tptx-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

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: 001-38871

 

Turning Point Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-3826166

( State or other jurisdiction of

incorporation or organization)

 

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

10628 Science Center Drive, Ste. 200

San Diego, California

92121

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 926-5251

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

TPTX

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of July 15, 2019, the registrant had 31,336,384 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements (unaudited)

3

 

Condensed Balance Sheets

3

 

Condensed Statements of Operations and Comprehensive Loss

4

 

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

5

 

Condensed Statements of Cash Flows

6

 

Notes to the Unaudited Condensed Financial Statements

7

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

21

Item 1A.

Risk Factors

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Signatures

63

 

 

2


 

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

Turning Point Therapeutics, Inc.

Condensed Balance Sheets

(In thousands, except share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,781

 

 

$

101,029

 

Marketable securities, available for sale

 

 

171,389

 

 

 

 

Prepaid expenses and other current assets

 

 

4,998

 

 

 

494

 

Total current assets

 

 

255,168

 

 

 

101,523

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

954

 

 

 

1,000

 

Right-of-use assets from operating leases

 

 

1,250

 

 

 

 

Security deposits

 

 

73

 

 

 

73

 

Deferred financing costs

 

 

 

 

 

684

 

Total assets

 

$

257,445

 

 

$

103,280

 

 

 

 

 

 

 

 

 

 

Liabilities, convertible preferred stock, and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,086

 

 

$

1,494

 

Accrued expenses and other current liabilities

 

 

1,992

 

 

 

2,415

 

Accrued compensation

 

 

1,672

 

 

 

1,413

 

Current portion of operating lease liabilities

 

 

138

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

7,888

 

 

 

5,322

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities

 

 

260

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, net of current portion

 

 

1,382

 

 

 

448

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 0 shares issued and outstanding as of

   June 30, 2019 and 65,423,901 shares issued and outstanding as of December 31,

   2018; aggregate liquidation preference of $0 and $146,460 as of June 30, 2019 and

   December 31, 2018, respectively

 

 

 

 

 

145,916

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized as of June 30, 2019

   and 104,000,000 shares authorized as of December 31, 2018; 31,297,423 shares

   issued and outstanding as of June 30, 2019; 3,411,516 shares issued and outstanding

   at December 31, 2018

 

 

34

 

 

 

1

 

Additional paid-in capital

 

 

328,978

 

 

 

2,346

 

Accumulated other comprehensive income

 

 

345

 

 

 

 

Accumulated deficit

 

 

(81,442

)

 

 

(50,753

)

Total stockholders’ equity (deficit)

 

 

247,915

 

 

 

(48,406

)

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)

 

$

257,445

 

 

$

103,280

 

 

See accompanying notes.

3


 

Turning Point Therapeutics, Inc.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,711

 

 

$

4,369

 

 

$

24,162

 

 

$

8,713

 

General and administrative

 

 

4,743

 

 

 

803

 

 

 

8,357

 

 

 

1,319

 

Total operating expenses

 

 

18,454

 

 

 

5,172

 

 

 

32,519

 

 

 

10,032

 

Loss from operations

 

 

(18,454

)

 

 

(5,172

)

 

 

(32,519

)

 

 

(10,032

)

Interest income

 

 

1,312

 

 

 

135

 

 

 

1,830

 

 

 

262

 

Net loss

 

$

(17,142

)

 

$

(5,037

)

 

$

(30,689

)

 

$

(9,770

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

345

 

 

 

 

 

 

345

 

 

 

 

Comprehensive loss

 

$

(16,797

)

 

$

(5,037

)

 

$

(30,344

)

 

$

(9,770

)

Net loss per share, basic and diluted

 

$

(0.70

)

 

$

(1.49

)

 

$

(2.19

)

 

$

(2.89

)

Weighted-average common shares outstanding, basic and diluted

 

 

24,479,767

 

 

 

3,380,899

 

 

 

14,004,957

 

 

 

3,374,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

4


 

Turning Point Therapeutics, Inc.

