Notes to Condensed Financial Statements
(unaudited)
1. Organization and
Description of Business
CymaBay Therapeutics, Inc. (the Company or CymaBay) is a biopharmaceutical company
focused on developing therapies to treat diseases with high unmet medical need, including serious rare and orphan disorders. The Companys two key clinical development candidates are MBX-8025 and arhalofenate. MBX-8025 is currently being
developed for the treatment of various orphan liver and lipid diseases. Arhalofenate is being developed for the treatment of gout. The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Companys headquarters and
operations are located in Newark, California and it operates in one segment.
Liquidity
The Company has incurred net operating losses and negative cash flows from operations since its inception. During the nine months ended
September 30, 2016, the Company incurred a net loss of $19.7 million and used $18.0 million of cash in operations. At September 30, 2016, the Company had an accumulated deficit of $416.0 million. CymaBay expects to incur increased research
and development expenses as it continues to study its product candidates in clinical trials. To date, none of the Companys product candidates have been approved for marketing and sale, and the Company has not recorded any product sales. As a
result, management expects operating losses to continue in future years. The Companys ability to achieve profitability is dependent primarily on its ability to successfully develop, acquire or in-license additional product candidates, continue
clinical trials for product candidates currently in clinical development, obtain regulatory approvals, and support commercialization activities for partnered product candidates. Products developed by the Company will require approval of the U.S.
Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse
effect on the Company. Even if approved, the Companys products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.
As of September 30, 2016, the Companys cash, cash equivalents and marketable securities totaled $23.1 million. These funds are
expected to satisfy the Companys liquidity requirements through at least the second quarter of 2017. The Company expects to incur substantial expenditures in the future for the development and potential commercialization of its product
candidates. Because of this, the Company expects its future liquidity and capital resource needs will be impacted by numerous factors, including but not limited to, the timing of initiation of planned clinical trials, including additional phase 2
trials to study the therapeutic benefits of MBX-8025 on patients with certain orphan diseases, including primary biliary cholangitis (PBC), as well as a phase 3 clinical trial to study the therapeutic benefits of arhalofenate on patients with gout.
The Company will therefore continue to require additional financing to develop its products and fund future operating losses and will seek funds through equity financings, debt, collaborative or other arrangements with corporate sources, or through
other sources of financing. It is unclear if or when any such financing transactions will occur, on satisfactory terms or at all. The Companys failure to raise capital as and when needed could have a negative impact on its financial condition
and its ability to pursue its business strategies. If adequate funds are not available, the Company may be required to reduce development activities or to close its business, which could have an adverse impact on its ability to achieve its business
objectives.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying
interim condensed financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance U.S. GAAP (GAAP) and following the requirements of the United States Securities and Exchange Commission
(SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In managements opinion, the unaudited interim condensed
financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Companys financial position
and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Companys financial statements and
accompanying notes for the fiscal year ended December 31, 2015, which is contained in the Companys Annual Report on Form 10-K as filed with the SEC on March 29, 2016. The results for the three and nine months ended September 30,
2016, are not necessarily indicative of results to be expected for the year or for any other period.
6
Use of Estimates
The condensed financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that
affect the amounts and disclosures reported in the condensed financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation
process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those
estimates. The Company believes significant judgment is involved in estimating stock-based compensation, accrued clinical expenses, and equity instrument valuations.
Fair Value of Financial Instruments
The
Companys financial instruments during the periods reported consist of cash and cash equivalents, marketable securities, accrued interest receivable, prepaid expenses, accounts payable, accrued interest payable, accrued expenses, the facility
loan, and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant
judgment. The carrying amounts of financial instruments such as cash and cash equivalents, accrued interest receivable, prepaid expenses, accounts payable, accrued expenses, and accrued interest payable approximate the related fair values due to the
short maturities of these instruments. Based on prevailing borrowing rates available to the Company for loans with similar terms, the Company believes the fair value of the Facility Loan, considering level 2 inputs, approximates its carrying
value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value
hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and maximizes the use of unobservable inputs and is as follows:
Level 1Inputs which include quoted prices in active markets for identical assets or liabilities that the Company has the ability to
access at the measurement date.
Level 2Inputs other than quoted prices in active markets that are observable for the asset or
liability, either directly or indirectly.
