eq-10q_20190930.htm

 

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 September 30, 2019

OR

 

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

For the transition period from to

Commission File Number: 001-38692

 

EQUILLIUM, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

82-1554746

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

2223 Avenida de la Playa, Suite 105, La Jolla, CA

92037

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code: (858) 412-5302

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

EQ

 

The 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 filer

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 November 8, 2019, the registrant had 17,376,236 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 


EQUILLIUM, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page No.

PART I

 

FINANCIAL INFORMATION

 

1

ITEM 1.

 

FINANCIAL STATEMENTS

 

1

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

2

 

 

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

 

3

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

ITEM 2.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

13

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

20

ITEM 4.

 

CONTROLS AND PROCEDURES

 

20

PART II

 

OTHER INFORMATION

 

21

ITEM 1.

 

LEGAL PROCEEDINGS

 

21

ITEM 1A.

 

RISK FACTORS

 

21

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

64

ITEM 6.

 

EXHIBITS

 

65

SIGNATURES

 

66

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Equillium, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,657

 

 

$

28,508

 

Short-term investments

 

 

34,581

 

 

 

37,405

 

Prepaid expenses and other current assets

 

 

671

 

 

 

1,186

 

Total current assets

 

 

62,909

 

 

 

67,099

 

Property and equipment, net

 

 

71

 

 

 

64

 

Other assets

 

 

15

 

 

 

-

 

Total assets

 

$

62,995

 

 

$

67,163

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,675

 

 

$

1,119

 

Accrued expenses

 

 

1,599

 

 

 

909

 

Total current liabilities

 

 

4,274

 

 

 

2,028

 

Long-term notes payable

 

 

9,616

 

 

 

-

 

Other non-current liabilities

 

 

146

 

 

 

200

 

Total liabilities

 

 

14,036

 

 

 

2,228

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized;

   17,376,236 shares issued and outstanding

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

82,423

 

 

 

80,441

 

Accumulated other comprehensive income

 

 

80

 

 

 

5

 

Accumulated deficit

 

 

(33,545

)

 

 

(15,512

)

Total stockholders' equity

 

 

48,959

 

 

 

64,935

 

Total liabilities and stockholders' equity

 

$

62,995

 

 

$

67,163

 

 

See accompanying notes.

1


Equillium, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,182

 

 

$

1,222

 

 

$

12,191

 

 

$

2,425

 

General and administrative

 

 

2,142

 

 

 

1,004

 

 

 

6,920

 

 

 

1,963

 

Total operating expenses

 

 

6,324

 

 

 

2,226

 

 

 

19,111

 

 

 

4,388

 

Loss from operations

 

 

(6,324

)

 

 

(2,226

)

 

 

(19,111

)

 

 

(4,388

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2

)

 

 

(1,221

)

 

 

(2

)

 

 

(2,329

)

Interest income

 

 

324

 

 

 

27

 

 

 

1,097

 

 

 

57

 

Other expense, net

 

 

(12

)

 

 

-

 

 

 

(17

)

 

 

-

 

Change in fair value of Biocon anti-dilution right

 

 

-

 

 

 

(1,497

)

 

 

-

 

 

 

(1,599

)

Total other income (expense), net

 

 

310

 

 

 

(2,691

)

 

 

1,078

 

 

 

(3,871

)

Net loss

 

$

(6,014

)

 

$

(4,917

)

 

$

(18,033

)

 

$

(8,259

)

Other comprehensive (loss) income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(14

)

 

 

-

 

 

 

69

 

 

 

-

 

Foreign currency translation gain

 

 

7

 

 

 

-

 

 

 

6

 

 

 

-

 

Total other comprehensive (loss) income, net

 

 

(7

)

 

 

-

 

 

 

75

 

 

 

-

 

Comprehensive loss

 

$

(6,021

)

 

$

(4,917

)

 

$

(17,958

)

 

$

(8,259

)

Net loss per share, basic and diluted

 

$

(0.35

)

 

$

(0.44

)

 

$

(1.04

)

 

$

(0.76

)

Weighted-average common shares outstanding,

   basic and diluted

 

 

17,376,236

 

 

 

11,078,840

 

 

 

17,376,236

 

 

 

10,835,483

 

 

See accompanying notes.

