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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 June 30, 2022

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) 432-9270

 

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   

 As of August 5, 2022, the registrant had 39,073,995 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 Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

23

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Default Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

41

Signatures

42

 

 

i


 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

89bio, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,618

 

 

$

52,432

 

Restricted cash

 

 

25

 

 

 

25

 

Short-term available-for-sale securities

 

 

78,707

 

 

 

98,288

 

Prepaid and other current assets

 

 

7,218

 

 

 

11,237

 

Total current assets

 

 

146,568

 

 

 

161,982

 

Operating lease right-of-use asset

 

 

109

 

 

 

 

Property and equipment, net

 

 

121

 

 

 

150

 

Other assets

 

 

797

 

 

 

290

 

Total assets

 

$

147,595

 

 

$

162,422

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,907

 

 

$

6,843

 

Accrued expenses

 

 

14,388

 

 

 

10,194

 

Operating lease liability, current

 

 

104

 

 

 

 

Term loan, current

 

 

7,500

 

 

 

2,500

 

Total current liabilities

 

 

26,899

 

 

 

19,537

 

Term loan, non-current, net

 

 

12,050

 

 

 

16,898

 

Liability related to public offering

 

 

28,186

 

 

 

 

Other non-current liability

 

 

275

 

 

 

30

 

Total liabilities

 

 

67,410

 

 

 

36,465

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

20

 

 

 

20

 

Additional paid-in capital

 

 

344,319

 

 

 

339,218

 

Accumulated other comprehensive loss

 

 

(318

)

 

 

(64

)

Accumulated deficit

 

 

(263,836

)

 

 

(213,217

)

Total stockholders’ equity

 

 

80,185

 

 

 

125,957

 

Total liabilities and stockholders’ equity

 

$

147,595

 

 

$

162,422

 

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

19,686

 

 

$

15,630

 

 

$

39,535

 

 

$

25,761

 

General and administrative

 

 

5,052

 

 

 

4,921

 

 

 

10,311

 

 

 

9,529

 

Total operating expenses

 

 

24,738

 

 

 

20,551

 

 

 

49,846

 

 

 

35,290

 

Loss from operations

 

 

(24,738

)

 

 

(20,551

)

 

 

(49,846

)

 

 

(35,290

)

Other expenses, net

 

 

(316

)

 

 

(172

)

 

 

(772

)

 

 

(215

)

Net loss before tax

 

 

(25,054

)

 

 

(20,723

)

 

 

(50,618

)

 

 

(35,505

)

Income tax expense

 

 

 

 

 

 

 

 

(1

)

 

 

 

Net loss

 

$

(25,054

)

 

$

(20,723

)

 

$

(50,619

)

 

$

(35,505

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

 

(77

)

 

 

13

 

 

 

(272

)

 

 

9

 

Foreign currency translation adjustments

 

 

15

 

 

 

(6

)

 

 

18

 

 

 

5

 

Total other comprehensive (loss) income

 

$

(62

)

 

$

7

 

 

$

(254

)

 

$

14

 

Comprehensive loss

 

$

(25,116

)

 

$

(20,716

)

 

$

(50,873

)

 

$

(35,491

)

Net loss per share, basic and diluted

 

$

(1.23

)

 

$

(1.03

)

 

$

(2.49

)

 

$

(1.77

)

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

   and diluted

 

 

20,351,560

 

 

 

20,060,061

 

 

 

20,345,521

 

 

 

20,017,677

 

 

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

 

 

2


 

 

89bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

20,317,204

 

 

$

20

 

 

$

339,218

 

 

$

(64

)

 

$

(213,217

)

 

$

125,957

 

Issuance of common stock upon exercise of stock options

 

 

12,065

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Issuance of common stock upon vesting of restricted stock units, net

 

 

22,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,512

 

 

 

 

 

 

 

 

 

2,512

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,565

)

 

 

(25,565

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(192

)

 

 

 

 

 

(192

)

Balance as of March 31, 2022

 

 

20,351,384

 

 

 

20

 

 

 

341,759

 

 

 

(256

)

 

 

(238,782

)

 

 

102,741

 

Issuance of common stock upon ESPP purchases

 

 

15,979

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

43

 

Withholding taxes related to restricted stock units

 

 

 

 

 

 

 

 

(69

)

 

 

 

 

 

 

 

 

(69

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,586

 

 

 

 

 

 

 

 

 

2,586

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,054

)

 

 

(25,054

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(62

)

 

 

 

 

 

(62

)

Balance as of June 30, 2022

 

 

20,367,363

 

 

$

20

 

 

$

344,319

 

 

$

(318

)

 

$

(263,836

)

 

$

80,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2020

 

 

19,931,660

 

 

$

20

 

 

$

326,046

 

 

$

(10

)

 

$

(123,095

)

 

$

202,961

 

Issuance of common stock upon exercise of stock options

 

 

103,170

 

 

 

 

