Quarterly Report (10-q)

Date : 11/07/2019 @ 11:32AM
Source : Edgar (US Regulatory)
Stock : Aileron Therapeutics Inc (ALRN)
Quote : 0.32  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                      to                     

Commission File Number: 001-38130

 

Aileron Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4196017

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

490 Arsenal Way, Suite 210

Watertown, MA

 

02472

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 995-0900

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ALRN

Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  

As of November 5, 2019, the registrant had 27,810,358 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Balance Sheets

 

2

 

 

Condensed Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Statement of Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Statements of Cash Flows

 

5

Item 2.

 

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

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

PART II.

 

OTHER INFORMATION

 

30

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

68

Item 5.

 

Other Information

 

69

Item 6.

 

Exhibits

 

69

 

 

Signatures

 

70

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

AILERON THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,867

 

 

$

10,635

 

Investments

 

 

17,694

 

 

 

10,060

 

Prepaid expenses and other current assets

 

 

1,911

 

 

 

1,055

 

Restricted cash

 

 

25

 

 

 

25

 

Total current assets

 

 

26,497

 

 

 

21,775

 

Operating lease, right-of-use asset

 

 

6,224

 

 

 

 

Property and equipment, net

 

 

361

 

 

 

7,290

 

Restricted cash, non-current

 

 

568

 

 

 

568

 

Other assets

 

 

302

 

 

 

679

 

Total assets

 

$

33,952

 

 

$

30,312

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,349

 

 

$

1,731

 

Accrued expenses and other current liabilities

 

 

3,653

 

 

 

3,639

 

Operating lease liabilities

 

 

426

 

 

 

 

Total current liabilities

 

 

6,428

 

 

 

5,370

 

Operating lease liabilities, net of current portion

 

 

4,708

 

 

 

 

Construction financing liability

 

 

 

 

 

5,342

 

Total liabilities

 

 

11,136

 

 

 

10,712

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized

   at September 30, 2019 and December 31, 2018, respectively; no shares

   issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized at

   September 30, 2019 and December 31, 2018; 27,810,358 and 14,748,475

   shares issued and outstanding at September 30, 2019 and December 31, 2018,

   respectively

 

 

28

 

 

 

15

 

Additional paid-in capital

 

 

213,671

 

 

 

188,083

 

Accumulated other comprehensive gain/(loss)

 

 

17

 

 

 

(5

)

Accumulated deficit

 

 

(190,900

)

 

 

(168,493

)

Total stockholders’ equity

 

 

22,816

 

 

 

19,600

 

Total liabilities and stockholders’ equity

 

$

33,952

 

 

$

30,312

 

 

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

2


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,475

 

 

 

4,321

 

 

 

12,953

 

 

 

14,487

 

General and administrative

 

 

3,440

 

 

 

3,177

 

 

 

9,654

 

 

 

10,433

 

Total operating expenses

 

 

7,915

 

 

 

7,498

 

 

 

22,607

 

 

 

24,920

 

Loss from operations

 

 

(7,915

)

 

 

(7,498

)

 

 

(22,607

)

 

 

(24,920

)

Interest income

 

 

166

 

 

 

64

 

 

 

473

 

 

 

407

 

Net loss

 

 

(7,749

)

 

 

(7,434

)

 

 

(22,134

)

 

 

(24,513

)

Net loss per share — basic and diluted

 

$

(0.28

)

 

$

(0.50

)

 

$

(0.95

)

 

$

(1.66

)

Weighted average common shares outstanding—basic and diluted

 

 

27,810,358

 

 

 

14,737,402

 

 

 

23,431,823

 

 

 

14,735,660

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(7,749

)

 

 

(7,434

)

 

$

(22,134

)

 

$

(24,513

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

 

(7

)

 

 

9

 

 

 

22

 

 

 

30

 

Total other comprehensive gain (loss)

 

 

(7

)

 

 

9

 

 

 

22

 

 

 

30

 

Total comprehensive loss

 

$

(7,756

)

 

$

(7,425

)

 

$

(22,112

)

 

$

(24,483

)

 

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

3


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balances at December 31, 2018

 

 

14,748,475

 

 

$

15

 

 

$

188,083

 

 

$

(5

)

 

$

(168,493

)

 

$

19,600

 

Exercise of stock options

 

 

126,560

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

165

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

563

 

Adoption of ASC 842, Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(273

)

 

 

(273

)

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,213

)

 

 

(7,213

)

Balances at March 31, 2019

 

 

14,875,035

 

 

$

15

 

 

$

188,811

 

 

$

 

 

$

(175,979

)

 

