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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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: 001-36644

 

CALITHERA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-2366329

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

343 Oyster Point Blvd., Suite 200

South San Francisco, CA 94080

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650870-1000

 

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, 0.0001 par value

 

CALA

 

The Nasdaq Global Select 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 May 3, 2021, the registrant had 74,047,864 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Calithera Biosciences, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2021

INDEX

 

 

  

Page

PART I. FINANCIAL INFORMATION 

  

3

 

 

 

Item 1.

 

Financial Statements (Unaudited)

  

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2021, and December 31, 2020

 

3

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

7

 

 

Notes to Condensed Consolidated Financial Statements 

  

8

 

 

 

 

 

Item 2.

 

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

  

19

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk 

  

24

 

 

 

 

 

Item 4.

 

Controls and Procedures 

  

24

 

 

 

 

 

PART II. OTHER INFORMATION 

  

25

 

 

 

Item 1.

 

Legal Proceedings

  

25

 

 

 

 

 

Item 1A.

 

Risk Factors

  

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

52

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

52

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

  

52

 

 

 

 

 

Item 5.

 

Other Information

  

52

 

 

 

 

 

Item 6.

 

Exhibits

  

53

 

 

 

 

 

SIGNATURES

  

54

 

 

 

 

 

2


 

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

 

Calithera Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

101,351

 

 

$

107,146

 

Short-term investments

 

1,500

 

 

 

8,005

 

Receivables from collaborations

 

1,028

 

 

 

1,541

 

Prepaid expenses and other current assets

 

2,630

 

 

 

2,011

 

Total current assets

 

106,509

 

 

 

118,703

 

Restricted cash

 

270

 

 

 

440

 

Property and equipment, net

 

617

 

 

 

690

 

Operating lease right-of-use asset

 

3,261

 

 

 

5,754

 

Total assets

$

110,657

 

 

$

125,587

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,636

 

 

$

1,994

 

Accrued and other liabilities

 

12,156

 

 

 

16,407

 

Total current liabilities

 

13,792

 

 

 

18,401

 

Noncurrent operating lease liability

 

2,707

 

 

 

4,815

 

Total liabilities

 

16,499

 

 

 

23,216

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 200,000 shares authorized

    as of March 31, 2021, and December 31, 2020;

    73,884 and 70,686 shares issued and outstanding as

    of March 31, 2021, and December 31, 2020, respectively

 

7

 

 

 

7

 

Additional paid-in capital

 

490,784

 

 

 

478,599

 

Accumulated deficit

 

(396,633

)

 

 

(376,238

)

Accumulated other comprehensive income

 

 

 

 

3

 

Total stockholders’ equity

 

94,158

 

 

 

102,371

 

Total liabilities and stockholders’ equity

$

110,657

 

 

$

125,587

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

3


 

Calithera Biosciences, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

$

15,339

 

 

$

20,125

 

General and administrative

 

5,428

 

 

 

4,946

 

Total operating expenses

 

20,767

 

 

 

25,071

 

Loss from operations

 

(20,767

)

 

 

(25,071

)

Interest and other income, net

 

372

 

 

 

625

 

Net loss

$

(20,395

)

 

$

(24,446

)

Net loss per share, basic and diluted

$

(0.28

)

 

$

(0.38

)

Weighted average common shares used to

     compute net loss per share, basic and

     diluted

 

72,247

 

 

 

64,556

 

 

See accompanying notes.

 

4


 

Calithera Biosciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Net loss

$

(20,395

)

 

$

(24,446

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Net unrealized (loss) gain on

   available-for-sale securities

 

(3

)

 

 

33

 

Total comprehensive loss

$

(20,398

)

 

$

(24,413

)

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

5


 

Calithera Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31, 2021

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated  Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Total Stockholders' Equity

 

Balance at December 31, 2020

 

 

70,686

 

 

$

7

 

 

$

478,599

 

 

$

(376,238

)

 

$

3

 

 

$

102,371

 

Issuance of common stock in connection with

   at-the-market offering, net of underwriting

   commissions and issuance costs

 

