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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: 001-38470

 

Unity Biotechnology, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-4726035

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

285 East Grand Ave.

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 416-1192

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001

UBX

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 May 7, 2021, the registrant had 54,855,200 shares of common stock outstanding.

 


 

UNITY BIOTECHNOLOGY, INC.

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1

Condensed Financial Statements

2

 

Condensed Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

2

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (unaudited)

3

 

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

4

 

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

5

 

Notes to Condensed Financial Statements (unaudited)

6

Item 2

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

24

Item 3

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4

Controls and Procedures

33

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1

Legal Proceedings

34

Item 1A

Risk Factors

34

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3

Default Upon Senior Securities

80

Item 4

Mine Safety Disclosures

80

Item 5

Other Information

80

Item 6

Exhibits

81

Signatures

82

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

 

Unity Biotechnology, Inc.

Condensed Balance Sheets

(In thousands, except for share amounts and par value)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,842

 

 

$

17,807

 

Short-term marketable securities

 

 

73,617

 

 

 

79,892

 

Prepaid expenses and other current assets

 

 

1,582

 

 

 

3,167

 

Total current assets

 

 

102,041

 

 

 

100,866

 

Property and equipment, net

 

 

11,941

 

 

 

12,627

 

Operating lease right-of-use assets

 

 

22,967

 

 

 

23,509

 

Long-term marketable securities

 

 

9,790

 

 

 

17,871

 

Restricted cash

 

 

1,446

 

 

 

1,446

 

Total assets

 

$

148,185

 

 

$

156,319

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,975

 

 

$

2,558

 

Accrued compensation

 

 

1,839

 

 

 

5,355

 

Accrued and other current liabilities

 

 

6,455

 

 

 

6,550

 

Total current liabilities

 

 

10,269

 

 

 

14,463

 

Operating lease liability, net of current portion

 

 

33,264

 

 

 

34,468

 

Long-term debt, net

 

 

24,699

 

 

 

24,508

 

Total liabilities

 

 

68,232

 

 

 

73,439

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 10,000,000 shares

   authorized; no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares

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

  54,787,709 and 53,253,213 shares issued and outstanding

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

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

435,198

 

 

 

422,379

 

Related party promissory notes for purchase of common stock

 

 

 

 

 

(210

)

Promissory notes for purchase of common stock

 

 

(210

)

 

 

 

Accumulated other comprehensive gain

 

 

15

 

 

 

5

 

Accumulated deficit

 

 

(355,055

)

 

 

(339,299

)

Total stockholders’ equity

 

 

79,953

 

 

 

82,880

 

Total liabilities and stockholders’ equity

 

$

148,185

 

 

$

156,319

 

 

See accompanying notes to the condensed financial statements.

2


Unity Biotechnology, Inc.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

8,717

 

 

$

19,265

 

General and administrative

 

 

6,226

 

 

 

5,953

 

Change in fair value of contingent consideration

 

 

 

 

 

(221

)

Impairment of long-lived assets

 

 

 

 

 

2,159

 

Total operating expenses

 

 

14,943

 

 

 

27,156

 

Loss from operations

 

 

(14,943

)

 

 

(27,156

)

Interest income

 

 

36

 

 

 

527

 

Interest expense

 

 

(775

)

 

 

 

Other expense

 

 

(74

)

 

 

(1,409

)

Net loss

 

 

(15,756

)

 

 

(28,038

)

Other comprehensive gain

 

 

 

 

 

 

 

 

Unrealized gain on marketable debt

  securities

 

 

10

 

 

 

283

 

Comprehensive loss

 

$

(15,746

)

 

$

(27,755

)

Net loss per share, basic and diluted

 

$

(0.29

)

 

$

(0.59

)

Weighted-average number of shares used in

  computing net loss per share, basic and diluted

 

 

54,169,349

 

 

 

47,544,401

 

 

See accompanying notes to the condensed financial statements.


 

3


 

Unity Biotechnology, Inc.

