10-Q 1 phas-10q_20190630.htm 10-Q phas-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                      to                     

Commission File Number 001-38697

 

PhaseBio Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0375697

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1 Great Valley Parkway, Suite 30

Malvern, Pennsylvania 19355

(Address including zip code of principal executive offices)

(610) 981-6500

(Registrant’s telephone number, including area code)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

PHAS

 

The Nasdaq Stock Market LLC

 

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

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

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

 

 

 

 

 

 

 

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

  

Emerging growth company

 

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

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

 

 

Class of Common Stock

 

Outstanding Shares as of August 6, 2019

Common Stock, $0.001 par value

 

28,698,836

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Condensed Financial Statements (Unaudited)

2

 

Condensed Balance Sheets

2

 

Condensed Statements of Operations

3

 

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

4

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

28

Item 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Recent Sales of Unregistered Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

65

 

Signatures

67

1


PART 1. FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,342

 

 

$

61,031

 

Restricted cash

 

 

 

 

 

20

 

Other receivable

 

 

1,180

 

 

 

233

 

Prepaid expenses and other assets

 

 

3,375

 

 

 

1,344

 

Total current assets

 

 

94,897

 

 

 

62,628

 

Property and equipment, net

 

 

677

 

 

 

355

 

Operating lease right-of-use assets

 

 

1,832

 

 

 

 

Other assets

 

 

32

 

 

 

43

 

Total assets

 

$

97,438

 

 

$

63,026

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

1,265

 

 

$

 

Accounts payable

 

 

3,047

 

 

 

1,806

 

Accrued expenses and other current liabilities

 

 

1,434

 

 

 

2,771

 

Total current liabilities

 

 

5,746

 

 

 

4,577

 

Long-term debt

 

 

8,429

 

 

 

7,500

 

Operating lease liabilities

 

 

1,598

 

 

 

 

Other long-term liabilities

 

 

56

 

 

 

 

Deferred rent

 

 

 

 

 

22

 

Total liabilities

 

 

15,829

 

 

 

12,099

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2019 and

   December 31, 2018; zero shares issued and outstanding at June 30, 2019 and

   December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 28,727,607 shares

   issued and 28,697,640 shares outstanding at June 30, 2019; 24,528,242 shares

   issued and 24,498,275 shares outstanding at December 31, 2018

 

 

29

 

 

 

25

 

Treasury stock, at cost, 29,967 shares as of June 30, 2019 and December 31, 2018

 

 

(24

)

 

 

(24

)

Additional paid-in capital

 

 

221,040

 

 

 

173,837

 

Accumulated deficit

 

 

(139,436

)

 

 

(122,911

)

Total stockholders’ equity

 

 

81,609

 

 

 

50,927

 

Total liabilities and stockholders' equity

 

$

97,438

 

 

$

63,026

 

 

See accompanying notes to unaudited condensed financial statements.

2


PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant revenue

 

$

203

 

 

$

 

 

$

856

 

 

$

 

Revenue under collaborative agreement

 

 

500

 

 

 

 

 

 

500

 

 

 

 

Total revenue

 

 

703

 

 

 

 

 

 

1,356

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,781

 

 

 

3,190

 

 

 

13,502

 

 

 

5,425

 

General and administrative

 

 

2,404

 

 

 

917

 

 

 

4,720

 

 

 

1,560

 

Total operating expenses

 

 

10,185

 

 

 

4,107

 

 

 

18,222

 

 

 

6,985

 

Loss from operations

 

 

(9,482

)

 

 

(4,107

)

 

 

(16,866

)

 

 

(6,985

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

491

 

 

 

36

 

 

 

808

 

 

 

72

 

Interest expense

 

 

(219

)

 

 

(1,447

)

 

 

(445

)

 

 

(2,851

)

Foreign exchange loss

 

 

(22

)

 

 

 

 

 

(22

)

 

 

 

Change in fair value of warrant liability

 

 

 

 

 

(1,001

)

 

 

 

 

 

(996

)

Change in fair value of derivative liability

 