 

3,197

 

 

 

 

 

 

9,488

 

 

 

 

 

 

 

 

 

9,488

 

Exercise of stock options

 

 

1

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,695

 

 

 

 

 

 

 

 

 

2,695

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,395

)

 

 

 

 

 

(20,395

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Balance at March 31, 2021

 

 

73,884

 

 

$

7

 

 

$

490,784

 

 

$

(396,633

)

 

$

 

 

$

94,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated  Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Total Stockholders' Equity

 

Balance at December 31, 2019

 

 

63,514

 

 

$

6

 

 

$

428,479

 

 

$

(286,101

)

 

$

42

 

 

$

142,426

 

Issuance of common stock in connection with

   at-the-market offering, net of underwriting

   commissions and issuance costs

 

 

1,160

 

 

 

 

 

 

7,397

 

 

 

 

 

 

 

 

 

7,397

 

Exercise of stock options

 

 

13

 

 

 

 

 

 

262

 

 

 

 

 

 

 

 

 

262

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,993

 

 

 

 

 

 

 

 

 

1,993

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(24,446

)

 

 

 

 

 

(24,446

)

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Balance at March 31, 2020

 

 

64,687

 

 

$

6

 

 

$

438,131

 

 

$

(310,547

)

 

$

75

 

 

$

127,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

6


 

Calithera Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Cash Flows Used in Operating Activities

 

 

 

 

 

 

 

Net loss

$

(20,395

)

 

$

(24,446

)

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

 

 

 

 

 

 

 

Depreciation

 

73

 

 

 

105

 

Accretion (amortization) of premiums on investments

 

3

 

 

 

(85

)

Stock-based compensation

 

2,695

 

 

 

1,993

 

Gain on remeasurement of the lease liability

 

(362

)

 

 

 

Non-cash lease expense

 

351

 

 

 

362

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables from collaborations

 

513

 

 

 

(494

)

Prepaid expenses and other current assets

 

(619

)

 

 

231

 

Other assets

 

 

 

 

(278

)

Accounts payable

 

(390

)

 

 

(1,318

)

Accrued liabilities

 

(3,402

)

 

 

(2,682

)

Lease liability

 

(469

)

 

 

(403

)

Net cash used in operating activities

 

(22,002

)

 

 

(27,015

)

 

 

 

 

 

 

 

 

Cash Flows Provided by (Used in) Investing Activities

 

 

 

 

 

 

 

Purchases of investments

 

 

 

 

(57,059

)

Proceeds from sale and maturity of investments

 

6,500

 

 

 

56,458

 

Purchases of property and equipment

 

 

 

 

(13

)

Net cash provided by (used in) investing activities

 

6,500

 

 

 

(614

)

 

 

 

 

 

 

 

 

Cash Flows Provided by Financing Activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock through an at-the-market offering, net

 

9,535

 

 

 

7,397

 

Proceeds from stock option exercises

 

2

 

 

 

262

 

Net cash provided by financing activities

 

9,537

 

 

 

7,659

 

 

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

(5,965

)

 

 

(19,970

)

Cash, cash equivalents, and restricted cash at beginning of period

 

107,586

 

 

 

60,877

 

Cash, cash equivalents, and restricted cash at end of period

$

101,621

 

 

$

40,907

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Activities:

 

 

 

 

 

 

 

Unpaid amounts related to stock issuance and deferred financing costs

$

47

 

 

$

74

 

 

 

 

See accompanying notes.

 

 

7


 

Calithera Biosciences, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization and Basis of Presentation

Organization

Calithera Biosciences, Inc., or the Company, was incorporated in the State of Delaware on March 9, 2010. The Company is a clinical-stage biopharmaceutical company pioneering the discovery and development of targeted therapies that disrupt cellular metabolic pathways to preferentially block tumor cells and enhance immune-cell activity. Driven by a commitment to rigorous science and a passion for improving the lives of people impacted by cancer and other life-threatening diseases, Calithera is advancing a pipeline of first-in-clinic, oral therapeutics to meaningfully expand treatment options available to patients. The Company’s principal operations are based in South San Francisco, California, and it operates in one segment.

Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Calithera Biosciences UK Limited and Calithera Biosciences Ireland Limited. All significant intercompany accounts and transactions have been eliminated from the condensed consolidated financial statements.

Liquidity

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses from operations since inception and has an accumulated deficit of $396.6 million as of March 31, 2021. The Company intends to raise additional capital through the issuance of additional equity, and potentially through strategic alliances with partner companies. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plans. Management believes that the currently available resources will provide sufficient funds to enable the Company to meet its operating plan for at least the twelve-month period following the filing of the Company’s unaudited consolidated financial statements for the three months ended March 31, 2021, included in the Quarterly Report on Form 10-Q. However, if the Company’s anticipated operating results are not achieved in future periods, management believes that planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the Company’s operations.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The interim condensed consolidated balance sheet as of March 31, 2021, the statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed consolidated financial statements included in this report. The financial data and the other information disclosed in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K as filed with the Securities and Exchange Commission, or SEC.

Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation 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 contract assets and contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accrued liabilities, revenue recognition, fair value of marketable securities, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

8


Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents, which consist primarily of amounts invested in money market accounts, are stated at fair value.

Investments

All investments have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such designation as of each balance sheet date. As of each balance sheet date, the Company classifies available-for-sale securities with remaining contractual maturities of more than one year as long-term investments, and those with remaining contractual maturities of one year or less as short-term investments. Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive (loss) income. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest and other income, net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest and other income, net.

Restricted Cash

Restricted cash consists of money market funds held by the Company’s financial institution as collateral for the Company’s obligations under its facility lease for the Company’s corporate headquarters in South San Francisco, California.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments and restricted cash. The Company invests in a variety of financial instruments and, by its policy, limits these financial instruments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. The Company’s cash, cash equivalents, investments and restricted cash are held by financial institutions in the United States that management believes are of high credit quality. Amounts on deposit may at times exceed federally insured limits.

The majority of the Company’s receivables from collaborations are derived from its collaboration and license agreement with Incyte Corporation, or Incyte, as described in Note 10, Collaboration and Licensing Agreements - Incyte Collaboration and License Agreement.

Revenue Recognition

The Company records revenue in accordance with Accounting Standards Codification, or ASC No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606.  Under ASC 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 ASC 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 ASC 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.  

The Company has a collaboration and license agreement with Incyte, or the Incyte Collaboration Agreement, that is within the scope of ASC 606, under which it licenses certain rights to one of its product candidates to Incyte Corporation. The terms of this arrangement include payment to the Company of a non-refundable, upfront license fee, and potential development, regulatory and sales milestones, and sales royalties. Each of these payments results in collaboration revenues, except for revenues from royalties on net sales of licensed products, which would be classified as royalty revenues.

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

9


the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. 

Licenses of Intellectual Property:  If the 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 from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promised goods or services, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments:  At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue 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 or the underlying activity has been completed. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related 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 collaboration revenue in the period of adjustment. 

Royalties:  For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and 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.

 

Contract Balances

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.

The Company had no contract assets or liabilities as of March 31, 2021 and December 31, 2020, and had no changes in contract assets and liabilities during the three months ended March 31, 2021 and 2020.

Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in accrued and other liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

 

10


 

Awards

 

The Company assesses at the inception of award agreements whether the agreement is a liability. If the Company is obligated to repay funds received regardless of the outcome of the related research and development activities, then the Company is required to estimate and recognize a liability for this obligation. Alternatively, if the Company is not required to repay the funds, then payments received are recorded as contra research and development expense in the consolidated statement of operations as expenses are incurred.

 

Receivables from collaborations represent amounts receivable for which the payment criteria has been met and allowable expenses have been incurred, but not received as of the balance sheet date. Collaboration reimbursement advances represent amounts received for which the allowable expenses have not been incurred as of the balance sheet date.

