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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from      to

Commission File Number: 001-39045

 

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 April 30, 2021, the registrant had 25,594,748 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 Stockholders’ Equity

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

19

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

67

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; 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 undertake no obligation to publicly update or revise any forward-looking statements contained herein, 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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

252,376

 

 

$

241,080

 

Short-term investments

 

 

79,298

 

 

 

125,189

 

Prepaid expenses and other current assets

 

 

9,503

 

 

 

7,003

 

Total current assets

 

 

341,177

 

 

 

373,272

 

Property, plant and equipment, net

 

 

25,653

 

 

 

23,226

 

Operating lease right-of-use asset

 

 

12,758

 

 

 

11,586

 

Other assets

 

 

886

 

 

 

548

 

Total assets

 

$

380,474

 

 

$

408,632

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,661

 

 

$

7,924

 

Accrued liabilities

 

 

5,826

 

 

 

6,649

 

Lease liabilities, current

 

 

3,331

 

 

 

2,667

 

Total current liabilities

 

 

14,818

 

 

 

17,240

 

Lease liabilities, non-current

 

 

10,046

 

 

 

9,577

 

Total liabilities

 

 

24,864

 

 

 

26,817

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000,000,000 shares authorized as of March 31, 2021 and

   December 31, 2020;  25,581,212 and 25,542,931 shares issued and outstanding as of

   March 31, 2021 and December 31, 2020, respectively

 

 

255

 

 

 

255

 

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

   March 31, 2021 and December 31, 2020; 6,431,205 shares issued and outstanding as of

   March 31, 2021 and December 31, 2020

 

 

64

 

 

 

64

 

Additional paid-in-capital

 

 

575,481

 

 

 

570,030

 

Accumulated other comprehensive income

 

 

14

 

 

 

26

 

Accumulated deficit

 

 

(220,204

)

 

 

(188,560

)

Total stockholders’ equity

 

 

355,610

 

 

 

381,815

 

Total liabilities and stockholders’ equity

 

$

380,474

 

 

$

408,632

 

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

23,572

 

 

$

14,583

 

General and administrative

 

 

8,134

 

 

 

3,990

 

Total operating expenses

 

 

31,706

 

 

 

18,573

 

Loss from operations

 

 

(31,706

)

 

 

(18,573

)

Other income, net

 

 

62

 

 

 

949

 

Net loss

 

$

(31,644

)

 

$

(17,624

)

Net loss per share, basic and diluted

 

$

(0.95

)

 

$

(0.58

)

Weighted-average common shares outstanding, basic and diluted

 

 

33,328,994

 

 

 

30,491,463

 

 

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 Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(31,644

)

 

$

(17,624

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investments

 

 

(12

)

 

 

162

 

Comprehensive loss

 

$

(31,656

)

 

$

(17,462

)

 

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

 

 

3


 

IGM Biosciences, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2020

 

 

25,542,931

 

 

$

255

 

 

 

6,431,205

 

 

$

64

 

 

$

570,030

 

 

$

26

 

 

$

(188,560

)

 

$

381,815

 

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

 

 

37,065

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

 

 

 

(53

)

Issuance of fully vested restricted stock units

 

 

1,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,504

 

 

 

 

 

 

 

 

 

5,504

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,644

)

 

 

(31,644

)

Balance—March 31, 2021

 

 

25,581,212

 

 

$

255

 

 

 

6,431,205

 

 

$

64

 

 

$

575,481

 

 

$

14

 

 

$

(220,204

)

 

$

355,610

 

 

 

 

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

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

 

 

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

 

4


 

IGM Biosciences, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(31,644

)

 

$

(17,624

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

673

 

 

 

222

 

Stock-based compensation expense

 

 

5,504

 

 

 

1,323

 

Net amortization of premiums and accretion of discounts on investments

 

 

195

 

 

 

(306

)

Non-cash lease expense

 

 

672

 

 

 

629

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,500

)

 

 

735

 

Other assets

 

 

(338

)

 

 

 

Income tax receivable

 

 

 

 

 

35

 

Accounts payable

 

 

1,045

 

 

 

(1,383

)

Accrued liabilities

 

 

(1,158

)

