UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 2020

OR

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

Commission file number: 001-37813

SYROS PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

45-3772460

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

35 CambridgePark Drive, 4th Floor

Cambridge, Massachusetts

 

02140

(Address of Principal Executive Offices)

 

(Zip Code)

(617) 744-1340

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Title of Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value

 

SYRS

 

Nasdaq Global Select Market

 

 

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

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

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

 

Large accelerated filer

 

 

 

Accelerated filer

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

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

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

Number of shares of the registrant’s common stock, $0.001 par value, outstanding on April 30, 2020: 45,693,168

 

 


 

TABLE OF CONTENTS

 

 

Page

Part I – FINANCIAL INFORMATION

 

 

Item 1.    Financial Statements (unaudited)

5

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

5

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

7

Condensed Consolidated Statements of Stockholder’s Equity for the Three Months Ended March 31, 2020 and 2019

8

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

9

Notes to Condensed Consolidated Financial Statements

10

 

 

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

27

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

35

 

 

Item 4.    Controls and Procedures

36

 

 

Part II – OTHER INFORMATION

 

 

Item 1A. Risk Factors

37

 

 

Item 2.  Unregistered Sales of Equity Securities

39

 

 

Item 6.    Exhibits

40

 

 

Signatures

41

 

2


 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward‑looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward‑looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward‑looking statements, although not all forward‑looking statements contain these identifying words. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. The forward‑looking statements and opinions contained in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

 

These forward‑looking statements include, among other things, statements about:

 

our plans to initiate and expand clinical trials of our product candidates and our expectations for the timing, quantity and quality of information to be reported from our clinical trials of SY‑1425 and SY‑5609;

 

planned clinical trials for our product candidates, whether conducted by us or by any future collaborators, including the timing of these trials and of the anticipated results;

 

our ability to discover and develop compounds suitable for clinical development and the timing for designation of future development candidates;

 

our ability to replicate in any clinical trial of one of our product candidates the results we observed in preclinical or earlier clinical studies of such product candidate;

 

our plans to research, develop, seek approval for, manufacture and commercialize our current and future product candidates;

 

our plans to develop and seek approval of companion diagnostic tests for use in identifying patients who may benefit from treatment with our products and product candidates;

 

our expectations regarding the potential benefits of our gene control platform and our approach;

 

our ability to enter into, and the terms and timing of, any collaborations, license agreements, or other arrangements;

 

whether our collaboration with Incyte Corporation, or Incyte, will yield any validated targets, whether Incyte will exercise any of its options to exclusively license intellectual property directed to such targets, and whether and when any of the target validation fees, option exercise fees, milestone payments or royalties under the Incyte collaboration will ever be paid;

 

whether a drug candidate will be nominated to enter investigational new drug application-enabling studies under our sickle cell disease collaboration with Global Blood Therapeutics, Inc., or GBT, whether GBT will exercise its option to exclusively license intellectual property arising from the collaboration, whether and when any option exercise fees, milestone payments or royalties under the collaboration agreement with GBT will ever be paid, and whether we exercise our U.S. co-promotion option under the GBT agreement;

 

the potential benefits of any future collaboration;

 

developments relating to our competitors and our industry;

 

the impact of government laws and regulations;

3


 

 

the timing of and our ability to file new drug applications and obtain and maintain regulatory approvals for our product candidates;

 

the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our intellectual property position and strategy;

 

our ability to identify additional products or product candidates with significant commercial potential;

 

our expectations related to the use of our current cash, cash equivalents and marketable securities and the period of time in which such capital will be sufficient to fund our planned operations; and

 

our estimates regarding expenses, future revenue, capital requirements and need for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward‑looking statements, and you should not place undue reliance on our forward‑looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward‑looking statements we make. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward‑looking statements contained in this Quarterly Report. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward‑looking statements that we make. In particular, the extent to which the COVID-19 outbreak continues to impact our operations and those of the third parties on which we rely will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, additional or modified government actions, and the actions that may be required to contain the virus or treat its impact. COVID-19 has and may continue to adversely impact our operations and workforce, including our discovery research, supply chain and clinical trial operations activities, which in turn could have an adverse impact on our business and financial results. Our forward‑looking statements also do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward‑looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

SYROS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,873

 

 

$

41,441

 

Marketable securities

 

 

5,003

 

 

 

49,975

 

Accounts receivable

 

 

 

 

 

20,000

 

Contract assets

 

 

1,635

 

 

 

158

 

Prepaid expenses and other current assets

 

 

2,184

 

 

 

2,649

 

Restricted cash, current portion

 

 

 

 

 

290

 

Total current assets

 

 

125,695

 

 

 

114,513

 

Property and equipment, net

 

