NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(In thousands, except share and per share
amounts)
(Unaudited)
1. Nature of Business, Basis of Presentation and Liquidity
Nature of Business
Leap Therapeutics, Inc. was incorporated
in the state of Delaware on January 3, 2011. During 2015, HealthCare Pharmaceuticals Pty Ltd. (“HCP Australia”) was
formed and is a wholly owned subsidiary of the Company.
The Company is a biopharmaceutical
company acquiring and developing novel therapeutics at the leading edge of cancer biology. The Company’s approach is designed
to target compelling tumor-promoting and immuno-oncology pathways to generate durable clinical benefit and enhanced outcomes for
patients. The Company’s programs are monoclonal antibodies that target key cellular pathways that enable cancer to grow and
spread and specific mechanisms that activate the body’s immune system to identify and attack cancer.
Basis of Presentation
The accompanying
condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020
and 2019 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the
“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate
to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included
in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2020.
The condensed consolidated financial
statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management,
the accompanying condensed consolidated financial statements contain all adjustments which are necessary for the fair presentation
of the Company’s financial position as of September 30, 2020, statements of operations and statements of comprehensive loss
for the three and nine months ended September 30, 2020 and 2019 and statements of cash flows for the nine months ended September
30, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months
ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December
31, 2020.
Liquidity
Since inception, the Company has been engaged
in organizational activities, including raising capital, and research and development activities. The Company does not yet have
a product that has been approved by the Food and Drug Administration (the “FDA”), has not generated any product sales
revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is
no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future
operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization
efforts, regulatory approval, and, ultimately, the market acceptance of the Company’s products.
In accordance
with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions
and 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 condensed consolidated financial statements are issued. As of September 30, 2020,
the Company had cash and cash equivalents of $57,975. Additionally, the Company had an accumulated deficit of $216,275 at September
30, 2020, and during the nine months ended September 30, 2020, the Company incurred a net loss of $20,804. The Company expects
to continue to generate operating losses for the foreseeable future. The Company believes that its cash and cash equivalents of
$57,975 as of September 30, 2020, will be sufficient to fund its operating expenses for at least the next 12 months from issuance
of these financial statements.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions
are eliminated upon consolidation.
Use of Estimates
The presentation of condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Research and development incentive income and receivable
The Company recognizes other income from
Australian research and development incentives when there is reasonable assurance that the income will be received, the relevant
expenditure has been incurred, and the consideration can be reliably measured. The research and development incentive is one of
the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative
law primarily in the form of the Australian Income Tax Assessment Act 1997, as long as eligibility criteria are met.
Management has assessed the Company’s
research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under
the research and development incentive regime described above. At each period end, management estimates the refundable tax offset
available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on
an annual basis.
Under the program, a percentage
of eligible research and development expenses incurred by the Company through its subsidiary in Australia are reimbursed. The percentage
was 43.5% for the year ended December 31, 2019 and for the three and nine months ended September 30, 2020.
The research and development incentive
receivable represents an amount due in connection with the above program. The Company has recorded a research and development incentive
receivable of $209 and $185 as of September 30, 2020 and December 31, 2019, respectively, in the condensed consolidated balance
sheets and other income from Australian research and development incentives of $228 for the three months ended September 30, 2020.
During the three months ended September 30, 2019, the Australian research and development incentives recognized were offset by
an adjustment to the prior year estimated Australian research and development incentives, resulting in a net expense for the period.
During the three months ended September 30, 2020, the Company recorded an adjustment to increase Australian research and development
incentive income by approximately $150 as the cash received from the Australian Government during the three months ended September
30, 2020 for 2019 eligible expenditures was higher than the prior year estimated Australian research and development incentives.
During the nine months ended September 30, 2020 and 2019, the Company recorded $343 and $129, respectively, of other income from
Australian research and development incentives.
The following table shows the change in the research and development
incentive receivable from December 31, 2018 to September 30, 2020 (in thousands):
Balance at December 31, 2018
|
|
$
|
836
|
|
Australian research and development incentive income, net
|
|
|
132
|
|
Cash received for 2018 eligible expenses
|
|
|
(757
|
)
|
Foreign currency translation
|
|
|
(26
|
)
|
Balance at December 31, 2019
|
|
|
185
|
|
Australian research and development incentive income, net
|
|
|
343
|
|
Cash received for 2019 eligible expenses
|
|
|
(331
|
)
|
Foreign currency translation
|
|
|
12
|
|
Balance at September 30, 2020
|
|
$
|
209
|
|
Foreign Currency Translation
The financial statements of the
Company’s Australian subsidiary are measured using the local currency as the functional currency. Assets and liabilities
of this subsidiary are translated into U.S. dollars at an exchange rate as of the consolidated balance sheet date. Equity is translated
at historical exchange rates. Revenues and expenses are translated into U.S. dollars at average rates of exchange in effect during
the period. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders’
equity. Realized foreign currency transaction gains and losses are included in the results of operations.
Deferred Costs
The Company capitalizes certain
legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred
costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders'
equity (deficiency) as a reduction of additional paid-in capital generated as a result of the offering.
The Company
also capitalizes certain contract acquisition costs. During the nine months ended September 30, 2020, the Company incurred contract
acquisition costs which were capitalized under ASC 340-40 as incremental costs of obtaining the contract with BeiGene. This cost
is amortized on a straight-line basis over the performance period of the research and development services.
As of September 30, 2020 and December 31, 2019 there
was $379 and $831, respectively, of deferred costs.