Condensed Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

For the Three Months Ended March 31, 2021

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Related Party

Promissory Notes

for Purchase of

 

 

Promissory Notes

for Purchase of

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Common Stock

 

 

Common Stock

 

 

Gain

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

53,253,213

 

 

$

5

 

 

$

422,379

 

 

$

(210

)

 

$

 

 

$

5

 

 

$

(339,299

)

 

$

82,880

 

Issuance of common stock, net of issuance costs, under

   at-the-market ("ATM") equity offering program

 

 

1,220,629

 

 

 

 

 

 

8,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,892

 

Issuance of common stock upon exercise of stock

   options

 

 

259,019

 

 

 

 

 

 

1,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,183

 

Repurchase of early exercised shares

 

 

(33,370

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,744

 

Vesting of restricted stock units

 

 

88,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclass of promissory notes for purchase of common stock

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

(210

)

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale marketable

   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,756

)

 

 

(15,756

)

Balances at March 31, 2021

 

 

54,787,709

 

 

$

5

 

 

$

435,198

 

 

$

 

 

$

(210

)

 

$

15

 

 

$

(355,055

)

 

$

79,953

 

 

For the Three Months Ended March 31, 2020

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Related Party

Promissory Notes

for Purchase of

 

 

Employee Promissory Notes for Purchase of

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Common Stock

 

 

Common Stock

 

 

Gain

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2019

 

 

47,227,065

 

 

$

5

 

 

$

366,695

 

 

$

(210

)

 

$

(418

)

 

$

90

 

 

$

(245,455

)

 

$

120,707

 

Issuance of common stock, net of issuance costs, under

   at-the-market ("ATM") equity offering program

 

 

1,513,840

 

 

 

 

 

 

8,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,763

 

Issuance of common stock upon exercise of stock

   options

 

 

73,049

 

 

 

 

 

 

249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

249

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,225

 

Common stock issued for services

 

 

43,550

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Unrealized gain on available-for-sale marketable

   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

283

 

 

 

 

 

 

283

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,038

)

 

 

(28,038

)

Balances at March 31, 2020

 

 

48,857,504

 

 

$

5

 

 

$

379,072

 

 

$

(210

)

 

$

(418

)

 

$

373

 

 

$

(273,493

)

 

$

105,329

 

 

See accompanying notes to the condensed financial statements.

 

4


 

Unity Biotechnology, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,756

)

 

$

(28,038

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

757

 

 

 

903

 

Amortization of debt issuance costs

 

 

191

 

 

 

 

Net accretion and amortization of premium and discounts on

   marketable securities

 

 

290

 

 

 

(63

)

Stock-based compensation

 

 

2,744

 

 

 

3,317

 

Non-cash rent expense

 

 

(556

)

 

 

461

 

Impairment of long-lived assets

 

 

 

 

 

2,159

 

Change in fair value of strategic investment

 

 

 

 

 

1,387

 

Change in fair value of contingent consideration

 

 

 

 

 

(221

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,585

 

 

 

123

 

Other long-term assets

 

 

 

 

 

29

 

Accounts payable

 

 

(640

)

 

 

(1,345

)

Accrued compensation

 

 

(3,516

)

 

 

(3,675

)

Accrued liabilities and other current liabilities

 

 

(190

)

 

 

(110

)

Net cash used in operating activities

 

 

(15,091

)

 

 

(25,073

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(38,174

)

 

 

(36,950

)

Maturities of marketable securities

 

 

52,250

 

 

 

40,650

 

Purchase of property and equipment

 

 

(14

)

 

 

(34

)

Net cash provided by investing activities

 

 

14,062

 

 

 

3,666

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock under ATM Offering Programs,

   net of issuance costs

 

 

8,892

 

 

 

8,763

 

Proceeds from issuance of common stock upon exercise of stock options,

   net of repurchases

 

 

1,172

 

 

 

249

 

Other financing cash flows

 

 

 

 

 

(19

)

Net cash provided by financing activities

 

 

10,064

 

 

 

8,993

 

Net increase in cash, cash equivalents and restricted cash

 

 

9,035

 

 

 

(12,414

)

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

 

 

19,253

 

 

 

38,919

 

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

 

$

28,288

 

 

$

26,505

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

584

 

 

$

 

Supplemental Disclosures of Non-Cash Investing and Financing

   Activities

 

 

 

 

 

 

 

 

Property and equipment included in accounts payable and accrued liabilities

 

$

57

 

 

$

302

 

Issuance of shares in settlement of share-based liability

 

$

 

 

$

100

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

27,174

 

 

See accompanying notes to the condensed financial statements.