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

(In thousands, except share amounts)

(Unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

income (loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2018

 

 

65,423,901

 

 

$

145,916

 

 

 

3,411,516

 

 

$

1

 

 

$

2,346

 

 

$

 

 

$

(50,753

)

 

$

(48,406

)

Option exercises

 

 

 

 

 

 

 

 

12,337

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,926

 

 

 

 

 

 

 

 

 

1,926

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,547

)

 

 

(13,547

)

Balance at March 31, 2019

 

 

65,423,901

 

 

 

145,916

 

 

 

3,423,853

 

 

 

1

 

 

 

4,294

 

 

 

 

 

 

(64,300

)

 

 

(60,005

)

Issuance of common stock in

   connection with a public

   offering, net of underwriting

   discounts, commissions, and

   offering costs

 

 

 

 

 

 

 

 

10,637,500

 

 

 

18

 

 

 

175,133

 

 

 

 

 

 

 

 

 

175,151

 

Conversion of convertible

   preferred stock into common

   stock

 

 

(65,423,901

)

 

 

(145,916

)

 

 

16,993,194

 

 

 

15

 

 

 

145,901

 

 

 

 

 

 

 

 

 

145,916

 

Option exercises

 

 

 

 

 

 

 

 

242,876

 

 

 

 

 

 

591

 

 

 

 

 

 

 

 

 

591

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,059

 

 

 

 

 

 

 

 

 

3,059

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,142

)

 

 

(17,142

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

345

 

 

 

 

 

 

345

 

Balance at June 30, 2019

 

 

 

 

 

 

 

 

31,297,423

 

 

$

34

 

 

$

328,978

 

 

$

345

 

 

$

(81,442

)

 

$

247,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

income (loss)

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2017

 

 

39,135,778

 

 

$

66,161

 

 

 

3,367,742

 

 

$

1

 

 

$

1,123

 

 

$

 

 

$

(25,968

)

 

$

(24,844

)

Option exercises

 

 

 

 

 

 

 

 

2,597

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

85

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,733

)

 

 

(4,733

)

Balance at March 31, 2018

 

 

39,135,778

 

 

 

66,161

 

 

 

3,370,339

 

 

 

1

 

 

 

1,214

 

 

 

 

 

 

(30,701

)

 

 

(29,486

)

Option exercises

 

 

 

 

 

 

 

 

20,777

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137

 

 

 

 

 

 

 

 

 

137

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,037

)

 

 

(5,037

)

Balance at June 30, 2018

 

 

39,135,778

 

 

$

66,161

 

 

 

3,391,116

 

 

$

1

 

 

$

1,390

 

 

$

 

 

$

(35,738

)

 

$

(34,347

)

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

5


 

Turning Point Therapeutics, Inc.

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(30,689

)

 

$

(9,770

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

4,985

 

 

 

222

 

Depreciation

 

 

233

 

 

 

39

 

Accretion of discount on marketable securities, available for sale

 

 

(359

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,821

)

 

 

(454

)

Accounts payable

 

 

2,595

 

 

 

266

 

Accrued expenses and other current liabilities

 

 

(246

)

 

 

(912

)

Accrued compensation

 

 

258

 

 

 

63

 

Operating lease right-of-use assets and liabilities, net

 

 

(95

)

 

 

(7

)

Net cash used in operating activities

 

 

(27,139

)

 

 

(10,553

)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities, available for sale

 

 

(170,685

)

 

 

 

Purchases of property and equipment

 

 

(188

)

 

 

(138

)

Net cash used in investing activities

 

 

(170,873

)

 

 

(138

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in a public offering, net

 

 

175,151

 

 

 

 

Proceeds from issuance of common stock from stock option exercises

 

 

613

 

 

 

45

 

Net cash provided by financing activities

 

 

175,764

 

 

 

45

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

(22,248

)

 

 

(10,646

)

Cash and cash equivalents at the beginning of period

 

 

101,029

 

 

 

45,033

 

Cash and cash equivalents at the end of period

 

$

78,781

 

 

$

34,387

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

1

 

 

$

1

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

1,520

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

6


 

Turning Point Therapeutics, Inc.

Notes to Unaudited Condensed Financial Statements

1. Formation and Business of the Company; Basis of Presentation

Organization

Turning Point Therapeutics, Inc. (the Company) was organized in 2013 and commenced operations in 2014. The Company is a clinical stage biopharmaceutical company designing and developing novel small molecule, targeted oncology therapies.  The Company’s principal operations are in the United States and the Company operates in one segment, with its headquarters in San Diego, California.

The Company’s primary activities since inception have been to build infrastructure, conduct research and development, including clinical trials, perform business and financial planning, and raise capital.

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, since they are interim statements, the accompanying condensed financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The condensed balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by U.S. GAAP for complete financial statements. The operating results presented in these unaudited condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s prospectus dated April 16, 2019 that forms a part of the Company’s Registration Statements on Form S-1, as filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended, on April 18, 2019.

Initial Public Offering

On April 22, 2019, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 10,637,500 shares of its common stock at a price to the public of $18.00 per share. The proceeds from the IPO were approximately $175.2 million after deducting underwriting discounts and commissions of $13.4 million and offering expenses of approximately $2.9 million payable by the Company. At the closing of the IPO, 65,423,901 shares of outstanding convertible preferred stock were automatically converted into 16,993,194 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding.

