amti-10q_20200630.htm

Table of Contents

 

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, 2020

OR

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

For the transition period from to

Commission File Number: 001-39306

 

APPLIED MOLECULAR TRANSPORT INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-4481426

( State or other jurisdiction of

incorporation or organization)

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

1 Tower Place, Suite 850

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: 650-392-0420

 

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

 

AMTI

 

The 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

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

As of August 7, 2020, the registrant had 34,850,624 shares of common stock, $0.0001 par value per share, outstanding.

 


Table of Contents

 

Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

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

3

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

Signatures

78

 

 

 


Table of Contents

 

Forward-Looking Statements

This report contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include information regarding our expectations on the timing of clinical study results and the timing and success of future development of our products, our possible or assumed future results of operations and expenses, business strategies and plans, trends, market sizing, competitive position, industry environment and potential growth opportunities, among other things. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in “Risk Factors” and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons. Actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

 

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Applied Molecular Transport Inc.

Condensed Balance Sheets

(unaudited)

 

(in thousands, except share and per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019(*)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,401

 

 

$

12,727

 

Short-term investments

 

 

139,862

 

 

 

19,676

 

Prepaid expenses

 

 

1,764

 

 

 

532

 

Deferred offering costs

 

 

 

 

 

366

 

Other current assets

 

 

611

 

 

 

152

 

Total current assets

 

 

165,638

 

 

 

33,453

 

Property and equipment, net

 

 

6,786

 

 

 

4,091

 

Long-term investments

 

 

 

 

 

249

 

Restricted cash

 

 

108

 

 

 

108

 

Other assets

 

 

128

 

 

 

632

 

Total assets

 

$

172,660

 

 

$

38,533

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,437

 

 

$

2,666

 

Accrued expenses

 

 

2,288

 

 

 

1,315

 

Deferred rent, current

 

 

48

 

 

 

13

 

Other current liabilities

 

 

97

 

 

 

42

 

Total current liabilities

 

 

6,870

 

 

 

4,036

 

Deferred rent

 

 

496

 

 

 

526

 

Other liabilities

 

 

185

 

 

 

58

 

Total liabilities

 

 

7,551

 

 

 

4,620

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value, 0 shares authorized, issued,

   and outstanding as of June 30, 2020 and 5,157,213 shares authorized, issued and

   outstanding, as of December 31, 2019; liquidation value of $0 as of June 30, 2020 and

   $33,000 as of December 31, 2019

 

 

 

 

 

32,826

 

Series B convertible preferred stock, $0.0001 par value, 0 shares authorized, issued,

   and outstanding as of June 30, 2020 and 3,992,919 shares authorized, issued and

   outstanding as of December 31, 2019; liquidation value of $0 as of June 30, 2020 and

   $31,025 as of December 31, 2019

 

 

 

 

 

30,921

 

Series C convertible preferred stock, $0.0001 par value, 0 shares authorized, issued,

   and outstanding as of June 30, 2020 and 4,816,160 shares authorized, issued and

   outstanding as of December 31, 2019; liquidation value of $0 as of June 30, 2020 and

   $41,949 as of December 31, 2019

 

 

 

 

 

41,868

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 450,000,000 shares authorized as of June 30, 2020

   and 32,000,000 shares authorized as of December 31, 2019; 34,050,624 and

   7,360,738 shares issued and outstanding as of June 30, 2020 and December 31,

   2019, respectively

 

 

3

 

 

 

1

 

Additional paid-in capital

 

 

268,588

 

 

 

1,078

 

Accumulated other comprehensive income

 

 

2

 

 

 

13

 

Accumulated deficit

 

 

(103,484

)

 

 

(72,794

)

Total stockholders’ equity (deficit)

 

 

165,109

 

 

 

(71,702

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

172,660

 

 

$

38,533

 

 

(*)

Derived from audited Financial Statements.

