10-Q 1 fulc-10q_20200331.htm 10-Q fulc-10q_20200331.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, 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: 001-38978

 

FULCRUM THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-4839948

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

26 Landsdowne Street
Cambridge, Massachusetts 

02139

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 651-8851

 

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, par value $0.001 per share

 

FULC

 

Nasdaq Global 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of May 8, 2020, the registrant had 23,373,212 shares of common stock, $0.001 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, plans, objectives of management and expected market growth are forward-looking statements. The words "anticipate," "believe," "continue" "could," "estimate," "expect," "intend," "may," "might," “outlook,” "plan," "potential," "predict," "project," "should," "target," "would," and the negative version of these words and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying 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 the “Risk Factors” section and include, among other things:

 

 

our ongoing Phase 2b and Phase 2 open label clinical trials of losmapimod;

 

our planned Phase 1 clinical trial of FTX-6058;

 

the impact of the novel coronavirus, or COVID-19, pandemic on our business and operations and our future financial results;

 

the initiation, timing, progress and results of our drug target discovery screening programs;

 

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 losmapimod 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 losmapimod 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;

 

the progress and results of our collaboration with Acceleron Pharma Inc.;

 

our ability to identify additional 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.

i


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.

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

1

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2019

2

 

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the three months ended March 31, 2020 and 2019

3

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

4

 

Notes to Consolidated Financial Statements

5

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 6.

Exhibits

73

Signatures

74

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Fulcrum Therapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,379

 

 

$

96,713

 

Marketable securities

 

 

55,828

 

 

 

 

Unbilled accounts receivable

 

 

325

 

 

 

 

Prepaid expenses and other current assets

 

 

2,791

 

 

 

3,370

 

Total current assets

 

 

84,323

 

 

 

100,083

 

Property and equipment, net

 

 

9,362

 

 

 

9,205

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Other assets

 

 

79

 

 

 

59

 

Total assets

 

$

94,856

 

 

$

110,439

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,937

 

 

$

2,186

 

Accrued expenses and other current liabilities

 

 

5,219

 

 

 

5,496

 

Deferred lease incentive, current portion

 

 

469

 

 

 

469

 

Deferred revenue, current portion

 

 

4,557

 

 

 

3,989

 

Total current liabilities

 

 

14,182

 

 

 

12,140

 

Deferred rent, excluding current portion

 

 

1,590

 

 

 

1,559

 

Deferred lease incentive, excluding current portion

 

 

3,404

 

 

 

3,521

 

Deferred revenue, excluding current portion

 

 

5,018

 

 

 

6,011

 

Other liabilities, excluding current portion

 

 

31

 

 

 

55

 

Total liabilities

 

 

24,225

 

 

 

23,286

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 23,363,199 and 23,335,514 shares issued as of March 31, 2020 and December 31, 2019, respectively; 22,793,137 and 22,654,444 shares outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

23

 

 

 

23

 

Treasury stock, at cost; no shares as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Additional paid-in capital

 

 

239,914

 

 

 

237,931

 

Accumulated other comprehensive loss

 

 

(53

)

 

 

 

Accumulated deficit

 

 

(169,253

)

 

 

(150,801

)

Total stockholders’ equity

 

 

70,631

 

 

 

87,153

 

Total liabilities and stockholders’ equity

 

$

94,856

 

 

$

110,439

 

 

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

1


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Collaboration revenue

 

$

750

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

14,482

 

 

 

34,629

 

General and administrative

 

 

5,064

 

 

 

2,598

 

Total operating expenses

 

 

19,546

 

 

 

37,227

 

Loss from operations

 

 

(18,796

)

 

 

(37,227

)

Other income, net

 

 

344

 

 

 

384

 

Net loss

 

$

(18,452

)

 

$

(36,843

)

Cumulative convertible preferred stock dividends

 

 

 

 

 

(3,041

)

Net loss attributable to common stockholders

 

$

(18,452

)

 

$

(39,884

)

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

 

$

(0.81

)

 

$

(24.29

)

Weighted average number of common shares used in net loss per share attributable to common stockholders, basic and diluted

 

 

22,719

 

 

 

1,642

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,452

)

 

$

(36,843

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized losses on marketable securities

 

 

(53

)

 

 

 

Total other comprehensive loss

 

 

(53

)

 

 

 

Comprehensive loss

 

