Quarterly Report (10-q)

Date : 05/02/2019 @ 9:12PM
Source : Edgar (US Regulatory)
Stock : Viking Therapeutics Inc (VKTX)
Quote : 7.34  0.385 (5.54%) @ 4:59AM
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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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                     

Commission File Number 001-37355

 

VIKING THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-1073877

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

12340 El Camino Real, Suite 250

San Diego, California

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 704-4660

(Registrant’s telephone number, including area code)

 

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  



 

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

 

 

Title of Each Class

 

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.00001 per share

 

VKTX

The Nasdaq Stock Market LLC

 

Warrants to purchase Common Stock, par value $0.00001 per share

 

VKTXW

The Nasdaq Stock Market LLC

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Number of Shares Outstanding

as of April 30, 2019

Common stock, $0.00001 par value

 

72,047,657

 


VIKING THERAPEUTICS, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

5

 

 

 

 

 

Item 2.

 

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

 

19

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

24

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

24

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

56

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

56

 

 

 

 

 

Item 5.

 

Other Information

 

56

 

 

 

 

 

Item 6.

 

Exhibits

 

57

 

 

 

 

 

SIGNATURES

 

58

 

 

 


PART I. FINANCI AL INFORMATION

 

 

Item 1.

Financial Statements

Viking Therapeutics, Inc.

Balance Sheets

 

(In thousands, except share and per share amounts)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,343

 

 

$

24,779

 

Short-term investments – available for sale

 

 

284,375

 

 

 

276,741

 

Prepaid clinical trial and preclinical study costs

 

 

168

 

 

 

335

 

Prepaid expenses and other current assets

 

 

251

 

 

 

278

 

Total current assets

 

 

299,137

 

 

 

302,133

 

Right-of-use assets

 

 

794

 

 

 

 

Deferred public offering and other financing costs

 

 

120

 

 

 

150

 

Deposits

 

 

29

 

 

 

29

 

Total assets

 

$

300,080

 

 

$

302,312

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,676

 

 

$

959

 

Other accrued liabilities

 

 

2,961

 

 

 

3,591

 

Lease liability, current

 

 

281

 

 

 

 

Total current liabilities

 

 

4,918

 

 

 

4,550

 

Deferred rent

 

 

 

 

 

12

 

Lease liability, net of current portion

 

 

588

 

 

 

 

Total long-term liabilities

 

 

588

 

 

 

12

 

Total liabilities

 

 

5,506

 

 

 

4,562

 

Commitments and contingencies ( Note 8 )

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized at March 31, 2019 and December 31, 2018; no shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.00001 par value: 300,000,000 shares authorized at March 31, 2019 and December 31, 2018; 72,027,657 and 71,742,043 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

402,464

 

 

 

401,090

 

Accumulated deficit

 

 

(107,842

)

 

 

(102,918

)

Accumulated other comprehensive loss

 

 

(49

)

 

 

(423

)

Total stockholders’ equity

 

 

294,574

 

 

 

297,750

 

Total liabilities and stockholders’ equity

 

$

300,080

 

 

$

302,312

 

See accompanying notes to the financial statements.

 

 

1


Viking Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

 

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,496

 

 

 

3,043

 

General and administrative

 

 

2,310

 

 

 

1,762

 

Total operating expenses

 

 

6,806

 

 

 

4,805

 

Loss from operations

 

 

(6,806

)

 

 

(4,805

)

Other income (expense):

 

 

 

 

 

 

 

 

Change in fair value of debt conversion feature liability

 

 

 

 

 

1,361

 

Amortization of debt discount

 

 

 

 

 

(258

)

Amortization of financing costs

 

 

(30

)

 

 

(30

)

Interest income (expense), net

 

 

1,914

 

 

 

181

 

Realized loss on investments

 

 

(2

)

 

 

 

Total other income (expense), net

 

 

1,882

 

 

 

1,254

 

Net loss

 

 

(4,924

)

 

 

(3,551

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities

 

 

374

 

 

 

(89

)

Comprehensive loss

 

$

(4,550

)

 

$

(3,640

)

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

Basic

 

$

(0.07

)

 

$

(0.08

)

Diluted

 

$

(0.07

)

 

$

(0.10

)

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute net loss per share

 

 

 

 

 

 

 

 

Basic

 

 

71,755

 

 

 

44,649

 

Diluted

 

 

71,755

 

 

 

45,306

 

See accompanying notes to the financial statements.

 

 

2


Viking Therapeutics, Inc.

