Quarterly Report (10-q)

Date : 11/05/2019 @ 9:33PM
Source : Edgar (US Regulatory)
Stock : Viking Therapeutics Inc (VKTX)
Quote : 7.825  0.215 (2.83%) @ 3:10PM

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 September 30, 2019

OR

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

For the transition period from                      to                     

Commission File Number 001-37355

 

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)

 

 

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 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  

 

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 October 31, 2019

Common stock, $0.00001 par value

 

72,263,516

 


VIKING THERAPEUTICS, INC.

FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018

 

1

 

 

 

 

 

 

 

Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

2

 

 

 

 

 

 

 

Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

3

 

 

 

 

 

 

 

Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

 

5

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

6

 

 

 

 

 

Item 2.

 

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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

27

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

27

 

 

 

 

 

Item 1A.

 

Risk Factors

 

27

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

59

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

59

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

59

 

 

 

 

 

Item 5.

 

Other Information

 

59

 

 

 

 

 

Item 6.

 

Exhibits

 

60

 

 

 

 

 

SIGNATURES

 

61

 

 

 


PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Viking Therapeutics, Inc.

Balance Sheets

 

(In thousands, except share and per share amounts)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,952

 

 

$

24,779

 

Short-term investments – available for sale

 

 

257,120

 

 

 

276,741

 

Prepaid clinical trial and preclinical study costs

 

 

612

 

 

 

335

 

Prepaid expenses and other current assets

 

 

572

 

 

 

278

 

Total current assets

 

 

289,256

 

 

 

302,133

 

Right-of-use assets

 

 

664

 

 

 

 

Deferred public offering and other financing costs

 

 

173

 

 

 

150

 

Deposits

 

 

29

 

 

 

29

 

Total assets

 

$

290,122

 

 

$

302,312

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,095

 

 

$

959

 

Other accrued liabilities

 

 

3,802

 

 

 

3,591

 

Lease liability, current

 

 

295

 

 

 

 

Total current liabilities

 

 

6,192

 

 

 

4,550

 

Deferred rent

 

 

 

 

 

12

 

Lease liability, net of current portion

 

 

438

 

 

 

 

Total long-term liabilities

 

 

438

 

 

 

12

 

Total liabilities

 

 

6,630

 

 

 

4,562

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.00001 par value: 300,000,000 shares authorized at September 30, 2019 and December 31, 2018; 72,255,876, and 71,742,043 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

404,581

 

 

 

401,090

 

Accumulated deficit

 

 

(121,247

)

 

 

(102,918

)

Accumulated other comprehensive income (loss)

 

 

157

 

 

 

(423

)

Total stockholders’ equity

 

 

283,492

 

 

 

297,750

 

Total liabilities and stockholders’ equity

 

$

290,122

 

 

$

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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,279

 

 

 

5,687

 

 

 

17,108

 

 

 

13,951

 

General and administrative

 

 

2,160

 

 

 

1,707

 

 

 

6,706

 

 

 

5,173

 

Total operating expenses

 

 

7,439

 

 

 

7,394

 

 

 

23,814

 

 

 

19,124

 

Loss from operations

 

 

(7,439

)

 

 

(7,394

)

 

 

(23,814

)

 

 

(19,124

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of debt conversion feature liability

 

 

 

 

 

 

 

 

 

 

 

1,398

 

Amortization of debt discount

 

 

 

 

 

 

 

 

 

 

 

(404

)

Amortization of financing costs

 

 

(40

)

 

 

(30

)

 

 

(100

)

 

 

(90

)

Interest income, net

 

 

1,742

 

 

 

824

 

 

 

5,581

 

 

 

1,397

 

Realized gain on investments, net

 

 

6

 

 

 

 

 

 

4

 

 

 

 

Total other income, net

 

 

1,708

 

 

 

794

 

 

 

5,485

 

 

 

2,301

 

Net loss

 

 

(5,731

)

 

 

(6,600

)

 

 

(18,329

)

 

 

(16,823

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities

 

 

(82

)

 

 

30

 

 

 

580

 

 

 

(97

)

