etnb-10q_20200930.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 September 30, 2020

OR

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

For the transition period from _______________to ____________

Commission File Number: 001-39122

 

89bio, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

36-4946844

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

142 Sansome Street, Second Floor

San Francisco, California 94104

94104

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 500-4614

 

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 $0.001 per share

 

ETNB

 

Nasdaq Global Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of November 6, 2020, the registrant had 19,878,852 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Default Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

68

 

 

i


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

89bio, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

141,551

 

 

$

93,335

 

Restricted cash

 

 

25

 

 

 

25

 

Short-term investments

 

 

77,602

 

 

 

 

Prepaid and other current assets

 

 

3,360

 

 

 

1,966

 

Total current assets

 

 

222,538

 

 

 

95,326

 

Property and equipment, net

 

 

177

 

 

 

155

 

Other assets

 

 

713

 

 

 

72

 

Total assets

 

$

223,428

 

 

$

95,553

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,086

 

 

$

989

 

Accrued expenses

 

 

5,338

 

 

 

4,620

 

Total current liabilities

 

 

9,424

 

 

 

5,609

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

20

 

 

 

14

 

Additional paid-in capital

 

 

324,501

 

 

 

163,526

 

Accumulated other comprehensive loss

 

 

(3

)

 

 

 

Accumulated deficit

 

 

(110,514

)

 

 

(73,596

)

Total stockholders’ equity

 

 

214,004

 

 

 

89,944

 

Total liabilities and stockholders’ equity

 

$

223,428

 

 

$

95,553

 

 

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

 

 

1


 

89bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,208

 

 

$

6,680

 

 

$

27,429

 

 

$

14,154

 

General and administrative

 

 

3,225

 

 

 

1,518

 

 

 

9,379

 

 

 

2,875

 

Total operating expenses

 

 

14,433

 

 

 

8,198

 

 

 

36,808

 

 

 

17,029

 

Loss from operations

 

 

14,433

 

 

 

8,198

 

 

 

36,808

 

 

 

17,029

 

Other expenses, net

 

 

146

 

 

 

10,470

 

 

 

87

 

 

 

21,022

 

Net loss before tax

 

 

14,579

 

 

 

18,668

 

 

 

36,895

 

 

 

38,051

 

Income tax expense

 

 

24

 

 

 

57

 

 

 

23

 

 

 

86

 

Net loss

 

$

14,603

 

 

$

18,725

 

 

$

36,918

 

 

$

38,137

 

Other comprehensive (income) loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

(7

)

 

 

 

 

 

(7

)

 

 

 

Foreign currency translation adjustments

 

 

10

 

 

 

 

 

 

10

 

 

 

 

Total other comprehensive loss

 

$

3

 

 

$

 

 

$

3

 

 

$

 

Comprehensive loss

 

$

14,606

 

 

$

18,725

 

 

$

36,921

 

 

$

38,137

 

Net loss per share, basic and diluted

 

$

(0.86

)

 

$

(30.63

)

 

$

(2.49

)

 

$

(62.39

)

Weighted-average shares used to compute net loss per share, basic

   and diluted

 

 

16,884,244

 

 

 

611,226

 

 

 

14,809,131

 

 

 

611,226

 

 

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

 

 

2


 

89bio, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

 

13,788,982

 

 

$

14

 

 

$

163,526

 

 

$

 

 

$

(73,596

)

 

$

89,944

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

4,876

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

493

 

 

 

 

 

 

 

 

 

493

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,544

)

 

 

(10,544

)

Balance as of March 31, 2020

 

 

 

 

 

 

 

 

 

13,793,858

 

 

 

14

 

 

 

164,028

 

 

 

 

 

 

(84,140

)

 

 

79,902

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

6,919

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

Issuance of common stock upon ESPP purchase

 

 

 

 

 

 

 

 

 

4,427

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

75

 

Issuance of common stock warrant in connection with term

    loan facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

634

 

 

