igms-10q_20200630.htm

 

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 June 30, 2020

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: 001-39045

 

IGM Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

77-0349194

(State or other jurisdiction of

incorporation or organization)

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

325 E. Middlefield Road

Mountain View, CA

94043

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 965-7873

 

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 $0.01 per share

 

IGMS

 

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, 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 31, 2020, the registrant had 24,223,949 shares of common stock, $0.01 par value per share, and 6,431,205 shares of non-voting common stock, $0.01 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Comprehensive Loss

3

 

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

4

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

PART II.

 

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

Signatures

69

 

 

 

 

i


Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: the timing of the initiation, progress and potential results of our preclinical studies, clinical trials and our discovery programs; our ability to utilize our IgM antibody platform to generate and advance additional product candidates; our ability to advance product candidates into, and successfully complete, clinical trials; the timing or likelihood of regulatory filings and approvals; our estimates of the number of patients who suffer from the diseases we are targeting and the number of patients that may enroll in our clinical trials; the commercializing of our product candidates, if approved; our ability and the potential to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved; future strategic arrangements and/or collaborations and the potential benefits of such arrangements; our expectations regarding the impact of the coronavirus (COVID-19) pandemic on our business; our anticipated use of our existing resources and the proceeds from this offering; our estimates regarding expenses, future revenue, capital requirements and needs for additional financing and our ability to obtain additional capital; the sufficiency of our existing cash and investments to fund our future operating expenses and capital expenditure requirements; our ability to retain the continued service of our key personnel and to identify, hire and retain additional qualified professionals; the implementation of our business model, strategic plans for our business and product candidates; the scope of protection we are able to establish and maintain for intellectual property rights, including our IgM platform, product candidates and discovery programs; our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; the pricing, coverage and reimbursement of our product candidates, if approved; developments relating to our competitors and our industry, including competing product candidates and therapies; and the ability of our clinical trials to demonstrate the safety and efficacy of our product candidates, and other positive results.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations, and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report on Form 10-Q, whether as a result of any new information, future events, or otherwise.

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

IGM Biosciences, Inc.

Condensed Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,791

 

 

$

35,891

 

Short-term investments

 

 

166,299

 

 

 

188,743

 

Prepaid expenses and other current assets

 

 

3,075

 

 

 

6,431

 

Income tax receivable

 

 

 

 

 

35

 

Total current assets

 

 

201,165

 

 

 

231,100

 

Property, plant and equipment, net

 

 

9,728

 

 

 

3,882

 

Long-term investments

 

 

5,034

 

 

 

11,973

 

Operating lease right-of-use asset

 

 

12,872

 

 

 

14,137

 

Other assets

 

 

258

 

 

 

258

 

Total assets

 

$

229,057

 

 

$

261,350

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,264

 

 

$

3,087

 

Accrued liabilities

 

 

4,333

 

 

 

3,305

 

Lease liabilities, current

 

 

2,575

 

 

 

2,483

 

Total current liabilities

 

 

11,172

 

 

 

8,875

 

Lease liabilities, non-current

 

 

10,932

 

 

 

12,244

 

Total liabilities

 

 

22,104

 

 

 

21,119

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 200,000,000 shares authorized as of June 30, 2020 and

   December 31, 2019; 0 shares issued and outstanding as of June 30, 2020 and

   December 31, 2019

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000,000,000 shares authorized as of June 30, 2020 and

   December 31, 2019; 24,162,876 and 24,053,921 shares issued and outstanding as of

   June 30, 2020 and December 31, 2019, respectively

 

 

242

 

 

 

240

 

Non-voting common stock, $0.01 par value; 6,431,208 shares authorized as of

   June 30, 2020 and December 31, 2019; 6,431,205 shares issued and outstanding as of

   June 30, 2020 and December 31, 2019

 

 

64

 

 

 

64

 

Additional paid-in-capital

 

 

350,019

 

 

 

347,089

 

Accumulated other comprehensive income

 

 

296

 

 

 

43

 

Accumulated deficit

 

 

(143,668

)

 

 

(107,205

)

Total stockholders’ equity

 

 

206,953

 

 

 

240,231

 

Total liabilities and stockholders’ equity

 

$

229,057

 

 

$

261,350

 

 

 

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

1


IGM Biosciences, Inc.

