Quarterly Report (10-q)

Date : 05/08/2019 @ 9:57PM
Source : Edgar (US Regulatory)
Stock : Aileron Therapeutics Inc (ALRN)
Quote : 0.433  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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: 001-38130

 

Aileron Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4196017

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

490 Arsenal Way

Watertown, MA

 

02472

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 995-0900

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Small reporting company

 

 

 

 

 

 

 

 

  

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

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, $0.001 par value per share

ALRN

Nasdaq Global Market

As of May 6, 2019, the registrant had 26,713,617 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

Table of Contents

 

 

 

 

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Balance Sheets

 

2

 

 

Condensed Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Statement of Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Statements of Cash Flows

 

5

Item 2.

 

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

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

27

PART II.

 

OTHER INFORMATION

 

28

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

28

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

66

Item 5.

 

Other Information

 

67

Item 6.

 

Exhibits

 

67

 

 

Signatures

 

68

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

AILERON THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

11,272

 

 

$

10,635

 

Investments

 

 

1,998

 

 

 

10,060

 

Prepaid expenses and other current assets

 

 

1,094

 

 

 

1,055

 

Restricted cash

 

 

25

 

 

 

25

 

Total current assets

 

 

14,389

 

 

 

21,775

 

Operating lease, right-of-use asset

 

 

6,543

 

 

 

 

Property and equipment, net

 

 

398

 

 

 

7,290

 

Restricted cash, non-current

 

 

568

 

 

 

568

 

Other assets

 

 

501

 

 

 

679

 

Total assets

 

$

22,399

 

 

$

30,312

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

$

3,378

 

 

$

3,639

 

Accounts payable

 

 

858

 

 

 

1,731

 

Operating lease liabilities

 

 

387

 

 

 

 

Total current liabilities

 

 

4,623

 

 

 

5,370

 

Operating lease liabilities, net of current portion

 

 

4,929

 

 

 

 

Construction financing liability

 

 

 

 

 

5,342

 

Total liabilities

 

 

9,552

 

 

 

10,712

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized

   at March 31, 2019 and December 31, 2018, respectively; no shares

   issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized at

   March 31, 2019 and December 31, 2018; 14,875,035 and 14,748,475

   shares issued and outstanding at March 31, 2019 and December 31, 2018,

   respectively

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

188,811

 

 

 

188,083

 

Accumulated other comprehensive loss

 

 

 

 

 

(5

)

Accumulated deficit

 

 

(175,979

)

 

 

(168,493

)

Total stockholders’ equity

 

 

12,847

 

 

 

19,600

 

Total liabilities and stockholders’ equity

 

$

22,399

 

 

$

30,312

 

 

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

2


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,174

 

 

 

4,846

 

General and administrative

 

 

3,139

 

 

 

2,917

 

Total operating expenses

 

 

7,313

 

 

 

7,763

 

Loss from operations

 

 

(7,313

)

 

 

(7,763

)

Interest income

 

 

100

 

 

 

175

 

Net loss

 

 

(7,213

)

 

 

(7,588

)

Net loss per share — basic and diluted

 

$

(0.49

)

 

$

(0.52

)

Weighted average common shares outstanding—basic and diluted

 

 

14,816,253

 

 

 

14,732,287

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

 

(7,213

)

 

 

(7,588

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

 

5

 

 

 

(17

)

Total other comprehensive gain (loss)

 

 

5

 

 

 

(17

)

Total comprehensive loss

 

$

(7,208

)

 

$

(7,605

)

 

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

3


 

 

AILERON THERAPEUTICS, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balances at December 31, 2018

 

 

14,748,475

 

 

$

15

 

 

$

188,083

 

 

$

(5

)

 

$

(168,493

)

 

$

19,600

 

Exercise of stock options

 

 

126,560

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

165

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

563

 

Adoption of ASC 842, Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(273

)

 

 

(273

)

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,213

)

 

 

(7,213

)

Balances at March 31, 2019

 

 

14,875,035

 

 

$

15

 

 

$

188,811

 

 