Deposits
As of September 30, 2020 and December
31, 2019, $941 and $1,099, respectively, of deposits made by the Company with certain service providers that are to be applied
to future payments due under the service agreements or returned to the Company if not utilized, were recorded in the condensed
consolidated balance sheets.
Warrants
On January 1, 2019, the Company
adopted ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives
and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. The amendments require entities that present earnings per share (“EPS”)
in accordance with Topic 260 to recognize the effect of the down round feature when triggered with the effect treated as a dividend
and as a reduction of income available to common stockholders in basic EPS.
The Company concluded that the common stock
warrants (the “2017 Warrants”) issued in connection with the private placement of common stock completed in November
2017 (the “November 2017 Private Placement”), qualify for equity classification under ASU 2017-11. The adoption guidance
of ASU 2017-11 provides for a modified retrospective adoption. The Company applied the guidance retrospectively to the 2017 Warrants
by means of a cumulative-effect adjustment to its statement of financial position as of the beginning of the interim and annual
period beginning January 1, 2019. The Company performed a final remeasurement of the warrant liability as of January 1, 2019 and
reclassified $3,448 from warrant liability to equity.
The Company will recognize on a
prospective basis the value of the effect of the down round feature in the 2017 Warrants when it is triggered (i.e., when the exercise
price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without
the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down
round feature) using the reduced exercise price. The value of the effect of the down round feature will be treated as a dividend
and a reduction to income available to common stockholders in the basic EPS calculation. In connection with the public offering,
completed in February 2019 (the “2019 Public Offering”), when the 2017 Warrants were repriced from $6.085 to $1.75
as a result of a down round, the Company recorded a dividend of $359 during the nine months ended September 30, 2019. In connection
with the private placement of common stock completed in January 2020 (the “January 2020 Private Placement”), when the
2017 Warrants were repriced from $1.75 to $1.055 as a result of a down round, the Company recorded a dividend of $303 during the
nine months ended September 30, 2020.
Fair Value of Financial Instruments
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.
|
During the periods presented,
the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3
inputs. There were no transfers within the hierarchy during the three and nine months ended September 30, 2020 or the year ended
December 31, 2019.
A summary of the assets and liabilities carried at
fair value in accordance with the hierarchy defined above is as follows (in thousands):
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
57,975
|
|
|
$
|
57,975
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
$
|
57,975
|
|
|
$
|
57,975
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
3,891
|
|
|
$
|
3,891
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
$
|
3,891
|
|
|
$
|
3,891
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash equivalents of $57,975 and
$3,891 as of September 30, 2020 and December 31, 2019, respectively, consisted of overnight investments and money market funds
and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
The carrying value of the research
and development incentive receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term
nature of these assets and liabilities.
Leases
In February 2016, the Financial
Accounting Standards Board, or FASB, issued ASU 2016-02, Leases, or ASU 2016-02, to enhance the transparency and comparability
of financial reporting related to leasing arrangements. The Company adopted ASU 2016-02 on January 1, 2019, or the effective date,
and used the effective date as its date of initial application.
At the inception of an arrangement,
the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most
leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if
applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one
year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of
lease payments over the expected remaining lease term. The Company has determined that the rate implicit in the lease is not determinable
and the Company does not have borrowings with similar terms and collateral. Therefore, the Company considered a variety of factors,
including observable debt yields from comparable companies and the volatility in the debt market for securities with similar terms,
in determining that 8% was reasonable to use as the incremental borrowing rate for purposes of the calculation of lease liabilities.
In accordance with the guidance
in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease
components (e.g. common area maintenance, maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance,
etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated
based on fair values to the lease components and non-lease components.
Although separation of lease and non-lease
components is required, certain practical expedients are available. Entities may elect the practical expedient to not separate
lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together
as a single component. The Company has elected to account for the lease and non-lease components of each of its operating leases
as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results
in an operating right-of-use asset being recorded on the consolidated balance sheets and amortized such that lease expense is recorded
on a straight line basis over the term of the lease.
Revenue Recognition
The Company records revenue in accordance with
Accounting Standards Codification, or ASC, Topic 606, Revenue From Contracts with Customers. This standard applies to
all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance,
collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains
control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within
the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii)
identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. The Company only applies the five step model to contracts when it is probable that the entity will
collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract
inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services
promised within each contract and determines those that are performance obligations, and assesses whether each promised good
or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.
License revenue. The Company’s
performance obligations under its license agreements may include providing intellectual property licenses, performing technology
transfer, performing research and development consulting services and notifying the customer of any enhancements to licensed technology
or new technology that it discovers, among others. The Company determined that its performance obligations under its license agreements
as evaluated at contract inception were not distinct and represented a single performance obligation. Upfront payments are amortized
to revenue on a straight-line basis over the performance period. Upfront payment contract liabilities resulting from the Company’s
license agreements do not represent a financing component as the payment is not financing the transfer of goods or services, and
the technology underlying the licenses granted reflects research and development expenses already incurred by the Company. Generally,
all amounts received or due other than sales-based milestones and royalties are classified as license revenues. Sales-based milestones
and royalties under the Company’s license agreements will be recognized as royalty revenue in the period the related sale
occurred. The Company generally invoices its licensees upon the completion of the effort or achievement of a milestone, based on
the terms of each agreement. Deferred revenue arises from amounts received in advance of the culmination of the earnings process
and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized
within the next twelve months is classified as a current liability.
