SEC Filing | Cullinan Oncology, Inc.

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cgem-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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

Commission File Number: 001-39856

CULLINAN ONCOLOGY, INC.

(Exact name of Registrant as specified in its Charter)

Delaware	81-3879991
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Main Street Suite 520 Cambridge, MA	02142
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 410-4650

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

CGEM

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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

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

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

The number of shares of the registrant’s common stock outstanding as of April 30, 2021 was 43,516,125.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income (Loss)	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97
Item 3.	Defaults Upon Senior Securities	98
Item 4.	Mine Safety Disclosures	98
Item 5.	Other Information	98
Item 6.	Exhibits	98
	Signatures	100

Summary of the Material and Other Risks Associated with Our Business

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, are summarized in “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, before making an investment decision regarding our common stock.

•

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

•

We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.

•

We will require substantial additional funding to develop and commercialize our product candidates and identify and invest in new product candidates. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or other operations.

•

We may not be successful in our efforts to use our differentiated hub-and-spoke business model to build a pipeline of product candidates with commercial value.

•

Our ability to realize value from our subsidiaries may be impacted if we reduce our ownership to a minority interest or otherwise cede control to other investors through contractual agreements or otherwise.

•

We are early in our development efforts and are substantially dependent on our lead candidate, CLN-081, and our most advanced immuno-oncology candidates, CLN-049 and CLN-619. If we are unable to advance CLN-081, CLN-049 or CLN-619, or any of our other product candidates through clinical development, or to obtain regulatory approval and ultimately commercialize CLN-081, CLN-049 or CLN-619, or any of our other product candidates, either by ourselves or with or by third parties, or if we experience significant delays in doing so, our business will be materially harmed.

•

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to confirmation, audit and verification procedures that could result in material changes in the final data.

•

Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.

•

Our subsidiaries are party to certain agreements that provide our licensors, collaborators or other shareholders in our subsidiaries with rights that could delay or impact the potential sale of our subsidiaries or could impact the ability of our subsidiaries to sell assets or enter into strategic alliances, collaborations, or licensing arrangements with other third parties.

•

A single or limited number of subsidiaries may comprise a large proportion of our value.

•

Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates, and ultimately delay or prevent regulatory approval.

•

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

•

If we are unable to obtain and maintain patent and other intellectual property protection for our current product candidates and technology, or any other product candidates or technology we may develop, or if the scope of intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize CLN-081, CLN-049 and CLN-619, or any other product candidates or technology may be adversely affected.

•

We currently rely and expect to continue to rely on the outsourcing of the majority of our development functions to third parties to conduct our preclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

•

Our reliance on a central team consisting of a limited number of employees who provide various administrative, research and development and other services across our organization presents operational challenges that may adversely affect our business.

•

The outbreak of the novel coronavirus, COVID-19, may adversely impact our business, including our preclinical studies and clinical trials.

•

We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

iii

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

•

the success, cost and timing of our clinical development of our product candidates, including CLN-081, CLN-049 and CLN-619;

•

the initiation, timing, progress, results and cost of our research and development programs and our current and future preclinical and clinical studies, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

•

our ability to initiate, recruit and enroll patients in and conduct our clinical trials at the pace that we project;

•

our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations or warnings in the label of any of our product candidates, if approved;

•

our ability to compete with companies currently marketing or engaged in the development of treatments that our product candidates are designed to target;

•

our reliance on third parties to conduct our clinical trials and to manufacture drug substance for use in our clinical trials;

•

the size and growth potential of the markets for oncology and immuno-oncologic diseases and any of our current product candidates or other product candidates we may identify and pursue, and our ability to serve those markets;

•

our ability to identify and advance through clinical development any additional product candidates;

•

the commercialization of our current product candidates and any other product candidates we may identify and pursue, if approved, including our ability to successfully build a specialty sales force and commercial infrastructure to market our current product candidates and any other product candidates we may identify and pursue;

