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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 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: 001-38981

 

Mirum Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

83-1281555

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

950 Tower Lane, Suite 1050, Foster City, California

94404

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 667-4085

 

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

 

MIRM

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of July 30, 2021 the registrant had 30,515,833 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

83

Item 6.

Exhibits

84

Signatures

85

 

i


 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

 

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part I, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

 

We have a very limited operating history, and we have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

Our business is dependent on the success of our product candidates, each of which require significant clinical testing before we can seek regulatory approval and potentially launch commercial sales.

 

We have encountered and may continue to encounter delays and difficulties enrolling patients in our clinical trials, and as a result, our clinical development activities could be delayed or otherwise adversely affected.

 

Our product candidates are subject to extensive regulation and compliance, which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.

 

Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.

 

Clinical drug development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results.

 

Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.

 

Our applications for marketing authorization with regulatory authorities may not be accepted or may require additional studies, regulatory actions, or manufacturing requirements to be completed before marketing authorization is granted.

 

Even if we obtain regulatory approval for our product candidates, our product candidates may not gain market acceptance among physicians, patients, tertiary care centers, transplant centers and others in the medical community.

 

As a company, we currently have limited marketing and sales experience, and we have never commercialized a product before. If we are unable to adequately establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate viable product revenues. Even if we adequately establish such capabilities, market acceptance or reimbursement of our products may be lower than expected.

 

We face significant competition from other biotechnology and pharmaceutical companies with products that may directly or indirectly compete with ours, and our operating results will suffer if we fail to compete effectively.

 

We will need substantial additional financing to develop our product candidates and implement our operating plans. If we fail to obtain additional financing, we may be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

 

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our product candidates, if approved, may be adversely affected.

 

ii


 

Our failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,938

 

 

$

142,086

 

Short-term investments

 

 

131,913

 

 

 

89,734

 

Prepaid expenses and other current assets

 

 

4,515

 

 

 

4,530

 

Total current assets

 

 

228,366

 

 

 

236,350

 

Investments

 

 

14,990

 

 

 

 

Property and equipment, net

 

 

1,127

 

 

 

1,293

 

Operating lease right-of-use assets

 

 

1,758

 

 

 

1,949

 

Other assets

 

 

1,427

 

 

 

1,272

 

Total assets

 

$

247,668

 

 

$

240,864

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,380

 

 

$

3,151

 

Accrued expenses

 

 

20,775

 

 

 

13,411

 

Operating lease liabilities

 

 

671

 

 

 

636

 

Derivative liability

 

 

2,202

 

 

 

1,264

 

Total current liabilities

 

 

29,028

 

 

 

18,462

 

Revenue interest liability, net

 

 

120,610

 

 

 

47,651

 

Operating lease liabilities, noncurrent

 

 

2,271

 

 

 

2,627

 

Other liabilities

 

 

22

 

 

 

29

 

Total liabilities

 

 

151,931

 

 

 

68,769

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized
   as of June 30, 2021 and December 31, 2020, respectively;
   and
zero shares issued and outstanding as of June 30, 2021
   and December 31, 2020, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares
   authorized as of June 30, 2021 and December 31, 2020, respectively;
   
30,506,433 shares issued and 30,317,173 shares outstanding,
   excluding
189,260 shares subject to repurchase as of June 30, 2021;
   and
30,032,600 shares issued and 29,776,544 shares outstanding,
   excluding
256,056 shares subject to repurchase as of December 31, 2020

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

363,344

 

 

 

345,180

 

Accumulated deficit

 

 

(267,597

)

 

 

(173,171

)

Accumulated other comprehensive (loss) income

 

 

(13

)

 

 

83

 

Total stockholders’ equity

 

 

95,737

 

 

 

172,095

 

Total liabilities and stockholders’ equity

 

$

247,668

 

 

$

240,864

 

 

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

1


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

License revenue

 

$

11,000

 

 

$

 

 

$

11,000

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

35,048

 

 

 

18,555

 

 

 

73,182

 

 

 

35,895

 

General and administrative

 

 

13,353

 

 

 

5,042

 

 

 

22,832

 

 

 

9,734

 

Total operating expenses

 

 

48,401

 

 

 

23,597

 

 

 

96,014

 

 

 

45,629

 

Loss from operations

 

 

(37,401

)

 

 

(23,597

)

 

 

(85,014

)

 

 

(45,629

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

80

 

 

 

405

 

 

 

229

 

 

 

1,154

 

Interest expense

 

 

(4,776

)

 

 

 

 

 

(8,157

)

 

 

 

Change in fair value of derivative liability

 

 

(1,272

)

 

 

 

 

 

(938

)

 

 

 

Other expense, net

 

 

(514

)

 

 

(56

)

 

 

(530

)

 

 

(79

)

Net loss before provision for income taxes

 

 

(43,883

)

 

 

(23,248

)

 

 

(94,410

)

 

 

(44,554

)

Provision for income taxes

 

 

11

 

 

 

3

 

 

 

16

 

 

 

7

 

Net loss

 

$

(43,894

)

 

$

(23,251

)

 

$

(94,426

)

 

$

(44,561

)

Net loss per share, basic and diluted

 

$

(1.45

)

 

$

(0.93

)

 

$

(3.13

)

 

$

(1.79

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

30,274,749

 

 

 

25,056,123

 

 

 

30,190,352

 

 

 

24,880,387

 

 

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

2


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(43,894

)

 

$

(23,251

)

 

$

(94,426

)

 

$

(44,561

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale investments

 

 

(16

)

 

 

339

 

 

 

(90

)

 

 

190

 

Cumulative translation adjustments

 

 

3

 

 

 

3

 

 

 

(6

)

 

 

(1

)

Comprehensive loss

 

$

(43,907

)

 

$

(22,909

)

 

$

(94,522

)

 

$

(44,372

)

 

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

3


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2020

 

 

 

 

 

 

 

 

29,776,544

 

 

$

3

 

 

$

345,180

 

 

$

(173,171

)

 

$

83

 

 

$

172,095

 

Issuance of common stock in connection with
   common stock option exercises

 

 

 

 

 

 

 

 

12,535

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Issuance of common stock in public offering,
   net of issuance costs of $
476

 

 

 

 

 

 

 

 

375,654

 

 

 

 

 

 

7,038

 

 

 

 

 

 

 

 

 

7,038

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

   — 

 

 

 

 

 

 

5,285

 

 

 

 

 

 

 

 

 

5,285

 

Net loss

 

 

 

 

 

 

 

   — 

 

 

 

 

 

 

 

 

 

(50,532

)

 

 

 

 

 

(50,532

)

Other comprehensive loss

 

 

 

 

 

 

 

   — 

 

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

(83

)

Balance as of March 31, 2021

 

 

 

 

 

 

 

 

30,198,129

 

 

$

3

 

 

$

357,583

 

 

$

(223,703

)

 

$

 

 

$

133,883

 

Issuance of common stock in connection with
   common stock option exercises

 

 

 

 

 

 

 

 

41,668

 

 

 

 

 

 

295

 

 

 

 

 

 

 

 

 

295

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares in connection with ESPP

 

 

 

 

 

 

 

 

43,976

 

 

 

 

 

 

643

 

 

 

 

 

 

 

 

 

643

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,823

 

 

 

 

 

 

 

 

 

4,823

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,894

)

 

 

 

 

 

(43,894

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Balance as of June 30, 2021

 

 

 

 

$

 

 

 

30,317,173

 

 

$

3

 

 

$

363,344

 

 

$

(267,597

)

 

$

(13

)

 

$

95,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

22,600,338

 

 

$

2

 

 

$

200,119

 

 

$

(69,901

)

 

$

129

 

 

$

130,349

 

Issuance of common stock in follow-on public
   offering, net of issuance costs of $
3,342

 

 

 

 

 

 

 

 

2,400,000

 

 

 

1

 

 

 

44,658

 

 

 

 

 

 

 

 

 

44,659

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,573

 

 

 

 

 

 

 

 

 

2,573

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,310

)

 

 

 

 

 

(21,310

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

(153

)

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

25,033,736

 

 

$

3

 

 

$

247,350

 

 

$

(91,211

)

 

$

(24

)

 

$

156,118

 

Issuance of common stock in connection with
   common stock option exercises

 

 

 

 

 

 

 

 

4,203

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,974

 

 

 

 

 

 

 

 

 

2,974

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,251

)

 

 

 

 

 

(23,251

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

342

 

 

 

342

 

Balance as of June 30, 2020

 

 

 

 

$

 

 

 

25,071,337

 

 

$

3

 

 

$

250,349

 

 

$

(114,462

)

 

$

318

 

 

$

136,208

 

 

 

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

4


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(94,426

)

 

$

(44,561

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

10,108

 

 

 

5,547

 

Depreciation and amortization

 

 

169

 

 

 

143

 

Amortization of operating lease right-of-use assets

 

 

191

 

 

 

160

 

Net accretion of discounts on investments

 

 

(22

)

 

 

(7

)

Non-cash interest expense on revenue interest purchase agreement

 

 

8,157

 

 

 

 

Change in fair value of derivative liability

 

 

938

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

103

 

 

 

(36

)

Operating lease right-of-use assets

 

 

 

 

 

94

 

Other assets

 

 

(162

)

 

 

 

Accounts payable, accrued expenses and other liabilities

 

 

9,856

 

 

 

3,486

 

Operating lease liabilities

 

 

(321

)

 

 

(171

)

Net cash used in operating activities

 

 

(65,409

)

 

 

(35,345

)

Investing activities

 

 

 

 

 

 

Proceeds from maturities of investments

 

 

70,100

 

 

 

61,900

 

Proceeds from paydowns of investments

 

 

2,000

 

 

 

14,005

 

Purchase of investments

 

 

(129,336

)

 

 

(14,020

)

Purchase of property and equipment

 

 

(3

)

 

 

(151

)

Net cash (used in) provided by investing activities

 

 

(57,239

)

 

 

61,734

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock in public offering, net of issuance costs

 

 

6,914

 

 

 

44,659

 

Proceeds from revenue interest liability, net of issuance costs

 

 

64,574

 

 

 

 

Proceeds from issuance of common stock pursuant to equity award plans

 

 

1,018

 

 

 

25

 

Net cash provided by financing activities

 

 

72,506

 

 

 

44,684

 

Effect of exchange rate on cash and cash equivalents

 

 

(6

)

 

 

(1

)

Net (decrease) increase in cash and cash equivalents

 

 

(50,148

)

 

 

71,072

 

Cash and cash equivalents at beginning of period

 

 

142,086

 

 

 

11,970

 

Cash and cash equivalents at end of period

 

$

91,938

 

 

$

83,042

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Operating cash flows paid for operating lease

 

$

426

 

 

$

216

 

Property and equipment purchases included in accounts payable

 

$

 

 

$

42

 

 

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

5


 

Mirum Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

Mirum Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on May 2, 2018, and is headquartered in Foster City, California. The Company is a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. The Company’s pipeline consists of two clinical-stage product candidates, maralixibat and volixibat, with mechanisms of action that have potential utility across a wide range of orphan liver diseases. The Company commenced significant operations in November 2018.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

The Company views its operations and manages its business as one operating segment.

Liquidity

The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven. As of June 30, 2021, the Company had an accumulated deficit of $267.6 million and cash, cash equivalents and investments of $238.8 million, which are available to fund future operations. The Company believes that its cash, cash equivalents and investments as of June 30, 2021 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2020, as filed with the SEC on March 9, 2021.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the revenue interest liability, accrued research and development expenses, the valuation of derivative liabilities, equity award compensation and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based upon historical experience, knowledge of current events 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 could differ materially from those estimates.

6


 

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2021, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited consolidated financial statements included in the Annual Report, except as discussed below.

Revenue Recognition

The Company accounts for contracts with customers under Accounting Standards Codification (“ASC”), Revenue from Contracts with Customers (Topic 606) (“ASC 606”). Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. 

License and Collaboration Arrangements

The Company enters into collaborative arrangements with partners that are within the scope of ASC, Collaborative Arrangements (Topic 808) (“ASC 808”). The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808 to determine 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. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. The accounting for some of the activities under collaboration arrangements may be subject to ASC 606 for distinct units of account that are reflective of a vendor-customer relationship. For other elements of collaboration arrangements, such as assistance with development of the drug products, the Company applies the illustrative examples in ASC 808 and generally records reimbursements received as a reduction of research and development expenses.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the contracts with customers; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) determination and measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The terms of the Company’s license and collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain development, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. 

