Quarterly Report (10-q)

Date : 11/07/2019 @ 9:45PM
Source : Edgar (US Regulatory)
Stock : Assembly Biosciences Inc (ASMB)
Quote : 16.42  0.42 (2.62%) @ 9:13PM

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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: 001-35005

 

ASSEMBLY BIOSCIENCES, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

20-8729264

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

11711 N. Meridian St., Suite 310

 

Carmel, Indiana

46032

(Address of principal executive offices)

(zip code)

 

(833) 509-4583

(Registrant’s telephone number, including area code)

 

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 $0.001

ASMB

The Nasdaq Global Select 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, a smaller reporting company, or an emerging growth company. See definition 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No   

 

As of November 4, 2019, there were 26,047,046 shares of the registrant’s common stock outstanding.

 

 


Index

 

 

 

Page

Number

 

 

 

PART I:

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

4

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

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

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

 

 

 

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

64

 

 

 

Item 3.

Defaults Upon Senior Securities

64

 

 

 

Item 4.

Mine Safety Disclosures

64

 

 

 

Item 5.

Other Information

64

 

 

 

Item 6.

Exhibits

65

 

 

SIGNATURES

67

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands except for share and per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,867

 

 

$

41,471

 

Marketable securities

 

 

132,070

 

 

 

176,609

 

Accounts receivable from collaboration

 

 

2,944

 

 

 

2,430

 

Prepaid expenses and other current assets

 

 

5,441

 

 

 

1,992

 

Total current assets

 

 

165,322

 

 

 

222,502

 

Property and equipment, net

 

 

1,931

 

 

 

557

 

Operating lease right-of-use assets

 

 

12,783

 

 

 

 

Other assets

 

 

1,671

 

 

 

3,348

 

Indefinite-lived intangible asset

 

 

29,000

 

 

 

29,000

 

Goodwill

 

 

12,638

 

 

 

12,638

 

Total assets

 

$

223,345

 

 

$

268,045

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,709

 

 

$

3,693

 

Accrued expenses

 

 

9,430

 

 

 

9,679

 

Deferred revenue - short-term

 

 

6,151

 

 

 

5,100

 

Operating lease liabilities - short-term

 

 

3,208

 

 

 

 

Total current liabilities

 

 

21,498

 

 

 

18,472

 

Deferred rent

 

 

 

 

 

108

 

Deferred tax liabilities

 

 

3,251

 

 

 

3,252

 

Deferred revenue - long-term

 

 

32,268

 

 

 

35,560

 

Operating lease liabilities - long-term

 

 

9,839

 

 

 

 

Total liabilities

 

 

66,856

 

 

 

57,392

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 25,872,723 and 25,495,425 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

26

 

 

 

25

 

Additional paid-in capital

 

 

569,005

 

 

 

552,762

 

Accumulated other comprehensive loss

 

 

(205

)

 

 

(347

)

Accumulated deficit

 

 

(412,337

)

 

 

(341,787

)

Total stockholders' equity

 

 

156,489

 

 

 

210,653

 

Total liabilities and stockholders' equity

 

$

223,345

 

 

$

268,045

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

1


ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

($ in thousands except for share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Collaboration revenue

 

$

4,231

 

 

$

4,286

 

 

$

11,197

 

 

$

11,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

21,736

 

 

 

19,109

 

 

 

63,141

 

 

 

51,490

 

General and administrative

 

 

8,488

 

 

 

7,752

 

 

 

22,085

 

 

 

25,992

 

Total operating expenses

 

 

30,224

 

 

 

26,861

 

 

 

85,226

 

 

 

77,482

 

Loss from operations

 

 

(25,993

)

 

 

(22,575

)

 

 

(74,029

)

 

 

(66,413

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

983

 

 

 

1,116

 

 

 

3,441

 

 

 

2,015

 

Other income (expense), net

 

 

-

 

 

 

(82

)

 

 

5

 

 

 

(232

)

Total other income

 

 

983

 

 

