10-Q 1 cnst-10q_20190331.htm 10-Q cnst-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 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: 001-38584

 

CONSTELLATION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

26-1741721

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

215 First Street, Suite 200

Cambridge, Massachusetts

02142

(Address of principal executive offices)

(Zip code)

(617) 714-0555

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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

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

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

CNST

 

The Nasdaq Stock Market LLC

As of April 30, 2019, the registrant had 25,807,229 shares of common stock, $0.0001 par value per share, outstanding.

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

 

our ongoing clinical trials, including our Phase 1b/2 clinical trial of CPI-1205 for the treatment of metastatic castration-resistant prostate cancer in combination with either enzalutamide or abiraterone acetate, which we refer to as ProSTAR; our Phase 1b/2 clinical trial of CPI-1205 for the treatment of patients with solid tumors in combination with ipilimumab or pembrolizumab, which we refer to as ORION-E; and our Phase 2 clinical trial of CPI-0610 as a monotherapy or in combination with ruxolitinib in patients with myelofibrosis, which we refer to as MANIFEST;

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

our plans to develop and, if approved, subsequently commercialize CPI-1205, CPI-0610, CPI-0209 and any other product candidates, including in combination with other drugs and therapies;

 

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for CPI-1205, CPI-0610, CPI-0209 and other product candidates;

 

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and marketable securities;

 

the potential advantages of our product candidates;

 

the rate and degree of market acceptance and clinical utility of our products;

 

our estimates regarding the potential market opportunity for our product candidates;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our intellectual property position;

 

our ability to identify products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

our estimates regarding expenses, future revenue, timing of any future revenue, capital requirements and needs for additional financing;

 

the impact of government laws and regulations;

 

our competitive position;

 

developments relating to our competitors and our industry;

 

our ability to maintain and establish collaborations or obtain additional funding; and;

 

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

2


Constellation Pharmaceuticals, Inc.

Table of Contents

 

 

 

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2019 and December 31, 2018

 

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) For the Three Months Ended March 31, 2019 and 2018

 

5

 

 

Condensed Consolidated Statements of Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) For the Three Months Ended March 31, 2019 and 2018

                  

6

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2019 and 2018

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

67

Item 6.

 

Exhibits

 

68

 

 

 

 

 

Signatures

 

69

 

 

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,447

 

 

$

114,592

 

Marketable securities

 

 

63,344

 

 

 

 

Prepaid expenses and other current assets

 

 

2,695

 

 

 

2,711

 

Total current assets

 

 

118,486

 

 

 

117,303

 

Property and equipment, net

 

 

1,312

 

 

 

1,210

 

Restricted cash

 

 

425

 

 

 

425

 

Operating lease, right-of-use assets

 

 

4,700

 

 

 

 

Total assets

 

$

124,923

 

 

$

118,938

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,523

 

 

$

5,723

 

Accrued expenses and other current liabilities

 

 

6,628

 

 

 

8,937

 

Current portion of lease liabilities - operating lease

 

 

2,970

 

 

 

 

Total current liabilities

 

 

17,121

 

 

 

14,660

 

Long-term debt, net of current portion and discount

 

 

19,529

 

 

 

 

Operating lease liabilities, net of current portion

 

 

2,185

 

 

 

 

Deferred rent, net of current portion

 

 

 

 

 

118

 

Other long-term liabilities

 

 

13

 

 

 

2

 

Total liabilities

 

 

38,848

 

 

 

14,780

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized;

   no shares issued or outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares

   authorized at March 31, 2019 and December 31, 2018,  respectively; 25,807,229 and

   25,803,475 shares issued at March 31, 2019 and December 31, 2018, respectively;

   25,806,974 and 25,803,135 shares outstanding at March 31, 2019 and December 31,

   2018, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

339,326

 

 

 

337,992

 

Accumulated other comprehensive gain

 

 

9

 

 

 

 

Accumulated deficit

 

 

(253,263

)

 

 

(233,837

)

Total stockholders' equity

 

 

86,075

 

 

 

104,158

 

Total liabilities and stockholders' equity

 

$

124,923

 

 

$

118,938

 

 

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

 

4


CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

15,677

 

 

 

9,874

 

