10-Q
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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, 2024

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

As of May 10, 2024, the registrant had 16,789,577 shares of common stock outstanding.

 


 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “if,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” “until,” and similar expressions or variations. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our plans to develop and commercialize UBX1325 or any future product candidates;
our expectations regarding the potential benefits, activity, effectiveness, and safety of our drug candidates;
our ongoing and planned clinical trials, including expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies;
our predictions about the results of future or ongoing clinical trials, including predictions based on results from a clinical trial;
our preclinical, clinical and regulatory development plans for our drug candidates, including the timing or likelihood of regulatory filings and approvals for our drug candidates;
our expectations with regard to our ability to acquire, discover and develop additional drug candidates and advance such drug candidates into, and successfully complete, clinical studies;
our expectations regarding the potential market size and size of the potential patient populations for our drug candidates, if approved for commercial use;
our intentions and our ability to establish collaborations and/or partnerships;
the timing and amount of any milestone payments we are obligated to make pursuant to our existing license agreements and any future license or collaboration agreements that we may enter into;
our commercialization, marketing and manufacturing capabilities and expectations;
our intentions with respect to the commercialization of our drug candidates;
the pricing and reimbursement of our drug candidates, if approved;
the implementation of our business model and strategic plans for our business and drug candidates, including additional indications that we may pursue;
the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates, including the projected terms of patent protection;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing, and our ability to obtain additional capital;
our ability to maintain compliance with the minimum required closing bid price and the other standards for continued listing on the Nasdaq Global Select Market;
our ability to remediate a material weakness in our internal control over financial reporting;
developments and projections relating to our competitors and our industry, including competing therapies;
our financial performance;

2


 

macroeconomic trends and uncertainty, including high interest rates, rising inflation and the potential for local and/or global economic recession; and
other risks and uncertainties, including those listed under the caption “Risk Factors”.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that 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. We discuss these risks in greater detail in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

 

3


 

Risk Factor Summary

 

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or SEC, before making investment decisions regarding our common stock.

We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future, which, together with our limited operating history, make it difficult to assess our future viability.
We will require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, other operations or commercialization efforts.
In recent fiscal periods, our financial condition has raised substantial doubt as to our ability to continue as a going concern.
We may not be able to maintain compliance with the continued listing requirements of Nasdaq and, if so, we would be subject to delisting.
Our core therapeutic approach to slow, halt, or reverse diseases of aging is based on our understanding of cellular senescence. Utilizing senolytic molecules to treat diseases of aging is a novel therapeutic approach, which exposes us to unforeseen risks and makes it difficult to predict the time and cost of drug development and potential for regulatory approval.
Our business is currently dependent on the successful development and regulatory approval of UBX1325.
Other than UBX1325, all of our other programs are preclinical and face significant development risk.
We rely on third-party suppliers to manufacture preclinical and clinical supplies of our drug candidates and we intend to continue to rely on third parties to produce such preclinical and clinical supplies as well as commercial supplies of any approved product. The loss of these suppliers, costs and availability of inputs or supplies, supply issues, or the failure of those manufacturers or suppliers to comply with applicable regulatory requirements or to provide us with sufficient quantities at acceptable quality levels or prices, or at all, would materially and adversely affect our business.
We face significant competition in an environment of rapid technological and scientific change, and our drug candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration. Most of our competitors have significantly greater resources than we do, and we may not be able to successfully compete.
Our senolytic medicine platform and any future products that we commercialize could be alleged to infringe patent rights and other proprietary rights of third parties, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages and/or limit our ability to commercialize our products. Even if we obtain regulatory approval for a drug candidate, our products will remain subject to regulatory scrutiny.
We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our results of operations and financial condition accurately. In the future, we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material errors in our financial statements or cause us to fail to meet our period reporting obligations.

 

4


 

UNITY BIOTECHNOLOGY, INC.

