SEC Filing - Applied Molecular Transport Inc.

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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 March 31, 2022

☐	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.)
450 East Jamie Court South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

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

(Former name, former address and former fiscal year, if changed since last report)

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

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 May 2, 2022, the registrant had 38,654,163 shares of common stock, $0.0001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements (Unaudited)	2
	Condensed Balance Sheets	2
	Condensed Statements of Operations and Comprehensive Loss	3
	Condensed Statements of Stockholders’ Equity	4
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
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	78
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits	80
Signatures		81

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Special Note Regarding 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 initiation and results and the timing and success of future development of our products, potential regulatory approval of our product candidates, our possible or assumed future results of operations and expenses, business strategies and plans, trends, market sizing, competitive position, industry environment, potential growth opportunities, reliance on third parties, financing needs, the sufficiency of the Company’s existing cash and cash equivalents, and impact of the Affordable Care Act and other legislation, 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.

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

Applied Molecular Transport Inc.

Condensed Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

	March 31,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	126,480		$	159,821
Prepaid expenses		5,379			6,685
Other current assets		1,323			594
Total current assets		133,182			167,100
Property and equipment, net		9,195			6,998
Operating lease ROU assets, net		37,214			38,142
Finance lease ROU assets, net		750			652
Restricted cash		1,025			1,025
Other assets		323			121
Total assets	$	181,689		$	214,038
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,304		$	2,211
Accrued expenses		9,789			8,226
Lease liabilities, operating lease - current		4,139			3,584
Lease liabilities, finance lease - current		267			237
Total current liabilities		18,499			14,258
Lease liabilities, operating lease		34,911			35,785
Lease liabilities, finance lease		190			167
Other liabilities		244			241
Total liabilities		53,844			50,451
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.0001 par value, 450,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 38,654,163 and 38,619,957 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		4			4
Additional paid-in capital		410,061			403,228
Accumulated other comprehensive income		—			—
Accumulated deficit		(282,220	)		(239,645	)
Total stockholders’ equity		127,845			163,587
Total liabilities and stockholders’ equity	$	181,689		$	214,038

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

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Applied Molecular Transport Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended
	March 31,
	2022			2021
Operating expenses:
Research and development	$	31,239		$	14,881
General and administrative		11,337			5,599
Total operating expenses		42,576			20,480
Loss from operations		(42,576	)		(20,480	)
Interest income (expense), net		(3	)		40
Other income (expense), net		4			(22	)
Net loss	$	(42,575	)	$	(20,462	)
Net loss per share, basic and diluted	$	(1.10	)	$	(0.58	)
Weighted-average shares of common stock outstanding, basic and diluted		38,641,365			35,217,773
Comprehensive loss:
Net loss	$	(42,575	)	$	(20,462	)
Other comprehensive loss:
Unrealized loss on investments		—			(2	)
Total comprehensive loss	$	(42,575	)	$	(20,464	)

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

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Applied Molecular Transport Inc.

Condensed Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)

							Accumulated
					Additional		Other					Total
	Common Stock				Paid-In		Comprehensive		Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)		Deficit			Equity
As of December 31, 2021		38,619,957	$	4	$	403,228	$	—	$	(239,645	)	$	163,587
Exercise of common stock options		34,206		—		60		—		—			60
Stock-based compensation expense		—		—		6,773		—		—			6,773
Net loss		—		—		—		—		(42,575	)		(42,575	)
As of March 31, 2022		38,654,163	$	4	$	410,061	$	-	$	(282,220	)	$	127,845

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

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Applied Molecular Transport Inc.

Condensed Statements of Stockholders’ Equity (continued)

(unaudited)

(in thousands, except share amounts)

							Accumulated
					Additional		Other						Total
	Common Stock				Paid-In		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
As of December 31, 2020		35,121,360	$	4	$	271,000	$	27		$	(139,358	)	$	131,673
Exercise of common stock options		129,290		—		397		—			—			397
Stock-based compensation expense		—		—		1,951		—			—			1,951
Unrealized loss on investments		—		—		—		(2	)		—			(2	)
Net loss		—		—		—		—			(20,462	)		(20,462	)
As of March 31, 2021		35,250,650	$	4	$	273,348	$	25		$	(159,820	)	$	113,557

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

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Applied Molecular Transport Inc.

