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, 2021

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: 001-39512

 

 

Metacrine, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2297384

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3985 Sorrento Valley Blvd., Suite C

San Diego, California

92121

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 369-7800

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

MTCR

 

The Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

The number of outstanding shares of the registrant’s common stock on May 6, 2021 was 26,423,153.

 

 

 


 

Metacrine, Inc.

Table of Contents

 

 

 

 

 


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Metacrine, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value and share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,457

 

 

$

24,393

 

Short-term investments

 

 

65,000

 

 

 

71,783

 

Prepaid expenses and other current assets

 

 

6,257

 

 

 

5,847

 

Total current assets

 

 

90,714

 

 

 

102,023

 

Property and equipment, net

 

 

555

 

 

 

634

 

Operating lease right-of-use asset

 

 

1,415

 

 

 

1,579

 

Total assets

 

$

92,684

 

 

$

104,236

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

325

 

 

$

334

 

Accrued liabilities

 

 

4,149

 

 

 

2,951

 

Current portion of operating lease liability

 

 

762

 

 

 

741

 

Total current liabilities

 

 

5,236

 

 

 

4,026

 

Operating lease liability, net of current portion

 

 

810

 

 

 

1,007

 

Long-term debt, net of debt discount

 

 

9,434

 

 

 

9,372

 

Other long-term liabilities

 

 

544

 

 

 

552

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized shares - 10,000,000 at March 31, 2021 and December 31, 2020, respectively; issued and outstanding shares - none at March 31, 2021 and December 31, 2020, respectively.

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; authorized shares – 200,000,000 at March 31, 2021 and December 31, 2020, respectively; issued shares – 26,234,612 and 26,005,934 at March 31, 2021 and December 31, 2020, respectively; outstanding shares – 26,209,327 and 25,969,442 at March 31, 2021 and December 31, 2020, respectively.

 

 

3

 

 

 

3

 

Additional paid-in-capital

 

 

212,172

 

 

 

210,021

 

Accumulated other comprehensive income (loss)

 

 

(1

)

 

 

1

 

Accumulated deficit

 

 

(135,514

)

 

 

(120,746

)

Total stockholders’ equity

 

 

76,660

 

 

 

89,279

 

Total liabilities and stockholders’ equity

 

$

92,684

 

 

$

104,236

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1


 

Metacrine, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

10,857

 

 

$

6,361

 

General and administrative

 

 

3,696

 

 

 

1,601

 

Total operating expenses

 

 

14,553

 

 

 

7,962

 

Loss from operations

 

 

(14,553

)

 

 

(7,962

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

36

 

 

 

229

 

Interest expense

 

 

(244

)

 

 

(253

)

Other expense

 

 

(7

)

 

 

(126

)

Total other income (expense)

 

 

(215

)

 

 

(150

)

Net loss

 

$

(14,768

)

 

$

(8,112

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities, net

 

 

(2

)

 

 

(68

)

Comprehensive loss

 

$

(14,770

)

 

$

(8,180

)

Net loss per share, basic and diluted

 

$

(0.57

)

 

$

(3.23

)

Weighted average shares of common stock outstanding, basic and diluted

 

 

26,007,692

 

 

 

2,509,319

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

2


Metacrine, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,768

)

 

$

(8,112

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

79

 

 

 

68

 

Stock-based compensation

 

 

1,520

 

 

 

503

 

Non-cash interest expense

 

 

62

 

 

 

70

 

Amortization (accretion) of premiums/discounts on investments, net

 

 

170

 

 

 

(59

)

Amortization of right-of-use asset

 

 

164

 

 

 

152

 

Change in fair value of warrant liability

 

 

-

 

 

 

106

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(410

)

 

 

(6

)

Accounts payable and accrued liabilities

 

 

1,189

 

 

 

(1,190

)

Lease liability

 

 

(176

)

 

 

(134

)

Net cash used in operating activities

 

 

(12,170

)

 

 

(8,602

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

-

 

 

 

(73

)

Purchases of short-term investments

 

 

(12,784

)

 

 

(7,944

)

Sale and maturities of short-term investments

 

 

19,395

 

 

 

13,690

 

Net cash provided by investing activities

 

 

6,611

 

 

 