5


Unity Biotechnology, Inc.

Notes to Condensed Financial Statements

(Unaudited)

 

1. Organization

Description of Business

Unity Biotechnology, Inc. (the “Company”) is a biotechnology company engaged in the research and development of therapeutics to slow, halt, or reverse diseases of aging. The Company devotes substantially all of its time and efforts to performing research and development, raising capital, and recruiting personnel. The Company’s headquarters are located in South San Francisco, California. The Company was incorporated in the State of Delaware in 2009 and operates in one segment.

Liquidity

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had an accumulated deficit of $355.1 million and $339.3 million as of March 31, 2021 and December 31, 2020, respectively. The Company had net losses of $15.8 million and $28.0 million for the three months ended March 31, 2021 and 2020, respectively, and net cash used in operating activities of $15.1 million and $25.1 million for the three months ended March 31, 2021 and 2020, respectively. To date, none of the Company’s drug candidates have been approved for sale, and therefore, the Company has not generated any revenue from contracts with customers and does not expect positive cash flows from operations in the foreseeable future. The Company has financed its operations primarily through private placements of preferred stock and promissory notes, public equity issuances and more recently, from its ATM Offering Programs (as defined below) and the Term Loan Facility (as defined below), and will continue to be dependent upon equity and/or debt financing until the Company is able to generate positive cash flows from its operations. See Note 7, “Term Loan Facility”.

The Company had cash, cash equivalents and marketable securities of $110.2 million as of March 31, 2021. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve (12) months following the date that these condensed financial statements are issued. Management expects operating losses to continue for the foreseeable future. As a result, the Company will need to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives.

2. Summary of Significant Accounting Policies

Basis of Presentation

These condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim reporting.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, the unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.

Unaudited Condensed Financial Statements

The accompanying financial information for the three months ended March 31, 2021 and 2020 are unaudited. The unaudited condensed financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring

6


adjustments, necessary to present fairly the Company’s financial position as of March 31, 2021 and its results of operations for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020. The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other periods.

Use of Estimates

The condensed financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s condensed balance sheets and the amount of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining the fair value of assets and liabilities, contingent consideration liability, the fair value of right-of-use assets and lease liabilities, and stock-based compensation. Actual results could differ from such estimates or assumptions.

 

Segments

 

The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of 90 days or less from the date of purchase to be cash equivalents. Cash equivalents primarily include money market funds that invest in U.S. Treasury obligations which are stated at fair value.

The Company has issued letters of credit under lease agreements which have been collateralized. This cash is classified as noncurrent restricted cash on the balance sheet based on the term of the underlying lease.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the balance sheets that sum to the total of the same amounts shown in the condensed statements of cash flows (in thousands).  

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Cash and cash equivalents

 

$

26,842

 

 

$

17,807

 

Restricted cash

 

 

1,446

 

 

 

1,446

 

Total cash, cash equivalents and restricted cash

 

$

28,288

 

 

$

19,253

 

 

Marketable Securities

The Company generally invests its excess cash in investment grade, short to intermediate-term, fixed income securities. Such investments are considered available-for-sale debt securities and reported at fair value with unrealized gains and losses included as a component of stockholders’ equity. Marketable securities with original maturities of greater than 90 days from the date of purchase but less than one year from the balance sheet date that are available to be converted into cash to fund current operations are classified as short-term, while marketable securities with maturities in one year or beyond one year from the balance sheet date are classified as long-term. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the statements of operations and comprehensive loss. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on marketable securities are included in other expense. The cost of securities sold is determined using the specific identification method.

The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends,

7


implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for holding the marketable security. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value.

Fair Value Measurements

The Company’s financial instruments during the periods presented consist of cash and cash equivalents, restricted cash, marketable securities, prepaid expenses and other current assets, accounts payable, accrued compensation, accrued and other current liabilities, and long-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment.