Reverse Stock Split

On April 5, 2019, the Company effected a 1-for-3.85 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.

Liquidity

Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed financial statements for the quarter ended June 30, 2019 are issued.

 

7


 

2. Summary of Significant Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes.  The most significant estimates in the Company’s financial statements relate to preclinical and clinical study accruals and stock-based compensation costs.  Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances.  Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Marketable securities, Available-for-Sale

The Company classifies all marketable securities as available-for-sale, as the sale of such securities may be required prior to maturity. These marketable securities are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income.

Concentration of Credit Risk

Substantially all the Company’s cash and money market funds are held with a single financial institution.  Due to its size, the Company believes this financial institution represents a minimal credit risk.   Cash amounts held at financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.  At June 30, 2019, the Company had $249.9 million in excess of the FDIC insured limit.  At June 30, 2019, the Company’s money market funds and marketable securities, available for sale are not subject to FDIC insurance.  The Company’s money market funds and short-term investments are invested in short term, high grade securities. As a result, the Company believes its money market and marketable securities, available for sale represent a minimal credit risk

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method over the estimated useful life of the assets, which ranges between three to seven years.  Tenant improvements are stated at cost and depreciated over the shorter of the estimated useful life or the remaining life of the lease at the time the asset is placed into service.

Intellectual Property

The legal and professional costs incurred by the Company to maintain its patent rights have been expensed as part of general and administrative expenses since inception.  As of June 30, 2019, and 2018, the Company has determined that these expenses have not met the criteria to be capitalized. Intellectual property related expenses were $0.1 million for the three months ended June 30, 2019 and 2018, respectively and were $0.3 million for the six months ended June 30, 2019 and 2018, respectively.

Research and Development Expenses

Research and development costs are expensed as incurred.  These costs consist primarily of salaries and other personnel-related expenses, including stock-based compensation; facility-related expenses; depreciation of facilities and equipment; laboratory consumables; and services performed by clinical research organizations, clinical manufacturing services, research institutions, and other outside service providers.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates which will be in effect when the differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax asset will be realized.

The Company follows the provisions of the Income Taxes Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification that defines a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under the Income Taxes Topic, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

8


 

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of employee and non-employee stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net of actual forfeitures during the period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Prior to our initial public offering, the exercise price for all stock options granted was at the estimated fair value of the underlying common stock as determined on the date of grant by the Company’s Board of Directors.

Net Loss Per Share

The Company computes basic loss per share by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options and convertible preferred stock, which is convertible into shares of the Company’s common stock.  No shares related to the convertible preferred stock were included in the diluted net loss calculation for the three and six months ended June 30, 2019 or 2018 because the inclusion of such shares would have had an anti-dilutive effect. The shares to be issued upon exercise of certain outstanding stock options were also excluded from the diluted net loss calculation for the three and six months ended June 30, 2019 and 2018 because such shares are anti-dilutive.

Historical outstanding anti-dilutive securities not included in the diluted net loss per share calculation include the following:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Convertible preferred stock (as converted)

 

 

 

 

 

10,165,120

 

 

 

 

 

 

10,165,120

 

Common stock options

 

 

4,590,804

 

 

 

1,055,445

 

 

 

4,590,804

 

 

 

1,055,445

 

Total

 

 

4,590,804

 

 

 

11,220,565

 

 

 

4,590,804

 

 

 

11,220,565

 

 

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The Company is in the process of determining the effects the adoption will have on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its financial statements.

Recently Adopted Accounting Standards Updates

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. The Company adopted the new standard beginning January 1, 2019 using a modified retrospective approach. ASU 2016-02 provides a number of optional practical expedients and accounting policy elections. The Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. As a result of these decisions, financial information will not be updated, and the disclosures required under this guidance will not be provided for dates and periods prior to January 1, 2019.  Additionally, the Company elected the hindsight provision for determining the lease term and elected to aggregate all lease and non-lease components for each class of underlying assets into a single lease component.

The Company currently has one operating lease for office and laboratory spaces in San Diego, California. The operating lease was impacted by the new accounting standard and resulted in the present values of the future lease payments being presented as a right-to-use asset, with a corresponding lease liability at the date of adoption. The financial impact from the adoption of this guidance is discussed in Note 7.