•

the expected benefits of our hub-and-spoke business model, including our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop product candidates;

•

our ability to retain and recruit key personnel;

•

our ability to obtain and maintain adequate intellectual property rights;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our estimates of our expenses, ongoing losses, capital requirements and our needs for or ability to obtain additional financing;

•

the potential benefits of strategic collaboration agreements, our ability to enter into strategic collaborations or arrangements, and our ability to attract collaborators with development, regulatory and commercialization expertise;

•

our financial performance;

•

developments and projections relating to our competitors or our industry;

•

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; and

•

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge 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 or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in or implied by any forward-looking statements we may make. No forward-looking statement is a guarantee of future performance.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CULLINAN ONCOLOGY, INC.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

	December 31, 2020 ⁽¹⁾			March 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	168,198		$	293,537
Prepaid expenses and other current assets		2,072			6,419
Short term investments		42,008			147,337
Total current assets		212,278			447,293
Property and equipment, net		130		115
Other assets		2,300		147
Long term investments		—			32,111
Total assets	$	214,708		$	479,666
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,679		$	3,879
Accrued expenses and other current liabilities		4,641			6,015
Total current liabilities		14,320			9,894
Long-term liabilities:
Deferred rent		74		73
Total liabilities		14,394			9,967
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $0.0001 par value, 34,900,878 and 150,000,000 shares authorized as of December 31, 2020 and March 31, 2021, respectively; 29,381,125 and 43,516,125 shares issued and outstanding as of December 31, 2020 and March 31, 2021, respectively		3		4
Additional paid-in capital		292,348			560,366
Accumulated other comprehensive loss		(2	)		(60	)
Accumulated deficit		(93,339	)		(93,409	)
Total Cullinan stockholders' equity		199,010			466,901
Noncontrolling interests		1,304			2,798
Total stockholders' equity		200,314			469,699
Total liabilities and stockholders' equity	$	214,708		$	479,666

See accompanying notes to the unaudited consolidated financial statements.
(1) The consolidated balance sheet as of December 31, 2020 is derived from the audited consolidated financial statements as of that date and was retroactively adjusted, including shares and per share amounts, as a result of the Reorganization and Reverse Stock Split. See Note 3 to the consolidated financial statements for additional details.

CULLINAN ONCOLOGY, INC.

Consolidated Statements of Operations and Comprehensive Income (LOSS)

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended March 31,
	2020			2021
License revenue	$	—		$	18,943
Operating expenses:
Research and development		4,173			12,415
General and administrative		1,368			5,156
Total operating expenses		5,541			17,571
Income/(loss) from operations		(5,541	)		1,372
Other income (expense):
Interest income	378			49
Other income (expense), net		—			(2	)
Net Income/(loss)		(5,163	)		1,419
Net income/(loss) attributable to noncontrolling interest		(190	)		1,489
Net loss attributable to common stockholders of Cullinan	$	(4,973	)	$	(70	)
Net loss per share, basic and diluted	$	(0.27	)	$	(0.00	)
Total weighted-average shares used in computing net loss per share, basic and diluted		18,747,004			41,977,336
Comprehensive income/(loss):
Net income/(loss)	$	(5,163	)	$	1,419
Unrealized gain/(loss) on investments	30				(58	)
Comprehensive income/(loss)		(5,133	)		1,361
Comprehensive income/(loss) attributable to noncontrolling interest		(190	)		1,489
Comprehensive income/(loss) attributable to Cullinan	$	(4,943	)	$	(128	)

See accompanying notes to the unaudited consolidated financial statements.

CULLINAN ONCOLOGY, INC.