Condensed Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2022			2021
Operating activities
Net loss	$	(42,575	)	$	(20,462	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		6,773			1,951
Depreciation and amortization		911			784
Non-cash operating lease expense		2,269			597
Net accretion of discounts on investments		—			(39	)
Changes in operating assets and liabilities:
Prepaid expenses		1,306			(1,337	)
Other current assets		(71	)		(114	)
Other assets		(202	)		—
Accounts payable		1,492			(1,331	)
Accrued expenses		623			(389	)
Operating lease liabilities		(1,660	)		(608	)
Other liabilities		3			—
Net cash used in operating activities		(31,131	)		(20,948	)
Investing activities
Purchases of property and equipment		(1,517	)		(79	)
Proceeds from sales and maturities of investments		—			42,000
Net cash provided by (used in) investing activities		(1,517	)		41,921
Financing activities
Payments of issuance costs for “at-the-market” offering		(690	)		—
Principal payments on finance lease liabilities		(63	)		(57	)
Proceeds from exercise of common stock options		60			397
Payments of issuance costs for follow-on offering		—			(37	)
Net cash provided by (used in) financing activities		(693	)		303
Net increase (decrease) in cash, cash equivalents and restricted cash		(33,341	)		21,276
Cash, cash equivalents and restricted cash, beginning of period		160,846			5,951
Cash, cash equivalents and restricted cash, end of period	$	127,505		$	27,227
Supplemental cash flow data:
Cash paid for interest on finance lease liabilities	$	7		$	9
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment included in accounts payable and accrued expenses	$	1,541		$	54
Issuance costs included in accounts payable and accrued expenses	$	129		$	622

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

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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 and respiratory biologic product candidates to treat autoimmune, inflammatory, metabolic, and other diseases. The Company is building a portfolio of oral and respiratory product candidates based on its technology platform including its most advanced product candidate, AMT-101, a gastrointestinal (GI)-selective oral fusion of interleukin-10 (IL-10) and the Company’s proprietary carrier molecule. The Company is actively enrolling and dosing patients globally across multiple Phase 2 clinical trials of AMT-101 in ulcerative colitis (UC) and other inflammatory indications following the completion of a Phase 1b clinical trial in patients with UC. On April 25, 2022, the Company announced positive Phase 2 top-line results from the Company’s FILLMORE monotherapy trial for AMT-101 in patients with chronic pouchitis. The Company’s second product candidate, AMT-126, is a GI-selective oral fusion of interleukin-22 (IL-22) and the Company’s proprietary carrier molecule currently in development for diseases related to intestinal epithelial (IE) barrier function defects. The Company initiated a Phase 1 clinical trial for AMT-126 which includes a Phase 1a single ascending dose in healthy volunteers to be followed by a Phase 1b multiple ascending dose in patients with an indication associated with intestinal barrier defects. The Company’s proprietary technology platform enables it to design and develop various oral and respiratory biologic therapeutic modalities, such as peptides, proteins, full-length antibodies, antibody fragments, and ribonucleic acid (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.

Liquidity and Capital Resources

Management believes that its existing cash and cash equivalents as of March 31, 2022 will be sufficient to allow the Company to fund its current operating plan through at least 12 months from the date of issuance of these condensed financial statements.

The Company has incurred significant losses and negative cash flows from operations since its inception. As of March 31, 2022, the Company had an accumulated deficit of $282.2 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 and successful commercialization is achieved for any of its product candidates. 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 and follow-on equity offering. In addition, on January 27, 2022, the Company entered into a Sales Agreement with SVB Leerink LLC and JMP Securities LLC, as the Company’s sales agents (Agents), pursuant to which the Company may offer and sell from time to time through the Agents up to $150 million in shares of the Company’s common stock through an “at-the-market” program. See Note 7. The Company may seek to raise additional 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.

Risks and Uncertainties

Since the COVID-19 virus was reported in December 2019 in Wuhan, China, the virus has spread extensively throughout the world, resulting in the World Health Organization characterizing COVID-19 as a pandemic. While significant progress in addressing the pandemic has been made with multiple vaccines and treatment options now available, the emergence of highly transmissible variants of the virus, such as the Delta and Omicron variants, have resulted in periodic surges in infection rates around the world and a cycle of fluctuating public health restrictions designed to mitigate the spread of the virus. The extent to which the COVID-19 pandemic impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted, such as the spread or emergence of new variants, the duration and severity of surges in outbreaks, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and to address its impact, including on financial markets or otherwise. Beginning the week of March 16^th, 2020, the majority of the Company’s workforce began working from home. We continue to have a hybrid work environment with a majority of our workforce either working exclusively from home or working from home for part of their work week. The Company’s financial results could be affected by the COVID-19 pandemic in various ways. As a result of the COVID-19 pandemic, the

