposing Person giving the notice:(i)the current name and address of such Proposing Person, including, if applicable, their name and addressas they appear on the Corporation’s stock ledger, if different;(ii)the class or series and number of shares of stock of the Corporation that are directly or indirectly ownedof record or beneficially owned by such Proposing Person, including any shares of any class or series of the Corporation asto which such Proposing Person has a right to acquire beneficial ownership at any time in the future;(iii)whether and the extent to which any derivative interest in the Corporation’s equity securities (includingwithout limitation any option, warrant, convertible security, stock appreciation right, or similar right with an exercise orconversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of theCorporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation,whether or not such instrument or right shall be subject to settlement in the underlying class or series of shares of theCorporation or otherwise, and any cash-settled equity swap, total return swap, synthetic equity position or similar derivativearrangement, as well as any rights to dividends on the shares of any class or series of shares of the Corporation that areseparated or separable from the underlying shares of the Corporation) or any short interest in any security of the Corporation(for purposes of this Bylaw a person shall be deemed to have a short interest in a security if such person directly orindirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or sharein any profit derived from any increase or decrease in the value of the subject security, including through performance-related fees) is held directly or indirectly by or for the benefit of such Proposing Person, including without limitation whetherand the extent to which any ongoing hedging or other transaction or series of transactions has been entered into by or onbehalf of, or any other agreement, arrangement or understanding (including without limitation any short position or anyborrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit ofshare price changes for, or to increase or decrease the voting power of, such Proposing Person with respect to any share ofstock of the Corporation;(iv)any other material relationship between such Proposing Person, on the one hand, and the Corporation,any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand;- 8 - (v)any direct or indirect material interest in any material contract or agreement with the Corporation, anyaffiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employmentagreement, collective bargaining agreement or consulting agreement);(vi)any other information relating to such Proposing Person that would be required to be disclosed in aproxy statement or other filing required to be made in connection with solicitations of proxies or consents by such ProposingPerson in support of the business proposed to be brought before the meeting pursuant to Section 14(a) (or any successorprovision) under the Exchange Act and the rules and regulations thereunder (the disclosures to be made pursuant to theforegoing clauses (iv) through (vi) are referred to as “Disclosable Interests”). For purposes hereof “Disclosable Interests”shall not include any information with respect to the ordinary course business activities of any broker, dealer, commercialbank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed toprepare and submit the notice required by these Bylaws on behalf of a beneficial owner;(vii)such Proposing Person’s written consent to the public disclosure of information provided to theCorporation pursuant to this Section 1.12;(viii)a complete written description of any agreement, arrangement or understanding (whether oral or inwriting) (including any knowledge that another person or entity is Acting in Concert (as defined below with such ProposingPerson) between or among such Proposing Person, any of its respective affiliates or associates and any other person Actingin Concert with any of the foregoing persons;(ix)as to each person whom such Proposing Person proposes to nominate for election or re-election as adirector, any agreement, arrangement or understanding of such person with any other person or entity other than theCorporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection withservice or action as a director known to such Proposing Person after reasonable inquiry;(x)a representation that the Record Stockholder is a holder of record of stock of the Corporation entitled tovote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;(xi)a representation whether such Proposing Person intends (or is part of a group that intends) to deliver aproxy statement or form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s votingshares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient numberof holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intentbeing a “Solicitation Notice”); and(xii)any proxy, contract, arrangement, or relationship pursuant to which the Proposing Person has a right tovote, directly or indirectly, any shares of any security of the Corporation.- 9 - A stockholder providing written notice required by this Section 1.12 will update and supplement such notice in writing, ifnecessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of(i) the record date for determining the stockholders entitled to notice of the meeting and (ii) the close of business on the fifth (5th)business day prior to the meeting and, in the event of any adjournment or postponement thereof, the close of business on the fifth (5th)business day prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of theforegoing sentence, such update and supplement will be received by the Secretary of the Corporation at the principal executive officeof the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to notice of themeeting, and in the case of an update and supplement pursuant to clause (ii) of the foregoing sentence, such update and supplementwill be received by the Secretary of the Corporation at the principal executive office of the Corporation not later than two (2) businessdays prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior tosuch adjourned or postponed meeting.(c)Notwithstanding anything in the second sentence of Section 1.12.1(b) of these Bylaws to the contrary, in the eventthat the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming allof the nominees for director or specifying the size of the increased Board at least one hundred (100) days prior to the first anniversaryof the preceding year’s annual meeting, or, if the annual meeting is held more than thirty (30) days before or seventy (70 days aftersuch anniversary date, if there is no such Public Announcement by the Corporation at least seventy five (75) days prior to such annualmeeting (in each case except for the Corporation’s first annual meeting following its initial public offering, for which this Section1.12.1(c) shall apply if and only if there is no such Public Announcement prior to the date that is ten (10) days prior to the date onwhich a stockholder’s written notice for such annual meeting would otherwise be required to be delivered to the Secretary of theCorporation), a stockholder’s notice required by this Section 1.12 shall also be considered timely, but only with respect to nominees forany new directorships created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executiveoffice of the Corporation no later than the close of business on the tenth (10th) day following the day on which such PublicAnnouncement is first made by the Corporation.