Level 3Inputs that are significant to the fair value measurement and are unobservable
(i.e. supported by little market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
|
(In thousands)
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
6,714
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,714
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
|
|
|
|
8,689
|
|
|
|
|
|
|
|
8,689
|
|
Corporate debt securities
|
|
|
|
|
|
|
4,714
|
|
|
|
|
|
|
|
4,714
|
|
Asset-backed securities
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
6,714
|
|
|
$
|
16,313
|
|
|
$
|
|
|
|
$
|
23,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,177
|
|
|
$
|
1,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,177
|
|
|
$
|
1,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
(In thousands)
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
6,942
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,942
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
|
|
|
|
5,992
|
|
|
|
|
|
|
|
5,992
|
|
Government debt securities
|
|
|
|
|
|
|
1,507
|
|
|
|
|
|
|
|
1,507
|
|
Corporate debt securities
|
|
|
|
|
|
|
21,654
|
|
|
|
|
|
|
|
21,654
|
|
Asset-backed securities
|
|
|
|
|
|
|
4,621
|
|
|
|
|
|
|
|
4,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
6,942
|
|
|
$
|
33,774
|
|
|
$
|
|
|
|
$
|
40,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,220
|
|
|
$
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,220
|
|
|
$
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimates the fair value of its money market funds, commercial paper, corporate debt, asset backed
securities, and government debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for
which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities;
prepayment/default projections based on historical data; and other observable inputs.
There were no transfers between Level 1 and Level 2
during the periods presented.
The Company holds a Level 3 liability associated with common stock warrants that were issued in connection
with the Companys financings completed in September and October 2013, January 2014, and August 2015. The warrants are classified as liabilities and recorded at fair value using a binomial lattice option-pricing model, the inputs for which
include the exercise price of the warrants, market price of the underlying common shares, expected term, volatility, the risk-free rate, and the expected changes in stock price that follow announcements of the Companys clinical trial results
and other strategic initiatives. Changes to any of the inputs to the valuation model used by the Company can have a significant impact to the estimated fair value of the warrants.
8
The following table sets forth an activity summary which includes the changes in the fair value
of the Companys Level 3 financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of period
|
|
$
|
1,220
|
|
|
$
|
13,596
|
|
Issuance of financial instrument
|
|
|
|
|
|
|
258
|
|
Change in fair value
|
|
|
(43
|
)
|
|
|
(10,985
|
)
|
Settlement of financial instrument
|
|
|
|
|
|
|
(1,513
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,177
|
|
|
$
|
1,356
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents, and Marketable Securities
The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash
equivalents. Cash and cash equivalents consist primarily of deposits with commercial banks in checking, interest-bearing, and demand money market accounts.
The Company invests excess cash in marketable securities with high credit ratings. These securities consist primarily of corporate debt and
asset-backed securities and are classified as available-for-sale. Management may liquidate any of these investments in order to meet the Companys liquidity needs in the next year. Accordingly, any investments with contractual
maturities greater than one year from the balance sheet date are classified as short-term in the condensed balance sheets.
Realized gains
and losses from the sale of marketable securities, if any, are calculated using the specific identification method. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income or expense in the
statements of operations. Unrealized holding gains and losses are reported in accumulated other comprehensive loss, in the balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to
other-than-temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the
investees financial condition, and the Companys intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.
9
Marketable securities in the condensed balance sheets, all of which are classified as
available-for-sale, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
As of September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
8,689
|
|
|
|
|
|
|
|
|
|
|
|
8,689
|
|
Corporate debt securities
|
|
|
4,716
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
4,714
|
|
Asset-backed securities
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,315
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
16,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
5,992
|
|
Government debt securities
|
|
|
1,509
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
1,507
|
|
Corporate debt securities
|
|
|
21,671
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
21,654
|
|
Asset-backed securities
|
|
|
4,623
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
4,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,795
|
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
33,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016, and December 31, 2015, the remaining contractual maturities of the
Companys commercial paper, corporate debt securities, and government debt securities was less than one year and asset backed securities was between two and five years. Realized gains and losses were immaterial for all periods presented. None
of these investments has been in a continuous unrealized loss position for more than 12 months as of September 30, 2016, or December 31, 2015.
10
Restricted Cash
The Company is required to maintain compensating cash balances with financial institutions that provide the Company with its corporate credit
cards. As of September 30, 2016, and December 31, 2015, cash restricted under these arrangements was $170,000. This amount is presented in other assets on the accompanying condensed balance sheets.
Concentration of Credit Risk
Cash, cash
equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded in the condensed balance sheets. The Company invests cash that is
not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage
its credit risk. The counterparties to the agreements relating to the Companys investments consist of financial institutions of high credit standing.