$

 

 

$

(175,979

)

 

$

12,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

 

14,723,818

 

 

$

15

 

 

$

184,761

 

 

$

(33

)

 

$

(136,946

)

 

$

47,797

 

Exercise of stock options

 

 

10,565

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

767

 

 

 

 

 

 

 

 

 

767

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,588

)

 

 

(7,588

)

Balances at March 31, 2018

 

 

14,734,383

 

 

$

15

 

 

$

185,544

 

 

$

(50

)

 

$

(144,534

)

 

$

40,975

 

 

4


 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,213

)

 

$

(7,588

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

31

 

 

 

46

 

Net amortization of premiums and discounts on investments

 

 

(34

)

 

 

(44

)

Stock-based compensation expense

 

 

563

 

 

 

767

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(50

)

 

 

(86

)

Other assets

 

 

533

 

 

 

11

 

Accounts payable

 

 

(872

)

 

 

196

 

Operating lease liabilities

 

 

(85

)

 

 

 

Accrued expenses and other current liabilities

 

 

(374

)

 

 

(231

)

Net cash used in operating activities

 

 

(7,501

)

 

 

(6,929

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(127

)

 

 

(7

)

Purchases of investments

 

 

 

 

 

(7,548

)

Proceeds from sales or maturities of investments

 

 

8,100

 

 

 

9,955

 

Net cash provided by (used in) investing activities

 

 

7,973

 

 

 

2,400

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

165

 

 

 

16

 

Net cash provided by financing activities

 

 

165

 

 

 

16

 

Net decrease in cash, cash equivalents and restricted cash

 

 

637

 

 

 

(4,513

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

11,228

 

 

 

11,951

 

Cash, cash equivalents and restricted cash at end of period

 

$

11,865

 

 

$

7,438

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

199

 

 

$

 

 

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

5


 

 

AILERON THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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

1. Nature of the Business and Basis of Presentation

Aileron Therapeutics, Inc. (“Aileron” or the “Company”) is a clinical-stage biopharmaceutical company that is focused on developing and commercializing a novel class of stabilized cell-permeating alpha-helical peptides to address intracellular targets in oncology and other therapeutic areas. The Company’s lead product candidate, ALRN-6924, targets the tumor suppressor p53 for the treatment of a wide variety of cancers. ALRN-6924 is a stabilized cell-permeating peptide that disrupts the interaction of the two primary p53 suppressor proteins, MDM2 and MDMX, with p53, thereby reactivating tumor suppression in wild-type p53 cancers. ALRN-6924 was in multiple clinical trials as of March 31, 2019.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary governmental regulatory approval or that any approved products will be commercially viable. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its key employees and consultants.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Liquidity

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The Company’s interim financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through March 31, 2019, the Company has funded its operations with net proceeds of $50,009 from its IPO, $131,211 from sales of preferred stock and $34,910 from a collaboration agreement. As of March 31, 2019, the Company had cash, cash equivalents and investments of $13,270. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $175,979 as of March 31, 2019. The Company expects to continue to generate losses for the foreseeable future.

On March 28, 2019, the Company entered into a securities purchase agreement with accredited investors, pursuant to which it agreed to issue and sell to the investors in a private placement an aggregate of (i) 11,838,582 units, consisting of 11,838,582 shares of its common stock and associated warrants, (the “common warrants”), to purchase an aggregate of 11,838,582 shares of common stock, for a combined price of $2.01 per unit and (ii) 1,096,741 units, consisting of pre-funded warrants to purchase 1,096,741 shares of the Company’s common stock and associated common warrants to purchase 1,096,741 shares of common stock, for a combined price of $2.01 per unit. The pre-funded warrants are exercisable at an exercise price of $0.01 per share and have no expiration. The common warrants are exercisable at an exercise price of $2.00 per share and expire five years from the date of issuance.

6


 

On April 2, 2019, the Company closed the private placement and received aggregate gross proceeds of approximately $26 ,000 , before deducting placement agent fees and offering expenses, and excluding the exercise of any warrants. The C ompany paid placement agent fees of approximately $1,700.