(d)Notwithstanding anything in Section 1.12 or any other provision of the Bylaws to the contrary, any person whohas been determined by a majority of the Whole Board to have violated Section 2.12 of these Bylaws or a Board Confidentiality Policy(as defined below) while serving as a director of the Corporation in the preceding five (5) years shall be ineligible to be nominated orbe qualified to serve as a member of the Board, absent a prior waiver for such nomination or qualification approved by two-thirds ofthe Whole Board.1.12.2Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholdersas shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting. Nominations of persons forelection to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to theCorporation’s notice of such meeting (a) by or at the direction of the Board or any committee thereof or (b) provided that the Board hasdetermined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at thetime of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies- 10 - with the notice and other procedures set forth in this Section 1.12 in all applicable respects. In the event the Corporation calls a specialmeeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person orpersons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’snotice required by Section 1.12.1(b) of these Bylaws shall be delivered to the Secretary of the Corporation at the principal executiveoffices of the Corporation (i) no earlier than the one hundred and twentieth (120th) day prior to such special meeting and (ii) no laterthan the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the dayon which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board to beelected at such meeting. In no event shall an adjournment or postponement of a special meeting commence a new time period (orextend any time period) for providing such notice.1.12.3General.(a)Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act,only such persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to be elected at ameeting of stockholders and serve as directors and only such business shall be conducted at a meeting of stockholders as shall havebeen brought before the meeting in accordance with the procedures set forth in this Section 1.12. Except as otherwise provided by lawor these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any otherbusiness proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures setforth in this Section 1.12 and, if any proposed nomination or business is not in compliance herewith, to declare that such defectiveproposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 1.12, unless otherwise requiredby law, if the stockholder (or a Qualified Representative of the stockholder (as defined below)) does not appear at the annual or specialmeeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded andsuch proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by theCorporation. (b)Notwithstanding the foregoing provisions of this Section 1.12, a stockholder shall also comply with all applicablerequirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in thisSection 1.12 shall be deemed to affect any rights of (a) stockholders to request inclusion of proposals in the Corporation’s proxystatement pursuant to Rule 14a-8 under the Exchange Act or (b) the holders of any series of Preferred Stock to elect directors pursuantto any applicable provisions of the Certificate of Incorporation.- 11 - (c)For purposes of this Section 1.12 the following definitions shall apply:(A)a person shall be deemed to be “Acting in Concert” with another person if such personknowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with,or toward a common goal relating to the management, governance or control of the Corporation in substantialparallel with, such other person where (1) each person is conscious of the other person’s conduct or intent and thisawareness is an element in their decision-making processes and (2) at least one additional factor suggests that suchpersons intend to act in concert or in substantial parallel, which such additional factors may include, withoutlimitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions ormaking or soliciting invitations to act in concert or in substantial parallel; provided that a person shall not bedeemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocableproxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with,Section 14(a) (or any successor provision) of the Exchange Act by way of a proxy or consent solicitationstatement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting inConcert with any third party who is also Acting in Concert with such other person;(B)“Associated Person” shall mean with respect to any subject stockholder or other person(including any proposed nominee) (1) any person directly or indirectly controlling, controlled by or undercommon control with such stockholder or other person, (2) any beneficial owner of shares of stock of theCorporation owned of record or beneficially by such stockholder or other person, (3) any associate (as defined inRule 405 under the Securities Act of 1933, as amended), of such stockholder or other person, and (4) any persondirectly or indirectly controlling, controlled by or under common control or Acting in Concert with any suchAssociated Person;(C)“Proposing Person” shall mean (1) the stockholder providing the notice of businessproposed to be brought before an annual meeting or nomination of persons for election to the Board at astockholder meeting, (2) the beneficial owner or beneficial owners, if different, on whose behalf the notice ofbusiness proposed to be brought before the annual meeting or nomination of persons for election to the Board at astockholder meeting is made, and (3) any Associated Person on whose behalf the notice of business proposed tobe brought before the annual meeting or nomination of persons for election to the Board at a stockholder meetingis made;(D)“Public Announcement” shall mean disclosure in a press release reported by a nationalnews service or in a document publicly filed by the Corporation with the Securities and Exchange Commissionpursuant to Section 13, 14 or 15(d) of the Exchange Act; and- 12 - (E)to be considered a “Qualified Representative” of a stockholder, a person must be a dulyauthorized officer, manager, trustee or partner of such stockholder or must be authorized by a writing executed bysuch stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as a proxyat the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliablereproduction thereof, at the meeting. The Secretary of the Corporation, or any other person who shall be appointedto serve as secretary of the meeting, may require, on behalf of the Corporation, reasonable and appropriatedocumentation to verify the status of a person purporting to be a “Qualified Representative” for purposes hereof.ARTICLE II: BOARD OF DIRECTORSSection 2.1:Number; QualificationsThe total number of authorized directors constituting the Board (the “Whole Board”) shall be fixed from time to time in themanner set forth in the Certificate of Incorporation. No decrease in the authorized number of directors constituting the Whole Boardshall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.Section 2.2:Election; Resignation; Removal; VacanciesElection of directors need not be by written ballot. Unless otherwise provided by the Certificate of Incorporation and subjectto the special rights of the holders of one or more series of Preferred Stock to elect additional directors under specified circumstances,the directors shall be divided, with respect to the time for which they severally hold office, into three classes, designated as Class I,Class II and Class III, respectively. The number of directors in each class shall be divided as nearly equal as reasonably possible. Each director shall hold office until the annual meeting at which such director’s term expires and until such director’s successor iselected and qualified or until such director’s earlier death, resignation, disqualification or removal. Any director may resign bydelivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairperson of theBoard, the Chief Executive Officer, or the Secretary. Such resignation shall be effective upon delivery unless it is specified to beeffective at a later time or upon the happening of an event. Subject to the special rights of holders of any series of Preferred Stock toelect directors, directors may be removed only as provided by the Certificate of Incorporation and applicable law. All vacanciesoccurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall befilled in the manner set forth in the Certificate of Incorporation.Section 2.3:Regular MeetingsRegular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as theBoard may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed byresolution of the Board.