 

 

 

 

(155

)

 

 

 

 

 

(317

)

Total other income (expense)

 

 

250

 

 

 

(2,567

)

 

 

341

 

 

 

(4,092

)

Net loss

 

$

(9,232

)

 

$

(6,674

)

 

$

(16,525

)

 

$

(11,077

)

Net loss per common share, basic and diluted

 

$

(0.33

)

 

$

(8.95

)

 

$

(0.63

)

 

$

(14.85

)

Weighted average common shares outstanding, basic and diluted

 

 

27,932,610

 

 

 

745,812

 

 

 

26,224,986

 

 

 

745,812

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

 

3


 

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Deficit)

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

Stockholders'

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Accumulated

 

 

Equity

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2018

 

 

 

$

 

 

 

 

24,528,242

 

 

$

25

 

 

 

(29,967

)

 

$

(24

)

 

$

173,837

 

 

$

(122,911

)

 

$

50,927

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

Exercises of stock options

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

238

 

 

 

 

 

 

238

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,293

)

 

 

(7,293

)

Balance at March 31, 2019

 

 

 

 

 

 

 

 

24,528,392

 

 

 

25

 

 

 

(29,967

)

 

 

(24

)

 

 

174,285

 

 

 

(130,204

)

 

 

44,082

 

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

86

 

Issuance of common stock in public offering,

   net

 

 

 

 

 

 

 

 

4,124,475

 

 

 

4

 

 

 

 

 

 

 

 

 

46,273

 

 

 

 

 

 

46,277

 

Exercises of stock options

 

 

 

 

 

 

 

 

74,740

 

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

126

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

 

 

 

 

 

270

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,232

)

 

 

(9,232

)

Balance at June 30, 2019

 

 

 

$

 

 

 

 

28,727,607

 

 

$

29

 

 

 

(29,967

)

 

$

(24

)

 

$

221,040

 

 

$

(139,436

)

 

$

81,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

9,132,024

 

 

$

89,634

 

 

 

 

775,780

 

 

$

9

 

 

 

(29,967

)

 

$

(24

)

 

$

1,664

 

 

$

(99,065

)

 

$

(97,416

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104

 

 

 

 

 

 

104

 

Accretion of redeemable preferred stock

   to redemption value

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,403

)

 

 

(4,403

)

Balance at March 31, 2018

 

9,132,024

 

 

 

89,650

 

 

 

 

775,780

 

 

 

9

 

 

 

(29,967

)

 

 

(24

)

 

 

1,752

 

 

 

(103,468

)

 

 

(101,731

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Accretion of redeemable preferred stock

   to redemption value

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,674

)

 

 

(6,674

)

Balance at June 30, 2018

 

9,132,024

 

 

$

89,667

 

 

 

 

775,780

 

 

$

9

 

 

 

(29,967

)

 

$

(24

)

 

$

1,797

 

 

$

(110,142

)

 

$

(108,360

)

 

See accompanying notes to unaudited condensed financial statements.

 

 

4

 


 

PHASEBIO PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(16,525

)

 

$

(11,077

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

74

 

 

 

54

 

Stock-based compensation

 

 

508

 

 

 

166

 

Non-cash interest expense

 

 

254

 

 

 

2,761

 

Change in fair value warrant liability

 

 

 

 

 

996

 

Change in fair value derivative liability

 

 

 

 

 

317

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Other receivable

 

 

(948

)

 

 

 

Prepaid expenses and other assets

 

 

(2,019

)

 

 

115

 

Accounts payable

 

 

1,243

 

 

 

(115

)

Accrued expenses

 

 

(1,463

)

 

 

149

 

Deferred rent

 

 

11

 

 

 

(5

)

Net cash used in operating activities

 

 

(18,865

)

 

 

(6,639

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(429

)

 

 

(28

)

Net cash used in investing activities

 

 

(429

)

 

 

(28

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in public offering, net

 

 

46,308

 

 

 

 

Long-term borrowings, net

 

 

3,089

 

 

 

1,995

 

