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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

or

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

Commission File Number 001-36818

 

TRACON Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

34-2037594

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer
Identification No.)

 

 

 

4350 La Jolla Village Drive, Suite 800,
San Diego CA

 

92122

(Address of principal executive offices)

 

(Zip Code)

(858550-0780

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TCON

The Nasdaq Stock Market LLC

 

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 

The number of outstanding shares of the registrant’s common stock as of October 29, 2021 was 19,445,903.


 


 

 

TRACON Pharmaceuticals, Inc.

FORM 10-Q

TABLE OF CONTENTS

 

PART I  FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

 

 

 

PART II  OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

 

 

 

Signatures

70

 

 

 

 

 

 

 

 

 

 

2


 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TRACON Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

 

2021

 

 

2020

 

 

 

 

(Unaudited)

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,901

 

 

$

32,131

 

 

Short-term investments

 

 

 

 

 

3,999

 

 

Prepaid and other assets

 

 

1,241

 

 

 

784

 

 

Total current assets

 

 

31,142

 

 

 

36,914

 

 

Property and equipment, net

 

 

49

 

 

 

16

 

 

Other assets

 

 

1,617

 

 

 

508

 

 

Total assets

 

$

32,808

 

 

$

37,438

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

9,527

 

 

$

6,235

 

 

Accrued compensation and related expenses

 

 

1,128

 

 

 

1,590

 

 

Long-term debt, current portion

 

 

2,079

 

 

 

2,718

 

 

Total current liabilities

 

 

12,734

 

 

 

10,543

 

 

Other long-term liabilities

 

 

1,211

 

 

 

432

 

 

Long-term debt, less current portion

 

 

 

 

 

1,391

 

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized shares — 10,000,000 at

    September 30, 2021 and December 31, 2020; issued and outstanding

   shares — none

 

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares — 40,000,000 at

   September 30, 2021 and December 31, 2020; issued and outstanding shares —

   19,430,369 and 15,478,787 at September 30, 2021 and December 31, 2020,

   respectively

 

 

19

 

 

 

15

 

 

Additional paid-in capital

 

 

218,908

 

 

 

204,166

 

 

Accumulated deficit

 

 

(200,064

)

 

 

(179,109

)

 

Total stockholders’ equity

 

 

18,863

 

 

 

25,072

 

 

Total liabilities and stockholders’ equity

 

$

32,808

 

 

$

37,438

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

3


 

 

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

License revenue

 

$

 

 

$

 

 

$

346

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,730

 

 

 

1,785

 

 

 

8,082

 

 

 

6,001

 

General and administrative

 

 

4,151

 

 

 

2,063

 

 

 

12,948

 

 

 

6,045

 

Total operating expenses

 

 

6,881

 

 

 

3,848

 

 

 

21,030

 

 

 

12,046

 

Loss from operations

 

 

(6,881

)

 

 

(3,848

)

 

 

(20,684

)

 

 

(12,046

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(69

)

 

 

(141

)

 

 

(269

)

 

 

(412

)

Other expense, net

 

 

(2

)

 

 

(3

)

 

 

(2

)

 

 

(6

)

Total other expense

 

 

(71

)

 

 

(144

)

 

 

(271

)

 

 

(418

)

Net loss

 

$

(6,952

)

 

$

(3,992

)

 

$

(20,955

)

 

$

(12,464

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.38

)

 

$

(0.38

)

 

$

(1.27

)

 

$

(1.69

)

Weighted-average shares outstanding, basic and diluted

 

 

18,533,772

 

 

 

10,509,220

 

 

 

16,514,652

 

 

 

7,366,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

4


 

 

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2020

 

 

15,478,787

 

 

$

15

 

 

$

204,166

 

 

$

(179,109

)

 

$

25,072

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

343

 

 

 

 

 

 

343

 

 

Issuance of common stock under equity plans

 

 

2,024

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

 

Offering costs

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,064

)

 

 

(5,064

)

 

Balance at March 31, 2021

 

 

15,480,811

 

 

 

15

 

 

 

204,515

 

 

 

