Quarterly Report (10-q)

Date : 05/14/2019 @ 9:10PM
Source : Edgar (US Regulatory)
Stock : Atyr Pharma, Inc. (LIFE)
Quote : 3.9  -0.27 (-6.47%) @ 1:00AM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

or

TRANSITION REPORT UNDER SECTION 13 OF 15(d) OR THE EXCHANGE ACT OF 1934

From the transition period from                 to              

Commission File Number 001-37378

 

ATYR PHARMA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-3435077

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

 

 

 

3545 John Hopkins Court, Suite #250, San Diego, CA

 

92121

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (858) 731-8389

 

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 per share

LIFE

The NASDAQ Capital 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 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 May 10, 2019, there were 45,742,332 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


 

ATYR PHARMA, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

3

Condensed Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018

 

3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited)

 

4

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018 (unaudited)

 

5

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4. Controls and Procedures

 

23

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

24

Item 1A. Risk Factors

 

24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

52

Item 3. Defaults Upon Senior Securities

 

52

Item 4. Mine Safety Disclosures

 

52

Item 5. Other Information

 

52

Item 6. Exhibits

 

53

SIGNATURES

 

55

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

aTyr Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,965

 

 

$

22,962

 

Available-for-sale investments, short-term

 

 

30,054

 

 

 

26,583

 

Collaboration receivable

 

 

630

 

 

 

 

Prepaid expenses and other assets

 

 

1,095

 

 

 

1,258

 

Total current assets

 

 

44,744

 

 

 

50,803

 

Property and equipment, net

 

 

1,692

 

 

 

1,853

 

Right-of-use assets

 

 

3,323

 

 

 

 

Other assets

 

 

156

 

 

 

90

 

Total assets

 

$

49,915

 

 

$

52,746

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

834

 

 

$

1,040

 

Accrued expenses

 

 

1,239

 

 

 

2,026

 

Contract liability

 

 

630

 

 

 

 

Current portion of operating lease liability

 

 

681

 

 

 

 

Current portion of long-term debt, net of issuance costs and discount

 

 

7,791

 

 

 

7,767

 

Total current liabilities

 

 

11,175

 

 

 

10,833

 

Long-term operating lease liability, net of current portion

 

 

2,815

 

 

 

 

Long-term debt, net of current portion and issuance costs and discount

 

 

6,440

 

 

 

8,263

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; undesignated authorized shares – 5,000,000 at March 31, 2019 and December 31, 2018, respectively; Class X Convertible Preferred Stock issued and outstanding shares – 1,643,961 and 2,285,952 as of March 31, 2019 and December 31, 2018, respectively

 

 

2

 

 

 

2

 

Common stock, $0.001 par value; authorized shares – 150,000,000 as of March 31, 2019 and December 31, 2018, respectively; issued and outstanding shares – 36,500,189 and 30,579,076 as of March 31, 2019 and December 31, 2018, respectively

 

 

37

 

 

 

31

 

Additional paid-in capital

 

 

334,324

 

 

 

332,378

 

Accumulated other comprehensive loss

 

 

(40

)

 

 

(60

)

Accumulated deficit

 

 

(304,838

)

 

 

(298,701

)

Total stockholders’ equity

 

 

29,485

 

 

 

33,650

 

Total liabilities and stockholders’ equity

 

$

49,915

 

 

$

52,746

 

 

See accompanying notes.

 

 

 

3


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

3,345

 

 

$

6,150

 

General and administrative

 

 

2,532

 

 

 

4,070

 

Total operating expenses

 

 

5,877

 

 

 

10,220

 

Loss from operations

 

 

(5,877

)

 

 

(10,220

)

Total other income (expense), net

 

 

(260

)

 

 

(447

)

Net loss

 

 

(6,137

)

 

 

(10,667

)

Net loss per share attributable to common stock holders, basic and diluted

 

$

(0.18

)

 

$

(0.36

)

Weighted average common stock shares outstanding, basic and diluted

 

 

33,823,909

 

 

 

29,795,466

 

See accompanying notes.

