0000950170-22-010118.txt : 20220516 0000950170-22-010118.hdr.sgml : 20220516 20220516164333 ACCESSION NUMBER: 0000950170-22-010118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220516 DATE AS OF CHANGE: 20220516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Terns Pharmaceuticals, Inc. CENTRAL INDEX KEY: 0001831363 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39926 FILM NUMBER: 22930187 BUSINESS ADDRESS: STREET 1: 1065 EAST HILLSDALE BLVD., SUITE 100 CITY: FOSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 650-525-5535 EXT.101 MAIL ADDRESS: STREET 1: 1065 EAST HILLSDALE BLVD., SUITE 100 CITY: FOSTER CITY STATE: CA ZIP: 94404 10-Q 1 tern-20220331.htm 10-Q 10-Q
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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, 2022

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: 001-39926

 

Terns Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

98-1448275

(State or other jurisdiction of

incorporation or organization)

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

1065 East Hillsdale Blvd., Suite 100

Foster City, California

94404

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 525-5535

 

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

 

TERN

 

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 (§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 6, 2022, the registrant had 25,279,271 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements involve known and unknown risks, uncertainties related to the global COVID-19 pandemic and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies;
the timing of commencement of future nonclinical studies and clinical trials and research and development programs;
our clinical and regulatory development plans;
our expectations regarding the potential market size and size of the potential patient populations for our single-agent and combination therapy candidates and any future single-agent and combination therapy candidates if approved for commercial use;
our ability to acquire, discover, develop and advance single-agent and combination therapy candidates into, and successfully complete, clinical trials;
our intentions and our ability to establish collaborations and/or partnerships;
the timing or likelihood of regulatory filings and approvals for our single-agent and combination therapy candidates;
our commercialization, marketing and manufacturing capabilities and expectations;
our intentions with respect to the commercialization of our single-agent and combination therapy candidates;
the pricing and reimbursement of our single-agent and combination therapy candidates, if approved;
the potential effects of COVID-19 on our preclinical and clinical programs and business;
the implementation of our business model and strategic plans for our business and single-agent and combination therapy candidates, including additional indications for which we may pursue;
the scope of protection we are able to establish, maintain, protect and enforce for intellectual property rights covering our single-agent and combination therapy candidates including the projected terms of patent protection;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital and the timing of the sufficiency of our capital resources;
our future financial performance; and
developments and projections relating to our competitors and our industry, including competing products.

 

i


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

Signatures

31

 

 

 

 

 

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Terns Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(Unaudited; in thousands, except share and per share data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,879

 

 

$

47,699

 

Marketable securities

 

 

107,389

 

 

 

118,283

 

Prepaid expenses and other current assets

 

 

2,843

 

 

 

948

 

Total current assets

 

 

154,111

 

 

 

166,930

 

Property and equipment, net

 

 

1,110

 

 

 

1,046

 

Operating lease assets

 

 

1,376

 

 

 

 

Other assets

 

 

72

 

 

 

94

 

Total assets

 

$

156,669

 

 

$

168,070

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,678

 

 

$

2,126

 

Accrued expenses and other current liabilities

 

 

3,903

 

 

 

4,694

 

Current portion of operating lease liabilities

 

 

584

 

 

 

 

Total current liabilities

 

 

6,165

 

 

 

6,820

 

Deferred rent, net of current portion

 

 

 

 

 

160

 

Taxes payable, non-current

 

 

788

 

 

 

787

 

Operating lease liabilities, non-current

 

 

1,000

 

 

 

 

Total liabilities

 

 

7,953

 

 

 

7,767

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares
   authorized at March 31, 2022 and December 31, 2021;
   
25,269,271 shares issued and outstanding at
   March 31, 2022 and December 31, 2021

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

345,455

 

 

 

342,711

 

Accumulated other comprehensive loss

 

 

(896

)

 

 

(338

)

Accumulated deficit

 

 

(195,846

)

 

 

(182,073

)

Total stockholders’ equity

 

 

148,716

 

 

 

160,303

 

Total liabilities and stockholders’ equity

 

$

156,669

 

 

$

168,070

 

 

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

1


 

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited; in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

8,136

 

 

$

8,735

 

General and administrative

 

 

5,689

 

 

 

4,561

 

Total operating expenses

 

 

13,825

 

 

 

13,296

 

Loss from operations

 

 

(13,825

)

 

 

(13,296

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

69

 

 

 

11

 

Other income (expense), net

 

 

4

 

 

 

(13

)

Total other income (expense), net

 

 

73

 

 

 

(2

)

Loss before income taxes

 

 

(13,752

)

 

 

(13,298

)

Income tax expense

 

 

(21

)

 

 

(39

)

Net loss

 

$

(13,773

)

 

$

(13,337

)

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.55

)

 

$

(0.88

)

Weighted average common stock outstanding, basic and diluted

 

 

25,269,271

 

 

 

15,160,046

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(13,773

)

 

$

(13,337

)

Unrealized loss on available-for-sale securities, net of tax

 

 