 

 

 

 

 

 

 

634

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

910

 

 

 

 

 

 

 

 

 

910

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,771

)

 

 

(11,771

)

Balance as of June 30, 2020

 

 

 

 

 

 

 

 

 

13,805,204

 

 

 

14

 

 

 

165,668

 

 

 

 

 

 

(95,911

)

 

 

69,771

 

Issuance of common stock upon public offerings,

    net of issuance costs of $1,208

 

 

 

 

 

 

 

 

 

6,072,040

 

 

 

6

 

 

 

157,674

 

 

 

 

 

 

 

 

 

157,680

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

1,608

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,154

 

 

 

 

 

 

 

 

 

1,154

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,603

)

 

 

(14,603

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Balance as of September 30, 2020

 

 

 

 

$

 

 

 

 

19,878,852

 

 

$

20

 

 

$

324,501

 

 

$

(3

)

 

$

(110,514

)

 

$

214,004

 

 

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

3


 

89bio, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

For the Three and Nine Months Ended September 30, 2019

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2018

 

 

24,000,000

 

 

$

23,073

 

 

 

 

611,226

 

 

$

1

 

 

$

118

 

 

$

 

 

$

(16,176

)

 

$

(16,057

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,439

)

 

 

(4,439

)

Balance as of March 31, 2019

 

 

24,000,000

 

 

 

23,073

 

 

 

 

611,226

 

 

 

1

 

 

 

153

 

 

 

 

 

 

(20,615

)

 

 

(20,461

)

Issuance of convertible preferred stock, net of issuance

   cost of $0 and the partial settlement of the convertible

   preferred stock liability of $6,269

 

 

18,826,389

 

 

 

25,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

76

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,973

)

 

 

(14,973

)

Balance as of June 30, 2019

 

 

42,826,389

 

 

 

48,168

 

 

 

 

611,226

 

 

 

1

 

 

 

229

 

 

 

 

 

 

(35,588

)

 

 

(35,358

)

Issuance of convertible preferred stock, net of issuance

   costs of $0 and the partial settlement of the convertible

   preferred stock liability of $404

 

 

1,173,611

 

 

 

1,578

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

 

 

 

112

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,725

)

 

 

(18,725

)

Balance as of September 30, 2019

 

 

44,000,000

 

 

$

49,746

 

 

 

 

611,226

 

 

$

1

 

 

$

341

 

 

$

 

 

$

(54,313

)

 

$

(53,971

)

 

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

 

4


89bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(36,918

)

 

$

(38,137

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

47

 

 

 

12

 

Share-based compensation

 

 

2,557

 

 

 

223

 

Deferred tax assets

 

 

 

 

 

(69

)

Revaluation of convertible preferred stock liability

 

 

 

 

 

21,018

 

Amortization of premium on available-for-sale securities

 

 

85

 

 

 

 

Amortization of debt issuance costs

 

 

154

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(1,404

)

 

 

(314

)

Accounts payable

 

 

2,804

 

 

 

1,610

 

Accrued expenses

 

 

459

 

 

 

1,329

 

Net cash used in operating activities

 

 

(32,216

)

 

 

(14,328

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(78,705

)

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

1,025

 

 

 

 

Purchases of property and equipment

 

 

(124

)

 

 

(28

)

Net cash used in investing activities

 

 

(77,804

)

 

 

(28

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon public offering, net of issuance costs

 

 

158,287

 

 

 

 

Proceeds from issuance of convertible preferred stock and convertible preferred stock liability,

    net of issuance cost

 

 

 

 

 

20,000

 

Proceeds from issuance of common stock upon stock option exercises

 

 

35

 

 

 

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

75

 

 

 

 

Proceeds from issuance of common stock

 

 

 

 

 

11

 

Payment of debt issuance costs

 

 

(161

)

 

 

 

Payment of deferred offering costs

 

 

 

 

 

(686

)

Net cash provided by financing activities

 

 

