10-Q 1 cbio-10q_20160930.htm 10-Q cbio-10q_20160930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

For the transition period from                      to                     

Commission file number: 000-51173

 

Catalyst Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

56-2020050

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

260 Littlefield Ave.

South San Francisco, California

94080

(Address of Principal Executive Offices)

(Zip Code)

(650) 266-8674

(Registrant’s Telephone Number, Including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

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 October 31, 2016, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 12,026,297.

 

 

 

 


CATALYST BIOSCIENCES, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page No.

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements:

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II. OTHER INFORMATION

 

26

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

28

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

28

 

 

 

 

 

Item 5.

 

Other Information

 

28

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

 

 

 

 

Exhibit Index

 

30

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Catalyst Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

September 30, 2016

 

 

December 31,

2015

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,317

 

 

$

29,096

 

Short-term investments

 

 

10,208

 

 

 

3,402

 

Restricted cash

 

 

29,719

 

 

 

33,794

 

Deposits

 

 

5

 

 

 

133

 

Accounts receivable

 

 

101

 

 

 

492

 

Prepaid and other current assets

 

 

1,425

 

 

 

1,781

 

Total current assets

 

 

50,775

 

 

 

68,698

 

Restricted cash, noncurrent

 

 

125

 

 

 

125

 

Property and equipment, net

 

 

716

 

 

 

698

 

Total assets

 

$

51,616

 

 

$

69,521

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

529

 

 

$

939

 

Accrued compensation

 

 

682

 

 

 

926

 

Other accrued liabilities

 

 

652

 

 

 

535

 

Deferred revenue, current portion

 

 

401

 

 

 

438

 

Deferred rent, current portion

 

 

35

 

 

 

19

 

Redeemable convertible notes

 

 

29,667

 

 

 

33,743

 

Derivative liability

 

 

28

 

 

 

1,156

 

Total current liabilities

 

 

31,994

 

 

 

37,756

 

Deferred revenue, noncurrent portion

 

 

 

 

 

292

 

Deferred rent, noncurrent portion

 

 

18

 

 

 

48

 

Total liabilities

 

 

32,012

 

 

 

38,096

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares and 0 shares authorized and

   outstanding at September 30, 2016 and December 31, 2015

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized at September 30, 2016

   and December 31, 2015; 11,935,981 and 11,430,085 shares issued and

   outstanding at September 30, 2016 and December 31, 2015

 

 

12

 

 

 

11

 

Additional paid-in capital

 

 

163,820

 

 

 

162,450

 

Accumulated other comprehensive income

 

 

4

 

 

 

1

 

Accumulated deficit

 

 

(144,232

)

 

 

(131,037

)

Total stockholders’ equity

 

 

19,604

 

 

 

31,425

 

Total liabilities and stockholders’ equity

 

$

51,616

 

 

$

69,521

 

 

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

 

 

3


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Contract revenue

 

$

109

 

 

$

109

 

 

$

328

 

 

$

1,641

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,396

 

 

 

1,486

 

 

 

8,443

 

 

 

4,192

 

General and administrative

 

 

2,425

 

 

 

2,508

 

 

 

7,083

 

 

 

6,567

 

Total operating expenses

 

 

5,821

 

 

 

3,994

 

 

 

15,526

 

 

 

10,759

 

Loss from operations

 

 

(5,712

)

 

 

(3,885

)

 

 

(15,198

)

 

 

(9,118

)

Interest and other income, net

 

 

941

 

 

 

273

 

 

 

2,003

 

 

 

964

 

Interest Expense

 

 

 

 

 

(1,439

)

 

 

 

 

 

(1,478

)

Net loss

 

$

(4,771

)

 

$

(5,051

)

 

$

(13,195

)

 

$

(9,632

)

Net loss per common share, basic and diluted

 

$

(0.40

)

 

$

(0.93

)

 

$

(1.14

)

 

$

(4.65

)

Shares used to compute net loss per common share, basic and

   diluted

 

 

11,846,947

 