Condensed Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

15,019

 

 

$

8,303

 

 

$

29,602

 

 

$

14,215

 

General and administrative

 

 

4,388

 

 

 

2,228

 

 

 

8,378

 

 

 

3,673

 

Total operating expenses

 

 

19,407

 

 

 

10,531

 

 

 

37,980

 

 

 

17,888

 

Loss from operations

 

 

(19,407

)

 

 

(10,531

)

 

 

(37,980

)

 

 

(17,888

)

Other income (expense), net

 

 

568

 

 

 

(145

)

 

 

1,517

 

 

 

(258

)

Net loss

 

$

(18,839

)

 

$

(10,676

)

 

$

(36,463

)

 

$

(18,146

)

Net loss per share, basic and diluted

 

$

(0.62

)

 

$

(19.08

)

 

$

(1.19

)

 

$

(36.17

)

Weighted-average common shares outstanding, basic and diluted

 

 

30,551,736

 

 

 

559,671

 

 

 

30,521,600

 

 

 

501,716

 

 

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

 

2


IGM Biosciences, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

 

 

Three Months

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(18,839

)

 

$

(10,676

)

 

$

(36,463

)

 

$

(18,146

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

91

 

 

 

 

 

 

253

 

 

 

 

Comprehensive loss

 

$

(18,748

)

 

$

(10,676

)

 

$

(36,210

)

 

$

(18,146

)

 

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

 

 

3


IGM Biosciences, Inc.

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

(Unaudited)

(in thousands, except share amounts)

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Due To (From)

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Related

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Party

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2019

 

 

 

 

$

 

 

 

 

24,053,921

 

 

$

240

 

 

 

6,431,205

 

 

$

64

 

 

$

347,089

 

 

$

 

 

$

43

 

 

$

(107,205

)

 

$

240,231

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

15,885

 

 

 

1

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

22

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162

 

 

 

 

 

 

162

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,220

 

 

 

 

 

 

 

 

 

 

 

 

1,220

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,624

)

 

 

(17,624

)

Balance—March 31, 2020

 

 

 

 

 

 

 

 

 

24,069,806

 

 

 

241

 

 

 

6,431,205

 

 

 

64

 

 

 

348,330

 

 

 

 

 

 

205

 

 

 

(124,829

)

 

 

224,011

 

Exercise of stock options, net of shares withheld for taxes and exercise costs

 

 

 

 

 

 

 

 

 

67,947

 

 

 

1

 

 

 

 

 

 

 

 

 

(552

)

 

 

 

 

 

 

 

 

 

 

 

(551

)

Issuance of common stock upon restricted stock unit settlement

 

 

 

 

 

 

 

 

 

1,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases under employee stock purchase plan

 

 

 

 

 

 

 

 

 

23,295

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

317

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

91

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,924

 

 

 

 

 

 

 

 

 

 

 

 

1,924

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,839

)

 

 

(18,839

)

Balance—June 30, 2020

 

 

 

 

$

 

 

 

 

24,162,876

 

 

$

242

 

 

 

6,431,205

 

 

$

64

 

 

$

350,019

 

 

$

 

 

$

296

 

 

$

(143,668

)

 

$

206,953

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Due To (From)

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Related

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Party

 

 

Income

 

 

Deficit

 

 

Deficit

 

Balance—December 31, 2018

 

 

9,501,620

 

 

$

60,917

 

 

 

 

438,074

 

 

$

4

 

 

 

 

 

$

 

 

$

751

 

 

$

(2,511

)

 

$

 

 

$

(64,072

)

 

$

(65,828

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

7,566

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Capital contribution from related party