$

12,847

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock and common warrants, net of issuance

   costs of $2,175

 

 

11,838,582

 

 

 

12

 

 

 

21,610

 

 

 

 

 

 

 

 

 

21,622

 

Sale of pre-funded warrants and common warrants

 

 

1,096,741

 

 

 

1

 

 

 

2,202

 

 

 

 

 

 

 

 

 

2,203

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

460

 

 

 

 

 

 

 

 

 

460

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,172

)

 

 

(7,172

)

Balances at June 30, 2019

 

 

27,810,358

 

 

$

28

 

 

$

213,083

 

 

$

24

 

 

$

(183,151

)

 

$

29,984

 

Exercise of pre-funded warrants

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Issuance costs of $37

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

(37

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

614

 

 

 

 

 

 

 

 

 

614

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,749

)

 

 

(7,749

)

Balances at September 30, 2019

 

 

27,810,358

 

 

$

28

 

 

$

213,671

 

 

$

17

 

 

$

(190,900

)

 

$

22,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

 

14,723,818

 

 

$

15

 

 

$

184,761

 

 

$

(33

)

 

$

(136,946

)

 

$

47,797

 

Exercise of stock options

 

 

10,565

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

767

 

 

 

 

 

 

 

 

 

767

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,588

)

 

 

(7,588

)

Balances at March 31, 2018

 

 

14,734,383

 

 

$

15

 

 

$

185,544

 

 

$

(50

)

 

$

(144,534

)

 

$

40,975

 

Exercise of stock options

 

 

3,019

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,334

 

 

 

 

 

 

 

 

 

1,334

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

 

 

 

38

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,491

)

 

 

(9,491

)

Balances at June 30, 2018

 

 

14,737,402

 

 

$

15

 

 

$

186,890

 

 

$

(12

)

 

$

(154,025

)

 

$

32,868

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

588

 

 

 

 

 

 

 

 

 

588

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,434

)

 

 

(7,434

)

Balances at September 30, 2018

 

 

14,737,402

 

 

$

15

 

 

$

187,478

 

 

$

(3

)

 

$

(161,459

)

 

$

26,031

 

 

4


 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,134

)

 

$

(24,513

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

80

 

 

 

169

 

Net amortization of premiums and discounts on investments

 

 

(170

)

 

 

(184

)

Stock-based compensation expense

 

 

1,637

 

 

 

2,689

 

Change in deferred rent

 

 

 

 

 

(11

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(871

)

 

 

(315

)

Other assets

 

 

852

 

 

 

15

 

Accounts payable

 

 

603

 

 

 

(44

)

Operating lease liabilities

 

 

(267

)

 

 

 

Accrued expenses and other current liabilities

 

 

101

 

 

 

931

 

Net cash used in operating activities

 

 

(20,169

)

 

 

(21,263

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(136

)

 

 

(2,491

)

Purchases of investments

 

 

(24,510

)

 

 

(26,231

)

Proceeds from sales or maturities of investments

 

 

17,068

 

 

 

45,105

 

Net cash provided by (used in) investing activities

 

 

(7,578

)

 

 

16,383

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, common warrants and pre-funded warrants,

   net of issuance costs

 

 

23,814

 

 

 

 

Proceeds from exercise of stock options

 

 

165

 

 

 

28

 

Increase in construction financing liability

 

 

 

 

 

1,210

 

Net cash provided by financing activities

 

 

23,979

 

 

 

1,238

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(3,768

)

 

 

(3,642

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

11,228

 

 

 

11,951

 

Cash, cash equivalents and restricted cash at end of period

 

$

7,460

 

 

$

8,309

 

 

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

5


 

 

AILERON THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

1. Nature of the Business and Basis of Presentation

Aileron Therapeutics, Inc. (“Aileron” or the “Company”) is a clinical-stage biopharmaceutical company advancing a proprietary platform of cell-permeating alpha-helical peptides. The stabilized helical structure of the Company’s peptides allows the design of cell-permeating therapeutic agents with large molecular surfaces for optimal target binding properties, resulting in product candidates like ALRN-6924, the Company’s lead product candidate. The Company’s current focus is to improve the standard of care for patients with cancer by developing safe and effective therapies and cancer supportive care treatments that leverage its proprietary peptide platform. Based on preclinical data and preliminary evidence of safety and anti-tumor activity in the Company’s ongoing clinical trials, the Company believes that there may be a significant opportunity to develop ALRN-6924 in combination with other drugs for the treatment of a wide variety of cancers. Additionally, preclinical experiments have shown that, in normal, non-cancer cells, ALRN-6924 induces cell cycle arrest when administered using a different schedule and lower doses than those used to induce cell death in cancer cells. Based on this preclinical data, the Company believes that a significant myelopreservation opportunity exists, to protect against chemotherapy-related toxicities.