2


Equillium, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2017

 

 

10,708,074

 

 

$

-

 

 

$

10

 

 

$

-

 

 

$

(2,262

)

 

$

(2,252

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,577

)

 

 

(1,577

)

Balance at March 31, 2018

 

 

10,708,074

 

 

$

-

 

 

$

10

 

 

$

-

 

 

$

(3,839

)

 

$

(3,829

)

Issuance of common stock, net of liability

 

 

267,690

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,765

)

 

 

(1,765

)

Balance at June 30, 2018

 

 

10,975,764

 

 

$

-

 

 

$

11

 

 

$

-

 

 

$

(5,604

)

 

$

(5,593

)

Issuance of common stock, net of liability

 

 

154,682

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

131

 

 

 

-

 

 

 

-

 

 

 

131

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,917

)

 

 

(4,917

)

Balance at September 30, 2018

 

 

11,130,446

 

 

$

-

 

 

$

142

 

 

$

-

 

 

$

(10,521

)

 

$

(10,379

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

17,376,236

 

 

$

1

 

 

$

80,441

 

 

$

5

 

 

$

(15,512

)

 

$

64,935

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

19

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

446

 

 

 

-

 

 

 

-

 

 

 

446

 

Other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44

 

 

 

-

 

 

 

44

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,950

)

 

 

(5,950

)

Balance at March 31, 2019

 

 

17,376,236

 

 

$

1

 

 

$

80,906

 

 

$

49

 

 

$

(21,462

)

 

$

59,494

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

19

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

581

 

 

 

-

 

 

 

-

 

 

 

581

 

Other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38

 

 

 

-

 

 

 

38

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,069

)

 

 

(6,069

)

Balance at June 30, 2019

 

 

17,376,236

 

 

$

1

 

 

$

81,506

 

 

$

87

 

 

$

(27,531

)

 

$

54,063

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

633

 

 

 

-

 

 

 

-

 

 

 

633

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

266

 

 

 

 

 

 

 

 

 

 

 

266

 

Other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7

)

 

 

-

 

 

 

(7

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,014

)

 

 

(6,014

)

Balance at September 30, 2019

 

 

17,376,236

 

 

$

1

 

 

$

82,423

 

 

$

80

 

 

$

(33,545

)

 

$

48,959

 

 

See accompanying notes.

3


Equillium, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,033

)

 

$

(8,259

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17

 

 

 

4

 

Stock-based compensation

 

 

1,660

 

 

 

131

 

Non-cash interest expense

 

 

-

 

 

 

2,329

 

Accretion of discount on investments, net

 

 

(327

)

 

 

-

 

Change in fair value of Biocon anti-dilution right

 

 

-

 

 

 

1,599

 

Other non-cash expense

 

 

19

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

495

 

 

 

(32

)

Accounts payable

 

 

1,559

 

 

 

353

 

Accrued expenses

 

 

694

 

 

 

175

 

Net cash used in operating activities

 

 

(13,916

)

 

 

(3,700

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(56

)

 

 

(25

)

Purchases of short-term investments

 

 

(36,095

)

 

 

-

 

Maturities of short-term investments

 

 

39,315

 

 

 

-

 

Net cash provided by (used in) investing activities

 

 

3,164

 

 

 

(25

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable, net of issuance costs

 

 

9,941

 

 

 

-

 

Proceeds from issuance of convertible promissory notes, net

 

 

-

 

 

 

1,599

 

Proceeds from exercise of stock options, including early exercise

 

 

-

 

 

 

199

 

Costs paid in connection with initial public offering

 

 

-

 

 

 

(195

)

Net cash provided by financing activities

 

 

9,941

 

 

 

1,603

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(40

)

 

 

-

 

Net decrease in cash and cash equivalents

 

 

(851

)

 

 

(2,122

)

Cash and cash equivalents at beginning of period

 

 

28,508

 

 

 

7,104

 

Cash and cash equivalents at end of period

 

$

27,657

 

 

$

4,982

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

 

Fair value of common stock warrants in connection with issuance of notes payable

 

$

266

 

 

$

-

 

Notes payable issuance costs in accounts payable

 

$

58

 

 

$

-

 

 

See accompanying notes.

 

4


Notes to Condensed Consolidated Financial Statements

1. Organization and Accounting Pronouncements

Description of Business

Equillium, Inc. (the Company) was incorporated in the state of Delaware on March 16, 2017. The Company is engaged in the research and development of products for severe autoimmune and inflammatory disorders with high unmet medical need.

From inception through September 30, 2019, the Company has devoted substantially all of its efforts to organizing and staffing the company, business planning, raising capital, in-licensing rights to itolizumab, conducting preclinical research, filing two initial Investigational New Drug applications (INDs) and commencing clinical development of the Company’s initial product candidate, itolizumab (EQ001). In addition, the Company has a limited operating history, has not generated revenues from its principal operations, and the sales and income potential of its business is unproven.

Liquidity

As of September 30, 2019, the Company had $62.2 million in cash, cash equivalents and short-term investments. The Company has incurred significant operating losses and negative cash flows from operations. The Company expects to use its cash, cash equivalents and short-term investments to fund research and development of itolizumab and for working capital and other general corporate purposes. The Company does not expect to generate any revenues from product sales unless and until the Company successfully completes development and obtains regulatory approval of itolizumab or any future product candidate, which will not be for at least the next several years, if ever. Accordingly, until such time as the Company can generate significant revenue from sales of its product candidates, if ever, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements. However, the Company may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. The Company’s failure to raise capital or enter into such other arrangements when needed would have a negative impact on the Company’s financial condition and could force the Company to delay, reduce or terminate its research and development programs or other operations, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself. Management believes that the Company’s cash, cash equivalents and short-term investments as of September 30, 2019 will be sufficient to fund operations for more than a year from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (SEC).

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the SEC related to a quarterly report on Form 10-Q. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The operating results presented in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2019.

Principles of Consolidation

In January 2019, the Company created a new wholly-owned subsidiary in Australia with the Company serving as the sole shareholder through the subscription of shares. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.

5


Recently Issued Accounting Pronouncements

In February 2015, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the FASB ASC 840 and creates Topic 842, Leases. The new topic supersedes Topic 840, Leases, and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2019 due to the Company’s emerging growth company status. ASU 2016-02 mandates a modified retrospective transition method. The Company plans to adopt the provisions of ASU 2016-02 in fiscal year 2020, and the Company is evaluating the impact on the condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments. The standard is effective for annual reporting periods beginning after December 15, 2018 and interim periods reporting within fiscal years beginning after December 15, 2019. The Company adopted this guidance as of January 1, 2019, which did not have a material effect on the condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company plans to adopt the provisions of ASU 2018-13 in the first quarter of 2020, and the Company is currently evaluating the impact on the condensed consolidated financial statements.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Significant estimates in the Company’s condensed consolidated financial statements relate to clinical trial accruals and the valuation of equity awards. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events, and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Accrued Research and Development Expense

The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants and contract research organizations, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company reflects research and development expenses in its condensed consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the preclinical or clinical study as measured by the timing of various aspects of the study or related activities. The Company determines accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and other key personnel as to the progress of studies, or other services being conducted. During the course of a study, the Company adjusts its rate of expense recognition if actual results differ from its estimates. The Company classifies its estimates for accrued research and development expenses as accrued expenses on the accompanying condensed consolidated balance sheet.

Stock-Based Compensation

The Company measures employee and non-employee stock-based awards, including stock options and stock purchase rights, at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the award. The Company uses the Black-Scholes option pricing model to value its stock option awards. Estimating the fair value of stock option awards requires management to apply judgment and make estimates of certain assumptions, including the volatility of the Company’s common stock, the expected term of the Company’s stock options, the expected dividend yield and the fair value of the Company’s common stock on the measurement date. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

6


The expected term of stock options was estimated using the “simplified method” for employee options as the Company has no historical information to develop reasonable expectations about future exercise patterns and post vesting employment termination behavior for its stock option grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For options granted to non-employees, the Company uses the remaining contractual life. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company’s history of not paying dividends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The Company accounts for forfeitures when they occur, and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities include outstanding options under the Company’s equity incentive plan and outstanding warrants to purchase common stock, each of which have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common stock options

 

 

1,203,483

 

 

 

-

 

 

 

1,203,483

 

 

 

-

 

Common stock warrants

 

 

80,428

 

 

 

 

 

 

 

80,428

 

 

 

 

 

Total

 

 

1,283,911

 

 

 

-

 

 

 

1,283,911

 