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

 

 

 

 

 

 

 

 

 

 

 

139

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,470

)

 

 

(7,470

)

Balance—March 31, 2019

 

 

9,501,620

 

 

 

60,917

 

 

 

 

445,640

 

 

 

4

 

 

 

 

 

 

 

 

 

923

 

 

 

(2,511

)

 

 

 

 

 

(71,542

)

 

 

(73,126

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

165,656

 

 

 

2

 

 

 

 

 

 

 

 

 

152

 

 

 

 

 

 

 

 

 

 

 

 

154

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

7,565

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Related party equity transaction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

2,511

 

 

 

 

 

 

 

 

 

2,527

 

Issuance of Series C convertible preferred stock, net of

   issuance costs of $0.1 million

 

 

4,690,997

 

 

 

61,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

 

 

 

 

 

 

 

 

 

141

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,676

)

 

 

(10,676

)

Balance—June 30, 2019

 

 

14,192,617

 

 

$

122,785

 

 

 

 

618,861

 

 

$

6

 

 

 

 

 

$

 

 

$

1,243

 

 

$

 

 

$

 

 

$

(82,218

)

 

$

(80,969

)

 

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

 

 

4


IGM Biosciences, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(36,463

)

 

$

(18,146

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

465

 

 

 

259

 

Stock-based compensation expense

 

 

3,278

 

 

 

280

 

Accrued interest on related party loan

 

 

 

 

 

270

 

Net amortization of premiums and accretion of discounts on investments

 

 

(358

)

 

 

 

Non-cash lease expense

 

 

1,265

 

 

 

625

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

3,545

 

 

 

(753

)

Income tax receivable

 

 

35

 

 

 

 

Accounts payable

 

 

(905

)

 

 

1,421

 

Accrued liabilities

 

 

894

 

 

 

(1,105

)

Lease liabilities

 

 

(1,220

)

 

 

(511

)

Other current liabilities

 

 

 

 

 

(9

)

Net cash used in operating activities

 

 

(29,464

)

 

 

(17,669

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(4,229

)

 

 

(1,148

)

Purchases of investments

 

 

(127,302

)

 

 

 

Maturities of investments

 

 

157,107

 

 

 

 

Net cash provided by (used in) investing activities

 

 

25,576

 

 

 

(1,148

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from new investors for issuance of Series C convertible preferred stock

 

 

 

 

 

32,000

 

Proceeds from related party for issuance of Series C convertible preferred stock

 

 

 

 

 

10,000

 

Proceeds from related party capital contribution

 

 

 

 

 

2,549

 

Proceeds from loan from related party

 

 

 

 

 

15,000

 

Proceeds from common stock issuance

 

 

 

 

 

11

 

Proceeds for exercise of stock options

 

 

39

 

 

 

164

 

Payment of employee taxes and exercise costs for shares withheld

 

 

(568

)

 

 

 

Proceeds from purchases under the employee stock purchase plan

 

 

317

 

 

 

 

Payment of deferred offering costs

 

 

 

 

 

(122

)

Net cash provided by (used in) financing activities

 

 

(212

)

 

 

59,602

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(4,100

)

 

 

40,785

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

35,891

 

 

 

1,987

 

Cash, cash equivalents and restricted cash, end of period

 

$

31,791

 

 

$

42,772

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

31,791

 

 

 

42,672

 

Restricted cash

 

 

 

 

 

100

 

Cash, cash equivalents and restricted cash, end of period

 

$

31,791

 

 

$

42,772

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment in accounts payable and accrued liabilities

 

$

3,044

 

 

$

334

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

 

 

$

1,879

 

Issuance costs for Series C convertible preferred stock in accounts payable and accrued liabilities

 

$

 

 

$

218

 

Settlement of related party loan through issuance of Series C convertible preferred

   stock

 

$

 

 

$

20,000

 

 

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

 

5


 

IGM Biosciences, Inc.