Consolidated Statements of STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share and per share amounts)

	Common Stock				Noncontrolling Interest in			Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Subsidiaries			Capital		Income/(Loss)			Deficit			Equity
Balances at December 31, 2019 ⁽¹⁾		18,738,734	$	2	$	864			138,543		(4	)	$	(41,540	)		97,865
Issuance of common stock equivalents ⁽¹⁾ net of issuance costs of $213		1,297,700		—		—			14,037		—			—			14,037
Unrealized gain on investments		—		—		—			—		30			—			30
Net loss		—		—		(190	)		—		—			(4,973	)		(5,163	)
Balances at March 31, 2020		20,036,434	$	2	$	674		$	152,580	$	26		$	(46,513	)	$	106,769

Balances at December 31, 2020 ⁽¹⁾		29,831,125	$	3	$	1,304		$	292,348	$	(2	)	$	(93,339	)	$	200,314
Initial public offering net of issuance costs of $22,870		13,685,000		1		—			264,515		—			—			264,516
Stock based compensation		—		—		5			3,503		—			—			3,508
Unrealized loss on investments		—		—		—			—		(58	)		—			(58	)
Net income/(loss)		—		—		1,489			—		—			(70	)		1,419
Balances at March 31, 2021		43,516,125	$	4	$	2,798		$	560,366	$	(60	)	$	(93,409	)	$	469,699

See accompanying notes to the unaudited consolidated financial statements.

(1) The consolidated balance sheets as of December 31, 2019 and 2020 are derived from the audited consolidated financial statements as of those dates and were retroactively adjusted, including shares and per share amounts, as a result of the Reorganization and Reverse Stock Split. Changes in stockholders’ equity for the three months ended March 31, 2020 were also retroactively adjusted, including shares and per share amounts, as a result of the Reorganization and Reverse Stock Split. See Note 3 to the consolidated financial statements for additional details.

CULLINAN ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2020			2021
Operating activities:
Net income/(loss)	$	(5,163	)	$	1,419
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization	16			15
Equity-based compensation expense		—			3,508
Amortization or accretion on marketable securities	25			229
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	693				(4,352	)
Accounts payable		170			(4,124	)
Accrued expenses and other current liabilities		(756	)		1,790
Net cash used in operating activities		(5,015	)		(1,515	)
Investing activities:
Purchases of property and equipment		(3	)		—
Purchase of available-for-sale securities		(31,087	)		(149,763	)
Proceeds from sales and maturities of investments		4,200			12,037
Net cash used in investing activities		(26,890	)		(137,726	)
Financing activities:
Proceeds from issuance of common stock equivalents ⁽¹⁾		14,250			—
Proceeds from initial public offering		—			267,268
Payment of issuance costs related to common stock equivalents ⁽¹⁾		(213	)		—
Payment of deferred offering costs		—			(2,688	)
Net cash provided by financing activities		14,037			264,580
Net (decrease)/increase in cash and cash equivalents		(17,868	)		125,339
Cash and cash equivalents at beginning of period		63,250			168,198
Cash and cash equivalents at end of period	$	45,382		$	293,537
SUPPLEMENTAL NONCASH DISCLOSURE
Noncash financing activities
Deferred offering costs paid in the prior year	$	—		$	65

See accompanying notes to the unaudited consolidated financial statements.

(1) Changes in equity activities for the three months ending March 31, 2020 were retroactively adjusted, including shares and per share amounts, as a result of the Reorganization and Reverse Stock Split. See Note 3 to the consolidated financial statements for additional details.

CULLINAN ONCOLOGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1)	Nature of Business and Basis of Presentation

Organization

Cullinan Oncology, Inc., together with its consolidated subsidiaries (Cullinan or the Company), is a biopharmaceutical company developing a diversified pipeline of targeted oncology and immuno-oncology therapies for cancer patients. Cullinan’s predecessor company, Cullinan Pharmaceuticals, LLC was formed in September 2016 and was subsequently renamed Cullinan Oncology, LLC (the LLC) in November 2017. The LLC’s wholly-owned subsidiary, Cullinan Management, Inc. (Management), was formed in September 2016 and became the surviving entity in a reverse merger with the LLC in January 2021. In February 2021, the Company changed its name from Cullinan Management, Inc., to Cullinan Oncology, Inc.