 

 

5,410,864

 

 

 

11,575,701

 

 

 

2,071,161

 

 

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

 

 

4


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(4,771

)

 

$

(5,051

)

 

$

(13,195

)

 

$

(9,632

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

3

 

 

 

16

 

 

 

3

 

 

 

16

 

Total comprehensive loss

 

$

(4,768

)

 

$

(5,035

)

 

$

(13,192

)

 

$

(9,616

)

 

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

 

 

5


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2015

 

 

11,430,085

 

 

$

11

 

 

$

162,450

 

 

$

1

 

 

$

(131,037

)

 

$

31,425

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

505

 

Issuance of common stock, net of issuance costs

 

 

505,826

 

 

 

 

 

 

865

 

 

 

 

 

 

 

 

 

865

 

Conversion of redeemable convertible notes to

   common stock

 

 

70

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,195

)

 

 

(13,195

)

Balance at September 30, 2016

 

 

11,935,981

 

 

$

12

 

 

$

163,820

 

 

$

4

 

 

$

(144,232

)

 

$

19,604

 

 

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

 

 

6


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(13,195

)

 

$

(9,632

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

505

 

 

 

135

 

Depreciation and amortization

 

 

328

 

 

 

365

 

Non-cash interest expense

 

 

 

 

 

1,478

 

Loss on disposal of fixed assets

 

 

 

 

 

11

 

Gain on extinguishment of redeemable convertible notes

 

 

(92

)

 

 

(39

)

Change in fair value of warrant liability

 

 

 

 

 

(91

)

Change in fair value of derivative liability

 

 

(1,036

)

 

 

(740

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

391

 

 

 

(235

)

Prepaid and other current assets

 

 

484

 

 

 

(56

)

Accounts payable

 

 

(410

)

 

 

(4,543

)

Accrued compensation and other accrued liabilities

 

 

(127

)

 

 

1,029

 

Deferred rent

 

 

(14

)

 

 

(18

)

Deferred revenue

 

 

(329

)

 

 

(1,640

)

Net cash flows used in operating activities

 

 

(13,495

)

 

 

(13,976

)

Investing Activities

 

 

 

 

 

 

 

 

Proceeds from the reverse merger

 

 

 

 

 

23,931

 

Proceeds from maturities of investments

 

 

6,601

 

 

 

2,750

 

Purchase of investments

 

 

(13,404

)

 

 

 

Change in restricted cash

 

 

 

 

 

(125

)

Purchases of property and equipment

 

 

(346

)

 

 

(174

)

Net cash flows (used in) provided by investing activities

 

 

(7,149

)

 

 

26,382

 

Financing Activities

 

 

 

 

 

 

 

 

Release of restricted cash due to conversion and redemption of redeemable convertible

   notes

 

 

4,075

 

 

 

2,225

 

Payments for the redemption of redeemable convertible notes

 

 

(4,075

)

 

 

(2,157

)

Proceeds from issuance of common stock, net of issuance costs

 

 

865

 

 

 

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

7,259

 

Proceeds from issuance of convertible notes to related parties

 

 

 

 

 

1,888

 

Repurchase of common stock in connection with equity award assumed

 

 

 

 

 

(82

)

Proceeds from the exercise of common stock options

 

 

 

 

 

13

 

Net cash flows provided by financing activities

 

 

865

 

 

 

9,146

 

Net (decrease) increase in cash and cash equivalents

 

 

(19,779

)

 

 

21,552

 

Cash and cash equivalents at beginning of period

 

 

29,096

 

 

 

1,544

 

Cash and equivalents at end of period

 

$

9,317

 

 

$

23,096

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Information:

 

 

 

 

 

 

 

 

Conversion of convertible notes to Series F convertible preferred stock

 

 

 

 

 

1,511

 

Conversion of preferred stock warrant liabilities to equity upon reverse merger

 

 

 

 

 

774

 

Conversion of preferred stock and warrant liabilities to equity upon reverse merger

 

 

 

 

 

117,647

 

Investment securities received from the reverse merger

 

 

 

 

 

17,223

 

Redeemable convertible notes assumed upon reverse merger

 

 

 

 

 

37,073

 

Conversion of convertible notes to common stock

 

 

1

 

 

 

68

 

Embedded derivative related to redeemable convertible notes

 

 

 

 

 

1,455

 

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

 

7


 

 

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

1.