Research and Development Services.
The promises under the Company’s license agreements may include research and development services to be performed by
the Company on behalf of the customer. Payments or reimbursements resulting from the Company’s research and development efforts
are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.
Customer Options. If
an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the
goods and services underlying the customer options that are not determined to be material rights are not considered to be
performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates
the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If
the customer options are determined to represent a material right, the material right is recognized as a separate performance
obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the
relative standalone selling price, which is determined based on the identified discount and the probability that the customer
will exercise the option. Amounts allocated to a material right are not recognized as revenue until (1) the option is
exercised and the additional goods or services are transferred or (2) the option expires.
Milestone Payments. At
the inception of each arrangement that includes research or development milestone payments, the Company evaluates whether the milestones
are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely
amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included
in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory
approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such
as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone
in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue
reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement
of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments
are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties. For arrangements
that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a
level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant
item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when
the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To
date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Collaborative Arrangements
The Company analyzes its collaboration
arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants
in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore
within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). This assessment is performed throughout the life of the
arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the
scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to
be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and
therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an
appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. Amounts that are owed to
collaboration partners are recognized as an offset to collaboration revenues as such amounts are incurred by the collaboration
partner. Where amounts owed to a collaboration partner exceed the Company’s collaboration revenues in each quarterly period,
such amounts are classified as research and development expense. Reimbursements from and payments to the customer that are the
result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are
recorded as a reduction to research and development expense. For those elements of the arrangement that are accounted for pursuant
to ASC 606, the Company applies the five-step model described above under ASC 606.
See Note 3 for a complete discussion of the revenue
recognition for the Company’s license agreement.
Net Loss per Share
Basic net
loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per
share is computed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted
average number of potential shares of common stock, including the assumed exercise of stock options and warrants.
Subsequent Events
The Company considers events or
transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional
evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated
as required.
Recent Accounting Pronouncements
From time to time, new accounting
pronouncements are issued by the FASB, and are early adopted by the Company or adopted as of the specified effective date.
In November 2018, the FASB issued “ASU
2018-18, Clarifying the Interaction between Topic 808 and Topic 606.” The objective of the standard is to clarify the interaction
between ASC Topic 808--Collaborative Arrangements and ASC Topic 606--Revenue from Contracts with Customers. Currently, ASC Topic
808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those
arrangements is often based on an analogy to other accounting literature or an accounting policy election. Similarly, aspects of
ASC Topic 606 have resulted in uncertainty in practice about the effect of the revenue standard on the accounting for collaborative
arrangements. The standard became effective for us beginning on January 1, 2020 and the adoption of this ASU did not have a material
impact on our financial condition, results of operations, cash flows, and financial statement disclosures.
3. BeiGene Exclusive Option and License Agreement
Terms of Agreement
On January 3, 2020, the Company
entered into an exclusive option and license agreement (the “BeiGene Agreement”) with BeiGene, Ltd. (“BeiGene”)
for the clinical development and commercialization of DKN-01, in Asia (excluding Japan), Australia, and New Zealand. The Company
retains exclusive rights for the development, manufacturing, and commercialization of DKN-01 for the rest of the world.
Pursuant to the BeiGene Agreement,
the Company received an upfront cash payment of $3,000 from BeiGene in exchange for granting BeiGene an option to an exclusive
license to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and New Zealand. The Company is eligible to receive
up to $132,000 in future option exercise and milestone payments, based upon the achievement of certain development, regulatory,
and sales milestones, as well as tiered royalties on any product sales of DKN-01 in the licensed territory.
The Company is responsible for
conducting development activities prior to the exercise of the option. After the option is exercised, BeiGene is solely responsible
for the development and commercialization of DKN-01 in the territory. The BeiGene Agreement continues in effect until the earlier
of: (i) 120 days after the end of the option period, if BeiGene has not exercised the option by such date; and (ii) on a country-by
country and Licensed Product-by-Licensed Product (as defined in the BeiGene Agreement) basis, the expiration of the Royalty Term
(as defined in the BeiGene Agreement) applicable to such licensed product in such country. At any time, BeiGene may terminate the
agreement by providing at least 60 days written notice of termination to the Company. Upon termination of the License Agreement,
all rights granted by the Company to BeiGene terminate.
Revenue Recognition
The Company evaluated the BeiGene
Agreement to determine whether it is a collaborative arrangement for purposes of ASC 808. The Company concluded that because both
parties were active participants and were exposed to the risks and rewards of the BeiGene Agreement, that such activities are under
the scope of ASC 808. The Company concluded that BeiGene was a customer with regard to the combined license and research
and development activities and as such the contract should be evaluated under ASC 606.
In determining the appropriate
amount of revenue to be recognized under ASC 606 as the Company fulfills its obligations under the Agreement, the Company performs
the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods
or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the
transaction price, including any constraints on variable consideration; (iv) allocates the transaction price to the performance
obligations; and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.
The Company identified the following
material promises under the BeiGene Agreement: (1) option to an exclusive license to develop and commercialize DKN-01 in Asia (excluding
Japan), Australia, and New Zealand, (2) participation in a joint development committee, (3) technology transfer services and (4)
pre-option research and development services. The Company determined that the option to an exclusive license in the territory does
not represent a material right. Additionally, the Company determined that the participation in the joint development committee,
research and development services and technology transfer services are not distinct from each other, as each has limited value
without the other. As such, for the purposes of ASC 606, the Company determined that these four material promises, described above,
should be combined into a single performance obligation.
