umrx-10q_20190630.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 June 30, 2019

OR

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

For the transition period from                      to                     

Commission File Number: 001-38443

 

UNUM THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-5308248

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

200 Cambridge Park Drive, Suite 3100

Cambridge, Massachusetts

 

02140

(Address of principal executive offices)

 

(Zip code)

(617) 945-5576

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

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

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.001 Par Value

 

UMRX

 

The Nasdaq Global Select Market

As of August 9, 2019, the registrant had 30,660,554 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, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

 

the success, cost, and timing of our product development activities and clinical trials;

 

our ability to obtain and maintain regulatory approval for our ACTR087 and ACTR707 product candidates and any other product candidates we may develop, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

 

the potential for our identified research priorities to advance our ACTR and BOXR platform;

 

the ability to license additional intellectual property relating to our product candidates from third-parties and to comply with our existing license agreements and collaboration agreements;

 

the ability and willingness of our third-party research institution collaborators to continue research and development activities relating to our product candidates;

 

our ability to commercialize our products in light of the intellectual property rights of others;

 

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

 

the scalability and commercial viability of our manufacturing methods and processes;

 

the commercialization of our product candidates, if approved;

 

our plans to research, develop, and commercialize our product candidates;

 

the potential benefits of our existing collaboration with Seattle Genetics and our ability to attract other collaborators with development, regulatory, and commercialization expertise;

 

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

 

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

 

the rate and degree of market acceptance of our product candidates;

 

the pricing and reimbursement of our product candidates, if approved;

 

regulatory developments in the United States and foreign countries;

 

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

the success of competing therapies that are or may become available;

 

our ability to attract and retain key scientific or management personnel;

 

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

 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

 

our use of the proceeds from the initial public offering and the concurrent private placement; and

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. 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 undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

i


Unum Therapeutics Inc.

Table of Contents

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations and Comprehensive Loss

2

 

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Consolidated Financial Statements

5

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

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

30

Item 6.

Exhibits

31

Signatures

32

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

UNUM THERAPEUTICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,863

 

 

$

55,671

 

Marketable securities

 

 

 

 

 

22,923

 

Accounts receivable

 

 

1,492

 

 

 

1,668

 

Prepaid expenses and other current assets

 

 

1,243

 

 

 

740

 

Total current assets

 

 

58,598

 

 

 

81,002

 

Operating lease, right-of-use asset

 

 

5,977

 

 

 

 

Property and equipment, net

 

 

2,632

 

 

 

3,251

 

Restricted cash

 

 

1,255

 

 

 

1,255

 

Other assets

 

 

846

 

 

 

419

 

Total assets

 

$

69,308

 

 

$

85,927

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,660

 

 

$

1,519

 

Accrued expenses and other current liabilities

 

 

5,929

 

 

 

5,477

 

Operating lease liability

 

 

1,543

 

 

 

 

Deferred revenue

 

 

15,175

 

 

 

17,949

 

Total current liabilities

 

 

24,307

 

 

 

24,945

 

Deferred rent

 

 

 

 

 

748

 

Operating lease liability, net of current portion

 

 

5,243

 

 

 

 

Total liabilities

 

 

29,550

 

 

 

25,693

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued

   or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized; 30,660,554

   shares and 30,057,970 shares issued and outstanding at June 30, 2019 and

   December 31, 2018, respectively

 

 

30

 

 

 

30

 

Additional paid-in capital

 

 

153,994

 

 

 

152,275

 

Accumulated other comprehensive loss

 

 

 

 

 

(12

)

Accumulated deficit

 

 

(114,266

)

 

 

(92,059

)

Total stockholders’ equity

 

 

39,758

 

 

 

60,234

 

Total liabilities and stockholders’ equity

 

$

69,308

 

 

$

85,927

 

 

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

 

1


 

UNUM THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Collaboration revenue

 

$

3,138

 

 

$

1,666

 

 

$

6,191

 

 

$

3,886

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,617

 

 

 

9,126

 

 

 

23,020

 

 

 

17,268

 

General and administrative

 

 

3,062

 

 

 

1,979

 

 

 

5,553

 

 

 

3,043

 

Total operating expenses

 

 

13,679

 

 

 

11,105

 

 

 

28,573

 

 

 

20,311

 

