Basis of presentation and summary of significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Basis of presentation

(a) Basis of presentation

The accompanying consolidated financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial results are presented on a consolidated basis. All intercompany transactions are eliminated on consolidation.

Capital Requirements

(b) Capital requirements

The Company operates in a capital intensive business. To finance its operations, the Company is likely to require additional capital. The Company may seek to raise funds through equity or debt financing. There is no assurance that financing will be available to the Company or at terms acceptable to the Company. Failure to obtain sufficient funds on acceptable terms can have a negative impact on the Company’s business, results of operations, financial condition, cash flows and future prospects.

Foreign Currency Transactions and Translations Policy

(c) Foreign currency translation and transactions

The functional currency of the Company and its subsidiaries is the U.S. dollar. Monetary assets and liabilities of the Company’s operations denominated in a currency other than the U.S. dollar are re-measured into U.S. dollars at the exchange rate prevailing as at the balance sheet date. Non-monetary assets and liabilities acquired in a currency other than U.S. dollars are translated at historical exchange rates prevailing at each transaction date.

Income and expenses are translated at the exchange rates prevailing at each transaction date, with the exception of amortization which is translated at historical exchange rates. Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive loss.

Use of estimates and assumptions

(d) Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant areas requiring management estimates include valuation of stock options and restricted stock units, amortization and depreciation, determination of the fair values of assets and liabilities acquired in the acquisition of net assets of Former Neoleukin, accrual of expenses, determination of research and development costs, valuation allowance for deferred income taxes, and contingencies. Actual results could differ from those estimates.

Cash and Cash Equivalents

(e) Cash and cash equivalents

All highly liquid investments with maturities of three months or less at the date of acquisition are considered to be cash equivalents.

Property, Plant and Equipment

(f) Property and equipment

Property and equipment are recorded at cost and are amortized using the straight-line basis over a range of three to seven years. Expenditures for improvements to the Company’s office spaces are capitalized and expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements are amortized over the lesser of useful life and term of the lease.

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on management’s assessment there were no indicators of impairment of property and equipment as at December 31, 2019 and 2018.

Leases

(g) Leases

At contract inception, the Company determines if the contract is a lease or contains a lease. Operating leases are recorded as operating lease right-of-use assets, operating lease liabilities and non-current operating lease liabilities. Finance leases are recorded as finance lease right-of-use assets, finance lease liabilities and non-current finance lease liabilities.

Right-of-use assets and lease liabilities are recognized on the lease commencement date based on the estimated present value of lease payments over the lease term. To determine the present value of the lease payments, the Company utilizes its estimated incremental borrowing rate based on information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The right-of-use assets are recorded net of any lease incentives received. Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords.

For leases of office space with a lease term of less than 12 months and which do not include an option to purchase the underlying asset, the Company has elected to recognize the lease payments in the statement of operations on a straight-line basis over the lease term.

For leases of office space, the Company has elected to not separate the lease components from the non-lease components.

Asset acquisitions/Intangible assets

(h) Asset acquisitions/Intangible assets

At the time of acquisition, the Company determines if a transaction should be accounted for as a business combination or acquisition of assets. The Company accounted for its transaction with Neoleukin as an asset acquisition as substantially all the value of the acquisition is concentrated in one identifiable intangible asset.

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities based on their relative fair values without giving rise to goodwill. Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future use. Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over an estimated useful life of three years.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company recognizes an impairment loss when carrying amount is not recoverable and the estimated fair value of the intangible asset is less than its carrying value.

Clinical Trial Accrual

(i) Clinical trial accruals

As part of the process of preparing its consolidated financial statements, the Company is required to estimate expenses resulting from its obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company reflects the appropriate clinical trial expenses in the consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial.

During the course of a clinical trial, the Company adjusts the rate of clinical trial expense recognition if actual results differ from estimates. The Company prepares estimates of accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known at that time. Although the Company does not expect the estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Income taxes

(j) Income taxes

The Company accounts for income taxes using ASC 740, Income Taxes which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, ASC 740 generally considers all expected future events other than enactments of and changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by the extent of the valuation allowance. ASC 740 clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. ASC 740 provides a benefit recognition model with a two-step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefits that are more than 50% likely of being realized upon ultimate settlement. ASC 740 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the consolidated financial statements.

Investment tax credits relating to scientific research and experimental development are accounted for as a reduction in operating expenses. They are recorded in the period when there is reasonable assurance the credits will be realized. If investment tax credit amounts subsequently received are less or more than originally recorded, the difference is treated as a change in estimate.

Revenue recognition

(k) Revenue recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements subject to the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and identifies performance obligations that are distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when (or as) the performance obligation is satisfied.

The Company’s only source of revenue was amounts earned under a license and collaboration agreement entered into and subsequently terminated in 2018.

Research and development costs

(l) Research and development costs

Research and development costs are charged to expense as incurred and include items such as: employee related expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, facilities, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations. Restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs.

Development costs are expensed in the period incurred unless management believes a development project meets generally accepted accounting criteria for deferral and amortization. No product development expenditures have been deferred to date. The Company records costs for certain development activities, such as clinical trials, based on management’s evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense.