 

15,756

 

 

 

15,210

 

Other long-term assets

 

 

776

 

 

 

490

 

Restricted cash, net of current portion

 

 

3,086

 

 

 

3,086

 

Right-of-use asset – operating lease

 

 

15,294

 

 

 

15,821

 

Right-of-use assets – financing leases

 

 

793

 

 

 

858

 

Total assets

 

$

161,400

 

 

$

149,978

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,636

 

 

$

5,853

 

Accrued expenses

 

 

6,843

 

 

 

10,646

 

Deferred revenue, current portion

 

 

6,795

 

 

 

5,739

 

Financing and capital lease obligations, current portion

 

 

247

 

 

 

241

 

Operating lease obligation, current portion

 

 

1,287

 

 

 

1,037

 

Total current liabilities

 

 

19,808

 

 

 

23,516

 

Deferred revenue, net of current portion

 

 

20,681

 

 

 

22,639

 

Financing lease obligations, net of current portion

 

 

557

 

 

 

621

 

Operating lease obligation, net of current portion

 

 

24,244

 

 

 

24,018

 

Debt, net of debt discount, long term

 

 

19,567

 

 

 

 

Commitments and contingencies (See Note 9)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2020 and December 31, 2019; 0 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2020 and December 31, 2019; 45,690,718 and 43,367,801 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

45

 

 

 

43

 

Additional paid-in capital

 

 

386,704

 

 

 

372,100

 

Accumulated other comprehensive gain

 

 

3

 

 

 

24

 

Accumulated deficit

 

 

(310,209

)

 

 

(292,983

)

Total stockholders' equity

 

 

76,543

 

 

 

79,184

 

Total liabilities and stockholders' equity

 

$

161,400

 

 

$

149,978

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

SYROS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$

2,379

 

 

$

454

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

14,569

 

 

 

12,562

 

General and administrative

 

 

5,149

 

 

 

4,865

 

Total operating expenses

 

 

19,718

 

 

 

17,427

 

Loss from operations

 

 

(17,339

)

 

 

(16,973

)

Other income, net

 

 

113

 

 

 

512

 

Net loss applicable to common stockholders

 

$

(17,226

)

 

$

(16,461

)

Net loss per share applicable to common stockholders - basic and diluted

 

$

(0.39

)

 

$

(0.49

)

Weighted-average number of common shares used in net loss per share applicable to common stockholders - basic and diluted

 

 

43,923,999

 

 

 

33,766,333

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

SYROS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(17,226

)

 

$

(16,461

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain on marketable securities

 

 

(21

)

 

 

11

 

Comprehensive loss

 

$

(17,247

)

 

$

(16,450

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

7


 

SYROS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

For the three months ended March 31, 2020 and 2019

(in thousands, except share data)

(unaudited)

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

Par

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

(Loss) Gain

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2018

 

 

33,765,864

 

 

$

34

 

 

$

296,100

 

 

$

(3

)

 

$

(217,545

)

 

$

78,586

 

 

Exercise of stock options

 

 

1,077

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,879

 

 

 

 

 

 

 

 

 

1,879

 

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,461

)

 

 

(16,461

)

 

Balance at March 31, 2019

 

 

33,766,941

 

 

$

34

 

 

$

297,982

 

 

$

8

 

 

$

(234,006

)

 

$

64,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

43,367,801

 

 

$

43

 

 

$

372,100

 

 

$

24

 

 

$

(292,983

)

 

$

79,184

 

 

Exercise of stock options

 

 

30,595

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

100

 

 

Vesting of restricted stock units

 

 

90,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock at-the-market, net of issuance costs of $411

 

 

2,201,810

 

 

 

2

 

 

 

11,917

 

 

 

 

 

 

 

 

 

11,919

 

 

Issuance of warrants

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

128

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,459

 

 

 

 

 

 

 

 

 

2,459

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,226

)

 

 

(17,226

)

 

Balance at March 31, 2020

 

 

45,690,718

 

 

$

45

 

 

$

386,704

 

 

$

3

 

 

$

(310,209

)

 

$

76,543

 

 

 

 

 

 

 

8


 

SYROS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(17,226

)

 

$

(16,461

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

678

 

 

 

517

 

Amortization of financing right-of-use asset

 

 

65

 

 

 

15

 

Gain on disposal of fixed assets and modification of lease

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

2,459

 

 

 

1,879

 

Net amortization of premiums and discounts on marketable securities

 

 

(49

)

 

 

(296

)

Amortization of debit-discount and accretion of deferred debt costs

 

 

40

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

358

 

 

 

158

 

Accounts receivable

 

 

20,000

 

 

 

 

Contract assets

 

 

(1,477

)

 

 

 