Loss from operations

 

 

(10,541

)

 

 

(9,439

)

 

 

(22,382

)

 

 

(16,425

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

25

 

 

 

259

 

 

 

175

 

 

 

340

 

Other income, net

 

 

 

 

 

157

 

 

 

 

 

 

327

 

Total other income, net

 

 

25

 

 

 

416

 

 

 

175

 

 

 

667

 

Net loss

 

 

(10,516

)

 

 

(9,023

)

 

 

(22,207

)

 

 

(15,758

)

Accretion of redeemable convertible preferred stock to redemption value

 

 

 

 

 

 

 

 

 

 

 

(16

)

Net loss attributable to common stockholders

 

$

(10,516

)

 

$

(9,023

)

 

$

(22,207

)

 

$

(15,774

)

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

 

$

(0.34

)

 

$

(0.31

)

 

$

(0.73

)

 

$

(0.80

)

Weighted average common shares outstanding, basic and diluted

 

 

30,505,773

 

 

 

29,155,790

 

 

 

30,295,557

 

 

 

19,732,542

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(10,516

)

 

$

(9,023

)

 

$

(22,207

)

 

$

(15,758

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on marketable securities, net of tax of $0

 

 

2

 

 

 

(6

)

 

 

12

 

 

 

3

 

Total other comprehensive income (loss)

 

 

2

 

 

 

(6

)

 

 

12

 

 

 

3

 

Comprehensive loss

 

$

(10,514

)

 

$

(9,029

)

 

$

(22,195

)

 

$

(15,755

)

 

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

 

2


 

UNUM THERAPEUTICS INC.

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

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

 

 

$

 

 

 

 

30,057,970

 

 

$

30

 

 

$

152,275

 

 

$

(12

)

 

$

(92,059

)

 

$

60,234

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

60,852

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

726

 

 

 

 

 

 

 

 

 

726

 

Unrealized gains on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,691

)

 

 

(11,691

)

Balances at March 31, 2019

 

 

 

 

$

 

 

 

 

30,118,822

 

 

$

30

 

 

$

153,012

 

 

$

(2

)

 

$

(103,750

)

 

$

49,290

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

541,732

 

 

 

 

 

 

97

 

 

 

 

 

 

 

 

 

97

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

885

 

 

 

 

 

 

 

 

 

885

 

Unrealized gains on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,516

)

 

 

(10,516

)

Balances at June 30, 2019

 

 

 

 

$

 

 

 

 

30,660,554

 

 

$

30

 

 

$

153,994

 

 

$

 

 

$

(114,266

)

 

$

39,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balances at December 31, 2017

 

 

20,771,850

 

 

$

77,151

 

 

 

 

10,201,690

 

 

$

10

 

 

$

2,499

 

 

$

(16

)

 

$

(51,339

)

 

$

(48,846

)

Adjustment to retained earnings for change

   in accounting policy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,188

)

 

$

(6,188

)

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

6,368

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

479

 

 

 

 

 

 

 

 

 

479

 

Unrealized gains on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Accretion of redeemable convertible

   preferred stock to redemption value

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,735

)

 

 

(6,735

)

Balances at March 31, 2018

 

 

20,771,850

 

 

$

77,167

 

 

 

 

10,208,058

 

 

$

10

 

 

$

2,990

 

 

$

(7

)

 

$

(64,262

)

 

$

(61,269

)

Conversion of redeemable convertible

   preferred stock to common stock

 

 

(20,771,850

)

 

 

(77,167

)

 

 

 

13,229,362

 

 

 

13

 

 

 

77,154

 

 

 

 

 

 

 

 

$

77,167

 

Issuance of common stock sold in initial

   public offering, net of underwriting

   discounts, commissions and offering costs

 

 

 

 

 

 

 

 

 

 

 

5,985,000

 

 

 

6

 

 

 

63,942

 

 

 

 

 

 

 

 

 

 

$

63,948

 

Proceeds from private placement concurrent

   with initial public offering

 

 

 

 

 

 

 

 

 

416,666

 

 

 

1

 

 

 

4,999

 

 

 

 

 

 

 

 

$

5,000

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

28,162

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

847

 

 

 

 

 

 

 

 

 

847

 

Unrealized losses on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Accretion of redeemable convertible

   preferred stock to redemption value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,023

