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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2021

or

 

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

For the transition period from ________ to ________

Commission File Number: 001-39376

 

Poseida Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2846548

(State or Other Jurisdiction of

Incorporation or Organization)

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

9390 Towne Centre Drive, Suite 200, San Diego, California

92121

(Address of Principal Executive Offices)

(Zip Code)

(858) 779-3100

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

PSTX

Nasdaq Global Select Market

 

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of August 6, 2021, the registrant had 62,338,597 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


 

POSEIDA THERAPEUTICS, INC.

Index

 

PART I. FINANCIAL INFORMATION

Page

 

Item 1. Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of June 30, 2021, and December 31, 2020

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021, and 2020

4

 

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021, and 2020.

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021, and 2020

6

 

Notes to Condensed Consolidated Financial Statements

7

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

28

 

Item 4. Controls and Procedures

28

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

29

 

Item 1A. Risk Factors

29

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

74

 

Item 3. Defaults Upon Senior Securities

74

 

Item 4. Mine Safety Disclosures

74

 

Item 5. Other Information

74

 

Item 6. Exhibits

75

 

Signatures

76

 

1


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q including statements regarding our future results of operations or financial condition, business strategy, plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

our expectations regarding the timing, scope and results of our development activities, including our ongoing and planned clinical trials;

 

the timing of and plans for regulatory filings;

 

our plans to obtain and maintain regulatory approvals of our product candidates in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

 

the potential benefits of our product candidates and technologies;

 

our expectations regarding the use of our platform technologies to generate novel product candidates;

 

the market opportunities for our product candidates and our ability to maximize those opportunities;

 

our business strategies and goals;

 

estimates of our expenses, capital requirements, any future revenue, and need for additional financing;

 

our expectations regarding establishing manufacturing capabilities;

 

the performance of our third-party suppliers and manufacturers;

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our platform technologies and product candidates and our ability to operate our business without infringing on the intellectual property rights of others;

 

our expectations regarding developments and projections relating to our competitors, competing therapies that are or become available, and our industry;

 

our expectations regarding the impact of the COVID-19 pandemic on our business, our industry and the economy;

 

future changes in or impact of law and regulations in the United States and foreign countries; and

 

the sufficiency of our existing cash, cash equivalents and short-term investments to fund our operations.

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives and financial needs.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, advancements, discoveries, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Poseida”, “the Company,” “we,” “our” and “us” refer to Poseida Therapeutics, Inc. and its subsidiaries.

We regularly make material business and financial information available to our investors using our investor relations website (https://investors.poseida.com). We therefore encourage investors and others interested in Poseida to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, or the SEC, press releases and conference calls.

2


PART I.  FINANCIAL INFORMATION

Item 1.Financial Statements

POSEIDA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

199,693

 

 

$

83,966

 

Short-term investments

 

 

37,568

 

 

 

225,186

 

Prepaid expenses and other current assets

 

 

3,111

 

 

 

4,844

 

Total current assets

 

 

240,372

 

 

 

313,996

 

Property and equipment, net

 

 

23,296

 

 

 

23,336

 

Operating lease right-of-use assets

 

 

26,069

 

 

 

24,986

 

Intangible assets

 

 

1,320

 

 

 

1,320

 

Goodwill

 

 

4,228

 

 

 

4,228

 

Other long-term assets

 

 

3,826

 

 

 

3,618

 

Total assets

 

$

299,111

 

 

$

371,484

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,506

 

 

$

763

 

Accrued expenses and other liabilities

 

 

21,852

 

 

 

24,454

 

Operating lease liabilities, current

 

 

5,641

 

 

 

4,808

 

Total current liabilities

 

 

31,999

 

 

 

30,025

 

Operating lease liabilities, non-current

 

 

26,086

 

 

 

25,374

 

Term debt

 

 

29,273

 

 

 

29,133

 

Deferred CIRM grant liability

 

 

23,755

 

 

 

23,755

 

Deferred tax liability

 

 

55

 

 

 

55

 

Other long-term liabilities

 

 

1,367

 

 

 

1,174

 

Total liabilities

 

 

112,535

 

 

 

109,516

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value: 250,000,000 shares authorized at June 30, 2021 and December 31, 2020; 62,166,167 and 61,860,897 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

552,473

 

 

 

543,842

 

Accumulated other comprehensive income

 

 

1

 

 

 

5

 

Accumulated deficit

 

 

(365,904

)

 

 

(281,885

)

Total stockholders’ equity

 

 

186,576

 

 

 

261,968

 

Total liabilities and stockholders’ equity

 

$

299,111

 

 

$

371,484

 

 

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

3


POSEIDA THERAPEUTICS, INC.