Notes to Unaudited Condensed Financial Statements

Note 1. Organization

Description of the Business

IGM Biosciences, Inc. (the Company) was incorporated in the state of Delaware in August 1993 under the name Palingen, Inc. and the name was subsequently changed to IGM Biosciences, Inc. in 2010. The Company’s headquarters are in Mountain View, California. IGM Biosciences, Inc. is a biotechnology company engaged in the development of IgM antibody therapeutics for the treatment of cancer.

In December 2017, the Company established a holding company (Holdco); in April 2019, Holdco was subsequently dissolved and equity interests in Holdco were converted into equity interests in the Company. The information included in these financial statements is consistently presented as if it is that of the Company, even during the interim period when investors held their equity interests in Holdco. Haldor Topsøe Holding A/S is a significant investor in the Company either through its direct equity ownership or indirectly as the majority owner of Holdco, until Holdco was dissolved in April 2019. Haldor Topsøe Holding A/S and Holdco represent a combined entity (Significant Investor) as referenced herein.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial information. The interim results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or for any other future year.

The accompanying interim unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 26, 2020.

Reverse Stock Split

In August 2019, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock, non-voting common stock and convertible preferred stock, each on a 6.6084–for-1 (Reverse Stock Split). The Reverse Stock Split also applied to any outstanding securities or rights convertible into, or exchangeable or exercisable for, common stock, non-voting common stock or convertible preferred stock. The par value of the common stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, non-voting common stock, restricted stock, options to purchase common stock, share data, per share data, convertible preferred stock and related information contained in the condensed financial statements and related footnotes have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. The Reverse Stock Split was effected on August 30, 2019.

Initial Public Offering

On September 17, 2019, the Company’s registration statement on Form S-1 (File No. 333-233365) relating to its initial public offering (IPO) of common stock became effective. The IPO closed on September 20, 2019 at which time the Company issued an aggregate of 12,578,125 shares of its common stock at a price of $16.00 per share, including 1,640,625 shares issued in connection with the full exercise by the underwriters of their option to purchase additional shares of common stock. In addition, immediately prior to the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 10,787,861 shares of common stock and 6,431,205 shares of non-voting common stock. Proceeds from the IPO, net of underwriting discounts and commissions and offering costs were approximately $183.0 million.

6


 

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception and had an accumulated deficit of $143.7 million as of June 30, 2020. As of June 30, 2020, the Company had cash and investments of $203.1 million. The Company has historically financed its operations primarily through the sale of convertible preferred stock and common stock and the issuance of unsecured promissory notes. To date, none of the Company’s product candidates have been approved for sale, and the Company has not generated any revenue since inception. Management expects operating losses to continue and increase for the foreseeable future, as the Company progresses into clinical development activities for its lead product candidates. The Company’s prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the biotechnology industry as discussed below. While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to investments, manufacturing accruals, accrued research and development expenses, fair value of common stock, stock-based compensation, operating lease right-of-use (ROU) assets and liabilities, income tax uncertainties and the valuation of deferred tax assets. The Company bases its estimates on its historical experience and also on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.

Concentration of Credit Risk and Other Risks and Uncertainties

 

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and investments. The Company invests in money market funds, U.S. Treasury securities, corporate bonds, commercial paper, and U.S. government agency securities. The Company maintains bank deposits in federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash and issuers of investments to the extent recorded on the condensed balance sheets. The Company’s investment policy limits investments to money market funds, certain types of debt securities issued by the U.S. Government and its agencies, corporate debt, commercial paper, and places restrictions on the credit ratings, maturities and concentration by type and issuer. The Company has not experienced any losses on its deposits of cash and investments.