Other long-term assets

 

 

(286

)

 

 

(14

)

Accounts payable

 

 

(1,060

)

 

 

(610

)

Accrued expenses

 

 

(3,357

)

 

 

(4,966

)

Deferred revenue

 

 

(902

)

 

 

(454

)

Proceeds for tenant improvement incentive from landlord

 

 

586

 

 

 

 

Operating lease asset and liabilities

 

 

417

 

 

 

(96

)

Net cash provided by (used in) operating activities

 

 

246

 

 

 

(20,327

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,797

)

 

 

(591

)

Purchases of marketable securities

 

 

 

 

 

(33,638

)

Maturities of marketable securities

 

 

45,000

 

 

 

30,000

 

Net cash provided by (used in) investing activities

 

 

43,203

 

 

 

(4,229

)

Financing activities

 

 

 

 

 

 

 

 

Payments on financing and capital lease obligations

 

 

(58

)

 

 

(40

)

Proceeds from issuance of common stock through employee benefit plans

 

 

100

 

 

 

3

 

Proceeds from issuance of common stock through at-the-market sales agreement, net of issuance costs

 

 

11,937

 

 

 

 

Proceeds from term loan, net of issuance costs

 

 

19,714

 

 

 

 

Payment of offering costs

 

 

 

 

 

(78

)

Net cash provided by (used in) financing activities

 

 

31,693

 

 

 

(115

)

Increase (decrease) in cash, cash equivalents and restricted cash

 

 

75,142

 

 

 

(24,671

)

Cash, cash equivalents and restricted cash (See Note 6)

 

 

 

 

 

 

 

 

Beginning of period

 

 

44,817

 

 

 

50,814

 

End of period

 

$

119,959

 

 

$

26,143

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

231

 

 

$

8

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment received but unpaid as of period end

 

$

991

 

 

$

230

 

Assets acquired under financing lease

 

$

 

 

$

996

 

Deferred financing costs incurred but unpaid as of period end

 

$

10

 

 

$

 

Offering costs incurred but unpaid as of period end

 

$

41

 

 

$

129

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

9


 

1. Nature of Business

 

Syros Pharmaceuticals, Inc. (the "Company"), a Delaware corporation formed in November 2011, is a biopharmaceutical company seeking to redefine the power of small molecules to control the expression of genes.

 

The Company is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals; risks inherent in the development and commercialization of medicines to treat human disease; competition from other companies, many of which are larger and better capitalized; risks relating to obtaining and maintaining necessary intellectual property protection; and the need to obtain adequate additional financing to fund the development of its product candidates and discovery activities. If the Company is unable to raise capital when needed or on favorable terms, it would be forced to delay, reduce, eliminate or out-license certain of its research and development programs or future commercialization rights to its product candidates.

 

The Company has incurred significant annual net operating losses in every year since its inception. It expects to continue to incur significant and increasing net operating losses for at least the next several years. The Company’s net losses were $75.4 million, $62.3 million and $54.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of March 31, 2020, the Company had an accumulated deficit of $310.2 million. The Company has not generated any revenues from product sales, has not completed the development of any product candidate and may never have a product candidate approved for commercialization. The Company has financed its operations to date primarily through the sale of equity securities, license and collaboration agreements and term debt. The Company has devoted substantially all of its financial resources and efforts to research and development and general and administrative expense to support such research and development. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on the Company’s stockholders' equity and working capital. The Company believes that its cash, cash equivalents and marketable securities of $121.9 million as of March 31, 2020 will be sufficient to allow the Company to fund its current operating plan for a period of at least 12 months past the issuance date of these unaudited interim condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on March 5, 2020. 

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of March 31, 2020, the results of its operations and statements of cash flows and stockholder’s equity for the three months ended March 31, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results for the three months ended March 31, 2020 are not necessarily indicative of the results for the year ending December 31, 2020, or for any future period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Syros Pharmaceuticals, Inc. and its wholly owned subsidiaries, Syros Securities Corporation, a Massachusetts corporation formed by the Company in December 2014 to exclusively engage in buying, selling and holding securities on its own behalf, and Syros Pharmaceuticals (Ireland) Limited, an Irish limited liability company formed by the Company in January 2019. All intercompany transactions and balances have been eliminated in consolidation.

10


 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Management considers many factors in selecting appropriate financial accounting policies and in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, which include, but are not limited to, expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. Management’s estimation process often may yield a range of potentially reasonable estimates and management must select an amount that falls within that range of reasonable estimates. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to revenue recognition, stock-based compensation expense, accrued expenses and income taxes. Actual results may differ from those estimates or assumptions.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company's chief operating decision maker is the Chief Executive Officer. The Company and the chief operating decision maker view the Company's operations and manage its business in one operating segment. The Company operates only in the United States.