 

 

 

4


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Net loss

 

$

(6,137

)

 

$

(10,667

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on available-for-sale investments, net of tax

 

 

20

 

 

 

(16

)

Comprehensive loss

 

$

(6,117

)

 

$

(10,683

)

 

See accompanying notes.

 

 


 

5


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

 

 

 

 

Three Months ended March 31, 2019

 

 

 

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

2,285,952

 

 

$

2

 

 

 

30,579,076

 

 

$

31

 

 

$

332,378

 

 

$

(60

)

 

$

(298,701

)

 

$

33,650

 

Conversion of preferred stock to common stock

 

 

(641,991

)

 

 

 

 

 

3,209,955

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Issuance of common stock from at the market offerings, net of offering costs

 

 

 

 

 

 

 

 

2,711,158

 

 

 

3

 

 

 

1,378

 

 

 

 

 

 

 

 

 

1,381

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

571

 

 

 

 

 

 

 

 

 

571

 

Net unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

20

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,137

)

 

 

(6,137

)

Balance as of March 31, 2019

 

 

1,643,961

 

 

$

2

 

 

 

36,500,189

 

 

$

37

 

 

$

334,324

 

 

$

(40

)

 

$

(304,838

)

 

$

29,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended March 31, 2018

 

 

 

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2017

 

 

2,285,952

 

 

$

2

 

 

 

29,789,162

 

 

$

30

 

 

$

328,519

 

 

$

(120

)

 

$

(264,186

)

 

$

64,245

 

Issuance of common stock upon exercise of options and release of restricted stock units

 

 

 

 

 

 

 

 

39,561

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

928

 

 

 

 

 

 

 

 

 

928

 

Net unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,667

)

 

 

(10,667

)

Balance as of March 31, 2018

 

 

2,285,952

 

 

$

2

 

 

 

29,828,723

 

 

$

30

 

 

$

329,455

 

 

$

(136

)

 

$

(274,853

)

 

$

54,498

 

 

See accompanying notes.

 

 

6


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,137

)

 

$

(10,667

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

167

 

 

 

184

 

Stock-based compensation

 

 

571

 

 

 

928

 

Debt discount accretion and non-cash interest expense

 

 

201

 

 

 

81

 

Accretion of discount of available-for-sale investment securities

 

 

(106

)

 

 

(64

)

Amortization of right-of-use asset

 

 

169

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Collaboration receivable

 

 

(630

)

 

 

 

Prepaid expenses and other assets

 

 

97

 

 

 

(40

)

Accounts payable and accrued expenses

 

 

(985

)

 

 

(999

)

Contract liability

 

 

630

 

 

 

 

Net cash used in operating activities

 

 

(6,023

)

 

 

(10,577

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(10

)

 

 

(498

)

Purchases of available-for-sale investment securities

 

 

(13,995

)

 

 

(7,988

)

Maturities of available-for-sale investment securities

 

 

10,650

 

 

 

19,900

 

Net cash (used in) provided by investing activities

 

 

(3,355

)

 

 

11,414

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock through option exercises

 

 

 

 

 

8

 

Proceeds from issuance of common stock through at the market offerings, net of offering costs

 

 

1,381

 

 

 

 

Repayments on borrowing

 

 

(2,000

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(619

)

 

 

8

 

Net change in cash and cash equivalents

 

 

(9,997

)

 

 

845

 

Cash and cash equivalents at beginning of period

 

 

22,962

 

 

 

21,091

 

Cash and cash equivalents at the end of period

 

$

12,965

 

 

$

21,936

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

7


 

aTyr Pharma, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies

Organization and Business

aTyr Pharma, Inc. (we, us, and our) was incorporated in the state of Delaware on September 8, 2005. We are focused on the discovery and clinical development of innovative medicines based on immunological pathways.