The Company determined the transaction
price is equal to the up-front fee of $3,000. The transaction price was fully allocated to the single performance obligation and
is recognized as revenue on a straight-line basis over the performance period of the research and development services. During
the three and nine months ended September 30, 2020, the Company recognized $375 and $1,125, respectively, of license revenue related
to the up-front fee received from BeiGene. The Company did not have any such license revenue during the three and nine months ended
September 30, 2019.
Cost of contract acquisition
The Company incurred contract
acquisition costs of $270 which were capitalized under ASC 340-40 as incremental costs of obtaining the contract with BeiGene.
This cost is amortized on a straight-line basis over the performance period of the research and development services. The total
amount of amortization expense during the three and nine months ended September 30, 2020 was $34 and $101, respectively, and the
closing balance recorded in deferred costs as of September 30, 2020 was $169.
Royalties
As the license is deemed to be
the predominant item to which sales-based royalties relate, the Company will recognize revenue when the related sales occur. No
royalty revenue was recognized during the three and nine months ended September 30, 2020.
The following table presents
a summary of the activity in the Company's contract liabilities, related to the upfront cash payment received of $3,000, during
the nine months ended September 30, 2020 (in thousands):
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
January
1, 2020
|
|
|
Additions
|
|
|
Deductions
|
|
|
September
30, 2020
|
|
Contract liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue - current
|
|
$
|
-
|
|
|
$
|
1,500
|
|
|
$
|
-
|
|
|
$
|
1,500
|
|
Deferred revenue - non current
|
|
|
-
|
|
|
|
1,500
|
|
|
|
(1,125
|
)
|
|
|
375
|
|
Total contract liabilities
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
$
|
(1,125
|
)
|
|
$
|
1,875
|
|
4. Accrued Expenses
Accrued expenses consist of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Clinical trials
|
|
$
|
1,049
|
|
|
$
|
1,828
|
|
Professional fees
|
|
|
191
|
|
|
|
609
|
|
Payroll and related expenses
|
|
|
1,030
|
|
|
|
1,004
|
|
Accrued expenses
|
|
$
|
2,270
|
|
|
$
|
3,441
|
|
5. Leases
In
February 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02. ASU 2016-02 requires a lessee to recognize on its balance
sheet (for both finance and operating leases) a liability to make lease payments and a right-of-use asset representing its
right to use the underlying asset for the lease term. The Company adopted ASU 2016-02 on January 1, 2019, on the effective
date, and used the effective date as its date of initial application. As such, the Company did not adjust prior period
amounts. The Company also elected to adopt the practical expedients upon transition, which permit companies to not reassess
lease identification, classification, and initial direct costs under ASU 2016-02 for leases that commenced prior to the
effective date.
The Company has operating leases
for real estate in the United States and does not have any finance leases. The Company’s leases may contain options to renew
and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liability on the Company’s
consolidated balance sheets are the periods provided by renewal and extension options that the Company is reasonably certain to
exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.
The Company has existing leases
that include variable lease and non-lease components that are not included in the right-of-use asset and lease liability and are
reflected as an expense in the period incurred. Such payments primarily include common area maintenance charges and increases in
rent payments that are driven by factors such as future changes in an index (e.g., the Consumer Price Index).
In calculating the present value of
future lease payments, the Company utilized its incremental borrowing rate based on the remaining lease term at the date of
adoption. The Company has elected to account for each lease component and its associated non-lease components as a single
lease component and has allocated all of the contract consideration across lease components only. This will potentially
result in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability for leases
being greater than if the policy election was not applied. The Company has existing net leases in which the non-lease
components (e.g. common area maintenance, maintenance, consumables, etc.) are paid separately from rent based on actual costs
incurred and therefore are not included in the right-of-use asset and lease liability and are reflected as an expense in the
period incurred. On January 1, 2019, the Company recorded a right-of-use asset of $1,720 and a lease liability of $1,720 on
its consolidated balance sheets and reclassified prepaid rent to the right-of-use asset of $35. As of
September 30, 2020, a right-of-use asset of $620 and lease liability of $648 are reflected on the condensed consolidated
balance sheets. The Company recorded rent expense of $105 and $211, respectively, during the three months ended September 30,
2020 and 2019 and $445 and $629, respectively, for the nine months ended September 30, 2020.
Future lease payments under non-cancelable operating
leases as of September 30, 2020 are detailed as follows:
Future Operating
Lease Payments
2020
|
|
$
|
107
|
|
2021
|
|
|
434
|
|
2022
|
|
|
146
|
|
Total Lease Payments
|
|
|
687
|
|
Less: imputed interest
|
|
|
(39
|
)
|
Total operating lease liabilities
|
|
$
|
648
|
|
6. Warrants
As of September 30, 2020, outstanding
warrants to purchase common stock, all of which are classified as equity warrants, consisted of the following:
September 30, 2020
|
|
|
|
Number of
|
|
|
|
|
Date Exercisable
|
|
Shares Issuable
|
|
|
Exercise Price
|
|
1/23/2017
|
|
|
54,516
|
|
|
$
|
0.01
|
|
11/14/2017
|
|
|
2,549,840
|
|
|
$
|
1.055
|
|
2/5/2019
|
|
|
7,491,442
|
|
|
$
|
1.95
|
|
3/5/2020
|
|
|
14,413,902
|
|
|
$
|
0.001
|
|
3/5/2020
|
|
|
25,945,035
|
|
|
$
|
2.11
|
|
6/22/2020
|
|
|
2,250,000
|
|
|
$
|
0.001
|
|
|
|
|
52,704,735
|
|
|
|
|
|
2017 Warrants
The 2017 Warrants contain full
ratchet anti-dilution protection provisions. Prior to January 1, 2019, the Company classified the 2017 Warrants as a liability
on its consolidated balance sheet because each warrant represented a freestanding financial instrument that, due to the potential
variable nature of the exercise price, is not considered to be indexed to the Company’s own shares. The warrant liability
was initially recorded at fair value upon entering into the November 2017 Private Placement and has been subsequently remeasured
to fair value at each reporting date. Changes in the fair value of the warrant liability were recognized as gains (losses) in the
Company’s consolidated statement of operations.
On January 1, 2019, the Company
adopted ASU 2017-11 and concluded that the 2017 Warrants now qualify for equity classification. The Company applied the guidance
retrospectively to the 2017 Warrants by means of a cumulative-effect adjustment to its statement of financial position as of the
beginning of the interim and annual period beginning January 1, 2019. The Company performed a final remeasurement of the warrant
liability as of January 1, 2019 and reclassified $3,448 to additional paid in capital.
The Company will recognize on a
prospective basis the value of the effect of the down round feature in the warrant when it is triggered (i.e., when the exercise
price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without
the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down
round feature) using the reduced exercise price. The value of the effect of the down round feature will be treated as a dividend
and a reduction to income available to common stockholders in the basic EPS calculation. In connection with the 2019 Public Offering,
when the 2017 Warrants were repriced from $6.085 to $1.75, the Company recorded a dividend of $359 during the nine months ended
September 30, 2019. In connection with the January 2020 Private Placement, when the 2017 Warrants were repriced from $1.75 to $1.055,
the Company recorded a dividend of $303 during the nine months ended September 30, 2020.
During the nine months ended September 30, 2020, 208,254
of 2017 Warrants were exercised for cash resulting in gross proceeds to the Company of $220.
2019 Warrants
On February
5, 2019, in connection with the 2019 Public Offering, the Company issued immediately exercisable warrants (the “2019 Warrants”)
to purchase 7,557,142 shares of common stock to investors. The 2019 Warrants have an exercise price of $1.95 per share and expire
on February 5, 2026. The 2019 Warrants qualify for equity classification.
During the nine months ended September 30, 2020, 65,700
of 2019 Warrants were exercised for cash resulting in gross proceeds to the Company of $128.
March 2020 Warrants
On January 3, 2020, the Company
entered into a Securities Purchase Agreement with investors, providing for a private placement transaction exempt from the Securities
Act of 1933, as amended, pursuant to which the Company issued and sold 1,421,801 shares of its Series A Preferred Stock, at a purchase
price of $10.54 per share, and 1,137,442 shares of its Series B Preferred Stock at a purchase price of $10.55 per share, and one
(1) share of the Company's Special Voting Stock entitling the purchaser of Series A Preferred Stock to elect one member of the
Company's board of directors.
On March 5, 2020, the Company's
stockholders approved the conversion of the Series A Preferred Stock into a pre-funded warrant to purchase 14,413,902 shares of
common stock at an exercise price of $0.001 (the “March 2020 Pre-funded Warrants”) and the conversion of the Series
B Preferred Stock into 11,531,133 shares of common stock. Each investor also received a warrant to purchase an equal number of
shares of common stock at an exercise price of $2.11 per share (the “Coverage Warrants”). The March 2020 Pre-funded
Warrants and the Coverage Warrants expire on March 5, 2027 and qualify for equity classification.
June 2020 Warrants
On June 22, 2020, the Company
completed a Public Offering (“the 2020 Public Offering”) whereby the Company issued 20,250,000 shares of its common
stock, at $2.00 per share and, in lieu of common stock, offered pre-funded warrants (the “June 2020 Pre-funded Warrants”)
to purchase up to 2,250,000 shares of its common stock to certain investors. The June 2020 Pre-funded Warrants have an exercise
price of $0.001 per share, expire on June 22, 2027 and qualify for equity classification.
7. Common Stock
Each share of common stock entitles
the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled
to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the
preferred stockholders. Through September 30, 2020, no dividends have been declared for shares of common stock.
Public Offering of Common Stock — February 2019
On February 5, 2019, the Company
completed the 2019 Public Offering whereby the Company issued 7,557,142 shares of its common stock at a price of $1.75 per share,
which included 985,714 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares
of common stock, each share was issued with a warrant to purchase one share of common stock. Each warrant has an exercise price
of $1.95 per share with an exercise period expiring seven years from the date of issuance. The aggregate net proceeds received
by the Company from the 2019 Public Offering were approximately $12,122, net of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
Issuance of Common Stock under Distribution Agreement
On September 7, 2018, the Company
filed a Prospectus Supplement to register the offer and sale of shares of common stock having an aggregate offering price of up
to $30,000 pursuant to the terms of a distribution agreement, or the Distribution Agreement, with Raymond James & Associates,
Inc. During the year ended December 31, 2019, the Company issued 1,033,147 shares under the Distribution Agreement, for net proceeds
of $1,923. In June 2020, the Company terminated the Distribution Agreement and did not issue any shares under the Distribution
Agreement during the nine months ended September 30, 2020.