Cash and Cash Equivalents

The Company considers all highly liquid instruments that have original maturities of three months or less when acquired to be cash equivalents. Cash equivalents, which generally consist of money market funds that invest in U.S. Treasury obligations, as well as overnight repurchase agreements, are stated at fair value. The Company maintains its bank accounts at one major financial institution.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (“ASC 820”), established a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability. These are developed based on the best information available under the circumstances.

ASC 820 identified fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 established a three-tier fair value hierarchy that distinguishes between the following:

Level 1—Quoted market prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

Level 3—Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, prepaid expenses, other current assets, restricted cash, accounts payable, accrued expenses, deferred revenue and financing and operating lease liabilities approximate their respective fair values due to their short-term nature.

11


 

Amortization of Debt Discount and Issuance Costs

Long-term debt is initially recorded at its allocated proceeds, net of discounts and deferred costs. Debt discount and issuance costs, consisting of legal fees, warrant grant date fair values and other issuance fees directly related to the debt, are offset against the initial carrying value of the debt and are amortized to interest expense over the estimated life of the debt using the effective interest method.

Revenue Recognition

 

To date the Company’s only revenue has consisted of collaboration and license revenue. The Company has not generated any revenue from product sales and does not expect to generate any revenue from product sales for the foreseeable future.

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

 

 

(i)

identify the contract(s) with a customer;

 

 

(ii)

identify the performance obligations in the contract;

 

 

(iii)

determine the transaction price;

 

 

(iv)

allocate the transaction price to the performance obligations in the contract; and

 

 

(v)

recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. If a contract is determined to be within the scope of ASC 606 at inception, the Company assesses the goods or services promised within such contract, determines which of those goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the Company records a contract asset, excluding any amounts presented as accounts receivable. The Company includes unbilled accounts receivable as contract assets on its consolidated balance sheets. The Company records accounts receivable for amounts billed to the customer for which the Company has an unconditional right to consideration. The Company assesses contract assets and accounts receivable for impairment and, to date, no impairment losses have been recorded.

 

From time to time, the Company may enter into agreements that are within the scope of ASC 606. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees or prepaid research and development services; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products. Each of these payments results in license and collaboration revenues, except for revenues from royalties on net sales of licensed products, which will be classified as royalty revenues.

 

12


 

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.

Research and Development

Expenditures relating to research and development are expensed in the period incurred. Research and development expenses consist of both internal and external costs associated with the development of the Company’s gene control platform and product candidates. Research and development costs include salaries and benefits, materials and supplies, external research, preclinical and clinical development expenses, stock-based compensation expense and facilities costs. Facilities costs primarily include the allocation of rent, utilities, depreciation and amortization.

In certain circumstances, the Company is required to make nonrefundable advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the nonrefundable advance payments are deferred and capitalized, even when there is no alternative future use for the research and development, until related goods or services are provided.

The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the work being performed, including the phase or completion of the event, invoices received and costs. Significant judgements and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

The Company may in-license the rights to develop and commercialize product candidates. For each in-license transaction the Company evaluates whether it has acquired processes or activities along with inputs that would be sufficient to constitute a “business” as defined under U.S. GAAP. A “business” as defined under U.S. GAAP consists of inputs and processes applied to those inputs that have the ability to create outputs. Although businesses usually have outputs, outputs are not required for an integrated set of activities to qualify as a business. When the Company determines that it has not acquired sufficient processes or activities to constitute a business, any up-front payments, as well as milestone payments, are immediately expensed as acquired research and development in the period in which they are incurred.

Stock-Based Compensation Expense

 

The Company accounts for its stock-based compensation awards in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees and directors, including grants of restricted stock units and stock option awards, to be recognized as expense in the consolidated statements of operations based on their grant date fair values. Grants of restricted stock units and stock option awards to other service providers, referred to as non-employees, are measured based on the grant-date fair value of the award and expensed in the Company’s condensed consolidated statement of operations over the vesting period. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. Prior to June 30, 2016, the Company was a private company and, therefore, lacks Company-specific historical and implied volatility information. As a result, the Company determines its expected volatility by using a blend of its historical experience and a weighted average of selected peer companies. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options to non-employees can be determined using either the contractual term of the option award or the “simplified” method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The Company uses the value of its common stock to determine the fair value of restricted stock units.

 

13


 

The Company expenses the fair value of its stock-based awards to employees and non-employees on a straight-line basis over the associated service period, which is generally the vesting period. The Company accounts for forfeitures as they occur instead of estimating forfeitures at the time of grant. Ultimately, the actual expense recognized over the vesting period will be for only those options that vest.