Principles of Consolidation

Our consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) and follow 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 our opinion, the unaudited interim 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 our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2018, contained in our Annual Report on Form 10-K filed with the SEC on March 26, 2019. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

Liquidity and Financial Condition

We have incurred losses and negative cash flows from operations since our inception. As of March 31, 2019, we had an accumulated deficit of $304.8 million and we expect to continue to incur net losses for the foreseeable future. We believe that our existing cash, cash equivalents and available-for-sale investments, of $43.0 million as of March 31, 2019 will be sufficient to meet our anticipated cash requirements for a period of one year from the filing date of this Quarterly Report.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for our product candidates. We anticipate that we will seek to fund our operations through public or private equity or debt financings, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates.

Use of Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. The most significant estimates in our consolidated financial statements relate to the fair value of equity issuances and awards, and clinical trials and research and development expense accruals. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates and assumptions.

Leases

On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016‑02, Leases (Topic 842) (ASU No. 2016-02). For our long-term operating leases, we recognized a right-of-use asset and a lease liability in our condensed consolidated balance sheets. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that we would

 

8


 

pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to exclude from our condensed consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and we elected to not separate lease components and non-lease components for our long-term leases.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses in our condensed consolidated statements of operations.

Prior period amounts continue to be reported in accordance with our historic accounting practices under previous lease guidance, Accounting Standards Codification (ASC) 840, Leases . See “―Recent Accounting Pronouncements” below, for more information about the impact of the adoption on ASU No. 2016-02.

Revenue Recognition

We have entered into a research collaboration and option agreement. The terms of this arrangement include payments to us for research and development services and potential development milestone payments. Performance of any obligations under the agreement will begin in the second quarter of 2019.

We evaluate our agreements under ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and ASC Topic 808, Collaborative Arrangements . We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted average number of common shares outstanding that are subject to repurchase. Diluted net loss per share is calculated by dividing the net loss by the weighted average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of convertible preferred stock, warrants for common stock, options and restricted stock units outstanding under our stock option plan and estimated shares to be purchased under our employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position.

Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common share equivalents):

 

 

March 31,

 

 

 

2019

 

 

2018

 

Class X convertible preferred stock (if-converted)

 

 

8,219,805

 

 

 

11,429,760

 

Warrants for common stock

 

 

6,682,708

 

 

 

6,682,708

 

Common stock options and restricted stock units

 

 

5,671,937

 

 

 

5,611,880

 

Employee stock purchase plan

 

 

22,548

 

 

 

31,086

 

 

 

 

20,596,998

 

 

 

23,755,434

 

 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The new standard is effective on December 15, 2018, including interim periods within those periods, using a modified retrospective approach. We adopted ASU No. 2016-02 on January 1, 2019 and recognized a $3.5

 

9


 

million right-of-use asset and $3.5 million lease liability in our condensed consolidated balance sheet for the discounted value of future lease payments from t he adoption of this ASU. The adoption did not have any impact on our retained earnings.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) , to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU No. 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2020, including periods within those fiscal years.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update require a n entity to apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) f inancing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers .   ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018 which we adopted in January 1, 2019.  The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements to provide updates for technical corrections, clarifications, and other minor improvements that affect a wide variety of Topics in the Codification including Amendments to Subtopic 718-40, Compensation–Stock Compensation–Income Taxes, which clarifies that an entity should recognize excess tax benefits (that is, the difference in tax benefits between the deduction for tax purposes and the compensation cost recognized for financial statement reporting) in the period in which the amount of the deduction is determined, including deductions that are taken on the entity’s tax return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether (1) the entity will receive a tax deduction and (2) the amount of the tax deduction is resolved. ASU No. 2018-09 included other Topics which currently do not apply to us. The transition and effective date of ASU No. 2018-09 are based on the facts and circumstances of each amendment. Some of the amendments in ASU No. 2018-09 do not require transition guidance and are effective immediately and others have transition guidance with effective dates for annual periods beginning after December 15, 2018 which we adopted in January 1, 2019. T he adoption did not have a material impact on our condensed consolidated financial position or results of operations.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) to clarify the interaction between Topic 808 and Topic 606. A collaborative arrangement, as defined by the guidance in Topic 808, is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Some entities apply revenue guidance directly or by analogy to all or part of their arrangements, and others apply a different accounting method as an accounting policy. Those accounting differences result in diversity in practice on how entities account for transactions on the basis of their view of the economics of the collaborative arrangement. The amendments for ASU No. 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