(551

)

 

 

(43

)

Foreign exchange translation adjustment, net of tax

 

 

(7

)

 

 

(65

)

Comprehensive loss

 

$

(14,331

)

 

$

(13,445

)

 

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

2


 

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(Unaudited; in thousands, except share data)

 

Three Months Ended March 31, 2022

 

 

 

Series A
Convertible
Preferred Stock

 

 

Series B
Convertible
Preferred Stock

 

 

Series C
Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

25,269,271

 

 

$

3

 

 

$

342,711

 

 

$

(338

)

 

$

(182,073

)

 

$

160,303

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,744

 

 

 

 

 

 

 

 

 

2,744

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(551

)

 

 

 

 

 

(551

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,773

)

 

 

(13,773

)

Balances at March 31, 2022

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

25,269,271

 

 

$

3

 

 

$

345,455

 

 

$

(896

)

 

$

(195,846

)

 

$

148,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Series A
Convertible
Preferred Stock

 

 

Series B
Convertible
Preferred Stock

 

 

Series C
Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit) Equity

 

Balances at December 31, 2020

 

 

2,857,142

 

 

$

30,000

 

 

 

2,600,645

 

 

$

68,995

 

 

 

7,500,665

 

 

$

87,038

 

 

 

 

337,508

 

 

$

 

 

$

14,598

 

 

$

(124

)

 

$

(131,915

)

 

$

(117,441

)

Conversion of preferred stock to common stock upon closing of the initial public offering

 

 

(2,857,142

)

 

 

(30,000

)

 

 

(2,600,645

)

 

 

(68,995

)

 

 

(7,500,665

)

 

 

(87,038

)

 

 

 

16,079,230

 

 

 

2

 

 

 

186,031

 

 

 

 

 

 

 

 

 

186,033

 

Sale of common stock in initial public offering, net of issuance costs of $3,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,625,000

 

 

 

1

 

 

 

133,022

 

 

 

 

 

 

 

 

 

133,023

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,832

 

 

 

 

 

 

 

 

 

1,832

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

(65

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,337

)

 

 

(13,337

)

Balances at March 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

25,041,738

 

 

$

3

 

 

$

335,483

 

 

$

(232

)

 

$

(145,252

)

 

$

190,002

 

 

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

3


 

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(13,773

)

 

$

(13,337

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,744

 

 

 

1,832

 

Depreciation and amortization expense

 

 

141

 

 

 

172

 

Amortization (accretion) on marketable securities

 

 

613

 

 

 

(3

)

Change in deferred taxes and uncertain tax positions

 

 

21

 

 

 

16

 

Amortization of operating lease assets

 

 

137

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,893

)

 

 

(1,254

)

Other assets

 

 

 

 

 

6

 

Accounts payable

 

 

(410

)

 

 

2,208

 

Accrued expenses and other current liabilities

 

 

(731

)

 

 

(3,944

)

Operating lease liabilities

 

 

(149

)

 

 

 

Deferred rent

 

 

 

 

 

(12

)

Net cash used in operating activities

 

 

(13,300

)

 

 

(14,316

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(242

)

 

 

(24

)

Purchase of investments

 

 

(24,434

)

 

 

(96,792

)

Proceeds from sales and maturities of investments

 

 

34,164

 

 

 

 

Net cash provided by (used in) investing activities

 

 

9,488

 

 

 

(96,816

)

Cash flows from financing activities:

 

 

 

 

 

 

Net proceeds from initial public offering

 

 

 

 

 

136,362

 

Proceeds from notes receivable

 

 

 

 

 

12,718

 

Payment of loans payable

 

 

 

 

 

(12,880

)

Payment of deferred offering costs

 

 

 

 

 

(1,031

)

Net cash provided by financing activities

 

 

 

 

 

135,169

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(8

)

 

 

(62

)

Net (decrease) increase in cash and cash equivalents

 

 

(3,820

)

 

 

23,975

 

Cash and cash equivalents at beginning of period

 

 

47,699

 

 

 

74,854

 

Cash and cash equivalents at end of period

 

$

43,879

 

 

$

98,829

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

166

 

 

$

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease liabilities

 

$

1,513

 

 

$

 

Conversion of preferred stock to common stock upon closing of the initial public offering

 

$

 

 

$

186,033

 

Deferred offering costs within accounts payable and accrued expenses

 

$

 

 

$

825

 

 

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

4


 

Terns Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Terns Pharmaceuticals, Inc. (Terns) is a clinical-stage biopharmaceutical company developing a portfolio of small-molecule single-agent and combination therapy candidates to address serious diseases such as non-alcoholic steatohepatitis (NASH), obesity and cancer.

Terns was incorporated as an exempted company in the Cayman Islands in December 2016. In December 2020, the Company effected a de-registration of the Company in the Cayman Islands and a domestication in the State of Delaware (the "Domestication"), pursuant to which it became a Delaware corporation. Terns owns all of the share capital of Terns Pharmaceutical HongKong Limited (Terns Hong Kong) and Terns, Inc., a Delaware corporation (Terns U.S. Opco). Terns Hong Kong holds all of the share capital of Terns China Biotechnology Co., Ltd. (organized in Shanghai, People’s Republic of China (PRC)) (Terns China) and Terns (Suzhou) Biotechnology Co., Ltd. (organized in Suzhou, PRC) (Terns Suzhou).