Nature of Operations

Catalyst Biosciences, Inc. (the “Company” or “Catalyst”), is a clinical-stage biotechnology company focused on developing novel medicines to address hematology indications, including the treatment of hemophilia and surgical bleeding. Its facilities are located in South San Francisco, California and it operates in one segment.  

Prior to August 20, 2015, the name of the Company was Targacept, Inc. On August 20, 2015, Targacept completed its business combination with “Old Catalyst” in accordance with the terms of an Agreement and Plan of Merger, dated as of March 5, 2015, as amended on May 6 and May 13, 2015, by and among Targacept, Talos Merger Sub, Inc. (“Merger Sub”) and Old Catalyst, pursuant to which Merger Sub merged with and into Old Catalyst, with Old Catalyst surviving as a wholly-owned subsidiary of Targacept (the “Merger”). Also on August 20, 2015, in connection with, and prior to the completion of, the Merger, Targacept effected a 7-for-1 reverse stock split of its common stock (the “Reverse Stock Split”) and changed its name from Targacept, Inc. to Catalyst Biosciences, Inc. Following the completion of the Merger, the business conducted by the Company became primarily the business conducted by Old Catalyst described in the paragraph above. We refer in this Quarterly Report on Form 10-Q to the business combination as the “Merger,” to the Company prior to the Merger as “Targacept” and to our subsidiary as “Old Catalyst,” and discussions of historical results reflect the results of Old Catalyst prior to the completion of the Merger and do not include the historical results of Targacept prior to the completion of the Merger.

On August 19, 2015, prior to and in connection with the Merger, the Company paid a dividend to the Targacept holders consisting of cash and non-interest bearing redeemable convertible notes (the “Pre-Closing Dividend”), see Note 6 for further detail. In connection with the Pre-Closing Dividend and the reverse-stock split, the Company adjusted the number of shares subject to each outstanding option to purchase its common stock. On August 20, 2015, upon the completion of the Merger, the Company issued shares of its common stock to Old Catalyst stockholders in exchange for each share of Old Catalyst common stock outstanding immediately prior to the Merger and assumed all of the outstanding options and warrants of Old Catalyst, with such options and warrants henceforth representing the right to purchase a number of shares of the Company’s common stock. All preferred stock and warrants were converted to common stock and warrants to purchase common stock upon the closing of the Merger.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. These interim results and cash flows for any interim period are not necessarily indicative of the results to be expected for the full year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report”).

The Company’s significant accounting policies are included in “Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 – Summary of Significant Accounting Policies” in the Company’s Annual Report. There have been no significant changes to these accounting policies during the first nine months of 2016.

3.

Fair Value Measurements

For a description of the fair value hierarchy and our fair value methodology, see “Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 – Summary of Significant Accounting Policies” in the Company’s Annual Report. There were no significant changes in these methodologies during the nine months ended September 30, 2016. As of September 30, 2016 and December 31, 2015, the Company’s highly liquid money market funds included within cash equivalents and restricted cash including deposit in an escrow account are financial assets that are valued using Level 1 inputs. The Company classifies its municipal bonds and corporate notes as Level 2. 

8


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. There were no transfers in or out of Level 1 and Level 2 during the periods presented.