A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting in Topic 606. A contract’s transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the applicable performance obligation is satisfied.

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues attributed to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

At the inception of each arrangement that includes 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 as variable consideration using the most likely amount method or expected value method, depending on the nature of the contingency and the variable payments. If it is probable that a significant reversal of cumulative revenue recognized for the contract 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 generally considered probable of being achieved until those approvals are received. Given the high degree of uncertainty around the occurrence of these events, the Company generally determines the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. At the end of each reporting period, the Company re-evaluates the probability of achievement of any development milestones, and if necessary, adjusts its estimate of the transaction price. Any such adjustments would be recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when or as 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).

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Accounting for these arrangements requires the Company to develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company has never sold the performance obligations in its collaborative arrangements separately; therefore, an observable stand-alone selling price does not exist. Accordingly, the Company estimates a stand-alone selling price through maximizing the use of observable inputs such as market data, project cost estimates, and targeted margins.

Stock-Based Compensation

The Company recognizes stock-based compensation for all stock-based awards based on the grant date fair value of the award. For stock-based awards with service conditions, the fair value of the awards is amortized on a straight-line basis over the requisite service period in which the awards are expected to vest. For stock-based awards with performance conditions, stock-based compensation is recognized when it is considered probable that the performance conditions will be satisfied. At each reporting period, the Company reassesses the probability of the achievement of the performance conditions to estimate the number of shares to be released. Any change in stock-based compensation resulting from an adjustment in the estimated shares to be released is treated as a cumulative catch-up in the period of adjustment. For stock-based awards with market conditions, stock-based compensation is recognized over the appropriate requisite service period. The Company accounts for forfeitures as they occur.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase, common stock options, contingently issuable employee stock purchase plan shares, contingently issuable performance stock units (“PSUs”) and contingently issuable underwriter option shares because their effect would be anti-dilutive due to the Company’s net loss. Since the Company incurred a net loss in each of the periods presented, basic and diluted net loss per share were the same.

The following outstanding potentially dilutive shares of common stock have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

As of June 30,

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Options to purchase common stock

 

 

6,701,747

 

 

 

5,071,740

 

Common stock subject to repurchase

 

 

189,260

 

 

 

256,056

 

Employee stock purchase plan contingently issuable

 

 

17,971

 

 

 

12,931

 

PSUs contingently issuable

 

 

229,256

 

 

 

 

Underwriter option shares contingently issuable

 

 

 

 

 

562,500

 

Total

 

 

7,138,234

 

 

 

5,903,227

 

 

Recently Adopted Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2018-18, Collaborative Arrangements (Topic 818): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard on January 1, 2021, as it had no collaboration arrangements prior to that date. There was no impact on the accompanying consolidated financial statements as of the adoption date.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires an entity to utilize a new impairment model that requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The new guidance requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new guidance. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit

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deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. In March 2020, the FASB issued ASU No. 2020-3, Codification Improvements to Financial Instruments which makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard and clarifies the following areas (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses; (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. For smaller reporting companies, the guidance will be effective during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements. 

3. Fair Value Measurements

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type are presented in the following table (in thousands):

 

 

 

June 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

84,081

 

 

$

 

 

$

 

 

$

84,081

 

Commercial paper

 

 

 

 

 

126,908

 

 

 

 

 

 

126,908

 

U.S. government bonds

 

 

 

 

 

19,995

 

 

 

 

 

 

19,995

 

Total financial assets

 

$

84,081

 

 

$

146,903

 

 

$

 

 

$

230,984

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$

 

 

$

 

 

$

2,202

 

 

$

2,202

 

Total financial liabilities

 

$

 

 

$

 

 

$

2,202

 

 

$

2,202

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

127,783

 

 

$

 

 

$

 

 

$

127,783

 

U.S. treasury bills

 

 

29,997

 

 

 

 

 

 

 

 

 

29,997

 

Corporate debt securities