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Company has experienced and could experience disruptions that could severely impact the Company’s business, current and planned critical trials and preclinical studies. For example, the COVID-19 pandemic could result in delays to the Company’s clinical trials and preclinical studies for numerous reasons including difficulties in enrolling patients or healthy volunteers, diversion of healthcare resources away from the conduct of clinical trials, delays in receiving regulatory authorities to initiate clinical trials, and delays in receiving supplies to conduct clinical trials and preclinical studies. For example, there has been an increase in infections from COVID-19 variants which has impacted patient recruitment at certain of our clinical trial sites and could result in increased costs and delays. In addition, as a result of ongoing COVID-19 research and the current global supply chain issues, there is currently limited availability for certain resources required to conduct some of our preclinical studies and clinical trials, which may result in longer lead times, increased costs, and delays in completing preclinical studies and clinical trials. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of the clinical trial and other related business activities. The Company is carefully monitoring the pandemic and the potential length and depth of the resulting economic impact on the Company’s financial condition and results of operations as of March 31, 2022.

In addition, currently there is a conflict involving Russia and Ukraine. The Company’s AMT-101 Phase 2 LOMBARD and MARKET trials currently include clinical trial sites located in Ukraine, Russia, and other Eastern European countries. This has and may continue to impact our ability to conduct certain of our trials in Ukraine, Russia and other Eastern European countries, and may prevent us from obtaining data on patients already enrolled at sites in these countries. This could negatively impact the completion of our clinical trials and/or analyses of clinical results or result in increased costs, all of which could materially harm our business.

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 condensed balance sheet as of December 31, 2021, was derived from the Company’s audited financial statements. The results of operations during the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any other future annual or interim period.

The 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, 2021, which are included in the Company’s Annual Report on Form 10-K, originally filed with the SEC on February 24, 2022, as amended by Form 10-K/A (Amendment No. 1) filed on March 25, 2022.

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 condensed balance sheets and expenses and income reported are affected by estimates and assumptions, which are used for, but are not limited to, estimating research and development expenses and determining the fair value of assets and liabilities, including common stock valuation, income tax uncertainties, and measurement of stock-based compensation expense. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic. 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. From time to time, 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 condensed balance sheets. 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

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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 or develop internal manufacturing capabilities. The Company’s product candidates will require approval from the U.S. Food and Drug Administration (FDA) and/or comparable foreign regulatory agencies prior to commercialization in their respective jurisdictions. 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 and respiratory 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.

Restricted Cash

The Company has cash in collateral accounts related to two letters of credit issued on behalf of the Company for security deposits. As of March 31, 2022, the collateralized cash in connection with the letters of credit was classified as restricted cash on the condensed balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed statements of cash flows (in thousands):

	March 31,		March 31,
	2022		2021
Cash and cash equivalents	$	126,480	$	26,202
Restricted cash		1,025		1,025
Total cash, cash equivalents and restricted cash	$	127,505	$	27,227

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

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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 the remaining book value of an asset is not recoverable. There was no impairment on long-lived assets during the three months ended March 31, 2022 and 2021, respectively.

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) No. 2016-02, Leases (ASC 842), and its associated amendments, that establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months and disclose key information about leasing arrangements. The Company adopted ASC 842 on January 1, 2021 using the modified retrospective approach. Leases have been classified as either finance or operating, with classification affecting the pattern and classification of expense recognition in the condensed statements of operations and comprehensive loss.

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the facts and circumstances present in that arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements that contain a lease, the Company (i) identifies lease and non-lease components, (ii) determines the consideration in the contract, (iii) determines whether the lease is an operating or finance lease; and (iv) recognizes lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. Accordingly, the Company uses the incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment. Building improvements continue to be capitalized as leasehold improvements and are included in property and equipment, net in the condensed balance sheets.

Most leases include options to renew and/or terminate the lease, which can impact the lease term. The exercise of these options is at the Company’s discretion. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

The Company has operating leases for its corporate offices, laboratory, manufacturing and warehouse facilities, and a contract research organization (CRO) embedded lease arrangement. Fixed lease payments on operating leases are recognized as lease expense over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within the Company’s condensed statements of operations and comprehensive loss.

The Company has finance leases for lab and manufacturing equipment. Interest expense from fixed payments on finance leases is recognized using the effective interest method. Finance lease ROU asset amortization and interest expense are recorded within operating expenses and interest income, net, respectively, within the Company’s condensed statements of operations and comprehensive loss.

The Company has elected the short-term lease exemption and, therefore, does not recognize an ROU asset or corresponding liability for lease arrangements with an original term of 12 months or less.