Leases

The Company accounts for its leases under ASU No. 2016-02, Leases (Topic 842), or ASU 842. Operating lease right-of-use, or ROU, assets and lease liabilities are recognized at commencement and are recorded for leases with durations greater than 12 months.

ROU assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company estimates an incremental borrowing rate based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company elected to not separate lease components and non-lease components for its long-term facility lease. Variable lease payments include lease operating expenses.

Stock-Based Compensation

The Company maintains various stock incentive plans under which stock options and restricted stock awards are granted to employees, non-employee directors of the board, and non-employees. The Company also has an employee stock purchase plan for all eligible employees. Stock options and stock purchased under the employee stock purchase plan, are recorded at fair value as of the grant date using the Black-Scholes option-pricing model. Restricted stock awards are measured at grant date fair value, at the market price of the Company’s common stock on the grant date. The Company records stock-based compensation expense related to the service-based instruments ratably over the employee, director, or non-employees’ respective requisite service period (generally the vesting period). For performance-based stock awards with vesting conditioned on the achievement of certain strategic milestones, stock-based compensation expense is recognized over the period from the date the performance condition is determined to be probable of occurring through the date the applicable condition is expected to be met. If the performance condition is not considered probable of being achieved, no stock-based compensation expense is recognized until such time as the performance condition is considered probable of being met, if at all. If the assessment of the probability of the performance condition being met changes, the impact of the change in estimate would be recognized in the period of the change.

The Company has elected to account for forfeitures as they occur.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.  

Accounting Pronouncement Recently Adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and amends certain requirements in the existing income tax guidance to ease accounting requirements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and must be applied on a retrospective basis. The Company adopted this guidance effective January 1, 2021 and there was no impact on its consolidated financial statements and disclosures.

11


Accounting Pronouncement 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, or ASU 2016-13The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. In May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief, which provides transition guidance to entities that elect the fair value option for eligible instruments. In November 2019, the FASB issued ASU 2019-10 which extends the effective date of the standards for smaller reporting companies to interim and annual periods beginning after December 15, 2022. These standards require using a modified retrospective approach with the cumulative effect recognized as an adjustment to retained earnings. A prospective transition approach is required for debt securities that have recognized an other-than-temporary impairment prior to the effective date. For the Company’s receivables from collaborations and certain other financial instruments, the Company will be required to use a forward-looking “expected” credit loss model instead of the existing “incurred” credit loss model, which will generally result in earlier recognition of allowances for credit losses. The Company plans to adopt this standard effective January 1, 2023. The Company is currently evaluating the effect the guidance will have on its financial statements or disclosures.

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, investments, receivables from collaborations, accounts payable, and accrued liabilities that approximate fair value due to their relatively short maturities.

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. The Company classifies its corporate notes and U.S. government agency securities as Level 2. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability.

12


The following table sets forth the fair value of our financial assets and liabilities, allocated into Level 1, Level 2 and Level 3, that were measured on a recurring basis (in thousands):

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

100,579

 

 

$

 

 

$

 

 

$

100,579

 

U.S. government agency securities

 

 

 

 

 

1,500

 

 

 

 

 

 

1,500

 

Total financial assets

 

$

100,579

 

 

$

1,500

 

 

$

 

 

$

102,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

106,782

 

 

$

 

 

$

 

 

$

106,782

 

Corporate notes and commercial paper

 

 

 

 

 

6,502

 

 

 

 

 

 

6,502

 

U.S. government agency securities

 

 

 

 

 

1,503

 

 

 

 

 

 

1,503

 

Total financial assets

 

$

106,782

 

 

$

8,005

 

 

$

 

 

$

114,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Financial Instruments

Cash equivalents and investments, all of which are classified as available-for-sale securities and restricted cash, consisted of the following (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

Money market funds

$

100,579

 

 

$

 

 

$

 

 

$

100,579

 

 

 

$

106,782

 

 

$

 

 

$

 

 

$

106,782

 

Corporate notes and

     commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,501

 

 

 

1

 

 

 

 

 

 

6,502

 

U.S. government agency

     securities

 

1,500

 

 

 

 