Statements of Stockholders’ Equity

 

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

Three-Month Period Ended March 31, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2018

 

 

71,742,043

 

 

$

1

 

 

$

401,090

 

 

$

(102,918

)

 

$

(423

)

 

$

297,750

 

Employee stock-based compensation

 

 

(9,580

)

 

 

 

 

 

949

 

 

 

 

 

 

 

 

 

949

 

Issuance of common stock under employee stock plans

 

 

55,434

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Issuance of common stock from warrant exercises

 

 

239,760

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

374

 

 

 

374

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,924

)

 

 

 

 

 

(4,924

)

Balance at March 31, 2019

 

 

72,027,657

 

 

$

1

 

 

$

402,464

 

 

$

(107,842

)

 

$

(49

)

 

$

294,574

 

 

 

 

 

Three-Month Period Ended March 31, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2017

 

 

35,817,104

 

 

$

 

 

$

94,339

 

 

$

(80,855

)

 

$

(20

)

 

$

13,464

 

Employee stock-based compensation

 

 

 

 

 

 

 

 

610

 

 

 

 

 

 

 

 

 

610

 

Issuance of common stock under employee stock plans

 

 

44,393

 

 

 

 

 

 

73

 

 

 

 

 

 

 

 

 

73

 

Issuance of common stock from warrant exercises

 

 

2,421,698

 

 

 

 

 

 

3,444

 

 

 

 

 

 

 

 

 

3,444

 

Sale of common stock, net of issuance costs

 

 

12,650,000

 

 

 

1

 

 

 

58,680

 

 

 

 

 

 

 

 

 

58,681

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(89

)

 

 

(89

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,551

)

 

 

 

 

 

(3,551

)

Balance at March 31, 2018

 

 

50,933,195

 

 

$

1

 

 

$

157,146

 

 

$

(84,406

)

 

$

(109

)

 

$

72,632

 

3


Viking Therapeutics, Inc.

Statements of Cash Flows

 

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,924

)

 

$

(3,551

)

 

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

 

Amortization of debt discount on notes payable

 

 

 

 

 

258

 

 

Amortization of investment premiums (accretion of investment discounts), net

 

 

(101

)

 

 

62

 

 

Amortization of financing costs

 

 

30

 

 

 

30

 

 

Amortization of non-cash clinical trial costs

 

 

134

 

 

 

225

 

 

Change in fair value of debt conversion feature liability

 

 

 

 

 

(1,361

)

 

Stock-based compensation

 

 

1,034

 

 

 

610

 

 

Realized loss on investments

 

 

2

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

75

 

 

 

(316

)

 

Accounts payable

 

 

716

 

 

 

(832

)

 

Accrued expenses

 

 

(118

)

 

 

(428

)

 

Net cash used in operating activities

 

 

(3,152

)

 

 

(5,303

)

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(99,218

)

 

 

(32,279

)

 

Proceeds from maturities of investments

 

 

91,609

 

 

 

2,652

 

 

Net cash used in investing activities

 

 

(7,609

)

 

 

(29,627

)

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock, net of underwriting discounts and commissions

 

 

 

 

 

58,822

 

 

Public offering and financing costs

 

 

 

 

 

(146

)

 

Value of shares withheld related to employee tax withholding

 

 

(84

)

 

 

 

 

Proceeds from warrant and option exercises and stock issuance under employee stock purchase plan

 

 

409

 

 

 

3,622

 

 

Net cash provided by financing activities

 

 

325

 

 

 

62,298

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(10,436

)

 

 

27,368

 

 

Cash and cash equivalents beginning of period

 

 

24,779

 

 

 

8,988

 

 

Cash and cash equivalents end of period

 

$

14,343

 

 

$

36,356

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing

   transactions

 

 

 

 

 

 

 

 

 

Unpaid deferred public offering and other financing costs

 

$

 

 

$

136

 

 

See accompanying notes to the financial statements.

 

 

4


Viking Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies

The Company

Viking Therapeutics, Inc., a Delaware corporation (the “Company”), is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are located in San Diego, California.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying balance sheet as of March 31, 2019, statements of operations for the three months ended March 31, 2019 and 2018, statements of stockholders’ equity for the three months ended March 31, 2019 and 2018 and statements of cash flows for the three months ended March 31, 2019 and 2018 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2018 contained in the Annual Report on Form 10-K filed by the Company with the SEC on March 13, 2019. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of March 31, 2019, the results of operations for the three months ended March 31, 2019 and 2018, the statements of stockholders’ equity for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018. The December 31, 2018 balance sheet included herein was derived from the audited financial statements, but does not include all disclosures or notes required by GAAP for complete financial statements.