Accounting for stock-based compensation

(m) Accounting for stock-based compensation

The Company has issued stock options and restricted stock units (“RSUs”). The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such award will be recognized over the period during which services are provided in exchange for the award, generally the vesting period. The Company accounts for forfeitures as they occur. All share-based payments to employees are recognized in the consolidated financial statements based upon their respective grant date fair values.

The Company initially measures the compensation expense of stock-based awards granted to consultants using the grant date fair value of the award. Compensation expense is recognized over the period during which services are rendered by such consultants. At the end of each financial reporting period prior to completion of services being rendered, the compensation expense related to these awards is remeasured using the then current fair value of the Company’s common stock for RSUs, or based upon updated assumptions in the Black-Scholes option pricing model for stock option awards.

The Company estimates the fair value of options granted using the Black-Scholes option pricing model. This approximation uses assumptions regarding a number of inputs that requires management to make significant estimates and judgments. The expected volatility assumption is based on industry peer information and the Company expects to continue to do so until it has adequate historical volatility of its common stock. Additionally, because the Company has no significant history to calculate the expected term, the simplified method calculation is used.

The fair value of each RSU is measured using the closing price of the Company’s common stock on the date of grant.

Restructuring costs

(n) Restructuring costs

The Company accounts for restructuring costs in accordance with ASC 420, Exit or Disposal Cost Obligations. ASC 420 specifies that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, except for a liability where employees are required to render service until they are terminated in order to receive termination benefits and will be retained to render service beyond the minimum retention period. A liability for such one-time termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period.

The charges that the Company expects to incur in connection with the restructuring are subject to a number of assumptions, and actual results may differ materially. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring plan.

Segment reporting

(o) Segment reporting

The Company operates in one segment, the research and development of de novo protein therapeutics using sophisticated computational algorithms and methods to address unmet medical needs in oncology, inflammation, and autoimmunity. The Company’s operations and its assets are mostly held in the United States with an immaterial amount of long-lived assets in Canada.

Net loss per common stock

(p) Net loss per common stock

Basic net loss per common stock is computed by dividing net loss by the weighted-average number of common stock and pre-funded warrants outstanding during the period. The pre-funded warrants are included in the computation of basic and diluted net loss per common stock as the warrants are fully vested and exercisable at any time and for a nominal cash consideration. Diluted net loss per common stock is determined using the weighted-average number of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and restricted stock units. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

Fair value of financial instruments

(q) Fair value of financial instruments

The carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, receivables, accounts payable and other liabilities, approximate their fair values because of their nature and/or short maturities.    

The Company has no financial instruments that are measured at fair value as of December 31, 2019 and December 31, 2018. 

Concentration of credit risk

(r) Concentration of credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents. Cash and cash equivalents are invested in accordance with the Company’s investment policy. The primary objective for the Company’s investment portfolio is the preservation of capital and maintenance of liquidity and includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk.

Recently issued and recently adopted accounting standards

(s) Recently issued and recently adopted accounting standards

The Company adopted ASU 2016-02 “Leases (Topic 842)” effective January 1, 2019. ASU 2016-02 requires lessees to recognize right-of-use assets and lease liabilities for those leases with a lease term of greater than 12 months. The Company used a modified retrospective approach and elected to use the optional transition method to recognize a cumulative-effect adjustment to the opening balance of retained deficit on January 1, 2019. Consequently, comparative periods will continue to be accounted for in accordance with the current lease standard (Topic 840) and the disclosures will be in accordance with ASC 840. The Company elected to apply the “package of practical expedients”, which permits it not to reassess under ASU 2016-02 its previous conclusions about lease identification, lease classification and initial direct costs and the practical expedient to not separate non-lease components from the associated lease component for the lease of office space. The adoption of ASU 2016-02 resulted in the recognition of right-of-use assets of $0.2 million and lease liabilities of $0.5 million and derecognition of the deferred rent liability of $0.3 million for the Company’s operating leases in the consolidated balance sheets and did not have a material impact to the Company’s consolidated statements of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12 “Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application. ASU 2019-12 is effective for fiscal years and interim periods beginning after December 15, 2020. The Company is currently assessing the impact of ASU 2019-12 on its financial statements.

Risk And Uncertainties

(t) Risks and uncertainties

The Company is subject to numerous risks and uncertainties. These risks, among others, included the following:

• the Company has no source of recurring revenue, has an accumulated deficit of $299.5 million as of December 31, 2019, may never become profitable and may incur substantial and increasing net losses for the foreseeable future as it continues its research and development programs;

• the Company is likely to require additional capital to finance its operations which may not be available to it on acceptable terms, or at all;

• the Company’s success is primarily dependent on the successful development, regulatory approval and commercialization of its drug product candidates;

• the Company is subject to regulatory approval processes that are lengthy, time consuming and inherently unpredictable; the Company may not be able to obtain approval for any drug product candidates from the U.S. Food and Drug Administration, or FDA, or foreign regulatory authorities;

• the Company’s intellectual property rights may be subject to claims by third parties and can be difficult and costly to protect;

• the Company may not be able to recruit or retain key employees, including its senior management team;

• the Company depends on the performance of third parties, including contract research organizations and third-party manufacturers; and

• the Company faces competition from other pharmaceutical and biotechnology companies, academic institutions, governmental agencies, and public and private research institutions, among others.