)

 

 

(9,023

)

Balances at June 30, 2018

 

 

 

 

 

 

 

 

 

29,867,248

 

 

$

30

 

 

$

149,943

 

 

$

(13

)

 

$

(73,285

)

 

$

76,675

 

 

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

 

3


 

UNUM THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,207

)

 

$

(15,758

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

661

 

 

 

639

 

Stock-based compensation expense

 

 

1,611

 

 

 

1,326

 

Realized losses (gains) on sales of marketable securities

 

 

2

 

 

 

 

Net amortization (accretion) of premiums (discounts) on marketable securities

 

 

(55

)

 

 

(39

)

Non-cash interest expense

 

 

 

 

 

11

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

176

 

 

 

(372

)

Prepaid expenses and other current assets

 

 

(503

)

 

 

(910

)

Operating lease, right-of-use asset

 

 

673

 

 

 

 

Other assets

 

 

(427

)

 

 

(419

)

Accounts payable

 

 

141

 

 

 

503

 

Accrued expenses and other current liabilities

 

 

558

 

 

 

227

 

Deferred rent

 

 

 

 

 

(18

)

Operating lease liability

 

 

(718

)

 

 

 

Deferred revenue

 

 

(2,774

)

 

 

(1,084

)

Net cash provided by (used in) operating activities

 

 

(22,862

)

 

 

(15,894

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(42

)

 

 

(463

)

Purchases of marketable securities

 

 

 

 

 

(47,682

)

Maturities and sales of marketable securities

 

 

22,988

 

 

 

12,700

 

Net cash provided by (used in) investing activities

 

 

22,946

 

 

 

(35,445

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of underwriting discounts and commissions

 

 

 

 

 

66,793

 

Proceeds from private placement concurrent with initial public offering

 

 

 

 

 

5,000

 

Proceeds from issuance of common stock upon stock option exercises

 

 

108

 

 

 

39

 

Payments of initial public offering costs

 

 

 

 

 

(2,056

)

Net cash provided by (used in) financing activities

 

 

108

 

 

 

69,776

 

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

 

 

192

 

 

 

18,437

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

56,926

 

 

 

29,600

 

Cash, cash equivalents and restricted cash at end of period

 

$

57,118

 

 

$

48,037

 

Supplemental disclosure of noncash investing and financing information:

 

 

 

 

 

 

 

 

Conversion of redeemable convertible preferred stock into common stock

 

$

 

 

$

77,167

 

Purchases of property and equipment included in accounts payable

 

$

 

 

$

81

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

 

 

$

16

 

 

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

 

4


 

UNUM THERAPEUTICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

Unum Therapeutics Inc. (“Unum” or the “Company”) is a clinical-stage biopharmaceutical company focused on developing potentially curative cell therapies to treat a broad range of cancer patients. Unum’s novel proprietary platforms include Antibody-Coupled T cell Receptor (“ACTR”), which is based on autologous engineered cellular therapies that combine the cell-killing ability of T cells and the tumor-targeting ability of co-administered antibodies to exert potent antitumor immune responses, and Bolt-On Chimeric Receptor (“BOXR”), which is designed to improve engineered T cells by identifying and incorporating a “bolt-on” transgene to overcome resistance of the solid tumor microenvironment to T cell attack. Unum was incorporated in March 2014 under the laws of the State of Delaware

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

On April 3, 2018, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 5,770,000 shares of common stock at a public offering price of $12.00 per share, resulting in net proceeds of $61.5 million after deducting underwriting discounts and commissions and other offering costs. In addition, Seattle Genetics, Inc. (“Seattle Genetics”) purchased from the Company, concurrently with the IPO in a private placement, $5.0 million of shares of common stock at a price per share equal to the initial public offering price, or 416,666 shares (the “concurrent private placement”). Upon closing of the IPO, the Company’s outstanding redeemable convertible preferred stock automatically converted into shares of common stock. On April 25, 2018, the Company issued and sold an additional 215,000 shares of its common stock at the IPO price of $12.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $2.4 million after deducting underwriting discounts and commissions.