(184,173

)

 

 

20,357

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

417

 

 

 

 

 

 

417

 

 

Issuance of common stock under equity plans

 

 

21,153

 

 

 

1

 

 

 

79

 

 

 

 

 

 

80

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,939

)

 

 

(8,939

)

 

Balance at June 30, 2021

 

 

15,501,964

 

 

 

16

 

 

 

205,011

 

 

 

(193,112

)

 

 

11,915

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

501

 

 

 

 

 

 

501

 

 

Issuance of common stock under equity plans

 

 

1,703

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

 

Issuances of common stock, net of offering costs

 

 

3,926,702

 

 

 

3

 

 

 

13,389

 

 

 

 

 

 

13,392

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,952

)

 

 

(6,952

)

 

Balance at September 30, 2021

 

 

19,430,369

 

 

$

19

 

 

$

218,908

 

 

$

(200,064

)

 

$

18,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

Balance at December 31, 2019

 

 

4,051,187

 

 

$

4

 

 

$

165,028

 

 

$

(162,334

)

 

$

2,698

 

 

Issuance of common stock under equity plans

 

 

2,078

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

267

 

 

 

 

 

 

267

 

 

Issuances of common stock, net of offering costs

 

 

1,344,673

 

 

 

1

 

 

 

3,719

 

 

 

 

 

 

3,720

 

 

Issuance of common stock in exchange for services

 

 

100,000

 

 

 

 

 

 

126

 

 

 

 

 

 

126

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,021

)

 

 

(4,021

)

 

Balance at March 31, 2020

 

 

5,497,938

 

 

 

5

 

 

 

169,134

 

 

 

(166,355

)

 

 

2,784

 

 

Issuance of common stock under equity plans

 

 

2,450

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

263

 

 

 

 

 

 

263

 

 

Issuances of common stock, net of offering costs

 

 

2,273,427

 

 

 

3

 

 

 

4,399

 

 

 

 

 

 

4,402

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,451

)

 

 

(4,451

)

 

Balance at June 30, 2020

 

 

7,773,815

 

 

 

8

 

 

 

173,801

 

 

 

(170,806

)

 

 

3,003

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

240

 

 

 

 

 

 

240

 

 

Issuances of common stock and warrants, net of offering costs

 

 

5,908,838

 

 

 

6

 

 

 

16,229

 

 

 

 

 

 

16,235

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,992

)

 

 

(3,992

)

 

Balance at September 30, 2020

 

 

13,682,653

 

 

$

14

 

 

$

190,270

 

 

$

(174,798

)

 

$

15,486

 

 

 

See accompanying notes.

 

5


 

 

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(20,955

)

 

$

(12,464

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,261

 

 

 

770

 

Common stock issued for services

 

 

 

 

 

126

 

Depreciation and amortization

 

 

10

 

 

 

10

 

Noncash interest

 

 

52

 

 

 

99

 

Amortization of debt discount

 

 

18

 

 

 

34

 

Amortization of premium/discount on short-term investments

 

 

(1

)

 

 

 

Equity ownership license revenue

 

 

(246

)

 

 

 

Lease asset amortization and liability accretion, net

 

 

(41

)

 

 

(17

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(457

)

 

 

(154

)

Accounts payable and accrued expenses

 

 

3,364

 

 

 

(1,545

)

Accrued compensation and related expenses

 

 

(462

)

 

 

(275

)

Net cash used in operating activities

 

 

(17,457

)

 

 

(13,416

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(39

)

 

 

 

Proceeds from the maturity of available-for-sale short-term investments

 

 

4,000

 

 

 

 

Net cash provided by investing activities

 

 

3,961

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

(2,100

)

 

 

(933

)

Proceeds from sale of common stock and warrants, net of offering costs

 

 

13,265

 

 

 

24,389

 

Proceeds from issuance of common stock under equity plans, net of tax withholdings

 

 

101

 

 

 

(1

)

Net cash provided by financing activities

 

 

11,266

 

 

 

23,455

 

Change in cash and cash equivalents

 

 

(2,230

)

 

 

10,039

 

Cash and cash equivalents at beginning of period

 

 

32,131

 

 

 

16,412

 

Cash and cash equivalents at end of period

 

$

29,901

 

 

$

26,451

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

6


 

 

TRACON Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

1.