158,236

 

 

 

19,325

 

Net increase in cash and cash equivalents, and restricted cash

 

 

48,216

 

 

 

4,969

 

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

 

 

93,360

 

 

 

11,257

 

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

 

$

141,576

 

 

$

16,226

 

Components of cash and cash equivalents, and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

141,551

 

 

$

16,188

 

Restricted cash

 

 

25

 

 

 

38

 

Total cash and cash equivalents, and restricted cash

 

$

141,576

 

 

$

16,226

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Issuance of common stock warrant in connection with term loan facility

 

$

634

 

 

$

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

607

 

 

$

942

 

Cash paid for taxes

 

$

135

 

 

$

 

 

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

 

 

5


89bio, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization and Basis of Presentation

Description of Business

89bio, Inc. (“89bio” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. The Company’s lead product candidate, BIO89-100, a specifically engineered glycoPEGylated analog of fibroblast growth factor 21, is currently being developed for the treatment of nonalcoholic steatohepatitis and for the treatment of severe hypertriglyceridemia.

89bio, Inc. was formed as a Delaware corporation on June 28, 2019, for the purpose of completing an initial public offering (“IPO”) and related transactions in order to carry on the business of 89Bio Ltd., which was incorporated in Israel in January 2018.

The Company completed an internal reorganization transaction in September 2019, pursuant to which 89Bio Ltd. became a wholly owned subsidiary of 89bio, Inc. (the “Reorganization”). As part of the Reorganization, all of the equity holders of 89Bio Ltd. exchanged 100% of the equity of 89Bio Ltd. for 100% of the equity of 89bio, Inc. The Reorganization was considered a transaction between entities under common control.

Initial Public Offering

On November 13, 2019, 89bio, Inc. completed its IPO, pursuant to which it issued and sold an aggregate of 6,100,390 shares of common stock (inclusive of 795,703 shares pursuant to the underwriters’ option to purchase additional shares) at the IPO price of $16.00 per share, resulting in net proceeds of $87.7 million after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $3.1 million. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into 7,077,366 shares of common stock of 89bio, Inc. based on a proportional adjustment to the conversion ratio of the convertible preferred stock on a 1-for-6.217 basis.

Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. To date, the Company has not generated revenues from its activities and has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses for the foreseeable future until it completes development of its products and seeks regulatory approvals to market such products. The Company had cash, cash equivalents and short-term investments of $219.2 million as of September 30, 2020.

In July 2020, the Company completed an underwritten public offering of 3,047,040 shares of its common stock, including 397,440 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at the public offering price of $27.50. The Company raised a total of $83.8 million in gross proceeds from the offering, or approximately $78.2 million in net proceeds after deducting underwriting discounts and commissions of $5.0 million and offering costs of approximately $0.6 million.

In September 2020, the Company completed an underwritten public offering of 3,025,000 shares of its common stock, at a public offering price of $28.00 per share. The Company raised a total of $84.7 million in gross proceeds from the offering, or approximately $79.5 million in net proceeds after deducting underwriting discounts and commissions of $4.6 million and offering costs of approximately $0.6 million.

The Company expects that its cash, cash equivalents and short-term investments as of September 30, 2020, together with proceeds available from the Company’s term loan (see Note 6), will be sufficient to fund operating expenses and capital expenditure requirements for a period of at least one year from the date these unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (“SEC”).

2. Summary of Significant Accounting Policies

Unaudited Condensed Consolidated Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.

6


 

The accompanying interim condensed consolidated financial statements are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and comprehensive loss, and cash flows. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 18, 2020.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the fair value of stock options, the convertible preferred stock liability and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

 

Investments

Investments have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Generally, investments with original maturities beyond three months at the date of purchase are classified as short-term because it is management’s intent to use the investments to fund current operations or to make them available for current operations.  

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in other expenses, net. The cost of investments sold is based on the specific-identification method. There were no realized gains or losses on investments for the periods presented. Interest on available-for-sale securities is included in other expenses, net and was not material for all periods presented.