5,673

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of common stock options

 

 

623

 

 

 

3

 

Repurchase of unvested common stock

 

 

-

 

 

 

(2

)

Payment of initial public offering costs

 

 

-

 

 

 

(10

)

Net cash provided by (used in) financing activities

 

 

623

 

 

 

(9

)

Net decrease in cash and cash equivalents

 

 

(4,936

)

 

 

(2,938

)

Cash and cash equivalents at beginning of period

 

 

24,393

 

 

 

15,668

 

Cash and cash equivalents at end of period

 

$

19,457

 

 

$

12,730

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

181

 

 

$

183

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance costs in accounts payable and accrued liabilities

 

$

-

 

 

$

229

 

Change in unpaid property and equipment purchases

 

$

-

 

 

$

69

 

Vesting of common stock

 

$

8

 

 

$

24

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

3


 

 

Metacrine, Inc.

Unaudited Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

For the Three Months Ended March 31, 2021 and 2020

(In thousands, except share amounts)

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

paid-in

capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated

deficit

 

 

Total

stockholders'

equity

 

Balance at December 31, 2020

 

 

 

 

$

 

 

 

25,969,442

 

 

$

3

 

 

$

210,021

 

 

$

1

 

 

$

(120,746

)

 

$

89,279

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,520

 

 

 

 

 

 

 

 

 

1,520

 

Exercise of stock options

 

 

 

 

 

 

 

 

228,678

 

 

 

 

 

 

623

 

 

 

 

 

 

 

 

 

623

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

11,207

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Unrealized loss on investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,768

)

 

 

(14,768

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

26,209,327

 

 

$

3

 

 

$

212,172

 

 

$

(1

)

 

$

(135,514

)

 

$

76,660

 

 

 

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

paid-in

capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated

deficit

 

 

Total

stockholders'

deficit

 

Balance at December 31, 2019

 

 

85,093,688

 

 

$

122,465

 

 

 

2,484,848

 

 

$

 

 

$

5,164

 

 

$

41

 

 

$

(83,442

)

 

$

(78,237

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

 

 

 

 

 

 

503

 

Exercise of stock options

 

 

 

 

 

 

 

 

955

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

48,766

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

Unrealized loss on investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68

)

 

 

 

 

 

(68

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,112

)

 

 

(8,112

)

Balance at March 31, 2020

 

 

85,093,688

 

 

$

122,465

 

 

 

2,534,569

 

 

$

 

 

$

5,694

 

 

$

(27

)

 

$

(91,554

)

 

$

(85,887

)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


 

 

Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Summary of Significant Accounting Policies

Organization

Metacrine, Inc. (the “Company”) was incorporated in the state of Delaware on September 17, 2014 and is based in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on building an innovative pipeline of differentiated drugs to treat liver and gastrointestinal diseases.

Principles of Consolidation and Basis of Presentation

In May 2019, the Company established a wholly-owned Australian subsidiary, Metacrine, Pty Ltd, in order to conduct various clinical activities for its product candidates. The unaudited condensed consolidated financial statements include the accounts of the Company and Metacrine, Pty Ltd. The functional currency of both the Company and Metacrine, Pty Ltd is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense) in the unaudited condensed consolidated statements of operations and comprehensive loss. Intercompany accounts and transactions have been eliminated in consolidation.

 

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable regulations of the U.S. Securities and Exchange Commission (“SEC”). The Company’s unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on March 18, 2021. Certain amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to their current year presentation.

Initial Public Offering

On September 18, 2020, the Company closed its initial public offering (“IPO”) of 6,540,000 shares of common stock at a public offering price of $13.00 per share. The Company raised $76.9 million in net proceeds from the IPO after deducting underwriters’ discounts and commissions of $6.0 million and issuance costs of $2.2 million.

Upon closing of the Company’s IPO, all of the Company’s outstanding preferred stock were automatically converted into 16,685,014 shares of common stock.

