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grts-10q_20190630.htm

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 June 30, 2019

☐	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: 001-38663

Gritstone Oncology, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		47-4859534
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

5858 Horton Street, Suite 210 Emeryville, California		94608
(Address of Principal Executive Offices)		(Zip Code)

(510) 871-6100

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

GRTS

The Nasdaq Global Select Market

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 August 9, 2019, there were 35,773,598 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Gritstone Oncology, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	2
	Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	5
	Notes to Condensed Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	33
Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION		34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Uses of Proceeds	75
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77

SIGNATURES		78

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone Oncology, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except share and per

share amounts)

	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	107,728		$	52,183
Marketable securities		73,511			100,927
Prepaid expenses and other current assets		3,458			4,526
Total current assets		184,697			157,636
Property and equipment, net		18,966			29,494
Operating lease right-of-use assets		21,309			—
Deposits and other long-term assets		2,700			2,428
Long-term marketable securities		508			—
Total assets	$	228,180		$	189,558
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,253		$	4,825
Accrued compensation		2,621			3,951
Accrued liabilities		1,803			992
Lease liabilities, current portion		2,890			—
Deferred revenue, current portion		5,498			5,340
Total current liabilities		18,065			15,108
Deferred rent, net of current portion		—			1,353
Other non-current liabilities		—			12
Lease financing obligation, net of current portion		—			10,490
Lease liabilities, net of current portion		16,919			—
Deferred revenue, net of current portion		10,818			13,473
Total liabilities		45,802			40,436
Commitments and contingencies (Note 6)
Stockholders’ equity:
Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized at June 30, 2019 and December 31, 2018; no shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		—			—
Common stock, $0.0001 par value; 300,000,000 shares authorized at June 30, 2019 and December 31, 2018; 35,654,631 and 28,823,130 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		17			16
Additional paid-in capital		348,021			275,593
Accumulated other comprehensive income (loss)		76			(85	)
Accumulated deficit		(165,736	)		(126,402	)
Total stockholders’ equity		182,378			149,122
Total liabilities and stockholders’ equity	$	228,180		$	189,558

See accompanying notes to the unaudited condensed financial statements.

Gritstone Oncology, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Collaboration revenue	$	1,150		$	—		$	2,497		$	—
Operating expenses:
Research and development		18,529			12,689			34,428			24,090
General and administrative		4,835			2,814			9,212			4,852
Total operating expenses		23,364			15,503			43,640			28,942
Loss from operations		(22,214	)		(15,503	)		(41,143	)		(28,942	)
Interest income, net		1,042			31			1,962			94
Net loss		(21,172	)		(15,472	)		(39,181	)		(28,848	)
Other comprehensive loss:
Unrealized gain on marketable securities, net of tax		9			58			161			43
Net and comprehensive loss	$	(21,163	)	$	(15,414	)	$	(39,020	)	$	(28,805	)
Net loss per share, basic and diluted	$	(0.63	)	$	(6.57	)	$	(1.25	)	$	(12.62	)
Weighted-average number of shares used in computing net loss per share, basic and diluted		33,582,844			2,353,337			31,273,696			2,285,906

See accompanying notes to the unaudited condensed financial statements.

Gritstone Oncology, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

Three Months Ended June 30, 2019:

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive		Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)		Deficit			Equity
Balance at March 31, 2019		—	$	—		29,024,382	$	16	$	276,703	$	67	$	(144,564	)	$	132,222
Issuance of common stock upon public offering at $11.50 per share for cash, net of issuance costs of $556						6,500,000	$	1	$	69,708							69,709
Unrealized loss on marketable securities, net of tax		—		—		—		—		—		9		—			9
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		49,563		—		17		—		—			17
Issuance of common stock upon exercise of stock options		—		—		80,686		—		276		—		—			276
Stock-based compensation		—		—		—		—		1,317		—		—			1,317
Net loss		—		—		—		—		—		—		(21,172	)		(21,172	)
Balance at June 30, 2019		—	$	—		35,654,631	$	17	$	348,021	$	76	$	(165,736	)	$	182,378

Three Months Ended June 30, 2018:

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at March 31, 2018		17,797,529	$	156,937		2,264,024	$	1	$	2,440	$	(89	)	$	(75,003	)	$	84,286
Issuance of Series C convertible preferred stock at $13.04 per share for cash, net of issuance costs of $71		690,128		8,928		—		—		—		—			—			8,928
Unrealized loss on marketable securities, net of tax		—		—		—		—		—		58			—			58
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		109,515		—		38		—			—			38
Issuance of common stock upon exercise of stock options		—		—		30,725		1		14		—			—			15
Issuance of common stock for consulting services						4,347		—		36								36
Stock-based compensation		—		—		—		—		783		—			—			783
Net loss		—		—		—		—		—		—			(15,472	)		(15,472	)
Balance at June 30, 2018		18,487,657	$	165,865		2,408,611	$	2	$	3,311	$	(31	)	$	(90,475	)	$	78,672

Continued on next page.