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1

Condensed Financial Statements

6

 

Condensed Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

6

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023 (unaudited)

7

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

8

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

9

 

Notes to Condensed Financial Statements (unaudited)

10

Item 2

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

20

Item 3

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4

Controls and Procedures

30

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1

Legal Proceedings

32

Item 1A

Risk Factors

32

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 3

Default Upon Senior Securities

73

Item 4

Mine Safety Disclosures

73

Item 5

Other Information

73

Item 6

Exhibits

74

Signatures

75

 

 

5


 

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, 2024

 

 

December 31, 2023(1)

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,430

 

 

$

19,803

 

Short-term marketable securities

 

 

28,902

 

 

 

23,398

 

Prepaid expenses and other current assets

 

 

2,187

 

 

 

3,404

 

Total current assets

 

 

38,519

 

 

 

46,605

 

Property and equipment, net

 

 

4,851

 

 

 

5,082

 

Operating lease right-of-use assets

 

 

12,441

 

 

 

12,981

 

Long-term marketable securities

 

 

1,952

 

 

 

 

Long-term restricted cash

 

 

896

 

 

 

896

 

Other long-term assets

 

 

204

 

 

 

126

 

Total assets

 

$

58,863

 

 

$

65,690

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,398

 

 

$

1,380

 

Accrued compensation

 

 

1,154

 

 

 

1,841

 

Accrued and other current liabilities

 

 

5,180

 

 

 

4,619

 

Total current liabilities

 

 

7,732

 

 

 

7,840

 

Operating lease liability, net of current portion

 

 

22,606

 

 

 

23,539

 

Warrant liability

 

 

4,537

 

 

 

5,913

 

Total liabilities

 

 

34,875

 

 

 

37,292

 

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, 2024 and December 31, 2023;
  
16,786,647 and 16,784,969 shares issued and outstanding
  as of March 31, 2024 and December 31, 2023, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

514,167

 

 

 

512,773

 

Accumulated other comprehensive loss

 

 

(38

)

 

 

(24

)

Accumulated deficit

 

 

(490,143

)

 

 

(484,353

)

Total stockholders’ equity

 

 

23,988

 

 

 

28,398

 

Total liabilities and stockholders’ equity

 

$

58,863

 

 

$

65,690

 

 

(1) The balance sheet as of December 31, 2023 is derived from the audited financial statements as of that date.

 

 

See accompanying notes to the condensed financial statements.

6


 

Unity Biotechnology, Inc.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,721

 

 

 

5,760

 

General and administrative

 

 

3,878

 

 

 

4,798

 

Total operating expenses

 

 

7,599

 

 

 

10,558

 

Loss from operations

 

 

(7,599

)

 

 

(10,558

)

Interest income

 

 

513

 

 

 

855

 

Interest expense

 

 

 

 

 

(1,002

)

Gain (loss) on warrant liability

 

 

1,376

 

 

 

5,491

 

Other income (expense), net

 

 

(80

)

 

 

(65

)

Net loss

 

 

(5,790

)

 

 

(5,279

)

Other comprehensive (loss) gain

 

 

 

 

 

 

Unrealized gain (loss) on marketable debt securities

 

 

(14

)

 

 

101

 

Comprehensive loss

 

$

(5,804

)

 

$

(5,178

)

Net loss per share, basic and diluted

 

$

(0.34

)

 

$

(0.37

)

Weighted-average number of shares used
in computing net loss per share, basic and
diluted
(1)

 

 

16,785,090

 

 

 

14,312,887

 

 

 

See accompanying notes to the condensed financial statements.

7


 

Unity Biotechnology, Inc.

Condensed Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2023

 

 

16,784,969

 

 

$

2

 

 

$

512,773

 

 

$

(24

)

 

$

(484,353

)

 

$

28,398

 

Repurchase of early exercised shares

 

 

(3,336

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

5,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,394

 

 

 

 

 

 

 

 

 

1,394

 

Unrealized loss on available-for-sale marketable
   securities

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,790

)

 

 

(5,790

)

Balances at March 31, 2024

 

 

16,786,647

 

 

$

2

 

 

$

514,167

 

 

$

(38

)

 

$

(490,143

)

 

$

23,988

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

14,215,302

 

 

$

1

 

 

$

500,827

 

 

$

(251

)

 

$

(444,493

)

 

$

56,084

 

Issuance of common stock, net of issuance costs,
   under at-the-market (“ATM”) offering program

 

 

106,781

 

 

 

 

 

 

274

 

 

 

 

 

 

 

 

 

274

 

Vesting of restricted stock units

 

 

37,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,175

 

 

 

 

 

 

 

 

 

2,175

 

Unrealized gain on available-for-sale marketable securities

 

 

 

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

101

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,279

)

 

 

(5,279

)

Balances at March 31, 2023

 

 

14,359,214

 

 

$

1

 

 

$

503,276

 

 

$

(150

)

 

$

(449,772

)

 

$

53,355

 

 

 

 

See accompanying notes to the condensed financial statements.