2. Fair Value Measurements

The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to us for loans with similar terms, which is considered a Level 2 input, we believe that the carrying value of our long-term debt approximates their fair value. Investment securities are recorded at fair value.

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

10


 

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in corporate debt securities and commercial paper. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities is recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

Assets measured at fair value on a recurring basis are as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

 

Quoted   Prices   in

Active   Markets

for   Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

10,640

 

 

$

10,640

 

 

$

 

 

$

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

 

6,631

 

 

 

 

 

 

6,631

 

 

 

 

Commercial paper

 

 

14,137

 

 

 

 

 

 

14,137

 

 

 

 

Corporate debt securities

 

 

9,286

 

 

 

 

 

 

9,286

 

 

 

 

Sub-total short-term investments

 

 

30,054

 

 

 

 

 

 

30,054

 

 

 

 

Total assets measured at fair value

 

$

40,694

 

 

$

10,640

 

 

$

30,054

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

 

Quoted   Prices   in

Active   Markets

for   Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

16,019

 

 

$

16,019

 

 

$

 

 

$

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

 

7,773

 

 

 

 

 

 

7,773

 

 

 

 

Commercial paper

 

 

6,144

 

 

 

 

 

 

6,144

 

 

 

 

Corporate debt securities

 

 

12,666

 

 

 

 

 

 

12,666

 

 

 

 

Sub-total short-term investments

 

 

26,583

 

 

 

 

 

 

26,583

 

 

 

 

Total assets measured at fair value

 

$

42,602

 

 

$

16,019

 

 

$

26,583

 

 

$

 

 

 

11


 

As of March 31, 2019 and December 31, 2018, available-for-sale investments are detailed as follows (in thousands):

 

 

 

March 31, 2019

 

 

 

Gross

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Market Value

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

$

6,628

 

 

$

3

 

 

$

 

 

$

6,631

 

Commercial paper

 

 

14,137

 

 

 

 

 

 

 

 

 

14,137

 

Corporate debt securities

 

 

9,279

 

 

 

7

 

 

 

 

 

 

9,286

 

 

 

$

30,044

 

 

$

10

 

 

$

 

 

$

30,054

 

 

 

 

December 31, 2018

 

 

 

Gross

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Market Value

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

$

7,777

 

 

$

 

 

$

(4

)

 

$

7,773

 

Commercial paper

 

 

6,144

 

 

 

 

 

 

 

 

 

6,144

 

Corporate debt securities

 

 

12,672

 

 

 

 

 

 

(6

)

 

 

12,666

 

 

 

$

26,593

 

 

$

 

 

$

(10

)

 

$

26,583

 

 

As of March 31, 2019, all of our available-for-sale investments have a variety of effective maturity dates of less than one year. As of March 31, 2019, all available-for-sale investments are in gross unrealized gain positions.

At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of its amortized cost basis. We intend, and have the ability, to hold our investments in unrealized loss positions, if any, until their amortized cost basis has been recovered.

3. Research Collaboration

In March 2019, we entered into a research collaboration and option agreement with CSL Behring (CSL) for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline (CSL Agreement). Under the terms of the collaboration, CSL will fund all research and development activities related to the development of the applicable product candidates for the duration of the collaboration. CSL reimburses us for all research and development activities. The research and development activities will be performed in three phases by both parties. The first phase will be reimbursed prior to the start of the research activities and thereafter will be reimbursed on a quarterly basis. In March 2019, we recorded a receivable and related contract liability of $0.6 million per the research program funding for the first phase of the research and development activities described within the CSL Agreement. The first phase of research and development will begin in the second quarter of 2019.