Comprehensive loss

 

$

(5,813

)

 

$

(6,570

)

 

$

(17,749

)

 

$

(16,920

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.08

)

 

$

(0.11

)

 

$

(0.25

)

 

$

(0.32

)

Weighted-average shares used to compute basic and diluted net loss per share

 

 

72,040

 

 

 

61,232

 

 

 

71,907

 

 

 

52,943

 

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 September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at June 30, 2019

 

 

72,173,489

 

 

$

1

 

 

$

403,630

 

 

$

(115,516

)

 

$

239

 

 

$

288,354

 

Employee stock-based compensation

 

 

(205

)

 

 

 

 

 

810

 

 

 

 

 

 

 

 

 

810

 

Issuance of common stock under employee stock plans

 

 

48,400

 

 

 

 

 

 

90

 

 

 

 

 

 

 

 

 

90

 

Issuance of common stock from warrant exercises

 

 

34,192

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

51

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(82

)

 

 

(82

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,731

)

 

 

 

 

 

(5,731

)

Balance at September 30, 2019

 

 

72,255,876

 

 

$

1

 

 

$

404,581

 

 

$

(121,247

)

 

$

157

 

 

$

283,492

 

 

 

 

Nine-Month Period Ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2018

 

 

71,742,043

 

 

$

1

 

 

$

401,090

 

 

$

(102,918

)

 

$

(423

)

 

$

297,750

 

Employee stock-based compensation

 

 

(14,249

)

 

 

 

 

 

2,643

 

 

 

 

 

 

 

 

 

2,643

 

Issuance of common stock under employee stock plans

 

 

137,527

 

 

 

 

 

 

262

 

 

 

 

 

 

 

 

 

262

 

Issuance of common stock from warrant exercises

 

 

390,555

 

 

 

 

 

 

586

 

 

 

 

 

 

 

 

 

586

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

580

 

 

 

580

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,329

)

 

 

 

 

 

(18,329

)

Balance at September 30, 2019

 

 

72,255,876

 

 

$

1

 

 

$

404,581

 

 

$

(121,247

)

 

$

157

 

 

$

283,492

 

 

 

 

Three-Month Period Ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at June 30, 2018

 

 

60,652,794

 

 

$

1

 

 

$

231,587

 

 

$

(91,078

)

 

$

(147

)

 

$

140,363

 

Employee stock-based compensation

 

 

(205

)

 

 

 

 

 

747

 

 

 

 

 

 

 

 

 

747

 

Issuance of common stock under employee stock plans

 

 

21,604

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

157

 

Issuance of common stock from warrant exercises

 

 

1,110,411

 

 

 

 

 

 

2,342

 

 

 

 

 

 

 

 

 

2,342

 

Sale of common stock, net of issuance costs

 

 

9,500,000

 

 

 

 

 

 

165,014

 

 

 

 

 

 

 

 

 

165,014

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,600

)

 

 

 

 

 

(6,600

)

Balance at September 30, 2018

 

 

71,284,604

 

 

$

1

 

 

$

399,847

 

 

$

(97,678

)

 

$

(117

)

 

$

302,053

 

 

3


 

 

Nine-Month Period Ended September 30, 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

 

 

(22,546

)

 

 

 

 

 

1,890

 

 

 

 

 

 

 

 

 

1,890

 

Issuance of common stock under employee stock plans

 

 

257,289

 

 

 

 

 

 

470

 

 

 

 

 

 

 

 

 

470

 

Issuance of common stock from warrant exercises

 

 

4,457,757

 

 

 

 

 

 

7,167

 

 

 

 

 

 

 

 

 

7,167

 

Sale of common stock, net of issuance costs

 

 

30,775,000

 

 

 

1

 

 

 

295,981

 

 

 

 

 

 

 

 

 

295,982

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(97

)

 

 

(97

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,823

)

 

 

 

 

 

(16,823

)

Balance at September 30, 2018

 

 

71,284,604

 

 

$

1

 

 

$

399,847

 

 

$

(97,678

)

 

$

(117

)

 

$

302,053

 

 

 

4


Viking Therapeutics, Inc.

Statements of Cash Flows

 

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(18,329

)

 

$

(16,823

)

 

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

 

Amortization of debt discount on notes payable

 

 

 

 

 

404

 

 

Amortization of investment premiums, net

 

 

23

 

 

 

144

 

 

Amortization of financing costs

 

 

100

 

 

 

90

 

 

Amortization of non-cash clinical trial costs

 

 

140

 

 

 

541

 

 

Change in fair value of debt conversion feature liability

 

 

 

 

 

(1,398

)

 

Stock-based compensation

 

 

2,767

 

 

 

1,991

 

 

Realized gain on investments

 

 

(4

)

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(710

)

 

 

(1,823

)

 

Accounts payable

 

 

1,129

 

 

 

(333

)

 

Accrued expenses

 

 

1,875

 

 

 

1,131

 

 

Net cash used in operating activities

 

 

(13,009

)

 

 

(16,076

)

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(282,358

)

 

 

(167,290

)

 

Proceeds from maturities of investments

 

 

300,882

 

 

 

43,952

 

 

Net cash provided by (used in) investing activities

 

 

18,524

 

 

 

(123,338

)

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

296,607

 

 

Public offering and financing costs

 

 

(66

)

 

 

(482

)

 

Repayment of convertible notes payable

 

 

 

 

 

(3,833

)

 

Value of shares withheld related to employee tax withholding

 

 

(124

)

 

 

(101

)

 

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

 

 

848

 

 

 

7,741

 

 

Net cash provided by financing activities

 

 

658

 

 

 

299,932

 

 

Net increase in cash and cash equivalents

 

 

6,173

 

 

 

160,518

 

 

Cash and cash equivalents beginning of period

 

 

24,779

 

 

 

8,988

 

 

Cash and cash equivalents end of period

 

$

30,952

 

 

$

169,506

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

 

 

$

81

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing

   transactions

 

 

 

 

 

 

 

 

 

Unpaid deferred public offering and other financing costs

 

$

58

 

 

$

283

 

 

See accompanying notes to the financial statements.

 

 

5


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 September 30, 2019, statements of operations for the three and nine months ended September 30, 2019 and 2018, statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and statements of cash flows for the nine months ended September 30, 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 September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, the statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. The December 31, 2018 balance sheet included herein was derived from the audited financial statements, but it 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 and nine months ended September 30, 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 (“ASU 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 (“ASU 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 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 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected not to reassess

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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 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

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costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company 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 No. 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-specific 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 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,

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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.

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 research 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”). 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 Company’s 2014 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.

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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.

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

September 30,

Nine Months Ended

September 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(5,731

)

 

$

(6,600

)

 

$

(18,329

)

 

$

(16,823

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

72,223,494

 

 

 

61,414,775

 

 

 

72,089,731

 

 

 

53,154,530

 

 

Less: Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(183,095

)

 

 

(183,095

)

 

 

(211,257

)

 

Denominator for basic and diluted net loss per share

 

 

72,040,399

 

 

 

61,231,680

 

 

 

71,906,636

 

 

 

52,943,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.08

)

 

$

(0.11

)

 

$

(0.25

)

 

$

(0.32

)

 

 

 

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 September 30,

 

 

 

2019

 

 

2018

 

Common stock warrants

 

 

5,979,441

 

 

 

6,744,779

 

Restricted stock units

 

 

362,726

 

 

 

138,125

 

Common stock subject to repurchase

 

 

183,095

 

 

 

183,095

 

Common stock options

 

 

2,527,976

 

 

 

2,014,047

 

 

 

 

9,053,238

 

 

 

9,080,046

 

 

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 September 30, 2019, the Company’s investments were in government money market funds and corporate debt securities.  As of December 31, 2018, the Company’s investments were in government money market funds, commercial paper and corporate debt securities. There were no sales of available-for-sale securities during the three and nine months ended September 30, 2019 or during the year ended December 31, 2018.

 

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Investments classified as available-for-sale as of September 30, 2019 consisted of the following (in thousands):

 

As of September 30, 2019

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)