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

1


Table of Contents

 

Applied Molecular Transport Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,836

 

 

$

6,500

 

 

$

25,790

 

 

$

10,866

 

General and administrative

 

 

2,487

 

 

 

867

 

 

 

4,976

 

 

 

1,502

 

Total operating expenses

 

 

15,323

 

 

 

7,367

 

 

 

30,766

 

 

 

12,368

 

Loss from operations

 

 

(15,323

)

 

 

(7,367

)

 

 

(30,766

)

 

 

(12,368

)

Interest income

 

 

48

 

 

 

58

 

 

 

131

 

 

 

59

 

Other expense, net

 

 

(104

)

 

 

 

 

 

(55

)

 

 

 

Net loss

 

$

(15,379

)

 

$

(7,309

)

 

$

(30,690

)

 

$

(12,309

)

Net loss per share, basic and diluted

 

$

(1.11

)

 

$

(0.99

)

 

$

(2.88

)

 

$

(1.67

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

13,869,040

 

 

 

7,360,738

 

 

 

10,643,240

 

 

 

7,360,738

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(15,379

)

 

$

(7,309

)

 

$

(30,690

)

 

$

(12,309

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on investments

 

 

2

 

 

 

 

 

 

8

 

 

 

 

Amounts recognized for net realized gains included in net loss

 

 

(19

)

 

 

 

 

 

(19

)

 

 

 

Total comprehensive loss

 

$

(15,396

)

 

$

(7,309

)

 

$

(30,701

)

 

$

(12,309

)

 

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

 

2


Table of Contents

 

Applied Molecular Transport Inc.

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

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balance—December 31,

   2019 (*)

 

 

5,157,213

 

 

$

32,826

 

 

 

3,992,919

 

 

$

30,921

 

 

 

4,816,160

 

 

$

41,868

 

 

 

7,360,738

 

 

$

1

 

 

$

1,078

 

 

$

13

 

 

$

(72,794

)

 

$

(71,702

)

Exercise of common stock

   options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,594

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

58

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

557

 

 

 

 

 

 

 

 

 

557

 

Unrealized gains on

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,311

)

 

 

(15,311

)

Balance—March 31,

   2020

 

 

5,157,213

 

 

 

32,826

 

 

 

3,992,919

 

 

 

30,921

 

 

 

4,816,160

 

 

 

41,868

 

 

 

7,434,332

 

 

 

1

 

 

 

1,693

 

 

 

19

 

 

 

(88,105

)

 

 

(86,392

)

Conversion of convertible

   preferred stock into

   common stock

 

 

(5,157,213

)

 

 

(32,826

)

 

 

(3,992,919

)

 

 

(30,921

)

 

 

(4,816,160

)

 

 

(41,868

)

 

 

13,966,292

 

 

 

1

 

 

 

105,614

 

 

 

 

 

 

 

 

 

105,615

 

Issuance of common stock

   upon initial public

   offering, net of

   underwriters' commission

   and issuance costs

   of $16,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,650,000

 

 

 

1

 

 

 

160,622

 

 

 

 

 

 

 

 

 

160,623

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

659

 

 

 

 

 

 

 

 

 

659

 

Net unrealized gains on

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,379

)

 

 

(15,379

)

Balance—June 30, 2020

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,050,624

 

 

$

3

 

 

$

268,588

 

 

$

2

 

 

$

(103,484

)

 

$

165,109

 

 

(*)

Derived from audited Financial Statements.

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

3


Table of Contents

 

Applied Molecular Transport Inc.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Deficit

 

Balance—December 31,

   2018 (*)

 

 

5,157,213

 

 

$

32,826

 

 

 

3,992,919

 

 

$

30,921

 

 

 

 

 

$

 

 

 

7,360,738

 

 

$

1

 

 

$

610

 

 

$

 

 

$

(44,751

)

 

$

(44,140

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,000

)

 

 

(5,000

)

Balance—March 31, 2019

 

 

5,157,213

 

 

 

32,826

 

 

 

3,992,919

 

 

 

30,921

 

 

 

 

 

 

 

 

 

7,360,738

 

 

 

1

 

 

 

679

 

 

 

 

 

 

(49,751

)

 

 

(49,071

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,309

)

 

 

(7,309

)

Balance—June 30, 2019

 

 

5,157,213

 

 

$

32,826

 

 

 

3,992,919

 

 

$

30,921

 

 

 

 

 

$

 

 

 

7,360,738

 

 

$

1

 

 

$

811

 

 

$

 

 

$

(57,060

)

 

$

(56,248

)

 

(*)

Derived from audited Financial Statements.

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

 

4


Table of Contents

 

Applied Molecular Transport Inc.