 

 

585

 

Lease liabilities

 

 

(711

)

 

 

(603

)

Net cash used in operating activities

 

 

(28,262

)

 

 

(16,387

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(6,073

)

 

 

(1,705

)

Purchases of investments

 

 

(12,989

)

 

 

(41,131

)

Maturities of investments

 

 

58,673

 

 

 

71,365

 

Net cash provided by investing activities

 

 

39,611

 

 

 

28,529

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of employee taxes and exercise costs for shares withheld

 

 

(418

)

 

 

 

Proceeds from exercise of stock options

 

 

365

 

 

 

22

 

Net cash provided by (used in) financing activities

 

 

(53

)

 

 

22

 

Net increase in cash and cash equivalents

 

 

11,296

 

 

 

12,164

 

Cash and cash equivalents, beginning of period

 

 

241,080

 

 

 

35,891

 

Cash and cash equivalents, end of period

 

$

252,376

 

 

$

48,055

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

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

 

$

856

 

 

$

280

 

Issuance costs for public offerings in accounts payable

 

$

269

 

 

$

 

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

 

$

 

 

$

40

 

 

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 multiple diseases.

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, 2020 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 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 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, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021.

Follow-on Offering

On November 12, 2020, the Company’s registration statement on Form S-3 (File No. 333-249863) was declared effective by the Securities and Exchange Commission (the SEC). On December 11, 2020, pursuant to the Form S-3 that was filed, the Company completed a public offering (2020 Public Offering) of 1,221,224 shares of its common stock, which included the exercise of the underwriters’ option to purchase 333,333 shares in full, and pre-funded warrants to purchase an additional 1,334,332 shares of common stock (Pre-funded Warrants). The Pre-funded Warrants were issued to two separate related party affiliates. The public offering price of common stock was $90.00 per share and the public offering price of each pre-funded warrant was $89.99, with each pre-funded warrant having an exercise price of $0.01. After deducting underwriting discounts and commissions and offering costs paid or payable by the Company of approximately $14.6 million, the net proceeds from the 2020 Public Offering were approximately $215.4 million.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception and had an accumulated deficit of $220.2 million as of March 31, 2021. As of March 31, 2021, the Company had cash and investments of $331.7 million. Management believes that the existing financial resources are sufficient to continue operating activities at least one year past the issuance date of these financial statements. The Company has historically financed its operations primarily the sale of common stock and pre-funded warrants in its public offerings, the sale of convertible preferred 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.

6


 

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 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 (FDA) 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.

 

Cash and Cash Equivalents

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.

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, net. Realized gains and losses and declines in fair value judged to be other-than-temporary, if any, are also included in other income, 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, net. The Company classifies its investments as short or long term primarily based on the remaining contractual maturity of the securities.

7


 

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 statements of operations. Repairs and maintenance are charged to the statements of operations as incurred.

Research and Development Expenses

The Company expenses research and development 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; (vi) fees under license agreements where no alternative future use exists; and (vii) 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.

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 the Company 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 March 31, 2021, there have been no material differences from the Company’s estimated accrued research and development expenses to actual expenses.

Acquired In-Process Research and Development Expenses

The Company has entered into agreements (See Note 5 – License Agreements) with third parties to acquire the rights to develop and potentially commercialize certain products. Such agreements generally require an initial payment by the Company when the contract is executed. The purchase of license rights for use in research and development activities, including product development, are expensed as incurred and are classified as research and development expense. Additionally, the Company may be obligated to make future royalty payments in the event the Company commercializes the technology and achieves a certain sales volume. In accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 730, “Research and Development”, (ASC 730), expenditures for research and development, including upfront licensing fees and milestone payments associated with products not yet been approved by the FDA, are charged to research and development expense as incurred. Future contract milestone and /or royalty payments will be recognized as expense when achievement of the milestone is determined to be probable and the amount of the corresponding milestone can be objectively estimated.

8


 

Contingent Considerations

Certain agreements (See Note 5 – License Agreements) the Company enters into involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved.  Asset acquisitions are accounted for using a cost accumulation and allocation model and the cost of the acquisition is allocated to the assets acquired and liabilities assumed. Contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated.