Lincoln Park Purchase Agreements
On July 10, 2019, the Company
entered into a Commitment Purchase Agreement and a Registration Rights Agreement with Lincoln Park, pursuant to which the Company
has the right to sell to Lincoln Park up to $20,000 in shares of its common stock, subject to certain limitations and conditions
set forth in the Commitment Purchase Agreement. As consideration for Lincoln Park’s commitment to purchase shares of common
stock pursuant to the Commitment Purchase Agreement, the Company issued to Lincoln Park 330,000 shares of common stock. The Company
did not receive any cash proceeds from the issuance of such shares. During the three and nine months ended September 30, 2020,
the Company did not issue any shares under the Commitment Purchase Agreement.
On July 11, 2019, the Company
entered into a Registered Offering Purchase Agreement, under which the Company agreed to sell to Lincoln Park, and Lincoln Park
agreed to purchase 571,429 shares of common stock, at a price of $1.75 per share for an aggregate purchase price of $1,000, pursuant
to the Company’s effective shelf Registration Statement on Form S-3, including the prospectus supplement thereto dated July
11, 2019.
January 2020 Private Placement
On January 3, 2020, the Company
issued and sold 1,421,801 shares of its Series A Preferred Stock at a purchase price of $10.54 per share, and 1,137,442 shares
of its Series B Preferred Stock at a purchase price of $10.55 per share, and one (1) share of its Special Voting Stock, entitling
the purchaser of Series A Preferred Stock to elect one member of the Company’s board of directors, for aggregate net proceeds
to the Company of approximately $25,322.
On March 5, 2020, the Company’s
stockholders approved the conversion of the Series A Preferred Stock into a pre-funded warrant to purchase 14,413,902 shares of
common stock at an exercise price of $0.001 per share and the conversion of the Series B Preferred Stock into 11,531,133 shares
of its common stock, par value $0.001 per share. Each investor also received the Coverage Warrants to purchase an equal number
of shares at an exercise price of $2.11 per share.
In connection with the January
2020 Private Placement, Series A Preferred Stock holders and Series B Preferred Stock holders were entitled to cash dividends at
fixed cumulative percentage of 8% per annum plus any dividends declared on outstanding common stock on an as-converted basis, effective
on the issuance date of the Series A Preferred Stock and Series B Preferred Stock. The cash dividends were converted to shares
of common stock upon the conversion of the Series A Preferred Stock to pre-funded warrants and Series B Preferred Stock to common
stock. During the nine months ended September 30, 2020, the Company recorded $372 of Series A Preferred Stock and Series B Preferred
Stock dividends, which qualify as cumulative dividends, and in the calculation of EPS are subtracted from net income in arriving
at income attributable to common stockholders.
The Company determined that the
embedded conversion features of the Series A Preferred Stock and Series B Preferred Stock to receive the Coverage Warrants
each met the definition of a contingent beneficial conversion feature and should be accounted for separately as a derivative.
The recognition of the beneficial conversion feature occurred upon the conversion of the Series A Preferred Stock into
pre-funded warrants and Series B Preferred Stock into common stock and the issuance of the Coverage Warrants. The Company
measured the contingent beneficial conversion features’ intrinsic values on January 3, 2020 and determined that the
beneficial conversion features were valued at $5,226 for Series A and $4,173 for Series B, respectively. Upon conversion, the
discount originated by the contingent beneficial conversion feature, at its intrinsic value for Series A Preferred Stock and
Series B Preferred Stock, was immediately recognized as a dividend. The dividend is reflected as an adjustment to basic and
diluted net loss per share attributable to common stockholders.
Public Offering of Common Stock — June
2020
On June 22, 2020, the Company completed
the 2020 Public Offering, whereby the Company issued 20,250,000 shares of its common stock at $2.00 per share and, in lieu of common
stock, issued certain investors 2,250,000 of its June 2020 Pre-funded Warrants. The June 2020 Pre-funded Warrants have an exercise
price of $0.001 per share, expire on June 22, 2027 and qualify for equity classification.
On June 25, 2020, the underwriters
exercised their right to purchase 3,375,000 additional shares of the Company’s common stock at the public offering price
per share of common stock, less underwriting discounts and commissions. The aggregate net proceeds received by the Company from
the 2020 Public Offering were approximately $48,276, net of underwriting discounts and commissions and estimated offering expenses
payable by the Company.
8. Equity Incentive Plans
Equity Incentive Plans
In September 2012, the Company adopted
the 2012 Equity Incentive Plan, as amended (the “Plan”), which provides designated employees of the Company and its
affiliates, certain consultants and advisors who perform services for the Company and its affiliates, and nonemployee members of
the board of directors of the Company and its affiliates with the opportunity to receive grants of incentive stock options, nonqualified
stock options and stock awards.
On January 20, 2017, the Company’s
stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”). Beginning on January 1, 2018, the number of
shares of common stock authorized for issuance pursuant to the 2016 Plan was increased each January 1 by an amount equal to four
percent (4%) of the Company’s outstanding common stock as of the end of the immediately preceding calendar year or such other
amount as determined by the compensation committee of the Company’s board of directors. In 2019, the board of directors and
the stockholders approved and authorized an additional 3,000,000 shares of common stock to be added to the shares authorized for
issuance under the 2016 Plan.
As of September 30, 2020, there were 455,144 shares
available for grant under the Company’s equity incentive plans.