Condensed Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(30,690

)

 

$

(12,309

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,216

 

 

 

201

 

Depreciation

 

 

576

 

 

 

346

 

Net amortization of premiums and accretion of discounts on investments

 

 

(6

)

 

 

 

Loss on disposal of property and equipment

 

 

2

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(1,232

)

 

 

(394

)

Other current assets

 

 

(459

)

 

 

 

Other assets

 

 

504

 

 

 

(13

)

Accounts payable

 

 

553

 

 

 

(1,775

)

Accrued expenses

 

 

973

 

 

 

1,141

 

Deferred rent, current

 

 

35

 

 

 

6

 

Other current liabilities

 

 

(46

)

 

 

 

Deferred rent

 

 

(30

)

 

 

27

 

Other liabilities

 

 

(4

)

 

 

 

Net cash used in operating activities

 

 

(28,608

)

 

 

(12,770

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(148,178

)

 

 

 

Sales and maturities of investments

 

 

28,236

 

 

 

 

Purchases of property and equipment

 

 

(2,394

)

 

 

(290

)

Net cash used in investing activities

 

 

(122,336

)

 

 

(290

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public offering, net of underwriters' commission

 

 

164,703

 

 

 

 

Payment of issuance costs for initial public offering

 

 

(3,114

)

 

 

 

Proceeds from exercise of common stock options

 

 

58

 

 

 

 

Principal payments on capital lease obligations

 

 

(29

)

 

 

(14

)

Net cash provided by (used in) financing activities

 

 

161,618

 

 

 

(14

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

10,674

 

 

 

(13,074

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

12,835

 

 

 

20,288

 

Cash, cash equivalents and restricted cash, end of period

 

$

23,509

 

 

$

7,214

 

Supplemental cash flow data:

 

 

 

 

 

 

 

 

Cash paid for interest on capital lease obligations

 

$

3

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible preferred stock into common stock

 

$

105,615

 

 

$

 

Property and equipment included in accounts payable

 

$

1,012

 

 

$

 

Issuance costs for initial public offering included in accounts payable

 

$

834

 

 

$

 

 

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

 

5


Table of Contents

 

Applied Molecular Transport Inc.

Notes to the Condensed Financial Statements

(unaudited)

1. Business and Principal Activities

Description of Business

Applied Molecular Transport Inc. (the Company) is a clinical-stage biopharmaceutical company leveraging its proprietary technology platform to design and develop a pipeline of novel oral biologic product candidates to treat autoimmune, inflammatory, metabolic, and other diseases. The Company is building a portfolio of oral product candidates based on its technology platform including its lead product candidate, AMT-101, an oral GI-selective rhIL-10 that has completed a Phase 1b clinical trial in patients with ulcerative colitis (UC). The Company’s second product candidate, AMT-126, is a GI-selective oral fusion of rhIL-22 and the Company’s proprietary carrier molecule currently in development for diseases related to IE barrier function defects driven by activation of the innate immune system. The Company’s technology platform enables it to design and develop various oral biologic therapeutic modalities, such as peptides, proteins, full-length antibodies, antibody fragments, and RNA therapeutics, with potentially significant advantages over existing marketed and development-stage drugs.

Since the date of incorporation in Delaware on November 21, 2016, the Company has devoted substantially all of its resources to research and development activities, including research activities such as drug discovery, preclinical studies, and clinical trials as well as development activities such as the manufacturing of clinical and research material, establishing and maintaining an intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

Initial Public Offering

On June 4, 2020, the Company’s registration statement on Form S-1 (File No. 333-238464) relating to its initial public offering (IPO) of common stock became effective. The IPO closed on June 9, 2020 at which time the Company issued an aggregate of 12,650,000 shares of its common stock at a price of $14.00 per share which included 1,650,000 shares of common stock issued in connection with the full exercise by the underwriters of their option to purchase additional shares of common stock. In addition, immediately prior to the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock automatically converted into 13,966,292 shares of common stock. The aggregate offering price for shares sold in the IPO was $177.1 million. After deducting underwriting discounts and commissions of $12.4 million and offering costs paid or payable by the Company of $4.1 million, the net proceeds from the offering were approximately $160.6 million.

Liquidity and Capital Resources

Management believes that its existing cash, cash equivalents, and investments as of June 30, 2020 will be sufficient to allow the Company to fund its current operating plan through at least the next 12 months. As of March 31, 2020, management had concluded that substantial doubt existed about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of those financial statements. However, the Company alleviated the substantial doubt during the three months ended June 30, 2020 through the receipt of the aggregate net proceeds from the IPO.