Proceeds from exercise of stock options

 

 

126

 

 

 

 

Repayments of long-term debt

 

 

(938

)

 

 

 

Net cash provided by financing activities

 

 

48,585

 

 

 

1,995

 

Net increase (decrease) in cash and cash equivalents

 

 

29,291

 

 

 

(4,672

)

Cash, cash equivalents and restricted cash at the beginning of the period

 

 

61,051

 

 

 

13,406

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

90,342

 

 

$

8,734

 

Supplemental disclosure for cash flow

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

191

 

 

$

90

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Accrued interest on term loan refinanced to principal

 

$

308

 

 

$

 

Issuance of warrants in conjunction with debt

 

$

296

 

 

$

 

Debt refinanced with new term loan

 

$

6,563

 

 

$

 

Initial recognition of operating lease right-of-use assets and operating lease liabilities

 

$

1,991

 

 

$

 

Accretion of redeemable convertible preferred stock

 

$

 

 

$

33

 

Deferred stock offering costs included in accounts payable and accrued expenses

 

$

31

 

 

$

604

 

Purchases of property and equipment included in accounts payable

 

$

6

 

 

$

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

5


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

1.

Organization and Description of Business

Description of Business

PhaseBio Pharmaceuticals, Inc. (the “Company”) was incorporated as a Delaware corporation on January 10, 2002. The Company is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat orphan diseases, with an initial focus on cardiopulmonary indications. The Company’s lead product candidate, PB2452, is a novel reversal agent for the antiplatelet drug ticagrelor, which the Company is developing for the treatment of patients on ticagrelor who are experiencing a major bleeding event or those who require urgent surgery. The Company’s second product candidate, PB1046, is a once-weekly fusion protein currently in a Phase 2b clinical trial for the treatment of pulmonary arterial hypertension. PB1046 utilizes the Company’s proprietary half-life extending elastin-like polypeptide technology, which also serves as an engine for the Company’s preclinical pipeline.

Reverse Stock Split

In October 2018, in connection with its initial public offering (“IPO”), the Company effected a 11.0634-for-1 reverse split of its outstanding common stock and redeemable convertible preferred stock. No fractional shares were issued in connection with the stock split, and the par value and other terms of the common stock were not affected by the stock split. All share and per share amounts, including stock options, have been retroactively adjusted in these condensed financial statements for all periods presented to reflect the reverse stock split. Further, exercise prices of stock options have been retroactively adjusted in these condensed financial statements for all periods presented to reflect the reverse stock split.

Liquidity

The Company has experienced net losses and negative cash flows from operations since its inception and, as of June 30, 2019, had an accumulated deficit of $139.4 million. The Company expects to continue to incur net losses for at least the next several years. As of June 30, 2019, the Company had cash and cash equivalents of $90.3 million and working capital of $89.2 million. Management believes that its cash and cash equivalents as of June 30, 2019 are sufficient to fund the Company’s operating expenses and capital requirements into the second half of 2020.

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying condensed financial statements have been made. Although these interim condensed financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year. The unaudited interim condensed financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 26, 2019, wherein a more complete discussion of significant accounting policies and certain other information can be found.

Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). Certain non-significant reclassifications have been made to conform the prior period presentation. 

The Company manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions.

6


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

2.

Significant Accounting Policies

Use of Estimates

The preparation of the Company’s condensed financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed financial statements and accompanying notes. The most significant estimates in the Company’s condensed financial statements relate to the valuation of redeemable convertible preferred stock warrants prior to the IPO, the conversion option on the convertible notes prior to conversion and clinical trial accruals. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains certain deposit accounts and money market funds in federally insured financial institutions in excess of federally insured limits. The Company could experience losses on the money market funds in the future.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

The Company had restricted cash of $20,000 as of December 31, 2018, which was held in a certificate of deposit at the Company’s bank to secure the Company’s corporate credit card. The restriction was removed in June 2019.