$

(18,505

)

 

$

(36,843

)

 

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

 

 

 

2


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

Series A Convertible

Preferred Stock

 

 

Series B Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-In

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

60,000,000

 

 

$

59,909

 

 

 

40,000,000

 

 

$

79,761

 

 

 

 

1,587,953

 

 

$

2

 

 

 

67,024

 

 

$

 

 

$

4,452

 

 

$

 

 

$

(68,124

)

 

$

(63,670

)

Issuance of Series B convertible preferred stock in connection with asset acquisition, net of issuance costs

 

 

 

 

 

 

 

 

12,500,000

 

 

 

25,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,013

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Repurchase of unvested restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(110,946

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

821

 

 

 

 

 

 

 

 

 

821

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,843

)

 

 

(36,843

)

Balance at March 31, 2019

 

 

60,000,000

 

 

$

59,909

 

 

 

52,500,000

 

 

$

105,227

 

 

 

 

1,721,966

 

 

$

2

 

 

 

 

 

$

 

 

$

5,278

 

 

$

 

 

$

(104,967

)

 

$

(99,687

)

Balance at December 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

22,654,444

 

 

$

23

 

 

 

 

 

$

 

 

$

237,931

 

 

$

 

 

$

(150,801

)

 

$

87,153

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138,693

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

290

 

Repurchase of unvested restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,787

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,693

 

 

 

 

 

 

 

 

 

1,693

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

(53

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,452

)

 

 

(18,452

)

Balance at March 31, 2020

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

22,793,137

 

 

$

23

 

 

 

 

 

$

 

 

$

239,914

 

 

$

(53

)

 

$

(169,253

)

 

$

70,631

 

 

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

 

 

3


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(18,452

)

 

$

(36,843

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

539

 

 

 

504

 

Stock-based compensation expense

 

 

1,693

 

 

 

821

 

In-process research and development expenses

 

 

 

 

 

25,591

 

Net amortization of premiums and discounts on marketable securities

 

 

(45

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Unbilled accounts receivable

 

 

(325

)

 

 

 

Prepaid expenses and other current assets

 

 

579

 

 

 

(264

)

Other assets

 

 

(20

)

 

 

(63

)

Accounts payable

 

 

1,429

 

 

 

1,233

 

Accrued expenses and other liabilities

 

 

(91

)

 

 

(807

)

Deferred revenue

 

 

(425

)

 

 

 

Deferred rent and deferred lease incentive

 

 

(86

)

 

 

(69

)

Net cash used in operating activities

 

$

(15,204

)

 

$

(9,897

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(55,837

)

 

 

 

Maturities of marketable securities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(567

)

 

 

(310

)

Transaction costs associated with asset acquisition

 

 

 

 

 

(91

)

Net cash used in investing activities

 

 

(56,404

)

 

 

(401

)

Financing activities

 

 

 

 

 

 

 

 

Issuance costs associated with issuance of Series B convertible preferred stock

 

 

 

 

 

(34

)

Principal payments on capital lease obligations

 

 

(12

)

 

 

(11

)

Proceeds from issuance of common stock under benefit plans, net

 

 

286

 

 

 

(2

)

Net cash provided by (used in) financing activities

 

 

274

 

 

 

(47

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(71,334

)

 

 

(10,345

)

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

 

 

97,805

 

 

 

73,889

 

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

 

$

26,471

 

 

$

63,544

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

1

 

 

$

2

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of in process research and development through issuance of stock

 

$

 

 

$

25,500

 

Property and equipment purchases unpaid at end of period

 

$

163

 

 

$

47

 

Public offering costs unpaid at end of period

 

$

301

 

 

$

190

 

 

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above:

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

25,379

 

 

$

62,452

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Total cash, cash equivalents, and restricted cash

 

$

26,471

 

 

$

63,544

 

 

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

4


 

Fulcrum Therapeutics, Inc.

Notes to Consolidated Financial Statements

1. Nature of the Business and Basis of Presentation

Fulcrum Therapeutics, Inc. (the “Company” or “Fulcrum”) was incorporated in Delaware on August 18, 2015. The Company is focused on improving the lives of patients with genetically defined rare diseases in areas of high unmet medical need.