 

1,034

 

 

 

3,446

 

 

 

1,783

 

Loss before income taxes

 

 

(25,010

)

 

 

(21,541

)

 

 

(70,583

)

 

 

(64,630

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

15

 

 

 

6

 

 

 

33

 

 

 

40

 

Net loss

 

$

(24,995

)

 

$

(21,535

)

 

$

(70,550

)

 

$

(64,590

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax

 

 

(18

)

 

 

17

 

 

 

142

 

 

 

37

 

Comprehensive loss

 

$

(25,013

)

 

$

(21,518

)

 

$

(70,408

)

 

$

(64,553

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.96

)

 

$

(0.87

)

 

$

(2.74

)

 

$

(2.95

)

Weighted average common shares outstanding, basic and diluted

 

 

25,912,568

 

 

 

24,878,413

 

 

 

25,765,414

 

 

 

21,900,943

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

2


ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(70,550

)

 

$

(64,590

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

377

 

 

 

473

 

Stock-based compensation

 

 

14,049

 

 

 

21,678

 

Net accretion and amortization of investments in marketable securities

 

 

(1,503

)

 

 

232

 

Non-cash rent expense

 

 

3,344

 

 

 

 

Deferred income tax benefit

 

 

(10

)

 

 

(40

)

Loss on disposal of fixed assets

 

 

102

 

 

 

 

Other

 

 

(5

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable from collaboration

 

 

(514

)

 

 

(316

)

Prepaid expenses and other current assets

 

 

(3,763

)

 

 

(2,445

)

Other assets

 

 

1,677

 

 

 

(611

)

Accounts payable

 

 

(984

)

 

 

863

 

Accrued expenses

 

 

(330

)

 

 

378

 

Deferred revenue

 

 

(2,241

)

 

 

(3,861

)

Deferred rent

 

 

 

 

 

8

 

Operating lease liabilities

 

 

(3,188

)

 

 

 

Net cash used in operating activities

 

 

(63,539

)

 

 

(48,231

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,539

)

 

 

(129

)

Purchases of marketable securities

 

 

(149,327

)

 

 

(115,030

)

Proceeds from maturities of marketable securities

 

 

166,911

 

 

 

41,921

 

Proceeds from sale of marketable securities

 

 

28,659

 

 

 

 

Net cash provided by (used in) investing activities

 

 

44,704

 

 

 

(73,238

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from common stock sold, net of underwriters' discount and cost

 

 

-

 

 

 

155,425

 

Net proceeds from the issuance of common stock through equity plans

 

 

2,231

 

 

 

3,763

 

Net cash provided by financing activities

 

 

2,231

 

 

 

159,188

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(16,604

)

 

 

37,719

 

Cash and cash equivalents at the beginning of the period

 

 

41,471

 

 

 

82,033

 

Cash and cash equivalents at the end of the period

 

$

24,867

 

 

$

119,752

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

3


ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in thousands except share amounts)

(Unaudited)

 

 

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balance as of June 30, 2019

 

25,646,783

 

 

 

26

 

 

 

562,210

 

 

 

(187

)

 

 

(387,342

)

 

 

174,707

 

Issuance of common stock upon exercise of stock options

 

192,606

 

 

 

 

 

 

1,385

 

 

 

 

 

 

 

 

 

1,385

 

Issuance of shares of common stock for settlement of restricted stock units (RSUs)

 

33,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Stock-based compensation

 

 

 

 

 

 

 

5,410

 

 

 

 

 

 

 

 

 

5,410

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,995

)

 

 

(24,995

)

Balance as of September 30, 2019

 

25,872,723

 

 

 

26

 

 

 

569,005

 

 

 

(205

)

 

 

(412,337

)

 

 

156,489

 

 

 

Three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balance as of June 30, 2018

 

20,614,498

 

 

$

21

 

 

 

383,543

 

 

 

(372

)

 

 

(294,091

)

 

 

89,101

 

Proceeds from common stock sold, net of underwriters' discount and cost

 