Common Stock Warrant Liability
Warrants
issued to common stock holders and lenders by the Company in conjunction with financings from 2013 through 2015 are classified as liabilities in the accompanying condensed balance sheets, as the terms for redemption of the underlying security are
outside the Companys control. The warrants are recorded at fair value and are re-measured at each financial reporting period until the warrants are exercised or expire and immediately before exercise, with any changes in fair value being
recognized as a component of other income (expense), net in the accompanying condensed statements of operations and comprehensive loss.
Research and
Development Expenses
Research and development expenses consist of costs incurred in identifying, developing, and testing product
candidates. These expenses consist primarily of costs for research and development personnel (including related stock-based compensation); contract research organizations and other third parties that assist in managing, monitoring, and analyzing
clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services; non-clinical studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information
technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements.
The expenses related to clinical trials are based upon estimates of the services received and efforts expended pursuant to contracts with
multiple research institutions and clinical research organizations (CROs) that conduct and manage clinical trials on behalf of the Company. Expenses related to clinical trials are accrued based upon the level of activity incurred under each contract
as indicated by such factors as progress made against specified milestones or targets in each period, patient enrollment levels, and other trial activities as reported by CROs. Accordingly, the Companys clinical trial accrual is dependent upon
the timely and accurate reporting of expenses by clinical research organizations and other third-party vendors. Payments made to third parties under these clinical trial arrangements in advance of the receipt of the related services are
recorded as prepaid assets, depending on the terms of the agreement, until the services are rendered.
Stock-Based Compensation
Employee and director stock-based compensation is measured at the grant date, based on the fair-value of the awards, and the portion that is
ultimately expected to vest is recognized as an expense over the related vesting periods, net of estimated forfeitures. The Company calculates the fair-value of option grants and incentive awards using the Black-Scholes model and recognizes expense
using the straight-line attribution method. For performance based stock options, the Company begins to recognize the expense when it is deemed probable that the performance based condition will be met. The Company evaluates the probability of
achieving performance based condition at each reporting period.
Equity awards granted to non-employees are valued using the Black-Scholes
option pricing model to determine the fair value of such instruments. The fair value of equity awards granted to non-employees are re-measured throughout the related vesting period and amortized to expense over that period.
11
Net Loss Per Common Share
Basic net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding equivalents during
the period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding adjusted to include the assumed exercises of stock options and warrants, if dilutive.
The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the
reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to earnings (loss) per share for the period, adjustments to net income or net loss used in the calculation are required to remove
the change in fair value of the warrants for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares.
In all periods presented, the Companys outstanding stock options and incentive awards were excluded from the calculation of net loss per
share because the effect would be antidilutive.
The Companys computation of net loss per share is as follows (in thousands, except
share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss allocated to common stock-basic
|
|
$
|
(5,879
|
)
|
|
$
|
(5,865
|
)
|
|
$
|
(19,719
|
)
|
|
$
|
(9,550
|
)
|
Adjustments for revaluation of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss allocated to common stock-diluted
|
|
$
|
(5,879
|
)
|
|
$
|
(5,865
|
)
|
|
$
|
(19,719
|
)
|
|
$
|
(10,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock shares outstandingbasic
|
|
|
23,447,003
|
|
|
|
21,674,742
|
|
|
|
23,447,003
|
|
|
|
17,368,309
|
|
Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock shares outstandingdiluted
|
|
|
23,447,003
|
|
|
|
21,674,742
|
|
|
|
23,447,003
|
|
|
|
17,384,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per sharebasic:
|
|
$
|
(0.25
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.84
|
)
|
|
$
|
(0.55
|
)
|
Net loss per sharediluted:
|
|
$
|
(0.25
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.84
|
)
|
|
$
|
(0.58
|
)
|
The following table shows the total outstanding common stock equivalents considered anti-dilutive and
therefore excluded from the computation of diluted net loss per share (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Warrants for common stock
|
|
|
1,667
|
|
|
|
1,667
|
|
|
|
1,667
|
|
|
|
1,492
|
|
Common stock options
|
|
|
2,422
|
|
|
|
1,785
|
|
|
|
2,422
|
|
|
|
1,785
|
|
Performance-based stock options
|
|
|
327
|
|
|
|
|
|
|
|
327
|
|
|
|
|
|
Incentive awards
|
|
|
241
|
|
|
|
245
|
|
|
|
241
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,657
|
|
|
|
3,697
|
|
|
|
4,657
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
Accounting Standards Update 2014-15
In August 2014, the FASB issued guidance codified in ASC 205, Presentation of Financial Statements Going Concern. Accounting Standards
Update 2014-15 requires an entitys management to evaluate whether there are conditions or events, considered
12
in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern and if those conditions exist, to make the required disclosures. Early adoption will
be permitted. The standard is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. The Company does not expect that the adoption of this standard will have a significant impact on its
condensed financial statements.