The financial data and other information disclosed in these notes to the financial statements related to the three months ended March 31, 2019 and 2018 are unaudited. Interim results are not necessarily indicative of results for an entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements relate to determining the fair value of the debt conversion feature liability through May 21, 2018 and accounting for an operating lease and certain commitments. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Adopted Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for most leases. In July 2018, the FASB issued ASU No. 2018-11, which amends the guidance to add a method of adoption whereby the issuer may elect to recognize a cumulative effect adjustment at the beginning of the period of adoption. ASU No. 2018-11 does not require comparative period financial information to be adjusted. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of the identified asset for a period of time, the customer has to have both (1) the right to obtain substantially all of the economic benefits from the use of the identified asset and (2) the right to direct the use of the identified asset; a contract does not contain an identified asset if the supplier has a substantive right to substitute such asset ("the leasing criteria"). The Company has determined that its office lease, which has a term in excess of one year, meets the leasing criteria. Therefore, on January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct

5


costs for any existing leases. The Company elected to apply the transition provisions as of January 1, 2019, the date of adoption, and the Company recorded lease ROU assets of $858,000  and related lease liabilities of $882,000 on its balance sheet related to its operating lease. The Company has no financing leases. There were no changes to the Company’s statements of operations or cash flows.

 

In July 2017, the FASB issued ASU No. 2017-11,  Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);Derivatives and Hedging (Topic 815) : (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).  Among others, Part I of ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. ASU 2017-11 requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification. Companies that provide earnings per share (“EPS”) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.  ASU 2017-11 also addresses navigational concerns within the FASB ASC related to an indefinite deferral available to private companies.  The provisions of the new ASU related to down rounds are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (fiscal 2019 for the Company). Early adoption is permitted for all entities.  The Company’s adoption of ASU 2017-11 effective January 1, 2019 did not have a material effect on its financial statements and related disclosures.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

Investments Available-for-Sale

Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization of premiums and accretion of discounts is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured depository institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Prepaid Clinical Trial and Preclinical Study Costs

Prepaid clinical trial and preclinical study costs represent advance payments by the Company for future clinical trial and preclinical study services to be performed by the clinical research organization and other research organizations.  Such amounts are recognized as research and development expense as the related clinical trial and preclinical study services are performed.    

 

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in ROU assets, and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company

6


will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 4 for additional information.

Deferred Financing Costs

Deferred financing costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public or private sale of the Company’s common stock. Costs related to the public sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are reclassified to additional paid-in-capital as a reduction of the proceeds.  Costs related to the private sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are amortized over the term of the applicable purchase agreement.

Revenue Recognition

The Company has not recorded any revenues since its inception. However, in the future, the Company may enter into collaborative research and licensing agreements, under which the Company could be eligible for payments made in the form of upfront license fees, research funding, cost reimbursement, contingent event-based payments and/or royalties.

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers and all related amendments ("ASC 606" or "the new revenue standard"). ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-s pecific guidance. The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.   

Research and Development Expenses

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of fees paid to contract research organizations (“CROs”) and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

The Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on the Company’s behalf. Clinical trial-related contracts vary significantly in length, and may be for a fixed amount, based on milestones or deliverables, a variable amount based on actual costs incurred, capped at a certain limit, or for a combination of these elements. The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events. The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs. The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include:

 

fees paid to CROs, consultants and laboratories in connection with preclinical studies;

 

fees paid to CROs, clinical trial sites, investigators and consultants in connection with clinical trials; and

 

fees paid to contract manufacturers and service providers in connection with the production, testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials.

Payments under some of these agreements depend on factors such as the milestones accomplished, including enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. To date, the Company has not experienced any events requiring it to make material adjustments to its accruals for service fees. If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates which could materially affect its results of operations. Adjustments to the Company’s accruals are recorded as changes in estimates become evident. Furthermore, based on amounts invoiced to the Company by its service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered.