The Company’s clinical development program for ALRN-6924 is currently focused on an ongoing Phase 2a expansion cohort studying the combination of ALRN-6924 and palbociclib (Ibrance™), marketed by Pfizer, Inc., for the treatment of MDM2-amplified advanced solid tumors and an ongoing Phase 1b/2 clinical trial to evaluate ALRN-6924 as a myelopreservative agent, to protect against chemotherapy-related toxicities.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary governmental regulatory approval or that any approved products will be commercially viable. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its key employees and consultants.

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

Liquidity

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

On April 2, 2019, the Company issued and sold in a private placement an aggregate of (i) 11,838,582 units, consisting of 11,838,582 shares of its common stock and associated warrants (the “common warrants”) to purchase an aggregate of 11,838,582 shares of common stock, for a combined price of $2.01 per unit and (ii) 1,096,741 units, consisting of (a) pre-funded warrants to purchase 1,096,741 shares of the Company’s common stock and (b) associated common warrants to purchase 1,096,741 shares of common stock, for a combined price of $2.01 per unit. The pre-funded warrants had an exercise price of $0.01 per share and had no expiration. The common warrants are exercisable at an exercise price of $2.00 per share and expire five years from the date of issuance.

6


 

The securities were sold pursuant to a securities purchase agreement entered into with accredited investors on March 28, 2019. The Company received aggregate gross proceeds from the private placement of approximately $26,000, before deducting placement agent fees and offering expenses of $2,175, and excluding the exercise of any warrants. In July 2019, all outstanding pre-funded warrants were exercised for 1,096,741 shares of common stock.

The Company’s interim financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through September 30, 2019, the Company has funded its operations with net proceeds of $23,825 from its private placement on April 2, 2019, $50,009 from its initial public offering on July 5, 2017, $131,211 from sales of preferred stock prior to the Company’s initial public offering, $552 from the exercise of stock options and $34,910 from a collaboration agreement. As of September 30, 2019, the Company had cash, cash equivalents and investments of $24,561. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $190,900 as of September 30, 2019. The Company expects to continue to generate losses for the foreseeable future.

On July 12, 2019, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying it that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market, referred to as the minimum bid price rule. In accordance with Nasdaq Listing Rules, the Company has an initial period of 180 calendar days, or until January 8, 2020, to regain compliance with the minimum bid price rule. If at any time before January 8, 2020 the bid price for the Company’s common stock closes at $1.00 or more per share for a minimum of 10 consecutive business days, the Nasdaq Listing Qualifications Department staff will provide written notification to the Company that it is in compliance with the minimum bid price rule, unless the staff exercises its discretion to extend this 10-day period pursuant to the Nasdaq Listing Rules. The Company is actively monitoring its stock price and will consider any and all options available to the Company to maintain compliance. The alternatives to trading on the Nasdaq Global Market or another national securities exchange are generally considered to be less efficient and less broad-based than the national securities exchanges and the liquidity of the Company’s common stock will likely be reduced if we fail to regain compliance with the minimum bid price rule.

As of November 7, 2019, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments of $24,561 as of September 30, 2019, will be sufficient to fund its current business plan including related operating expenses and capital expenditure requirements into the fourth quarter of 2020. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern as the Company does not believe that its cash, cash equivalents and investments will be sufficient to fund such business plan for at least twelve months from the date of issuance of these interim financial statements. The Company plans to address this condition by seeking to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing and therefore it is not considered probable, as defined in accounting standards ASU No. 2014-15 (subtopic 205-40), that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern.

To execute its business plans beyond the fourth quarter of 2020, the Company will need substantial funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing on acceptable terms or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion plans or commercialization efforts, which could adversely affect its business prospects.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

7


 

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 that was filed with the SEC on March 29, 2019.

 

The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019, the results of its operations for the three and nine months ended September 30, 2019 and 2018 and its cash flows for the nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2019 and 2018 are unaudited. The results for the nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period. The accompanying balance sheet as of December 31, 2018 has been derived from the Company’s audited financial statements for the year ended December 31, 2018 previously filed with the SEC.

 

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, corporate notes and commercial paper, are stated at fair value.

Restricted Cash

As of September 30, 2019 and December 31, 2018, current restricted cash consisted of $25 of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards. As of September 30, 2019 and December 31, 2018, non-current restricted cash consisted of $568 of cash deposited in a separate restricted bank account as a security deposit for the lease of the Company’s facility (see Note 8).

