UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED March 31, 2019

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 001-36500

 

CymaBay Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-3103561

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

7575 Gateway Blvd, Suite 110

Newark, CA

 

94560

(Address of principal executive offices)

 

(Zip Code)

 

(510) 293-8800

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

CBAY

Nasdaq Global Select Market

 

As of April 30, 2019, there were 68,696,043 shares of the registrant’s Common Stock outstanding.

 

 

 


 

CYMABAY THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

3

Item 1.

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018 (unaudited)

 

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018 (unaudited)

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)

 

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

Item 2.

 

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

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

24

Item 1A.

 

Risk Factors

 

24

Item 6.

 

Exhibits

 

47

 

 

 

 

 

Signatures

 

48

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CymaBay Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

125,574

 

 

$

48,995

 

Marketable securities

 

 

139,182

 

 

 

129,669

 

Accrued interest receivable

 

 

481

 

 

 

304

 

Prepaid expenses

 

 

4,827

 

 

 

2,594

 

Total current assets

 

 

270,064

 

 

 

181,562

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

2,794

 

 

 

2,905

 

Operating lease right-of-use asset

 

 

177

 

 

 

-

 

Other assets

 

 

1,122

 

 

 

2,280

 

Total assets

 

$

274,157

 

 

$

186,747

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,410

 

 

$

1,973

 

Accrued clinical trial expenses

 

 

9,281

 

 

 

8,588

 

Other accrued liabilities

 

 

2,782

 

 

 

3,854

 

Total current liabilities

 

 

14,473

 

 

 

14,415

 

Long-term portion of operating lease liability

 

 

2,053

 

 

 

-

 

Other liabilities

 

 

-

 

 

 

1,914

 

Total liabilities

 

 

16,526

 

 

 

16,329

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares

   issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value: 100,000,000 shares authorized; 68,694,043

   and 59,456,493 shares issued and outstanding as of March 31, 2019 and

   December 31, 2018, respectively

 

 

7

 

 

 

6

 

Additional paid-in capital

 

 

803,718

 

 

 

693,534

 

Accumulated other comprehensive income (loss)

 

 

45

 

 

 

(58

)

Accumulated deficit

 

 

(546,139

)

 

 

(523,064

)

Total stockholders’ equity

 

 

257,631

 

 

 

170,418

 

Total liabilities and stockholders’ equity

 

$

274,157

 

 

$

186,747

 

 

See accompanying notes to the condensed consolidated financial statements.

3


 

CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share information)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

18,588

 

 

 

9,477

 

General and administrative

 

 

5,663

 

 

 

3,373

 

Total operating expenses

 

 

24,251

 

 

 

12,850

 

Loss from operations

 

 

(24,251

)

 

 

(12,850

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

1,176

 

 

 

708

 

Interest expense

 

 

-

 

 

 

(208

)

Other expense, net

 

 

-

 

 

 

(4,655

)

Total other income (expense)

 

 

1,176

 

 

 

(4,155

)

Net loss

 

$

(23,075

)

 

$

(17,005

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

103

 

 

 

(88

)

Total other comprehensive income (loss)

 

 

103

 

 

 

(88

)

Comprehensive loss

 

$

(22,972

)

 

$

(17,093

)

Basic net loss per common share

 

$

(0.37

)

 

$

(0.32

)

Diluted net loss per common share

 

$

(0.37

)

 

$

(0.32

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding used to

   calculate basic net loss per common share

 

 

61,890,632

 

 

 

53,752,753

 

Weighted average common shares outstanding used to

   calculate diluted net loss per common share

 

 

61,890,632

 

 

 

53,752,753

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

CymaBay Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(23,075

)

 

$

(17,005

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

138

 

 

 

12

 

Stock-based compensation expense

 

 

2,342

 

 

 

1,796

 

Net accretion and amortization of investments in marketable securities

 

 

(544

)

 

 

(278

)

Non-cash interest associated with debt discount accretion

 

 

-

 

 

 

92

 

Change in fair value of warrant liability

 

 

-

 

 

 

4,654

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivable from collaboration

 

 

-

 

 

 

5,000

 

Interest receivable and other current assets

 

 

(177

)

 

 

(147

)

Prepaid expenses

 

 

(2,233

)

 

 

(159

)

Other assets

 

 

1,158

 

 

 

(346

)

Accounts payable

 

 

437

 

 

 

727

 

Accrued liabilities

 

 

(440

)

 

 

(781

)

Accrued interest payable

 

 

-

 

 

 

(6

)

Net cash used in operating activities

 

 

(22,394

)

 

 

(6,441

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(178

)

 

 

(46

)

Purchases of marketable securities

 

 

(90,897

)

 

 

(124,943

)

Proceeds from maturities of marketable securities

 

 

78,051

 

 

 

35,334

 

Proceeds from sale of marketable securities

 

 

3,980

 

 

 

-

 

Net cash used in investing activities

 

 

(9,044

)

 

 

(89,655

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

107,920

 

 

 

135,520

 

Proceeds from issuance of common stock pursuant to equity award plans

 

 

97

 

 

 

3,276

 

Proceeds from issuance of common stock upon exercise of warrants

 

 

-

 

 

 

656

 

Repayment of facility loan principal

 

 

-

 

 

 

(829

)

Net cash provided by financing activities

 

 

108,017

 

 

 

138,623

 

Net increase in cash and cash equivalents

 

 

76,579

 

 

 

42,527

 

Cash and cash equivalents at beginning of period

 

 

48,995

 

 

 

23,054

 

Cash and cash equivalents at end of period

 

$

125,574

 

 

$

65,581

 

Supplemental disclosure

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

-

 

 

$

123

 

Supplemental non-cash investing and financing activities

 

 

 

 

 

 

 

 

Accrued financing costs

 

$

174

 

 

$

-

 

Issuance of common stock upon warrant exercises

 

$

-

 

 

$

3,097

 

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

 

CymaBay Therapeutics, Inc.

 

Condensed Consolidated Statements of Stockholders’ Equity

 

(In thousands, except share information)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances as of December 31, 2018

 

 

59,456,493

 

 

$

6

 

 

$

693,534

 

 

$

(58

)

 

$

(523,064

)

 

$

170,418

 

Issuance of common stock upon

   exercise of stock options

   and incentive awards

 

 

37,550

 

 

 

-

 

 

 

97

 

 

 

-

 

 

 

-

 

 

 

97

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,342

 

 

 

-

 

 

 

-

 

 

 

2,342

 

Issuance of common stock, net of

   $7,254 issuance costs

 

 

9,200,000

 

 

 

1

 

 

 

107,745

 

 

 

-

 

 

 

-

 

 

 

107,746

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,075

)

 

 

(23,075

)

Net unrealized gain on marketable

   securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

103

 

 

 

 

 

 

 

103

 

Balances as of March 31, 2019

 

 

68,694,043

 

 

$

7

 

 

$

803,718

 

 

$

45

 

 

$

(546,139

)

 

$

257,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances as of December 31, 2017

 

 

44,408,796

 

 

$

4

 

 

$

535,503

 

 

$

(44

)

 

$

(450,516

)

 

$

84,947

 

Issuance of common stock upon

   exercise of warrants

 

 

297,144

 

 

 

-

 

 

 

3,753

 

 

 

-

 

 

 

-

 

 

 

3,753

 

Issuance of common stock upon

   exercise of stock options

   and incentive awards

 

 

667,656

 

 

 

-

 

 

 

3,276

 

 

 

-

 

 

 

-

 

 

 

3,276

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,796

 

 

 

-

 

 

 

-

 

 

 

1,796

 

Issuance of common stock, net of

   $8,553 issuance costs

 

 

13,340,000

 

 

 

2

 

 

 

135,518

 

 

 

-

 

 

 

-

 

 

 

135,520

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,005

)

 

 

(17,005

)

Net unrealized loss on marketable

   securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(88

)

 

 

-

 

 

 

(88

)

Balances as of March 31, 2018

 

 

58,713,596

 

 

$

6

 

 

$

679,846

 

 

$

(132

)

 

$

(467,521

)

 

$

212,199

 

 

See accompanying notes to the condensed consolidated financial statements.

 

6


 

CymaBay Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

CymaBay Therapeutics, Inc. (the Company or CymaBay) is a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The Company’s key clinical development candidate is seladelpar (MBX-8025). Seladelpar is currently being developed for the treatment of the liver diseases primary biliary cholangitis (PBC) and nonalcoholic steatohepatitis (NASH). The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and operations are located in Newark, California and it operates in one segment.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception. During the three months ended March 31, 2019, the Company incurred a net loss of $23.1 million and used $22.4 million of cash in operations. At March 31, 2019, the Company had an accumulated deficit of $546.1 million. CymaBay expects to incur substantial research and development expenses as it continues to study its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for marketing and sale, and the Company has not recorded any revenue from product sales. As a result, management expects operating losses to continue in future years. The Company’s ability to achieve profitability is dependent primarily on its ability to successfully develop, acquire or in-license additional product candidates, continue clinical trials for product candidates currently in clinical development, obtain regulatory approvals, and support commercialization activities for partnered product candidates. Products developed by the Company will require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both generic and branded pharmaceutical products.

As of March 31, 2019, the Company had cash, cash equivalents and marketable securities totaling $264.8 million which the Company believes is sufficient to fund the Company’s current operating plan into 2021. The Company expects to incur substantial expenditures in the future for the development and potential commercialization of its product candidates. Because of this, the Company expects its future liquidity and capital resource needs will be impacted by numerous factors, including but not limited to, the ongoing Phase 2b clinical trial activities in NASH, and most significantly, the timing and conduct of additional PBC development activities, including an ongoing Phase 2 clinical trial, a Phase 3 clinical trial, and other new drug application (NDA)-enabling studies. The Company has obtained and expects to obtain additional funding to develop its products and fund future operating losses, as appropriate, through equity offerings; debt financing; one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights of its product candidates; or a combination of the above. It is unclear if or when any such transactions will occur, on satisfactory terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited and are comprised of CymaBay and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and following the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted.

7


 

In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2018, which is contained in the Company’s Annual Report on Form 10-K as filed with the SEC on February 28, 2019. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the entire year ending December 31, 2019 or future operating periods.

Use of Estimates

The condensed consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and assumptions. The Company believes significant judgment can be involved in estimating stock-based compensation, accrued clinical expenses, and the fair value of the Company’s common stock warrants. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each reporting period and updated to reflect current information and any changes in estimates will be reflected in the period first identified.

Fair Value of Financial Instruments

The Company’s financial instruments during the periods reported consist of cash and cash equivalents, marketable securities, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued interest payable, accrued expenses, the facility loan, and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and accrued interest payable approximate the related fair values due to the short maturities of these instruments.

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 at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and maximizes the use of unobservable inputs and is as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little market activity), which requires the reporting entity to develop its own valuation techniques and assumptions.

8


 

The following tables present the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis using the above input categories (in thousands):

 

 

 

As of March 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

113,114

 

 

$

-

 

 

$

-

 

 

$

113,114

 

U.S. commercial paper

 

 

-

 

 

 

3,481

 

 

 

-

 

 

 

3,481

 

Total cash equivalents

 

 

113,114

 

 

 

3,481

 

 

 

-

 

 

 

116,595

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign commercial paper

 

 

-

 

 

 

52,158

 

 

 

-

 

 

 

52,158

 

U.S. and foreign corporate debt securities

 

 

-

 

 

 

38,318

 

 

 

-

 

 

 

38,318

 

Asset-backed securities

 

 

-

 

 

 

25,400

 

 

 

-

 

 

 

25,400

 

U.S. treasury securities

 

 

-

 

 

 

23,306

 

 

 

-

 

 

 

23,306

 

Total short-term investments

 

 

-

 

 

 

139,182

 

 

 

-

 

 

 

139,182

 

Total assets measured at fair value

 

$

113,114

 

 

$

142,663

 

 

$

-

 

 

$

255,777

 

 

 

 

As of December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,481

 

 

$

-

 

 

$

-

 

 

$

39,481

 

U.S. and foreign commercial paper

 

 

-

 

 

 

6,469

 

 

 

-

 

 

 

6,469

 

Total cash equivalents

 

 

39,481

 

 

 

6,469

 

 

 

-

 

 

 

45,950

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign commercial paper

 

 

-

 

 

 

51,627

 

 

 

-

 

 

 

51,627

 

U.S. and foreign corporate debt securities

 

 

-

 

 

 

34,634

 

 

 

-

 

 

 

34,634

 

Asset-backed securities

 

 

-

 

 

 

25,472

 

 

 

-

 

 

 

25,472

 

U.S. treasury securities

 

 

-

 

 

 

17,936

 

 

 

-

 

 

 

17,936

 

Total short-term investments

 

 

-

 

 

 

129,669

 

 

 

-

 

 

 

129,669

 

Total assets measured at fair value

 

$

39,481

 

 

$

136,138

 

 

$

-

 

 

$

175,619

 

 

The Company estimates the fair value of its corporate debt, commercial paper, asset backed securities, and U.S. treasury securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

There were no transfers between Level 1 and Level 2 during the periods presented.

Historically, the Company held a Level 3 liability associated with common stock warrants that were issued in connection with the Company’s financings completed in September and October 2013, January 2014, and August 2015. The warrants were accounted for as liabilities until either they were exercised or expired in September 2018.

The Company used a binomial option pricing model to value its warrant liabilities prior to September 2017. The inputs for the binomial model are similar to the Black-Scholes model but also incorporate other more complex inputs that, in the Company’s case, included the expected timing, probability and valuation impact of certain potential strategic events.

In September 2017, the Company changed its valuation technique and began to value its warrant liability using a Black-Scholes option pricing model, the inputs for which include: exercise price of the warrants, market price of the underlying common shares, dividend yield, expected term, expected volatility, and a risk-free interest rate. Changes to any of these inputs can have a significant impact on the estimated fair value of the warrants.

9


 

The following table sets forth a summary of the changes in the fair value of the Company’s liabilities measured using Level 3 inputs (in thousands):

 

 

 

For the Three

 

 

 

Months Ended March 31,

 

 

 

2019

 

 

2018

 

Balance, beginning of period

 

$

-

 

 

$

6,091

 

Change in fair value

 

 

-

 

 

 

4,654

 

Settlement of financial instruments

 

 

-

 

 

 

(3,097

)

Balance, end of period

 

$

-

 

 

$

7,648

 

 

Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, demand money market accounts, and commercial paper.

The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the fair value hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, and U.S. treasury securities and are classified as “available-for-sale.” The Company considers marketable securities as short-term investments if the maturity date is less than or equal to one year from the balance sheet date. The Company considers marketable securities as long-term investments if the maturity date is in excess of one year of the balance sheet date. 

Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income or expense in the condensed consolidated statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive loss in the condensed consolidated balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.

The following tables summarize amortized cost, unrealized gain and loss, and fair value of the Company’s available for sale marketable securities (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

As of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign commercial paper

 

$

52,158

 

 

$

-

 

 

$

-

 

 

$

52,158

 

U.S. and foreign corporate debt securities

 

 

38,289

 

 

 

29

 

 

 

-

 

 

 

38,318

 

Asset-backed securities

 

 

25,395

 

 

 

6

 

 

 

(1

)

 

 

25,400

 

U.S. treasury securities

 

 

23,295

 

 

 

11

 

 

 

-

 

 

 

23,306

 

 

 

$

139,137

 

 

$

46

 

 

$

(1

)

 

$

139,182

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

As of December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign commercial paper

 

$

51,627

 

 

$

-

 

 

$

-

 

 

$

51,627

 

U.S. and foreign corporate debt securities

 

 

34,668

 

 

 

-

 

 

 

(34

)

 

 

34,634

 

Asset-backed securities

 

 

25,494

 

 

 

-

 

 

 

(22

)

 

 

25,472

 

U.S. treasury securities

 

 

17,938

 

 

 

-

 

 

 

(2

)

 

 

17,936

 

 

 

$

129,727

 

 

$

-

 

 

$

(58

)

 

$

129,669

 

 

10


 

Concentrations of Risk

Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded in the balance sheet. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.

Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in an NDA filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.

Leases

The Company has one lease, a non-cancelable operating lease agreement for its corporate offices. Prior to January 1, 2019, the Company recognized related rent expense on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities lease, including allowances for leasehold improvements and rent holidays, were recognized as reductions to rental expense on a straight-line basis over the term of the lease. Deferred rent consisted of the difference between cash payments and the rent expense recognized.

Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease right-of-use assets, other accrued liabilities, and long-term portion of operating lease liabilities in our condensed consolidated balance sheet at March 31, 2019. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.

Common Stock Warrant Liability

Historically, the Company’s outstanding common stock warrants issued in connection with certain equity and debt financings that occurred in 2013 through 2015 were classified as liabilities in the accompanying condensed consolidated balance sheets because of certain contractual terms that preclude equity classification. As of September 30, 2018, all outstanding warrants related to these financings had been exercised or had expired. Upon expiration, the remaining fair value of the liability was extinguished and credited to other income (expense), net in the Company’s condensed consolidated statement of operations. Prior to expiration, the Company estimated the fair value of common stock warrants at each reporting period until the exercise of the warrants, at which time the liability was revalued and reclassified to stockholders’ equity. The determination of fair value of these common stock warrants required management to make certain assumptions regarding subjective input variables such as timing, probability and valuation impact of certain potential strategic events, expected term, dividends, expected volatility and risk-free interest rates.

 

Research and Development Expenses

Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These expenses consist primarily of costs for research and development personnel, including related stock-based compensation; contract research organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees; laboratory services; consultants; contract manufacturing services; non-clinical studies, including materials; and allocated expenses, such as depreciation of assets, and facilities and information technology that support research and development activities. Research and development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long term classification based on when they will be realized.

11


 

The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.

Stock-Based Compensation

Employee and director stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is recognized as expense on a straight-line basis over the vesting period for options and on an accelerated basis for stock options with performance conditions. For stock options with performance conditions, the Company evaluates the probability of achieving performance conditions at each reporting date. The Company begins to recognize the expense when it is deemed probable that the performance conditions will be met. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. The Company is also required to make estimates as to the probability of achieving the specific performance criteria. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s results of operations.

Equity awards granted to non-employees are valued using the Black-Scholes option pricing model. Stock-based compensation expense for nonemployee services has historically been subject to remeasurement at each reporting date as the underlying equity instruments vest and was recognized as an expense over the period during which services are received. Upon the adoption of ASU 2018-07, Compensation – Stock Compensation on January 1, 2019, the valuation was fixed at the implementation date and will be recognized as an expense on a straight-line basis over the remaining service period.

 

Net Loss Per Common Share

Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding equivalents during the period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of common stock outstanding adjusted to include the assumed exercises of stock options and common stock warrants, if dilutive.

The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the common stock warrants and the presumed and actual exercise or expiration of such securities are dilutive to earnings (net loss) per share for the period, adjustments to net income or net loss used in the calculation are required to remove the change in fair value of the common stock warrant liability for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares.

12


 

In all periods presented, the Company’s outstanding stock options were excluded from the calculation of diluted net loss per share because their effects were antidilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

Net loss allocated to common stock-basic

 

$

(23,075

)

 

$

(17,005

)

Net loss allocated to common stock-diluted

 

$

(23,075

)

 

$

(17,005

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average number of

   common stock shares

   outstanding - basic

 

 

61,890,632

 

 

 

53,752,753

 

Weighted average number of

   common stock shares

   outstanding - diluted

 

 

61,890,632

 

 

 

53,752,753

 

Net loss per share - basic:

 

$

(0.37

)

 

$

(0.32

)

Net loss per share - diluted:

 

$

(0.37

)

 

$

(0.32

)

 

The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per share (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Common stock options

 

 

7,349

 

 

 

5,173

 

Incentive awards

 

 

127

 

 

 

130

 

Common stock warrants

 

 

-

 

 

 

982

 

 

 

 

7,476

 

 

 

6,285

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