Accounting Standards Update 2015-03
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of
Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the corresponding debt liability rather than as an asset. The Company adopted this ASU
with retrospective application in the first quarter of 2016. As the Company does not have any debt issuance costs recorded as assets, the adoption of this standard did not have any impact on its condensed financial statements.
Accounting Standards Update 2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires management to recognize lease assets and lease
liabilities by lessees for most leases. The ASU is effective for the annual periods beginning after December 15, 2018 and interim periods therein on a modified retrospective basis. The Company is currently evaluating the impact this guidance
will have on its condensed financial statements.
Accounting Standards Update 2016-09
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic
718, Compensation Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The ASU will be effective for the
Company for the annual periods beginning after December 15, 2016 and interim periods within those annual periods on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on its condensed
financial statements.
Accounting Standards Update 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326), which introduces an approach based
on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for availablefor-sale debt securities and provides for a simplified accounting model for purchased financial assets
with deterioration since their origination. The ASU is effective for the annual periods beginning after December 15, 2019 including interim periods within those annual periods. The Company is currently evaluating the impact this guidance will
have on its condensed financial statements.
3. Certain Balance Sheet Items
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
|
Accrued compensation
|
|
$
|
1,399
|
|
|
$
|
1,010
|
|
Accrued pre-clinical and clinical trial expenses
|
|
|
1,244
|
|
|
|
2,015
|
|
Accrued professional fees
|
|
|
269
|
|
|
|
283
|
|
Other accruals
|
|
|
48
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
2,960
|
|
|
$
|
3,336
|
|
|
|
|
|
|
|
|
|
|
4. Common Stock Warrants
During the three and nine months ended September 30, 2015, the Company issued an aggregate of 9,703 and 132,295 shares of common stock,
respectively, to stockholders upon the exercise of warrants exercisable for shares of the Companys common stock. The 132,295 shares of common stock were issued pursuant to both cash and net exercise provisions as provided in the warrants.
Specifically, 74,136 shares of the Companys common stock were issued in exchange for $0.4 million in cash and 58,159 shares of the
13
Companys common stock were issued in exchange for shares of its common stock in accordance with net exercise provisions. For each warrant exercised, the Company determined the
warrants exercise date fair value and reclassified the fair value of such settled warrants from the warrant liability to additional paid-in capital, a component of stockholders equity. The aggregate amount of these fair value
reclassifications totaled $0.2 million and $1.5 million during the three and nine months ended September 30, 2015, respectively. No warrants were issued or exercised for the three and nine months ended September 30, 2016.
5. Collaboration and License Agreements
Janssen
Pharmaceutical NV and Janssen Pharmaceuticals, Inc.
In June 2006, the Company entered into an exclusive worldwide,
royalty-bearing license to MBX-8025 and certain other PPAR
d
compounds (the PPAR
d
Products) with Janssen Pharmaceutical NV (Janssen NV), with the
right to grant sublicenses to third parties to make, use and sell such PPAR
d
Products. Under the terms of the agreement, the Company has full control and responsibility over the research, development and
registration of any PPAR
d
Products and is required to use diligent efforts to conduct all such activities. Janssen NV has the sole responsibility for the preparation, filing, prosecution, maintenance of,
and defense of the patents with respect to, the PPAR
d
Products. Janssen NV has a right of first negotiation under the agreement to license a particular PPAR
d
Product from the Company in the event that the Company elects to seek a third party corporate partner for the research, development, promotion, and/or commercialization of such PPAR
d
Products. Under the
terms of the agreement Janssen NV is entitled to receive up to an 8% royalty on net sales of PPAR
d
Products.
In June 2010, the Company entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen), a subsidiary
of Johnson and Johnson, to further develop and discover undisclosed metabolic disease target agonists for the treatment of T2DM and other disorders and received a one-time nonrefundable technology access fee related to the agreements. The Company
received a termination notice from Janssen, effectively ending these development and licensing agreements in early April 2015. In December 2015, the Company exercised an option pursuant to the terms of one of the original agreements to continue work
to research, develop and commercialize compounds with activity against an undisclosed metabolic disease target. Janssen granted the Company an exclusive, worldwide license (with rights to sublicense) under the Janssen know-how and patents to
research, develop, make, have made, use, offer for sale and sell such compounds. The Company has full control and responsibility over the research, development and registration of any products developed and/or discovered from the metabolic disease
target and is required to use diligent efforts to conduct all such activities.