Organization and Summary of Significant Accounting Policies

Organization and Business

TRACON Pharmaceuticals, Inc. (TRACON or the Company) was incorporated in the state of Delaware on October 28, 2004. TRACON is a biopharmaceutical company focused on the development and commercialization of novel targeted therapeutics for cancer, and utilizes its cost efficient, contract research organization (CRO) independent product development platform to partner with ex-U.S. companies to develop and commercialize innovative products in the United States.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, TRACON Pharma Limited and TRACON Pharma International Limited, which were formed in September 2015 and January 2019, respectively, and are currently inactive. All significant intercompany accounts and transactions have been eliminated.

Basis of Presentation

As of September 30, 2021, the Company has devoted substantially all its efforts to product development, raising capital, and building infrastructure and has not realized revenues from its planned principal operations. The Company has incurred operating losses since inception. As of September 30, 2021, the Company had an accumulated deficit of $200.1 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of its product candidates and works to develop additional product candidates through research and development programs. As of September 30, 2021, the Company had cash and cash equivalents of $29.9 million. Based on the Company’s current business plan, management believes that existing cash and cash equivalents will be sufficient to fund the Company’s obligations for a period in excess of one year from the date of issuance of these financial statements.  

The Company plans to continue to fund its losses from operations through its existing cash and cash equivalents, as well as through future equity offerings, debt financings, other third-party funding, and potential licensing or collaboration arrangements. In July 2021, the Company completed an underwritten public offering of 3,926,702 shares of its common stock at an offering price of $3.82 per share. The Company received net proceeds of approximately $13.4 million, after deducting underwriting discounts, commissions and offering-related expenses. In addition, the Company may fund its losses from operations through the common stock purchase agreement the Company entered into with Aspire Capital in October 2019, as amended in April 2020, for the purchase of up to $15.0 million of the Company’s common stock over the 30 month period of the purchase agreement, $5.4 million of which remained available for sale as of September 30, 2021 and/or the Capital on DemandTM Sales Agreement (the Sales Agreement) the Company entered into with JonesTrading in December 2020, pursuant to which the Company may sell, at its option, up to an aggregate of $50.0 million of the Company’s common stock, all of which remained available for sale as of September 30, 2021. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to the Company. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate in the future, it may make any additional debt or equity financing more difficult, more costly, and more dilutive. Even if the Company raises additional capital, it may also be required to modify, delay or abandon some of its plans, which could have a material adverse effect on the Company’s business, operating results and financial condition, and the Company’s ability to achieve its intended business objectives. Any of these actions could materially harm the Company’s business, results of operations, and future prospects.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and with accounting principles generally accepted in the United States (GAAP) applicable to interim financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, included in its Annual Report on Form 10-K filed with the SEC on February 25, 2021.

7


 

Risks and Uncertainties

 

COVID-19, a novel strain of coronavirus, has become a global pandemic and has spread to over 100 countries, including the United States. 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.

The Company has experienced temporary closures of its offices in light of state and local orders and most of its employees continue to work remotely.  In addition, the Company’s employees have not been able to conduct normal business travel, in particular as part of business development activities or in-person monitoring of clinical trial sites. Potential further impacts to the Company’s business include, but are not limited to, additional closures of its facilities or those of its vendors, continued disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration or other regulatory authorities, and the Company’s ability to raise capital and conduct business development activities.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue, and expenses. The most significant estimates in the Company’s financial statements relate to expenses incurred for clinical trials. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of purchase. The carrying amounts approximate fair value due to the short maturities of these investments. Cash and cash equivalents include cash in readily available checking and money market funds.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Revenue Recognition

To date, substantially all the Company’s revenue has been derived from license agreements. The terms of these arrangements included payments to the Company for the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides through its contract manufacturers; and royalties on net sales of licensed products. In accordance with Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, the Company performs the following five steps in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of these agreements: (i) identification of the contract(s) with a customer; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, the Company satisfies each performance obligation.  The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer. Once a contract is determined to be within the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers, at contract inception, the Company assesses the goods or services promised within the contract to determine those that are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied.

8


 

As part of the accounting for these arrangements, the Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success.  

Licenses of intellectual property:  If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promised goods or services, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments:  At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method.  Performance milestone payments represent a form of variable consideration. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.  Achievement of milestones that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable until the approvals are achieved. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis and the Company recognizes revenue as or when the performance obligations under the contract are satisfied.  At the end of each subsequent reporting period, the Company re-evaluates the probability of achieving such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.  Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. 

Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the outset of the arrangement.  

Royalties:  For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its out-licensing arrangements. 

The Company receives payments from its collaborators based on billing schedules established in each contract. Up-front and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under its collaboration arrangements. 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 such 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.

Clinical Trial Expense Accruals

As part of the process of preparing the Company’s financial statements, the Company is required to estimate expenses resulting from its obligations under contracts with vendors, clinical sites, and consultants in connection with conducting clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

The Company’s objective is to reflect the appropriate trial expenses in its financial statements by recording those expenses in the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through discussion with the clinical sites and applicable personnel and outside service providers as to the progress or state of consummation of trials. During a clinical trial, the Company adjusts the clinical expense recognition if actual results differ from its estimates. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. The Company’s clinical trial accruals are dependent upon accurate reporting by clinical sites and other third-party vendors. Although the Company does not expect its estimates to differ materially from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low for any particular period. For the three and nine months ended September 30, 2021 and 2020, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

9


 

 

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. Net loss and comprehensive loss were the same for all periods presented.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average shares of common stock outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted average number of shares of common stock outstanding that are subject to repurchase. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):  

 

September 30,

 

 

2021

 

 

2020

 

Warrants to purchase common stock

 

4,810,409

 

 

 

4,991,599

 

Common stock options and restricted stock units

 

1,295,808

 

 

 

622,552

 

ESPP shares

 

10,757

 

 

 

2,929

 

 

 

6,116,974

 

 

 

5,617,080

 

 

 

 

 

 

 

 

 

 

2.

Investments and Fair Value Measurements

At September 30, 2021, the Company had no short-term investments and at December 31, 2020, the Company’s short-term investments consisted of U.S. treasury securities. The Company classifies all investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies. These investments are carried at amortized cost which approximates fair value. A decline in the market value of any short-term investment below cost that is determined to be other-than-temporary will result in a revaluation of its carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. No such impairment charges were recorded for any period presented.

Realized gains and losses from the sale of short-term investments, if any, are determined on a specific identification basis. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense on the consolidated statements of operations. Realized and unrealized gains and losses during the periods presented were immaterial. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method and are included in interest income on the consolidated statements of operations. Interest and dividends on securities classified as available-for-sale are included in interest income on the consolidated statements of operations. 

The carrying amounts of cash and cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to the Company for loans with similar terms, which is considered a Level 2 input, the Company believes that the fair value of long-term debt approximates its carrying value.

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:

Observable inputs such as quoted prices in active markets.

Level 2:

Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

10


 

 

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

Cash equivalents, which are classified as equity securities, and short-term investments, which are classified as available-for-sale securities, consisted of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

Money market funds included in cash equivalents

 

$

5,003

 

 

$

 

 

$

 

 

$

5,003

 

 

$

1,002

 

 

$

 

 

$

 

 

$

1,002

 

U.S. treasury securities included in short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,999

 

 

 

 

 

 

 

 

 

3,999

 

Equity securities included in other assets (1)

 

 

246

 

 

 

 

 

 

 

 

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,249

 

 

$

 

 

$

 

 

$

5,249

 

 

$

5,001

 

 

$

 

 

$

 

 

$

5,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) The Company’s equity securities included in other assets consisted of its investment in a privately held company. The Company recognizes its private company equity securities at cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. No such impairments or changes were noted for any period presented.

 

The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the following inputs (in thousands):