 

Liquidity and Capital Resources

From its inception through March 31, 2021, the Company has devoted substantially all its efforts to organizing and staffing, business planning, raising capital, researching, discovering and developing its pipeline in FXR and other drug targets, and general and administrative support for these operations and has funded its operations primarily with the net proceeds from the issuance of convertible preferred stock, common stock, and long-term debt. The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $135.5 million and $120.7 million as of March 31, 2021 and December 31, 2020, respectively. Management expects the Company will incur substantial operating losses for the foreseeable future in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. The Company will need to raise additional capital through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of economic conditions in the United States and worldwide resulting from the COVID-19 pandemic. If the disruption persists and deepens, the Company could experience an inability to access additional capital. As of March 31, 2021, the Company had available cash, cash equivalents, and short-term investments of $84.5 million and working capital of $85.5 million to fund future operations. Management has prepared cash flow forecasts which indicate that, based on the Company’s current cash resources available and working capital, the Company will have sufficient resources to fund its operations for at least one year after the date the financial statements are issued.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. Significant estimates in the Company’s unaudited condensed consolidated financial statements include accruals for research and development expenses and stock-based compensation. These estimates and assumptions are based on current facts, historical experience, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

5


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts, money market funds, and commercial paper. The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates fair value.

Short-Term Investments

Short-term investments primarily consist of commercial paper, corporate debt securities, and U.S. government and agency bonds. The Company has classified these investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all short-term investments with maturity dates beyond three months at the date of purchase as current assets in the accompanying unaudited condensed consolidated balance sheets. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. Short-term investments are reported at their estimated fair value. The Company reviews its short-term investments in unrealized loss positions at each reporting date to assess whether the decline in their fair value is due to credit-related factors. The credit portion of unrealized losses and any subsequent improvements are recorded in other income (expense) through an allowance account. Unrealized gains and losses that are not credit-related are included in other comprehensive (income) loss as a component of stockholders’ equity until realized. Realized gains and losses are determined using the specific identification method and are included in other income (expense).

Fair Value Measurement

The Company accounts for certain assets and liabilities at their fair value. The Company uses the following fair value hierarchy to indicate the extent to which the inputs used to determine fair value are observable in the market:

 

Level 1: Inputs are based on quoted prices for identical assets in active markets.

 

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

 

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three to five years). Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining lease term or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred.

Leases

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. Lease terms are determined at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. For its long-term operating leases, the Company recognizes a lease liability and a right-of-use (“ROU”) asset on its unaudited condensed consolidated balance sheets and recognizes lease expense on a straight-line basis over the lease term. The lease liability is determined as the present value of future lease payments using the discount rate implicit in the lease or, if the implicit rate is not readily determinable, an estimate of the Company’s incremental borrowing rate. The ROU asset is based on the lease liability, adjusted for any prepaid or deferred rent. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. The Company has elected to not recognize a lease liability or ROU asset in connection with short-term operating leases and recognizes lease expense for short-term operating leases on a straight-line basis over the lease term. The Company does not have any financing leases.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the

6


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

carrying amount of the assets exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value. The Company did not recognize any impairment losses during the three months ended March 31, 2021 and 2020.

Research and Development Costs

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct our preclinical, toxicology and clinical studies, laboratory supplies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates for clinical trials and preclinical studies, facilities, depreciation, and other allocated expenses. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the related goods are delivered or services performed.

The Company has entered into various research and development contracts with clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying unaudited condensed consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Patent Costs

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

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The only component of other comprehensive loss is unrealized gains (losses) on available-for-sale securities. Comprehensive gains (losses) have been reflected in the unaudited condensed consolidated statements of operations and comprehensive loss and as a separate component in the unaudited condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for all periods presented.

7


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker view the Company’s operations and manages its business in one operating segment.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses, to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance will become effective for the Company beginning January 1, 2023, with early adoption permitted. The Company early adopted ASU No. 2016-13 during the first quarter of 2021. The standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also improves consistent application by clarifying and amending existing guidance. The Company adopted ASU No. 2019-12 during the first quarter of 2021. The standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of convertible preferred stock, preferred and common stock warrants, unvested common stock subject to repurchase, and options outstanding under the Company’s stock option plan.