7


In May 2014 , the Company entered into a master license agreement, pursuant to which it acquired certain rights to a number of research and development programs from Ligand Pharmaceuticals Incorporated (“ Ligand”). In doing so, the Company updated its policy on researc h and development to include the purchase of rights to intangible assets. In accordance with ASC Topic 730, Research and Development, intangible assets that are acquired and have an alternative future use, as defined, should be capitalized and reported as an intangible asset; however, the cost of acquired intangible assets that do not have alternative future uses should be reported as research and development expense as incurred. The Company notes that intangible assets acquired that are in the preclinical or clinical stages of development when acquired, and not approved by the U.S. Food and Drug Administration, are deemed to have not satisfied the definition of having an alternative future use, as defined. Accordingly, assets acquired in the preclinical and clinical stages of development are expensed as incurred in the Company’s statement of operations.

Patent Costs

Costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense, as recoverability of such expenditures is uncertain.

Stock-Based Compensation

The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. At the grant date, the Company determines the grant date fair value, as a publicly traded company, using the intrinsic value, or the closing price of the Company’s common stock on the date of grant. At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

For the Employee Stock Purchase Plan (the “ESPP”), the Company generally recognizes compensation expense for the fair value of the purchase options, as measured on the grant date, and uses the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period. As the ESPP also allows for up to one increase in contributions during each purchase period, as an employee elects to increase his or her contributions, the Company treats this as an accounting modification. The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods.      

Income Taxes

The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.

ASC Topic 740-10, Income Taxes , clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with GAAP.  Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Net Loss per Common Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method.

8


The following table presents the computation of basic and diluted net loss per common share (in thousands, except share and per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net Loss

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders - Basic

 

$

(4,924

)

 

$

(3,551

)

Change in fair value of debt conversion feature liability

 

 

 

 

 

(1,361

)

Amortization of debt discount

 

 

 

 

 

258

 

Interest expense

 

 

 

 

 

24

 

Net loss attributable to common stockholders - Diluted

 

$

(4,924

)

 

$

(4,630

)

 

 

 

 

 

 

 

 

 

Basic Shares

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

71,938,232

 

 

 

44,893,895

 

Less: Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(245,096

)

Denominator for basic net loss per share

 

 

71,755,137

 

 

 

44,648,799

 

 

 

 

 

 

 

 

 

 

Diluted Shares

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

71,938,232

 

 

 

44,893,895

 

Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(245,096

)

Effect of dilutive shares issuable upon conversion of debt

 

 

 

 

 

656,716

 

Denominator for diluted net loss per share

 

 

71,755,137

 

 

 

45,305,515

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.07

)

 

$

(0.08

)

Diluted

 

$

(0.07

)

 

$

(0.10

)

 

 

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):

 

 

 

As of March 31,

 

 

 

2019

 

 

2018

 

Common stock warrants

 

 

6,130,236

 

 

 

8,780,838

 

Restricted stock units

 

 

441,652

 

 

 

136,250

 

Common stock subject to repurchase

 

 

183,095

 

 

 

245,096

 

Common stock options

 

 

2,624,897

 

 

 

1,967,721

 

 

 

 

9,379,880

 

 

 

11,129,905

 

 

Segments

The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision making purposes.

 

 

2. Investments in Marketable Securities

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of March 31, 2019 and December 31, 2018, the Company’s investments were in government money market funds, certificates of deposit, commercial paper and corporate debt securities. There were no sales of available-for-sale securities during the three months ended March 31, 2019 or during the year ended December 31, 2018.

 

9


Investments classified as available-for-sale as of March 31, 2019 consisted of the following (in thousands):

 

As of March 31, 2019

 

Amortized

Cost

 

 

Gross

Unrealized

Gains   (1)

 

 

Gross

Unrealized

Losses   (1)

 

 

Aggregate

Estimated

Fair Value

 

Certificate of deposit   (2)

 

$

249

 

 

$

 

 

$

 

 

$

249

 

Commercial paper   (2)

 

 

3,500

 

 

 

 

 

 

 

 

 

3,500

 

Corporate debt securities   (2)

 

 

280,673

 

 

 

75

 

 

 

(122

)

 

 

280,626

 

 

 

$

284,422

 

 

$

75

 

 

$

(122

)

 

$

284,375

 

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At March 31, 2019, there were 52 securities in an unrealized gain position and there were 127 securities in an unrealized loss position. The unrealized gains were less than $17,000 individually and $75,000 in the aggregate.   The unrealized losses were less than $11,000 individually and $122,000 in the aggregate. These securities have not been in a continuous unrealized gain or loss position for more than 12 months. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. 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 and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

 

(2)

At March 31, 2019, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet, and $9.4 million of these securities were scheduled to mature outside of one year at the time of purchase.