 

 

216

 

 

 

 

 

 

 

 

 

216

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,793

 

 

 

 

 

 

 

 

 

1,793

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,782

)

 

 

(14,782

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Balance as of March 31, 2021

 

 

20,034,830

 

 

 

20

 

 

 

328,055

 

 

 

(3

)

 

 

(137,877

)

 

 

190,195

 

Issuance of common stock upon exercise of stock options

 

 

40,628

 

 

 

 

 

 

152

 

 

 

 

 

 

 

 

 

152

 

Issuance of common stock upon ESPP purchases

 

 

5,207

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Issuance of common stock warrant in connection with term loan facility

 

 

 

 

 

 

 

 

574

 

 

 

 

 

 

 

 

 

574

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,417

 

 

 

 

 

 

 

 

 

2,417

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,723

)

 

 

(20,723

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Balance as of June 30, 2021

 

 

20,080,665

 

 

$

20

 

 

$

331,281

 

 

$

4

 

 

$

(158,600

)

 

$

172,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


 

89bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(50,619

)

 

$

(35,505

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

5,098

 

 

 

4,210

 

Accretion of final payment fee on term loan

 

 

245

 

 

 

 

Amortization of debt issuance costs

 

 

152

 

 

 

194

 

Amortization of premium on available-for-sale securities

 

 

128

 

 

 

472

 

Non-cash operating lease expense

 

 

91

 

 

 

 

Depreciation

 

 

34

 

 

 

35

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

4,037

 

 

 

(4,032

)

Other assets

 

 

(507

)

 

 

77

 

Accounts payable

 

 

(1,936

)

 

 

(159

)

Accrued expenses

 

 

4,194

 

 

 

(383

)

Operating lease liability

 

 

(96

)

 

 

 

Net cash used in operating activities

 

 

(39,179

)

 

 

(35,091

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

59,912

 

 

 

63,952

 

Purchases of available-for-sale securities

 

 

(40,731

)

 

 

(93,218

)

Purchases of property and equipment

 

 

(5

)

 

 

(20

)

Net cash provided by (used in) investing activities

 

 

19,176

 

 

 

(29,286

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering, prior to closing

 

 

28,186

 

 

 

 

Proceeds from issuance of common stock upon ESPP purchases

 

 

43

 

 

 

83

 

Proceeds from issuance of common stock upon stock option exercises

 

 

29

 

 

 

368

 

Payment of withholding taxes related to restricted stock units

 

 

(69

)

 

 

 

Proceeds from term loan facility, net of issuance costs

 

 

 

 

 

1,457

 

Net cash provided by financing activities

 

 

28,189

 

 

 

1,908

 

Net change in cash and cash equivalents, and restricted cash

 

 

8,186

 

 

 

(62,469

)

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

 

 

52,457

 

 

 

98,208

 

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

 

$

60,643

 

 

$

35,739

 

Components of cash and cash equivalents, and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,618

 

 

$

35,714

 

Restricted cash

 

 

25

 

 

 

25

 

Total cash and cash equivalents, and restricted cash

 

$

60,643

 

 

$

35,739

 

Supplemental disclosures of cash information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

404

 

 

$

 

Cash paid for operating leases

 

$

127

 

 

$

 

Supplemental disclosures of non-cash information:

 

 

 

 

 

 

 

 

Offering costs included in other assets and accrued expenses

 

$

580

 

 

$

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

 

 

$

3

 

Issuance of common stock warrant in connection with term loan facility

 

$

 

 

$

574

 

Debt issuance costs included in accounts payable

 

$

 

 

$

6

 

 

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

 

 

4


 

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, pegozafermin (previously 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 was formed as a Delaware corporation in June 2019 to carry on the business of 89Bio Ltd., which was incorporated in Israel in January 2018.

Public Offerings

In March 2021, the Company entered into a sales agreement (the “Sales Agreement”) with SVB Leerink LLC and Cantor Fitzgerald & Co. (the “Sales Agents”) pursuant to which it may offer and sell up to $75.0 million of shares of the Company’s common stock, from time to time, in “at-the-market” offerings (the “ATM Facility”). The Sales Agents are entitled to compensation at a commission equal to 3.0% of the aggregate gross sales price per share sold under the Sales Agreement. In October and November 2021, the Company received aggregate proceeds of $3.3 million, net of commissions and offering expenses from sales of 186,546 shares of its common stock at a weighted-average price of $17.97 per share pursuant to the ATM Facility. For the six months ended June 30, 2022, there were no sales pursuant to the ATM Facility.