As of May 8, 2019, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments of $13,270 as of March 31, 2019, together with the net proceeds from the private placement of its common stock received on April 2, 2019 will be sufficient to fund its operating expenses and capital expenditure requirements into the fourth quarter of 2020. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all.

To execute its business plans, the Company will need substantial funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of common stock in public offering and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing on acceptable terms or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion plans or commercialization efforts, which could adversely affect its business prospects.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have been prepared by the Company, pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 that was filed with the SEC on March 29, 2019.

 

The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2019, the results of its operations for the three months ended March 31, 2019 and 2018 and its cash flows for the three months ended March 31, 2019 and 2018. The financial data and other information disclosed in these notes related to the three months ended March 31, 2019 and 2018 are unaudited. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period. The accompanying balance sheet as of December 31, 2018 has been derived from the Company’s audited financial statements for the year ended December 31, 2018 previously filed with the SEC.

 

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, corporate notes and commercial paper, are stated at fair value.

7


 

Restricted Cash

As of March 31, 2019 and December 31, 2018, current restricted cash consisted of $25 of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards. As of March 31, 2019 and December 31, 2018, non-current restricted cash consisted of $568 of cash deposited in a separate restricted bank account as a security deposit for   the lease of the Company’s facility (see Note 8).

Investments

The Company classifies its available-for-sale debt security investments as current assets on the balance sheet if they mature within one year from the balance sheet date.

The Company classifies all of its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities or using other inputs that are observable or can be corroborated by observable market data. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the statements of operations and comprehensive loss.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary”, the Company reduces the investment to fair value through a charge to the statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable.

 

 

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

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

Net Income (Loss) per Share

The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

8


 

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) att ributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting income (loss) per share attributable to common stoc kholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockho lders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock are considered potential dilutive common sh ares.

Recently Adopted Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (“ASU 2016-02”), to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, leases are required to be recognized on the balance sheet as right-of-use assets and operating lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The Company adopted the standard effective January 1, 2019. It has implemented the standard using the required modified retrospective approach and has also elected to utilize the package of practical expedients. The expedients used by the Company are as follows: (1) allowing an entity to not reassess the lease classification for any expired or existing leases, (2) allowing an entity to not reassess the treatment of initial direct costs as they related to existing leases, and (3) allowing an entity to not reassess whether expired or existing contracts are or contain leases. In using the modified retrospective approach, the Company is required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented.

As a result of the adoption of ASU 2016-02, the Company de-recognized $7,079 of the building asset and $81 of accumulated depreciation related to its corporate headquarters at 490 Arsenal Way. Prior to the adoption of ASU 2016-02, the Company classified leasehold improvements associated with the 490 Arsenal Way building as building. Subsequent to the adoption of ASU 2016-02, the leasehold improvements associated with the 490 Arsenal Way building are classified as leasehold improvements.  

 

 

 

 

January 1, 2019

prior to ASC 842

Adoption

 

 

ASC 842

Adjustment

 

 

January 1, 2019

as adjusted

 

Operating lease right-of-use assets, net

 

$

 

 

$

6,697

 

 

$

6,697

 

Property and equipment, net

 

 

7,290

 

 

 

(6,998

)

 

$

292

 

Construction financing liability

 

 

5,342

 

 

 

(5,342

)

 

$

 

Other liabilities, current

 

 

3,639

 

 

 

(87

)

 

$

3,552

 

Operating lease liabilities, current

 

 

 

 

 

334

 

 

$

334

 

Operating lease liabilities, net of current portion

 

 

 

 

 

5,067

 

 

$

5,067

 

Accumulated deficit

 

 

(168,493

)

 

 

(273

)

 

$

(168,766

)

 

Recently Issued Accounting Pronouncements

The Company does not expect any accounting standards that have been issued or proposed by the FASB or other standards setting bodies that would require adoption on a future date to have a material impact on the Company’s financial statements upon adoption.

