10-Q 1 atre-20200630x10q.htm 10-Q

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, 2020

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 001-38935


ATRECA, INC.

(Exact name of registrant as specified in its charter)


Delaware

27-3723255

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

450 East Jamie Court

South San Francisco, CA 94080

(Address of principal executive offices)

(Zip Code)

(650)-595-2595

(Registrant’s telephone number, including area code)

Unchanged

(Former name, former address and former fiscal year, if changed since last report)


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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

BCEL

The Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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  .

As of August 11, 2020, the registrant had 29,313,966 shares of Class A common stock, $0.0001 par value per share and 6,715,441 shares of Class B common stock, $0.0001 par value per share, outstanding.


TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Loss and Comprehensive Loss

5

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

6

Condensed Consolidated Statements of Cash Flows

8

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II. OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

80

Item 6.

Exhibits

80


PART I --- FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Atreca, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

June 30, 

December 31, 

    

2020

    

2019

    

(Unaudited)

(Note 2)

ASSETS

Current Assets

Cash and cash equivalents

$

100,430

$

157,954

Investments

43,088

14,663

Prepaid expenses and other current assets

5,112

3,502

Total current assets

148,630

176,119

Property and equipment, net

7,666

5,771

Long-term investments

5,311

10,799

Deposits and other

2,934

3,026

Total assets

$

164,541

$

195,715

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities

Accounts payable

$

1,060

$

2,133

Accrued expenses

4,434

5,395

Other current liabilities

1,859

419

Total current liabilities

7,353

7,947

Capital lease obligations, net of current portion

29

53

Deferred rent

2,887

763

Other non-current liabilities

157

Total liabilities

10,426

8,763

Stockholders’ equity (deficit)

Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both June 30, 2020 and December 31, 2019, respectively; 22,258,542 and 22,035,976 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

2

2

Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both June 30, 2020 and December 31, 2019, respectively; 5,934,191 shares issued and outstanding as of both June 30, 2020 and December 31, 2019, respectively

1

1

Additional paid-in capital

358,401

351,039

Accumulated other comprehensive income

216

16

Accumulated deficit

(204,505)

(164,106)

Total stockholders’ equity

154,115

186,952

Total liabilities and stockholders’ equity

$

164,541

$

195,715

- 3 -


Atreca, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

Expenses

Research and development

$

14,180

$

15,922

$

28,390

$

27,635

General and administrative

6,458

3,537

13,581

6,055

Total expenses

20,638

19,459

41,971

33,690

Interest and other income (expense)

Other income

403

1,021

634

1,186

Interest income

255

594

940

1,139

Interest expense

(1)

(2)

(2)

(4)

Preferred stock warrant liability revaluation

(73)

(123)

Loss on disposal of property and equipment

(2)

(7)

Loss before income tax expense

(19,981)

(17,921)

(40,399)

(31,499)

Income tax expense

(1)

Net loss

$

(19,981)

$

(17,921)

$

(40,399)

$

(31,500)

Net loss per share, basic and diluted

$

(0.71)

$

(3.67)

$

(1.44)

$

(8.97)

Weighted-average shares used in computing net loss per share, basic and diluted

28,144,714

4,888,987

28,082,930

3,512,606

- 4 -


Atreca, Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

Net loss

$

(19,981)

$

(17,921)

$

(40,399)

$

(31,500)

Other comprehensive income (loss);

Unrealized gain on fair value of investments

37

61

200

89

Unrealized loss on currency translation

2

1

Comprehensive loss

$

(19,944)

$

(17,858)

$

(40,199)

$

(31,410)

- 5 -


Atreca, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

(in thousands, except share data)

(unaudited)

Accumulated

Convertible

Additional

Other

Total

Three Months Ended June 30, 2019

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity (Deficit)

Balances at March 31, 2019

17,248,259

$

209,668

2,123,257

$

$

4,383

$

23

$

(110,201)

$

(105,795)

Conversion of convertible preferred stock

(17,248,259)

(209,668)

17,248,259

2

209,666

209,668

Issuance of common stock upon initial public offering, net

8,452,500

1

130,785

130,786

Exercise of warrants

62,936

Issuance of common stock upon exercise of options

60,249

217

217

Vesting of early exercised stock options

2

2

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

503

503

Stock-based compensation

1,359

1,359

Unrealized gain on fair value of investments

61

61

Unrealized currency exchange gain

2

2

Net loss

(17,921)

(17,921)

Balances at June 30, 2019

$

27,947,201

$

3

$

346,915

$

86

$

(128,122)

$

218,882

Accumulated

Convertible

Additional

Other

Total

Three Months Ended June 30, 2020

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at March 31, 2020

$

28,093,595

$

3

$

354,477

$

179

$

(184,524)

$

170,135

Issuance of common stock upon exercise of options

99,138

541

541

Stock-based compensation

3,383

3,383

Unrealized gain on fair value of investments

37

37

Net loss

(19,981)

(19,981)

Balances at June 30, 2020

$

28,192,733

$

3

$

358,401

$

216

$

(204,505)

$

154,115

- 6 -


Atreca, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (continued)

(in thousands, except share data)

(unaudited)

Accumulated

Convertible

Additional

Other

Total

Six Months Ended June 30, 2019

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances at December 31, 2018

17,248,259

$

209,668

2,119,872

$

$

3,593

$

(4)

$

(96,622)

$

(93,033)

Conversion of convertible preferred stock

(17,248,259)

(209,668)

17,248,259

2

209,666

209,668

Issuance of common stock upon initial public offering, net

8,452,500

1

130,785

130,786

Exercise of warrants

62,936

Issuance of common stock upon exercise of options

63,634

231

231

Vesting of early exercised stock options

2

2

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

503

503

Stock-based compensation

2,135

2,135

Unrealized gain on fair value of investments

89

89

Unrealized currency exchange gain

1

1

Net loss

(31,500)

(31,500)

Balances at June 30, 2019

$

27,947,201

$

3

$

346,915

$

86

$

(128,122)

$

218,882

Accumulated

Convertible

Additional

Other

Total

Six Months Ended June 30, 2020

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at December 31, 2019

$

27,970,167

$

3

$

351,039

$

16

$

(164,106)

$

186,952

Issuance of common stock upon exercise of options

186,010

959

959

Vesting of early exercised stock options

4

4

Stock-based compensation

5,866

5,866

Issuance of common stock under the Employee Stock Purchase Plan

36,556

533

533

Unrealized gain on fair value of investments

200

200

Net loss

(40,399)

(40,399)

Balances at June 30, 2020

$

28,192,733

$

3

$

358,401

$

216

$

(204,505)

$

154,115

- 7 -


Atreca, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2020

    

2019

Cash Flows from Operating Activities

Net loss

$

(40,399)

$

(31,500)

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

Depreciation and amortization

1,169

792

Loss on disposal of property and equipment

7

Stock-based compensation

5,866

2,135

Preferred stock warrant liability revaluation

123

Accretion of discount on investments

(144)

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(1,744)

160

Accounts payable

(1,106)

1,935

Accrued expenses

(961)

(231)

Other current liabilities

1,382

(136)

Other non-current liabilities

157

Deferred rent

2,185

(13)

Net cash used in operating activities

(33,595)

(26,728)

Cash Flows from Investing Activities

Purchase of property and equipment

(3,031)

(810)

Purchase of investments

(77,319)

(84,613)

Proceeds from maturities of investments

54,726

20,000

Change in deposits

39

66

Net cash used in investing activities

(25,585)

(65,357)

Cash Flows from Financing Activities

Proceeds from the issuance of common stock under the Employee Stock Purchase Plan

533

Proceeds from exercise of stock options

959

248

Proceeds from initial public offering, net

133,618

Principal payments on capital lease obligations

(23)

(25)

Payments of initial offering costs

(577)

Net cash provided by (used in) financing activities

1,469

133,264

Net change in cash, cash equivalents and restricted cash

(57,711)

41,179

Cash, cash equivalents and restricted cash, beginning of period

159,236

114,504

Cash, cash equivalents and restricted cash, end of period

$

101,525

$

155,683

- 8 -


Atreca, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2020

    

2019

  

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

2

$

3

Cash paid for income taxes

$

$

1

Supplemental Schedule of Non-Cash Investing and Financing Activities

Costs related to initial public offering included in accounts payable and accrued liabilities

$

$

2,271

Conversion of redeemable convertible preferred stock to common stock

$

$

209,669

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital

$

$

503

Vesting of early exercised common stock options

$

4

$

2

Purchases of property and equipment included in accounts payable and accrued liabilities

$

33

$

- 9 -


Notes to Unaudited Interim Condensed Consolidated Financial Statements

1.            Business

Nature of Business

Atreca, Inc. (the “Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception date”), and is located in South San Francisco, California. In April 2016, the Company formed a wholly owned subsidiary, Atreca Pte. Ltd., in Singapore. Atreca Pte. Ltd., was dissolved in the first quarter of fiscal year 2020. The Company is a biopharmaceutical company utilizing its differentiated platform to discover and develop novel antibody-based immunotherapeutics to treat a range of solid tumor types. The Company's lead product candidate, ATRC-101, is a monoclonal antibody in clinical development with a novel mechanism of action and target derived from an antibody identified using its discovery platform. The Company operates in a single segment. Since inception, the Company has been primarily engaged in research and development, raising capital, building its management team and building its intellectual property portfolio.

2.           Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”).

Prior period reclassification

An immaterial reclassification of prior period amounts has been made to conform to the current period presentation.

Principles of Consolidation

The condensed consolidated financial statements include accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions are eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the consolidated financial statements include estimated useful lives of property and equipment, impairment of long-lived assets, accrued expenses, valuation of deferred income tax assets, fair value of warrants issued to purchasers of shares of preferred stock and common stock and fair value of options granted under the Company's stock option plan.

- 10 -


Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of June 30, 2020 and its results of operations and cash flows for the six months ended June 30, 2020 and 2019. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month and six-month periods are also unaudited. The condensed results of operations for the three months and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited consolidated financial statements as of that date.

Other Income

Other income is comprised of amounts earned from services performed under service agreements. Beginning January 1, 2018, the Company follows the provisions of Accounting Standards Update 2014-09 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The guidance provides a unified model to determine how income is recognized.

In determining the appropriate amount of other income to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes other income when (or as) the Company satisfies each performance obligation.

Upon adoption of Topic 606, there was no change to the units of accounting previously identified with respect to existing service agreements under legacy Generally Accepted Accounting Principles (“GAAP”), which are now considered performance obligations under Topic 606, and there was no change to the revenue recognition pattern for the performance obligations. Accordingly, the adoption of the new standard resulted in no cumulative effect change to the Company's opening accumulated deficit balance.

The Company generally allocates the transaction price to distinct performance obligations at their stand-alone selling prices, determined by their estimated costs plus some margin. Performance obligations are generally delivered over time and recognized based upon observable inputs as the related research services are performed, which are recorded as research and development expenses. Amounts due under service agreements are generally billed monthly as services are delivered and do not generally result in contract liabilities or assets. Receivables under service agreements of $53,000 and $237,000 are included in prepaid expenses and other current assets as of June 30, 2020 and December 31, 2019, respectively. In February 2020, the Company entered into an agreement with an external partner for a research project to identify the antigenic targets of select antibodies discovered by the Company with potential utility in oncology. The nonrefundable upfront payment from this agreement was classified as a contract liability and will be recognized as other income over the expected service period of 18 months. Contract liabilities of $1.4 million and $0.2 million related to the agreement are included in other current liabilities and other non-current liabilities, respectively, as of June 30, 2020. There were no contract liabilities included in other current liabilities and non-current liabilities as of December 31, 2019.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all cash balances and highly liquid investments purchased with an original maturity of three months or less.

The Company maintained restricted cash of $1.1 million and $1.3 million as of June 30, 2020 and December 31, 2019, respectively. This amount as of June 30, 2020 is included in deposits and other in the accompanying

- 11 -


condensed consolidated balance sheets and is comprised solely of letters of credit required pursuant to leases for Company facilities.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows.

    

June 30, 

    

December 31, 

2020

    

2019

Cash and cash equivalents

$

100,430

$

157,954

Restricted cash

1,095

1,282

Cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows

$

101,525

$

159,236

Investments

The Company considers securities purchased with original maturities greater than three months to be investments. The Company’s policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates. The Company’s intent is to convert all investments into cash to be used for operations and has classified them as available for sale. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Convertible Preferred Stock Warrants

The Company issued convertible preferred stock warrants, which were exercisable into Series A preferred stock with liquidation preference. The conversion feature was evaluated under ASC Topic 480, Distinguishing liabilities from equity and the warrants were determined to be debt instruments and classified prior to its initial public offering (the “IPO”) as liabilities on the consolidated balance sheets. The Company recorded these warrant liabilities at fair value and adjusted the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as a gain (loss) on revaluation of the warrant liability in the consolidated statements of operations. Upon the IPO, the 49,997 preferred stock warrants were converted to common stock warrants of Class A shares and the warrant liability of $0.5 million was reclassified to additional paid-in capital as a result of the conversion. The warrants were not subject to further remeasurement for fair value.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including dependence on key individuals, competition from similar services and larger companies, volatility of the industry, ability to obtain regulatory clearance, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company and general economic conditions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, investments and other receivables. Cash and cash equivalents are held at two financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at June 30, 2020 and December 31, 2019. Additionally, cash and cash equivalents and investments are maintained at brokerage firms for which amounts are insured by the Securities Investor Protection Corporation subject to legal limits. The Company has not experienced any losses on its deposits to date.

- 12 -


The Company does not require collateral or other security for other receivables; however, credit risk is mitigated by the Company’s ongoing evaluations of its debtors’ credit worthiness.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits, consultant fees, stock-based compensation, certain facility costs, legal costs and other costs associated with preclinical and clinical development.

A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers in connection with preclinical and clinical development activities and contract manufacturing organizations in connection with the production of materials for clinical trials. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Stock-Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the underlying shares at the date of grant. The Company accounts for stock option grants using the fair value method. The fair value of options is calculated using the Black-Scholes option pricing model. Stock-based compensation is recognized as the underlying options vest using the straight-line attribution approach, and forfeitures are recorded as they occur.

Emerging Growth Company Status

The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, the Company’s condensed consolidated financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that the Company is no longer an EGC.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 and subsequent amendments to the initial guidance under ASU 2017-13, ASU 2018-10, ASU 2018-11, and ASU 2019-01 (collectively, “Topic 842”), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Topic 842 is effective for the Company as of January 1, 2022. Early adoption is permitted. The Company’s most significant lease is its operating lease for its corporate headquarters, and, while the Company has not yet estimated the amounts by which its financial statements will be affected by the adoption of this guidance, it expects that the overall recognition of expense will be similar to current guidance, but that there will be a significant change in the balance sheet due to the recognition of right of use assets and the corresponding lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. The amendment replaces the existing incurred loss impairment

- 13 -


model with an expected loss methodology, which will result in more timely recognition of credit losses. For available-for-sale debt securities, credit losses should be recorded through an allowance for credit losses. Topic 326 is effective for the Company as of January 1, 2023. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“Topic 740”): which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company as of January 1, 2021, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on our consolidated financial statements.

3.           Fair Value of Financial Instruments

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows:

June 30, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

90,455

$

$

$

90,455

Commercial paper

4,997

4,997

U.S. Agency Bonds

3,501

3,501

Certificates of deposit

1,934

1,934

Corporate debt securities

10,790

10,790

U.S. Treasury securities

27,176

27,176

$

119,565

$

19,288

$

$

138,853

December 31, 2019

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

152,770

$

$

$

152,770

Certificates of deposit

1,950

1,950

Corporate debt securities

3,459

3,459

U.S. Treasury securities

20,052

20,052

Total

$

174,772

$

3,459

$

$

178,231

The Company utilized the market approach and Level 1 valuation inputs to value its money market funds and U.S. government treasury securities because published net asset values were readily available. The Company measured the fair value of the commercial paper, corporate debt securities and U.S. agency bonds using Level 2 valuation inputs, which are based on quoted prices and market observable data of similar instruments. As of June 30, 2020 and 2019, gross unrealized gains and unrealized losses for cash equivalents and short-term investments were not material, and the contractual maturity of all marketable securities was less than two years.

- 14 -


4.           Cash, Cash Equivalents and Investments

The fair value and the amortized cost of cash, cash equivalents and available-for-sale investments by major security type consist of the following (in thousands):

As of June 30, 2020

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cash and cash equivalents and investments

    

Cost

    

Gains

    

Losses

    

Value

Cash, cash equivalents and money market funds

$

100,430

$

$

$

100,430

U.S. Treasury securities

 

27,033

143

27,176

Commercial paper

4,997

4,997

Corporate debt securities

10,735

55

10,790

U.S. Agency bonds

3,500

1

3,501

Certificates of deposit

1,918

 

16

 

 

1,934

Total

 

148,613

 

216

 

 

148,829

Less amounts classified as cash and cash equivalents

 

(100,430)

 

 

 

(100,430)

Total available-for-sale investments

$

48,183

$

216

$

$

48,399

As of December 31, 2019

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cash and cash equivalents and investments

    

Cost

    

Gains

    

Losses

    

Value

Cash, cash equivalents and money market funds

$

157,954

$

$

$

157,954

U.S. Treasury securities

 

20,037

16

20,053

Corporate debt securities

3,459

3,459

Certificates of deposit

1,950

 

 

 

1,950

Total

 

183,400

 

16

 

 

183,416

Less amounts classified as cash and cash equivalents

 

(157,954)

 

 

 

(157,954)

Total available-for-sale investments

$

25,446

$

16

$

$

25,462

5.           Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

    

June 30, 

    

December 31, 

 

    

2020

    

2019

    

Prepaid insurance

$

2,822

$

1,265

Vendor prepayments and deposits

 

1,322

 

963

Prepaid rent

721

879

Non-trade receivables

 

82

 

242

Interest receivables and other current assets

165

153

Total prepaid expenses and other current assets

$

5,112

$

3,502

- 15 -


6.           Property and Equipment, net

Property and equipment consists of the following (in thousands):

June 30, 

    

December 31, 

    

2020

    

2019

 

Laboratory equipment

$

10,862

$

9,355

Furniture and fixtures

 

242

 

225

Computer hardware and software

 

854

 

785

Leasehold improvements

 

667

 

629

Construction in process

 

1,528

 

136

 

14,153

 

11,130

Less accumulated depreciation and amortization

 

(6,487)

 

(5,359)

Total property and equipment, net

$

7,666

$

5,771

Depreciation expense was $0.6 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and $1.2 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively.

The net book value of property and equipment under capital leases was $71,000 and $94,000 at June 30, 2020 and December 31, 2019, respectively.

7.           Accrued Expenses

Accrued expenses consist of the following (in thousands):

    

June 30, 

    

December 31, 

2020

    

2019

Compensation and related benefits

$

2,619

$

4,435

Professional fees

510

563

Contract research fees

1,167

214

Other

138

183

Total accrued expenses

$

4,434

$

5,395

8.           Commitments and Contingencies

Leases

The Company leases its office facilities under non-cancellable operating lease agreements that expire at various dates through July 2033. Under the terms of the leases, the Company is responsible for certain insurance, property taxes and maintenance expenses. The office facilities lease agreements contain scheduled increases over the lease term. The related rent expense is calculated on a straight-line basis with the difference recorded as deferred rent. Rent expense was $1.9 million and $0.9 million for the three months ended June 30, 2020 and 2019, respectively and $3.9 million and $1.3 million for the six months ended June 30, 2020 and 2019, respectively.

The Company leases certain property and equipment under capital leases. In 2017, the Company financed purchases of $226,000 under a capital lease agreement. Outstanding amounts under the capital lease agreements are generally secured by liens on the related property and equipment.

- 16 -


Future minimum lease payments under non-cancelable operating and capital lease agreements consisted of the following at June 30, 2020 (in thousands):

    

Capital

    

Operating

Leases

Leases

Years ending December 31:

2020 (remaining 6 months)

$

25

$

2,831

2021

 

51

 

5,891

2022

 

4

 

7,286

2023

 

 

6,986

2024

7,195

Thereafter

70,919

Total minimum lease payments

 

80

$

101,108

Less: amount representing interest

 

(3)

Present value of capital lease obligation

 

77

Less: current portion

 

(48)

Non-current portion

$

29

Litigation

The Company is not aware of any asserted or unasserted claims against it where it believes that an unfavorable resolution would have an adverse material impact on the operations or financial position of the Company.

9.           Capital Stock

Class A and Class B Common Stock

On June 2, 2019 the board of directors of the Company authorized the issuance of 650,000,000 shares of Class A common stock, $0.0001 par value per share, 50,000,000 shares of Class B common stock, $0.0001 par value per share and 300,000,000 shares of preferred stock, $0.0001 par value per share, upon the filing of the Company’s Amended and Restated Certificate of Incorporation in connection with the reverse stock split. Each holder of Class A common stock will be entitled to one vote and each holder of Class B common stock is not entitled to vote except as may be required by law and shall not be entitled to vote on the election of directors at any time.

Common Stock Warrant

In connection with the issuance of Series A in August 2015, the Company issued a warrant to purchase an aggregate of 62,936 shares of common stock at $0.0001 per share. The warrant was immediately exercisable and expires, if not exercised, in August 2025. At issuance, the fair value of the warrant was determined to be $41,509, which was recorded as a Series A preferred stock issuance cost and additional paid-in capital.

10.           Equity Incentive Plans

2019 Equity Incentive Plan

The Company’s board of directors adopted and our stockholders approved our 2019 Equity Incentive Plan, (the “2019 Plan”), on June 2, 2019, and June 7, 2019, respectively. The 2019 Plan became effective on June 19, 2019, and no further grants will be made under the Company’s 2010 Equity Incentive Plan. The purpose of the 2019 Plan, through the grant of stock awards including stock options and other stock-based awards, including restricted stock units (“RSUs”), is to help us secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for our success and that of our affiliates, and provide a means by which the eligible recipients may benefit from increases in the value of our Class A common stock. Under the 2019 Plan, 6,141,842 shares of the Company’s Class A common stock have been reserved for issuance to employees, directors and consultants.

- 17 -


Additionally, the number of shares of our Class A common stock reserved for issuance under our 2019 Plan will automatically increase on January 1 of each year, beginning on January 1, 2020 and continuing through and including January 1, 2029, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors.

Stock option activity under the Plan is as follow:

Options Outstanding

Weighted-

Average

Aggregate

Weighted-

Remaining

Intrinsic

Number

Average

Contractual

Value

    

of Shares

Exercise Price

Life (years)

(in thousands)

Balances, December 31, 2019

 

3,742,144

$

9.58

8.6

$

22,910

Granted

 

1,306,500

 

21.68

 

 

Exercised

 

(186,010)

 

5.16

 

 

Cancelled

 

(27,984)

 

13.93

 

 

Balances, June 30, 2020

 

4,834,650

$

12.99

8.5

$

41,034

Vested and expected to vest at June 30, 2020

 

4,834,650

$

12.99

8.5

$

41,034

Exerciseable at June 30, 2020

 

2,100,737

$

8.13

7.7

$

27,704

Vested at June 30, 2020

 

1,640,392

$

8.97

7.7

$

20,277

The weighted-average grant date fair value of options granted to employees and non-employees in the six months ended June 30, 2020 and 2019 was $13.61 and $10.37, respectively. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following weighted average assumptions:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

 

    

2020

    

2019

 

 

Expected life (in years)

 

5.78

 

6.02

 

5.86

 

6.02

Volatility

 

85.5

%  

80.8

%

 

85.2

%  

80.8

%

Risk-free interest rate

 

1.06

%  

2.12

%

 

1.12

%  

2.22

%

Expected volatility is based on volatilities of public companies operating in the Company’s industry. The expected life of the options is estimated using the simplified method detailed in SEC Staff Accounting Bulletin No. 107. The simplified method calculates the expected term as the mid-point between the weighted-average time to vesting and the contractual maturity. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures.

2019 Employee Stock Purchase Plan

The Company’s board of directors adopted the 2019 Employee Stock Purchase Plan, (“ESPP”), on June 2, 2019, and the Company’s stockholders approved the ESPP on June 7, 2019. The ESPP became effective on June 19, 2019. The Company’s board of directors authorized 283,333 shares of Class A common stock to be reserved for future issuance under the ESPP. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of our Class A common stock outstanding on December 31 of the preceding calendar year, and (2) 416,666 shares; provided, that prior to the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). During the three months and six months ended June 30, 2020, the expense related to the ESPP was $168,000 and $331,000, respectively. The fair value of each ESPP is estimated on the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:

- 18 -


Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020*

    

2019

 

    

2020

    

2019

 

 

Expected life (in years)

 

 

0.2 - 2.0

 

0.5 - 2.0

 

0.2 - 2.0

Volatility

 

%  

74.6 - 101.6

%

 

91.4 - 106.8

%  

74.6 - 101.6

%

Risk-free interest rate

 

%  

1.82 - 2.15

%

 

0.86 - 1.11

%  

1.82 - 2.15

%

*No valuation performed during the three months ended June 30, as there was no new purchase period or modifications of existing ESPP grants.

The Company recognized $3.4 million and $1.4 million of stock-based compensation expense related to the 2019 Plan and ESPP for the three months ended June 30, 2020 and 2019, respectively. The Company recognized $5.9 million and $2.1 million of stock-based compensation expense related to the 2019 Plan and ESPP for the six months ended June 30, 2020 and 2019, respectively. The compensation expense is allocated on a departmental basis, based on the classification of the option holder as follows (in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

 

Research and development

$

1,804

$

754

$

2,862

$

1,171

General and administrative

 

1,580

 

605

 

3,004

 

964

$

3,384

$

1,359

$

5,866

$

2,135

No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements and no stock-based compensation costs have been capitalized as property and equipment as of June 30, 2020.

Unrecognized compensation expense as of June 30, 2020 totaled $31.9 million related to non-vested stock options with a remaining weighted-average requisite service period of 3.0 years.

11.          401(k) Plan

The Company has a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the Code. Eligible employees may elect to defer a portion of their pretax earnings subject to certain statutory limits. The Company has not made any matching contributions to date.

12.          Net Loss Per Share

The following outstanding potentially dilutive common shares were excluded from the computation of diluted net loss per share attributable to co