Fair Value of Financial Instruments

The carrying amounts of other receivable, prepaid expenses and other assets, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair value because of the short maturity of these items. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair values of the term loan and operating lease liabilities and corresponding right-of-use assets approximate their respective carrying values.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.

Leases

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the condensed balance sheet. The Company had no Short-Term Leases as of June 30, 2019 or December 31, 2018.

7


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

Long-Lived Assets

The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment and right-of-use assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate net positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the extent that the estimated fair value is less than its carrying value. The Company did not recognize any impairment losses in either the six months ended June 30, 2019 or the year ended December 31, 2018.

Preferred Stock Warrant Liability

The Company previously issued freestanding warrants to purchase shares of its redeemable convertible preferred stock. Since the underlying redeemable convertible preferred stock was classified outside of permanent equity, those warrants were classified as liabilities in the accompanying condensed balance sheet. Warrants classified as liabilities were recorded at their estimated fair value on the date of issuance and were revalued at each subsequent balance sheet date, with fair value changes recognized as increases or reductions to other income (expense) in the accompanying condensed statements of operations. The Company estimated the fair value of these warrants using the Black-Scholes option-pricing model.

In connection with the Company’s IPO in October 2018, all warrants were either exercised or converted into warrants to purchase common stock, at which time the liability was reclassified to stockholders’ equity.

Preclinical and Clinical Trial Accruals

The Company accrues and expenses preclinical studies and clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual trial and subject enrollment rates in accordance with agreements with clinical research organizations, contract manufacturing organizations and clinical trial sites. The Company determines the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including the Company’s clinical development plan.

Management makes estimates of the Company’s accrued expenses as of each balance sheet date in the Company’s condensed financial statements based on facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Research and Development Expense

Research and development costs are expensed as incurred.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based compensation based on the estimated fair value at the date of grant. Currently, the Company’s stock-based awards consist only of stock options; however, future grants under the Company’s equity compensation plan may also consist of shares of restricted stock, restricted stock units, stock appreciation rights, performance awards and performance units. The Company also maintains an employee stock purchase program under which it

8


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

may issue shares. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires the use of estimates. The Company recognizes stock-based compensation cost for ratably vesting stock options on a straight-line basis over the requisite service period of the award and records forfeitures in the period in which they occur.

The Black-Scholes option-pricing model requires the input of subjective assumptions, including the risk-free interest rate, the fair value of the underlying common stock (for option grants prior to the IPO), the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. 

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the condensed financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits, if any, within income tax expense, and any accrued interest and penalties are included within the related tax liability line.

Grant Revenue

Grant revenue is derived from government grants that support the Company’s efforts on specific research projects. The Company has determined that the government agencies providing grants to the Company are not customers. The Company recognizes grant revenue when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received.

Revenue Under Collaborative Agreement

The Company generates revenues from payments received under a collaborative agreement. Under such collaboration agreements, the Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identifies the promised goods or services in the contract; (ii) identifies the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determines the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Company satisfies the performance obligations.

For revenue from such collaborative agreements, the Company generally collects an upfront license payment from the collaboration partner and is also entitled to receive event-based payments subject to the collaboration partner's achievement of specified development, regulatory and sales-based milestones. In addition, the Company is generally entitled to royalties if products under the collaboration are commercialized. Although such agreements are in form structured as collaborative agreements, for accounting purposes they represent contracts with customers that are not subject to accounting literature on collaborative arrangements. If the Company grants to collaboration partners a license to the Company’s intellectual property, the Company does not develop assets jointly with the collaboration partner and does not share in significant risks of their development or commercialization activities.

9


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

Transaction price for a contract represents the amount to which the Company is entitled in exchange for providing goods and services to the customer. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. Apart from the upfront license payment, all other fees the Company may earn under such collaborative agreements are subject to significant uncertainties of product development. Achievement of many of the event-based development and regulatory milestones may not be probable until such milestones are actually achieved. This generally relates to milestones such as obtaining marketing authorization approvals and successful completion of clinical trials. With respect to other development milestones, e.g. dosing of a first patient in a clinical trial, achievement could be considered probable prior to its actual occurrence, based on the progress towards commencement of the trial. The Company does not include any amounts subject to uncertainties into the transaction price until it is probable that the amount will not result in a significant reversal of revenue in the future. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price.