 

9


 

3. Marketable Securities, Available-for-Sale

 

The Company invests its excess cash in marketable securities, including debt instruments of financial institutions, corporations with investment grade credit ratings, commercial paper and government agencies. Marketable securities, available-for-sale, consisted of the following (in thousands):

 

June 30, 2019

 

 

 

Maturity in

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Years

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. government agency securities

 

Less than 1

 

$

2,750

 

 

$

1

 

 

$

 

 

$

2,751

 

Corporate debt securities

 

Less than 1

 

 

97,756

 

 

 

194

 

 

 

 

 

 

97,950

 

Commercial Paper

 

Less than 1

 

 

70,538

 

 

 

150

 

 

 

 

 

 

70,688

 

Total marketable securities

 

 

 

$

171,044

 

 

$

345

 

 

$

 

 

$

171,389

 

 

The Company did not hold marketable securities as of December 31, 2018. Gross realized gains and losses on available-for-sale securities were immaterial during the three and six months ended June 30, 2019.

 

None of the investments have been in a gross unrealized loss for a period greater than 12 months. At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of the amortized cost basis. We intend and have the ability to hold our investments in unrealized loss positions until their amortized cost basis has been recovered. Further, based on our evaluation, there were no unrealized losses at June 30, 2019.

4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  Fair value should maximize the use of observable inputs and minimize the use of unobservable inputs.  The Company determines the fair value of financial assets and liabilities using three levels of inputs as follows:

Level 1 – Inputs which include quoted prices in active markets for identical assets or liabilities at the measurement date.    

Level 2 – Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.  

Level 3 – Unobservable inputs for assets or liabilities and include little or no market activity.  

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. During the three and six months ended June 30, 2019, the Company had no Level 3 financial assets or liabilities that were subject to fair value measurements on a recurring basis. During the three and six months ended June 30, 2018, the Company had no Level 2 or 3 financial assets or liabilities that were subject to fair value measurements on a recurring basis.

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

 

 

 

Fair Value Measurements at June 30, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds included in cash and cash equivalents

 

$

73,794

 

 

$

 

 

$

 

 

$

73,794

 

U.S. government agency securities

 

 

 

 

 

2,751

 

 

 

 

 

 

2,751

 

Corporate debt securities

 

 

 

 

 

97,950

 

 

 

 

 

 

97,950

 

Commercial Paper

 

 

 

 

 

70,688

 

 

 

 

 

 

70,688

 

Total

 

$

73,794

 

 

$

171,389

 

 

$

 

 

$

245,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2018 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds included in cash and cash equivalents

 

$

98,268

 

 

$

 

 

$

 

 

$

98,268

 

 

10


 

5. Property and Equipment, Net

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Laboratory equipment

 

$

508

 

 

$

388

 

Computer equipment and software

 

 

69

 

 

 

138

 

Tenant improvements

 

 

677

 

 

 

679

 

Furniture and fixtures

 

 

32

 

 

 

66

 

 

 

 

1,286

 

 

 

1,271

 

Less: accumulated depreciation

 

 

(332

)

 

 

(271

)

 

 

$

954

 

 

$

1,000

 

 

Depreciation expense was $0.1 million and $19,000 for the three months ended June 30, 2019 and 2018, respectively and depreciation expense was $0.2 million and $39,000, six months ended June 30, 2019 and 2018, respectively.

 

 

6. Accrued Expenses and Other Current Liabilities

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued research and development expenses

 

$

1,739

 

 

$

1,677

 

Accrued general and administrative expenses

 

 

208

 

 

 

548

 

Other current liabilities

 

 

45

 

 

 

190

 

Total

 

$

1,992

 

 

$

2,415

 

 

7. Commitments and Contingencies

Operating Leases

The Company entered into a lease agreement during January 2016, which commenced in July 2016, for its current office and primary research facility located in San Diego, California. In June 2018, the Company amended its existing lease agreement to expand its office and laboratory space within the same building, which the Company occupied commencing September 2018.   The amended lease term for all leased premises had an expiration date of December 31, 2021, and an option to extend the lease term on all leased space for one additional five-year term. As of the date of adoption of ASC 842, the Company was not reasonably certain that it would exercise the extension option, and as such, did not include this option in the determination of the total lease term. The lease includes both discounts of certain base rents during 2016 and 2019, and escalating lease payments over the term.

On January 1, 2019, in conjunction with the adoption of the guidance in ASU 2016-02 - “Leases”, the Company recognized a right-of-use asset and corresponding lease liability for its facility lease as the present value of lease payments not yet paid at January 1, 2019. The right-of-use asset and corresponding lease liability was estimated assuming the remaining lease term of 36 months at January 1, 2019, and an estimated discount rate of 8.5%,which was the Company’s incremental borrowing rate at the date of adopting ASC 842.  The Company recorded a lease liability of $2.3 million right-of-use asset of $1.7 million, which is net of $0.6 million of the Company’s previously capitalized tenant improvement allowance and deferred rent, upon adoption.