A summary of stock option activity under the Equity
Plans is as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Average Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Per Share
|
|
|
Life in Years
|
|
|
Value
|
|
Outstanding at December 31, 2019
|
|
|
4,024,566
|
|
|
$
|
7.48
|
|
|
|
7.98
|
|
|
$
|
2
|
|
Granted
|
|
|
2,547,500
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(32,778
|
)
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(260,435
|
)
|
|
$
|
6.95
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
6,278,853
|
|
|
$
|
5.35
|
|
|
|
8.18
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2020
|
|
|
3,113,663
|
|
|
$
|
8.45
|
|
|
|
7.12
|
|
|
$
|
359
|
|
Options vested and expected to vest at September 30, 2020
|
|
|
6,278,853
|
|
|
$
|
5.35
|
|
|
|
8.18
|
|
|
$
|
1,082
|
|
The grant date fair value of the
options granted during the year ended December 31, 2019 and the nine months ended September 30, 2020, was estimated at the date
of grant using the Black-Scholes option valuation model. The expected life was estimated using the “simplified” method
as defined by the SEC’s Staff Accounting Bulletin 107, Share-Based Payment. The expected volatility was based on the historical
volatility of comparable public companies from a representative peer group selected based on industry and market capitalization
data. The risk-free interest rate was based on the continuous rates provided by the U.S. Treasury with a term approximating the
expected life of the option. The expected dividend yield was 0% because the Company does not expect to pay any dividends for the
foreseeable future. The Company elected the straight-line attribution method in recognizing the grant date fair value of options
issued over the requisite service periods of the awards, which are generally the vesting periods.
The assumptions
that the Company used to determine the grant-date fair value of stock options granted to employees and directors during the year
ended December 31, 2019 and the nine months ended September 30, 2020 were as follows, presented on a weighted average basis:
|
|
Nine Months
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Expected volatility
|
|
|
66.94
|
%
|
|
|
66.94
|
%
|
Weighted average risk-free interest rate
|
|
|
0.66
|
%
|
|
|
2.07
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
6.85
|
|
|
|
6.77
|
|
Stock options
generally vest over a three or four year period, as determined by the compensation committee of the board of directors at the time
of grant. The options expire ten years from the grant date. As of September 30, 2020, there was approximately $4,453 of unrecognized
compensation cost related to non-vested stock options, which is expected to be recognized over a remaining weighted-average period
of approximately 2.21 years.
The Company recognized stock-based
compensation expense related to the issuance of stock option awards to employees and non-employees in the condensed consolidated
statements of operations as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
282
|
|
|
$
|
181
|
|
|
$
|
720
|
|
|
$
|
536
|
|
General and administrative
|
|
|
309
|
|
|
|
769
|
|
|
|
967
|
|
|
|
2,260
|
|
Total
|
|
$
|
591
|
|
|
$
|
950
|
|
|
$
|
1,687
|
|
|
$
|
2,796
|
|
Restricted Stock Units
During the nine months ended September
30, 2020 and 2019, the Company issued 92,500 and 181,000 restricted stock units (“RSUs”), respectively, to employees
under the 2016 Plan. Upon vesting of the RSUs, the Company has the option to settle the award by either issuing shares of the Company's
common stock or paying an amount of cash equal to the fair value of the Company's common stock on the settlement date. In each
of October 2019 and January 2020, the Company cash settled 90,500 RSUs. As of September 30, 2020 and December 31, 2019, these RSUs
are classified as restricted stock liability in the condensed consolidated balance sheets of $66 and $159, respectively, as they
contain a cash settlement option.
During the nine months ended
September 30, 2020, the Company granted 660,606 RSUs to an executive officer that will cliff vest and will be settled after
three years of continuous service, or upon a change of control of the Company, whichever is earlier, pursuant to the 2016
Plan. During the nine months ended September 30, 2020, the Company recognized $170 of stock based compensation expense
related to equity classified RSUs, as they do not contain a cash settlement option.
The following table presents a
summary of outstanding RSUs under the 2016 Plan as of September 30, 2020:
|
|
Number
of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2019
|
|
|
90,500
|
|
|
$
|
1.74
|
|
Awarded
|
|
|
753,106
|
|
|
$
|
1.49
|
|
Settled in cash
|
|
|
(90,500
|
)
|
|
$
|
1.74
|
|
Outstanding at June 30, 2020
|
|
|
753,106
|
|
|
$
|
1.49
|
|
As of September
30, 2020, there were 753,106 shares outstanding covered by RSUs that are expected to vest. The weighted average grant date fair
value of these shares of restricted stock was $1.49 per share and the aggregate grant date fair value of these shares of restricted
stock was approximately $1,112. As of September 30, 2020, there was approximately $884 of unrecognized compensation costs related
to RSUs granted to employees, which are expected to be recognized as expense over a remaining weighted average period of 2.17 years.
9. Net Loss Per Share
Basic and diluted net loss per
share for the three and nine months ended September 30, 2020 and 2019 was calculated as follows (in thousands except share and
per share amounts).
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,057
|
)
|
|
$
|
(7,935
|
)
|
|
$
|
(20,804
|
)
|
|
$
|
(24,904
|
)
|
Dividend attributable to down round feature of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
(303
|
)
|
|
|
(359
|
)
|
Dividend attributable to Series A & B convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(372
|
)
|
|
|
-
|
|
Series A & B convertible preferred stock - beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,399
|
)
|
|
|
-
|
|
Net loss attributable to common stockholders for basic and diluted loss per share
|
|
$
|
(7,057
|
)
|
|
$
|
(7,935
|
)
|
|
$
|
(30,878
|
)
|
|
$
|
(25,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
76,321,644
|
|
|
|
23,923,196
|
|
|
|
53,548,902
|
|
|
|
22,039,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders - basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(1.15
|
)
|
Included within weighted average
common shares outstanding are 16,663,902 common shares issuable upon the exercise of the pre-funded warrants as the warrants are
exercisable at any time for nominal consideration, and as such, the shares are considered outstanding for the purpose of calculating
basic and diluted net loss per share attributable to common stockholders.