- 13 - Section 2.4:Special MeetingsSpecial meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, the LeadIndependent Director or a majority of the members of the Board then in office and may be held at any time, date or place, within orwithout the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of suchmeeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling themeeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before themeeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means ofelectronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.Section 2.5:Remote Meetings PermittedMembers of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee bymeans of conference telephone or other communications equipment by means of which all persons participating in the meeting canhear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitutepresence in person at such meeting.Section 2.6:Quorum; Vote Required for ActionAt all meetings of the Board, a majority of the Whole Board shall constitute a quorum for the transaction of business. If aquorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time. Except asotherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at ameeting at which a quorum is present shall be the act of the Board.Section 2.7:OrganizationMeetings of the Board shall be presided over by (a) the Chairperson of the Board, or (b) in the absence of such person, theLead Independent Director, or (c) in such person’s absence, by the Chief Executive Officer, or (d) in such person’s absence, by achairperson chosen by the Board at the meeting. The Secretary shall act as secretary of the meeting, but in such person’s absence thechairperson of the meeting may appoint any person to act as secretary of the meeting.Section 2.8:Unanimous Action by Directors in Lieu of a MeetingAny action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken withouta meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission,and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board orcommittee, respectively, in the minute books of the Corporation. Such filing shall be in paper form if the minutes are maintained inpaper form and shall be in electronic form if the minutes are maintained in electronic form.- 14 - Section 2.9:PowersExcept as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporationshall be managed by or under the direction of the Board.Section 2.10:Compensation of DirectorsMembers of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for theirservices as directors, including without limitation their services as members of committees of the Board.Section 2.11:ConfidentialityEach director shall maintain the confidentiality of, and shall not share with any third party person or entity (including thirdparties that originally sponsored, nominated or designated such director (the “Sponsoring Party”)), any non‑public information learnedin their capacities as directors, including communications among Board members in their capacities as directors. The Board may adopta board confidentiality policy further implementing and interpreting this bylaw (a “Board Confidentiality Policy”). All directors arerequired to comply with this bylaw and any such Board Confidentiality Policy unless such director or the Sponsoring Party for suchdirector has entered into a specific written agreement with the Corporation, in either case as approved by the Board, providingotherwise with respect to such confidential information.ARTICLE III: COMMITTEESSection 3.1:CommitteesThe Board may designate one or more committees, each committee to consist of one or more of the directors of theCorporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent ordisqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member ormembers thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member ormembers constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absentor disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all thepowers and authority of the Board in the management of the business and affairs of the Corporation and may authorize the seal of theCorporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to thefollowing matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election orremoval of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting,amending or repealing any bylaw of the Corporation.Section 3.2:Committee RulesEach committee shall keep records of its proceedings and make such reports as the Board may from time to timerequest. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for theconduct of its business. In the absence of such rules, each committee shall conduct its business in the same manner as the Boardconducts- 15 - its business pursuant to Article II of these Bylaws. Except as otherwise provided in the Certificate of Incorporation, these Bylaws orthe resolution of the Board designating the committee, any committee may create one or more subcommittees, each subcommittee toconsist of one or more members of the committee, and may delegate to any such subcommittee any or all of the powers and authorityof the committee. ARTICLE IV: OFFICERS; CHAIRPERSON; LEAD INDEPENDENT DIRECTORSection 4.1:GenerallyThe officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or thePresident), a President, a Secretary and a Treasurer and may consist of such other officers, including, without limitation, a ChiefFinancial Officer, and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be electedby the Board; provided, however, that the Board may empower the Chief Executive Officer of the Corporation to appoint any officerother than the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Except as otherwise provided bylaw, by the Certificate of Incorporation or these Bylaws, each officer shall hold office until such officer’s successor is duly elected andqualified or until such officer’s earlier resignation, death, disqualification or removal. Any number of offices may be held by the sameperson. Any officer may resign by delivering a resignation in writing or by electronic transmission to the Corporation at its principaloffice or to the Chairperson of the Board, the Chief Executive Officer, or the Secretary. Such resignation shall be effective upondelivery unless it is specified to be effective at some later time or upon the happening of some later event. Any vacancy occurring inany office of the Corporation by death, resignation, removal or otherwise may be filled by the Board and the Board may, in itsdiscretion, leave unfilled, for such period as it may determine, any offices. Each such successor shall hold office for the unexpired termof such officer’s predecessor and until a successor is duly elected and qualified or until such officer’s earlier resignation, death,disqualification or removal.Section 4.2:Chief Executive OfficerSubject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers andduties of the Chief Executive Officer of the Corporation are:(a)to act as the general manager and, subject to the control of the Board, to have general supervision,direction and control of the business and affairs of the Corporation;(b)subject to Article I, Section 1.6 of these Bylaws, to preside at all meetings of the