General and administrative

 

 

4,429

 

 

 

2,303

 

Total operating expenses

 

 

20,106

 

 

 

12,177

 

Loss from operations

 

 

(20,106

)

 

 

(12,177

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

755

 

 

 

109

 

Interest expense

 

 

(75

)

 

 

(34

)

Total other income (expense), net

 

 

680

 

 

 

75

 

Net loss attributable to common stockholders

 

$

(19,426

)

 

$

(12,102

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

9

 

 

 

 

Other comprehensive gain

 

$

9

 

 

$

 

Comprehensive loss

 

$

(19,417

)

 

$

(12,102

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.75

)

 

$

(12.44

)

Weighted average common shares outstanding, basic and diluted

 

 

25,804,595

 

 

 

972,981

 

 

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

 

5


CONSTELLATION PHARMACEUTICALS, INC.

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

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

(Series A, B, D, E, E-1 and F)

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain

 

 

Deficit

 

 

 

 

Equity

 

Balances at December 31, 2018

 

 

 

 

$

 

 

 

25,803,135

 

 

$

3

 

 

$

337,992

 

 

$

 

 

$

(233,837

)

 

 

 

$

104,158

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,313

 

 

 

 

 

 

 

 

 

 

 

1,313

 

Vesting of common stock issued upon early

   exercise of unvested options

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

 

 

 

 

 

 

3,754

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

21

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,426

)

 

 

 

 

(19,426

)

Balances at March 31, 2019 (unaudited)

 

 

 

 

$

 

 

 

25,806,974

 

 

$

3

 

 

$

339,326

 

 

$

9

 

 

$

(253,263

)

 

 

 

$

86,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

(Series A, B, D, E, E-1 and F)

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain

 

 

Deficit

 

 

Deficit

 

Balances at December 31, 2017

 

 

118,867,177

 

 

$

173,228

 

 

 

962,898

 

 

$

 

 

$

8,079

 

 

$

 

 

$

(173,912

)

 

$

(165,833

)

Issuance of Series F convertible preferred

   stock, net of issuance costs of $132

 

 

68,500,000

 

 

 

68,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

585

 

 

 

 

 

 

 

 

 

585

 

Vesting of common stock issued upon early

   exercise of unvested options

 

 

 

 

 

 

 

 

408

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Repayment of promissory notes issued

   upon early exercise of unvested options

 

 

 

 

 

 

 

 

229,357

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

290

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,102

)

 

 

(12,102

)

Balances at March 31, 2018 (unaudited)

 

 

187,367,177

 

 

$

241,596

 

 

 

1,192,663

 

 

$

 

 

$

8,957

 

 

$

 

 

$

(186,014

)

 

$

(177,057

)

 

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

 

 

6


CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(19,426

)

 

$

(12,102

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

168

 

 

 

135

 

Stock-based compensation expense

 

 

1,313

 

 

 

585

 

Non-cash interest expense

 

 

18

 

 

 

33

 

Amortization and accretion on marketable securities

 

 

(212

)

 

 

 

Change in fair value of preferred stock warrant liability

 

 

 

 

 

(65

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

128

 

 

 

(571

)

Operating lease, right-of-use assets

 

 

690

 

 

 

 

Accounts payable

 

 

1,768

 

 

 

562

 

Accrued expenses and other current liabilities

 

 

(2,116

)

 

 

(333

)

Operating lease liabilities

 

 

(664

)

 

 

 

Deferred rent

 

 

 

 

 

(41

)

Other assets

 

 

 

 

 

18

 

Net cash used in operating activities

 

 

(18,333

)

 

 

(11,779

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(63,123

)

 

 

 

Purchases of property and equipment

 

 

(234

)

 

 

(21

)

Net cash used in investing activities

 

 

(63,357

)

 

 

(21

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

19,649

 

 

 

 

Payment of debt issuance costs

 

 

(125

)

 

 

 

Proceeds from issuance of convertible preferred stock, net of

   issuance costs

 

 

 

 

 

68,368

 

Payments on long-term debt

 

 

 

 

 

(1,739

)

Proceeds from repayment of promissory notes issued upon early exercise

   of stock options

 

 

 

 

 

290

 

Payments of initial public offering costs

 

 

 

 

 

(21

)

Proceeds from issuance of common stock upon stock option exercises

 

 

21

 

 

 

 

Net cash provided by financing activities

 

 

19,545

 

 

 

66,898

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(62,145

)

 

 

55,098

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

115,017

 

 

 

16,646

 

Cash, cash equivalents and restricted cash at end of period

 

$

52,872

 

 

$

71,744

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

 

 

$

67

 

Supplemental disclosure of noncash investing and financing

   information:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

216

 

 

$

15

 

Vesting of common stock subject to repurchase

 

$

 

 

$

3

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

385

 

 

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

 

7


CONSTELLATION PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Nature of the Business and Basis of Presentation

Constellation Pharmaceuticals, Inc. (“Constellation” or the “Company”) is a clinical-stage biopharmaceutical company using its expertise in epigenetics to discover and develop novel therapeutics that address serious unmet medical needs in patients with cancers associated with abnormal gene expression or drug resistance. The Company was incorporated in January 2008 as EpiGenetiX, Inc. under the laws of the State of Delaware. On March 31, 2008, the Company changed its name to Constellation Pharmaceuticals, Inc.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations with the sales of convertible preferred stock, payments received in connection with collaboration agreements, borrowings under loan agreements, and proceeds from the initial public offering (“IPO”) completed in July 2018. On March 20, 2019, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) pursuant to which Hercules agreed to provide the Company with up to $40.0 million in funding, to be made available in four tranches. As of March 31, 2019, the Company had drawn down on the first of the four tranches and in connection with the draw down received net proceeds of $19.5 million.

The Company has incurred losses since inception, including net losses of $19.4 million for the three months ended March 31, 2019, and $59.9 million for the year ended December 31, 2018. As of March 31, 2019, the Company had an accumulated deficit of $253.3 million. The Company expects to continue to generate operating losses in the foreseeable future. As of May 8, 2019, the issuance date of the interim financial statements, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the interim financial statements.

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

2. Summary of Significant Accounting Policies

Unaudited Interim Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim consolidated financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Annual Report”).

The unaudited condensed consolidated financial statements include the accounts of Constellation Pharmaceuticals, Inc. and its wholly owned subsidiary, Constellation Securities Corporation. All intercompany transactions and balances of the subsidiary have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2019 and results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the three months ended March 31, 2019 and 2018 have been made. The Company’s results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains most of its cash, cash equivalents and marketable securities at two accredited financial institutions in amounts that could exceed federally insured limits. Cash equivalents are invested in an institutional money market fund. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

8


The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included in the Annual Report. There have been no material changes to the significant accounting policies previously disclosed in the Annual Report other than as noted below.

Marketable Securities

Marketable securities consist of investments with original maturities greater than ninety days. The Company classifies its investments with maturities beyond one year as short term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of marketable securities as available-for-sale. Accordingly, these marketable securities are recorded at fair value and unrealized gains and losses are reported as a component of accumulated other comprehensive loss in stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of other income (expense), net based on the specific identification method. When determining whether a decline in value is other than temporary, the Company considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis.

The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Comprehensive Loss

Comprehensive loss consists of net loss and unrealized gain (losses) on available-for-sale marketable securities.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consists of all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

As of March 31, 2019, the Company classified $425,000 as restricted cash related to a letter of credit issued as a security deposit in connection with Company's lease of its corporate office facilities (Note 12). Cash, cash equivalents and restricted cash consists of the following:

 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

52,447

 

 

$

114,592

 

Restricted cash

 

 

425

 

 

 

425

 

Cash, cash equivalents and restricted cash

 

$

52,872

 

 

$

115,017

 

 

 

9


Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the Company’s outstanding debt as of March 31, 2019 (see Note 7) approximated fair value (a Level 3 measurement) based on interest rates currently available to the Company.

Revenue Recognition

On January 1, 2018, the Company adopted the new revenue standard, discussed below under the heading “Recently Adopted Accounting Pronouncements”, which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries (“ASC 606”). Under ASC 606, an entity 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 the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The Company accounts for a contract with a customer that is within the scope of ASC 606 when all of the following criteria are met: (i) the arrangement has been approved by the parties and the parties are committed to perform their respective obligations, (ii) each party’s rights regarding the goods or services to be transferred can be identified, (iii) the payment terms for the goods or services to be transferred can be identified, (iv) the arrangement has commercial substance and (v) collection of substantially all of the consideration to which the Company will be entitled in exchange for the goods or services that will be transferred to the customer is probable.

The Company estimates the transaction price based on the amount of consideration the Company expects to be received for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate the transaction price based on which method better predicts the amount of consideration expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.

For arrangements that include development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. 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. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue and net income (loss) in the period of adjustment.

10


For sales-based royalties, including milestone payments based on the level of sales, the Company determines whether the sole or predominant item to which the royalties relate is a license. When the license is the sole or predominant item to which the sales-based royalty relates, the Company recognizes revenue at the later of: (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

The Company allocates the transaction price based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation in order to determine whether the combined performance obligation is satisfied over time or at a point in time. The Company determines the appropriate method of measuring progress of combined performance obligations satisfied over time for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company will recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

The Company receives payments from customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Recently adopted accounting pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The Company adopted ASU 2016-02 as of January 1, 2019, using the modified retrospective approach. Prior period amounts have not been adjusted.  The main difference between previous GAAP (“Topic 840”) and Topic 842 is the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under Topic 840. In addition, the Company elected the following practical expedients:

 

the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification;

 

the short-term lease practical expedient, which allowed the Company to exclude short-term leases of less than 12 months from recognition in the unaudited consolidated balance sheets; and

 

the bifurcation of lease and non-lease components practical expedient, which did not require the Company to bifurcate lease and non-lease components for all classes of assets.

 

The adoption of this accounting standard resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities for lease arrangements with an initial term greater than twelve months of $3.1 million and $3.5 million, respectively, as of January 1, 2019. The difference between the operating lease assets and liabilities was recorded as an adjustment to “Other liabilities” on the consolidated and condensed balance sheets, primarily related to deferred rent (lease incentives). The adoption of ASU 2016-02 had no impact on Retained earnings.  For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note 12, Leases, in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q.

Recently issued accounting pronouncements

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. For public entities, this guidance is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities, including adoption in an interim period. The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its financial statements.

11


In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies certain disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. The Company is currently evaluating the impact that the adoption of ASU 2018-13 will have on its financial statements.

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

March 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included in cash and cash equivalents

 

$

47,059

 

 

$

 

 

$

 

 

$

47,059

 

Commercial paper

 

 

 

 

 

5,388

 

 

 

 

 

 

5,388

 

Total

 

$

47,059

 

 

$

5,388

 

 

$

 

 

$

52,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

 

$

10,661

 

 

$

 

 

$

10,661

 

Commercial paper

 

 

 

 

$

34,781

 

 

 

 

 

 

34,781

 

Government securities

 

 

 

 

 

17,902

 

 

 

 

 

 

17,902

 

Total

 

$

 

 

$

63,344

 

 

$

 

 

$

63,344

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included in cash and cash equivalents

 

$

114,592

 

 

$

 

 

$

 

 

$

114,592

 

 

 

$

114,592

 

 

$

 

 

$

 

 

$

114,592

 

 

Money market funds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 1 measurement within the fair value hierarchy.

During the three months ended March 31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1 and Level 2. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third-party pricing services.

12


4. Marketable Securities

The following table summarizes the Company’s marketable securities and cash equivalents as of March 31, 2019. The Company did not hold any marketable securities as of December 31, 2018.

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

47,059

 

 

$

 

 

$

 

 

$

47,059

 

Commercial paper

 

 

5,388

 

 

 

 

 

 

 

 

 

5,388

 

Total cash equivalents

 

$

52,447

 

 

$

 

 

$

 

 

$

52,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

10,654

 

 

$

7

 

 

$

 

 

$

10,661

 

Commercial paper

 

 

34,781

 

 

 

 

 

 

 

 

 

34,781

 

Government securities

 

 

17,900

 

 

 

2

 

 

 

 

 

 

17,902

 

Total marketable securities

 

$

63,335

 

 

$

9

 

 

$

 

 

$

63,344

 

Total cash equivalents and marketable

   securities

 

$

115,782

 

 

$

9

 

 

$

 

 

$

115,791

 

 

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Accrued employee compensation and benefits

 

$

1,569

 

 

$

2,726

 

Accrued external research and development expense

 

 

4,576

 

 

 

5,610

 

Accrued professional fees

 

 

302

 

 

 

255

 

Other

 

 

181

 

 

 

346

 

 

 

$

6,628

 

 

$

8,937

 

 

6. Collaboration Agreement

The Company has a collaboration agreement (the “LLS Agreement”) with the Leukemia and Lymphoma Society, (“LLS”) pursuant to which LLS committed to provide funding to the Company for research and development services, conditional on (i) the achievement of milestones in accordance with the LLS Agreement and (ii) equal funding being provided by the Company. Through each of March 31, 2019 and December 31, 2018, the Company received funding totaling $7.3 million from LLS upon the achievement of specified milestones, which were recorded as a reduction of research and development expense.

The LLS Agreement requires the Company to make payments to LLS upon the Company’s achievement of specified milestones that could total up to $25.0 million in aggregate (see Note 11).

7. Debt

The Company previously had outstanding amounts due under an agreement of $11.8 million (the “2016 Loan Agreement”). Borrowings under the 2016 Loan Agreement bore interest at an annual rate of 7.6% and were repaid in full on July 3, 2018. In addition, a final payment equal to 5% of the original principal amount was paid upon the final principal payment.

On March 20, 2019, the Company entered into the Loan Agreement with Hercules as administrative and collateral agent, and various other lenders, pursuant to which the Company may borrow under a term loan up to an aggregate principal amount of $40.0 million, to be made available in four tranches. The outstanding principal balance as of March 31, 2019 is $20 million.  As of March 31, 2019, the Company had drawn down on the first of the four tranches, and its ability to draw down the remainder of the tranches is subject to certain time limitations, achievement of performance milestones and lender approval. The term loan bears interest at an annual rate equal to the greater of 8.55% and the prime rate of interest plus 2.55%. The Loan Agreement provides for interest-only payments until April 30, 2021, and repayment of the aggregate outstanding principal balance of the term loan in monthly installments starting on May 1, 2021 and continuing through April 1, 2023 (the “Maturity Date”). In addition, the Company paid a fee of $255,000 upon closing and is required to pay a fee of 6.35% of the aggregate amount of advances under the Loan Agreement at maturity. At its option, the Company may elect to prepay all or a portion of the outstanding advances by paying the entire principal balance (or a

13


portion thereof) and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: 2% if an advance is prepaid during the first 12 months following the applicable advance date, 1% if an advance is prepaid after 12 months but prior to 24 months following the applicable advance date, and 0.5% if an advance is prepaid any time after 24 months following the applicable advance date but prior to the Maturity Date.  In connection with the Loan Agreement, the Company granted Hercules a security interest in all of its personal property now owned or hereafter acquired, excluding intellectual property (but including the rights to payment and proceeds from the sale, licensing or disposition of intellectual property), and a negative pledge on intellectual property. The Loan Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company.  If the Company fails to make payments when due, or breaches any operational covenant or has any event of default, this could have a material adverse effect on its business and financial condition.

As of March 31, 2019, notes payable consisted of the following:

 

 

 

March 31, 2019

 

Principal amount of term loans

 

$

20,000

 

Debt discount current portion

 

 

 

Less:  Current portion

 

 

 

Long-term debt, net of current portion

 

 

20,000

 

Debt discount net of current portion

 

 

(471

)

Long-term debt, net of discount and current portion

 

$

19,529

 

 

8. Convertible Preferred Stock

As of April 5, 2018, the Company had issued Series A, Series B, Series D, Series E, Series E-1, and Series F convertible preferred stock (collectively the “Preferred Stock”).

 

On July 23, 2018, upon the closing of the Company’s IPO, all outstanding convertible preferred stock automatically converted into shares of common stock.

9. Warrants to Purchase Convertible Preferred Stock

The Company issued warrants to purchase convertible preferred stock in 2013 and 2014 for the purchase of 375,000 shares of Series B Preferred Stock. Upon the closing of the IPO in July 2018, these warrants became warrants to purchase 34,062 shares of common stock at which time the Company reclassified the carrying value of the warrants to additional paid-in capital.

Prior to the warrants becoming warrants to purchase common stock, the Company was required to remeasure the fair value of the liability for these preferred stock warrants at each reporting date since their grant date, with any adjustments recorded in interest expense. The warrants outstanding at each reporting date were remeasured using the Black-Scholes option-pricing model, and the resulting change in fair value was recorded in interest expense in the Company’s statements of operations and comprehensive loss.  

 

10. Equity

Common Stock

As of March 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 200,000,000 shares of common stock, $0.0001 par value per share.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the Company’s board of directors. No dividends have been declared or paid by the Company since its inception.

14


Warrants to Purchase Common Stock

As of March 31, 2019, the Company had outstanding warrants to purchase common stock as follows:

 

Issuance Date

 

Term

(in years)

 

Exercise Price

 

 

Number of

Common Shares

Issuable under

Warrant

 

May 23, 2011

 

10

 

$

1.55

 

 

 

61,868

 

June 28, 2013

 

10

 

$

13.22

 

 

 

11,354

 

September 30, 2014

 

10

 

$

13.22

 

 

 

22,708

 

 

 

 

 

 

 

 

 

 

95,930

 

 

11. Stock-Based Compensation

2008 Stock Incentive Plan

The Company’s 2008 Stock Incentive Plan (the “2008 Plan”) provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directors, consultants and advisors of the Company. The 2008 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The board of directors could also delegate to one or more officers of the Company the power to grant awards to employees and certain officers of the Company. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated. Stock options granted under the 2008 Plan with service-based vesting conditions generally vest over four years and expire after ten years.

The total number of shares of common stock that were authorized for issuance under the 2008 Plan was 4,039,829 shares. Upon effectiveness of the Company’s 2018 Equity Incentive Plan, the (“2018 Plan”) in July 2018, the remaining 245,557 shares available under the 2008 Plan became available for issuance under the 2018 Plan and no future issuance will be made under the 2008 Plan. Additionally, outstanding options under the 2008 Plan that expired, terminated, are surrendered or canceled without having been fully exercised will be available for future awards under the 2018 Plan.

The exercise price for stock options granted is not less than the fair value of common shares as determined by the board of directors as of the date of grant. The Company’s board of directors valued the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

2018 Equity Incentive Plan

In June 2018, the Company’s stockholders approved the 2018 Plan, which became effective on July 18, 2018. The 2018 Plan provides for the grant of incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is 2,779,544 plus the 245,557 shares of common stock remaining available for issuance under the 2008 Plan as of that date. The number of shares reserved shall be annually increased on January 1, 2019 and each January 1 thereafter through January 1, 2028 by the least of (i) 2,216,368 shares, (ii) 4% of the number of shares of the Company’s common stock outstanding on the first day of the year or (iii) an amount determined by the Company’s board of directors. The shares of common stock underlying any awards that are expired, forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan or the 2008 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan. In January 2019, the shares available for issuance under the 2018 Plan were increased by 1,032,125 shares pursuant to the annual increase described above. As of March 31, 2019, 1,919,540 shares remained available for future issuance under the 2018 Plan.

2018 Employee Stock Purchase Plan

In June 2018, the Company’s stockholders approved the 2018 Employee Stock Purchase Plan which became effective on July 18, 2018. A total of 272,504 shares of common stock were reserved for issuance under this plan. The number of shares reserved shall be annually increased on January 1, 2020 and each January 1 thereafter through January 1, 2028 by the least of (i) 545,008 shares, (ii) 1% of the number of shares of the Company’s common stock outstanding on the first day of the year or (iii) an amount determined by the Company’s board of directors.

15


Stock Option Issuances

The following is a summary of stock option activity for the three months ended March 31, 2019,

 

 

 

 

 

 

 

 

 

 

 

Weighted-

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

Aggregate

 

 

 

Stock

 

 

Weighted

Average

 

 

Contractual

Term

 

 

Intrinsic

Value

 

 

 

Options

 

 

Exercise Price

 

 

(in years)

 

 

(in thousands)

 

Outstanding as of December 31, 2018

 

 

3,779,403