In July 2022, pursuant to a shelf registration statement on Form S-3 (No. 333-254684), the Company completed an underwritten public offering of its common stock, warrants to purchase shares of its common stock and pre-funded warrants to purchase shares of its common stock. The Company sold 18,675,466 shares of its common stock with accompanying warrants to purchase up to 9,337,733 shares of its common stock at a combined public offering price of $3.55 per share. The Company also sold 7,944,252 pre-funded warrants to purchase shares of its common stock with accompanying warrants to purchase up to 3,972,126 shares of its common stock at a combined public offering price of $3.549 per pre-funded warrant. The warrants have an exercise price of $5.325 per share. The offering was completed on July 1, 2022 and the Company raised net proceeds of approximately $88.2 million, after deducting underwriting discounts and commissions of approximately $5.7 million and other offering costs of approximately $0.6 million. The Company received $28.2 million in proceeds in June 2022 prior to the closing of the offering. The proceeds are classified as a liability related to public offering on the condensed consolidated balance sheet.

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 and cash equivalents and short-term available-for-sale securities of $139.3 million as of June 30, 2022.

The Company expects that its cash and cash equivalents and short-term available-for-sale securities as of June 30, 2022, together with the proceeds received from the Company’s July 2022 offering and proceeds available from the Company’s ATM Facility, 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.

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, 2021 and, in the opinion of management, reflect all adjustments, which include only normal recurring

5


 

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 six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2021 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, 2021, which was filed with the SEC on March 24, 2022.

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 condensed 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 condensed 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 and certain accrued expenses. 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.

 

Fair Value Measurements

Financial assets and liabilities are recorded at fair value on a recurring basis in the condensed consolidated balance sheets. The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, prepaid and other current assets, accounts payable and accrued expenses approximate to their fair value due to the short-term nature of these instruments. The fair value of the Company’s term loan approximates its carrying value, or amortized cost, due to the prevailing market rates of interest it bears. 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; and

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.

Risks and Uncertainties

The ongoing COVID-19 pandemic has disrupted and may continue to disrupt the Company’s business and delay its preclinical and clinical programs and timelines. The Company does not yet know the full extent of potential delays to clinical trials, which could prevent or delay the Company from obtaining approval for pegozafermin. The extent to which the COVID-19 pandemic may impact the Company’s future operating results and financial condition is uncertain.

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.

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 available-for-sale investments in debt securities at the time of purchase. Generally, investments with original maturities beyond three months at the date

6


 

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. The Company has not experienced material realized gains or losses or other-than-temporary losses in the periods presented. Interest on available-for-sale securities is included in other expenses, net and is not material for the periods presented.

Leases

Prior to January 1, 2022, the Company accounted for leases under Accounting Standards Codification (“ASC”) 840, Leases (“ASC 840”). Effective January 1, 2022, the Company adopted and accounts for leases under ASC 842, Leases (“ASC 842”) as discussed below in the section titled “Recently Adopted Accounting Standards”. Therefore, as of December 31, 2021 and for the three and six months ended June 30 2021, the Company’s consolidated financial statements continue to be presented in accordance with ASC 840, the accounting standard originally in effect for such periods. As of June 30, 2022 and for the three and six months ended June 30, 2022, the Company’s consolidated financial statements are presented in accordance with ASC 842. The Company’s existing leases are for office and laboratory space.

The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use (“ROU”) asset and lease liability at the lease commencement date and thereafter if modified. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make the contractual lease payments over the lease term. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable, otherwise, the Company uses its estimated collateralized incremental borrowing rate for the lease term. The Company has elected not to record leases with an original term of twelve months or less on its consolidated balance sheets and recognizes those lease payments in operating expenses in the consolidated statements of operations and comprehensive loss. The Company’s short-term lease is not material.

In addition, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components and vary based on future outcomes. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a ROU asset and lease liability. Any variable expenses are recognized in operating expenses as incurred. The rent expense for an operating lease liability is recognized on a straight-line basis over the lease term and is included in operating expenses in the consolidated statements of operations and comprehensive loss.

Comprehensive Loss

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

Recently Adopted Accounting Standards

On January 1, 2022, the Company adopted ASC 842 using the modified retrospective transition method and elected the practical expedients to not reassess whether any expired or existing contracts are or contain leases, carry forward its historical lease classification and not reassess initial direct costs for existing leases. Upon adoption of ASC 842, the Company recorded an operating ROU asset of $0.2 million and an operating lease liability of $0.2 million. There was no adjustment to the opening balance of accumulated deficit as a result of adoption. Results for the three and six months ended June 30, 2022 are presented under ASC 842. Prior period amounts preceding January 1, 2022 continue to be reported in accordance with the Company’s historical accounting under the previous lease guidance, ASC 840.

7


 

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. As an emerging growth company, ASU 2016-13 is effective for the Company for the year ending December 31, 2023 and interim periods within that fiscal year and must be adopted using a modified retrospective approach, with certain exceptions. The Company is 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 June 30, 2022 (in thousands):

 

 

 

 

June 30, 2022

 

 

 

Valuation

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

 

Hierarchy

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

 

Level 1

 

$

14,347

 

 

$

 

 

$

 

 

$

14,347

 

Commercial paper

 

Level 2

 

 

45,710