Dia Tex, Inc.
In June 1998, the Company entered into a license agreement with DiaTex, Inc. (DiaTex) relating to products containing halofenate, its
enantiomers, derivatives, and analogs (the licensed products). The license agreement provides that DiaTex and the Company are joint owners of all of the patents and patent applications covering the licensed products and methods of producing or using
such compounds, as well as certain other know-how (the covered IP). As part of the license agreement, the Company received an exclusive worldwide license, including as to DiaTex, to use the covered IP to develop and commercialize the licensed
products. The Company also retained the right to sub-license the covered IP. The license agreement contains a $2,000 per month license fee as well as a requirement to make additional payments for development achievements and royalty payments on any
sales of licensed products. DiaTex is entitled to up to $0.8 million for the future development of arhalofenate, as well as royalty payments on any sales of products containing arhalofenate. No development payments were made in the three and
nine months ended September 30, 2016 and 2015 and no royalties have been paid to date.
6. Facility Loans
2013 Term Loan Facility
On
September 30, 2013, the Company entered into a facility loan agreement with Silicon Valley Bank and Oxford Finance LLC (referred to herein as the lenders) for a total loan amount of $10.0 million of which the first tranche of $5.0 million was
drawn as part of the Companys September 2013 financing, referred to herein as the 2013 Term Loan Facility. The loan had a fixed interest rate of 8.75% payable as interest only for twelve months and a thirty-six month loan
amortization period thereafter, with a final interest payment of $0.3 million at the end of the loan period. The second tranche of $5.0 million became available to the Company upon its February 24, 2015, announcement of the
achievement of positive Phase 2b data for the Companys product candidate arhalofenate and remained available to the Company until June 30, 2015. On June 30, 2015, the second tranche portion of the loan facility expired unused by
the Company.
At the time the first $5.0 million tranche of the facility loan was drawn down, the Company issued warrants
exercisable for a total of 121,739 shares of the Companys common stock to the lenders at an exercise price of $5.00 per share. Upon issuance, the fair value of a warrant liability was recorded and is being revalued at each balance sheet
date until the warrants are exercised or expire.
14
2015 Term Loan Facility
On August 7, 2015, the Company entered into a Loan and Security Agreement pursuant to which it refinanced its existing 2013 Term Loan
Facility with Oxford Finance LLC and Silicon Valley Bank, for an aggregate amount of up to $15.0 million, referred to herein as the 2015 Term Loan Facility. The first $10.0 million tranche of this new loan facility was made available to the Company
immediately upon the closing and was used in part to retire all $4.1 million of the Companys existing debt outstanding under the 2013 Term Loan Facility, and to settle accrued interest and closing costs with the lenders. The remaining $5.0
million, referred to as the second tranche, was made available to the Company until March 31, 2016, for draw down upon the announcement of a qualified out-license or co-development arrangement for arhalofenate, the Companys gout therapy
drug candidate, which includes an upfront payment of not less than $35.0 million (the second draw milestone). Because the present value of the future cash flows under the modified loan terms did not exceed the present value of the future cash flows
under the previous loan terms by more than 10%, the Company treated this refinancing as a modification. The remaining debt discount costs will be amortized over the remaining term of the Loan and Security Agreement using the effective interest rate
method. The $5.0 million second tranche expired unused in March 2016 as the second draw milestone was not achieved.
The first loan
tranche bears interest at 8.77%, a rate which was determined on the advance date as being the greater of (i) 8.75% and (ii) the sum of 8.47% and the 90 day U.S. LIBOR rate reported in the Wall Street Journal three business days prior to
the funding date of the first tranche. Under the first tranche, the Company is required to make 12 monthly interest only payments after the funding date followed by a repayment schedule equal to 36 equal monthly payments of interest and principal.
Upon maturity, the remaining balance of the first tranche and a final payment equal to 6.50% of the original principal amount advanced of the applicable tranche are payable.