8


 

Unity Biotechnology, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(5,790

)

 

$

(5,279

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

227

 

 

 

329

 

Amortization of debt issuance costs

 

 

 

 

 

314

 

Net accretion and amortization of premium and discounts on
   marketable securities

 

 

(261

)

 

 

(433

)

Gain on disposal of property and equipment

 

 

(16

)

 

 

 

Stock-based compensation

 

 

1,394

 

 

 

2,175

 

Non-cash rent expense

 

 

(300

)

 

 

(270

)

(Gain) loss on warrant liability

 

 

(1,376

)

 

 

(5,491

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,217

 

 

 

(1,249

)

Other long-term assets

 

 

(78

)

 

 

23

 

Accounts payable

 

 

19

 

 

 

(320

)

Accrued compensation

 

 

(687

)

 

 

(1,037

)

Accrued liabilities and other current liabilities

 

 

468

 

 

 

(78

)

Net cash used in operating activities

 

 

(5,183

)

 

 

(11,316

)

Investing activities

 

 

 

 

 

 

Purchase of marketable securities

 

 

(13,459

)

 

 

(5,973

)

Maturities of marketable securities

 

 

6,250

 

 

 

27,251

 

Sale of property and equipment

 

 

19

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(7,190

)

 

 

21,278

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock under ATM offering program,
   net of issuance costs

 

 

 

 

 

274

 

Net cash provided by financing activities

 

 

 

 

 

274

 

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

 

 

(12,373

)

 

 

10,236

 

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

 

 

20,699

 

 

 

13,632

 

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

 

$

8,326

 

 

$

23,868

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

680

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,430

 

 

$

22,972

 

Restricted cash

 

 

896

 

 

 

896

 

Total cash, cash equivalents and restricted cash

 

$

8,326

 

 

$

23,868

 

 

See accompanying notes to the condensed financial statements.

9


 

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 and raising capital. The Company’s headquarters are located in South San Francisco, California. The Company was incorporated in the State of Delaware in 2009.

Liquidity

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. 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 $490.1 million and $484.4 million as of March 31, 2024 and December 31, 2023, respectively. The Company had net losses of $5.8 million and $5.3 million for the three months ended March 31, 2024 and 2023, respectively, and net cash used in operating activities of $5.2 million and $11.3 million for the three months ended March 31, 2024 and 2023, respectively. To date, none of the Company’s drug product candidates have been approved for sale, and therefore, the Company has not generated any product revenue 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, an Equity Purchase Agreement, the sale of common stock and warrants under a Follow-On Offering and the Inducement Offer 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.

The Company anticipates operating losses and negative operating cash flows to continue for the foreseeable future. The Company had cash, cash equivalents, and marketable securities of $38.3 million as of March 31, 2024. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing. If sufficient funds on acceptable terms are not available when needed, the Company could be further 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, or the Company may be forced to liquidate assets where possible, or to cease operations or file for bankruptcy protection. The Company expects that its cash, cash equivalents, and marketable securities will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited condensed financial statements are filed with the Securities and Exchange Commission ("SEC").

 

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 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, 2023 filed with the SEC.

10


 

Unaudited Condensed Financial Statements

The accompanying financial information for the three months ended March 31, 2024 and 2023 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 adjustments, necessary to present fairly the Company’s financial position as of March 31, 2024 and its results of operations for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023. 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, the fair value of right-of-use assets and lease liabilities, and stock-based compensation. Actual results could differ from such estimates or assumptions.

Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. As liability-classified financial instruments are initially and subsequently carried at fair value, the Company’s financial results will reflect the volatility in these estimate and assumption changes. Changes in estimated fair value are recognized as a component of "Other expense, net" in the Statements of Operations and Comprehensive Loss.

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.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

There have been no new accounting pronouncements issued or effective that are expected to have a material impact on the Company's condensed financial statements.

3. Fair Value Measurements

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.