3. Fair Value of Financial Assets

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of

March 31, 2019 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,020

 

 

$

 

 

$

 

 

$

6,020

 

Commercial paper

 

 

 

 

 

1,994

 

 

 

 

 

 

1,994

 

Corporate notes

 

 

 

 

 

2,198

 

 

 

 

 

 

2,198

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

1,998

 

 

 

 

 

 

1,998

 

 

 

$

6,020

 

 

$

6,190

 

 

$

 

 

$

12,210

 

9


 

 

 

 

Fair Value Measurements as of

December 31, 2018 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,041

 

 

$

 

 

$

 

 

$

6,041

 

Corporate notes

 

 

 

 

 

998

 

 

 

 

 

 

998

 

Commercial paper

 

 

 

 

 

2,495

 

 

 

 

 

 

2,495

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

3,644

 

 

 

 

 

 

3,644

 

Commercial paper

 

 

 

 

 

6,416

 

 

 

 

 

 

6,416

 

 

 

$

6,041

 

 

$

13,553

 

 

$

 

 

$

19,594

 

 

As of March 31, 2019 and December 31, 2018, the Company’s cash equivalents and investments were invested in money market funds, corporate notes and commercial paper and were valued based on Level 1 and Level 2 inputs. In determining the fair value of its corporate notes and commercial paper at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data. The Company’s cash equivalents have original maturities of less than 90 days from the date of purchase. All available-for-sale investments have contractual maturities of less than one year. During the three months ended March 31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3.

4. Investments

As of March 31, 2019 and December 31, 2018, the fair value of available-for-sale investments by type of security was as follows:

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

1,998

 

 

$

 

 

$

 

 

$

1,998

 

 

 

$

1,998

 

 

$

 

 

$

 

 

$

1,998

 

 

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

3,646

 

 

$

 

 

$

(2

)

 

$

3,644

 

Commercial paper

 

 

6,418

 

 

 

 

 

 

(2

)

 

 

6,416

 

 

 

$

10,064

 

 

$

 

 

$

(4

)

 

$

10,060

 

 

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

External research and development services

 

 

1,553

 

 

 

1,307

 

Payroll and payroll-related costs

 

 

820

 

 

 

1,473

 

Professional fees

 

 

716

 

 

 

436

 

Other

 

 

289

 

 

 

423

 

 

 

$

3,378

 

 

$

3,639

 

 

10


 

6 . Stock-Based Awards

2017 Stock Incentive Plan

The Company’s 2017 Stock Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 16, 2017 and became effective on June 28, 2017. Under the 2017 Plan, the Company may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2017 Plan; however, incentive stock options may only be granted to employees. The 2017 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The number of shares of common stock covered by options and the date those options become exercisable, type of options to be granted, exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2017 Plan with service-based vesting conditions generally vest over four years and may not have a duration in excess of ten years, although options have been granted with vesting terms of less than four years.

The total number of shares of common stock that may be issued under the 2017 Plan was 3,032,188 as of March 31, 2019, of which 1,545,467 shares remained available for grant. The Company initially reserved 1,244,816 shares of common stock plus the number of shares equal to the sum of the number of shares of common stock then available for issuance under the 2016 plan, which was 424,601 shares, and the number of shares of common stock subject to outstanding awards under the 2006 plan and the 2016 plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right. The number of shares of common stock that may be issued under the 2017 Plan will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 1,244,816 shares, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. On December 13, 2018 and December 6, 2017, the Company’s compensation committee of the board of directors authorized an increase of 589,939 and 588,953 shares, respectively, that may be issued under the 2017 Plan.

During the three months ended March 31, 2019, pursuant to the terms of the 2017 Plan, the Company granted options to employees and directors to purchase 100,000 shares of common stock at a weighted average exercise price of $1.47 per share.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

2017 Employee Stock Purchase Plan

On June 16, 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which became effective on June 28, 2017. A total of 150,000 shares of common stock were initially reserved for issuance under this plan. The number of shares of common stock that may be issued under the 2017 ESPP will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 622,408 shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. On December 13, 2018, the Company’s compensation committee of the board of directors determined not to increase the number of shares of common stock that may be issued under the 2017 ESPP.