 

 

-

 

 

3. Fair Value of Financial Instruments

The following tables summarize the Company’s assets that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

 

Active Markets

 

 

Other

 

 

Unobservable

 

 

 

September 30,

 

 

for Identical

 

 

Observable

 

 

Inputs

 

 

 

2019

 

 

Assets (Level 1)

 

 

Inputs (Level 2)

 

 

(Level 3)

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

22,466

 

 

$

22,466

 

 

$

-

 

 

$

-

 

Agency securities

 

 

7,224

 

 

 

-

 

 

 

7,224

 

 

 

-

 

Certificates of deposit

 

 

4,891

 

 

 

4,891

 

 

 

-

 

 

 

-

 

Total

 

$

34,581

 

 

$

27,357

 

 

$

7,224

 

 

$

-

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

 

Active Markets

 

 

Other

 

 

Unobservable

 

 

 

December 31,

 

 

for Identical

 

 

Observable

 

 

Inputs

 

 

 

2018

 

 

Assets (Level 1)

 

 

Inputs (Level 2)

 

 

(Level 3)

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

29,821

 

 

$

29,821

 

 

$

-

 

 

$

-

 

Agency securities

 

 

5,659

 

 

 

-

 

 

 

5,659

 

 

 

-

 

Certificates of deposit

 

 

1,925

 

 

 

1,925

 

 

 

-

 

 

 

-

 

Total

 

$

37,405

 

 

$

31,746

 

 

$

5,659

 

 

$

-

 

 

7


U.S. treasury securities and certificates of deposit are valued using Level 1 inputs. Level 1 securities are valued at unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Investments in agency securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.

The carrying amounts of the Company’s financial instruments, including cash, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. The carrying amount of the Company’s notes payable of $9.6 million at September 30, 2019 approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles (Level 2 inputs). None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

At September 30, 2019 and December 31, 2018, the Company had investments in money market funds of $4.4 million and $12.6 million, respectively, that were measured at fair value using the net asset value per share (or its equivalent) that have not been classified in the fair value hierarchy. The funds invest primarily in U.S. government securities. 

 

The Company did not hold any Level 1, 2 or 3 financial liabilities that are recorded at fair value on a recurring basis as of September 30, 2019 and December 31, 2018.

 

4. Certain Financial Statement Caption Information

Short-Term Investments

The following is a summary of the Company’s short-term investments (in thousands):

 

 

 

Maturity

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

(in years)

 

Cost

 

 

Losses

 

 

Gains

 

 

Fair Value

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

1 or less

 

$

22,453

 

 

$

(2

)

 

$

15

 

 

$

22,466

 

Agency securities

 

1 or less

 

 

4,960

 

 

 

-

 

 

 

26

 

 

 

4,986

 

Agency securities

 

>1 and <5

 

 

2,237

 

 

 

-

 

 

 

1

 

 

 

2,238

 

Certificates of deposit

 

1 or less

 

 

2,431

 

 

 

-

 

 

 

11

 

 

 

2,442

 

Certificates of deposit

 

>1 and <5

 

 

2,426

 

 

 

-

 

 

 

23

 

 

 

2,449

 

Total

 

 

 

$

34,507

 

 

$

(2

)

 

$

76

 

 

$

34,581

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

1 or less

 

$

29,818

 

 

$

-

 

 

$

3

 

 

$

29,821

 

Agency securities

 

>1 and <5

 

 

5,657

 

 

 

-

 

 

 

2

 

 

 

5,659

 

Certificates of deposit

 

>1 and <5

 

 

1,925

 

 

 

-

 

 

 

-

 

 

 

1,925

 

Total

 

 

 

$

37,400

 

 

$

-

 

 

$

5

 

 

$

37,405

 

 

All of the Company’s available-for-sale securities are available to the Company for use in its current operations. As a result, the Company categorizes all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date. All of the Company’s securities have a maturity within two years of the balance sheet date.

There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. There were no gross realized gains and losses on sales of short-term investments for all periods presented. Unrealized gains and losses are included in accumulated other comprehensive loss.

8


Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Accrued payroll and other employee benefits

$

969

 

 

$

560

 

Clinical studies

 

425

 

 

 

245

 

Other accruals

 

201

 

 

 

96

 

Preclinical studies

 

4

 

 

 

8