Because such agreements generally only have one type of performance obligation, a license, which is generally all transferred at the same time as agreement inception, allocation of the transaction price among multiple performance obligations is not required.

Upfront amounts allocated to licenses are recognized as revenue when the licenses are transferred to the collaboration partners. Development milestones and other fees are recognized in revenue when their occurrence becomes probable.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include redeemable convertible preferred stock, warrants and outstanding stock options under the Company’s stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive.

 

 

 

As of June 30,

 

 

 

2019

 

 

2018

 

Redeemable convertible preferred stock

 

 

 

 

 

9,132,024

 

Common stock options

 

 

2,433,115

 

 

 

1,210,866

 

Warrants to purchase common stock

 

 

125,333

 

 

 

 

Warrants to purchase redeemable convertible preferred stock

 

 

 

 

 

484,860

 

Total

 

 

2,558,448

 

 

 

10,827,750

 

 

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. This update amended the current accounting guidance for lease transactions. Under the new guidance, a lessee is required to recognize both assets and liabilities for any leases in excess of twelve months. Additionally, certain qualitative and quantitative disclosures are required in the condensed financial statements. The Company adopted ASU 2016-02 in the first quarter of 2019 using a modified retrospective transition method as of the effective date as permitted by the amendments in ASU 2018-11. As a result, the Company was not required to adjust comparative prior period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption. The Company has elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date. Further, the Company does not expect the amendments in ASU 2018-01: Land Easement Practical Expedient to have an effect on its condensed financial statements because the Company does not enter into land easement arrangements. There was no effect of the adoption of the new leasing standards on retained earnings and other components of equity as of December 31, 2018. Upon adoption in the first quarter of 2019, the Company recorded right-of-use assets and corresponding lease liabilities of $2.0 million.

10


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

3.

Fair Value Measurement

Fair value is defined as an 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 at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The Company classifies fair value measurements in one of the following three categories for disclosure purposes:

 

Level 1:

Quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

 

Level 3:

Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The Company’s cash equivalents are classified using Level 1 inputs within the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The Company estimated the fair value of redeemable convertible preferred stock warrants at the time of issuance and subsequent remeasurement using the Black-Scholes option-pricing model at each reporting date, based on the following inputs: the risk-free interest rate; the expected dividend rate; the remaining contractual life of the warrants; the fair value of the underlying stock; and the expected volatility of the price of the underlying common stock. The estimates were based, in part, on subjective assumptions.

The following table summarizes the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

As of June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

90,112

 

 

$

90,112

 

 

 

 

 

 

 

 

 

As of December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

59,357

 

 

$

59,357

 

 

$

 

 

$

 

 

11


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

4.

Property and Equipment

The following table presents the composition of property and equipment, net as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

As of

 

 

As of

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Lab equipment

 

$

2,088

 

 

$

1,764

 

Computer hardware, software and telephone

 

 

273

 

 

 

228

 

Furniture and fixtures

 

 

98

 

 

 

98

 

Leasehold improvements

 

 

67

 

 

 

50

 

Construction in progress

 

 

10

 

 

 

 

 

 

 

2,536

 

 

 

2,140

 

Less accumulated depreciation

 

 

(1,859

)

 

 

(1,785

)

Property and equipment, net

 

$

677

 

 

$

355

 

 

5.

Accrued Expenses

The following table presents the composition of accrued expenses as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

As of

 

 

As of

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Accrued clinical and related costs

 

$

302

 

 

$

1,358

 

Accrued compensation and related costs

 

 

671

 

 

 

914

 

Accrued interest

 

 

54

 

 

 

194

 

Operating lease liability, short-term

 

 

266

 

 

 

 

Accrued other

 

 

141

 

 

 

305

 

Accrued expenses and other current liabilities

 

$

1,434

 

 

$

2,771

 

 

6.