 

 

 

 

 

1,500

 

 

 

 

1,501

 

 

 

2

 

 

 

 

 

 

1,503

 

 

$

102,079

 

 

$

 

 

$

 

 

$

102,079

 

 

 

$

114,784

 

 

$

3

 

 

$

 

 

$

114,787

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

$

100,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

106,342

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,005

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

440

 

Total cash equivalents,

   restricted cash and

   investments

 

 

 

 

 

 

 

 

 

 

 

 

$

102,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

114,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2021, the remaining contractual maturities of available-for-sale securities were less than one year. There have been no significant realized gains or losses on available-for-sale securities for the periods presented. As of March 31, 2021 and December 31, 2020, there were no unrealized losses on cash equivalents and investments. As of March 31, 2021, the Company had a total of $103.1 million in cash, cash equivalents, restricted cash and investments, which includes $1.0 million in cash and $102.1 million in cash equivalents, restricted cash and investments.

 

5. Accrued and Other Liabilities

Accrued and other liabilities consist of the following (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

Accrued clinical and manufacturing expenses

$

7,704

 

 

$

7,910

 

Accrued payroll and related expenses

 

2,535

 

 

 

5,142

 

Current portion of lease liability

 

1,039

 

 

 

1,903

 

Other

 

878

 

 

 

1,452

 

Total accrued and other liabilities

$

12,156

 

 

$

16,407

 

 

13


 

6. Leases

The Company has a non-cancelable facility lease agreement, or the Lease, for office and laboratory facilities in South San Francisco, California, with a remaining lease term of 2.8 years, through January 2024, and a two-year renewal option prior to expiration. The renewal option to extend the Lease was not considered in the determination of the right-of-use asset or the lease liability for the Lease as the Company did not consider it reasonably certain that it would exercise any such option. The Lease provides that the Company is obligated to pay certain variable costs, including taxes and operating expenses. The Lease is classified as an operating lease. In addition, the Company had a non-cancelable sublease agreement for a portion of its facilities through February 2020. The sublease agreement provided that the subtenant was obligated to pay its share of the variable costs under the Lease. Through March 7, 2021 the Company measured the present value of its lease liability using an estimated incremental borrowing rate of 9%.

On March 8, 2021, the Company amended its lease to reduce its rentable area from approximately 54,000 square feet to approximately 34,000 square feet. The related reduction in rent was effective January 1, 2021. In connection with the amendment, the Company also reduced its existing letter of credit from $440,000 to $270,000 as a security deposit to the lease. Subsequent to the amendment, which was determined to be a modification of the lease, the Company remeasured the present value of its lease liability using an estimated incremental borrowing rate of 7.5%. The Company recognized a gain of $0.4 million, included in interest and other income, net in its unaudited condensed consolidated statement of operations for the three months ended March 31, 2021, which represents the difference between the reduced lease liability and the reduction in the operating lease right of use asset.

The components of net operating lease costs included in the condensed consolidated statement of operations were as follows (in thousands):

 

 

Three Months Ended March 31,

 

Operating Lease Costs:

 

2021

 

 

2020

 

Straight-line rent expense related to

   facility operating lease

 

$

484

 

 

$

544

 

Variable rent expense related to

   operating lease

 

 

244

 

 

 

378

 

Sublease income

 

 

 

 

 

(187

)

Variable sublease income

 

 

 

 

 

(93

)

Net operating lease costs

 

$

728

 

 

$

642

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of the lease liabilities for the three months ended March 31, 2021 and 2020, was $0.6 million and $0.6 million, respectively, and was included in net cash used in operating activities in the Company’s unaudited condensed consolidated statements of cash flows.

The balance sheet classification of the Company’s operating lease liability was as follows (in thousands):

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Operating Lease Liability:

 

 

 

 

 

 

 

 

Current portion included in accrued and other liabilities

 

$

1,039

 

 

$

1,903

 

Noncurrent operating lease liability

 

 

2,707

 

 

 

4,815

 

Total operating lease liability

 

$

3,746

 

 

$

6,718