 

Compensation expense for discounted purchases under the employee stock purchase plan is measured using the Black-Scholes model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the offering period.

 

For stock-based awards that contain performance-based milestones, the Company records stock-based compensation expense in accordance with the accelerated attribution model. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions as of the reporting date. For certain performance-based awards, notwithstanding any vesting in accordance with the achievement of performance-based milestones, such awards vest in full on the sixth anniversary of the vesting commencement date. Compensation expense for such awards is recognized over the six-year vesting period unless management determines that the achievement of any performance-based milestones is probable, in which case expense is accelerated.

Net Loss per Share

Basic net earnings per share applicable to common stockholders is calculated by dividing net earnings applicable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net earnings per share applicable to common stockholders is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method and the if-converted method. For purposes of the calculation of dilutive net loss per share applicable to common stockholders, stock options, unvested restricted stock units, and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.

The following common stock equivalents were excluded from the calculation of diluted net loss per share applicable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

As of March 31,

 

 

 

2020

 

 

2019

 

Stock options

 

 

5,504,177

 

 

 

4,616,395

 

Unvested restricted stock units

 

 

1,641,346

 

 

 

1,078,824

 

Warrants*

 

 

2,145,642

 

 

 

 

Total

 

 

9,291,165

 

 

 

5,695,219

 

 

* This is comprised of 2,118,094 warrants to purchase common stock issued in connection with the Company’s April 2019 financing (refer to Note 10) and 27,548 warrants to purchase common stock issued in connection with the execution of the Loan Agreement in February 2020 (refer to Note 7).

 

Income Taxes

The Company accounts for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity, and changes in facts or circumstances related to a tax position.

14


 

Recent Accounting Pronouncements

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 (“ASU 2019-04”). ASU 2019-04 clarifies the accounting treatment for the measurement of credit losses under ASC 236 and provides further clarification on previously issued updates including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities and ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2019-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the new standard but does not anticipate ASU 2019-14 will have a material impact on its consolidated financial statements and related disclosures

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, Revenue from Contracts with Customers (“ASU 2018-18”). ASU 2018-18 (1) clarifies that certain transactions between collaborative arrangement participants should be accounted for under ASC 606, when the collaborative arrangement participant is a customer in the context of a unit of account, (2) adds unit-of-account guidance in ASC 808 to align with ASC 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606, and (3) precludes presenting transactions together with revenue when those transactions involve collaborative arrangement participants that are not directly related to third parties and are not customers. The Company adopted ASU 2018-18 during the quarter ending March 31, 2020; the adoption of ASU 2018-18 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820) (“ASU 2018-13”), which provides for changes to the disclosure requirements for recurring and nonrecurring fair value measurements under Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. Provisions of ASU 2018-13 including changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty were required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company adopted ASU 2018-18 during the quarter ending March 31, 2020; the adoption of ASU 2018-13 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

3. Collaboration and Research Arrangements

 

Collaboration with Global Blood Therapeutics

 

On December 17, 2019, the Company entered into a license and collaboration agreement (the “GBT Collaboration Agreement”) with Global Blood Therapeutics, Inc. (“GBT”), pursuant to which the parties agreed to a research collaboration to discover novel targets that induce fetal hemoglobin in order to develop new small molecule treatments for sickle cell disease and beta thalassemia. The research term (the “Research Term”) is for an initial period of three years and can be extended for up to two (2) additional one-year terms upon mutual agreement.

 

Pursuant to the terms of the GBT Collaboration Agreement, GBT paid the Company an upfront payment of $20.0 million. GBT also agreed to reimburse the Company for full-time employee and out-of-pocket costs and expenses incurred by the Company in accordance with the agreed-upon research budget, which is anticipated to total approximately $40.0 million over the initial Research Term.

 

15


 

The Company granted to GBT an option (the “Option”) to obtain an exclusive, worldwide license, with the right to sublicense, under relevant intellectual property rights and know-how of the Company arising from the collaboration to develop, manufacture and commercialize any compounds or products resulting from the collaboration. GBT may exercise the Option at any time during the period (i) commencing on the earlier of (a) the date of GBT’s designation of the first product candidate to enter investigational new drug application-enabling studies, or (b) if no such candidate is designated as of the expiration of the Research Term, the date of expiration of the Research Term, and (ii) ending on the 180th day after the date of expiration or earlier termination of the Research Term. GBT’s exercise of the Option will be subject to any required filings with the applicable antitrust authority as required by the antitrust laws and satisfaction of any applicable antitrust conditions.

 

Should GBT exercise its Option, the Company could receive up to $315.0 million in option exercise, development, regulatory, commercialization and sales-based milestones per product candidate and product resulting from the collaboration.