See accompanying notes to the unaudited condensed financial statements.

Gritstone Oncology, Inc.

Condensed Statements of Stockholders’ Equity - Continued

(Unaudited)

(In thousands, except share amounts)

Six Months Ended June 30, 2019:

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2018		—	$	—		28,823,130	$	16	$	275,593	$	(85	)	$	(126,402	)	$	149,122
Cumulative effect of adopting new accounting standard (Note 2)		—		—		—		—		—		—			(153	)		(153	)
Issuance of common stock upon public offering at $11.50 per share for cash, net of issuance costs of $556						6,500,000	$	1	$	69,708								69,709
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		161			—			161
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		100,877		—		34		—			—			34
Issuance of common stock upon exercise of stock options		—		—		230,624		—		362		—			—			362
Stock-based compensation		—		—		—		—		2,324		—			—			2,324
Net loss		—		—		—		—		—		—			(39,181	)		(39,181	)
Balance at June 30, 2019		—	$	—		35,654,631	$	17		348,021		76			(165,736	)		182,378

Six Months Ended June 30, 2018:

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2017		17,797,529	$	156,937		2,152,525	$	1	$	2,045	$	(74	)	$	(61,627	)	$	97,282
Issuance of Series C convertible preferred stock at $13.04 per share for cash, net of issuance costs of $71		690,128		8,928		—		—		—		—			—			8,928
Unrealized loss on marketable securities, net of tax		—		—		—		—		—		43			—			43
Lapse of repurchase rights related to common stock issued pursuant to early exercises		—		—		172,563		—		60		—			—			60
Issuance of common stock upon exercise of stock options		—		—		38,919		1		20		—			—			21
Exercise of common stock warrants						40,257		—		13								13
Issuance of common stock for consulting services						4,347		—		36								36
Stock-based compensation		—		—		—		—		1,137		—			—			1,137
Net loss		—		—		—		—		—		—			(28,848	)		(28,848	)
Balance at June 30, 2018		18,487,657	$	165,865		2,408,611	$	2	$	3,311	$	(31	)	$	(90,475	)	$	78,672

See accompanying notes to the unaudited condensed financial statements.

Gritstone Oncology, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2019			2018
Operating activities
Net loss	$	(39,181	)	$	(28,848	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,130			1,882
Net amortization of premiums and discounts on marketable securities		(970	)		(180	)
Stock-based compensation		2,324			1,173
Non-cash operating lease expense		2,837			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		268			415
Deposits and other long-term assets		(272	)		74
Accounts payable		(867	)		(177	)
Accrued compensation		(1,329	)		(434	)
Accrued and other non-current liabilities		1,312			(765	)
Deferred rent		—			(206	)
Lease liability		(1,293	)		—
Deferred revenue		(2,497	)		—
Net cash used in operating activities		(37,538	)		(27,066	)
Investing activities
Purchase of marketable securities		(16,012	)		—
Maturities of marketable securities		44,050			20,220
Purchase of property and equipment		(4,831	)		(2,857	)
Net cash provided by investing activities		23,207			17,363
Financing activities
Proceeds from issuance of common stock, net of issuance costs		70,432			24
Payments of deferred financing costs		(556	)		(779	)
Proceeds from issuance of convertible preferred stock, net of issuance costs		—			8,992
Net cash provided by financing activities		69,876			8,237
Net increase/(decrease) in cash, cash equivalents and restricted cash		55,545			(1,466	)
Cash, cash equivalents and restricted cash at beginning of period		53,175			39,999
Cash, cash equivalents and restricted cash at end of period	$	108,720		$	38,533
Supplemental disclosures of non-cash investing and financing information
Property and equipment purchases accrued but not yet paid	$	2,775		$	247
Deferred financing costs included in accrued liabilities and accounts payable	$	—		$	345

See accompanying notes to the unaudited condensed financial statements.

Gritstone Oncology, Inc.