In June 2019, the Company amended the terms of its existing facility lease and in conjunction with entering into a lease for additional office and laboratory space, agreed to surrender a portion of its current laboratory and office space and extend the lease term for its remaining laboratory and office space to June 30, 2023. The execution of the new lease and the amendment to the Company’s existing facility lease were accounted for as a single contract for accounting purposes, as the counterparty to both contracts is the Company’s existing landlord and both agreements were negotiated contemporaneously as a package to achieve the same commercial objective.

11


 

In June 2019, the Company accounted for the partial surrender of office and laboratory space as a reduction to its existing right-of-use asset and liability totaling $0.6 million, and $0.9 million, respectively.  The difference between these amounts was recorded as a $0.3 million deferred gain. The deferred gain was recorded as a component of other long-term liabilities on the balance sheets and will be recognized as an offset to future rent expense over the remaining term of the amended lease.

In addition, in June 2019, and in connection with the extension of the lease term of our previously existing office and laboratory space, the Company recognized an incremental increase to its existing right of use asset and lease liability of $0.5 million, respectively.  The adjustment was computed assuming a lease term ending in June 2023 and an estimated incremental borrowing rate of 8.5%.   This right-of-use asset was recorded net of $0.3 million which represents the Company’s net unamortized capitalized tenant improvement allowance and deferred rent.

The commencement date for the new lease is July 2019 and it has a lease expiration date of June 30, 2023. In addition to base rental payments under this lease, which escalate over the term of the lease, the Company will also be responsible for the payment of its share of the estimated annual operating expenses, property tax expenses, and utilities costs related to this lease of additional space. The lease also contains an option to extend the lease term on all leased space for one additional five-year term. As of June 30, 2019, the Company was not reasonably certain that it would exercise the extension option, and as such, will not include this option in the determination of the total lease term for accounting purposes. The Company expects to record a right-to-use asset and lease liability for the new leased space using a discount rate of 8.5%, which is the Company’s incremental borrowing rate.  We did not record a right-of-use asset or lease liability for the new leased space as of June 30, 2019, as the commencement date and right-of-use for the new space was July 1, 2019.

 

Future minimum payments under the amended lease as of June 30, 2019 are as follows (in thousands):

 

2019 (Six months remaining)

 

$

155

 

2020

 

 

457

 

2021

 

 

471

 

2022

 

 

486

 

2023

 

 

247

 

Total future minimum lease payments

 

 

1,816

 

Less: Amounts representing interest

 

 

(296

)

Total lease liability

 

$

1,520

 

Remaining lease term

 

4.0 years

 

 

 

Rent expense was $0.1 million for the three months ended June 30, 2019 and 2018, respectively and was $0.3 million and $0.2 million for each of the six months ended June 30, 2019 and 2018, respectively.  The Company made cash payments related to its operating lease agreement of $0.2 million and $0.1  million for the three months ended June 30, 2019 and 2018, respectively and $0.4 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively.  The Company expects to pay $0.7 million in 2019, $1.6 million in 2020, $1.7 million in 2021, $1.7 million in 2022, and $0.9 million in 2023, which includes lease payments for the new office space.

8. Related Party Transactions

The Company has entered into several contracts for drug product development and manufacturing with a vendor for which one of the Company’s former directors is a co-founder and part owner. The Company paid this related party $0.1 million for the three and six months ended June 30, 2019 and 2018, respectively, for drug product development and manufacturing services. The Company did not have any unpaid invoices with the related party as of June 30, 2019 and 2018, respectively.  

12


 

9. Equity

The Company’s 2019 Equity Incentive Plan as amended (the Plan), provides for the grant of stock options, restricted stock and other equity awards of the Company’s common stock to employees, officers, consultants, and directors. As of June 30, 2019, the Plan had a maximum of 3,404,401 total shares available for issuance.

Options expire within a period of not more than ten years from the date of grant.  Initial option grants to employees typically vest 25% after one year and monthly thereafter over a three-year period and expire between one and three months after employee termination.  Subsequent option grants to employees and grants to non-employees typically vest monthly over a four-year period. The majority of options outstanding at June 30, 2019, had vesting periods of four years.

The following summarizes option activity under the Plan:

 

 

 

Outstanding Options

 

 

 

Outstanding

Options

 

 

Weighted

Average

Exercise Price

Per Share

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

(Years)

 

 

(in thousands)

 

Balances as of December 31, 2018

 

 

3,597,638

 

 

$

4.40

 

 

 

9.5

 

 

$

15,056

 

Options granted

 

 

1,472,323

 

 

$

14.47

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(255,213

)

 

$

2.40