Debt

Convertible Promissory Notes

In January 2017 and October 2017, the Company issued $14.7 million of convertible promissory notes (the “2017 Notes”) to holders of Series C-1 redeemable convertible preferred stock (“Series C-1”). The 2017 Notes bore interest at the rate of 8% per annum. Upon a subsequent equity financing of at least $10.0 million prior to the stated maturity date, the 2017 Notes plus accrued interest would automatically convert into shares of the stock issued by the Company in such financing at a price equal to 80% of the lowest issue price.

The 2017 Notes could have converted into a variable number of shares of preferred stock, and accordingly, the Company determined the conversion provision to be a redemption feature. The redemption feature was evaluated as an embedded derivative and bifurcated from the convertible promissory notes due to the substantial premium paid upon redemption and accounted for as a derivative instrument. Upon bifurcating the redemption feature, the Company recorded a debt discount of $3.0 million that was recognized in interest expense over the term of the 2017 Notes.

In connection with the 2017 Notes, the Company issued warrants to the noteholders to purchase 304,397 shares of Series C-1. The warrants were exercisable for $0.12 per share and would expire upon the earlier of (1) the date of the initial closing of a liquidation event, as defined, (2) the closing of a firm commitment underwritten initial public offering, or (3) January 2024. All warrants were exercised in connection with the closing of the Company’s IPO. The Company recorded a debt discount of $1.7 million, which represents the estimated fair value of the warrants, upon issuance of the 2017 Notes, which was being amortized to interest expense over the term of the 2017 Notes using the effective-interest method.

12


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

In August 2018, the Company sold 1,842,959 shares of Series D redeemable preferred stock (Series D) to new and existing investors at a price of $9.659 per share for net proceeds of $17.7 million and issued warrants to purchase 368,582 shares of Series C-1 at an exercise price of $0.12 (the “Series D Financing”). Concurrent with the Series D Financing, all of the Company’s previously outstanding 2017 Notes, including accrued interest thereon, were converted into 2,080,209 shares of Series D. 

Interest expense, including the debt discount related to the 2017 Notes, was zero and $1.3 million for the three months ended June 30, 2019 and 2018, respectively, and zero and $2.6 million for the six months ended June 30, 2019 and 2018, respectively.

Term Loans

October 2017 Loan Agreement with Silicon Valley Bank

In October 2017, the Company entered into a Loan and Security Agreement (“SVB Loan”) with Silicon Valley Bank (“SVB”), pursuant to which the Company could borrow up to $7.5 million, issuable in three separate tranches (“Growth Capital Advances”) of $3.5 million (“Tranche A”), $2.0 million (“Tranche B”) and $2.0 million (“Tranche C”). Each of the Growth Capital Advances would become available upon the achievement of certain clinical and regulatory milestones. Under the original terms of the SVB Loan, the Company was to make interest-only payments through June 30, 2018 at a rate equal to the Prime Rate as defined per the SVB Loan. The interest-only period would be extended to December 31, 2018 if the Company borrowed the remaining tranches, followed by an amortization period of 24 months of equal monthly payments of principal plus interest amounts until paid in full. In connection with the SVB Loan, the Company issued to SVB a warrant to purchase 49,713 shares of Series C-1 at an exercise price of $9.659 per share, which is now exercisable for common stock following the IPO. The warrant is immediately exercisable and expires on October 18, 2027. The Company was required to make a final payment equal to 7% of the original aggregate principal amount of the Growth Capital Advances at maturity. In November 2017, the Company drew $3.5 million from Tranche A.

The Company had the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company would have been obligated to pay a prepayment fee equal to (a) 3.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made prior to the first anniversary of the effective date of the SVB Loan, (b) 2.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made by the second anniversary of the effective date of the SVB Loan or (c) 1.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made after the second anniversary of the effective date of the SVB Loan.