4,600,000

 

 

 

4

 

 

 

155,421

 

 

 

 

 

 

 

 

 

155,425

 

Issuance of common stock upon exercise of stock options

 

244,686

 

 

 

 

 

 

419

 

 

 

 

 

 

 

 

 

419

 

Settlement of restricted stock units into common stock

 

938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Stock-based compensation

 

 

 

 

 

 

 

6,006

 

 

 

 

 

 

 

 

 

6,006

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,535

)

 

 

(21,535

)

Balance as of September 30, 2018

 

25,460,122

 

 

$

25

 

 

 

545,389

 

 

 

(355

)

 

 

(315,626

)

 

 

229,433

 

4


 

 

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balance as of December 31, 2018

 

25,495,425

 

 

 

25

 

 

 

552,762

 

 

 

(347

)

 

 

(341,787

)

 

 

210,653

 

Issuance of common stock upon exercise of stock options

 

243,481

 

 

 

 

 

 

1,716

 

 

 

 

 

 

 

 

 

1,716

 

Issuance of common stock under Employee Stock Purchase Plan (ESPP)

 

36,804

 

 

 

 

 

 

515

 

 

 

 

 

 

 

 

 

515

 

Issuance of shares of common stock for settlement of restricted stock units (RSUs)

 

97,013

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Reclassification of stock-based awards from equity to accrued expenses

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

142

 

 

 

 

 

 

142

 

Stock-based compensation

 

 

 

 

 

 

 

14,017

 

 

 

 

 

 

 

 

 

14,017

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,550

)

 

 

(70,550

)

Balance as of September 30, 2019

 

25,872,723

 

 

 

26

 

 

 

569,005

 

 

 

(205

)

 

 

(412,337

)

 

 

156,489

 

 

 

Nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balance as of December 31, 2017

 

20,137,974

 

 

$

20

 

 

 

364,528

 

 

 

(392

)

 

 

(251,036

)

 

 

113,120

 

Proceeds from common stock sold, net of underwriters' discount and cost

 

4,600,000

 

 

 

4

 

 

 

155,421

 

 

 

 

 

 

 

 

 

155,425

 

Issuance of common stock upon exercise of stock options

 

721,210

 

 

 

1

 

 

 

3,762

 

 

 

 

 

 

 

 

 

3,763

 

Settlement of restricted stock units into common stock

 

938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Stock-based compensation

 

 

 

 

 

 

 

21,678

 

 

 

 

 

 

 

 

 

21,678

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(64,590

)

 

 

(64,590

)

Balance as of September 30, 2018

 

25,460,122

 

 

$

25

 

 

 

545,389

 

 

 

(355

)

 

 

(315,626

)

 

 

229,433

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

5


ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Nature of Business

Overview

Assembly Biosciences, Inc., together with its subsidiaries (Assembly or the Company), incorporated in Delaware in October 2005, is a clinical-stage biotechnology company developing innovative therapeutics targeting chronic hepatitis B virus (HBV) and diseases associated with the microbiome. The Company operates in one segment and is headquartered in Carmel, Indiana with operations in South San Francisco, California and Groton, Connecticut.

The Company’s HBV-cure program is pursuing multiple drug candidates that inhibit the HBV lifecycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing the current low cure rates for patients with HBV. Assembly has discovered several novel core inhibitors, which are small molecules that directly target and allosterically modify the HBV core (HBc) protein.

The Company’s Microbiome program consists of a fully integrated platform that includes a strain isolation, identification, characterization and function-based selection process, methods for strain purification and growth under conditions compliant with current Good Manufacturing Practice (cGMP) requirements, and a licensed patented delivery system, GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal (GI) tract. Using the Company’s microbiome platform capabilities, the Company is exploring product candidates for multiple disease indications, including ulcerative colitis (UC), Crohn’s disease and irritable bowel syndrome (IBS) with Allergan Pharmaceuticals International Limited (Allergan) in connection with its Research, Development, Collaboration and License Agreement (the Collaboration Agreement), as well as immune-mediated and metabolic disorders and oncology, which indications the Company will pursue either internally or in collaboration with other parties.