As of December 31, 2020 and March 31, 2021, the Corporation had five development subsidiaries: Cullinan Apollo Corp. (Apollo), Cullinan Pearl Corp. (Pearl), Cullinan Amber Corp. (Amber), Cullinan Florentine Corp. (Florentine) and Cullinan MICA Corp. (MICA).

Reorganization, Reverse Stock Split and Initial Public Offering

In January 2021, the Company completed its initial public offering (IPO) in which it issued and sold 13,685,000 shares of its common stock, including 1,785,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $21.00 per share. The shares began trading on the Nasdaq Global Select Market on January 8, 2021 under the symbol “CGEM”. The net proceeds received by the Company from the offering were $264.5 million, after deducting underwriting discounts, commissions and other offering expenses.

Immediately prior to the effectiveness of the Company’s registration statement, the Company completed its reorganization, whereby the LLC merged with and into Cullinan Management and Cullinan Management was the surviving entity (the Reorganization). Cullinan Management was the registrant in the IPO. Pursuant to the Reorganization, all outstanding Redeemable Preferred Units, Non-Voting Incentive Units and common units converted into shares of Cullinan Management common stock while common unit options were exchanged for stock options. Immediately following the Reorganization, the Company effected a one-for-7.0390 reverse stock split of its issued and outstanding shares of common stock (the Reverse Stock Split).

Accordingly, all share and per share amounts for all periods presented in the accompanying unaudited consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the effect of the Reorganization and Reverse Stock Split. Refer to Note 3 for additional details relating to the Reorganization and Reverse Stock Split.

Liquidity

The Company has incurred operating losses and negative cash flows from operations since its inception and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities as well as the ability to commercialize the Company’s product candidates. The Company is subject to a number of risks including, but not limited to, the need to obtain adequate additional funding for the ongoing and planned clinical development of its product candidates. Due to the numerous risks and uncertainties associated with pharmaceutical products and development, the Company is unable to accurately predict the timing or amount of funds required to complete development of its product candidates, and costs could exceed the Company’s expectations for a number of reasons, including reasons beyond the Company’s control. The Company incurred net losses of $5.2 million for the three months ended March 31, 2020 and recorded net income of $1.4 million for the three months ended March 31, 2021. As of March 31, 2021, the Company had an accumulated deficit of $93.4 million.

Since inception, the Company has funded its operations primarily through the sale of equity securities. The Company expects that its cash, cash equivalents and short term investments as of March 31, 2021 of $440.9 million, along with long term investments of $32.1 million, will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next twelve months from the date of issuance of these unaudited consolidated financial statements.

(2)	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with applicable rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial reporting. The unaudited financial statements include accounts of the Company and its consolidated subsidiaries. All intercompany balances have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASUs) of the Financial Accounting Standards Board (FASB).

The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of the Company's management, reflect all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair statement of the Company’s financial position, its results of operations and comprehensive income (loss) and its cash flows for the periods presented.

The unaudited consolidated financial statements herein do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements, as is permitted by such rules and regulations. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2021 for the year ended December 31, 2020 (the 2020 Form 10-K).

Use of Estimates

The preparation of the accompanying unaudited consolidated financial statements in accordance with GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company’s management evaluates the estimates, including those related to expenses and accruals. The Company’s management bases its estimates on historical experience, and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates and assumptions reflected in these unaudited consolidated financial statements include but are not limited to the fair value of the royalty transfer agreements, accrued research and development costs, the valuation of acquired in process research and development asset and the fair value of equity awards issued by the Company and its subsidiaries prior to the IPO. Actual results may differ from these estimates under different assumptions or conditions.

Principles of Consolidation

The Company consolidates entities in which it has a controlling financial interest. The Company evaluates each of its subsidiaries to determine whether the entity represents a variable interest entity (VIE) for which consolidation should be evaluated under the VIE model, or alternatively, if the entity is a voting interest entity, for which consolidation should be evaluated using the voting interest model (VOE). The Company concluded that none of its subsidiaries is a VIE and has consolidated each subsidiary under the VOE.

The Company has either created or made investments in the following entities:

Consolidated Entities	Relationship as of March 31, 2021	Date Control First Acquired
Cullinan Apollo Corp.	Partially-owned Subsidiary	November 2018
Cullinan Pearl Corp.	Partially-owned Subsidiary	November 2018
Cullinan Amber Corp.	Partially-owned Subsidiary	December 2019
Cullinan Florentine Corp.	Partially-owned Subsidiary	December 2019
Cullinan MICA Corp.	Partially-owned Subsidiary	May 2020

Noncontrolling Interests

To the extent that ownership interests in the Subsidiaries are held by entities other than the Company, management reports these as noncontrolling interests on the consolidated balance sheets. Earnings or losses are attributed to noncontrolling interests under the hypothetical liquidation at book value (HLBV) method. The HLBV method is a point in time calculation that utilizes inputs to determine the amount that the Company and the noncontrolling interest holders would receive upon a hypothetical liquidation at each balance sheet date based on the liquidation provisions of the respective articles of incorporation. At March 31, 2020, licensors held noncontrolling interests in Apollo and Pearl. At March 31, 2021, investors and licensors held noncontrolling interests in Apollo, Pearl, Amber, Florentine and MICA. Refer to Note 5 for details relating to the license agreements and Note 7 for details relating to the noncontrolling interests.

For the three months ended March 31, 2020 and 2021, $0.2 million of net loss and $1.5 million of net income, respectively, were attributable to noncontrolling interests and recorded in the consolidated statements of operations and comprehensive income (loss) and disclosed within the noncontrolling interests in subsidiaries column in the consolidated statements of stockholders’ equity.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2020 and March 31, 2021, cash equivalents consist of commercial paper and government-backed money market funds.

Investments

The Company determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company periodically reviews its investments in debt securities for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than temporary. If losses on these securities are considered to be other than temporary, the loss is recognized in earnings.

Investments not classified as cash equivalents with maturities of less than twelve months are classified as short-term available-for-sale marketable securities. Marketable securities with maturities greater than twelve months for which the Company has the intent and ability to hold the investment for greater than twelve months are classified as long-term investments in the consolidated balance sheets.

Available-for-sale marketable securities are carried at estimated fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss) in stockholders’ equity. The fair value of marketable securities is based on available market information. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Interest and dividends are also included in interest income. Declines in fair value judged to be other-than-temporary on available-for-sale securities, if any, are included in other income (expense), net.

The Company recognized its short-term investment marketable securities by security type at December 31, 2020:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Corporate notes	$	12,780	$	—	$	(3	)	$	12,777
Commercial paper		24,473		—		—			24,473
Asset-backed securities		4,757		1		—			4,758
	$	42,010	$	1	$	(3	)	$	42,008

The Company recognized its short-term investment marketable securities and long-term investment by security type at March 31, 2021:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Short term investments
Corporate notes	$	43,468	$	0	$	(24	)	$	43,444
Commercial paper		94,051		2		—			94,053
Asset-backed securities		9,841		—		(1	)		9,840
Long term investments
Corporate notes		32,146		—		(35	)		32,111
	$	179,506	$	2	$	(60	)	$	179,448

Fair Value of Financial Instruments

The following table sets forth the fair value of the Company’s financial assets as of December 31, 2020, allocated into Level 1, Level 2 and Level 3, that was measured on a recurring basis:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash and cash equivalents
Cash	$	22,007	$	—	$	—	$	22,007
Money market funds		146,191		—		—		146,191
Short-term investments
Corporate notes		—		12,777		—		12,777
Commercial paper		—		24,473		—		24,473
Asset-backed securities		—		4,758		—		4,758
	$	168,198	$	42,008	$	—	$	210,206

The following table sets forth the fair value of the Company’s financial assets as of March 31, 2021, allocated into Level 1, Level 2 and Level 3, that was measured on a recurring basis:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash and cash equivalents
Cash	$	39,021	$	—	$	—	$	39,021
Money market funds		254,516		—		—		254,516
Short-term investments
Corporate notes		—		43,444		—		43,444
Commercial paper		—		94,053		—		94,053
Asset-backed securities		—		9,840		—		9,840
Long-term investments
Corporate notes		—		32,111		—		32,111
	$	293,537	$	179,448	$	—	$	472,985

Prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities are carried at cost, which management believes approximates fair value due to their short term nature.

Deferred Offering Costs

The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which time such costs are recorded against the gross proceeds of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive income (loss). The Company incurred $2.7 million of deferred offering costs and recorded such amounts against the gross proceeds of our IPO within the statements of stockholders’ equity during the three months ended March 31, 2021.

Asset Acquisitions

The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transactions costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire in-process research and development (IPR&D) with no alternative future use is charged to research and development expense at the acquisition date.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company enters into licensing arrangements for research and development, manufacturing and commercialization activities, which have components within the scope of ASC 606. Payments pursuant to these arrangements typically include non-refundable, upfront payments, milestone payments upon achieving significant development events, research and development reimbursements, sales milestones and royalties on future product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. The contracts into which the Company enters generally do not include significant financing components. As part of the accounting for these arrangements, the Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above, and d) the measure of progress in step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below.

Non-Exclusive Licenses

If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other elements, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining elements, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods.

Milestone Payments

At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license of intellectual property is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of funds for employee wages and funds paid to third parties for the provision of services for product candidate development, clinical and preclinical development and related supply and manufacturing costs, and regulatory compliance costs. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Costs incurred to obtain licenses are recognized as research and development expense as incurred if the technology licensed has no alternative future use. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are received or services are performed.

The Company has entered into various research and development related contracts with parties both inside and outside of the United States. The payments related to these agreements are recorded as research and development expenses as incurred. The Company records accrued liabilities for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. To date, there have been no material differences between the Company’s accrued costs and actual costs.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

Equity-based Compensation

Equity-based compensation is measured at the grant date for all equity-based awards made to employees and non-employees based on the fair value of the awards and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company has elected to recognize the actual forfeitures by reducing the equity-based compensation expense in the same period as the forfeitures occur.

The Company estimated the fair value of the stock options using the Black-Scholes option pricing model, which requires the input of objective and subjective assumptions. Certain assumptions used, including the fair value of the Company’s common stock prior to the time of the IPO and stock price volatility, represent management’s estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, equity-based compensation expense could be materially different for future awards.

The Company classifies equity-based compensation in its consolidated statements of operations and comprehensive income (loss) in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A reduction in the carrying value of the deferred tax assets is required when it is not more likely than not that such deferred tax assets are not realizable.

Net Loss per Share

Basic and diluted net loss per share is determined by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during the period, without consideration for potential dilutive shares of common stock, such as stock options, unvested restricted stock awards and shares issuable under the employee stock purchase plan. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and diluted net loss per share are the same. The Company excluded unvested shares of restricted stock awards, stock options and shares issuable under the employee stock purchase plan from the computation of diluted weighted-average shares outstanding as they would be antidilutive.

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either operating or financing, with such classifications affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. ASU 2016-02 was recently delayed for emerging growth companies that elected to adopt new accounting standards on the adoption date required for private companies and will be effective for the Company’s annual reporting period beginning on January 1, 2022 and interim periods beginning first quarter of 2023. The Company is evaluating the impact ASU 2016-02 will have on its consolidated financial statements and associated disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective beginning January 1, 2022. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial position and consolidated results of operations upon adoption.