The Company’s
potentially dilutive securities include RSUs, stock options and warrants. These securities were excluded from the computations
of diluted net loss per share for the three and nine months ended September 30, 2020 and 2019, as the effect would be to reduce
the net loss per share. The following table includes the potential shares of common stock, presented based on amounts outstanding
at each period end, that were excluded from the computation 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Restricted stock units to purchase common stock
|
|
|
753,106
|
|
|
|
-
|
|
|
|
753,106
|
|
|
|
-
|
|
Options to purchase common stock
|
|
|
6,278,853
|
|
|
|
4,019,566
|
|
|
|
6,278,853
|
|
|
|
4,019,566
|
|
Warrants to purchase common stock
|
|
|
36,040,833
|
|
|
|
10,369,752
|
|
|
|
36,040,833
|
|
|
|
10,369,752
|
|
|
|
|
43,072,792
|
|
|
|
14,389,318
|
|
|
|
43,072,792
|
|
|
|
14,389,318
|
|
10. Commitments and Contingencies
Manufacturing Agreements—The
Company is party to manufacturing agreements with vendors to manufacture DKN-01, its lead product candidate, for use in clinical
trials. As of September 30, 2020, there were $381 noncancelable commitments under these agreements.
License and Service
Agreement—On January 3, 2011, the Company entered into a license agreement with Eli Lilly and Company
(“Lilly”), a shareholder, to grant a license to the Company for certain intellectual property rights relating to
pharmaceutically active compounds that may be useful in the treatment of bone healing, cancer and, potentially, other medical
conditions. As defined in the license agreement, the Company would be required to pay royalties to Lilly based upon a
percentage in the low single digits of net sales of developed products, if and when achieved. However, there can be no
assurance that clinical or commercialization success of developed products will occur, and no royalties have been paid or
accrued through September 30, 2020.
License Agreement—On
May 28, 2015, the Company entered into a license agreement with Lonza Sales AG (“Lonza”), pursuant to which Lonza granted
the Company a world-wide, non-exclusive license for certain intellectual property relating to a gene expression system for manufacturing
DKN-01. As defined in the license agreement, the Company would be required to pay royalties to Lonza based on a percentage in the
low single digits of net sales of DKN-01, if and when achieved. However, there can be no assurance that clinical or commercialization
success will occur, and no royalties have been paid or accrued through September 30, 2020.
Legal Proceedings—At
each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and
reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company
expenses as incurred the costs related to its legal proceedings.
A patent covering the TRX518 antibody and its uses in methods of inducing or enhancing an immune response in a subject was granted in
2013 to the Company by the European Patent Office (EPO). Three notices of opposition to this patent were filed: two by major pharmaceutical
companies and a third by an individual, possibly on behalf of a major pharmaceutical company. At the conclusion of the opposition proceedings
before the Opposition Division of the EPO, the Opposition Division issued a decision indicating that the Company’s patent was maintained
with modified claims that differ from the claims as originally granted. These narrowed claims cover the TRX518 antibody and uses of the
TRX518 antibody in methods of inducing or enhancing an immune response in a subject. The Company filed an appeal of the decision of the Opposition Division seeking to obtain broader claims that more closely reflect
the claims as granted in the patent. A hearing before the EPO Boards of Appeal took
place on September 16, 2020, which resulted in the Boards of Appeal dismissing the appeal and maintaining the Decision of the Opposition
Division. A written Decision by the Boards of Appeal was issued on September 25, 2020.
In 2016, a patent covering the use of the
TRX518 antibody in combination with a chemotherapeutic agent for treating cancer was granted to the Company by the EPO. In March
2017, notices of opposition to this patent were filed at the EPO by ten different entities, including several major pharmaceutical
companies. Oral proceedings at the EPO took place on December 4 and 5, 2018. At the conclusion of the oral proceedings, the Opposition
Division decided that the patent should be revoked in its entirety on the ground that the claims as granted contained added matter.
Subsequently, the Opposition Division issued an interlocutory decision restating its conclusion that the claims as granted contained
added matter and revoking the patent. The Company has filed an appeal of the decision of the Opposition Division seeking to obtain
a reversal of the Opposition Division’s decision on added matter. The EPO Board of Appeal has not yet scheduled the appeal
hearing.
In December of 2019, a patent covering the use of the TRX518 antibody in combination with the chemotherapeutic agent, gemcitabine, for
treating a colon tumor or adenocarcinoma of the colon, was granted to the Company by the EPO. A Notice of Opposition was filed against
the patent by a single opponent, Sanofi, on September 25, 2020. The EPO issued a Communication on October 9, 2020 setting a deadline of
February 9, 2021 for the Patentee to file a response to the Notice of Opposition. Oral proceedings at the EPO have not yet been scheduled.
Indemnification Agreements—In
the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business
partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such
agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification
agreements with members of its board of directors that will require the Company, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount
of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To
date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims
under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its condensed consolidated
financial statements as of September 30, 2020 or December 31, 2019.