Liabilities that are measured at fair value consist of the derivative liability that utilize Level 3 inputs. There were no transfers in or out of Level 3 during the periods presented.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 (in thousands):

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

8,980

 

 

 

 

 

 

 

 

$

8,980

 

Restricted cash (money market funds)(2)

 

 

29,844

 

 

 

 

 

 

 

 

 

29,844

 

U.S. government agency securities(3)

 

 

10,208

 

 

 

 

 

 

 

 

 

10,208

 

Total financial assets

 

$

49,032

 

 

$

 

 

$

 

 

$

49,032

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

 

 

 

 

 

 

$

28

 

 

$

28

 

Total financial liabilities

 

$

 

 

$

 

 

$

28

 

 

$

28

 

 

(1)

Included in Cash and Cash Equivalents on accompanying condensed consolidated balance sheets.

(2)

$29.7 million of restricted cash in the Indenture serves as full collateral for the redeemable convertible notes and $125,000 of restricted cash serves as collateral for the Company’s corporate credit card and deposit for its facility lease.

(3)

Included in Short Term Investments on accompanying condensed consolidated balance sheets.  

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

28,927

 

 

$

 

 

$

 

 

$

28,927

 

Restricted cash (money market funds)(2)

 

 

33,919

 

 

 

 

 

 

 

 

 

33,919

 

Municipal bonds(3)

 

 

 

 

 

296

 

 

 

 

 

 

296

 

Corporate notes(3)

 

 

 

 

 

3,106

 

 

 

 

 

 

3,106

 

Total financial assets

 

$

62,846

 

 

$

3,402

 

 

$

 

 

$

66,248

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$

 

 

$

 

 

$

1,156

 

 

$

1,156

 

Total financial liabilities

 

$

 

 

$

 

 

$

1,156

 

 

$

1,156

 

 

(1)

Included in Cash and Cash Equivalents on accompanying condensed consolidated balance sheets.

(2)

$33.8 million of restricted cash in the Indenture serves as full collateral for the redeemable convertible notes and $125,000 of restricted cash serves as collateral for the Company’s corporate credit card and deposit for its facility lease.  

(3)

Included in Short Term Investments on accompanying condensed consolidated balance sheets.

The fair value of the derivative liability is measured using the Black-Scholes option-pricing valuation model. Inputs used to determine the estimated fair value of the conversion option include the fair value of the underlying common stock at the valuation measurement date, the remaining contractual term of the conversion option, risk-free interest rates, and expected dividends on and expected volatility of the price of the underlying common stock. In addition, the Company estimated the convertible redeemable note exchange rate based on an analysis of its actual exchange of notes for cash redemption or exchange of notes for conversion to common stock. See Note 6 for further detail.

9


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

The following table presents the activity for the derivative liability measured at estimated fair value using unobservable inputs as of September 30, 2016 (in thousands):

 

 

 

Derivative

Liability

 

Balance as of December 31, 2015

 

$

1,156

 

Change in fair value included in interest and other income

 

 

(1,036

)

Gain on extinguishment of redeemable convertible notes

 

 

(92

)

Balance as of September 30, 2016

 

$

28

 

 

The estimated reporting date fair value-based measurement of the derivative liability was calculated using the Black-Scholes valuation model, based on the following weighted-average assumptions for the nine months ended September 30, 2016:

 

 

 

Nine Months Ended September 30, 2016

 

Expected term

 

1.26

 

Expected volatility

 

 

79.8

%

Risk-free interest rate

 

 

0.77

%

Expected dividend yield

 

 

0

%

 

4.

Financial Instruments

Cash equivalents, restricted cash and short-term investments, all of which are classified as available-for-sale securities, consisted of the following (in thousands):

 

September 30, 2016

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Money market funds

 

$

8,980

 

 

$

 

 

$

 

 

$

8,980

 

Restricted cash (money market funds)

 

 

29,844

 

 

 

 

 

 

 

 

 

29,844

 

U.S. government agency securities

 

 

10,205

 

 

 

3

 

 

 

 

 

 

10,208

 

Total financial assets

 

$

49,029

 

 

$

3

 

 

$

 

 

$

49,032

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

8,980

 

Restricted cash (money market funds)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,844

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,032

 

 

December 31, 2015

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Money market funds

 

$

28,927

 

 

$

 

 

$

 

 

$

28,927

 