In addition, CSL will pay a total of up to $4.25 million per synthetase program ($17 million if all four synthetase programs advance) in option fees based on achievement of research milestones and CSL’s determination to continue development. As of March 31, 2019, no research milestone has been met.  Moreover, aTyr will grant CSL an option to negotiate licenses for worldwide rights to each investigational new drug (IND) candidate that emerges from this research collaboration. Specific license terms will be negotiated during an exclusivity period following the exercise of each program option.

CSL has the right to terminate the research collaboration and option agreement in its entirety or with respect to one or more synthetases upon 45 days notice. Either party has the right to terminate the agreement upon material breach of obligation or insolvency.

4. Debt, Commitments and Contingencies

Term Loans

In November 2016, we entered into a loan and security agreement and subsequently entered amendments (collectively, the Loan Agreement), for term loans with Silicon Valley Bank (SVB) and Solar Capital Ltd. (Solar, and together with SVB, the Lenders),

 

12


 

to bor row up to $20.0 million issuable in three separate tranches (the Term Loans), $10.0 million of which was funded in November 2016, $5.0 million of which was funded in June 2017 and $5.0 million of which was funded in December 2017.

Under the Loan Agreement, we are obligated to make interest only payments through June 1, 2018, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date of November 18, 2020. Accordingly, we started paying the Term Loans in June 2018. The Term Loans bear interest at the prime rate, as reported in The Wall Street Journal on the last date of the month preceding the month in which interest will accrue, plus 4.10%. A final payment equal to 8.75% of the funded amounts is payable when the Term Loans become due or upon the prepayment of the respective outstanding balance. We have the option to prepay the outstanding balance of the loan in full, subject to a prepayment fee ranging from 1.0% to 3.0% depending upon when the prepayment occurs, including any non-usage fees.

The obligations under the Term Loans are secured by liens on our tangible personal property and we agreed to not encumber any of our intellectual property. The Term Loans include a material adverse change clause, which enables the Lenders to require immediate repayment of the outstanding debt. The material adverse change clause covers a material impairment in the perfection or priority of the Lenders’ lien in the underlying collateral or in the value of such collateral, material adverse change in business operations or condition or material impairment of our prospects for repayment of any portion of the remaining debt obligation.

As of March 31, 2019, the carrying value of our Term Loans consist of $13.3 million principal outstanding less the debt issuance costs of $0.3 million. The debt issuance costs have been recorded as a debt discount which are being accreted to interest expense over the life of the Term Loans.

In connection with the first tranche, we issued warrants to the Lenders to purchase an aggregate of 47,771 shares of our common stock with an exercise price of $3.14 per share. In connection with the second tranche, we issued warrants to the Lenders to purchase an aggregate of 20,833 shares of our common stock with an exercise price of $3.60 per share. In connection with the third tranche, we issued warrants to each of SVB and Solar to purchase an aggregate of 20,188 shares of our common stock with an exercise price of $3.72 per share. The warrants are immediately exercisable and have a maximum contractual term of seven years. The aggregate fair value of the warrants was determined to be $0.5 million using the Black-Scholes option pricing model and was recorded as a debt discount which is being accreted to interest expense over the life of Term Loans.

Term Loans and unamortized discount balances are as follows (in thousands):

 

 

 

March 31, 2019

 

Debt balance

 

$

13,333

 

Less debt issuance costs and discount

 

 

(72

)

Long-term debt, net of issuance costs and discount

 

 

13,261

 

Less current portion of long-term debt

 

 

(8,000

)

Add accrual of final payment

 

 

1,179

 

Long-term debt, net of current portion and issuance costs and discount

 

$

6,440

 

 

 

 

 

 

Current portion of long-term debt

 

$

8,000

 

Less current portion of debt issuance costs and discount

 

 

(209

)

Current portion of long-term debt, net of issuance costs and discount

 

$

7,791

 

 

Future principal payments for the Term Loans are as follows (in thousands):

 

 

 

March 31, 2019

 

2019

 

$

6,000

 

2020

 

 

7,333

 

Principal payments balance

 

$

13,333

 

 

13


 

 

The final maturity payment of $1.8 million is accruing over the life of the Term Loans through interest expense.