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Common stock options

 

 

3,688,965

 

 

 

1,769,104

 

Unvested common stock

 

 

25,285

 

 

 

144,514

 

Common stock warrant

 

 

23,122

 

 

 

 

Preferred stock warrant

 

 

 

 

 

23,122

 

Convertible preferred stock

 

 

 

 

 

16,685,014

 

Total

 

 

3,737,372

 

 

 

18,621,754

 

 

Note 2. Balance Sheet Details

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Prepaid research and development

 

$

4,770

 

 

$

4,473

 

Prepaid expenses

 

 

1,011

 

 

 

610

 

Other current assets

 

 

283

 

 

 

570

 

Interest receivable

 

 

193

 

 

 

194

 

Total prepaid expenses and other current assets

 

$

6,257

 

 

$

5,847

 

8


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

 

 

Property and equipment consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Laboratory equipment

 

$

1,104

 

 

$

1,104

 

Computer equipment and software

 

 

215

 

 

 

215

 

Furniture and fixtures

 

 

178

 

 

 

178

 

Leasehold improvements

 

 

146

 

 

 

146

 

Property and equipment, gross

 

 

1,643

 

 

 

1,643

 

Less accumulated depreciation and amortization

 

 

(1,088

)

 

 

(1,009

)

Property and equipment, net

 

$

555

 

 

$

634

 

 

Depreciation expense was $0.1 million for each of the three months ended March 31, 2021 and 2020.

 

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Accrued research and development

 

$

2,287

 

 

$

676

 

Accrued compensation

 

 

1,004

 

 

 

1,671

 

Other accrued liabilities

 

 

858

 

 

 

604

 

Total accrued liabilities

 

$

4,149

 

 

$

2,951

 

 

Note 3. Commitments and Contingencies

Operating Leases

The Company entered into a five-year noncancelable operating lease in June 2017 for its corporate headquarters in San Diego, California under an agreement that commenced in March 2018. Under the terms of the agreement, there is no option to extend the lease and the Company is subject to additional charges for common area maintenance and other costs. Monthly rental payments due under the lease commenced in March 2018 and escalate throughout the lease term.

 

Information related to the Company’s operating lease is as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Operating lease expense (including variable costs of $88 and $82 during the three months ended March 31, 2021 and 2020)

 

$

285

 

 

$

279

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

209

 

 

$

180

 

 

As of March 31, 2021 and December 31, 2020, the remaining lease term of the Company’s operating lease was 24 months and 27 months, respectively. As of March 31, 2021 and December 31, 2020, the discount rate on the Company’s operating lease was 8.0%.

 

Future minimum noncancelable operating lease payments and information related to the lease liability are as follows (in thousands):

 

 

 

March 31,

2021

 

Remaining during 2021

 

$

645

 

2022

 

 

876

 

2023

 

 

183

 

Total lease payments

 

 

1,704

 

Imputed interest

 

 

(132

)

Lease liability

 

 

1,572

 

Less current portion of lease liability

 

 

762

 

Lease liability, net of current portion

 

$

810

 

9


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

 

License Agreement with the Salk Institute

In November 2016, the Company and The Salk Institute for Biological Studies (“The Salk”) entered into the Amended and Restated Exclusive FXR License Agreement, which was amended in February 2017 and July 2018, pursuant to which The Salk granted the Company an exclusive, worldwide license to certain FXR related intellectual property to make, use, offer for sale, import, export, and distribute products covered by such intellectual property (“FXR Licensed Products”) and a non-exclusive, worldwide license to use certain technical information to research, develop, test, make, use, offer for sale, import, export and distribute FXR Licensed Products. The Company is required to use commercially reasonable efforts to achieve certain diligence milestones with respect to the FXR Licensed Products, including with respect to developing, producing and selling FXR Licensed Products. The Company is also required to pay The Salk up to $6.5 million in milestone payments upon the completion of certain clinical and regulatory milestones, certain of which payments the Company may defer under certain circumstances. The Company is also obligated to pay The Salk a low single-digit percentage royalty on net sales, with a minimum annual royalty payment due beginning with the first commercial sale of each FXR Licensed Product. The applicable minimum annual royalty payment amount depends on the number of years that have elapsed since the first commercial sale of an FXR Licensed Product and is in the hundreds-of-thousands-of-dollars range. In addition, if the Company chooses to sublicense the FXR Licensed Product to any third parties, the Company must pay to The Salk a low single-digit percentage of all sublicensing revenue. In addition, in the event of a change of control, the Company is required to pay The Salk a low single-digit percentage of any payments and consideration that it receives in consideration of the change of control. The Company has accrued $0.4 million in milestone payments based upon the achievement of certain regulatory milestones as of March 31, 2021.

