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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 June 30, 2020

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: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

200 Sidney Street - 4th Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 945-9626

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

MCRB

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, 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

 

  

  

Small 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 July 22, 2020, the registrant had 76,258,531 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Seres Therapeutics, Inc.

INDEX

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

4

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

 

4

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

 

5

Condensed Consolidated Statement of Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019

 

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

 

7

Notes to Condensed Consolidated Financial Statements

 

8

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

 

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4. Controls and Procedures

 

34

 

 

 

PART II – OTHER INFORMATION

 

35

Item 1. Legal Proceedings

 

35

Item 1A. Risk Factors

 

35

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

 

71

Item 3. Defaults Upon Senior Securities

 

71

Item 4. Mine Safety Disclosures

 

71

Item 5. Other Information

 

71

Item 6. Exhibits

 

72

 

 

 

SIGNATURES

 

73

 

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or the Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, the impact of the COVID-19 pandemic on our business, operations and liquidity, and the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:

 

our status as a clinical-stage company and our expectation to incur losses in the future;

 

our ability to continue as a going concern, our future capital needs and our need to raise additional funds;

 

our ability to build a pipeline of product candidates and develop and commercialize drugs;

 

our unproven approach to therapeutic intervention;

 

the unexpected impact of the COVID-19 pandemic on our operations, the continuity of our business, including our preclinical studies and clinical trials, general economic conditions and ability to raise additional capital;

 

our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary regulatory approvals;

 

the timing of completion of enrollment and availability of data from our ongoing clinical trials;

 

the expected timing of filings with regulatory authorities related to our product candidates;

 

the effect that the reduction in trial size for our ECOSPOR III trial will have on the results of the trial;

 

our ability to maintain our manufacturing facilities and to receive or manufacture sufficient quantities of our product candidates;

 

our ability to protect and enforce our intellectual property rights;

 

federal, state, and foreign regulatory requirements, including U.S. Food and Drug Administration regulation of our product candidates;

 

our ability to obtain and retain key executives and attract and retain qualified personnel; and

 

our ability to successfully manage our growth.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

3


PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,536

 

 

$

65,126

 

Investments

 

 

2,404

 

 

 

29,690

 

Prepaid expenses and other current assets

 

 

5,847

 

 

 

3,588

 

Accounts receivable

 

 

2,929

 

 

 

1,785

 

Total current assets

 

 

72,716

 

 

 

100,189

 

Property and equipment, net

 

 

16,305

 

 

 

19,495

 

Operating lease assets

 

 

10,257

 

 

 

11,356

 

Restricted investments

 

 

1,400

 

 

 

1,400

 

Total assets

 

$

100,678

 

 

$

132,440

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,163

 

 

$

4,859

 

Accrued expenses and other current liabilities

 

 

10,604

 

 

 

10,884

 

Operating lease liabilities

 

 

4,788

 

 

 

4,456

 

Deferred revenue - related party

 

 

19,040

 

 

 

20,960

 

Deferred revenue

 

 

5,653

 

 

 

4,834

 

Total current liabilities

 

 

44,248

 

 

 

45,993

 

Note payable, net of discount

 

 

24,863

 

 

 

24,648

 

Operating lease liabilities, net of current portion

 

 

13,181

 

 

 

15,676

 

Deferred revenue, net of current portion - related party

 

 

80,383

 

 

 

89,111

 

Deferred revenue, net of current portion

 

 

2,826

 

 

 

4,834

 

Other long-term liabilities

 

 

752

 

 

 

502

 

Total liabilities

 

 

166,253

 

 

 

180,764

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued and outstanding at June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2020 and December 31, 2019; 75,131,834 and 70,143,252 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

75

 

 

 

70

 

Additional paid-in capital

 

 

434,593

 

 

 

411,255

 

Accumulated other comprehensive income

 

 

1

 

 

 

 

Accumulated deficit

 

 

(500,244

)

 

 

(459,649

)

Total stockholders’ deficit

 

 

(65,575

)

 

 

(48,324

)

Total liabilities and stockholders’ deficit

 

$

100,678

 

 

$

132,440

 

 

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

4


SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue - related party

$

5,186

 

 

$

10,454

 

 

$

10,648

 

 

$

17,069

 

Grant revenue

 

831

 

 

 

260

 

 

 

1,570

 

 

 

706

 

Collaboration revenue

 

28

 

 

 

1,817

 

 

 

2,016

 

 

 

2,077

 

Total revenue

 

6,045

 

 

 

12,531

 

 

 

14,234

 

 

 

19,852

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

20,099

 

 

 

17,905

 

 

 

41,842

 

 

 