 

Leases

W e adopted ASU No. 2016-02, utilizing the modified retrospective transition method at the beginning of the first quarter of 2019. We elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. We did not elect the hindsight practical expedient. We also made accounting policy elections not to apply the recognition requirements   under ASU No. 2016-02 to any of our short-term leases and to account for each separate lease and associated non-lease components as a single lease component for all of our leases. Under ASU No. 2016-02, we determine if an arrangement is a lease at inception. The adoption of the new lease standard had a material impact on the condensed consolidated balance sheets, but did not have a material impact on the condensed consolidated statements of operations. The impact on the condensed consolidated balance sheet resulted in the recording of a $3.5 million right-of-use asset and a corresponding operating lease liability for the same amount. Our right-of-use assets consist of an operating lease for our facility headquarters. We also have an immaterial amount of prepaid financing leases that are included within other assets in our condensed consolidated balance sheets. We utilize a discount rate (incremental borrowing rate) of 9.60%. For the three months ended March 31, 2019, we recorded an operating lease cost of $0.2 million and as of March 31, 2019, the weighted average remaining lease term was 4.1 years and the weighted average discount rate was 9.6%.      

We have a non-cancelable facility lease that is subject to base lease payments, which escalate over the term of the lease, additional charges for common area maintenance and other costs. In July 2018, we entered into a lease amendment that reduced the space we lease from 24,494 square feet to 20,508 square feet and extended the lease term to May 2023.  With the lease amendment, we do not have an option to extend the lease.        

Future minimum payments under the non-cancelable facility lease and reconciliation to the operating lease liability as of March 31, 2019 were as follows (in thousands):

 

 

 

Operating Lease

 

2019

 

$

732

 

2020

 

 

1,002

 

2021

 

 

1,031

 

2022

 

 

1,062

 

Thereafter

 

 

403

 

Less: Amount representing interest

 

 

(734

)

Present value of lease payments

 

 

3,496

 

Less: Current  portion of operating lease liability

 

 

(681

)

Long-term operating lease liability

 

$

2,815

 

Related Party Transactions

Research Agreements and Funding Obligations

We provided funding to The Scripps Research Institute (TSRI) pursuant to a research funding and option agreement to conduct certain research activities. We terminated our research funding and option agreement effective as of November 2018. For the three months ended March 31, 2018, we recognized expense under the agreement in the amount $0.5 million.  Paul Schimmel, Ph.D., a member of our board of directors, is a faculty member at TSRI and such payments funded a portion of his research activities conducted at TSRI.  

Strategic Advisor Agreement

In November 2017, John D. Mendlein, Ph.D., a member of our Board of Directors since July 2010 and our Chief Executive Officer from September 2011 to November 2017, began serving as a strategic advisor to us pursuant to the terms of a strategic advisor agreement entered with Dr. Mendlein on November 1, 2017 (Strategic Advisor Agreement). Pursuant to the terms of the Strategic Advisor Agreement, we agreed to, among other things, pay Dr. Mendlein as a strategic advisor to us for a period of up to four years, at a monthly rate of $42,500 for the first year and $7,500 per month for the rest of the term. Either party may terminate the Strategic Advisor Agreement after the first year, provided that payments under the Strategic Advisor Agreement and continued vesting of outstanding employee stock options are guaranteed through the second year of the Strategic Advisor Agreement in the event the Board terminates the Strategic Advisor Agreement for convenience or Dr. Mendlein terminates for our material breach of the Strategic Advisor Agreement. For the three months ended March 31, 2019 and 2018, we recognized expenses under the Strategic Advisor Agreement in the amount of $22,500 and $0.1 million.