Investments

The Company classifies its available-for-sale debt security investments as current assets on the balance sheet if they mature within one year from the balance sheet date.

The Company classifies all of its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities or using other inputs that are observable or can be corroborated by observable market data. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the statements of operations and comprehensive loss.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary”, the Company reduces the investment to fair value through a charge to the statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

8


 

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable.

 

 

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

 

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

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

Net Loss per Share

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) is computed by adjusting income (loss) per share to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share is computed by dividing the diluted net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock are considered potential dilutive common shares.

Recently Adopted Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (“ASU 2016-02”), to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, leases are required to be recognized on the balance sheet as right-of-use assets and operating lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The Company adopted the standard effective January 1, 2019. It has implemented the standard using the required modified retrospective approach and has also elected to utilize the package of practical expedients. The expedients used by the Company are as follows: (1) allowing an entity to not reassess the lease classification for any expired or existing leases, (2) allowing an entity to not reassess the treatment of initial direct costs as they related to existing leases, and (3) allowing an entity to not reassess whether expired or existing contracts are or contain leases. The Company elected to adopt the standard at the beginning of the period of adoption.

9


 

As a result of the adoption of ASU 2016-02, the Company de-recognized $7,079 of the building asset and $81 of accumulated depreciation related to its corporate headquarters at 490 Arsenal Way. Prior to the adoption of ASU 2016-02, the Company classified facility improvements associated with the 490 Arsenal Way building as a component of its building asset. Subsequent to the adoption of ASU 2016-02, these improvements were reclassified to leasehold improvements.  

 

 

 

 

January 1, 2019

prior to ASC 842

Adoption

 

 

ASC 842

Adjustment

 

 

January 1, 2019

as adjusted

 

Operating lease right-of-use assets, net

 

$

 

 

$

6,697

 

 

$

6,697

 

Property and equipment, net

 

 

7,290

 

 

 

(6,998

)

 

 

292

 

Construction financing liability

 

 

5,342

 

 

 

(5,342

)

 

 

 

Other liabilities, current

 

 

3,639

 

 

 

(87

)

 

 

3,552

 

Operating lease liabilities, current

 

 

 

 

 

334

 

 

 

334

 

Operating lease liabilities, net of current portion

 

 

 

 

 

5,067

 

 

 

5,067

 

Accumulated deficit

 

 

(168,493

)

 

 

(273

)

 

 

(168,766

)

 

 

 

Recently Issued Accounting Pronouncements

 

Fair Value of Financial Instruments

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which aims to improve the effectiveness of fair value measurement disclosures. The amendments in this ASU modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company has not yet adopted this ASU and is currently assessing the impact that this ASU will have on its consolidated financial statements.

3. Fair Value of Financial Assets

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of

September 30, 2019 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

5,363

 

 

$

 

 

$

 

 

$

5,363

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

10,744

 

 

 

 

 

 

10,744

 

Commercial paper

 

 

 

 

 

6,950

 

 

 

 

 

 

6,950

 

 

 

$

5,363

 

 

$

17,694

 

 

$

 

 

$

23,057

 

 

 

 

Fair Value Measurements as of

December 31, 2018 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,041

 

 

$

 

 

$

 

 

$

6,041

 

Corporate notes

 

 

 

 

 

998

 

 

 

 

 

 

998

 

Commercial paper

 

 

 

 

 

2,495

 

 

 

 

 

 

2,495

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

3,644

 

 

 

 

 

 

3,644

 

Commercial paper

 

 

 

 

 

6,416

 

 

 

 

 

 

6,416

 

 

 

$

6,041

 

 

$

13,553

 

 

$

 

 

$

19,594

 

 

As of September 30, 2019 and December 31, 2018, the Company’s cash equivalents and investments were invested in money market funds, corporate notes and commercial paper and were valued based on Level 1 and Level 2 inputs. In determining the fair value of its corporate notes and commercial paper at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data. The Company’s cash equivalents have original maturities of less than 90 days from the date of purchase. All available-for-sale investments have contractual maturities of less than one year. During the nine months ended September 30, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3.

10


 

4. Investments

As of September 30, 2019 and December 31, 2018, the fair value of available-for-sale investments by type of security was as follows:

 

 

 

September 30, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

10,736

 

 

$

8

 

 

$

 

 

$

10,744

 

Commercial paper

 

 

6,941

 

 

 

9

 

 

 

 

 

 

6,950

 

 

 

$

17,677

 

 

$

17

 

 

$

 

 

$

17,694

 

 

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain