alrn-10q_20200930.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 September 30, 2020

OR

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

For the transition period from                      to                     

Commission File Number: 001-38130

 

Aileron Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4196017

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

490 Arsenal Way, Suite 210

Watertown, MA

 

02472

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 995-0900

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ALRN

The Nasdaq Capital Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

  

Emerging growth company

 

 

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

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

As of November 11, 2020, the registrant had 40,684,649 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Balance Sheets

 

2

 

 

Condensed Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Statement of Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Statements of Cash Flows

 

5

 

 

Notes to Financial Statements

 

6

Item 2.

 

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

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

 

Controls and Procedures

 

30

PART II.

 

OTHER INFORMATION

 

32

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

77

Item 5.

 

Other Information

 

77

Item 6.

 

Exhibits

 

77

 

 

Signatures

 

78

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

AILERON THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,850

 

 

$

5,311

 

Investments

 

 

6,271

 

 

 

12,967

 

Prepaid expenses and other current assets

 

 

1,828

 

 

 

1,247

 

Restricted cash

 

 

25

 

 

 

25

 

Total current assets

 

 

15,974

 

 

 

19,550

 

Operating lease, right-of-use asset

 

 

5,550

 

 

 

6,060

 

Property and equipment, net

 

 

147

 

 

 

295

 

Restricted cash, non-current

 

 

568

 

 

 

568

 

Total assets

 

$

22,239

 

 

$

26,473

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,002

 

 

$

1,452

 

Accrued expenses and other current liabilities

 

 

3,687

 

 

 

3,941

 

Paycheck Protection Program loan, current portion

 

 

48

 

 

 

 

Operating lease liability, current portion

 

 

512

 

 

 

446

 

Total current liabilities

 

 

5,249

 

 

 

5,839

 

Paycheck Protection Program loan, net of current portion

 

 

336

 

 

 

 

Operating lease liability, net of current portion

 

 

4,196

 

 

 

4,586

 

Total liabilities

 

 

9,781

 

 

 

10,425

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized and no shares

   issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized at

   September 30, 2020 and December 31, 2019; 39,874,847 and 27,810,358 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

40

 

 

 

28

 

Additional paid-in capital

 

 

226,715

 

 

 

214,148

 

Accumulated other comprehensive gain/(loss)

 

 

(1

)

 

 

7

 

Accumulated deficit

 

 

(214,296

)

 

 

(198,135

)

Total stockholders’ equity

 

 

12,458

 

 

 

16,048

 

Total liabilities and stockholders’ equity

 

$

22,239

 

 

$

26,473

 

 

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

2


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,684

 

 

 

4,475

 

 

 

9,241

 

 

 

12,953

 

General and administrative

 

 

2,344

 

 

 

3,440

 

 

 

7,063

 

 

 

9,654

 

Total operating expenses

 

 

5,028

 

 

 

7,915

 

 

 

16,304

 

 

 

22,607

 

Loss from operations

 

 

(5,028

)

 

 

(7,915

)

 

 

(16,304

)

 

 

(22,607

)

Gain on sale of property and equipment

 

 

 

 

 

 

 

 

66

 

 

 

 

Interest income

 

 

5

 

 

 

166

 

 

 

77

 

 

 

473

 

Net loss

 

 

(5,023

)

 

 

(7,749

)

 

 

(16,161

)

 

 

(22,134

)

Net loss per share — basic and diluted

 

$

(0.13

)

 

$

(0.28

)

 

$

(0.49

)

 

$

(0.95

)

Weighted average common shares outstanding—basic and diluted

 

 

39,321,177

 

 

 

27,810,358

 

 

 

32,808,082

 

 

 

23,431,823

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(5,023

)

 

 

(7,749

)

 

$

(16,161

)

 

$

(22,134

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

 

1

 

 

 

(7

)

 

 

(8

)

 

 

22

 

Total other comprehensive gain (loss)

 

 

1

 

 

 

(7

)

 

 

(8

)

 

 

22

 

Total comprehensive loss

 

$

(5,022

)

 

$

(7,756

)

 

$

(16,169

)

 

$

(22,112

)

 

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

3


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balances at December 31, 2019

 

 

27,810,358

 

 

$

28

 

 

$

214,148

 

 

$

7

 

 

$

(198,135

)

 

$

16,048

 

Stock issuance costs

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

(28

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

505

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,748

)

 

 

(6,748

)

Balances at March 31, 2020

 

 

27,810,358

 

 

$

28

 

 

$

214,625

 

 

$

(1

)

 

$

(204,883

)

 

$

9,769

 

Issuance of common stock, net of issuance costs of $1,186

 

 

11,425,118

 

 

 

11

 

 

 

10,718

 

 

 

 

 

 

 

 

 

10,729

 

RSUs vested, net of shares repurchased for tax

 

 

26,100

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

560

 

 

 

 

 

 

 

 

 

560

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,390

)

 

 

(4,390

)

Balances at June 30, 2020

 

 

39,261,576

 

 

$

39

 

 

$

225,890

 

 

$

(2

)

 

$

(209,273

)

 

$

16,654

 

Issuance of common stock, net of issuance costs of $159

 

 

606,747

 

 

 

1

 

 

 

363

 

 

 

 

 

 

 

 

 

364

 

RSUs vested, net of shares repurchased for tax

 

 

6,524

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

465

 

 

 

 

 

 

 

 

 

465

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,023

)

 

 

(5,023

)

Balances at September 30, 2020

 

 

39,874,847

 

 

$

40

 

 

$

226,715

 

 

$

(1

)

 

$

(214,296

)

 

$

12,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

14,748,475

 

 

$

15

 

 

$

188,083

 

 

$

(5

)

 

$

(168,493

)

 

$

19,600

 

Exercise of stock options

 

 

126,560

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

165

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

563

 

Adoption of ASC 842, Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(273

)

 

 

(273

)

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,213

)

 

 

(7,213

)

Balances at March 31, 2019

 

 

14,875,035

 

 

$

15

 

 

$

188,811

 

 

$

 

 

$

(175,979

)

 

$

12,847

 

Sale of common stock and common warrants, net of issuance

   costs of $2,175

 

 

11,838,582

 

 

 

12

 

 

 

21,610

 

 

 

 

 

 

 

 

 

21,622

 

Sale of pre-funded warrants and common warrants

 

 

1,096,741

 

 

 

1

 

 

 

2,202

 

 

 

 

 

 

 

 

 

2,203

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

460

 

 

 

 

 

 

 

 

 

460

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,172

)

 

 

(7,172

)

Balances at June 30, 2019

 

 

27,810,358

 

 

$

28

 

 

$

213,083

 

 

$

24

 

 

$

(183,151

)

 

$

29,984

 

Exercise of pre-funded warrants

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Issuance costs of $37

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

(37

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

614

 

 

 

 

 

 

 

 

 

614

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,749

)

 

 

(7,749

)

Balances at September 30, 2019

 

 

27,810,358

 

 

$

28

 

 

$

213,671

 

 

$

17

 

 

$

(190,900

)

 

$

22,816

 

 

4


 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,161

)

 

$

(22,134

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

153

 

 

 

80

 

Net amortization of premiums and discounts on investments

 

 

(19

)

 

 

(170

)

Stock-based compensation expense

 

 

1,530

 

 

 

1,637

 

Gain on sale of property and equipment

 

 

(66

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(580

)

 

 

(871

)

Other assets

 

 

510

 

 

 

852

 

Accounts payable

 

 

(451

)

 

 

603

 

Operating lease liabilities

 

 

(325

)

 

 

(267

)

Accrued expenses and other current liabilities

 

 

(378

)

 

 

101

 

Net cash used in operating activities

 

 

(15,787

)

 

 

(20,169

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5

)

 

 

(136

)

Proceeds from sale of property and equipment

 

 

66

 

 

 

 

Purchases of investments

 