 

14


 

 

5. Stockholders’ Equity

At the Market Offering Program

In June 2016, we entered into a sales agreement with Cowen and Company, LLC (Cowen) for at the market offerings (ATM Offering Program), under which we may offer and sell shares of our common stock having an aggregate offering price of up to $35.0 million from time to time. During the three months ended March 31, 2019, we sold an aggregate of 2,711,158 shares of common stock at an average price of $0.53 per common share for net proceeds of $1.4 million.

Private Placement of Common Stock, Convertible Preferred Shares and Common Stock Warrants

In August 2017, we completed a private placement of common and preferred stock in which a select group of institutional investors, including Viking Global Opportunities Illiquid Investments Sub-Master, LP (VGO Fund) and other accredited investors, certain of whom are affiliated with our directors and officers (collectively, the Purchasers), purchased preferred stock and common stock. We issued to VGO Fund 1,777,784 shares of our common stock, at a price of $2.65 per share, 2,285,952 shares of our Class X Convertible Preferred Stock, at a price of $13.25 per share, and warrants to purchase up to 4,952,829 of additional shares of common stock. The remaining Purchasers purchased an aggregate of 4,094,336 shares of our common stock, at a price of $2.65 per share, and warrants to purchase up to 1,535,376 additional shares of our common stock. Gross proceeds from the private placement were $45.8 million. The warrants to purchase 6,488,205 shares of our common stock are exercisable at an exercise price of $4.64 per share, subject to adjustments as provided under the terms of the warrants. The warrants are immediately exercisable and expire on December 31, 2019.

Each share of preferred stock is convertible into five shares of our common stock. In January 2019, the VGO Fund converted 641,991 shares of its preferred stock into 3,209,955 shares of common stock.

Common Stock Reserved for Future Issuance

Pursuant to the automatic increase provisions of our 2015 Stock Option and Incentive Plan (2015 Plan) and 2015 Employee Stock Purchase Plan (2015 ESPP), 1,223,163 additional shares were reserved for future issuance under the 2015 Plan on January 1, 2019 and 305,790 additional shares were reserved for future issuances under the 2015 ESPP on January 1, 2019. Common stock reserved for future issuance is as follows:

 

 

March 31, 2019

 

Class X Preferred Stock (if-converted to common stock)

 

 

8,219,805

 

Common stock warrants

 

 

6,682,708

 

Common stock options and awards outstanding

 

 

5,671,937

 

Shares available under the 2015 Plan

 

 

2,178,136

 

Shares available under the 2015 ESPP

 

 

1,145,095

 

 

 

 

23,897,681

 

 

The following table summarizes our stock option activity under all equity incentive plans for the three months ended March 31, 2019:

 

 

 

Number of

Outstanding

Options

 

 

Weighted

Average

Exercise Price

 

Outstanding as of December 31, 2018

 

 

4,990,674

 

 

$

4.47

 

Granted

 

 

856,493

 

 

$

0.52

 

Canceled/forfeited/expired

 

 

(465,430

)

 

$

5.38

 

Outstanding as of March 31, 2019

 

 

5,381,737

 

 

$

3.77

 

 

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:

 

15


 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Expected term (in years)

 

6.02 – 6.07

 

 

5.77 – 6.08

 

Risk-free interest rate

 

2.5% – 2.6%

 

 

2.3% – 2.7%

 

Expected volatility

 

100.0% – 101.0%

 

 

89.2% – 98.4%

 

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

The following table summarizes our restricted stock unit activity under all equity incentive plans for the three months ended March 31, 2019:

 

 

Number of Outstanding

Restricted Stock Units

 

 

Weighted Average

Grant Date

Fair Value

 

Balance as of December 31, 2018

 

 

216,700

 

 

$

0.85

 

Granted

 

 

75,000