stockholders;(c)subject to Article I, Section 1.2 of these Bylaws, to call special meetings of the stockholders to be heldat such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deemproper;(d)to affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases,obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board orwhich, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificatesfor shares of stock of the Corporation (if any); and, subject to the direction of the Board, to have general charge of theproperty of the Corporation and to supervise and control all officers, agents and employees of the Corporation; and- 16 - (e)to vote and otherwise act on, or to authorize any officer to vote or otherwise act on, on behalf of theCorporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of anyother corporation in which this Corporation may hold securities and otherwise to exercise, or authorize any officer otherwiseto exercise, any and all rights and powers which this Corporation may possess by reason of its ownership of securities insuch other corporation.The person holding the office of President shall be the Chief Executive Officer of the Corporation unless the Board shall designateanother officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be theChief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.Section 4.3:Chairperson of the BoardSubject to the provisions of Section 2.7 of these Bylaws, the Chairperson of the Board shall have the power to preside at allmeetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time totime prescribe.Section 4.4:Lead Independent DirectorThe Board may, in its discretion, elect a lead independent director from among its members that are Independent Directors(as defined below) (such director, the “Lead Independent Director”). The Lead Independent Director shall preside at all meetings atwhich the Chairperson of the Board is not present and shall exercise such other powers and duties as may from time to time beassigned to him or her by the Board or as prescribed by these Bylaws. For purposes of these Bylaws, “Independent Director” has themeaning ascribed to such term under the rules of the exchange upon which the Corporation’s Common Stock is primarily traded.Section 4.5:PresidentThe person holding the office of Chief Executive Officer shall be the President of the Corporation unless the Board shallhave designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject tothe provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer(if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may begiven by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for thegeneral management and control of the business and affairs of the Corporation and the general supervision and direction of all of theofficers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officerother than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or thatare delegated to the President by the Board.Section 4.6:Chief Financial OfficerThe person holding the office of Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shallhave designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief ExecutiveOfficer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of ChiefFinancial Officer, or as the Board may from time to time prescribe.- 17 - Section 4.7:TreasurerThe person holding the office of Treasurer shall have custody of all monies and securities of the Corporation. The Treasurershall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of allsuch transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to theoffice of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.Section 4.8:Vice PresidentEach Vice President shall have all such powers and duties as are commonly incident to the office of Vice President or thatare delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to performthe duties and exercise the powers of the Chief Executive Officer or President in the event of the Chief Executive Officer’s orPresident’s absence or disability. Section 4.9:SecretaryThe Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of allmeetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records andshall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or theChief Executive Officer may from time to time prescribe.Section 4.10:Delegation of AuthorityThe Board may from time to time delegate the powers or duties of any officer of the Corporation to any other officers oragents of the Corporation, notwithstanding any provision hereof.Section 4.11:RemovalAny officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or withoutcause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any officer of the Corporation,then such officer may also be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractualrights of such officer, if any, with the Corporation.ARTICLE V: STOCKSection 5.1:Certificates; Uncertificated SharesThe shares of capital stock of the Corporation shall be uncertificated shares; provided, however, that the resolution of theBoard that the shares of capital stock of the Corporation shall be uncertificated shares shall not apply to shares represented by acertificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case maybe). Notwithstanding the foregoing, the Board may provide by resolution or resolutions that some or- 18 - all of any or all classes or series of its stock shall be certificated shares. Every holder of stock represented by certificates shall beentitled to have a certificate signed by, or in the name of the Corporation, by any two authorized officers of the Corporation (it beingunderstood that each of the Chairperson of the Board, the Vice-Chairperson of the Board, the Chief Executive Officer, the President,any Vice President, the Treasurer, any Assistant Treasurer, the Secretary and any Assistant Secretary shall be an authorized officer forsuch purpose), representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be afacsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificateshall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation withthe same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 5.2:Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or UncertificatedSharesThe Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issuedby it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate ofstock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or suchowner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it,against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuanceof such new certificate or uncertificated shares.Section 5.3:Other RegulationsSubject to applicable law, the Certificate of Incorporation and these Bylaws, the issue, transfer, conversion and registrationof shares represented by certificates and of uncertificated shares shall be governed by such other regulations as the Board mayestablish.ARTICLE VI: INDEMNIFICATIONSection 6.1:Indemnification of Officers and DirectorsEach person who was or is made a party to, or is threatened to be made a party to, or is involved in any threatened, pendingor completed action, suit or proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever(a “Proceeding”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was adirector or officer of the Corporation, while serving as a director or officer of the Corporation or, is or was serving at the request of theCorporation as a director, officer, employee, agent or trustee of another corporation, or of a partnership, joint venture, trust or otherenterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “Indemnitee”), shall beindemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter beamended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broaderindemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability andloss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement)reasonably incurred- 19 - or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that theIndemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminalProceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. Such indemnification shall continue as to anIndemnitee who has ceased to be a director or officer of the Corporation and shall inure to the benefit of such Indemnitees’ heirs,executors and administrators. Notwithstanding the foregoing, subject to Section 6.5 of these Bylaws, the Corporation shall indemnifyany such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if suchProceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by theBoard.Section 6.2:Advancement of ExpensesExcept as otherwise provided in a written indemnification agreement between the Corporation and an Indemnitee uponwritten request, the Corporation shall pay all expenses (including attorneys’ fees) incurred by an Indemnitee in defending anyProceeding as they are incurred in advance of its final disposition; provided, however, that if the DGCL then so requires, theadvancement of such expenses shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of suchIndemnitee, to repay such amounts if it shall ultimately be determined by final judicial decision from which there is no appeal that suchIndemnitee is not entitled to be indemnified under this Article VI or otherwise. Such expenses (including attorneys’ fees) incurred byformer directors and officers or other employees and agents of the Corporation or by persons serving at the request of the Corporationas directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paidupon such terms and conditions, if any, as the Corporation deems appropriate. The right to advancement of expenses shall not apply toany claim for which indemnity is excluded pursuant to these Bylaws, but shall apply to any Proceeding referenced in Section 6.1 priorto a determination that the person is not entitled to be indemnified by the Corporation.Section 6.3:Non-Exclusivity of RightsThe rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have orhereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote or consent of stockholders ordisinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion,to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to thisArticle VI.Section 6.4:Indemnification ContractsThe Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employeeor agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee, agent or trustee ofanother corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification oradvancement rights to such person. Such rights may be greater than those provided in this Article VI. - 20 - Section 6.5:Right of Indemnitee to Bring SuitThe following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 of theseBylaws.6.5.1Right to Bring Suit. If a claim under Section 6.1 or 6.2 of these Bylaws is not paid in full by the Corporationwithin sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement ofexpenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against theCorporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by theCorporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid,to the fullest extent permitted by law, the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee toenforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement ofexpenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant tothe terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemniteehas not met any applicable standard for indemnification set forth in applicable law.6.5.2Effect of Determination. Neither the absence of a determination prior to the commencement of such suit thatindemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct setforth in applicable law, nor an actual determination that the Indemnitee has not met such applicable standard of conduct, shall create apresumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee,be a defense to such suit.6.5.3Burden of Proof. In any suit brought by the Indemnitee to enforce a right to indemnification or to anadvancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of anundertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, underthis Article VI, or otherwise, shall be on the Corporation.Section 6.6:Nature of RightsThe rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to anIndemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors andadministrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of anIndemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred ona person pursuant to this Article VI with respect to any Proceeding involving any occurrence or alleged occurrence of any action oromission to act that took place prior to such amendment, repeal or modification.Section 6.7:InsuranceThe Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee oragent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or lossasserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whetheror not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.- 21 - ARTICLE VII: NOTICESSection 7.1:Notice7.1.1Form and Delivery. Except as otherwise specifically required in these Bylaws (including, without limitation,Section 7.1.2 of these Bylaws) or by applicable law, all notices required to be given pursuant to these Bylaws shall be in writing andmay (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (includinguse of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by overnight expresscourier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively delivered to a stockholder when givenby hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as describedin Section 7.1.2 of these Bylaws, by sending such notice by facsimile, electronic mail or other form of electronic transmission. Anysuch notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of theCorporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to begiven or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail,(c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via facsimile, electronic mailor other form of electronic transmission, at the time provided in Section 7.1.2 of these Bylaws.7.1.2Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively tostockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation,or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice isgiven in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to theCorporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission twoconsecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretaryor an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided,however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice givenpursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which thestockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which thestockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to thestockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other formof electronic transmission, when directed to the stockholder.7.1.3Affidavit of Giving Notice. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent orother agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence offraud, be prima facie evidence of the facts stated therein.