The Company is subject to a number of risks similar to other companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, dependence on key personnel, protection of proprietary technology, reliance on third party organizations, risks of obtaining regulatory approval for any product candidate that it may develop, development by competitors of technological innovations, compliance with government regulations, and the need to obtain additional financing. 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 infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The accompanying consolidated financial statements and footnotes to the financial statements have been prepared on the same basis as the most recently audited annual consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2020 and the results of its operations and its cash flows for the three months ended March 31, 2020 and 2019. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2020 (the “Annual Report on Form 10-K”).

Initial Public Offering

On July 22, 2019, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 4,500,000 shares of common stock at a public offering price of $16.00 per share, resulting in net proceeds of $63.9 million after deducting underwriting discounts and commissions and estimated offering expenses. Upon the closing of the IPO, all 112,500,000 shares of outstanding preferred stock automatically converted into 16,071,418 shares of common stock.

On July 5, 2019, in connection with the IPO, the Company effected a one-for-seven reverse stock split of the Company’s issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each of the Company’s outstanding series of preferred stock. All share and per share amounts in the accompanying consolidated financial statements and notes thereto for periods prior to the reverse stock split have been retroactively adjusted to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the IPO, issuances of convertible notes and convertible preferred stock, and an upfront payment received from its collaboration and license agreement (the “Acceleron Collaboration Agreement”) with Acceleron Pharma Inc. (“Acceleron”). As of March 31, 2020, the Company had an accumulated deficit of $169.3 million. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

5


 

As of the date of issuance of these 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 for at least twelve months from the date of issuance of these financial statements. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. As a result, the Company could deplete its capital resources sooner than it currently expects. If the Company is unable to raise additional funds through equity or debt financings when needed, it may be required to delay, limit, reduce or terminate development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fulcrum Therapeutics Securities Corp., which is a Massachusetts subsidiary created to buy, sell, and hold securities. All intercompany transactions and balances have been eliminated.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2020, except as noted below with respect to the Company’s accounting policies related to marketable securities.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of expenses during the reported periods. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, the fair value of the common stock and convertible preferred stock prior to the completion of the Company’s IPO, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results could differ from those estimates or assumptions.

Fair Value of Financial Instruments

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3: Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company’s cash equivalents and marketable securities are carried at fair value and are classified according to the fair value hierarchy described above (see Note 3). The cash equivalents and marketable securities are initially valued at the transaction price, and subsequently revalued at the end of each reporting period, utilizing third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market based approaches, to determine fair value.

6


 

Marketable Securities

The Company classifies marketable securities with a remaining maturity when purchased of greater than three months as marketable securities. As of March 31, 2020, the Company’s marketable securities consisted of investments in U.S. Treasury securities, corporate bonds, and commercial paper. Marketable securities are classified as current assets on the consolidated balance sheets if the marketable securities are available to be converted into cash to fund current operations.

Marketable securities are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive loss, which is a component of stockholders’ equity, until such gains and losses are realized. Any premium arising at purchase is amortized to interest expense over the period of the earliest call date, and any discount arising at purchase is accreted to interest income over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income, net.

If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss.

Off-Balance Sheet Risk and Concentrations of Credit Risk

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and restricted cash. The Company’s cash, cash equivalents, and restricted cash are deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash, cash equivalents and restricted cash are held. The Company maintains its cash equivalents in money market funds that invest in U.S. Treasury securities. The Company’s marketable securities primarily consist of U.S. Treasury securities, corporate bonds, and commercial paper, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment. The Company has not experienced any credit losses and does not believe it is exposed to any significant credit risk on these funds.

Recently Adopted Accounting Pronouncements

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period to the earliest call date. The new standard became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or footnote disclosures.

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 of the standard applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II of the standard replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. The new standard became effective for the Company on January 1, 2020 under the extended transition period. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or footnote disclosures.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The standard clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. The standard amends ASC 808 to refer to the unit-of-account guidance in ASC 606 and requires it to be used only when assessing whether a transaction is in the scope of ASC 606 when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606. The standard requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting that transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is not a customer. The new standard became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or footnote disclosures.

7


 

Recent Accounting Pronouncements—To Be Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as amended by various subsequently issued ASUs. The standard requires lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. Lessees are required to classify leases as either finance or operating leases. If the lease is effectively a financed-purchase by the lessee, it is classified as a financing lease, otherwise it is classified as an operating lease. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which permits entities to continue applying legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year that the entity adopts the new leasing standard. In November 2019, the FASB deferred the effective date of ASU 2018-11 for private companies to fiscal years beginning after December 15, 2020. The new standard will become effective for the Company on January 1, 2021. The Company will apply the transition method permitted by ASU 2018-11. The Company is currently evaluating the effect that adoption of the standard is expected to have on the Company’s consolidated financial statements and related disclosures. The Company expects to take advantage of certain available expedients by electing the transition package of practical expedients permitted within ASU 2016-02, which allows the Company to not reassess previous accounting conclusions around whether arrangements are, or contain, leases, the classification of leases, and the treatment of initial direct costs. The Company also expects to make an accounting policy election to exclude leases with an initial term of twelve months or less from the balance sheet.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy classification of such fair values as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

Fair Value Measurements at

March 31, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

20,585

 

 

$

20,585

 

 

$

 

 

$

 

Commercial paper

 

 

4,794

 

 

 

 

 

 

4,794

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

4,042

 

 

 

 

 

 

4,042

 

 

 

 

Corporate bonds

 

 

23,302

 

 

 

 

 

 

23,302

 

 

 

 

Commercial paper

 

 

28,484

 

 

 

 

 

 

28,484

 

 

 

 

Total

 

$

81,207

 

 

$

20,585

 

 

$

60,622

 

 

$

 

 

 

 

Fair Value Measurements at

December 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

96,713

 

 

$

96,713

 

 

$

 

 

$

 

Total

 

$

96,713

 

 

$

96,713

 

 

$

 

 

$

 

 

There were no transfers between fair value levels during the three months ended March 31, 2020.

8


 

4. Marketable Securities

Marketable securities consisted of the following as of March 31, 2020 (in thousands):

 

 

 

Fair Value Measurements at

March 31, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

20,585

 

 

$

 

 

$

 

 

$

20,585

 

Commercial paper

 

 

4,794

 

 

 

 

 

 

 

 

 

4,794

 

Total cash equivalents

 

 

25,379

 

 

 

 

 

 

 

 

 

25,379

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

4,017

 

 

 

25

 

 

 

 

 

 

4,042

 

Corporate bonds

 

 

23,380

 

 

 

2

 

 

 

(80

)

 

 

23,302

 

Commercial paper

 

 

28,484

 

 

 

 

 

 

 

 

 

28,484

 

Total marketable securities

 

 

55,881

 

 

 

27

 

 

 

(80

)

 

 

55,828

 

Total cash equivalents and marketable securities

 

$

81,260

 

 

$

27

 

 

$

(80

)

 

$

81,207

 

 

The Company did not hold any marketable securities as of December 31, 2019.

There were no sales of marketable securities during the three months ended March 31, 2020. As of March 31, 2020, the aggregate fair value of securities that were in an unrealized loss position for less than twelve months was $21.8 million. As of March 31, 2020, no securities were in an unrealized loss position for more than twelve months. The Company determined that it did not hold any securities with any other-than-temporary impairment as of March 31, 2020. As of March 31, 2020, the remaining contractual maturity of all of the Company’s marketable securities is less than one year.

5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Lab equipment

 

$

6,327

 

 

$

5,710

 

Furniture and fixtures

 

 

594

 

 

 

548

 

Computer equipment

 

 

373

 

 

 

512

 

Software

 

 

199

 

 

 

90

 

Leasehold improvements

 

 

6,210

 

 

 

6,210

 

Construction in process

 

 

 

 

 

82

 

Total property and equipment

 

 

13,703

 

 

 

13,152

 

Less: accumulated depreciation

 

 

(4,341

)

 

 

(3,947

)

Property and equipment, net

 

$

9,362

 

 

$

9,205

 

 

Depreciation expense for each of the three months ended March 31, 2020 and 2019 was $0.5 million.

6. Additional Balance Sheet Detail

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Prepaid expenses

 

$

2,176

 

 

$

2,796

 

Prepaid sign-on bonuses subject to vesting provisions

 

 

147

 

 

 

179

 

Interest income receivable

 

 

177

 

 

 

111

 

Other

 

 

291

 

 

 

284

 

Total prepaid expenses and other current assets

 

$

2,791

 

 

$

3,370

 

 

9


 

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

External research and development

 

$

3,988

 

 

$

2,250

 

Payroll and benefits