 

The Company will also be entitled to receive, subject to certain reductions, tiered mid-to-high single digit royalties as percentages of calendar year net sales on any product.

 

Either party may terminate the GBT Collaboration Agreement for the other party’s uncured material breach or insolvency, and in certain other specified circumstances, subject to specified notice and cure periods. GBT may unilaterally terminate the GBT Collaboration Agreement in its entirety, for any or no reason, upon nine-months’ prior written notice to the Company if such notice is delivered during the Research Term, or 90 days’ prior written notice to the Company if such notice is delivered after the expiration or termination of the Research Term.

GBT Collaboration Revenue

The Company analyzed the GBT Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC 606.

The Company identified a single performance obligation, which includes a (i) non-exclusive research license that GBT will have access to during the initial Research Term and (ii) research and development services provided during the initial Research Term. The GBT Collaboration Agreement includes the Option. The Option does not provide a material right to GBT that it would receive without entering into the GBT Collaboration Agreement, principally because the Option exercise fee is at least equal to the standalone selling price for the underlying goods. The non-exclusive research license is not distinct as GBT cannot benefit from the license without the research and development services that are separately identifiable in the contract. The non-exclusive research license only allows GBT to evaluate the candidate compounds developed under the research plan or to conduct work allocated to it during the Research Term. GBT cannot extract any benefit from the non-exclusive research license without the research and development services performed by the Company, including the provision of data package information. As such, these two promises are inputs to a combined output (the delivery of data package allowing GBT to make an Option exercise decision) and are bundled into a single performance obligation (the non-exclusive research license and research and development service performance obligation).

 

At inception, the total transaction price was determined to be approximately $60.0 million, which consisted of a $20.0 million upfront non-refundable and non-creditable technology access fee and approximately $40.0 million in reimbursable costs for employee and external research and development expenses. The GBT Collaboration Agreement also provides for development and regulatory milestones which are only payable subsequent to the exercise of the Option, and therefore are excluded from the transaction price at inception. The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

During the three months ended March 31, 2020, there was no change in the total transaction price, which remained at approximately $60.0 million.

ASC 606 requires an entity to recognize revenue only when it satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is considered to be transferred when the customer obtains control. As the non-exclusive research license and research and development services represent one performance obligation, the Company has determined that it will satisfy its performance obligation over a period of time as services are performed and GBT receives the benefit of the services, as the overall purpose of the arrangement is for the Company to perform the services. The Company will recognize revenue associated with the performance obligation as the research

16


 

and development services are provided using an input method, according to the costs incurred as related to the research and development activities and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs during this time and is the best measure of progress towards satisfying the performance obligation.

During the three months ended March 31, 2020, the Company recognized $2.2 million under the GBT Collaboration Agreement. As of March 31, 2020, the Company has deferred revenue outstanding under the GBT Collaboration Agreement of approximately $19.3 million, of which $5.4 million and $13.9 million were classified as deferred revenue, current portion and deferred revenue, net of current portion, respectively, on the Company’s condensed consolidated balance sheets.

Agreements with Incyte Corporation

In January 2018, the Company and Incyte entered into a Target Discovery, Research Collaboration and Option Agreement (the “Incyte Collaboration Agreement”). The Incyte Collaboration Agreement was amended in November 2019. Under the Incyte Collaboration Agreement, the Company is using its proprietary gene control platform to identify novel therapeutic targets with a focus on myeloproliferative neoplasms, and Incyte has received options to obtain exclusive worldwide rights to intellectual property resulting from the collaboration for the development and commercialization of therapeutic products directed to up to seven validated targets. For each option exercised by Incyte, Incyte will have the exclusive worldwide right to use the licensed intellectual property to develop and commercialize therapeutic products that modulate the target as to which the option was exercised. Under the terms of the Incyte Collaboration Agreement, Incyte paid the Company $10.0 million in up-front consideration, consisting of $2.5 million in cash and $7.5 million in pre-paid research funding (the “Prepaid Research Amount”). The Company’s activities under the Incyte Collaboration Agreement are subject to a joint research plan and, subject to certain exceptions, Incyte is responsible for funding the Company’s activities under the research plan, including amounts in excess of the Prepaid Research Amount.

 

In January 2018, the Company also entered into a Stock Purchase Agreement with Incyte (the “Stock Purchase Agreement”) whereby, for an aggregate purchase price of $10.0 million, Incyte purchased 793,021 shares of the Company’s common stock at $12.61 per share. Under the terms of the Stock Purchase Agreement, the shares were purchased at a 30% premium over the volume-weighted sale price of the shares of the Company’s common stock over the 15-trading day period immediately preceding the date of the Stock Purchase Agreement.

Incyte Collaboration Revenue

The Company analyzed the Incyte Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC 606.

The Company identified a single performance obligation which includes (i) a research license that Incyte retains as long as there remains an unexercised option (the “Research License”) and (ii) research and development services provided during the research term. The Incyte Collaboration Agreement includes options to (x) obtain additional time to exercise the license options for certain targets designated as definitive validation targets and (y) obtain license rights to each validated target, both of which were not considered by the Company’s management to be material rights, and therefore not performance obligations, at inception.

At inception, the total transaction price was determined to be $12.3 million and was subsequently increased to $12.8 million following a November 2019 amendment. As of March 31, 2020, the total transaction price is $12.8 million, consisting of a $2.5 million upfront non-refundable and non-creditable payment, the $7.5 million Prepaid Research Amount, $2.3 million in premium paid on the equity investment made pursuant the Stock Purchase Agreement and $0.5 million of additional consideration. The Company accounted for the contract amendment as a modification as if it were part of the existing contract as the remaining goods and services are not distinct, and therefore form part of a single performance obligation that was partially satisfied at the date of the amendment. This additional consideration will be recognized on a percent complete basis as work is performed.

The Incyte Collaboration Agreement also provides for development and regulatory milestones that are only payable subsequent to the exercise of an option and were therefore excluded from transaction price at inception. The Company intends to re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

17


 

The Company recognizes revenue associated with the performance obligation as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs during this time and is the best measure of progress towards satisfying the performance obligation.

During the three months ending March 31, 2020 and 2019, the Company recognized $0.2 million and $0.5 million of revenue, respectively, under the Incyte Collaboration Agreement. As of March 31, 2020, the Company has deferred revenue outstanding under the Incyte Collaboration Agreement of approximately $8.2 million, of which $1.4 million and $6.8 million were classified as deferred revenue, current portion and deferred revenue, net of current portion, respectively, on the Company’s condensed consolidated balance sheets.

The following table presents the changes in accounts receivable, contract assets and liabilities for the three months ended March 31, 2020 (in thousands):

 

 

 

Balance at

December

31, 2019

 

 

Additions

 

 

Deductions

 

 

Balance at

March

31, 2020

 

Accounts receivable and contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Billed receivables from collaboration partners

 

$

20,000

 

 

$

 

 

$

20,000

 

 

$

 

Unbilled receivables from collaboration partners

 

 

158

 

 

 

1,477

 

 

 

 

 

 

1,635

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue - Incyte

 

$

8,378

 

 

$

 

 

$

177

 

 

$

8,201

 

Deferred revenue - GBT

 

 

20,000

 

 

 

 

 

 

725

 

 

 

19,275

 

Total

 

$

28,378

 

 

$

 

 

$

902

 

 

$

27,476

 

 

4. Cash, Cash Equivalents and Marketable Securities

Cash equivalents are highly liquid investments that are readily convertible into cash with original maturities of three months or less when purchased. Marketable securities consist of securities with original maturities greater than 90 days when purchased. The Company classifies these marketable securities as available-for-sale and records them at fair value in the accompanying condensed consolidated balance sheets. Unrealized gains or losses are included in accumulated other comprehensive (loss) gain. Premiums or discounts from par value are amortized to other income over the life of the underlying security.

Cash, cash equivalents and marketable securities consisted of the following at March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

March 31, 2020

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

116,873

 

 

$

 

 

$

 

 

$

116,873

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury obligations

 

 

5,000

 

 

 

3

 

 

 

 

 

 

5,003

 

Total:

 

$

121,873

 

 

$

3

 

 

$

 

 

$

121,876

 

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

December 31, 2019

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

29,441

 

 

$

 

 

$

 

 

$

29,441

 

Overnight repurchase agreements

 

 

12,000

 

 

 

 

 

 

 

 

 

12,000

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury obligations

 

 

49,951

 

 

 

24

 

 

 

 

 

 

49,975

 

Total:

 

$

91,392

 

 

$

24

 

 

$

 

 

$

91,416

 

 

Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized

18


 

gains and losses. During the three months ended March 31, 2020 and 2019, there were no realized gains or losses on sales of investments, and no investments were adjusted for other-than-temporary declines in fair value.

As of March 31, 2020 and December 31, 2019, all marketable securities had maturities of less than twelve months when purchased and therefore were classified as short-term.

At March 31, 2020, the Company held no securities that were in an unrealized loss position. 