In April 2018, the SVB Loan was amended to extend the draw period of Tranche B and Tranche C to April 30, 2018 and July 31, 2018, respectively, as well as to extend the interest-only period through July 31, 2018, which would be extended to December 31, 2018 if the Company borrowed Tranche B and Tranche C. Additionally, all Capital Growth Advances would mature on June 1, 2020; however, if the Company were to draw Tranche B and Tranche C, the maturity date would be December 31, 2020. On April 30, 2018, the Company borrowed $2.0 million under Tranche B.

In July 2018, the SVB Loan was amended to further extend the draw period of Tranche C to August 31, 2018, as well as to extend the interest-only period of the SVB Loan through August 31, 2018, which would be extended to December 31, 2018 if the Company were to draw Tranche C. In August 2018, the Company borrowed $2.0 million under Tranche C.

 

March 2019 Loan Agreement with Silicon Valley Bank and WestRiver Innovation Lending Fund VIII, L.P.

 

In March 2019, the Company entered into a new term loan agreement (the “2019 Loan”) with SVB and WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”), pursuant to which the Company may borrow up to $15.0 million, issuable in three separate tranches (“Advances”), of $7.5 million (“Tranche 1”), which was issued upon execution of the 2019 Loan, $2.5 million, which was issued in May 2019 (“Tranche 2”) and $5.0 million (“Tranche 3”), which the Company will draw upon the achievement of certain regulatory milestones (the “Tranche 3 Milestones”).

 

The maturity date of the 2019 Loan is March 1, 2023. Under the terms of the 2019 Loan, the Company is to make interest-only payments through December 31, 2019 on Tranche 1 and Tranche 2 at a rate equal to the greater of the Prime Rate plus 1.00%, as defined in the 2019 Loan, or 6.5%, followed by an amortization period of 39 months of equal monthly payments of principal plus interest until paid in full. The interest-only period will automatically be extended to June 30, 2020 if the Company achieves the Tranche 3 Milestones, followed by an amortization period of 33 months of equal monthly payments of principal plus interest until paid in full. In addition to and not in substitution for the Company’s regular monthly payments of principal plus accrued interest, the Company is required to make a final payment equal to 6% of the aggregate principal amount of the advances (“Final Payment”) on the maturity date.

13


PhaseBio Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

 

Upon execution of the 2019 Loan and the draw of Tranche 1, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 37,606 shares of common stock with an exercise price of $4.73 per share. In May 2019, upon the draw of Tranche 2, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 12,130 shares of common stock with an exercise price of $10.86 per share. The Company has agreed to issue additional warrants to SVB and WestRiver to purchase an aggregate of 24,262 shares of common stock upon the draw of Tranche 3 with an exercise price of the lower of the average closing price of the Company’s common stock for the previous ten days of trading or the closing price on the day prior to funding.

 

Upon execution of the 2019 Loan, the Company drew $7.5 million from Tranche 1 and repaid the outstanding principal balance and the accrued portion of the Final Payment of the SVB Loan. In May 2019, the Company drew $2.5 million from Tranche 2.    

 

The Company’s obligations under the 2019 Loan are secured by a first priority security interest in substantially all of the Company’s current and future assets, excluding intellectual property. The Company is also obligated to comply with various other customary covenants, including restrictions on the Company’s ability to encumber its intellectual property assets.

The Company recorded a debt discount of $0.3 million for the estimated fair value of warrants and debt issuance costs upon the borrowings of Tranche 1 and Tranche 2, which is being amortized to interest expense over the term of the 2019 Loan using the effective-interest method. Interest expense under the SVB Loan and the 2019 Loan, including amortization of the debt discount related to the term debt, totaled $0.2 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.4 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively. The balance of the Final Payment liability was $0.1 million as of June 30, 2019 and is included in long-term debt on the condensed balance sheet. The Company is in compliance with all covenants under the 2019 Loan as of June 30, 2019.

Based on a 39-month amortization of the outstanding principal amounts for the 2019 Loan as discussed above, the following table sets forth by year the Company’s required future principal payments as of June 30, 2019 (in thousands):

 

Years Ending December 31,

 

 

 

 

2019 (remaining six months)

 

$

 

2020

 

 

2,852

 

2021