Fair Value Measurements

Financial assets and liabilities are recorded at fair value on a recurring basis in the balance sheets. The carrying values of the Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, prepaid and other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:

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

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds and commercial paper that are stated at fair value.

Convertible Preferred Stock Liability

The freestanding instruments related to the commitment by the Series A convertible preferred stockholders to purchase and by the Company to sell its Series A convertible preferred stock in subsequent closings, contingent upon the achievement of certain developmental milestones and approval by the board of directors, at a fixed price per stock, were considered a liability (or an asset), measured at fair value as the shares underlying the rights contained liquidation preferences upon certain “deemed liquidation events” that were not solely within the Company’s control and which were considered in-substance contingent redemption features. The instruments were subject to revaluation at each balance sheet date until settlement or extinguishment, with revaluations recognized as either a component of other expenses, net in the condensed consolidated statements of operations and comprehensive loss, or additional paid-in capital in the condensed consolidated balance sheets. Upon the completion of the Company’s IPO, the remaining shares of convertible preferred stock that were previously issuable under a subsequent closing were no longer issuable. Accordingly, the preferred stock liability was extinguished and because the transaction occurred between related parties, the resulting $25.6 million was accounted for as a capital contribution by the preferred stockholders.

Risk and Uncertainties

Due to the ongoing COVID-19 pandemic, the Company may experience disruptions that could negatively impact the Company’s growth, employee productivity and its ability to recruit and onboard new employees. The pandemic has disrupted and may continue to disrupt the Company’s business and delay its preclinical and clinical programs and timelines. The extent to which the COVID-19 pandemic may impact the Company’s future operating results and financial condition is uncertain.

Comprehensive Loss

The Company’s comprehensive loss is comprised of changes in unrealized gains (losses) on available-for-sale securities and foreign currency transaction adjustments.

 

Recently Adopted Accounting Pronouncement

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard effective from January 1, 2020, with the removed and modified disclosures adopted on a retrospective basis and the new disclosures adopted on a prospective basis. The standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02—Leases (“ASU 2016-02”), requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and for nonpublic entities for fiscal years beginning after December 15, 2021. As an emerging growth company, ASU 2016-02 is effective for the Company for the year ending December 31, 2022 and interim periods within the year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard is effective for public entities for fiscal years beginning after December 15, 2020 and for nonpublic entities for fiscal years beginning after December 15, 2021. As an emerging growth company, ASU 2019-12 is effective for the Company for the year ending December 31, 2022 and interim periods within the year ending December 31, 2023. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

3. Fair Value Measurements

The following table presents the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2020 (in thousands):

 

 

 

 

 

September 30, 2020

 

 

 

Valuation

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

 

Hierarchy

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

 

Level 1

 

$

32,445

 

 

$

 

 

$

 

 

$

32,445

 

Commercial paper

 

Level 2

 

 

45,034

 

 

 

1

 

 

 

(1

)

 

 

45,034

 

Agency bonds

 

Level 2

 

 

28,751

 

 

 

12

 

 

 

(3

)

 

 

28,760

 

U.S. government bonds

 

Level 2

 

 

7,135

 

 

 

1

 

 

 

 

 

 

7,136

 

Corporate debt securities

 

Level 2

 

 

5,822

 

 

 

 

 

 

(3

)

 

 

5,819

 

U.S. treasury bills

 

Level 2

 

 

2,150

 

 

 

 

 

 

 

 

 

2,150

 

Agency discount securities

 

Level 2

 

 

460

 

 

 

 

 

 

 

 

 

460

 

Municipal bonds

 

Level 2

 

 

177

 

 

 

 

 

 

 

 

 

177

 

Total cash equivalents and available-for-sale securities

 

 

 

$

121,974

 

 

$

14

 

 

$

(7

)

 

$

121,981

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

44,379

 

Short-term investments