40,792

 

General and administrative expenses

 

6,491

 

 

 

5,574

 

 

 

12,629

 

 

 

13,069

 

Restructuring expenses

 

 

 

 

 

 

 

 

 

 

1,492

 

Total operating expenses

 

26,590

 

 

 

23,479

 

 

 

54,471

 

 

 

55,353

 

Loss from operations

 

(20,545

)

 

 

(10,948

)

 

 

(40,237

)

 

 

(35,501

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

74

 

 

 

189

 

 

 

233

 

 

 

409

 

Interest expense

 

(719

)

 

 

 

 

 

(1,435

)

 

 

 

Other income

 

476

 

 

 

 

 

 

844

 

 

 

 

Total other (expense) income, net

 

(169

)

 

 

189

 

 

 

(358

)

 

 

409

 

Net loss

$

(20,714

)

 

$

(10,759

)

 

$

(40,595

)

 

$

(35,092

)

Net loss per share attributable to common stockholders, basic and

   diluted

$

(0.28

)

 

$

(0.24

)

 

$

(0.56

)

 

$

(0.81

)

Weighted average common shares outstanding, basic and diluted

 

73,306,248

 

 

 

45,140,830

 

 

 

72,063,881

 

 

 

43,095,686

 

Net loss

 

(20,714

)

 

 

(10,759

)

 

 

(40,595

)

 

 

(35,092

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments, net of tax of $0

 

11

 

 

 

-

 

 

 

1

 

 

 

-

 

Total other comprehensive gain

 

11

 

 

 

 

 

 

1

 

 

 

 

Comprehensive loss

$

(20,703

)

 

$

(10,759

)

 

$

(40,594

)

 

$

(35,092

)

 

 

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

5


SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(unaudited, in thousands, except share data)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Stockholders’

(Deficit)

 

Balance at December 31, 2018

 

 

40,936,735

 

 

$

41

 

 

$

341,284

 

 

$

(389,370

)

 

$

(48,045

)

Issuance of common stock upon exercise of stock options

 

 

38,125

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

73,500

 

 

 

 

 

 

153

 

 

 

 

 

 

153

 

Issuance of common stock under ESPP plan

 

 

46,472

 

 

 

 

 

 

207

 

 

 

 

 

 

207

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

2,065

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(24,333

)

 

 

(24,333

)

Balance at March 31, 2019

 

 

41,094,832

 

 

 

41

 

 

 

343,829

 

 

 

(413,703

)

 

 

(69,833

)

Issuance of common stock from public offering, net of commissions, underwriting discounts and offering costs

 

 

28,818,578

 

 

 

29

 

 

 

60,498

 

 

 

 

 

 

60,527

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,097

 

 

 

 

 

 

2,097

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,759

)

 

 

(10,759

)

Balance at June 30, 2019

 

 

69,913,410

 

 

$

70

 

 

$

406,424

 

 

$

(424,462

)

 

$

(17,968

)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

Income (Loss)

 

 

Stockholders’

Deficit

 

Balance at December 31, 2019

 

 

70,143,252

 

 

$

70

 

 

$

411,255

 

 

$

(459,649

)

 

$

 

 

$

(48,324

)

Issuance of common stock from at the market equity offering

 

 

1,230,531

 

 

 

1

 

 

 

4,177

 

 

 

 

 

 

 

 

 

4,178

 

Issuance of common stock upon exercise of stock options

 

 

110,967

 

 

 

1

 

 

 

59

 

 

 

 

 

 

 

 

 

60

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

110,000

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

Issuance of common stock under ESPP plan

 

 

76,317

 

 

 

 

 

 

249

 

 

 

 

 

 

 

 

 

249

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,959

 

 

 

 

 

 

 

 

 

1,959

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,881

)

 

 

 

 

 

(19,881

)

Balance at March 31, 2020

 

 

71,671,067

 

 

 

72

 

 

 

417,819

 

 

 

(479,530

)

 

 

(10

)

 

 

(61,649

)

Issuance of common stock from at the market equity offering

 

 

3,430,453

 

 

 

3

 

 

 

14,845

 

 

 

 

 

 

 

 

 

14,848

 

Issuance of common stock upon exercise of stock options

 

 

30,314

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,914

 

 

 

 

 

 

 

 

 

1,914

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,714

)

 

 

 

 

 

(20,714

)

Balance at June 30, 2020

 

 

75,131,834

 

 

$

75

 

 

$

434,593

 

 

$

(500,244

)

 

$

1

 

 

$

(65,575

)

 

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

 

6


SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Six Months Ended

June 30

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(40,595

)

 

$

(35,092

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

3,873

 