Research and Development Expenses

Research and development expenses are expensed as incurred. Research and development expenses include personnel costs related to research and development activities, materials costs, external clinical product candidate manufacturing and clinical trial 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 accrues for estimated costs of research, preclinical studies, clinical trials, and manufacturing development services performed but not yet invoiced and such accruals are included 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 including contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs). The Company’s contracts, amendments thereto, statements of work and change orders 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

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reagents expenses, and taxes. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and are expensed as services are rendered. The financial terms of these arrangements are subject to negotiations, which vary from contract to contract and may result in the timing of payments 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 and/or adjusts the prepaid expenses based on estimates of work completed in accordance with the respective agreements. The Company determines the estimated costs through information obtained from third-party 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 and corroboration with internal personnel responsible for the oversight of the research and development activities.

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 both an equity incentive plan and an employee stock purchase plan (ESPP) as long-term incentives for its employees, consultants and directors. The equity incentive plan allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock grants and restricted stock units. The ESPP has an offering period of two years comprised of four purchase periods. The ESPP allows employees to purchase shares of the Company’s common stock each purchase period based on a percentage of their compensation subject to certain limits. As of March 31, 2022, no stock appreciation rights 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 grant-date fair values for options are recorded as stock-based compensation expense on a straight-line basis over each recipient’s requisite service period, which is generally the vesting period. The grant-date fair values for the ESPP are recorded as stock-based compensation expense on a straight-line basis over the applicable purchase period. Actual forfeitures are recognized as a reduction of stock-based compensation expense in the period incurred.

The Company estimates the fair value of stock options granted to employees and non-employees using the Black-Scholes model. The Company estimates the fair value of ESPP for each purchase period at the beginning of the offering period 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.

Fair Value Measurements

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 March 31, 2022 and December 31, 2021, fair value measurements consisted mainly of cash equivalents. The carrying amounts of these instruments approximated their fair value. Certain of the Company’s financial instruments are recorded at amounts that

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approximate their fair value, rather than at fair value on a recurring basis, due to their liquid or short-term nature, such as cash, restricted cash, prepaid expenses, other current assets, accounts payable and accrued expenses.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the period. Other comprehensive income (loss) represents unrealized gains on investments and amounts recognized for net realized gain included in net loss.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, 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

From time to time, new accounting pronouncements are issued by the 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 may not have a material impact on the Company’s financial position or results of operations upon adoption.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) that requires a lessee to recognize leases of greater than 12 months on the balance sheet and disclose key information about leasing arrangements.

The Company adopted the new standard on January 1, 2021 using the modified retrospective approach. The Company has elected to apply the transition method that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the condensed financial statements and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit on the date of adoption. The Company has elected to combine lease components (for example fixed rent payments) with non-lease components (for example, common-area maintenance costs) on the facilities, lab equipment and CRO embedded lease asset classes. The Company also elected the “package of practical expedients”, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. Lastly, the Company elected a practical expedient to use hindsight in determining the lease term for all its leases.

Results for reporting periods beginning after January 1, 2021 are presented under the new standard, while prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new lease standard on January 1, 2021, the Company capitalized operating lease ROU assets of $6.0 million, with opening adjustments of $0.5 million related to deferred rent existing as of the transition date, and $6.5 million of operating lease liabilities, within the Company’s condensed balance sheets. There was no impact to the finance lease ROU asset and the finance lease liabilities upon adoption. In connection with operating and finance leases, there was no impact to the accumulated deficit upon the adoption of the new standard on January 1, 2021.

3. Fair Value Measurements

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 to determine the fair value and classify securities according to the fair value hierarchy.

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The carrying amounts of cash equivalents and investments 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 Company did not recognize an allowance for credit losses as of March 31, 2022. There were no transfers between Levels 1, 2, or 3 during the three months ended March 31, 2022.

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

		March 31, 2022
	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⁾	Level 1	$	125,638	$	—	$	—	$	125,638
Total		$	125,638	$	—	$	—	$	125,638

(1)

Included in cash and cash equivalents on the condensed balance sheets

		December 31, 2021
	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⁾	Level 1	$	159,010	$	—	$	—	$	159,010
Total		$	159,010	$	—	$	—	$	159,010

(1)

Included in cash and cash equivalents on the condensed balance sheets

4. Balance Sheet Components

Prepaid Expenses

Prepaid clinical expenses were $4.3 million and $5.2 million as of March 31, 2022 and December 31, 2021, respectively. Other prepaid expenses as of March 31, 2022 and December 31, 2021 included prepaid amounts for insurance and other services.