11


 

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

 

 

 

March 31, 2024

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,327

 

 

$

6,327

 

 

$

 

 

$

 

Total cash equivalents

 

 

6,327

 

 

 

6,327

 

 

 

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

12,451

 

 

 

 

 

 

12,451

 

 

 

 

U.S. government debt securities

 

 

16,451

 

 

 

 

 

 

16,451

 

 

 

 

Total short-term marketable securities

 

 

28,902

 

 

 

 

 

 

28,902

 

 

 

 

Long-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

1,952

 

 

 

 

 

 

1,952

 

 

 

 

Total long-term marketable securities

 

 

1,952

 

 

 

 

 

 

1,952

 

 

 

 

Restricted cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

896

 

 

 

896

 

 

 

 

 

 

 

Total restricted cash equivalents

 

 

896

 

 

 

896

 

 

 

 

 

 

 

Total assets subject to fair value measurements

 

$

38,077

 

 

$

7,223

 

 

$

30,854

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant Liability

 

$

4,537

 

 

$

 

 

$

 

 

$

4,537

 

Total liabilities subject to fair value measurements
   on a recurring basis

 

$

4,537

 

 

$

 

 

$

 

 

$

4,537

 

 

 

 

December 31, 2023

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,864

 

 

$

12,864

 

 

$

 

 

$

 

U.S. treasuries

 

 

2,989

 

 

 

 

 

 

2,989

 

 

 

 

Total cash equivalents

 

 

15,853

 

 

 

12,864

 

 

 

2,989

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

7,849

 

 

 

 

 

 

7,849

 

 

 

 

U.S. government debt securities

 

 

15,549

 

 

 

 

 

 

15,549

 

 

 

 

Total short-term marketable securities

 

 

23,398

 

 

 

 

 

 

23,398

 

 

 

 

Restricted cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

896

 

 

 

896

 

 

 

 

 

 

 

Total restricted cash equivalents

 

 

896

 

 

 

896

 

 

 

 

 

 

 

Total assets subject to fair value measurements

 

$

40,147

 

 

$

13,760

 

 

$

26,387

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant Liability

 

$

5,913

 

 

$

 

 

$

 

 

$

5,913

 

Total liabilities subject to fair value measurements
   on a recurring basis

 

 

5,913

 

 

 

 

 

 

 

 

 

5,913

 

The Company estimates the fair value of its money market funds, U.S. treasuries, and U.S. government debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

12


 

August 2022 Warrants ("Existing Warrants")

The common stock warrants are classified as a liability on the Balance Sheets and are measured at fair value with the change in fair value recorded within “Gain (loss) on warrant liability” on the Statement of Operations and Comprehensive Loss. The estimated fair value of the outstanding common warrants was $2.1 million and $2.8 million as of March 31, 2024 and December 31, 2023, respectively.

The Company estimates the fair value of its warrant liability using a Monte Carlo simulation model based on significant inputs not observable in the market, which represents a Level 3 measurement. The Company used the following key assumptions within its valuation. In all scenarios, the Company also applied the likelihood of a fundamental transaction and the related impact on the Company’s common stock price and volatility.

 

 

March 31, 2024

 

Common stock price

 $

 

1.64

 

Exercise price per share

 $

 

8.50

 

Estimated volatility

 

 

80.0

%

Risk-free interest rate

 

 

4.36

%

Contractual term (in years)

 

 

3.39

 

 

November 2023 Inducement Offer ('New Warrants')

In November 2023, the Company issued common stock warrants to purchase an aggregate of 2,143,000 shares of common stock at an exercise price of $1.92 per warrant. Additionally, 128,580 common stock warrants were issued to the Placement Agent ("Placement Agent Warrants") at an exercise price of $2.5563 per warrant. The New Warrants and Placement Agent Warrants are recorded for as a liability on the Balance Sheet and are adjusted to estimated fair value at period end through “Gain (loss) on warrant liability” on the Statement of Operations and Comprehensive Loss. The estimated fair value of the New Warrants was $2.5 million and $3.1 million as of March 31, 2024 and December 31, 2023, respectively.

The Company estimates the fair value of its Level 3 warrant liabilities using a Monte Carlo simulation model. The Company used the following key assumptions within its valuation. In all scenarios, the Company also applied the likelihood of a fundamental transaction and the related impact on the Company’s common stock price and volatility.