The Company has incurred significant losses and negative cash flows from operations since its inception. As of June 30, 2020, the Company had an accumulated deficit of $103.5 million and does not expect positive cash flows from operations in the foreseeable future. The Company expects to incur significant and increasing losses until regulatory approval is granted for the lead product candidate. Regulatory approval is not guaranteed and may never be obtained. The Company has historically financed its operations primarily through private placements of its convertible preferred stock and sale of common stock upon the completion of the IPO. The Company may seek to raise capital through debt financings, private or public equity financings, license agreements, collaborative agreements or other arrangements with other companies, or other sources of financing. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.    

 

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2. Summary of Significant Accounting Policies

Condensed Financial Statements (Unaudited)

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The interim condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The interim condensed balance sheet as of December 31, 2019, is derived from the Company’s audited financial statements. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period.

The accompanying interim unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019, which are included in the Company’s prospectus related to the Company’s IPO, filed with the SEC on June 5, 2020, pursuant to Rule 424(b) under the Securities Act of 1933.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. Assets and liabilities reported in the Company’s balance sheet and expenses and income reported are affected by estimates and assumptions, which are used for, but are not limited to, determining the fair value of assets and liabilities, including research and development expenses, common stock valuation, income tax uncertainties, and measurement of stock-based compensation expense. Actual results could differ from such estimates or assumptions.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and investments. The Company invests in U.S. Treasury securities. The Company maintains bank deposits in federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents, and investments to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash, cash equivalents, and investments. The Company is subject to a number of risks similar to other early-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical studies or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, protection of its proprietary technology, and the need to secure and maintain adequate manufacturing arrangements with third parties. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Operating Segment

The Company operates and manages its business as one reportable and operating segment, which is the business of designing and developing a pipeline of novel oral biologic product candidates to treat autoimmune, inflammatory, metabolic, and other diseases. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance.

Cash and Cash Equivalents

Cash and cash equivalents are held in accounts at financial institutions. Such deposits have and will continue to exceed federally insured limits in the foreseeable future. The Company considers all highly liquid investments purchased with original maturities of 90 days or less from the purchase date to be cash equivalents. Cash equivalents consist of amounts invested in money market funds exclusively composed of U.S. government obligations.

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Restricted Cash

The Company has cash in a collateral account related to a letter of credit issued on behalf of the Company for the security deposit on the subleased property in South San Francisco. The collateralized cash in connection with the letter of credit was classified as restricted cash on the balance sheet as of June 30, 2020 based on the terms of the sublease agreement, which expires in 2022, unless extended. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed statements of cash flows (in thousands):

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

23,401

 

 

$

7,214

 

Restricted cash

 

 

108

 

 

 

 

Total cash, cash equivalents and restricted cash

 

$

23,509

 

 

$

7,214

 

 

Investments

The Company’s investments have been classified and accounted for as available-for-sale securities. Fixed income securities consist of U.S. Treasury securities. The specific identification method is used to determine the cost basis of fixed income securities sold. These securities are recorded on the condensed balance sheets at fair value. Unrealized gains and losses on these securities are included as a separate component of accumulated other comprehensive income. The cost of investment securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in other income, net. The Company classifies its investments as short or long term primarily based on the remaining contractual maturity of the securities.

Property and Equipment, Net

Property and equipment are presented at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged to expense as incurred and costs of major replacement or improvement are capitalized. The Company’s estimated useful lives of its property and equipment are as follows:

 

Laboratory and manufacturing equipment

 

5 years

Computer and office equipment

 

3 years

Leasehold improvements

 

Shorter of remaining lease

term or estimated useful life

 

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable. An impairment loss is recognized when an asset no longer has any utility to the Company. There was no impairment on long-lived assets during each of the three and six months ended June 30, 2020 and June 30, 2019.

Leases

The Company may enter into lease agreements that are classified as either operating or capital leases under Accounting Standards Codification (ASC) 840, Leases. The Company records rent expense on a straight-line basis over the life of the lease from the date that it obtains the legal right to use and control the leased space. In cases where there is a free rent period or future fixed rent escalations, the Company records a deferred rent liability. Deferred rent consists of the difference between cash payments and the rent expense recognized. Building improvements made with lease incentives or tenant allowances are capitalized as leasehold improvements and included in property and equipment in the balance sheet.