Contingencies

In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Note 4. Long-Term Debt

Long-term debt –consists of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Long-term debt

 

$

10,000

 

 

$

10,000

 

Unamortized debt discount

 

 

(566

)

 

 

(628

)

Long-term debt, net of debt discount

 

$

9,434

 

 

$

9,372

 

On August 27, 2019, the Company entered into a Loan and Security Agreement (the “Loan Agreement”, and all amounts borrowed thereunder the “Term Loan”) with a lender (the “Lender”). The Company borrowed $10.0 million under the Term Loan at the inception of the Loan Agreement. The remaining borrowings available under the Loan Agreement have expired.

 

The Term Loan bears interest at a floating annual rate equal to the greater of (i) the prime rate used by the Lender plus 2% (5.25% at March 31, 2021 and December 31, 2020, respectively), and (ii) 7.25%. The monthly payments are interest-only until September 1, 2022. Subsequent to the interest-only period, the Term Loan will be payable in equal monthly installments of principal plus accrued and unpaid interest, through the maturity date of September 1, 2023 (“Maturity Date”). In addition, the Company is obligated to pay a final payment fee of 5.25% of the original principal amount of the Term Loan on the Maturity Date. As of March 31, 2021 and December 31, 2020, the final payment fee of $0.5 million has been recorded as a long-term liability. The Company may elect to prepay all, but not less than all, of the Term Loan prior to the Maturity Date, subject to a prepayment fee of up to 3.0% of the then outstanding principal balance. After repayment, no Term Loan amounts may be borrowed again.

 

The Company’s obligations under the Loan Agreement are secured by a security interest in substantially all of its assets, other than its intellectual property. The Loan Agreement includes customary affirmative and negative covenants and also includes standard events of default, including an event of default based on the occurrence of a material adverse event, and a default under any agreement with a third party resulting in a right of such third party to accelerate the maturity of any debt in excess of $0.3 million. The negative covenants include, among others, restrictions on the Company transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions. Upon the occurrence and continuance of an event of default, the Lender may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all applicable covenants under the Loan Agreement.

 

In connection with the Loan Agreement, the Company issued the Lender a warrant (the “Lender Warrant”) to purchase shares of the Company’s Series C convertible preferred stock at an exercise price of $10.812 per share and expiring on August 27, 2029. The number of Series C convertible preferred shares issuable upon exercise of the warrant is an amount equal to (i) 2.5% of the aggregate Term Loan funded under the Loan Agreement divided by (ii) $10.812. Upon the funding of the Term Loan, the Lender Warrant was

10


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

initially exercisable for 117,924 shares of Series C convertible preferred stock. The Lender Warrant was automatically converted into a warrant to purchase 23,122 shares of common stock upon completion of the Company’s IPO.

 

The initial $0.2 million fair value of the Lender Warrant, $0.5 million final payment fee, and $0.3 million of debt issuance costs were recorded as a debt discount and are being amortized to interest expense using the effective interest method over the term of the Term Loan. For the three months ended March 31, 2021 and 2020, the Company recognized $0.2 million and $0.3 million of interest expense, including $0.1 million and $0.1 million of debt discount amortization, respectively, in connection with the Loan Agreement. As of March 31, 2021 and December 31, 2020, the Company had an outstanding Term Loan of $10.0 million and accrued interest of $0.1 million, respectively.