Concentrations of Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. Substantially all of the Company’s cash and cash equivalents and restricted cash is deposited in accounts with financial institutions that management believes are of high credit quality. Such deposits have and will continue to exceed federally insured limits. The Company maintains its cash with accredited financial institutions and accordingly, such funds are subject to minimal credit risk. The Company has not experienced any losses on its cash deposits.

The Company’s investment policy limits investments in marketable securities to certain types of securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, restricted cash and marketable securities and issuers of marketable securities to the extent recorded on the balance sheets. As of March 31, 2021, the Company had no off-balance sheet concentrations of credit risk.

The Company depends on third-party suppliers for key raw materials used in its manufacturing processes and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate raw materials.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To date, the Company’s operations have not been significantly impacted by the COVID-19 pandemic. However, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and results of operations, including ongoing and planned clinical studies. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. The Company continues to monitor the impact the COVID-19 pandemic may have on the clinical development of its product candidates, including potential delays or modifications to its ongoing and planned studies.

Research and Development Expenses and Accruals

Costs related to research, design and development of drug candidates are charged to research and development expense as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses for personnel contributing to research and development activities, laboratory supplies, outside services, licenses acquired to be used in research and development, manufacturing of clinical material, pre-clinical testing and consultants and allocated overhead, including rent, equipment, depreciation and utilities. Research and development costs are expensed as incurred unless there is an alternative future use in other research and development projects. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Such payments are evaluated for current or long-term classification based on when they will be realized.

As part of the process of preparing its condensed financial statements, the Company is required to estimate expenses resulting from its obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. 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 under such contracts. The Company’s objective is to reflect the appropriate expenses in its

8


condensed financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the production of clinical trial materials or based on progression of the clinical trial, as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of goods and services, or the services completed.

During the course of a clinical trial, the rate of expense recognition is adjusted if actual results differ from the Company’s estimates. The Company makes estimates of accrued expenses as of each balance sheet date in its condensed financial statements based on the facts and circumstances known at that time. The clinical trial accrual is dependent in part upon the timely and accurate reporting of contract research organizations, contract manufacturers and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting changes in estimates in any particular period. Adjustments to prior period estimates have not been material for the three months ended March 31, 2021 and 2020.

Contingent Consideration Liability

The Company has entered into and may continue to enter into, license agreements to access and utilize certain technology. In each case, the Company evaluates whether the license agreement results in the acquisition of an asset or a business. To date, all of the Company’s license agreements have been considered acquisitions of assets and none have been considered acquisitions of a business. For license agreements that are considered to be acquisitions of assets, the upfront payments for such license, as well as any future milestone payments made before product approval, are immediately recognized as research and development expense when due, provided there is no alternative future use of the rights in other research and development projects. Some of the Company’s license agreements also include contingent consideration in the form of an obligation to issue additional shares of the Company’s common stock based on the achievement of certain milestones. The Company assesses on a continuous basis whether (i) such contingent consideration meets the definition of a derivative, and (ii) whether it can be classified within stockholders’ equity. Until such time when equity classification criteria are met or the milestones expire, the contingent consideration is classified as a liability. The derivative related to this contingent consideration is measured at fair value as of each balance sheet date with the related change in fair value being reflected in operating expenses. Upon a reassessment event that results in the contingent consideration no longer meeting the definition of a derivative and/or meeting equity classification criteria, the final change in fair value of the instrument is recorded within operating expenses and the liability is reclassified into stockholders’ equity.

Property and Equipment, Net

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation and amortization begin at the time the asset is placed in service. Maintenance and repairs are charged to expense as incurred and costs of improvement are capitalized.

Leases

The Company determines whether the arrangement is or contains a lease at the inception of the arrangement and if so, whether such a lease is classified as a financing lease or an operating lease. Operating leases are included in operating lease right-of-use assets, (“ROU assets”), operating lease liabilities, net of current portion, and accrued and other current liabilities on the Company’s condensed balance sheets. The Company has elected not to recognize on the condensed balance sheets leases with terms of one year or less. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and are considered long-lived assets for purposes of identifying, recognizing and measuring impairment. Operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the expected lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made or incentives received and impairment charges if the Company determines the ROU asset is impaired and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the

9


lease when it is reasonably certain that the Company will exercise such options to extend or terminate the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.  The lease components resulting in a ROU asset have been recorded on the condensed balance sheets and are amortized as lease expense on a straight-line basis over the lease term.