 

March 31, 2024

 

Common stock price

 $

 

1.64

 

Exercise price per share

 $

1.92-2.5563

 

Expected volatility

 

 

80.0

%

Risk-free interest rate

 

 

4.25

%

Contractual term (in years)

 

 

4.62

 

 

The following is a roll forward of the fair value of Level 3 warrants for the three months ended March 31, 2024 (in thousands):

 

 

 

Warrant Liability
Fair Value

 

Balance at December 31, 2023

 

$

5,913

 

Change in fair value

 

 

(1,376

)

Balance at March 31, 2024

 

$

4,537

 

 

13


 

4. Marketable Securities

Marketable securities, which are classified as available-for-sale, consisted of the following as of March 31, 2024 (in thousands):

 

 

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,327

 

 

$

 

 

$

 

 

$

6,327

 

Total cash equivalents

 

 

6,327

 

 

 

 

 

 

 

 

 

6,327

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

12,474

 

 

 

 

 

 

(23

)

 

 

12,451

 

U.S. government debt securities

 

 

16,464

 

 

 

 

 

 

(13

)

 

 

16,451

 

Total short-term marketable securities

 

 

28,938

 

 

 

 

 

 

(36

)

 

 

28,902

 

Long-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

1,954

 

 

 

 

 

 

(2

)

 

 

1,952

 

Total long-term marketable securities

 

 

1,954

 

 

 

 

 

 

(2

)

 

 

1,952

 

Restricted Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Total restricted cash equivalents

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Total

 

$

38,115

 

 

$

 

 

$

(38

)

 

$

38,077

 

Marketable securities, which are classified as available-for-sale, consisted of the following as of December 31, 2023 (in thousands):

 

 

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,864

 

 

$

 

 

$

 

 

$

12,864

 

U.S. treasuries

 

 

2,989

 

 

 

 

 

 

 

 

 

2,989

 

Total cash equivalents

 

 

15,853

 

 

 

 

 

 

 

 

 

15,853

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

7,853

 

 

 

4

 

 

 

(7

)

 

 

7,850

 

U.S. government debt securities

 

 

15,570

 

 

 

1

 

 

 

(22

)

 

 

15,549

 

Total short-term marketable securities

 

 

23,423

 

 

 

5

 

 

 

(29

)

 

 

23,399

 

Restricted Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Total restricted cash equivalents

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Total

 

$

40,172

 

 

$

5

 

 

$

(29

)

 

$

40,148

 

 

At March 31, 2024, the remaining contractual maturities of available-for-sale securities were less than two years. There have been no significant realized gains or losses on available-for-sale securities for the periods presented. As of March 31, 2024, the Company did not hold any individual securities in an unrealized loss position for 12 months or greater. The Company has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by the Company. The Company considered the current and expected future economic and market conditions and determined that the estimate of credit losses was not significantly impacted. Thus, there has been no change in estimate of expected credit loss during the three ended March 31, 2024 and no allowance for credit loss was recorded at March 31, 2024. The Company will continue to assess the current and expected future economic and market conditions as further development arises.

14


 

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Prepaid research and development expenses

 

$

60

 

 

$

415

 

Prepaid insurance expenses

 

 

150

 

 

 

541

 

Tax credit receivable

 

 

1,493

 

 

 

1,493

 

Interest receivable

 

 

121

 

 

 

84

 

Other prepaid expenses and current assets

 

 

363

 

 

 

871

 

Total prepaid expenses & other current assets

 

$

2,187

 

 

$

3,404

 

 

6. Commitments and Contingencies

Leases

In February 2019, the Company entered into a lease agreement for new office and laboratory space in South San Francisco, California. The term of the lease agreement commenced in May 2019. The lease has an initial term from occupancy of approximately ten years ending on December 31, 2029 with an option to extend the term for an additional eight years at then-market rental rates. The total base rent payment escalates annually based on a fixed percentage beginning from the 13th month of the lease agreement. The Company will also be responsible for the operating expenses and real estate taxes allocated to the building and common areas. Pursuant to the lease agreement, the landlord provided the Company with a tenant improvement allowance of $10.7 million, which was included in deferred rent and leasehold improvements on the balance sheet at December 31, 2019. In connection with the execution of the lease agreement, the Company delivered a letter of credit of approximately $0.9 million to the landlord.

The Company’s operating leases include various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

In June 2021, the Company entered into an agreement to sublease a portion of the first floor of the South San Francisco, California facility, consisting of approximately 23,000 square feet, to Freenome Holdings, Inc., through June 30, 2024. The base sublease rent rate is $6.25 per rental square foot per month and will increase annually by 3.5% through expiration of the agreement. Additionally, the subtenant is required to pay approximately 37% of operating expenses and property management fees that the Company is required to pay under the lease for the South San Francisco, California facility. The Company incurred initial direct costs of $0.2 million in sublease commissions related to entering into the agreements to sublease the South San Francisco, California facility. To account for the commissions, the Company capitalized the total commissions amount and will amortize the balance over the term of the sublease. Sublease income was $0.7 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively, which was offset against total rent expense.