Restricted cash (money market funds)

 

 

33,919

 

 

 

 

 

 

 

 

 

33,919

 

Municipal bonds

 

 

295

 

 

 

1

 

 

 

 

 

 

296

 

Corporate notes

 

 

3,106

 

 

 

1

 

 

 

(1

)

 

 

3,106

 

Total financial assets

 

$

66,247

 

 

$

2

 

 

$

(1

)

 

$

66,248

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

28,927

 

Restricted cash (money market funds)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,919

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

66,248

 

 

As of September 30, 2016, the remaining contractual maturities of available-for-sale securities were less than one year. There have been no significant realized gains or losses on available-for-sale securities for the periods presented.

10


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

5.

Convertible Notes – Related Parties

In May and June 2015, Old Catalyst issued and sold convertible promissory notes in a series of closings in the aggregate principal amount of $1.9 million to existing stockholders, together with warrants to purchase shares of either the Old Catalyst’s Series E preferred stock or the capital stock issued during the next financing. The convertible promissory notes accrued interest at a rate of 12% per annum and were to mature one year from the date of issuance.

In connection with the debt financing, Old Catalyst also issued and sold to each investor purchasing a convertible promissory note a warrant to purchase equity securities of the same type that the principal amount of the convertible promissory note issued to such investor converts into.

In conjunction with the second closing in June 2015 of the Series F convertible preferred stock financing, Old Catalyst and the majority holders of the notes amended the notes such that the closing constituted a qualified financing and, accordingly, the total outstanding principal amount of the notes of $1.9 million and all unpaid accrued interest of $0.03 million, were converted into 1,511,723 shares of Series F convertible preferred stock and warrants for the purchase of 372,045 shares of Series F convertible preferred stock were issued to the note holders in connection with the conversion of the notes to Series F convertible preferred stock. All preferred stock and warrants were converted to common stock and warrants to purchase common stock upon the closing of the Merger.

The Company recognized interest expense of $0 for both the three months ended September 30, 2016 and 2015, and $0 and $0.1 million for the nine months ended September 30, 2016 and 2015, related to the accrued interest and amortization of the debt discount.

All outstanding shares of Old Catalyst’s convertible preferred stock and warrants to purchase convertible preferred stock were converted into shares of the Company’s common stock and warrants to purchase common stock upon completion of the Merger.

6.

Redeemable Convertible Notes

On August 19, 2015, immediately prior to the Merger, the Company issued to Targacept stockholders non-interest bearing redeemable convertible notes (the “Notes”) in the aggregate principal amount of $37.0 million. The Notes do not bear interest. The principal amount of the Notes are convertible, at the option of each noteholder, into cash or into shares of the Company’s common stock at a conversion rate of $9.19 per share (after taking into account the Reverse Stock Split), and are payable in cash, if not previously redeemed or converted, at maturity on February 19, 2018, the 30-month anniversary of the closing of the issuance of the Notes.

In connection with the Pre-Closing Dividend, on August 19, 2015, Targacept entered into an indenture (the “Indenture”) with American Stock Transfer & Trust Company, LLC, as trustee, and an escrow agreement with American Stock Transfer & Trust Company, LLC and Delaware Trust Company, LLC, as escrow agent, under which $37.0 million, which represented the initial principal amount of the convertible notes, was deposited in a segregated escrow account for the benefit of the holders of the notes in order to facilitate the payment of the notes upon redemption or at maturity (the amount of such deposit together with interest accrued and capitalized thereon, the “Escrow Funds”). The Notes are the Company’s secured obligation, and the Indenture does not limit its other indebtedness, secured or unsecured.

Holders of the Notes may submit conversion notices, which are irrevocable, instructing the trustee to convert such the Notes into shares of the common stock at a conversion price of $9.19 per share. Following each conversion date, the Company will issue the number of whole shares of common stock issuable upon conversion as promptly as practicable (and in any event within 10 business days). The trustee will in turn release to the Company the respective amount of restricted cash to cover the stock issuance.

The conversion to common stock feature of the Notes was determined to be a derivative liability requiring bifurcation and separate accounting. The fair value of such conversion feature at issuance was determined to be $1.5 million. The bifurcation of the derivative liability from the estimated fair value of the Notes of $37.1 million at issuance resulted in a debt discount of $1.4 million. The Company elected to accrete the entire debt discount as interest expense immediately subsequent to the Merger. In addition, changes in the fair value of the derivative liability are being recorded within interest and other income in the consolidated statements of operations. The Company remeasures the derivative liability to fair value until the earlier of the conversion, redemption or maturity of the redeemable convertible notes.

For the three and nine months ended September 30, 2016 and 2015, the Company did not recognize interest expense related to the amortization of the debt discount within interest expense on the Company’s consolidated statement of operations as the redeemable convertible notes are immediately fully redeemable at the option of the holders.

11


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

As of September 30, 2016, $7.1 million of the Notes were redeemed and $0.2 million of the Notes were converted into common stock since the Merger took effect. $4.1 million of the Notes were redeemed during the nine months ended September 2016. For the three and nine months ended September 30, 2016, the Company recognized $0 million and $0.1 million of gain on the extinguishment of Notes upon the redemption of the Notes.

7.

Stock Based Compensation

The Company assumed all of the outstanding options under Old Catalyst’s 2004 Stock Plan (the “Catalyst Plan”) and all of the standalone options of Old Catalyst that were not issued under the Catalyst Plan, in each case whether or not vested, outstanding immediately prior to the Merger, with such options henceforth representing the right to purchase that number of shares of the Company’s common stock equal to 0.0382 multiplied by the number of shares of Old Catalyst common stock previously represented by such options. For accounting purposes, however, the Company is instead deemed to have assumed all of the options under the Targacept, Inc. 2000 Equity Incentive Plan and the 2006 Stock Incentive Plan and all of the standalone options of Targacept that were not issued under such plans outstanding immediately prior to the Merger (such plans and options, together with the Catalyst Plan and the standalone Catalyst options, the “Plans”), in addition to the Company’s 2015 Stock Incentive Plan (as subsequently amended and restated).

The following table summarizes stock option activity under the Plans including stock options granted to non-employees, and related information:

 

 

 

Number of Shares

Underlying

Outstanding Options

 

 

Weighted-

Average Exercise

Price

 

 

Weighted-Average

Remaining

Contractual Term

(Years)

 

Outstanding — December 31, 2015

 

 

2,199,509

 

 

$

9.84

 

 

 

4.51

 

Options granted

 

 

192,600

 

 

$

1.64

 

 

 

 

 

Options forfeited

 

 

(199,238

)

 

$

12.27

 

 

 

 

 

Outstanding — September 30, 2016

 

 

2,192,871

 

 

$

8.90

 

 

 

3.94

 

Exercisable — September 30, 2016

 

 

1,651,916

 

 

$

10.65

 

 

 

2.22

 

Vested and expected to vest — September 30, 2016

 

 

2,141,143

 

 

$

9.02

 

 

 

3.81

 

 

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The fair value of employee stock options was estimated using the following weighted-average assumptions for the nine months ended September 30, 2016 and 2015:

 

 

 

Nine Months Ended September 30, 2016

 

 

 

2016

 

 

2015

 

Employee Stock Options:

 

 

 

 

 

 

 

 

Risk-free interest rate

 

 

1.41

%

 

 

2.32

%

Expected term (in years)

 

 

5.92

 

 

 

6.28

 

Dividend yield

 

 

 

 

 

 

Volatility

 

 

75.04

%

 

 

76.34

%

Weighted-average fair value of stock options granted

 

$

1.07

 

 

$

0.18

 

 

Total stock-based compensation recognized was as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

 

$

68

 

 

$

13

 

 

$

172

 

 

$

37

 

General and administrative

 

 

120

 

 

 

39

 

 

 

333

 

 

 

98

 

Total stock-based compensation

 

$

188

 

 

$

52

 

 

$

505

 

 

$

135

 

 

12


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

As of September 30, 2016, the Company had unrecognized employee stock-based compensation expense of $1.0 million, related to unvested stock awards, which is expected to be recognized over an estimated weighted-average period of 3.0 years.

8.

Collaborations

Pfizer

On August 20, 2013 the Company and Pfizer entered into an amendment to the Factor VIIa marzeptacog alfa (activated) (formerly CB 813d) collaboration agreement whereby the companies agreed to provide specific mutual releases and covenants and modify certain milestone payment schedules in the agreement. Per the amendment, Pfizer agreed to make two non-refundable $1.5 million annual license maintenance payments to the Company, payable on August 1, 2014 and August 1, 2013. The annual license maintenance payments received were being amortized to contract revenue over the estimated expected performance period under the arrangement, which the Company estimated was to the end August 1, 2015.

On April 2, 2015, Pfizer notified the Company that it was exercising its right to terminate in its entirety the collaboration agreement. The termination became effective 60 days after the Company’s receipt of the termination notice. On June 1, 2015, the license and certain rights under the research and license agreement terminated and reverted back to the Company. Pfizer is in the process of transferring clinical trial data, regulatory documentation and related technology under the research and license agreement to the Company. The Company plans to continue clinical development of this product candidate. The Company revised the expected period of performance to end on June 1, 2015, which was the effective termination of all performance obligations of the Company under the research and license agreement. Accordingly, all deferred revenue was recognized through June 1, 2015.

Contract revenue related to the agreement with Pfizer was $0 and $0.8 million during the three months ended September 30, 2016 and 2015 and $0 and $1.3 million during the nine months ended September 30, 2016 and 2015, respectively.

ISU Abxis

On June 16, 2013, the Company entered into a license and collaboration agreement with ISU Abxis, whereby the Company licensed its proprietary human Factor IX products to ISU Abxis for initial development in South Korea. Under the terms of the agreement, ISU Abxis is responsible for development and manufacturing of the licensed products through Phase 1 clinical trials. Until the completion of Phase 1 development, ISU Abxis also has a right of first refusal with respect to commercialization rights for the licensed products in South Korea. The Company has the sole rights and responsibility for worldwide development, manufacture and commercialization of Factor IX products after Phase 1 development, unless ISU Abxis has exercised its right of first refusal regarding commercialization rights in South Korea, in which case the Company’s rights are in the entire world excluding South Korea. ISU Abxis’ rights will also terminate in the event that the Company enters into a license agreement with another party to develop, manufacture and commercialize Factor IX products in at least two major market territories.

ISU Abxis paid the Company an up-front signing fee of $1.75 million and is obligated to pay to the Company contingent milestone-based payments on the occurrence of certain defined development events, and reimbursement for a portion of the Company’s costs relating to intellectual property filings and maintenance thereof on products. The Company is obligated to pay ISU Abxis a percentage of all net profits it receives from collaboration products.

Contract revenue of $0.1 million for both the three months ended September 30, 2016 and 2015 and $0.3 million for both of the nine months ended September 30, 2016 and 2015, reflected the amortization of the up-front fee over the estimated period of the Company’s performance obligations under the agreement, which was assessed to be four years beginning in September 2013 when the agreement was executed. The deferred revenue balance related to the ISU Abxis collaboration was $0.4 million and $0.7 million as of September 30, 2016, and December 31, 2015, respectively.

13


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

9.

Net Loss per Share

The following table sets forth the computation of the basic and diluted net loss per share during the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

 

  

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss, basic and diluted

 

$

(4,771

)

 

$

(5,051

)

 

$

(13,195

)

 

$

(9,632

)

Weighted-average number of shares used in computing net

   loss per share, basic and diluted

 

 

11,846,947

 

 

 

5,410,864

 

 

 

11,575,701

 

 

 

2,071,161

 

Net loss per share, basic and diluted

 

$

(0.40

)

 

$

(0.93

)