Condensed Consolidated 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,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

36,008

 

 

$

25,210

 

 

$

65,103

 

 

$

48,625

 

General and administrative

 

 

8,871

 

 

 

4,236

 

 

 

17,240

 

 

 

9,090

 

Total operating expenses

 

 

44,879

 

 

 

29,446

 

 

 

82,343

 

 

 

57,715

 

Loss from operations

 

 

(44,879

)

 

 

(29,446

)

 

 

(82,343

)

 

 

(57,715

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(843

)

 

 

(892

)

 

 

(1,681

)

 

 

(1,806

)

Other income (expense), net

 

 

17

 

 

 

(90

)

 

 

5

 

 

 

309

 

Net loss before income tax

 

 

(45,705

)

 

 

(30,428

)

 

 

(84,019

)

 

 

(59,212

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(45,705

)

 

$

(30,428

)

 

$

(84,019

)

 

$

(59,212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on short-term investments

 

 

(14

)

 

 

(110

)

 

 

(4

)

 

 

1

 

Comprehensive loss

 

$

(45,719

)

 

$

(30,538

)

 

$

(84,023

)

 

$

(59,211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.74

)

 

$

(2.28

)

 

$

(1.35

)

 

$

(4.44

)

Weighted-average number of shares outstanding, basic and diluted

 

 

62,150,961

 

 

 

13,370,763

 

 

 

62,066,498

 

 

 

13,346,672

 

 

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

4


POSEIDA THERAPEUTICS, INC.

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

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

 

61,860,897

 

 

$

6

 

 

$

543,842

 

 

$

5

 

 

$

(281,885

)

 

$

261,968

 

Issuance of common stock under employee stock compensation plans

 

 

 

265,839

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

3,462

 

 

 

 

 

 

 

 

 

3,462

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,314

)

 

 

(38,314

)

Balance at March 31, 2021

 

 

 

62,126,736

 

 

$

6

 

 

$

547,664

 

 

$

15

 

 

$

(320,199

)

 

$

227,486

 

Issuance of common stock under employee stock compensation plans

 

 

 

39,431

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

4,742

 

 

 

 

 

 

 

 

 

4,742

 

Unrealized loss on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,705

)

 

 

(45,705

)

Balance at June 30, 2021

 

 

 

 

 

 

 

62,166,167

 

 

$

6

 

 

$

552,473

 

 

$

1

 

 

$

(365,904

)

 

$

186,576

 

 

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Deficit

 

Balance at January 1, 2020

 

 

32,934,785

 

 

$

222,173

 

 

 

 

13,196,419

 

 

$

2

 

 

$

2,689

 

 

$

19

 

 

$

(152,221

)

 

$

(149,511

)

Transition adjustment from

   adoption of ASC 842 (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

111

 

 

 

111

 

Issuance of common stock under

   employee stock compensation

   plans

 

 

 

 

 

 

 

 

 

174,359

 

 

 

 

 

 

183

 

 

 

 

 

 

 

 

 

183

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,509

 

 

 

 

 

 

 

 

 

1,509

 

Unrealized gain on available-

   for-sale investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

111

 

 

 

 

 

 

111

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,784

)

 

 

(28,784

)

Balance at March 31, 2020

 

 

32,934,785

 

 

$

222,173

 

 

 

 

13,370,778

 

 

$

2

 

 

$

4,381

 

 

$

130

 

 

$

(180,894

)

 

$

(176,381

)

Issuance of Series D preferred

   stock for cash, net of issuance

   costs of $5,359

 

 

10,018,300

 

 

 

104,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,616

 

 

 

 

 

 

 

 

 

1,616

 

Unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

 

(110

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,428

)

 

 

(30,428

)

Balance at June 30, 2020

 

 

42,953,085

 

 

$

326,313

 

 

 

 

13,370,778

 

 

$

2

 

 

$

5,997

 

 

$

20

 

 

$

(211,322

)

 

$

(205,303

)

 

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

 

5


 

POSEIDA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(84,019

)

 

$

(59,212

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

2,200

 

 

 

859

 

Loss on disposal of property and equipment

 

 

5

 

 

 

 

Stock-based compensation

 

 

8,204

 

 

 

3,125

 

Change in preferred stock warrant liability

 

 

 

 

 

199

 

Accretion of discount on issued term debt

 

 

332

 

 

 

476

 

Accretion of investment discount, net

 

 

114

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,733

 

 

 

(1,817

)

Operating lease right-of-use assets

 

 

1,817

 

 

 

2,201

 

Other long-term assets

 

 

(208

)

 

 

(137

)

Accounts payable

 

 

3,727

 

 

 

(3,654

)

Accrued expenses and other liabilities

 

 

(2,694

)

 

 

6,233

 

Operating lease liabilities

 

 

(1,355

)

 

 

(1,959

)

Net cash used in operating activities

 

 

(70,144

)

 

 

(53,686

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,056

)

 

 

(11,955

)

Purchases of short-term investments

 

 

 

 

 

(19,884

)

Proceeds from maturities of short-term investments

 

 

187,500

 

 

 

37,500

 

Net cash provided by investing activities

 

 

185,444

 

 

 

5,661

 

Financing Activities:

 

 

 

 

 

 

 

 

Net proceeds from stock option exercises

 

 

427

 

 

 

183

 

Issuance of Series D financing, net of issuance costs

 

 

 

 

 

104,140

 

Payment of deferred offering costs

 

 

 

 

 

(787

)

Payment of debt issuance costs

 

 

 

 

 

(325

)

Net proceeds from CIRM grant awards

 

 

 

 

 

4,163

 

Net cash provided by financing activities

 

 

427

 

 

 

107,374

 

Net increase in cash and cash equivalents

 

 

115,727

 

 

 

59,349

 

Cash and cash equivalents at beginning of period

 

 

83,966

 

 

 

87,784

 

Cash and cash equivalents at end of period

 

$

199,693

 

 

$

147,133

 

 

 

 

 

 

 

 

 

 

Non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued liabilities

 

$

109

 

 

$

2,186

 

Tenant improvement receivable from landlord

 

 

 

 

 

1,314

 

Deferred offering costs incurred but not yet paid

 

 

 

 

 

1,092

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,356

 

 

$

1,660

 

 

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

 

6


 

 

Note 1. Nature of Business and Basis of Presentation

Nature of Operations

Poseida Therapeutics, Inc. (the “Company” or “Poseida”) is a clinical-stage biopharmaceutical company dedicated to utilizing its proprietary genetic engineering platform technologies to create next generation cell and gene therapeutics with the capacity to cure. The Company has discovered and is developing a broad portfolio of product candidates in a variety of indications based on its core proprietary platforms, including our non-viral piggyBac DNA Delivery System, Cas-CLOVER Site-specific Gene Editing System and nanoparticle- and AAV-based gene delivery technologies.

The Company is subject to risks and uncertainties common to development-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s therapeutic development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.

Liquidity and Capital Resources

The Company has experienced net losses and negative cash flows from operations since its inception and has relied on its ability to fund its operations primarily through equity financings. For the six months ended June 30, 2021 the Company incurred a net loss of $84.0 million and negative cash flows from operations of $70.1 million. The Company expects to continue to incur net losses and negative cash flows from operations for at least the next several years. As of June 30, 2021, the Company had an accumulated deficit of $365.9 million.

The Company expects that its cash, cash equivalents and short-term investments as of June 30, 2021 of $237.3 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. In the long term, the Company will need additional financing to support its continuing operations and pursue its business strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements reflect the Company’s financial position, results of operations and cash flows, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated financial statements include the accounts of Poseida Therapeutics, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly state the financial position and the results of its operations and cash flows for interim periods presented. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 11, 2021 from which the Company derived its condensed consolidated balance sheet as of December 31, 2020.

These condensed consolidated financial statements reflect a 1-for-1.247 reverse stock split of the Company’s common stock, which became effective on July 2, 2020. All share and per share data for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retrospectively, where applicable, to reflect the reverse stock split.

7


 

Risk and Uncertainties

In March 2020, the World Health Organization made the assessment that a novel strain of coronavirus, SARS-CoV-2, a novel strain of coronavirus, commonly referred to as COVID-19 had become a global pandemic. The impact of this pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Impacts to the Company’s business, some of which the Company has experienced to date, include, but are not limited to, temporary closures of its facilities or those of its vendors, disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing laboratory experiments, preclinical studies, clinical trials, third-party manufacturing supply and other operations, the diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities, and the Company’s ability to raise capital and conduct business development activities.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, which include, but are not limited to, estimates related to accrued expenses, research and development expenses, stock-based compensation expense, deferred tax valuation allowances and, prior to the Company’s initial public offering (“IPO”) completed in July 2020, the fair value of common stock and warrant liability. The Company bases its estimates on historical experience and other market-specific or relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Prior to the IPO, the Company utilized significant estimates and assumptions in determining the fair value of its common stock. The Company has utilized various valuation methodologies in accordance with the framework of the 2004 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including the prices at which the Company sold shares of preferred stock and the superior rights, preferences and privileges of the preferred stock relative to the common stock; the Company’s stage of development and material risks related to its business; the progress of the Company’s research and development programs, including the status and results of preclinical studies for its product candidates and progress of its development of manufacturing processes; external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry; the Company’s results of operations and financial position, including its levels of available capital resources, outstanding debt and its historical and forecasted performance and operating results; the lack of an active public market for the Company’s common stock and preferred stock; the likelihood of achieving a liquidity event, such as an IPO or sale of the Company in light of prevailing market conditions; the hiring of key personnel; and the analysis of IPOs and the market performance of publicly traded companies in the biopharmaceutical industry, as well as recently completed mergers and acquisitions of peer companies. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

Fair Value Measurements

Certain financial instruments are required to be recorded at fair value. Other financial instruments, like cash are recorded at cost, which approximates fair value. Cash equivalents and short-term investments are comprised of available-for-sale securities, which are carried at fair value. Additionally, carrying amounts of accounts payable and accrued liabilities approximate fair value because of the short maturity of those instruments. The carrying value of the Company’s term debt approximates its fair value due to its variable interest rate, which approximates a market interest rate.

Concentration of Business Risk

The Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and materials for its development programs. These programs could be adversely affected by a significant interruption in these manufacturing services.

8


 

Short-Term Investments

Investments with a remaining maturity when purchased of greater than three months are classified as short-term investments on the balance sheet and consist primarily of U.S. Treasury and government agency obligations. As the Company’s entire investment portfolio is considered available for use in current operations, the Company classifies all investments as available-for-sale and as current assets. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the remaining term of the instrument. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were recorded during the periods presented.

Leases

The Company accounts for leases in accordance with Accounting Standards Codification Topic 842, Leases, (“ASC 842”). The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the Company has the right to control the use of the identified asset.

Operating leases where the Company is the lessee are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, non-current on its condensed consolidated balance sheets. The lease liabilities are initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date.

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. The rates implicit in the Company’s leases are not known, therefore, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

The lease term for all of the Company’s leases includes the noncancelable period of the lease. Where the Company’s lease term is impacted by options to extend or terminate the lease, when it is reasonably certain that it will exercise such option, then the lease payments are included in the measurement of the lease asset or liability.

The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term. There are no variable lease payments associated with these leases. Additionally, the Company has elected to account for the lease and non-lease components together as a single lease component for its real estate asset class.

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and disclosures.

9


 

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity is required to consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which established ASC 326, Financial Instruments - Credit Losses. This ASU, along with subsequent amendments, improves financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance will become effective for the Company beginning January 1, 2023, with early adoption permitted. The Company is currently evaluating the potential impact ASU 2016-13 may have on its financial position and results of operations upon adoption.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation- Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40) which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument ASU 2021-04 also provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 also provides guidance on the recognition of the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. This guidance will become effective for the Company beginning January 1, 2022. The Company is currently evaluating the potential impact the adoption of ASU 2021-04 may have on its financial position and results of operations upon adoption.

Note 3. Composition of Certain Balance Sheet Components

Property and equipment, net

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

 

 

 

June 30,

2021

 

 

December 31,

2020

 

Laboratory equipment

 

$

13,407

 

 

$

11,420

 

Leasehold improvements

 

 

13,873