Liquidity

The Company has not derived any revenue from product sales to date and currently has no approved products. Once a product has been developed, it will need to be approved for sale by the U.S. Food and Drug Administration (FDA) or an applicable foreign regulatory agency. Since inception, the Company’s operations have been financed primarily through the sale of equity securities, the proceeds from the exercise of warrants and stock options, the issuance of debt and an upfront payment related to the Collaboration Agreement. The Company has incurred losses from operations since inception and expects to continue to incur substantial losses for the next several years as it continues its product development efforts. Management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months following the date that these unaudited condensed consolidated interim financial statements are issued. If the Company cannot generate significant cash from its operations, it intends to obtain any additional funding it requires through strategic relationships, public or private equity or debt financings, grants or other arrangements. The Company cannot assure such funding will be available on reasonable terms, if at all.

If the Company is unable to generate enough revenue from the Collaboration Agreement when needed or to secure additional sources of funding and receive related full and timely collections of amounts due, it may be necessary to significantly reduce the current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs, including more costly clinical trials.

 

 

6


ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s 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 U.S. GAAP and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2018, which are contained in the Company’s Annual Report on Form 10-K as filed with the SEC on February 28, 2019. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the entire year ending December 31, 2019 or future operating periods.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include revenue recognition, clinical trial accruals, recoverability and useful lives (indefinite or finite) of intangible assets, assessment of impairment of goodwill, provisions for income taxes, amounts receivable and recognized as revenue under the Collaboration Agreement, measurement of operating lease liabilities, and the fair value of stock options, stock appreciation rights, and restricted stock units (RSUs) granted to employees, directors and consultants.

The Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, other than as set forth below.

Stock-Based Compensation

The Company expenses stock-based compensation to employees and Board members over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards with graded-vesting schedules are recognized using the accelerated attribution method over the requisite service period for each separately vesting portion of the award.

Prior to the adoption of Accounting Standards Update (ASU) 2018-07 (ASU 2018-07) on January 1, 2019, the Company remeasured the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. Changes in the estimated fair value of these non-employee awards were recognized as compensation expense in the period of change. Subsequent to the adoption of ASU 2018-07, the Company recognizes non-employee compensation costs over the requisite service period based on a measurement of fair value for each stock award.

7


ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Forfeitures are recognized when incurred.

The fair value of restricted stock units is determined based on the number of shares granted and the quoted market price of the Company’s common stock on the date of grant. The fair value of restricted stock units with performance conditions deemed probable of being achieved and vesting are amortized to expense over the requisite service period using the accelerated attribution method of expense recognition.

Leases

All of the Company’s leases are operating leases for facilities and equipment. Prior to January 1, 2019, the Company recognized related rent expense on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities lease, including allowances for leasehold improvements and rent holidays, were recognized as reductions to rental expense on a straight-line basis over the term of the lease. Deferred rent consisted of the difference between cash payments and the rent expense recognized.

Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease right-of-use assets, operating lease liabilities - short-term, and operating lease liabilities - long-term in the Company’s condensed consolidated balance sheet at September 30, 2019. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred. The Company has elected not to separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.

Net Loss per Share

Basic net loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same.

8


ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share are as follows:

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Warrants to purchase common stock

 

 

15,296

 

 

 

15,296

 

Options to purchase common stock

 

 

5,462,773

 

 

 

4,422,194

 

Common stock subject to purchase under ESPP

 

 

17,018

 

 

 

10,198

 

Unvested RSUs

 

 

668,515

 

 

 

343,465

 

Total

 

 

6,163,602

 

 

 

4,791,153

 

 

A reconciliation of the numerators and the denominators of the basic and diluted net loss per common share computations is as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (in thousands)

 

 

(24,995

)

 

 

(21,535

)

 

 

(70,550

)

 

 

(64,590

)