- 22 - Section 7.2:Waiver of NoticeWhenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws,a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether beforeor after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver ofnotice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meetingto the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, northe purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specifiedin any waiver of notice.ARTICLE VIII: INTERESTED DIRECTORSSection 8.1:Interested DirectorsNo contract or transaction between the Corporation and one or more of its members of the Board or officers, or between theCorporation and any other corporation, partnership, association or other organization in which one or more of its directors or officersare members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solelybecause the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contractor transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or theirrelationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board orcommittee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, eventhough the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to thecontract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction isspecifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of thetime it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.Section 8.2:QuorumInterested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committeewhich authorizes the contract or transaction.ARTICLE IX: MISCELLANEOUSSection 9.1:Fiscal YearThe fiscal year of the Corporation shall be determined by resolution of the Board.Section 9.2:SealThe Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shallotherwise be in such form as may be approved from time to time by the Board.- 23 - Section 9.3:Form of RecordsAny records administered by or on behalf of the Corporation in the regular course of its business, including its stock ledger,books of account and minute books, may be kept on or by means of, or be in the form of, any other information storage device, methodor one or more electronic networks or databases (including one or more distributed electronic networks or databases), electronic orotherwise, provided that the records so kept can be converted into clearly legible paper form within a reasonable time and otherwisecomply with the DGCL. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect suchrecords pursuant to any provision of the DGCL.Section 9.4:Reliance upon Books, Records and ExpertsA member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’sduties, be fully protected in relying in good faith upon the books and records of the Corporation and upon such information, opinions,reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or byany other person as to matters the member reasonably believes are within such other person’s professional or expert competence andwho has been selected with reasonable care by or on behalf of the Corporation.Section 9.5:Certificate of Incorporation GovernsIn the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of theCertificate of Incorporation shall govern.Section 9.6:SeverabilityIf any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of theCertificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with suchholding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylawscontaining any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are notthemselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.Section 9.7:Time PeriodsIn applying any provision of these Bylaws which requires that an act be done or not be done a specified number of daysprior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, theday of the doing of the act shall be excluded, and the day of the event shall be included.ARTICLE X: AMENDMENTNotwithstanding any other provision of these Bylaws, any alteration, amendment or repeal of these Bylaws, and anyadoption of new Bylaws, shall require the approval of the Board or the stockholders of the Corporation as expressly provided in theCertificate of Incorporation.- 24 - ARTICLE XI: EXCLUSIVE FORUMUnless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the UnitedStates of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under theSecurities Act of 1933, as amended.Any person or entity purchasing or otherwise acquiring any interest in any security of the corporation shall be deemed tohave notice of and consented to the provisions of this Article XI. ________________________ - 25 - CERTIFICATION OF RESTATED BYLAWSOFSUTRO BIOPHARMA, INC.(a Delaware corporation)I, Edward Albini, certify that I am Secretary of Sutro Biopharma, Inc., a Delaware corporation (the “Corporation”), that Iam duly authorized to make and deliver this certification, that the attached Bylaws are a true and complete copy of the Restated Bylawsof the Corporation in effect as of the date of this certificate.Dated: October 1, 2018 /s/ Edward Albini Chief Financial Officer and Secretary  Exhibit 10.8FIRST AMENDMENT TOLOAN AND SECURITY AGREEMENTTHIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into as of December 5,2018, by and among OXFORD FINANCE LLC, a Delaware limited liability company with an office located at 133 North Fairfax Street,Alexandria, Virginia 22314, as collateral agent (in its individual capacity, “Oxford”; and in its capacity as collateral agent, “CollateralAgent”), the Lenders listed on Schedule 1.1 of the Loan Agreement (as defined below) or otherwise party thereto from time to timeincluding Oxford in its capacity as a Lender and SILICON VALLEY BANK, a California corporation with an office located at 3003 TasmanDrive, Santa Clara, CA 95054 (“Bank” or “SVB”) (each a “Lender” and collectively, the “Lenders”), SUTRO BIOPHARMA, INC., aDelaware corporation with offices located at 310 Utah Street, Suite 150, South San Francisco, CA 94080 (“Borrower”).RECITALSWHEREAS, Collateral Agent, Borrower and the Lenders party thereto from time to time have entered into that certain Loan andSecurity Agreement, dated as of August 4, 2017 (as amended, supplemented or otherwise modified from time to time, the “LoanAgreement”) pursuant to which the Lenders have provided to Borrower certain loans in accordance with the terms and conditions thereof;andNOW, THEREFORE, in consideration of the promises, covenants and agreements contained herein, and other good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged, Borrower, the Lenders and Collateral Agent hereby agree asfollows: 1.Definitions. Capitalized terms used herein but not otherwise defined shall have the respective meanings given tothem in the Loan Agreement. 2.Amendments.2.1Section 6.2(a)(i) of the Loan Agreement is hereby amended and restated as follows:“(i)as soon as available, but no later than forty (40) days after the last day of eachquarter, acompany prepared consolidated and consolidating balance sheet, income statement andcash flowstatement covering the consolidated operations of Borrower and its Subsidiaries for such quartercertified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end GAAP and audit adjustments and the absence of footnotes) and in a form reasonably acceptable toCollateral Agent;”2.2Section 6.2(b) of the Loan Agreement is hereby amended and restated as follows:“(b)within thirty (30) days after the last day of each month, deliver to each Lender, a dulycompleted Compliance Certificate signed by a Responsible Officer.”2.3Exhibit C to the Loan Agreement is hereby amended and restated in the form of Exhibit C attachedhereto. 3.Limitation of Amendment.3.1The amendments set forth in Section 2 above are effective for the purposes set forth herein and shall belimited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term orcondition of any Loan Document, or (b) otherwise prejudice any right, remedy or obligation which Collateral Agent or any Lender orBorrower may now have or may have in the future under or in connection with any Loan Document, as amended hereby. 36951810v6 3.2This Amendment shall be construed in connection with and as part of the Loan Documents and all terms,conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are herebyratified and confirmed and shall remain in full force and effect. 