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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: 001-38692

 

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 August 9, 2021, the registrant had 29,382,806 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

 

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

 

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

 

23

ITEM 6.

 

EXHIBITS

 

24

SIGNATURES

 

26

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Equillium, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,525

 

 

$

23,982

 

Short-term investments

 

 

24,118

 

 

 

58,181

 

Prepaid expenses and other current assets

 

 

1,923

 

 

 

3,011

 

Total current assets

 

 

99,566

 

 

 

85,174

 

Property and equipment, net

 

 

254

 

 

 

239

 

Other assets

 

 

17

 

 

 

15

 

Total assets

 

$

99,837

 

 

$

85,428

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,816

 

 

$

2,766

 

Accrued expenses

 

 

3,164

 

 

 

2,813

 

Current portion of long-term notes payable

 

 

-

 

 

 

1,666

 

Total current liabilities

 

 

4,980

 

 

 

7,245

 

Long-term notes payable

 

 

10,067

 

 

 

8,275

 

Other non-current liabilities

 

 

17

 

 

 

54

 

Total liabilities

 

 

15,064

 

 

 

15,574

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized;
29,382,806 and 24,753,102 shares issued and outstanding as of
June 30, 2021 and December 31, 2020, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

174,054

 

 

 

141,074

 

Accumulated other comprehensive loss

 

 

(209

)

 

 

(297

)

Accumulated deficit

 

 

(89,074

)

 

 

(70,925

)

Total stockholders' equity

 

 

84,773

 

 

 

69,854

 

Total liabilities and stockholders' equity

 

$

99,837

 

 

$

85,428

 

 

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,985

 

 

$

3,893

 

 

$

11,865

 

 

$

8,599

 

General and administrative

 

 

2,858

 

 

 

2,717

 

 

 

5,673

 

 

 

5,463

 

Total operating expenses

 

 

8,843

 

 

 

6,610

 

 

 

17,538

 

 

 

14,062

 

Loss from operations

 

 

(8,843

)

 

 

(6,610

)

 

 

(17,538

)

 

 

(14,062

)

Other (expense) income, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(270

)

 

 

(274

)

 

 

(541

)

 

 

(547

)

Interest income

 

 

13

 

 

 

122

 

 

 

39

 

 

 

342

 

Other (expense) income, net

 

 

(58

)

 

 

301

 

 

 

(109

)

 

 

(31

)

Total other (expense) income, net

 

 

(315

)

 

 

149

 

 

 

(611

)

 

 

(236

)

Net loss

 

$

(9,158

)

 

$

(6,461

)

 

$

(18,149

)

 

$

(14,298

)

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(5

)

 

 

(69

)

 

 

(8

)

 

 

69

 

Foreign currency translation gain (loss)

 

 

51

 

 

 

(308

)

 

 

96

 

 

 

7

 

Total other comprehensive income (loss), net

 

 

46

 

 

 

(377

)

 

 

88

 

 

 

76

 

Comprehensive loss

 

$

(9,112

)

 

$

(6,838

)

 

$

(18,061

)

 

$

(14,222

)

Net loss per share, basic and diluted

 

$

(0.31

)

 

$

(0.37

)

 

$

(0.64

)

 

$

(0.81

)

Weighted-average common shares outstanding,
   basic and diluted

 

 

29,076,562

 

 

 

17,692,731

 

 

 

28,205,805

 

 

 

17,627,641

 

 

See accompanying notes.

2


 

Equillium, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

17,425,654

 

 

$

1

 

 

$

82,938

 

 

$

21

 

 

$

(41,112

)

 

$

41,848

 

Issuance of common stock under ATM, net of issuance costs

 

 

174,649

 

 

 

-

 

 

 

825

 

 

 

-

 

 

 

-

 

 

 

825

 

Issuance of common stock

 

 

83,662

 

 

 

-

 

 

 

252

 

 

 

-

 

 

 

-

 

 

 

252

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

787

 

 

 

-

 

 

 

-

 

 

 

787

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

453

 

 

 

-

 

 

 

453

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,837

)

 

 

(7,837

)

Balance at March 31, 2020

 

 

17,683,965

 

 

$

1

 

 

$

84,820

 

 

$

474

 

 

$

(48,949

)

 

$

36,346

 

Issuance of common stock under employee stock purchase plan

 

 

39,885

 

 

 

 

 

$

96

 

 

 

 

 

 

 

 

 

96

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,350

 

 

 

-

 

 

 

-

 

 

 

1,350

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(377

)

 

 

-

 

 

 

(377

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,461

)

 

 

(6,461

)

Balance at June 30, 2020

 

 

17,723,850

 

 

$

1

 

 

$

86,284

 

 

$

97

 

 

$

(55,410

)

 

$

30,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

24,753,102

 

 

$

2

 

 

$

141,074

 

 

$

(297

)

 

$

(70,925

)

 

$

69,854

 

Issuance of common stock under registered direct offering, net of offering costs

 

 

4,285,710

 

 

 

-

 

 

 

29,909

 

 

 

-

 

 

 

-

 

 

 

29,909

 

Exercise of stock options

 

 

1,458

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

4

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,044

 

 

 

-

 

 

 

-

 

 

 

1,044

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42

 

 

 

-

 

 

 

42

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,991

)

 

 

(8,991

)

Balance at March 31, 2021

 

 

29,040,270

 

 

$

2

 

 

$

172,049

 

 

$

(255

)

 

$

(79,916

)

 

$

91,880

 

Issuance of common stock under employee stock purchase plan

 

 

48,966

 

 

 

-

 

 

 

127

 

 

 

-

 

 

 

-

 

 

 

127

 

Exercise of stock options

 

 

293,570

 

 

 

-

 

 

 

796

 

 

 

-

 

 

 

-

 

 

 

796

 

Vesting of restricted stock liability

 

 

-

 

 

 

-

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

18

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,064

 

 

 

-

 

 

 

-

 

 

 

1,064

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46

 

 

 

-

 

 

 

46

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,158

)

 

 

(9,158

)

Balance at June 30, 2021

 

 

29,382,806

 

 

$

2

 

 

$

174,054

 

 

$

(209

)

 

$

(89,074

)

 

$

84,773

 

 

See accompanying notes.

3


 

Equillium, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(18,149

)

 

$

(14,298

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

34

 

 

 

15

 

Stock-based compensation

 

 

2,108

 

 

 

2,137

 

Net unrealized loss on foreign currency transactions

 

 

107

 

 

 

34

 

Non-cash consulting expense

 

 

-

 

 

 

81

 

Amortization of term loan discount and issuance costs

 

 

126

 

 

 

130

 

Realized gain on investments

 

 

-

 

 

 

(13

)

Amortization of discount on investments, net

 

 

205

 

 

 

8

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,252

 

 

 

890

 

Accounts payable

 

 

(971

)

 

 

(100

)

Accrued expenses

 

 

350

 

 

 

(334

)

Net cash used in operating activities

 

 

(14,938

)

 

 

(11,450

)

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(23

)

 

 

(15

)

Purchases of short-term investments

 

 

(7,605

)

 

 

(2,225

)

Maturities of short-term investments

 

 

41,455

 

 

 

23,700

 

Net cash provided by investing activities

 

 

33,827

 

 

 

21,460

 

Financing activities:

 

 

 

 

 

 

Proceeds from registered direct offering, net of offering costs

 

 

29,909

 

 

 

-

 

Proceeds from issuance of common stock under ATM facility, net of issuance costs

 

 

-

 

 

 

775

 

Proceeds from exercise of stock options

 

 

626

 

 

 

-

 

Proceeds from ESPP purchase

 

 

127

 

 

 

96

 

Net cash provided by financing activities

 

 

30,662

 

 

 

871

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(8

)

 

 

(17

)

Net increase in cash and cash equivalents

 

 

49,543

 

 

 

10,864

 

Cash and cash equivalents at beginning of period

 

 

23,982

 

 

 

13,219

 

Cash and cash equivalents at end of period

 

$

73,525

 

 

$

24,083

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

Unsettled stock option exercises

 

$

174

 

 

$

-

 

Amounts included in accounts payable for purchases of property and equipment

 

$

25

 

 

$

-

 

Issuance of commitment shares to Lincoln Park pursuant to agreement

 

$

-

 

 

$

171

 

 

See accompanying notes.

 

4


 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 a clinical-stage biotechnology company leveraging deep understanding of immunology to develop novel products to treat severe autoimmune and inflammatory disorders with high unmet medical need.

From inception through June 30, 2021, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting non-clinical research, filing three initial Investigational New Drug applications (INDs), conducting clinical development of the Company’s initial product candidate, itolizumab (EQ001), conducting business development activities, and the general and administrative activities associated with operating a public company. 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 and Business Risks

As of June 30, 2021, the Company had $97.6 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 (EQ001) 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 (EQ001) or any future product candidate, which is unlikely to happen within the next 12 months, 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. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. 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 June 30, 2021 will be sufficient to fund operations for at least the next 12 months from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (SEC).

The COVID-19 outbreak in the United States and the rest of the world has caused disruptions to the Company’s business, which has delayed results of the Company’s clinical trials and adversely impacted the Company’s business. The Company cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues will impact the Company’s business, nor can it predict potential adverse impacts related to the availability of capital to fund the Company’s operations. Additionally, the Company’s workforce and outside consultants may also be affected, which could result in an adverse impact on the Company’s ability to conduct business. Any of these factors, alone or in combination with others, could harm the Company’s business, results of operations, financial condition or liquidity. However, the magnitude, timing, and duration of any such potential financial impacts cannot be reasonably estimated at this time.

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, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2021.

5


 

Principles of Consolidation

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.

Foreign Currency Translation

The Company’s wholly-owned subsidiary in Australia uses their local currency as its functional currency. Assets and liabilities are translated into U.S. dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the quarter and year-to-date periods. Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive income in the Company’s condensed consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of the Company’s condensed consolidated balance sheets. Realized and unrealized gains and losses denominated in foreign currencies are recorded in operating expenses in the Company’s condensed consolidated statements of operations. For the three and six months ended June 30, 2021, net realized and unrealized losses totaled $0.1 million, respectively. For the three months ended June 30, 2020, net realized and unrealized gains totaled $0.3 million. For the six months ended June 30, 2020, net realized and unrealized losses totaled $44,000.

Recent Accounting Pronouncements

In February 2016, 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. For companies that are not emerging growth companies (EGCs), ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. For EGCs, the ASU was to be effective for fiscal years beginning after December 15, 2019. However, in November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326),Derivatives and Hedging (Topic 815) and Leases (Topic 842), Effective Dates (ASU 2019-10), which included a one-year deferral of the effective date of ASU 2016-02 for certain entities. As a result, the ASU is now effective for EGCs for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company expects to adopt the new standard in the fourth quarter of 2021 using the modified retrospective method, under which the Company will apply Topic 842 to existing and new leases as of January 1, 2021, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods. The Company anticipates that the adoption will not have a material impact on its consolidated statements of operations and consolidated comprehensive loss or its consolidated statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which will require a reporting entity to use a new forward-looking impairment model for most financial assets that generally will result in the earlier recognition of allowances for losses. The ASU, along with related amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affected receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. The standard and other related subsequently issued ASUs will be effective for the Company for annual periods beginning after December 15, 2022, with early adoption permitted beginning in 2019. The Company is currently evaluating the impact that the adoption of the standard and other related subsequently issued ASUs will have on its consolidated financial statements and accompanying footnotes.

Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for the Company on January 1, 2021. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements. 

6


 

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 non-clinical 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 development personnel and other key personnel as well as considering input from representatives of our contract service providers 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.

Australian Research and Development Tax Incentive

The Company is eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office for eligible research and development expenditures. However, the Company must have revenue of less than AUD $20.0 million during the reimbursable period and cannot be controlled by income tax exempt entities. The Tax Incentive is recognized as a reduction to research and development expense when there is a reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured. The Company classifies its estimate for the Tax Incentive as prepaid expenses and other current assets 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.

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.

7


 

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Common stock options

 

 

3,839,951

 

 

 

2,414,461

 

 

 

3,839,951

 

 

 

2,414,461

 

Common stock warrants

 

 

1,366,141

 

 

 

80,428

 

 

 

1,366,141

 

 

 

80,428

 

Total

 

 

5,206,092

 

 

 

2,494,889

 

 

 

5,206,092

 

 

 

2,494,889

 

 

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

 

 

 

June 30,

 

 

for Identical

 

 

Observable

 

 

Inputs

 

 

 

2021

 

 

Assets (Level 1)

 

 

Inputs (Level 2)

 

 

(Level 3)

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

24,118

 

 

$

24,118

 

 

$

-

 

 

$

-

 

Total

 

$

24,118

 

 

$

24,118

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

Active Markets

 

 

Other

 

 

Unobservable

 

 

 

December 31,

 

 

for Identical

 

 

Observable

 

 

Inputs

 

 

 

2020

 

 

Assets (Level 1)

 

 

Inputs (Level 2)

 

 

(Level 3)

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

56,220

 

 

$

56,220

 

 

$

-

 

 

$

-

 

Certificates of deposit

 

 

1,961

 

 

 

1,961

 

 

 

-

 

 

 

-

 

Total

 

$

58,181

 

 

$

58,181

 

 

$

-

 

 

$

-

 

 

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 observable 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 $10.1 million at June 30, 2021 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.

At June 30, 2021 and December 31, 2020, the Company had investments in money market funds of $66.6 million and $17.4 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 June 30, 2021 or December 31, 2020.

 

8


 

4. Certain Financial Statement Caption Information

Short-Term Investments

The following table summarizes the Company’s short-term investments (in thousands):

 

 

 

Maturity

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

(in years)

 

Cost

 

 

Gains

 

 

Losses