 

Investments classified as available-for-sale as of December 31, 2018 consisted of the following (in thousands):

 

As of December 31, 2018

 

Amortized

Cost

 

 

Gross

Unrealized

Gains   (1)

 

 

Gross

Unrealized

Losses   (1)

 

 

Aggregate

Estimated

Fair Value

 

Commercial paper   (2)

 

$

3,479

 

 

$

 

 

$

 

 

$

3,479

 

Corporate debt securities   (2)

 

 

273,677

 

 

 

1

 

 

 

(416

)

 

 

273,262

 

 

 

$

277,156

 

 

$

1

 

 

$

(416

)

 

$

276,741

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At December 31, 2018, there were 181 securities in an unrealized loss position and 3 securities in an unrealized gain position . The unrealized losses were less than $17,000 individually and $416,000 in the aggregate. The unrealized gains were less than $1,000 individually and $1,000 in the aggregate.   These securities have not been in a continuous unrealized loss position for more than 12 months. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. 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 and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.  

 

(2)

At December 31, 2018, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $10.0 million of these securities were scheduled to mature outside of one year.

 

 

10


3. Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable and, through May 21, 2018, debt and its related debt conversion feature liability. The carrying amounts reported in the accompanying balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the short-term maturity of those instruments. Further, the Company believes the fair value of the debt approximates its carrying value based on relatively stable interest rates and short-term maturity of this instrument.  Fair value measurements are classified and disclosed in one of the following three categories:

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

Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of March 31, 2019 and December 31, 2018, all of the Company’s financial assets that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consist of money market funds and certificates of deposit. The Company’s financial assets valued based on Level 2 inputs consist of corporate debt securities, which consist of investments in highly-rated investment-grade corporations.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of March 31, 2019, the Company’s investments were in government money market funds, certificates of deposit, commercial paper and corporate debt securities.

The fair values of the Company’s financial instruments are presented below (in thousands):

 

 

 

 

 

 

Fair Value Measurements at March 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

7,711

 

 

$

7,711

 

 

$

 

 

$

 

Corporate debt securities, available-for-sale

 

 

5,141

 

 

 

 

 

 

5,141

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

 

249

 

 

 

 

 

 

249

 

 

 

 

Commercial paper, available-for-sale

 

 

3,500

 

 

 

 

 

 

3,500

 

 

 

 

Corporate debt securities, available-for-sale

 

 

280,626

 

 

 

 

 

 

280,626

 

 

 

 

Total financial assets

 

$

297,227

 

 

$

7,711

 

 

$

289,516

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

1,724

 

 

$

1,724

 

 

$

 

 

$

 

Corporate debt securities, available-for-sale

 

 

21,976

 

 

 

 

 

 

21,976

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper, available for sale

 

 

3,479

 

 

 

 

 

 

3,479

 

 

 

 

Corporate debt securities, available-for-sale

 

 

273,262

 

 

 

 

 

 

273,262

 

 

 

 

Total financial assets

 

$

300,441

 

 

$

1,724

 

 

$

298,717

 

 

$

 

 

4. Operating Leases – Right-of-Use Assets and Lease Liability Obligations

 

The Company has only one operating lease which is for office space that expires in January 2022. Below is a summary of the Company’s right-of-use assets and liabilities as of March 31, 2019 (in thousands, except for years and %):

11


Right-of-use assets

 

$

794

 

 

 

 

 

 

Lease liability obligations, current

 

$

281

 

Lease liability obligations, less current portion

 

 

588

 

Total lease liability obligations

 

$

869

 

 

 

 

 

 

Weighted-average remaining lease term

 

2.83 years

 

 

 

 

 

 

Weighted-average discount rate

 

 

6.00

%

 

During the three months ended March 31, 2019, the Company recognized $78,000 in operating lease expenses, which are included in operating expenses in the Company’s statement of operations.

 

Approximate future minimum lease payments for the Company’s right-of-use assets over the remaining lease period as of March 31, 2019 are as follows (in thousands):

 

Remainder of 2019

 

$

243

 

2020

 

 

333

 

2021

 

 

343

 

2022

 

 

29

 

Total minimum lease payments

 

$

948

 

Less: amount representing interest

 

$

(79

)

Total lease liability obligations

 

$

869

 

 

5. Stockholders’ Equity

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.00001 par value per share, with no shares of preferred stock outstanding as of March 31, 2019 and December 31, 2018. The Board of Directors is authorized to designate the terms and conditions of any preferred stock the Company may issue without further action by the stockholders of the Company.

 

Common Stock

The Company is authorized to issue up to 300,000,000 shares of common stock, $0.00001 par value per share.