At the closing, the Company also agreed to pay a facility fee of 1.00% of the 2015 Term Loan Facility commitment. In addition, the Company
issued warrants exercisable for a total of 114,436 shares of its common stock to the lenders at an exercise price of $2.84 per share, and with a term of ten years. Upon issuance, the fair value of a warrant liability of $0.3 million was recorded in
the accompanying condensed balance sheet and is being revalued at each balance sheet date until the warrants are exercised or expire.
The
2015 Term Loan Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company, and also includes defined customary events of default. As of September 30, 2016, the Company
was in compliance with the term loan covenants and there were no events of default.
7. Commitments and Contingencies
The Company leases 8,894 square feet of office space in Newark, California pursuant to a lease which commenced January 16, 2014 and
expires on December 31, 2018. Rent expense was $0.1 million for each of the three months ended September 30, 2016 and 2015, and $0.3 million for each of the nine months ended September 30, 2016 and 2015.
Future minimum lease payments are as follows (in thousands):
|
|
|
|
|
|
|
Lease
|
|
|
|
Payments
|
|
Year ending December 31:
|
|
|
|
|
2016 (from October to December)
|
|
$
|
54
|
|
2017
|
|
|
222
|
|
2018
|
|
|
228
|
|
|
|
|
|
|
Total future minimum payments
|
|
$
|
504
|
|
|
|
|
|
|
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and
provide for general indemnification, including indemnification associated with product liability or infringement of intellectual property rights. The Companys exposure under these agreements is unknown because it involves future claims that
may be made against the Company that may be, but have not yet been, made. To date, the Company has not paid any claims or been required to defend any action related to these indemnification obligations, and no amounts have been accrued in the
accompanying consolidated balance sheets related to these indemnification obligations.
The Company has agreed to indemnify its executive
officers and directors for losses and costs incurred in connection with certain events or occurrences, including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future payments the Company
could be required to make under this indemnification is unlimited; however, the Company maintains insurance policies that may limit its exposure and may enable it to recover a portion of any future amounts paid. Assuming the applicability of
coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits, and other policy provisions, the Company believes the fair value of these indemnification obligations is not material. Accordingly, the
Company
15
has not recognized any liabilities relating to these obligations as of September 30, 2016, and December 31, 2015. No assurances can be given that the covering insurers will not attempt
to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case the Company may incur substantial liabilities as a result of these indemnification obligations.
8. Stockholders Equity
The Company
is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share as of September 30, 2016. The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.0001 per share as of
September 30, 2016.
As of September 30, 2016 and December 31, 2015, the Company had reserved shares of authorized but
unissued common stock as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
|
Common stock warrants
|
|
|
1,667,398
|
|
|
|
1,667,398
|
|
Equity incentive plans
|
|
|
3,456,771
|
|
|
|
2,284,421
|
|
|
|
|
|
|
|
|
|
|
Total reserved shares of common stock
|
|
|
5,124,169
|
|
|
|
3,951,819
|
|
|
|
|
|
|
|
|
|
|
9. Stock Plans and Stock-Based Compensation
Stock Plans
On January 1, 2016, the
share reserve of the Companys 2013 Equity Incentive Plan (2013 Plan), automatically increased by 1,172,350 shares. As of September 30, 2016, there were 466,445 shares available for issuance under the 2013 Plan.
Stock-Based Compensation Expense
Stock-based compensation expense recorded, net of estimated forfeitures, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Research and development
|
|
$
|
273
|
|
|
$
|
213
|
|
|
$
|
718
|
|
|
$
|
607
|
|
General and administrative
|
|
|
394
|
|
|
|
349
|
|
|
|
1,079
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
667
|
|
|
$
|
562
|
|
|
$
|
1,797
|
|
|
$
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2016, the Company granted 327,000 performance-based stock options (PSOs) to executives and senior
officers. PSOs represent a contingent right to purchase the Companys common stock upon the achievement of specific conditions. Specifically, these PSOs vest upon the achievement of certain clinical development and capital raising milestones
which must occur before December 31, 2016. As of September 30, 2016, the achievement of the clinical development milestone was deemed to be probable and the related pro rata expense was recognized for the three and nine months then ended.
As of September 30, 2016, unrecognized stock-based compensation related to these PSOs is $304,000 and its recognition is dependent upon the achievement of the milestones.
10. Related-Party Transactions
The
Company paid a former member of its Board of Directors, who is also a scientific and clinical advisor, a total of $60,000 in the year ended December 31, 2015 and $45,000 for the nine months ended September 30, 2016, in monthly cash
retainers. The Company also granted 9,000 options to purchase shares of common stock to this individual in his capacity as a key scientific advisor for the nine months ended September 30, 2016.
16