Notes to Condensed Financial Statements

(Unaudited)

1.	Organization

Description of Business

Gritstone Oncology, Inc. (“Gritstone” or the “Company”) is an immuno-oncology company developing personalized cancer immunotherapies to fight multiple cancer types. The Company was incorporated in the state of Delaware on August 5, 2015, and is based in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

Public Offerings

In October 2018, the Company closed its initial public offering (“IPO”), of 6,854,202 shares of common stock, including 187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at an offering price to the public of $15.00 per share. The Company received net proceeds of approximately $92.6 million, after deducting underwriting discounts and commissions and offering costs. In connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were automatically converted into 19,409,132 shares of common stock. The related carrying value of $177.9 million was reclassified to common stock and additional paid-in capital.

In connection with the completion of its IPO, on October 2, 2018, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share.

In April 2019, the Company completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares of common stock at a price to the public of $11.50 per share. The Company received aggregate net proceeds from the offering of approximately $69.7 million, after deducting underwriting discounts and commissions and offering costs.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of Securities and Exchange Commission (“SEC”) for interim reporting.

The condensed financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation for interim reporting. The results of operations for any interim period are not necessarily indicative of results of operations for any future period.

Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s financial statements as of and for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 28, 2019.

Reverse Stock Split

On September 20, 2018, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-6.9 reverse split (“Reverse Split”) of shares of the Company’s common and convertible preferred stock. The par value and the authorized shares of common stock and convertible preferred stock were not adjusted as a result of the Reverse Split. All of the share and per share information included in the accompanying financial statements has been adjusted to reflect the Reverse Split.

Need for Additional Capital

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had cash, cash equivalents, and marketable securities of $181.7 million and $153.1 million as of June 30, 2019 and December 31, 2018, respectively. The Company had an accumulated deficit of $165.7 million and $126.4 million as of June 30, 2019 and December 31, 2018, respectively. The Company had net losses of $21.2 million and $39.2 million for the three and six months ended June 30, 2019, respectively, and $15.5 million and $28.8 million for the three and six months ended June 30, 2018, respectively, and net cash used in operating activities of $37.5 million and $27.1 million for the six months ended June 30, 2019 and 2018,

respectively. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from contracts with customers. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year following the date that these condensed financial statements are issued. Management expects operating losses to continue for the foreseeable future. As a result, the Company will need to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenue and expenses in the condensed financial statements and accompanying notes during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical and preclinical study trial accruals, fair value of assets and liabilities the present value of lease liabilities and the corresponding right-of-use assets (“ROU assets”), and the fair value of common stock and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Other Risks and Uncertainties

The Company is subject to a number of risks similar to those of other early-stage immuno-oncology companies, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its product candidates. The Company currently depends on third-party suppliers for key materials and services used in its research and development manufacturing process, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with maturities of three months or less when purchased, are stated at cost which approximates fair value. These assets include investments in money market funds that invest in U.S. Treasury obligations and certificates of deposit which are stated at fair value.

The Company has issued a letter of credit under a lease agreement which has been collateralized by a cash deposit for an equal amount and is recorded within deposits and other long-term assets on the balance sheet based on the term of the underlying lease. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands).

	June 30,		December 31,
	2019		2018
Cash and cash equivalents	$	107,728	$	52,183
Restricted cash		992		992
Total cash, cash equivalents and restricted cash	$	108,720	$	53,175

Leases

Prior to January 1, 2019, the Company rented its office space and facilities under non-cancelable operating lease agreements and recognizes related rent expense on a straight-line basis over the term of the lease. The Company’s lease agreements contained rent holidays, scheduled rent increases, and renewal options. Rent holidays and scheduled rent increases were included in the determination of rent expense to be recorded ratably over the lease term. The Company did not assume renewals in its determination of the lease term unless they were deemed to be reasonably assured at the inception of the lease. The Company began recognizing rent expense on the date that it obtained the legal right to use and control the leased space. Deferred rent consisted of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company occupied.

Funding of leasehold improvements by the Company’s landlord was accounted for as a tenant improvement allowance and recorded as current and non-current deferred rent liabilities and amortized on a straight-line basis as a reduction of rent expense over the term of the lease.

In certain arrangements, the Company was involved in the construction of improvements to buildings it was leasing. To the extent the Company was involved with the structural improvements of the construction project or takes construction risk, the Company was considered to be the owner of the building and related improvements for accounting purposes during the construction period. The <