In May 2022, the Company entered into an agreement to sublease a portion of the second floor of the South San Francisco, California facility, consisting of approximately 15,000 square feet, to Initial Therapeutics, Inc. ("Initial Therapeutics"). The original sublease term commenced on July 1, 2022 and continued through June 30, 2024 and further extended through June 30, 2026 upon execution of an amendment as defined below. The base sublease rent rate is $7.80 per rental square foot per month and will increase by 3.5% annually through the expiration of the agreement. Additionally, the subtenant is required to pay approximately 24% of operating expenses and property management fees that the Company is required to pay under the lease for the South San Francisco, California facility. The Company incurred initial direct costs of $0.1 million in sublease commissions related to entering into the agreements to sublease the South San Francisco, California facility. To account for the commissions, the Company capitalized the total commissions amount and will amortize the balance over the term of the sublease.

On September 15, 2023, the Company entered into an amendment with Initial Therapeutics to sublease the remainder of the second floor of the South San Francisco, California facility, consisting of an additional 17,000 square feet. The sublease term will commence on October 1, 2023 and extends the existing sublease agreement that commenced on July 1, 2022 through June 30, 2026. The additional space will be subleased at a monthly rent rate of $1.00 per square foot starting a month after Initial Therapeutics first takes possession of the additional space through June 30, 2024. Starting July 1, 2024, the rent rate for the entirety of Initial Therapeutics' subleased space will be $6.02 per rental

15


 

square foot per month and will increase 3.5% on December 1, 2024 and 2025. Additionally, Initial Therapeutics will be required to pay approximately 51% of operating expenses and property management fees that the Company is required to pay under the lease for the South San Francisco, California facility. The Company incurred initial direct costs of $0.3 million in sublease commissions. Sublease income from Initial Therapeutics, Inc. was $0.8 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively, which was offset against total rent expense.

The following table summarizes the components of lease expense and sublease income, which are included in operating expenses in the Company’s condensed statements of operations and comprehensive loss (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating lease cost

 

$

938

 

 

$

930

 

Variable lease cost

 

 

272

 

 

 

203

 

Sublease income

 

 

(1,472

)

 

 

(963

)

Total lease (income) cost

 

$

(262

)

 

$

170

 

Variable lease payments include amounts relating to common area maintenance, real estate taxes and insurance and are recognized in the condensed statements of operations and comprehensive loss as incurred.

The following table summarizes the maturities of lease liabilities as of March 31, 2024 (in thousands):

 

 

 

Amount

 

2024 (remaining 9 months)

 

$

3,726

 

2025

 

 

5,123

 

2026

 

 

5,287

 

2027

 

 

5,457

 

2028

 

 

5,633

 

Thereafter

 

 

5,801

 

Total future minimum lease payments

 

 

31,027

 

Less: Amount representing interest

 

 

(4,877

)

Present value of future minimum lease payments

 

 

26,150

 

Less: Current portion of operating lease liability

 

 

(3,544

)

Noncurrent portion of operating lease liability

 

$

22,606

 

On September 15, 2023, the Company entered into a sub-sublease agreement with GT Biopharma, Inc. to sublease a portion of its first floor at 8000 Marina Boulevard, Brisbane, California, consisting of 4,500 square feet. The sub-sublease term will commence on October 6, 2023 through June 30, 2024. The space will be subleased at a rent rate of $2.00 per rent square feet.

Indemnifications

The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with the Company’s amended and restated certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity.

The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable the Company to recover a portion of any future amounts paid. The Company believes that the fair value of these potential indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.

7. Equity Financing

The Company has 10,000,000 shares of convertible preferred stock authorized for issuance, par value of $0.0001 per share. As of March 31, 2024 and December 31, 2023, no shares of preferred stock were issued and outstanding.

16


 

The Company has 300,000,000 shares of common stock authorized for issuance, par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote per share. As of March 31, 2024 and December 31, 2023, there were 16,786,647 and 16,784,969 shares, respectively, of common stock issued and outstanding.