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Terns and its wholly owned subsidiaries Terns U.S. Opco and Terns Hong Kong and its wholly owned subsidiaries Terns China and Terns Suzhou. The Company’s condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.

Initial Public Offering

In February 2021, the Company completed an initial public offering (the “IPO”) of 8,625,000 shares of its common stock, including the exercise in full by the underwriters of their option to purchase up to 1,125,000 additional shares of common stock, for net proceeds of $133.0 million, after deducting underwriting discounts and commissions and offering expenses, and its shares started trading on the Nasdaq Global Select Market under the ticker symbol “TERN.” Upon closing of the IPO, all of the Company's outstanding shares of convertible preferred stock automatically converted into an aggregate of 16,079,230 shares of common stock.

At-the-Market Offering

In March 2022, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, as sales agent, pursuant to which the Company has the ability to offer and sell, from time to time, through Cowen, shares of its common stock having an aggregate offering price of up to $75.0 million in an at-the-market offering. The shares are offered pursuant to the Company's shelf registration statement on Form S-3 filed with the Securities and Exchange Commission, or SEC. There were no sales of the Company's common stock pursuant to this agreement through March 31, 2022.

Certificate of Incorporation

Prior to the IPO, the Company’s certificate of incorporation adopted in December 2020 in connection with the Domestication (the “December 2020 Charter”) authorized the Company to issue the following shares of capital stock: (i) 299,700,000 shares of common stock, (ii) 40,000,000 shares of Series A convertible preferred stock, (iii) 36,409,088 shares of Series B convertible preferred stock, and (iii) 111,619,996 shares of Series C convertible preferred stock. All classes of stock under the December 2020 Charter were authorized at a par value of $0.0001.

In February 2021, the Company’s amended and restated certificate of incorporation filed with the Secretary of State of the State of Delaware became effective in connection with the closing of the IPO. Under the amended and restated certificate of incorporation, the Company is authorized to issue 150,000,000 shares of common stock and 10,000,000 shares of preferred stock. All classes of stock have a par value of $0.0001.

Reverse Stock Split

In January 2021, the Company filed an amended and restated certificate of incorporation to effectuate a reverse split of shares of the Company’s common stock and convertible preferred stock on a 1-for-14 basis (the “Reverse Stock Split”). The par value and the number of authorized shares of the convertible preferred stock and common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the consolidated financial statements have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.

5


 

Impact of the COVID-19 Pandemic

The COVID-19 pandemic is rapidly evolving. The COVID-19 virus and new variants that emerge continue to impact countries worldwide, including the United States and China where the Company has business operations. The extent of the impact of the COVID-19 pandemic on business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s development activities, planned clinical trial enrollment, future trial sites, contract research organizations (CROs), third-party manufacturers and other third parties with whom the Company conducts business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and to the on-site and in-person activities of the Company's personnel. The Company will continue to actively monitor the rapidly evolving situation related to the COVID-19 pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities in the United States and China, or that the Company determines are in the best interest of its employees and other third parties with whom the Company conducts business. At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to, the estimates for accruals of research and development expenses, accrual of research contract costs, unrecognized tax benefits, fair value of common stock and stock option valuations. On an ongoing basis, the Company evaluates its estimates and judgments, using historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates.

Unaudited Interim Financial Information

These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2021, as filed with the SEC on March 7, 2022. There have been no significant changes to the Company's significant accounting policies described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K for the fiscal year ended December 31, 2021.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of standard checking accounts and money market funds. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents.

The Company classifies as available-for-sale marketable securities with a remaining maturity when purchased of greater than three months. The Company’s marketable securities are maintained by investment managers and consist of U.S. government and non-U.S. government securities, corporate debt securities, and commercial paper. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive loss as a component of stockholders’ equity until realized. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded in interest income and/or expense. Realized gains and losses on debt securities are determined using the specific identification method and are included in other income (expense), 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 consolidated statements of operations and comprehensive loss.

6


 

The fair value and amortized cost of marketable securities by major security type is as follows:

 

 

 

March 31, 2022

 

(in thousands)

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Money market funds

 

$

28,649

 

 

$

 

 

$

 

 

$

28,649

 

U.S. government securities

 

 

50,197

 

 

 

 

 

 

(569

)

 

 

49,628

 

Non-U.S. government securities

 

 

7,056

 

 

 

 

 

 

(41

)

 

 

7,015

 

Corporate debt securities

 

 

24,430

 

 

 

 

 

 

(135

)

 

 

24,295

 

Commercial paper

 

 

26,451

 

 

 

 

 

 

 

 

 

26,451

 

Total

 

$

136,783

 

 

$

 

 

$

(745

)

 

$

136,038