5. Fair Value Measurements

Assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 were as follows (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

March 31, 2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

116,873

 

 

$

116,873

 

 

$

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury obligations

 

 

5,003

 

 

 

5,003

 

 

 

 

 

 

 

 

 

$

121,876

 

 

$

121,876

 

 

$

 

 

$

 

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

December 31, 2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

29,441

 

 

$

29,441

 

 

$

 

 

$

 

Overnight repurchase agreements

 

 

12,000

 

 

 

 

 

 

12,000

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury obligations

 

 

49,975

 

 

 

49,975

 

 

 

 

 

 

 

 

 

$

91,416

 

 

$

79,416

 

 

$

12,000

 

 

$

 

 

As of March 31, 2020, the fair value of the long-term debt is based on Level 3 inputs and approximated its carrying value due to the proximity of the issuance date to March 31, 2020.

 

6. Restricted Cash

At March 31, 2020, the Company had $3.1 million in restricted cash, all of which was classified as long-term on the Company’s condensed consolidated balance sheets, and all of which was attributable to the 2019 Lease (See Note 9).

In connection with the execution of the 2019 Lease, the Company was required to provide the landlord with a letter of credit in the amount of $3.1 million that will expire 95 days after expiration or early termination of the 2019 Lease. The Company will have the right, under certain conditions, to reduce the amount of the letter of credit to $2.1 million in October 2023.

During the three months ending March 31, 2020, the Company collected its $0.3 million letter of credit associated with its 2015 Lease (See Note 9), which was previously classified as short-term on the Company’s consolidated balance sheets as of December 31, 2019.

At December 31, 2019, the Company had $3.4 million in restricted cash, of which $0.3 million was classified as short-term and $3.1 million was classified as long-term.

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the Company’s condensed consolidated statement of cash flows as of March 31, 2020, December 31, 2019, March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

116,873

 

 

$

41,441

 

 

$

22,129

 

 

$

49,886

 

Restricted cash, current portion

 

 

 

 

 

290

 

 

 

638

 

 

 

638

 

Restricted cash, net of current portion

 

 

3,086

 

 

 

3,086

 

 

 

3,376

 

 

 

290

 

Total cash, cash equivalents and restricted cash

 

$

119,959

 

 

$

44,817

 

 

$

26,143

 

 

$

50,814

 

 

7. Oxford Finance Loan Agreement

 

On February 12, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance LLC (the “Lender”). Pursuant to the Loan Agreement, a term loan of up to an aggregate principal amount of $60.0 million is available to the Company. A $20.0 million term loan was funded on February 12, 2020, and two additional term loan advances of $20.0 million each remain available under the Loan Agreement, subject to certain terms and conditions, including the achievement of certain milestones.

 

The term loan bears interest at an annual rate equal to the greater of (i) 7.75% and (ii) the sum of 5.98% and the greater of (A) one-month LIBOR or (B) 1.77%. The Loan Agreement provides for interest-only payments until March 1, 2023, and repayment of the aggregate outstanding principal balance of the term loan in monthly installments starting on March 1, 2023 and continuing through February 1, 2025 (the “Maturity Date”). The Company paid a facility fee of $0.1 million upon closing, and in addition will pay a facility fee of $75,000 upon closing of the second loan tranche and a $50,000 facility fee upon the closing of the third loan tranche. The Company will be required to make a final payment fee of 5.00% of the amount of the term loan drawn payable on the earlier of (i) the prepayment of the term loan or (ii) the Maturity Date. At the Company’s option, the Company may elect to prepay the loans subject to a prepayment fee equal to the following percentage of the principal amount being prepaid: 2% if an advance is prepaid during the first 12 months following the applicable advance date, 1% if an advance is prepaid after 12 months but prior to 24 months following the applicable advance date, and 0.5% if an advance is prepaid any time after 24 months following the applicable advance date but prior to the Maturity Date.

 

In connection with the Loan Agreement, the Company granted the Lender a security interest in all of the Company’s personal property now owned or hereafter acquired, excluding intellectual property (but including the right to payments and proceeds of intellectual property), and a negative pledge on intellectual property. The Loan Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company.

 

In addition, under the Loan Agreement, the Company issued the Lender warrants to purchase 27,548 shares of the Company’s common stock at an exercise price per share of $7.26 (the “Oxford Warrants”). The Oxford Warrants will be exercisable for five years from the date of issuance.

 

The Oxford Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Oxford Warrants do not provide any guarantee of value or return. The Company valued the Oxford Warrants at issuance using the Black-Scholes option pricing model and determined the fair value of the Oxford Warrants to be $0.1 million. The key inputs to the valuation model included an average volatility of 75.43% and an expected term of 5.0 years.

 

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The Company has the following minimum aggregate future loan payments as of March 31, 2020 (in thousands):

 

Nine months ending December 31, 2020

 

$

 

Year ended December 31, 2021

 

 

 

Year ended December 31, 2022

 

 

 

Year ended December 31, 2023

 

 

8,333

 

Year ended December 31, 2024

 

 

10,000

 

Year ended December 3