4.Representations and Warranties. To induce Collateral Agent and the Lenders to enter into this Amendment,Borrower hereby represents and warrants to Collateral Agent and Lenders as follows: 4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in theLoan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations andwarranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and iscontinuing;4.2Borrower has the power and due authority to execute and deliver this Amendment and to perform itsobligations under the Loan Agreement, as amended by this Amendment;4.3The Restated Certificate of Incorporation of the Borrower and Restated Bylaws of the Borrower filed asExhibit 3.1 and Exhibit 3.2 to the Borrower’s Form 10-Q for the quarterly period ended September 30, 2018, filed with the SEC onNovember 14, 2018 are true, accurate and complete and have not been further amended, supplemented or restated and are and continue tobe in full force and effect;4.4The execution and delivery by Borrower of this Amendment and the performance by Borrower of itsobligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;4.5The execution and delivery by Borrower of this Amendment and the performance by Borrower of itsobligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation bindingon or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any courtor other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents ofBorrower;4.6The execution and delivery by Borrower of this Amendment and the performance by Borrower of itsobligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorizationor validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivisionthereof, binding on Borrower, except as already has been obtained or made; and4.7This Amendment has been duly executed and delivered by Borrower and is the binding obligation ofBorrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy,insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to oraffecting creditors’ rights. 5.Release by Borrower.5.1FOR GOOD AND VALUABLE CONSIDERATION, Borrower hereby forever relieves, releases, anddischarges Collateral Agent and the Lenders and their present or former employees, officers, directors, agents, representatives, attorneys,and each of them, from any and all claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actionsand causes of action, of every type, kind, nature, description or character whatsoever, whether known or unknown, suspected orunsuspected, absolute or contingent, arising out of or in any manner whatsoever connected with or related to facts, circumstances, issues,controversies or claims existing or arising from the beginning of time through and including the date of execution of this Amendment(collectively “Released Claims”). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arisingout of or in any manner whatsoever connected with or related to the Loan Documents, the Recitals hereto, any instruments, agreements ordocuments executed in connection with any of the foregoing or the origination, negotiation, administration, servicing and/or enforcementof any of the foregoing. 236951810v6 5.2In furtherance of this release, Borrower expressly acknowledges and waives any and all rights underSection 1542 of the California Civil Code, which provides as follows:“A general release does not extend to claims which the creditor does not know or suspect toexist in his or her favor at the time of executing the release, which if known by him or her musthave materially affected his or her settlement with the debtor.” (Emphasis added.)5.3By entering into this release, Borrower recognizes that no facts or representations are ever absolutelycertain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it isthe intention of Borrower hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown,suspected or unsuspected; accordingly, if Borrower should subsequently discover that any fact that it relied upon in entering into thisrelease was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reasonthereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that it is notrelying upon and has not relied upon any representation or statement made by Collateral Agent or any Lender with respect to the factsunderlying this release or with regard to any of such party’s rights or asserted rights.5.4This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaimagainst any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borroweracknowledges that the release contained herein constitutes a material inducement to Collateral Agent and the Lenders to enter into thisAmendment, and that Collateral Agent and the Lenders would not have done so but for Collateral Agent and the Lenders’ expectation thatsuch release is valid and enforceable in all events.5.5Borrower hereby represents and warrants to Collateral Agent and the Lenders, and Collateral Agent andthe Lenders are relying thereon, as follows:(a)Except as expressly stated in this Agreement, neither Collateral Agent, the Lenders nor anyagent, employee or representative of Collateral Agent or any Lender has made any statement or representation to Borrower regarding anyfact relied upon by Borrower in entering into this Amendment.(b)Borrower has made such investigation of the facts pertaining to this Amendment and all of thematters appertaining thereto, as it deems necessary.(c)The terms of this Amendment are contractual and not a mere recital.(d)This Amendment has been carefully read by Borrower, the contents hereof are known andunderstood by Borrower, and this Amendment is signed freely, and without duress, by Borrower.(e)Borrower represents and warrants that it is the sole and lawful owner of all right, title andinterest in and to every claim and every other matter which it releases herein, and that it has not heretofore assigned or transferred, orpurported to assign or transfer, to any person, firm or entity any claims or other matters herein released. Borrower shall indemnify CollateralAgent and the Lenders, defend and hold them harmless from and against all claims based upon or arising in connection with priorassignments or purported assignments or transfers of any claims or matters released herein.6.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts takentogether shall be deemed to constitute one and the same instrument.7.Integration. Except as expressly set forth herein, the Loan Agreement shall continue in full force and effect withoutalteration or amendment. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersedeprior negotiations or agreements. 336951810v6 8.Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by andconstrued in accordance with the laws of the State of California.9.Effectiveness. This Amendment shall be deemed effective upon:(i)the due execution and delivery to Collateral Agent and the Lenders of this Amendment by each partyhereto; and(ii)Borrower’s payment of all Lenders’ Expenses incurred through the date hereof, which may be debited (orACH’d) from any of Borrower’s accounts with the Lenders.[Balance of Page Intentionally Left Blank] 36951810v6 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Loan and Security Agreement to be dulyexecuted and delivered as of the date first set forth above. BORROWER: SUTRO BIOPHARMA, INC. By /s/ William J. NewellName: William J. NewellTitle: CEO COLLATERAL AGENT AND LENDER: OXFORD FINANCE LLC By Name: Title: LENDER: SILICON VALLEY BANK By Name: Title: [Signature Page to First Amendment to Loan and Security Agreement] 36951810v6 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Loan and Security Agreement to be dulyexecuted and delivered as of the date first set forth above. BORROWER: SUTRO BIOPHARMA, INC. By Name: Title: COLLATERAL AGENT AND LENDER: OXFORD FINANCE LLC By Name: Title: LENDER: SILICON VALLEY BANK By Name: Title: [Signature Page to First Amendment to Loan and Security Agreement] 36951810v6 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Loan and Security Agreement to be duly executed anddelivered as of the date first set forth above. BORROWER: SUTRO BIOPHARMA, INC. By Name: Title: COLLATERAL AGENT AND LENDER: OXFORD FINANCE LLC By Name: Title: LENDER: By Name: Title: [Signature Page to First Amendment to Loan and Security Agreement] 36951810v6 EXHIBIT CCompliance Certificate TO:OXFORD FINANCE LLC, as Collateral Agent and LenderSILICON VALLEY BANK, as Lender FROM:SUTRO BIOPHARMA, INC. The