The Company has subleased a portion of its Brisbane, California leased facility under an agreement considered to be an operating lease according to ASC 842. The Company has not been legally released from its primary obligations under the original lease and therefore it continues to account for the original lease as it did before commencement of the sublease. The Company records both fixed and variable payments received from the sublessee in its statements of operations on a straight-line basis as an offset to rent expense.

The Company does not have any material financing leases.

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (“FFCR Act”), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous tax-related provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

On June 29, 2020 California State Assembly Bill 85 (the “Trailer Bill”) was enacted which suspends the use of California net operating loss (“NOL”) deductions and certain tax credits, including research and development tax credits, for the 2020, 2021, and 2022 tax years.

In December 2020, the Consolidated Appropriations Act, 2021 (the “CAA”) was signed into law. The CAA included additional funding through tax credits as part of its economic package for 2021.

The FFCR Act, CARES Act, Trailer Bill and CAA did not have a material impact on the Company’s condensed financial statements as of March 31, 2021; however, the Company continues to examine the impacts the FFCR Act, CARES Act and Trailer Bill may have on its business, results of operations, financial condition and liquidity.

Net Loss per Common Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. 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 as the effects of potentially dilutive securities are antidilutive. The calculation of diluted earnings (loss) per share also requires that, to the extent the presumed issuance of additional shares as contingent consideration is dilutive to earnings (loss) per share for the period, adjustments to net income or net loss used in the calculation are required to remove the change in fair value of the contingent consideration liability for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares. In all periods presented, the Company’s outstanding stock options, convertible preferred stock, early exercised common stock subject to future vesting, restricted stock accounted for as options common and preferred stock warrants and presumed issuance of additional shares as contingent consideration were excluded from the calculation of diluted net loss per share because their effects were antidilutive.

Comprehensive Loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity (deficit) that are excluded from net loss, primarily unrealized losses on the Company’s marketable securities.

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Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The ASU contains improvements to the Codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section of the Codification. The ASU also improves various topics in the Codification so that entities can apply guidance more consistently on codifications that are varied in nature where the original guidance may have been unclear. The amendments in ASU 2020-10 are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2020-10 to have a material impact on its condensed financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06 , Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity. ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its condensed financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This standard is effective for the Company for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of adoption on its condensed financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments. ASU 2016-13 changes the impairment model for certain financial instruments. The new model is a forward-looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. In October 2019, the FASB voted to delay the effective date of this standard. Topic 326 will be effective for the Company for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the effect that this ASU will have on its condensed financial position, results of operations, and disclosures.

3. Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

 

Level 1: Quoted prices in active markets for identical instruments

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Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)

 

Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)

The carrying amounts of financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other current assets, accounts payable, accrued compensation, accrued and other current liabilities approximate the related fair values due to the short maturities of these instruments. As the long-term debt is subject to variable interest rates that are based on market rates which are regularly reset, considering level 2 inputs, the Company believes the carrying value of the long-term debt approximates its fair value.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows (in thousands):

 

 

 

March 31, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

23,040

 

 

$

23,040

 

 

$

 

 

$

 

Total cash equivalents

 

 

23,040

 

 

 

23,040

 

 

 

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

 

17,561

 

 

 

 

 

 

17,561

 

 

 

 

U.S. treasuries

 

 

56,056

 

 

 

 

 

 

56,056

 

 

 

 

Total short-term marketable securities

 

 

73,617

 

 

 

 

 

 

73,617

 

 

 

 

Long-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

8,789

 

 

 

 

 

 

8,789

 

 

 

 

U.S. government debt securities

 

 

1,001

 

 

 

 

 

 

1,001

 

 

 

 

Total long-term marketable securities

 

 

9,790