Follow-On Offering

In August 2022, the Company closed an underwritten offering (the “Follow-On Offering”) in which the Company issued and sold an aggregate of 6,428,571 of the Company’s common stock together with warrants (the "Existing Warrants”) to purchase up to 6,428,572 of the Company’s common stock at an offering price of at an aggregate offering price of $7.00 per unit. The Existing Warrants have an exercise price of $8.50 per warrant. The gross proceeds to the Company were $45.0 million before deducting underwriting discounts and commissions and other offering expenses. The net proceeds of the Follow-On Offering were approximately $41.7 million.

The Existing Warrants are exercisable at any time after their original issuance and on or prior to the five-year anniversary of the original issuance date. A holder of Existing Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise. As of March 31, 2024, 2,143,000 warrants have been exercised.

The Company recorded the Existing Warrants as liabilities based upon the guidance of ASC 480 and ASC 815. The Company evaluated the Existing Warrants under ASC 815-40 and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the settlement value in a scenario of a fundamental transaction precluded the Existing Warrants from being indexed to the Company’s own stock and Company believes that the scope exception related to the occurrence of a fundamental transaction in ASC 815-40 is not met. Since the Existing Warrants meet the definition of a derivative, they are recorded as liabilities and measured at fair value at initial recognition. Any subsequent changes in their respective fair values is recognized in the Statement of Operations and Comprehensive Loss at each reporting date.

 

At March 31, 2024 and December 31, 2023, the Company updated the estimated fair value of the outstanding Existing Warrants using a Monte-Carlo valuation model resulting in an estimated fair value of $2.1 million and $2.8 million (subsequent to the exercise of the Existing Warrants as described in the section below), respectively. The change in fair value for the three months ended March 31, 2024 and 2023 of $0.7 million and $5.5 million, respectively, was recorded as the Gain (loss) on warrant liability in the condensed Statements of Operations and Comprehensive Loss.

Inducement Offer

On November 9, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Offer”) with certain holders (collectively, the “Holders”) of the Company's Existing Warrants to purchase up to an aggregate of 2,143,000 shares of common stock. The Holders agreed to exercise for cash their Existing Warrants to purchase an aggregate of 2,143,000 shares of common stock at a reduced exercise price of $2.045 per share in consideration of the Company’s agreement to issue new unregistered common stock purchase warrants (the “New Warrants”) to purchase up to an aggregate of 2,143,000 shares of the Company’s common stock.

Each New Warrant will have an exercise price equal to $1.92 per share. The New Warrants will be exercisable on or after the initial issue date until the five-year anniversary of such date. The exercise price and number of New Warrant Shares issuable upon exercise of the New Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, subsequent rights offerings, pro rata distributions, reorganizations, or similar events affecting the Company’s common stock and the exercise price.

The Company engaged H.C. Wainwright & Co., LLC (the “Placement Agent”) to act as its exclusive placement agent in connection with the transactions summarized above. The Company also issued to the Placement Agent or its designees warrants to purchase up to 128,580 shares of common stock. The Placement Agent Warrants have substantially the same terms as the New Warrants, except that the Placement Agent Warrants have an exercise price equal to $2.5563 per share.

The Company recorded the New Warrants and Placement Agent Warrants (together “2023 Warrants”) as liabilities based upon the guidance of ASC 480 and ASC 815. The Company evaluated the 2023 Warrants under ASC 815-40 and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the settlement

17


 

value in a scenario of a fundamental transaction precludes the 2023 Warrants from being indexed to the Company’s own stock and Company believes that the scope exception related to the occurrence of a fundamental transaction in ASC 815-40 is not met. Since the 2023 Warrants are recorded as liabilities on the Balance Sheet at fair value, any subsequent changes in their respective fair values are recognized in the Statement of Operations and Comprehensive Loss at each reporting date.

The Company received aggregate gross proceeds of $4.4 million from the exercise of the Existing Warrants by the Holders (the “Exercise”), before deducting placement agent fees and other offering expenses payable by the Company.

 

At March 31, 2024 and December 31, 2023, the Company updated the estimated fair value of the outstanding New Warrants using a Monte-Carlo valuation model resulting in an estimated fair value of $2.5 million and $3.1 million (subsequent to the exercise of the Existing Warrants as described in the section below), respectively. The change in fair value for the three months ended March 31, 2024 and 2023 of $0.6 million and zero, respectively, was recorded as the Gain (loss) on warrant liability in the condensed statements of operations and comprehensive loss.

8. Stock-Based Compensation