2016 Stock Incentive Plan

The Company’s 2016 Stock Incentive Plan (the “2016 Plan”) provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directors and consultants of the Company. The 2016 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2016 Plan with service-based vesting conditions vest over four years and expire after ten years.

As of the effective date of the 2017 Plan, the board of directors determined to grant no further awards under the 2016 Plan. No stock options or other awards have been made under the 2016 Plan since the adoption of the 2017 Plan.  

11


 

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2017 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2017 Plan.

2006 Stock Incentive Plan

The Company’s 2006 Stock Incentive Plan, as amended, (the “2006 Plan”) provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directors and consultants of the Company. The 2006 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2006 Plan with service-based vesting conditions generally vest over four years and expire after ten years, although options have been granted with vesting terms of less than four years.

The 2006 Plan expired in 2016. Since its expiration No further awards have been made under the 2006 Plan.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2017 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2017 Plan.

Stock Option Valuation

The assumptions that the Company used to determine the grant-date fair value of the stock options granted to employees and directors during the three months ended March 31, 2019 and 2018 were as follows, presented on a weighted average basis:

 

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

Risk-free interest rate

 

 

2.53

%

 

 

2.67

%

Expected term (in years)

 

 

6.2

 

 

 

6.2

 

Expected volatility

 

 

76.0

%

 

 

76.0

%

Expected dividend yield

 

 

0

%

 

 

0

%

 

Stock Options

The following table summarizes the Company’s stock option activity since January 1, 2019:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

 

Outstanding at December 31, 2018

 

 

2,528,297

 

 

$

6.31

 

 

 

6.7

 

 

$

 

Granted

 

 

100,000

 

 

 

1.47

 

 

 

 

 

 

 

 

 

Exercised

 

 

(126,560

)

 

 

1.30

 

 

 

 

 

 

 

 

 

Canceled

 

 

(50,000

)

 

 

5.37

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(5,250

)

 

 

12.09

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2019

 

 

2,446,487

 

 

$

6.37

 

 

 

6.8

 

 

$

66

 

Options exercisable at March 31, 2019

 

 

1,185,803

 

 

$

6.85

 

 

 

4.4

 

 

$

18

 

Options vested and expected to vest at March 31, 2019

 

 

2,407,749

 

 

$

6.85

 

 

 

4.4

 

 

$

18

 

Options exercisable at December 31, 2018

 

 

1,214,016

 

 

$

6.29

 

 

 

3.9

 

 

$

 

Options vested and expected to vest at December 31, 2018

 

 

2,485,495

 

 

$

6.31

 

 

 

6.6

 

 

$

 

 

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2019 and 2018 was $0.99 and $6.17, respectively.

12


 

The aggregate fair value of stock options that vested during the three months ended March 31, 2019 and 2018 was $5 09 and $ 514 , respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2019 and 2018 was $109 and $83, respectively.

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options in the following expense categories of its statements of operations and comprehensive loss:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Research and development expenses

 

$

81

 

 

$

270

 

General and administrative expenses

 

 

482

 

 

 

497

 

 

 

$

563

 

 

$

767

 

 

The Company used an estimated forfeiture rate of 2.43% to calculate its stock compensation expense for each of the three months ended March 31, 2019 and 2018.

 

As of March 31, 2019, the Company had an aggregate of $4,711 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 2.3 years.

 

7. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows :

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,213

)

 

$

(7,588

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding—basic and

   diluted.