 

(8,035

)

 

 

(24,510

)

Proceeds from sales or maturities of investments

 

 

14,742

 

 

 

17,068

 

Net cash provided by (used in) investing activities

 

 

6,768

 

 

 

(7,578

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and common warrants and pre-funded warrants, net of issuance costs

 

 

11,174

 

 

 

23,814

 

Proceeds from Paycheck Protection Program Loan

 

 

384

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

165

 

Net cash provided by financing activities

 

 

11,558

 

 

 

23,979

 

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

 

 

2,539

 

 

 

(3,768

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

5,904

 

 

 

11,228

 

Cash, cash equivalents and restricted cash at end of period

 

$

8,443

 

 

$

7,460

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Common stock issuance costs included in accounts payable and accrued expenses

 

$

127

 

 

$

 

 

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

5


 

 

AILERON THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

1. Nature of the Business and Basis of Presentation

Aileron Therapeutics, Inc. (“Aileron” or the “Company”) is a clinical stage biopharmaceutical company that is focused on transforming the experience of chemotherapy for cancer patients, enabling them to fight cancer without the fear or burden of chemotherapy-induced side effects. ALRN-6924, the Company’s first-in-class MDM2/MDMX dual inhibitor activating p53, is the only reported therapeutic agent in clinical development to employ a biomarker strategy, in which the Company exclusively focuses on treating patients with p53-mutated cancers. With this unique, targeted strategy, ALRN-6924 is designed to protect multiple healthy cell types throughout the body from chemotherapy while chemotherapy continues to destroy cancer cells.

In addition to potentially reducing or eliminating multiple side effects, ALRN-6924 may also improve patients’ quality of life and help them better tolerate chemotherapy, potentially allowing patients to complete their treatment without dose reductions or delays. The Company’s long-term vision is to provide chemoprotection for patients with p53-mutated cancers, which represents approximately 50% of cancer patients, regardless of cancer type or chemotherapeutic drug.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, uncertainties in the clinical development of product candidates and in the ability to obtain needed additional financing. ALRN-6924 will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

ALRN-6924, the Company’s product candidate, is in clinical development. There can be no assurance that the Company’s development of ALRN-6924 will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that ALRN-6924 will obtain necessary governmental regulatory approval or, if approved, will be commercially viable. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its key employees and consultants.

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

Liquidity

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

 

In September 2020, the Company entered into a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). The Purchase Agreement provides that, subject to the terms and conditions set forth therein, the Company may sell, at its discretion, to LPC up to $15,000 of shares of common stock during the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement on September 21, 2020, LPC made an initial purchase at market price of $500 of common stock at $1.36 per share and the Company issued an additional 367,647 shares to LPC as consideration to LPC for its commitment to purchase shares under the Purchase Agreement. Subject to certain limitations, the Company has the right, but not the obligation, to sell to LPC up to an additional $14,500 in shares of common stock over a thirty-six-month period that commenced in October 2020. The

6


 

purchase price per share of the shares sold will be based on the market prices prevailing immediately preceding the time of sale as computed under the Purchase Agreement. There are no upper limits to the price LPC may pay to purchase common stock from the Company. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. The agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.

In June 2020, the Company issued and sold in an underwritten public offering an aggregate of 10,162,059 shares of common stock, including an additional 1,071,149 shares of common stock upon the partial exercise of an option of the underwriters to purchase additional shares, for a purchase price to the public of $1.10 per share. The Company received aggregate gross proceeds from the public offering of approximately $11,178 before deducting underwriting discounts and commissions and offering expenses of $932.

In July 2019, the Company entered into a Capital on DemandSM Sales Agreement (the “Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”), under which the Company currently may issue and sell shares of common stock, having an aggregate offering price of up to $15,000. Sales of common stock through JonesTrading may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The Company is not obligated to make any sales of its common stock under the Sales Agreement. The Company began selling shares of common stock under the Sales Agreement in April 2020. During the nine months ended September 30, 2020, the Company issued and sold an aggregate of 1,281,571 shares of common stock pursuant to the Sales Agreement for gross proceeds of $785, before deducting commissions and fees of $24.

On April 2, 2019, the Company issued and sold in a private placement an aggregate of (i) 11,838,582 units, consisting of 11,838,582 shares of its common stock and associated warrants (the “common warrants”) to purchase an aggregate of 11,838,582 shares of common stock, for a combined price of $2.01 per unit and (ii) 1,096,741 units, consisting of (a) pre-funded warrants to purchase 1,096,741 shares of the Company’s common stock and (b) associated common warrants to purchase 1,096,741 shares of common stock, for a combined price of $2.01 per unit. The pre-funded warrants had an exercise price of $0.01 per share and had no expiration. The common warrants are exercisable at an exercise price of $2.00 per share and expire five years from the date of issuance.  The securities were sold pursuant to a securities purchase agreement entered into with accredited investors on March 28, 2019. The Company received aggregate gross proceeds from the private placement of approximately $26,000, before deducting placement agent fees and offering expenses of $2,175 and excluding the exercise of any warrants. In July 2019, all outstanding pre-funded warrants were exercised for 1,096,741 shares of common stock.

The Company’s interim financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through September 30, 2020, the Company has funded its operations primarily through sales of common stock in its initial public offering and a follow-on public offering, sales of common stock in an “at-the-market” offering, sales of common stock under an equity line with LPC, sales of common stock and warrants in a private placement, sales of preferred stock prior to the Company’s initial public offering and payments received under a collaboration agreement. As of September 30, 2020, the Company had cash, cash equivalents and investments of $14,121. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $214,296 as of September 30, 2020. The Company expects to continue to generate losses for the foreseeable future.

 

As of November 12, 2020, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments as of September 30, 2020, will be sufficient to fund its current business plan including related operating expenses and capital expenditure requirements into the fourth quarter of 2021. However, after considering various risks and uncertainties as prescribed by ASU No. 2014-15 (subtopic 205-40), “ASU No. 2014-15,” there is substantial doubt about the Company’s ability to continue as a going concern as of the date of issuance of these interim financial statements without additional capital. The Company plans to address this condition by raising additional capital to finance its operations. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. Therefore, it is not considered probable, as defined in ASU No. 2014-15, that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern.

To execute its business plans, the Company will need substantial funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing when needed, on acceptable terms or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its clinical programs, product portfolio expansion plans or commercialization efforts, which could adversely affect its business prospects.

 

7


 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the COVID-19 pandemic and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these unaudited condensed financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 that was filed with the SEC on March 30, 2020.

 

The unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are unaudited. The results for the nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. The accompanying balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 30, 2020.

 

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, corporate notes and commercial paper, are stated at fair value.

Restricted Cash

As of September 30, 2020 and December 31, 2019, current restricted cash consisted of $25 of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards. As of September 30, 2020 and December 31, 2019, non-current restricted cash consisted of $568 of cash deposited in a separate restricted bank account as a security deposit for the lease of the Company’s facility.

Investments

The Company classifies its available-for-sale debt security investments as current assets on the balance sheet if they mature within one year from the balance sheet date.

8


 

The Company classifies its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities or using other inputs that are observable or can be corroborated by observable market data. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the statements of operations and comprehensive loss.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, 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, among other factors. 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 statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

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.

The Company’s cash equivalents and investments 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 payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) is computed by adjusting income (loss) per share to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share is computed by dividing the diluted net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options, restricted stock units and warrants to purchase common stock are considered potential dilutive common shares. In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Risks and Uncertainties

In December 2019, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, began in China. That outbreak has led to numerous confirmed cases worldwide, including in the United States and other countries where the Company is conducting clinical trials or activities in support thereof. The World Health Organization declared the outbreak a global pandemic on March 11, 2020. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Potential impacts to the Company’s business include disruptions in supply of the Company’s product candidate and/or procuring items that are essential for the Company’s research and development activities.  While the Company believes that it currently has sufficient supply of its product candidate to continue the Company’s ongoing clinical trials, its product candidate, or materials contained therein, come from facilities located in areas impacted by the COVID-19 pandemic. Additionally, the Company has enrolled, and is seeking to enroll, cancer patients in the Company’s clinical trials at sites located both in the United States and Europe, which are areas

9


 

that continue to be impacted by the COVID-19 pandemic. Enrollment at clinical trial sites may be disrupted as the effects of the COVID-19 pandemic persist

Any negative impact that the COVID-19 outbreak has on the ability of the Company’s suppliers to provide materials necessary for the Company’s product candidate or on recruiting or retaining patients in the Company’s clinical trials could cause costly delays to clinical trial activities, which could adversely affect the Company’s ability to obtain regulatory approval for and to commercialize the Company’s product candidate, increase the Company’s operating expenses, affect the Company’s ability to raise additional capital, and impact the Company’s operating and financial results. The capital markets have also experienced significant volatility as a result of the pandemic. Future disruptions in the capital markets could negatively impact the Company’s ability to raise capital in the future.

 

 

Recently Adopted Accounting Pronouncements

 

Fair Value of Financial Instruments

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which aims to improve the effectiveness of fair value measurement disclosures. This ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. This ASU became effective for the Company on January 1, 2020. There was no impact on the Company’s financials as a result of this change for the quarter ended September 30, 2020.

 

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The standard also establishes additional disclosure requirements related to credit risks. This guidance was originally effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption was permitted. In November 2019, the FASB subsequently issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, whereby the effective date of this standard for smaller reporting companies was deferred to annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods, and early adoption is still permitted. Accordingly, the Company will now adopt this standard effective January 1, 2023, and it is currently evaluating the potential impact that ASU 2016-13 may have on its condensed financial statements.

3. Fair Value of Financial Assets

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of

September 30, 2020 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,362

 

 

$

 

 

$

 

 

$

3,362

 

Government sponsored enterprises

 

 

 

 

 

500

 

 

 

 

 

 

500

 

Corporate notes

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Commercial paper

 

 

 

 

 

1,500

 

 

 

 

 

 

1,500

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

 

 

 

 

2,749

 

 

 

 

 

 

2,749

 

Agency bonds

 

 

 

 

 

3,522

 

 

 

 

 

 

3,522

 

 

 

$

3,362

 

 

$

9,271

 

 

$

 

 

$

12,633

 

 

 

 

Fair Value Measurements as of

December 31, 2019 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,208

 

 

$

 

 

$

 

 

$

4,208

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

5,491

 

 

 

 

 

 

5,491

 

Commercial paper

 

 

 

 

 

7,476

 

 

 

 

 

 

7,476

 

 

 

$

4,208

 

 

$

12,967

 

 

$

 

 

$

17,175

 

10


 

 

As of September 30, 2020 and December 31, 2019, the Company’s cash equivalents and investments were valued based on Level 1 and Level 2 inputs. In determining the fair value of its corporate notes and commercial paper at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data. The Company’s cash equivalents have original maturities of less than 90 days from the date of purchase. All available-for-sale investments have contractual maturities of less than one year. During the nine months ended September 30, 2020 and the year ended December 31, 2019, there were no transfers in and out of Level 3.

4. Investments

As of September 30, 2020 and December 31, 2019, the fair value of available-for-sale investments by type of security was as follows:

 

 

 

September 30, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency bonds

 

$

3,522

 

 

$

 

 

$

 

 

$

3,522

 

Treasury bills

 

 

2,749

 

 

 

 

 

 

 

 

 

2,749

 

 

 

$

6,271

 

 

$

 

 

$

 

 

$

6,271

 

 

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

5,489

 

 

$

2

 

 

$

 

 

$

5,491

 

Commercial paper

 

 

7,470

 

 

 

6

 

 

 

 

 

 

7,476

 

 

 

$

12,959