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Convertible Preferred Stock

The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Company’s control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. Therefore, convertible preferred stock is classified outside of stockholders’ deficit on the balance sheet as events triggering the liquidation preferences are not solely within the Company’s control. The carrying values of the convertible preferred stock are adjusted to their liquidation preferences if and when it becomes probable that such a liquidation event will occur. Immediately prior to the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were converted into shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of convertible preferred stock outstanding as of June 30, 2020.

Research and Development Expenses

Research and development expenses are charged to expense as incurred. Research and development expenses include personnel costs related to research and development activities, materials costs, external clinical drug product manufacturing costs, outside services costs, repair, maintenance and depreciation costs for research and development equipment, as well as facility costs for laboratory space used for research and development activities.

Accrued Research and Development Expenses

The Company records accruals for estimated costs of research, preclinical studies, clinical trials, and manufacturing development, within accrued expenses which are significant components of research and development expenses. A substantial portion of the Company’s ongoing research and development activities is conducted by third-party service providers, contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs). The Company’s contracts with the CROs and CDMOs generally include fees such as initiation fees, reservation fees, costs related to animal studies and safety tests, verification run costs, materials and reagents expenses, taxes, etc. 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 to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress, stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services.

If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts accrued expenses or prepaid expenses accordingly, which impact research and development expenses. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to the Company’s prior estimates of research and development expenses.

Stock-Based Compensation Expense

The Company maintains an equity incentive plan as a long-term incentive for employees, consultants, and directors. The plan allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock grants, and restricted stock units. As of June 30, 2020, no stock appreciation rights, restricted stock grants, restricted stock units or performance-based awards were issued.

The Company accounts for stock-based compensation expense by measuring and recognizing compensation expense for all share-based payments made to employees and non-employees based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over each recipient’s requisite service period, which is generally the vesting period. The Company recognizes actual forfeitures by reducing the stock-based compensation expense in the same period as the forfeitures occur.

The Company estimates the fair value of stock options granted to employees and non-employees using the Black-Scholes model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term and the risk-free rate of return.

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Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets and liabilities;

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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

As of June 30, 2020 and December 31, 2019, fair value measurements consisted mainly of cash equivalents and investments. The carrying amounts of these instruments approximate their fair value.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the period. Other comprehensive income (loss) consists of unrealized gains and losses on our investments.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting, and filing fees directly relating to the IPO, were capitalized and offset against the IPO proceeds upon the completion of the offering. For the year ended December 31, 2019, $0.4 million of deferred offering costs were incurred. Upon completion of the IPO, approximately $4.1 million of deferred offering costs were offset against the IPO proceeds in additional paid-in capital.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded if and when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Recent Accounting Pronouncements

The Company is an emerging growth company (EGC) as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

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In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842) (ASU 2016-02), which for operating leases requires the lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments in its balance sheet. The guidance also requires a lessee to recognize single lease costs, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In November 2019, the FASB issued ASU 2019-10 which extends the effective date of ASU 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company intends to adopt the new guidance as of January 1, 2021. The Company is currently evaluating the impacts of adopting ASU 2016-02.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU 2019-12 effective January 1, 2020 on a prospective basis. The adoption did not have a material impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of current expected credit losses (CECL) is based on historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of a credit loss or other factors. An entity will recognize an allowance for credit losses on available-for-sale debt securities rather than an other-than-temporary impairment that reduces the cost basis of the investment. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. During the three months ended June 30, 2020, the Company elected to early adopt ASU 2016-13 effective January 1, 2020. The adoption did not have a material impact on the Company’s financial statements.

3. Fair Value Measurements

As of June 30, 2020, the Company held $139.9 million of investment securities, comprised of U.S. Treasury securities.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Financial instruments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain of the Company’s financial instruments are recorded at amounts that approximate their fair value, rather than at fair value on a recurring basis, due to their liquid or short-term nature, such as cash, accounts payable and accrued expenses.

The unrealized losses on short-term investments as of June 30, 2020 were insignificant. The Company does not believe that these unrealized losses are credit related but are rather a reflection of current market yields and/or current marketplace bid/ask spreads. The Company has not recognized an allowance for credit losses as of June 30, 2020.

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

 

 

 

 

 

June 30, 2020

 

 

 

Fair Value

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Hierarchy

Level

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds invested in U.S. government obligations(1)