 

 

14,816,253

 

 

 

14,732,287

 

 

 

 

 

 

 

 

 

 

Net loss per share —basic and diluted

 

$

(0.49

)

 

$

(0.52

)

 

The Company’s potential dilutive securities, which include stock options, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Stock options to purchase common stock

 

 

2,446,487

 

 

 

2,175,668

 

 

13


 

8 . Commitments and Contingencies

Operating Lease

490 Arsenal Way

On April 4, 2018, the Company entered into a lease agreement for office and laboratory space located in a building (the “Building”) at 490 Arsenal Way, Watertown, Massachusetts (the “490 Arsenal Way Lease”), which is now the Company’s corporate headquarters. Under the terms of the 490 Arsenal Way Lease, starting on August 21, 2018, the Company leases approximately 18,768 square feet of office and laboratory space at $52.55 per square foot per year, or $986 per year in base rent, which is subject to scheduled annual rent increases plus certain operating expenses and taxes. The Company currently maintains a $568 security deposit related to the 490 Arsenal Way Lease. Pursuant to the 490 Arsenal Way Lease, the landlord contributed an aggregate of $2,419 toward the cost of construction and tenant improvements for the Building.

The Company has occupied the Building beginning on August 21, 2018 and the 490 Arsenal Way Lease will continue until August 31, 2026. The Company has the option to extend the 490 Arsenal Way Lease for one five-year terms. The Company is accounting for this lease under ASC 842 using its initial eight-year term through August 31, 2026 and will reassess the lease term on a quarterly basis.

Due to the Company’s involvement in the construction project, including having responsibility to pay for a portion of the costs of finish work and mechanical, electrical, and plumbing elements of the Building, among other items, the Company was deemed for accounting purposes to be the owner of the Building during the construction period, per ASC 840. Accordingly, under ASC 840, construction costs that were incurred by the landlord directly or indirectly through reimbursement to the Company as part of its tenant improvement allowance were recorded as an asset in Property, plant and equipment, net on the Company’s consolidated balance sheets.

The Company evaluated the 490 Arsenal Way Lease upon occupancy on August 21, 2018 and determined that the 490 Arsenal Way Lease did not meet the criteria for “sale-leaseback” treatment under ASC 840. This determination was based on, among other things, the Company's continuing involvement with the property in the form of non-recourse financing to the lessor. Accordingly, upon occupancy, the Company commenced depreciating the portion of the building in service over a useful life of 30 years and incurred interest expense related to the financing obligation.

As part of its adoption of ASC 842, the Company de-recognized the building asset and corresponding financing obligation recorded on the Company’s consolidated balance sheets as of January 1, 2019, in accordance with the ASC 842 transition guidance. In applying the ASC 842 transition guidance, the Company classified this lease as an operating lease and recorded a right-of-use asset of $6,697 and lease liability of $5,401 on the effective date. The Company is recognizing rent expense on a straight-line basis throughout the remaining term of the lease.

 

Summary of all lease costs recognized under ASC 842

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the three months ended March 31, 2019:

 

 

 

Three Months Ended

March 31, 2019

 

Lease cost (1)

 

 

 

 

Operating lease cost

 

$

317

 

Total lease cost

 

$

317

 

 

 

 

 

 

Other Information

 

 

 

 

Operating cash flows used for operating leases

 

$

247

 

Weighted average remaining lease term (in years)

 

 

7.5

 

Weighted average discount rate

 

 

12.0

%

 

 

(1)

Short-term lease costs and variable lease costs incurred by the Company for the three months ended March 31, 2019 were immaterial.

 

14


 

As of March 31, 2019, future minimum commitments under ASC 842 under the Company’s operating leases were as follows:

 

 

 

As of March 31, 2019

 

2019 (excluding the three months ended March 31, 2019)

 

$

750

 

2020

 

 

1,026

 

2021

 

 

1,058

 

2022

 

 

1,089

 

2023

 

 

1,122

 

2024 and thereafter

 

 

3,126

 

Total lease payments

 

 

8,171

 

Less: imputed interest

 

 

(2,855

)

Total operating lease liabilities

 

$

5,316

 

 

As of December 31, 2018, future minimum commitments under ASC 840 under the Company’s operating leases were as follows:

 

 

 

As of December 31, 2018

 

2019

 

$

997

 

2020

 

 

1,026

 

2021

 

 

1,058

 

2022

 

 

1,089

 

2023

 

 

1,122

 

2024 and thereafter

 

 

3,126