(3) Reorganization and Reverse Stock Split

Immediately prior to the completion of the IPO in January 2021, the LLC completed the Reorganization. Prior to the Reorganization, Management was a wholly-owned subsidiary of the LLC. The LLC was also the direct parent company of the Company’s development subsidiaries. Pursuant to the Reorganization, Management acquired all the assets of the LLC, including all of the stock the LLC owns of Apollo, Florentine, Amber, Pearl and MICA (collectively the Asset Subsidiaries), and assumed all of the LLC’s liabilities and obligations.

Following the Reorganization, all of Management’s outstanding preferred stock automatically converted on a 1-for-1 basis into common stock of Management. The Company then effected a one-for-7.0390 reverse split of its common stock (the Reverse Stock Split). Immediately prior to completion of the Company’s IPO, the existing units of the LLC were cancelled and the number of shares of common stock exchanged and issued to the LLC’s unitholders in the Reorganization is shown in the below table by unit class, on a split adjusted basis:

Cullinan Oncology, LLC Unit Type	Number of Management's Shares Issued		Adjusted for the Reverse Stock Split
Series C Preferred Units		66,599,045		9,461,414
Series B Preferred Units		63,141,016		8,970,154
Series A1 Preferred Units		50,000,000		7,103,280
Series Seed Preferred Units		16,000,000		2,273,050
Non-Voting Incentive Units		11,896,500		1,689,949
Common Units		34,747,722		4,936,415
Total shares issued		242,384,283		34,434,262

The amount presented for Non-Voting Incentive Units included unvested outstanding Non-Voting Incentive Units that were exchanged for restricted stock of Management. The amount presented for Common Units included the unvested outstanding Restricted Common Units, exchanged for Management’s restricted stock, and issued and unvested Common Unit Options, that were exchanged for Management’s stock options. The unvested awards are subject to the same time-based vesting conditions as the original awards.

The Reorganization was accounted for as a reverse acquisition, where the LLC was determined to be the accounting acquirer and Management to be the legal acquiree, and recapitalization for financial reporting purposes. Accordingly, the historical financial statements of the LLC became the Company’s historical financial statements, including the comparative prior periods. All share and per share amounts in these unaudited consolidated financial statements and related notes have been retroactively adjusted, where applicable, for all periods presented. The shares of the Company’s common stock for periods prior to the Reorganization represent the outstanding units of the LLC recalculated to give effect to the Reorganization and Reverse Stock Split.

All LLC units that were previously reported as Redeemable Preferred Units, or temporary equity, were converted to common stock of the Company upon the execution of the Reorganization and have been reclassified to stockholders’ equity for all periods presented, as if the Reorganization occurred at the beginning of the earliest period presented in the Company’s financial statements for the year ending December 31, 2020, as follows:

	As of December 31, 2019
	As Reported			Adjustment			As Adjusted
	(in thousands)
Redeemable Preferred Units
Series Seed Redeemable Preferred Units	$	3,956		$	(3,956	)	$	—
Series A1 Redeemable Preferred Units		49,946			(49,946	)		—
Series B Redeemable Preferred Units		83,872			(83,872	)		—
Series C Redeemable Preferred Units		—			—			—
Total Redeemable Preferred Units		137,774			(137,774	)		—
Stockholders' Equity (Members' Deficit)
Non-Voting Incentive Units	1				(1	)		—
Common Stock		—			2			2
Additional paid-in capital	770				137,773			138,543
Accumulated other comprehensive loss		(4	)		—			(4	)
Accumulated deficit		(41,540	)		—			(41,540	)
Total Cullinan Stockholders' Equity (Members' Deficit)		(40,773	)		137,774			97,001
Non-controlling interests in subsidiaries	864				—			864
Total Stockholders' Equity (Members' Deficit)	$	(39,909	)	$	137,774		$	97,865

	As of December 31, 2020
	As Reported		Adjustment			As Adjusted
	(in thousands)
Redeemable Preferred Units
Series Seed Redeemable Preferred Units	$	3,956	$	(3,956	)	$	—
Series A1 Redeemable Preferred Units		49,946		(49,946	)