undersigned authorized officer (“Officer”) of Sutro Biopharma, Inc. (“Borrower”), hereby certifies that in accordance withthe terms and conditions of the Loan and Security Agreement by and among Borrower, Collateral Agent, and the Lenders from time to timeparty thereto (the “Loan Agreement;” capitalized terms used but not otherwise defined herein shall have the meanings given them in theLoan Agreement),(a)Borrower is in complete compliance for the period ending ______________with all required covenants except asnoted below;(b)There are no Events of Default, except as noted below;(c)Except as noted below, all representations and warranties of Borrower stated in the Loan Documents are true andcorrect in all material respects on this date and for the period described in (a), above; provided, however, that such materiality qualifiershall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; andprovided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in allmaterial respects as of such date;(d)Borrower, and each of Borrower’s Subsidiaries, has timely filed all required tax returns and reports, Borrower, andeach of Borrower’s Subsidiaries, has timely paid all foreign, federal, state, and local taxes, assessments, deposits and contributions owed byBorrower, or Subsidiary, except as otherwise permitted pursuant to the terms of Section 5.8 of the Loan Agreement; and(e)No Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employeepayroll or benefits of which Borrower has not previously provided written notification to Collateral Agent and the Lenders.Attached are the required documents, if any, supporting our certification(s). The Officer, on behalf of Borrower, further certifiesthat the attached financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and areconsistently applied from one period to the next except as explained in an accompanying letter or footnotes and except, in the case ofunaudited financial statements, for the absence of footnotes and subject to year-end GAAP and audit adjustments as to the interim financialstatements.Please indicate compliance status since the last Compliance Certificate by circling Yes, No, or N/A under “Complies” column. Reporting CovenantRequirementActualComplies 1)Financial statementsQuarterly within 40 daysYesNoN/A 2)Annual (CPA Audited) statementsWithin 210 days after FYE (and 12/31/2017 for theAnnual (CPA Audited) statements for FYE 2016)YesNoN/A 3)Annual FinancialProjections/Budget (prepared on a monthlybasis)Annually (within 30 days of FYE), and when revisedYesNoN/A 4)A/R & A/P agingsIf applicableYesNoN/A 5)8-K, 10-K and 10-Q FilingsIf applicable, within 5 days of filingYesNoN/A 36951810v6 6)Compliance CertificateMonthly within 30 daysYesNoN/A 7)IP ReportWhen requiredYesNoN/A8)Total amount of Borrower’s and Borrower’sSubsidiaries’ unrestricted cash and cashequivalents at the last day of the priormeasurement period$ YesNoN/A 9)Net change in Borrower’s and Borrower’sSubsidiaries’ unrestricted cash and cashequivalents since the last day of the priormeasurement period$ YesNoN/A 10)Total amount of Borrower’s and Borrower’sSubsidiaries’ unrestricted cash and cashequivalents at the last day of themeasurement period$ YesNoN/A 36951810v6 Deposit and Securities Accounts(Please list all accounts; attach separate sheet if additional space needed) Institution NameAccount NumberNew Account?Account Control Agreement in place?1) YesNoYesNo2) YesNoYesNo3) YesNoYesNo4) YesNoYesNo Other Matters 1)Have there been any changes in management since the last Compliance Certificate?YesNo2)Have there been any transfers/sales/disposals/retirement of Collateral or IP prohibited by the LoanAgreement?YesNo3)Have there been any new or pending claims or causes of action against Borrower that involvemore than Two Hundred Fifty Thousand Dollars ($250,000.00)?YesNo4)Have there been any material amendments of or other material changes to the capitalization table ofBorrower and any amendments of or other changes to the Operating Documents of Borrower or any ofits Subsidiaries? If yes, provide copies of any suchamendments or changes with this Compliance Certificate.YesNo 36951810v6 ExceptionsPlease explain any exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions.” Attach separate sheetif additional space needed.) SUTRO BIOPHARMA, INC. By Name: Title: Date: LENDER USE ONLY Received by: Date Verified by: Date Compliance Status:Yes No 36951810v6Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-227551) pertaining to the 2004 Stock Plan, the2018 Employee Stock Purchase Plan, and the 2018 Equity Incentive Plan of Sutro Biopharma, Inc. of our report dated March 29, 2019, with respect to thefinancial statements of Sutro Biopharma, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2018. /s/ Ernst & Young LLP Redwood City, CaliforniaMarch 29, 2019 Exhibit 24.1 POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints William J. Newell and Edward C. Albini and each ofthem, with full power of substitution and resubstitution, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place andstead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendmentsto this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securitiesand Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing,ratifying and confirming all that said attorney-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtuethereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. /s/ William J. Newell President, Chief Executive Officer and Director March 29, 2019William J. Newell (Principal Executive Officer) /s/ Edward C. Albini Chief Financial Officer March 29, 2019Edward C. Albini (Principal Financial and Accounting Officer) /s/ Michael Dybbs, Ph.D. Director March 29, 2019Michael Dybbs, Ph.D. /s/ John G. Freund, M.D. Director March 29, 2019John G. Freund, M.D. /s/ Daniel Janney Director March 29, 2019Daniel Janney /s/ V. Bryan Lawlis, Ph.D. Director March 29, 2019V. Bryan Lawlis, Ph.D. /s/ Joseph M. Lobacki Director March 29, 2019Joseph M. Lobacki /s/ Daniel H. Petree Director March 29, 2019Daniel H. Petree/s/ Michael Ross, Ph.D. Director March 29, 2019 Michael Ross, Ph.D./s/ Shalini Sharp Director March 29, 2019Shalini Sharp  Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, William J. Newell certify that: 1.I have reviewed this Annual Report on Form 10-K of Sutro Biopharma, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting,which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: March 29, 2019 /s/ William J. Newell William J. Newell Chief Executive Officer (Principal Executive Officer)  Exhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward C. Albini, certify that: 1.I have reviewed this Annual Report on Form 10-K of Sutro Biopharma, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting,which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: March 29, 2019 /s/ Edward C. Albini Edward C. Albini Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)  Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, William J. Newell, Chief Executive Officer of Sutro Biopharma, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:1.the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2018 (the “Report”) fully complies withthe requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Dated: March 29, 2019/s/ William J. Newell William J. Newell Chief Executive Officer (Principal Executive Officer)  Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward C. Albini, Chief Financial Officer of Sutro Biopharma, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:1.the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2018 (the “Report”) fully complies withthe requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Dated: March 29, 2019/s/ Edward C. Albini Edward C. Albini Chief Financial Officer (Principal Financial Officer and Principal AccountingOfficer) 

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