 

Future minimum principal and interest payments under the Term Loan, including the final payment fee, as of March 31, 2021 are as follows (in thousands):

 

 

 

March 31,

2021

 

Remaining in 2021

 

$

554

 

2022

 

 

4,438

 

2023

 

 

6,949

 

Total principal and interest payments

 

 

11,941

 

Less interest and final payment fee

 

 

(1,941

)

Long-term debt

 

$

10,000

 

 

Note 5. Fair Value of Financial Instruments

 

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis:

 

 

 

 

 

 

 

Fair Value Measurements At

Reporting Date Using

 

 

 

Total

 

 

Quoted

Prices in

Active

Markets

For

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

27,387

 

 

$

 

 

$

27,387

 

 

$

 

Corporate debt securities

 

 

16,467

 

 

 

 

 

 

16,467

 

 

 

 

U.S. government and agency securities

 

 

21,146

 

 

 

 

 

 

21,146

 

 

 

 

Total assets measured at fair value

 

$

65,000

 

 

$

 

 

$

65,000

 

 

$

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

27,136

 

 

$

 

 

$

27,136

 

 

$

 

Corporate debt securities

 

 

26,506

 

 

 

 

 

 

26,506

 

 

 

 

U.S. government and agency securities

 

 

18,141

 

 

 

 

 

 

18,141

 

 

 

 

Total assets measured at fair value

 

$

71,783

 

 

$

 

 

$

71,783

 

 

$

 

 

Note 6. Short-Term Investments

11


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

The following tables summarize short-term investments (in thousands):

 

 

 

As of March 31, 2021

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Estimated Fair Value

 

Commercial paper

 

$

27,387

 

 

$

 

 

$

 

 

$

27,387

 

Corporate debt securities

 

 

16,472

 

 

 

 

 

 

(5

)

 

 

16,467

 

U.S. government and agency securities

 

 

21,141

 

 

 

5

 

 

 

 

 

 

21,146

 

Total short-term investments

 

$

65,000

 

 

$

5

 

 

$

(5

)

 

$

65,000

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Estimated Fair Value

 

Commercial paper

 

$

27,136

 

 

$

 

 

$

 

 

$

27,136

 

Corporate debt securities

 

 

26,510

 

 

 

 

 

 

(4

)

 

 

26,506

 

U.S. government and agency securities

 

 

18,136

 

 

 

5

 

 

 

 

 

 

18,141

 

Total short-term investments

 

$

71,782

 

 

$

5

 

 

$

(4

)

 

$

71,783

 

 

The following table summarizes the maturities of the Company’s short-term investments at March 31, 2021:

 

 

 

Amortized Cost

 

 

Estimated Fair Value

 

Due in one year or less

 

$

55,696

 

 

$

55,693

 

Due after one year through two years

 

 

9,304

 

 

 

9,307

 

Total short-term investments

 

$

65,000

 

 

$

65,000

 

 

Note 7. Stockholders’ Equity

Equity Incentive Plan

In January 2015, the Company adopted the Metacrine, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Plan”), which provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, and stock appreciation rights to its employees, members of its board of directors, and consultants. In August 2020, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”), which is the successor and continuation of the 2015 Plan. No additional awards may be granted under the 2015 Plan and all outstanding awards under the 2015 Plan remain subject to the terms of the 2015 Plan. As of March 31, 2021, there were 3,166,412 shares authorized and available for issuance under the 2020 Plan.

 

Recipients of incentive stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 and 2020 Plans (or collectively, the “Equity Plans”) is ten years and, in general, the options issued under the Equity Plans vest over a four-year period from the vesting commencement date. The 2015 Plan allows for early exercise of stock options, which may be subject to repurchase by the Company at the lower of (i) the fair market value at the repurchase date or (ii) the original exercise price. The early exercise of stock options is not permitted under the 2020 Plan.

 

A summary of the Company’s unvested shares and unvested stock liability is as follows (in thousands, except share data):

 

 

 

Number of

Unvested

Shares

 

 

Unvested

Stock

Liability

 

Balance at December 31, 2020

 

 

36,492

 

 

$

27

 

Vested shares

 

 

(11,207

)

 

 

(8

)

Balance at March 31, 2021

 

 

25,285

 

 

$

19

 

12


Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

 

 

A summary of the Company’s stock option activity is as follows (in thousands, except share and per share data):

 

 

 

Number of

Outstanding

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (In

Years)

 

 

Aggregate

Intrinsic

Value

 

Balance at December 31, 2020

 

 

3,136,076

 

 

$

5.23

 

 

 

7.95

 

 

$

8,963

 

Granted

 

 

783,405

 

 

$

10.00

 

 

 

 

 

 

 

 

 

Exercised

 

 

(228,678

)

 

$

2.73

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(1,838

)

 

$

3.01

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

3,688,965