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 and Pre-funded Warrants) outstanding during the period, without consideration for common stock equivalents. Shares of common stock into which the Pre-funded Warrants may be exercised are considered outstanding for the purposes of computing net loss per share because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date. 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 of the underlying asset to the lessee at the end of the lease term, (2) whether the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of March 31, 2021, the Company's lease population consisted of real estate. As of March 31, 2021, the Company did not have finance leases.

Operating leases are included in operating lease right-of-use (ROU) assets, lease liabilities, current, and lease liabilities, non-current in the Company’s condensed balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The Company determines the incremental borrowing rate based on an analysis of corporate bond yields with a credit rating similar to the Company. The determination of the Company’s incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The Company believes that the estimates used in determining the incremental borrowing rate are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in the estimated amounts to vary. The operating lease ROU assets also include adjustments for prepayments and accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease cost primarily relates to common area maintenance charges. Lease agreements that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on the Company’s condensed balance sheet.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this ASU as of January 1, 2021 and the adoption had no impact on its financial statements and related disclosures.

9


 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. This ASU also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of a credit loss or other factors. An entity will recognize an allowance for credit losses on available-for-sale debt securities rather than an other-than-temporary impairment that reduces the cost basis of the investment. This ASU is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this standard on its financial statements and related disclosures.

Note 3. Fair Value Measurement

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date.

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

Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Financial instruments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy. As of March 31, 2021 and December 31, 2020, there were no financial instruments classified as Level 3.

10


 

The following tables set forth the fair value of the Company’s financial assets, which consist of investments measured and recognized at fair value (in thousands):

 

 

 

 

 

March 31, 2021

 

 

 

Fair Value

Hierarchy Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets included within cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

239,036

 

 

$

 

 

$

 

 

$

239,036

 

U.S. government agency securities

 

Level 2

 

 

7,000

 

 

 

 

 

 

 

 

 

7,000

 

Commercial paper

 

Level 2

 

 

4,999

 

 

 

 

 

 

 

 

 

4,999

 

Financial assets included within short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

57,746

 

 

 

7

 

 

 

 

 

 

57,753

 

Commercial paper

 

Level 2

 

 

15,989

 

 

 

 

 

 

(1

)

 

 

15,988

 

U.S. government agency securities

 

Level 2

 

 

5,549

 

 

 

8

 

 

 

 

 

 

5,557

 

Total

 

 

 

$

330,319

 

 

$

15

 

 

$

(1

)

 

$

330,333

 

 

 

 

 

 

December 31, 2020

 

 

 

Fair Value

Hierarchy Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets included within cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

135,257

 

 

$

 

 

$

 

 

$

135,257

 

U.S. Treasury securities

 

Level 1

 

 

73,494

 

 

 

1

 

 

 

 

 

 

73,495

 

U.S. government agency securities

 

Level 2

 

 

30,783

 

 

 

 

 

 

(1

)

 

 

30,782

 

Financial assets included within short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

Level 1

 

 

71,795

 

 

 

2

 

 

 

 

 

 

71,797

 

Corporate bonds

 

Level 2

 

 

6,876

 

 

 

1

 

 

 

 

 

 

6,877

 

Commercial paper

 

Level 2

 

 

2,997

 

 

 

 

 

 

 

 

 

2,997

 

U.S. government agency securities

 

Level 2

 

 

43,495

 

 

 

23

 

 

 

 

 

 

43,518

 

Total

 

 

 

$

364,697

 

 

$

27

 

 

$

(1

)

 

$

364,723

 

 

 

The following table presents the contractual maturities of the Company’s investments as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Due in less than one year

 

$

330,333

 

 

$

364,723

 

Due in more than one year

 

 

 

 

 

 

Total

 

$

330,333

 

 

$

364,723

 

 

11


 

 

Note 4. Balance Sheet Components

Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Laboratory equipment

 

$

8,505

 

 

$

7,125

 

Office equipment

 

 

332

 

 

 

212

 

Leasehold improvements

 

 

12,913

 

 

 

253

 

Construction in progress

 

 

6,865

 

 

 

17,925

 

Total property, plant and equipment, gross