On April 1, 2019, the Company filed a shelf registration statement on Form S-3 with the SEC. The shelf registration statement allows the Company to sell from time-to-time up to $150 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for its own account in one or more offerings. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

Additionally, on April 1, 2019 and pursuant to the Form S-3, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50.0 million through Cowen as the sales agent. As of June 30, 2019, no shares have been sold under this Sales Agreement.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since inception, including net losses attributable to the Company of $22.2 million for the six months ended June 30, 2019 and $34.5 million for the year ended December 31, 2018. As of June 30, 2019, the Company had an accumulated deficit of $114.3 million. The Company expects to continue to generate operating losses in the foreseeable future. As of the issuance date of the interim consolidated financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the interim consolidated financial statements, without considering available borrowings under the Company’s loan and security agreement.

The Company will ultimately need to seek additional funding through equity offerings, debt financings, collaborations, licensing arrangements and other marketing and distribution arrangements, partnerships, joint ventures, combinations or divestitures of one or more of its businesses. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborative arrangements or divest its assets. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. Arrangements with collaborators or others may require the Company to relinquish rights to certain of its technologies or product candidates. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs or commercialization efforts, which could adversely affect its business prospects.

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

5


 

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

 

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The consolidated balance sheet at December 31, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These 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, 2018 included in the Company’s Annual Report on Form 10-K, File No. 001-38443 on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2019 and results of operations for the three and six months ended June 30, 2019 and 2018 and cash flows for the six months ended June 30, 2019 and 2018 have been made. The Company’s results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains most of its cash and cash equivalents at three accredited financial institutions. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party vendors for its product candidates. In particular, the Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and process its product candidates for its development programs. These programs could be adversely affected by a significant interruption in the manufacturing process.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Fair Value Measurements

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

 

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

 

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

 

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

6


 

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

Marketable Securities

The Company’s marketable securities, consisting of debt securities, are classified as available-for-sale and are reported at fair value. Unrealized gains and losses on available-for-sale debt securities are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. The Company classifies its marketable securities with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities are available for current operations.

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

Leases

The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the assets’ economic benefits. The Company determines the initial classification and measurement of its operating right-of-use assets and operating lease liabilities at the lease commencement date, and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The Company’s policy is to not record leases with an original term of twelve months or less on its consolidated balance sheets. The Company’s only existing lease is for office space.

The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term.

Lease payments included in the measurement of the lease liability consist of the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Leases may contain rent escalation clauses and variable lease payments that require additional rental payments in later years of the term, including payments based on an index or inflation rate. Payments based on the change in an index or inflation rate, or payments based on a change in the Company’s portion of the operating expenses, including real estate taxes and insurance, are not included in the initial lease liability and are recorded as a period expense when incurred. The operating leases may include an option to renew the lease term for various renewal periods and/or to terminate the leases early. These options to exercise the renewal or early termination clauses in the Company’s operating leases were not reasonably certain of exercise as of the date of adoption and these have not been included in the determination of the initial lease liability or operating lease expense.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statements of operations and comprehensive loss. For finance leases, any interest expense is recognized using the effective interest method and is included within interest expense. The Company has no financing leases.

7


 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates, assumptions and judgments reflected in these condensed consolidated financial statements include, but are not limited to, revenue, the accrual of research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Collaboration Agreements

The Company follows the accounting guidance for collaboration agreements, which requires that certain transactions between the Company and collaborators be recorded in its consolidated statements of operations and comprehensive loss on either a gross basis or net basis, depending on the characteristics of the collaborative relationship, and requires enhanced disclosure of collaborative relationships. The Company evaluates its collaboration agreements for proper classification in its consolidated statements of operations and comprehensive loss based on the nature of the underlying activity. If payments to and from collaborative partners are not within the scope of other authoritative accounting literature, the consolidated statements of operations classification for the payments is based on a reasonable, rational analogy to authoritative accounting literature that is applied in a consistent manner. When the Company has concluded that it has a customer relationship with one of its collaborators, such as that with Seattle Genetics (see Note 5), the Company follows the guidance in Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers (“ASC 606”).

Revenue Recognition for Collaboration Agreements

The Company performs the following five steps to determine revenue recognition for arrangements that are within the scope of ASC 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when collectability of the consideration to which the Company is entitled in exchange for the goods or services it transfers to the customer is determined to be probable.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. In determining whether goods or services are distinct, management evaluates certain criteria, including whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (capable of being distinct) and (ii) the good or service is separately identifiable from other goods or services in the contract (distinct in the context of the contract).

At the inception of an arrangement that includes options for a customer to purchase additional services or products at agreed upon prices in the future, the Company evaluates whether each option provides a material right. An option that provides a material right will be accounted for as a separate performance obligation.

The Company then determines the transaction price, which is the amount of consideration it expects to be entitled from a customer in exchange for the promised goods or services, for each performance obligation and recognizes the associated revenue as each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which it expects to be entitled. Variable consideration includes payments in the form of collaboration payments, regulatory milestone payments, commercial milestone payments, and royalty payments. For collaboration, regulatory milestone, and commercial milestone payments the Company evaluates whether it is probable that the consideration associated with each milestone will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are considered constrained and excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis. The Company excludes sales-based royalties until the sale occurs.

ASC 606 requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which

8


 

that amount should be allocated. The relative standalone selling price is defined in the new revenue standard as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which the Company has sold the same performance obligation separately are not available, the Company is required to estimate the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. A performance obligation is satisfied and revenue is recognized when “control” of the promised good or service is transferred, either over time or at a point in time, to the customer. A customer obtains control of a good or service if it has the ability to (1) direct its use and (2) obtain substantially all of the remaining benefits from it.

If a contract should be accounted for as a combined performance obligation, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. The Company recognizes revenue for its collaboration agreement using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price is updated at each reporting date as a change in estimate. The amount of transaction price allocated to the satisfied portion of the performance obligation, based on the Company’s measure of progress, is recognized immediately on a cumulative catch-up basis, resulting in an adjustment to revenue in the period of change. The amount related to the unsatisfied portion is recognized as that portion is satisfied over time.

Amounts received prior to satisfying the revenue recognition criteria listed above are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the following 12 months of the balance sheet date are classified as deferred revenue, net of current portion. At June 30, 2019, the Company had deferred revenue of $15.2 million related to its collaboration. The Company recognized revenue of $3.1 and $6.2 million during the three and six months ended June 30, 2019, respectively, from the deferred revenue balance at December 31, 2018. The Company recognizes deferred revenue by first allocating from the beginning deferred revenue balance to the extent that the beginning deferred revenue balance exceeds the revenue to be recognized. Billings during the period are added to the deferred revenue balance to be recognized in future periods. To the extent that the beginning deferred revenue balance is less than revenue to be recognized during the period, billings during the period are allocated to revenue. In the event that a collaboration agreement was to be terminated and the Company had no further performance obligations, the Company would recognize as revenue any portion of the upfront payment and other payments that had not previously been recorded as revenue and were classified as deferred revenue at the date of such termination.

Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less or the amount is immaterial. At June 30, 2019 and December 31, 2018, the Company has not capitalized any costs to obtain its contract.

9


 

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. 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, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption. The Company has adopted the new leasing standard on January 1, 2019, using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019. The Company has applied the “package of practical expedients”, which permits the Company not to reassess under the new standards for prior conclusions about lease identification, lease classification and initial direct costs. The Company has also elected to apply the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease components as a single lease component.

Upon adoption of the new leasing standards, the Company recognized a lease liability of $7.5 million and a related right-of-use asset of $6.7 million on its consolidated balance sheet with the difference being due to the elimination of previously reported deferred rent. The adoption of the standard did not have a material impact on the results of operations or cash flows.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2018-07 on January 1, 2018. The adoption of this guidance did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”). The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2018-13 will have on its consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808):Clarifying the Interaction between Topic 808 and Topic 606. The main provisions of ASU 2018-18 include: (i) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and (ii) precluding the presentation of transactions with collaborative arrangement participants that are not directly related to sales to third parties together with revenue. This guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted. The guidance per ASU 2018-18 is to be adopted retrospectively to the date of initial application of Topic 606. The Company is currently evaluating the impact that the adoption of ASU 2018-18 will have on its consolidated financial statements.

10


 

3. Marketable Securities and Fair Value of Financial Assets and Liabilities

Marketable securities by security type consisted of the following (in thousands):

 

 

 

June 30, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

U.S. Treasury bills (due within one year)

 

$

 

 

$

 

 

$

 

 

$

 

 

 

$

 

 

$

 

 

$

 

 

$