Property and Equipment, Net

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

	March 31,			December 31,
	2022			2021
Laboratory and manufacturing equipment	$	10,754		$	9,375
Leasehold improvements		2,607			2,607
Construction in progress		2,549			870
Computer and office equipment		293			293
Total property and equipment, gross		16,203			13,145
Accumulated depreciation		(7,008	)		(6,147	)
Total property and equipment, net	$	9,195		$	6,998

Depreciation was $0.9 million and $0.7 million during the three months ended March 31, 2022 and 2021, respectively.

There were insignificant disposals during the three months ended March 31, 2022 and 2021, respectively.

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Right-of-Use Assets, Net

Right-of-use assets, net consisted of the following as of March 31, 2022 (in thousands):

	Operating Leases			Finance Leases			Total
Right-of-use assets	$	41,603		$	1,107		$	42,710
Accumulated amortization		(4,389	)		(357	)		(4,746	)
Right-of-use assets, net	$	37,214		$	750		$	37,964

Lease expense from operating lease right-of-use assets during the three months ended March 31, 2022 and 2021 was $2.3 million and $0.6 million, respectively. Amortization expense from finance lease right-of-use assets during the three months ended March 31, 2022 and 2021 was $0.1 million and insignificant, respectively.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	March 31,		December 31,
	2022		2021
Research and development expenses	$	5,265	$	2,917
Compensation expenses		1,628		3,636
Professional services		1,530		881
Property and equipment		940		215
Other		426		577
Total accrued expenses	$	9,789	$	8,226

Accrued research and development expenses were primarily related to clinical trials, preclinical studies, contract manufacturing and materials.

5. Leases

Operating Leases

In December 2016, the Company entered into an operating lease agreement for its former principal office in South San Francisco, California. The lease term expires in August 2024. Under the lease agreement, the Company has two three-year renewal options through August 2030. In October 2021, the Company obtained consent from the landlord to sublease the space. In November 2021, a sublessee took possession of the premises for the remaining lease term. The Company received a security deposit of approximately $0.2 million which is classified as restricted cash on the balance sheets. Total minimum future sublease payments for the lease term are $4.3 million.

In October 2019, the Company entered into a sublease, as a lessee, for office, manufacturing and laboratory space located in South San Francisco, California. The sublease term expires in May 2022. Under the lease agreement, the Company has a five-year renewal option through May 2027.

In September 2020, the Company entered into a lease agreement for warehouse space in South San Francisco, California. In July 2021, the Company amended the lease agreement to extend the term of the lease for an additional 96 months to July 2029 and expand the leased premises. In July 2021, the Company occupied the expanded space. Under the amended lease agreement, the Company has a two-year renewal option through July 2031.

In February 2021, the Company entered into a lease agreement for laboratory, manufacturing, warehouse and office space in South San Francisco, California. In June 2021, the Company began occupying a portion of the property. In October 2021, the Company occupied the remainder of the space as its principal office. The lease term is eight years from full occupancy, which occurred in October 2021. Under the lease agreement, the Company has two five-year renewal options.

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Finance Leases

During 2019, the Company entered into three finance lease agreements for certain laboratory and manufacturing equipment. Two of the leases commenced during 2019 and the third lease commenced during 2020.

During 2021, the Company entered into a finance lease agreement for certain laboratory and manufacturing equipment. The lease commenced in March 2022.

The following table summarizes total lease expense during the three months ended March 31, 2022 (in thousands):

	Condensed Statements of Operations and Comprehensive Loss Classification	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Operating lease expense	Operating expenses	$	2,269	$	597
Finance lease expense:
Amortization of right-of-use assets	Operating expenses		50		48
Interest on lease liabilities	Interest income, net		7		9
Variable lease expense	Operating expenses		561		204
Short-term lease expense	Operating expenses		62		8
Total lease expense		$	2,949	$	866

The following table summarizes supplemental cash flow information during the three months ended March 31, 2022 (in thousands):

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases	$	1,660	$	608
Operating cash flows from finance leases		7		9
Financing cash flows from finance leases		63		57
Right-of-use asset obtained in exchange for new operating lease liability		454		—
Right-of-use asset obtained in exchange for new finance lease liability		148		—

The following table summarizes maturities of lease liabilities and the reconciliation of lease liabilities as of March 31, 2022 (in thousands):

	Operating Leases		Finance Leases		Total
2022 (remaining nine months)	$	5,502	$	205	$	5,707
2023		8,503		216		8,719
2024		7,738		45		7,783
2025