In February 2014, the Company entered into a stock purchase agreement with one of its founders. The agreement provided for the purchase of 1,000,000 shares of the Company’s common stock at a price per share of $0.01 in exchange for future services to be rendered to the Company as measured by certain performance criteria. The shares were subject to a repurchase option and were to vest in two tranches of 500,000 shares each, upon achievement of the performance target or upon a triggering event as defined.

The Company determined that the fair value of the unrecognized expense was $168,000 at February 20, 2014, the grant date. In May 2015, the Company repurchased 633,810 of these shares at a purchase price of $0.00001 per share. In connection with the repurchase, the Company entered into an amendment to the stock purchase agreement to provide that the remaining 366,190 shares will continue to vest in two tranches of 183,095 shares each, upon achievement of the performance target or upon a triggering event as defined. The pro rata grant date fair value of the unrecognized expense is $62,000.  In October 2015, a triggering event became probable of occurrence and was deemed achieved in October 2016; therefore, the Company recorded $31,000 of stock-based compensation expense through December 31, 2016.  No similar expense was recognized during the three months ended March 31, 2019 and 2018.  The Company will continue to reassess at each reporting period whether it is probable that the performance target will be achieved, and if and when it is deemed probable, the Company will begin to record compensation expense using the fair value to determine stock-based compensation expense in its financial statements over the period the Company estimates the performance target will actually be achieved. 

 

On February 8, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with PoC Capital, LLC (“PoC”), pursuant to which, among other things, the Company issued to PoC 1,286,173 shares of its common stock.  Under the terms of the SPA, PoC has agreed to fund $1.8 million in study costs associated with certain clinical studies.  Any study costs in excess of that amount will be the Company’s sole responsibility.  The Company has accounted for the $1.8 million as a prepaid expense on the balance sheet.  

12


During the three months ended March 31, 2019 and 2018, the Company recorded amortization expense of $134,000 and $225,000, respectively, in clinical study costs related to the SPA with PoC.  The remaining prepaid balance of $6,000 was recorded on the balance sheet as of March 31, 2019.

 

On September 28, 2017, the Company entered into a purchase agreement (the “Registered Offering Purchase Agreement”) pursuant to which, on September 29, 2017, the Company sold to Lincoln Park Capital Fund, LLC (“LPC”) 701,282 shares of common stock (the “LPC Initial Shares”) at a price of approximately $1.78 per share for an aggregate purchase price of $1.3 million, pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-212134) filed with the SEC on June 20, 2016, as amended by Amendment No. 1 thereto filed with the SEC on July 26, 2016, and declared effective on July 26, 2016 (the “Shelf Registration Statement”) and the prospectus supplement thereto dated September 28, 2017.

.

 

On September 28, 2017, the Company also entered a purchase agreement (the “Commitment Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with LPC, pursuant to which the Company has the right to sell to LPC up to $15.0 million in shares of common stock, subject to certain limitations and conditions set forth in the Commitment Purchase Agreement. Upon the satisfaction of the conditions in the Commitment Purchase Agreement (the “Commencement”) the Company will have the right, from time to time at its sole discretion over the 30-month period from and after the Commencement, to direct LPC to purchase up to 75,000 shares of common stock on any business day (subject to certain limitations contained in the Commitment Purchase Agreement), with such amounts increasing based on certain threshold prices set forth in the Commitment Purchase Agreement; however, not to exceed $1.0 million in total purchase proceeds per purchase date. The purchase price of shares of common stock that the Company elects to sell to LPC pursuant to the Commitment Purchase Agreement will be based on the market prices of the common stock at the time of such purchases as set forth in the Commitment Purchase Agreement. In addition to regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases or as additional purchases if the closing sale price of the common stock is not below certain threshold prices, as set forth in the Commitment Purchase Agreement. In all instances, the Company may not sell shares of its common stock to LPC under the Commitment Purchase Agreement if it would result in LPC beneficially owning more than 4.99% of the Common Stock. As consideration for LPC’s commitment to purchase shares of common stock pursuant to the Commitment Purchase Agreement, the Company issued to LPC 100,000 shares of common stock (the “LPC Commitment Shares”) .   From inception of the Commitment Purchase Agreement through December 31, 2017, 343,051 shares were issued pursuant to the Commitment Purchase Agreement resulting in aggregate gross proceeds of $802,000 in addition to the LPC Initial Shares and the LPC Commitment Shares.  No additional shares were issued during the year ended December 31, 2018 and three months ended March 31, 2019.