 

 

4,162

 

Depreciation and amortization expense

 

 

3,493

 

 

 

3,927

 

Non-cash operating lease cost

 

 

1,100

 

 

 

1,097

 

Accretion of discount on investments

 

 

(102

)

 

 

 

Non-cash interest expense

 

 

215

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,928

)

 

 

1,685

 

Accounts receivable

 

 

(1,144

)

 

 

(1,604

)

Deferred revenue

 

 

(11,837

)

 

 

(11,628

)

Accounts payable

 

 

(700

)

 

 

(1,645

)

Operating lease liabilities

 

 

(2,163

)

 

 

(2,079

)

Accrued expenses and other current and long-term liabilities

 

 

(29

)

 

 

(3,004

)

Net cash (used in) operating activities

 

 

(49,817

)

 

 

(44,181

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(299

)

 

 

(647

)

Purchases of investments

 

 

(12,931

)

 

 

 

Sales and maturities of investments

 

 

40,318

 

 

 

 

Net cash provided by (used in) provided by investing activities

 

 

27,088

 

 

 

(647

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of commissions, underwriting discounts and offering costs

 

 

 

 

 

60,759

 

Proceeds from exercise of stock options

 

 

75

 

 

 

120

 

Proceeds from issuance of common stock and restricted common stock

 

 

120

 

 

 

153

 

Proceeds from at the market equity offering, net of commissions

 

 

18,695

 

 

 

 

Issuance of common stock under ESPP plan

 

 

249

 

 

 

207

 

Net cash provided by financing activities

 

 

19,139

 

 

 

61,239

 

Net (decrease) increase in cash and cash equivalents

 

 

(3,590

)

 

 

16,411

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

65,126

 

 

 

85,933

 

Cash, cash equivalents and restricted cash at end of period

 

$

61,536

 

 

$

102,344

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,226

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Unsettled issuance of common stock from the at the market offering

 

$

331

 

 

$

 

Issuance costs from public offering included in accounts payable and accrued expenses

 

$

 

 

$

232

 

Property and equipment purchases included in accounts payable and

   accrued expenses

 

$

66

 

 

$

88

 

 

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

7


SERES THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

 

 

1.

Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc.  The Company is a microbiome therapeutics platform company developing a novel class of biological drugs, which are designed to treat disease by modulating the microbiome to restore heath by repairing the function of a dysbiotic microbiome to a non-disease state. The Company’s lead product candidate, SER-109, is designed to prevent further recurrences of Clostridioides difficile infection (formerly Clostridium difficile infection) (“CDI”), a debilitating infection of the colon, in patients who have received antibiotic therapy for recurrent CDI by treating the dysbiosis of the colonic microbiome. If approved by the U.S. Food and Drug Administration (“FDA”), SER-109 could be a first-in-field oral microbiome drug. SER-287 and SER-301 are being developed by the Company to treat ulcerative colitis (“UC”). In addition, using its microbiome therapeutics platform, the Company is also developing product candidates to treat diseases where the microbiome is implicated, including SER-401, a microbiome therapeutic candidate for use with checkpoint inhibitors (“CPI’s”) in patients with metastatic melanoma and SER-155, a rationally designed, fermented therapeutics candidate to prevent mortality due to gastrointestinal infections, bacteremia and graft versus host disease (GvHD) in immunocompromised patients, including in patients receiving allogeneic hematopoietic stem cell transplantation (allo-HSCT) and solid organ transplants. The Company continues to evaluate microbiome pharmacokinetic and pharmacodynamic data from their SER-262 Phase 1b study and other completed clinical trials to inform the design of drug candidates in the pipeline, inform clinical trial design, and to determine next steps in the development of SER-262 to treat an initial recurrence of CDI. The Company is also using its reverse translation microbiome therapeutics platforms to conduct research on various indications, including: pathogen infection and antibiotic resistant bacteria, inflammatory and immune diseases, cancer, and metabolic diseases.

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 pre-clinical 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, or maintained, that any product candidates developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable. Even if the Company’s product 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 employees and consultants.

Under Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

As of June 30, 2020, the Company had an accumulated deficit of $500,244 and cash, cash equivalents and investments of $63,940. For the six months ended June 30, 2020, the Company incurred a loss of $40,595 and used $49,817 of cash in operations. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of ASC 205-40 and determined that the Company’s accumulated deficit, history of losses, and future expected losses meet the ASC 205-40 standard for raising substantial doubt about the Company’s ability to continue as a going concern.

8


The Company’s current financial resources, proceeds received under the Sales Agreement with Cowen and Company, LLC (“Cowen”) entered into on March 18, 2020, (the “2020 Sales Agreement”), pursuant to which Cowen sells shares of the Company’s common stock from time to time, subsequent to June 30, 2020 and currently forecasted operating plan would allow the Company to operate into the second quarter of 2021. The Company has developed plans to mitigate this risk, which primarily consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations and reducing cash expenditures. If the Company is not able to secure adequate additional funding, the Company plans to make reductions in spending. In that event, the Company may have to delay, scale back, or eliminate some or all of the Company’s planned clinical trials and research stage programs. The actions necessary to reduce spending under this plan at a level that mitigates the factors described above are not considered probable, as defined in the accounting standards and therefore, the full extent to which management may extend the Company’s funds through these actions may not be considered in management’s assessment of the Company’s ability to continue as a going concern. As a result, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern.

The Company is eligible to receive contingent milestone payments under its license and collaboration agreement with Nestec Ltd. (“NHS”), an affiliate of Nestlé Health Science US Holdings, Inc. (“Nestlé Health Science”), a significant stockholder of the Company, if certain development milestones are achieved. However, these milestones are uncertain and there is no assurance that the Company will receive any of them.  Until such time, if ever, as the Company can generate substantial product revenue, the Company will finance its cash needs through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships, or marketing, distribution or licensing arrangements with third parties. The Company may not be able to obtain funding on acceptable terms, or at all. If the Company is unable to raise additional funds as and when needed, it would have a negative impact on the Company’s financial condition, which may require the Company to delay, reduce or eliminate certain research and development activities and reduce or eliminate discretionary operating expenses, which could constrain the Company’s ability to pursue its business strategies.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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 unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 2, 2020 (the “Annual Report”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2019 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

 

 

2.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2020.

9


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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, operating expenses, clinical trials and employee-related amounts, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from the Company’s estimates.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and unvested restricted stock.

The restricted stock units granted by the Company entitle the holder of such awards to ordinary cash dividends paid to substantially all holders of the Company’s common stock, as if such shares were outstanding common shares at the time of the dividend. The dividends are paid in cash or shares of common stock when the applicable restricted stock unit vests. However, the unvested restricted stock units are not entitled to share in the residual net assets (deficit) of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Stock options to purchase common stock

 

 

11,578,482

 

 

 

8,628,459

 

Unvested restricted stock units

 

 

15,000

 

 

 

130,900

 

Shares issuable under ESPP

 

 

25,230

 

 

 

37,537

 

Total common stock equivalents

 

 

11,618,712

 

 

 

8,796,896

 

 

Recently Issued Accounting Standards

 

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This standard modifies certain disclosure requirements on fair value measurements. This standard became effective for the Company on January 1, 2020, and did not have a material impact on the Company’s disclosures.  

In November 2018 the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard makes targeted improvements for collaborative arrangements as follows:

 

Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements;

 

Adds unit-of-account guidance to ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606; and

 

Precludes a company from presenting transactions with collaborative participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

10


This standard became effective for the Company on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. This standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its condensed consolidated financial statements and related disclosures.

 

 

 

3.

Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements as of June 30, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

19,885

 

 

$

 

 

$

 

 

$

19,885

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

2,404

 

 

 

 

 

 

2,404

 

 

 

$

19,885

 

 

$

2,404

 

 

$

 

 

$

22,289

 

 

 

 

Fair Value Measurements as of December 31, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

25,510

 

 

$

 

 

$

 

 

$

25,510

 

Commercial paper

 

 

 

 

 

4,243

 

 

 

 

 

 

4,243

 

Corporate bonds

 

 

 

 

 

4,900

 

 

 

 

 

 

4,900

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

11,957

 

 

$

 

 

$

11,957

 

Corporate bonds

 

 

 

 

 

17,733

 

 

 

 

 

 

17,733

 

 

 

$

25,510

 

 

$

38,833

 

 

$

 

 

$

64,343

 

 

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. Commercial paper and corporate bonds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. There were no transfers between Level 1 or Level 2 during the three and six months ended June 30, 2020 and 2019. 

 

As of June 30, 2020 and December 31, 2019 the Company held a restricted investment of $1,400, which represent a certificate of deposit that is classified as Level 2 in the fair value hierarchy.

11


4.

Investments

Investments by security type consisted of the following at June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

June 30, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

2,403

 

 

$

1

 

 

$

-

 

 

$

2,404

 

 

 

$

2,403

 

 

$

1

 

 

$

 

 

$

2,404

 

 

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Paper

 

$

11,957

 

 

$

 

 

$

 

 

$

11,957

 

Corporate Bonds

 

 

17,732

 

 

 

3