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, the Company’s early stages of clinical drug development; uncertainties related to the use of engineered IgM antibodies, which is a novel and unproven therapeutic approach; the Company’s ability to advance product candidates into, and successfully complete, clinical trials on the timelines it projects; the Company’s ability to adequately demonstrate sufficient safety and efficacy of its product candidates; the Company’s ability to enroll patients in its ongoing and future clinical trials; the Company’s ability to successfully manufacture and supply its product candidates for clinical trials; the Company’s ability to obtain additional capital to finance its operations; uncertainties related to the projections of the size of patient populations suffering from the diseases the Company is targeting; the Company’s ability to obtain, maintain, and protect its intellectual property rights; developments relating to the Company’s competitors and its industry, including competing product candidates and therapies; general economic and market conditions; and other risks and uncertainties, including those more fully described in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

The Company’s product candidates will require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

 

7


 

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash and cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and are stated at fair value. Restricted cash consisted of a money market account, which was closed during 2019, that served as collateral for a credit card agreement at one of the Company’s financial institutions.

Investments

The Company’s investments have been classified and accounted for as available-for-sale securities. Fixed income securities consist of U.S. Treasury securities, U.S. government agency securities, corporate debt, and commercial paper. The specific identification method is used to determine the cost basis of fixed income securities sold. These securities are recorded on the condensed balance sheets at fair value. Unrealized gains and losses on these securities are included as a separate component of accumulated other comprehensive income. The cost of investment securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in other income (expense), net. Realized gains and losses and declines in fair value judged to be other-than-temporary, if any, are also included in other income (expense), net. The Company evaluates securities for other-than-temporary impairment at the balance sheet date. Declines in fair value determined to be other-than-temporary are also included in other income (expense), net. The Company classifies its investments as short or long term primarily based on the remaining contractual maturity of the securities.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful economic lives of the related assets.

Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss are recorded to the statement of operations. Repairs and maintenance are charged to operations as incurred.

Research and Development Expenses

The Company expenses research and developments costs as they are incurred. Research and development expenses consist primarily of: (i) personnel-related expenses, including salaries, benefits and stock-based compensation expense, for personnel in the Company’s research and development functions; (ii) fees paid to third parties such as contractors, consultants and contract research organizations (CROs), for conducting clinical trials, animal studies, and other costs related to clinical and preclinical testing; (iii) costs related to acquiring and manufacturing research and clinical trial materials, including under agreements with third parties such as contract manufacturing organizations (CMOs), and other vendors; (iv) costs related to the preparation of regulatory submissions; (v) expenses related to laboratory supplies and services; and (vi) depreciation of equipment and facilities expenses.

Accrued Research and Development Expenses

The Company records accruals for estimated costs of research, preclinical studies, clinical trials, and manufacturing, which are significant components of research and development expenses. A substantial portion of the Company’s ongoing research and development activities is conducted by third-party service providers, CROs and CMOs. The Company’s contracts with CROs generally include pass-through fees such as costs related to animal studies and safety tests, regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The Company’s contracts with the CMOs generally include fees such as initiation fees, reservation fees, verification run costs, materials and reagents expenses, taxes, etc. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. In the event the Company makes advance payments, the payments are recorded as a prepaid expense and recognized as the services are performed.

8


 

As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. The Company’s accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from the Company’s estimates, resulting in adjustments to clinical trial expenses in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial condition and results of operations. Through June 30, 2020, there have been no material differences from the Company’s estimated accrued research and development expenses to actual expenses.

Stock-Based Compensation

The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees, non-employees and directors based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period, and estimates the fair value of share-based awards to employees and directors using the Black-Scholes option-pricing model. If the service inception date precedes the grant date, the Company accrues for the stock-based compensation based on the fair value at the reporting date. The Company accounts for forfeitures as they occur. The fair value of each purchase under the employee stock purchase plan (ESPP) is estimated at the beginning of the offering period using the Black-Scholes option pricing model and recorded as expense over the service period using the straight-line method.

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 (including non-voting common stock) outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.


Leases

Under Accounting Standard Update (ASU) No. 2016-02, Leases (ASC 842) and its associated amendments, the Company determines if an arrangement is a lease at inception. In addition, the Company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership