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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021 

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: 001-38663

 

Gritstone bio, 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.)

 

 

5959 Horton Street, Suite 300

Emeryville, California

 

94608

(Address of Principal Executive Offices)

 

(Zip Code)

(510) 871-6100

(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, $0.0001 par value per share

 

GRTS

 

The Nasdaq Global Select 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 May 3, 2021 there were 49,197,828 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.



 

Gritstone bio, Inc.

Table of Contents

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements (unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020

 

2

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

4

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

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

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

36

Item 4.

 

Controls and Procedures

 

36

 

 

 

 

 

PART II. OTHER INFORMATION

 

37

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

93

Item 3.

 

Defaults Upon Senior Securities

 

93

Item 4.

 

Mine Safety Disclosures

 

93

Item 5.

 

Other Information

 

93

Item 6.

 

Exhibits

 

94

 

 

 

 

 

SIGNATURES

 

95

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone bio, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share

amounts and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

108,505

 

 

$

170,056

 

Marketable securities

 

 

89,501

 

 

 

1,002

 

Prepaid expenses and other current assets

 

 

4,507

 

 

 

4,332

 

Total current assets

 

 

202,513

 

 

 

175,390

 

Property and equipment, net

 

 

21,693

 

 

 

22,105

 

Operating lease right-of-use assets

 

 

19,997

 

 

 

21,344

 

Deposits and other long-term assets

 

 

2,736

 

 

 

2,728

 

Total assets

 

$

246,939

 

 

$

221,567

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,368

 

 

$

9,578

 

Accrued compensation

 

 

3,821

 

 

 

6,331

 

Accrued liabilities

 

 

571

 

 

 

677

 

Accrued research and development expenses

 

 

1,558

 

 

 

1,053

 

Lease liabilities, current portion

 

 

6,075

 

 

 

5,874

 

Deferred revenue, current portion

 

 

3,386

 

 

 

3,475

 

Total current liabilities

 

 

21,779

 

 

 

26,988

 

Other non-current liabilities

 

 

395

 

 

 

395

 

Lease liabilities, net of current portion

 

 

17,619

 

 

 

19,225

 

Deferred revenue, net of current portion

 

 

7,795

 

 

 

8,220

 

Total liabilities

 

 

47,588

 

 

 

54,828

 

Commitments and contingencies (Notes 6 and 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized at

March 31, 2021 and December 31, 2020; 49,197,828 and

47,552,693 shares issued and outstanding at March 31, 2021

and December 31, 2020, respectively

 

 

18

 

 

 

18

 

Additional paid-in capital

 

 

517,715

 

 

 

493,023

 

Accumulated other comprehensive loss

 

 

(3

)

 

 

 

Accumulated deficit

 

 

(318,379

)

 

 

(326,302

)

Total stockholders’ equity

 

 

199,351

 

 

 

166,739

 

Total liabilities and stockholders’ equity

 

$

246,939

 

 

$

221,567

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1


Gritstone bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

 

 

2021

 

 

2020

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Collaboration and license revenues

 

$

39,693

 

 

$

1,262

 

 

Total revenues

 

 

39,693

 

 

 

1,262

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

24,856

 

 

 

22,468

 

 

General and administrative

 

 

6,941

 

 

 

5,465

 

 

Total operating expenses

 

 

31,797

 

 

 

27,933

 

 

Income (loss) from operations

 

 

7,896

 

 

 

(26,671

)

 

Interest income, net

 

 

27

 

 

 

465

 

 

Net income (loss)

 

 

7,923

 

 

 

(26,206

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(3

)

 

 

(44

)

 

Net and comprehensive income (loss)

 

$

7,920

 

 

$

(26,250

)

 

Net income (loss) per share, basic

 

$

0.10

 

 

$

(0.71

)

 

Weighted-average number of shares used in computing

   net income (loss) per share, basic

 

 

75,987,372

 

 

 

36,798,562

 

 

Net income (loss) per share, diluted

 

$

0.10

 

 

$

(0.71

)

 

Weighted-average number of shares used in computing

   net income (loss) per share, diluted

 

 

77,464,356

 

 

 

36,798,562

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

2


Gritstone bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

Three Months Ended March 31, 2021:

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

47,552,693

 

 

$

18

 

 

$

493,023

 

 

$

 

 

$

(326,302

)

 

$

166,739

 

Offering costs related to the sale of

   common stock and pre-funded warrants

 

 

 

 

 

 

 

 

(451

)

 

 

 

 

 

 

 

 

(451

)

Issuance of common stock under Sales

   Purchase Agreement, net of issuance

   costs of $330

 

 

1,169,591

 

 

 

 

 

 

20,839

 

 

 

 

 

 

 

 

 

20,839

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Issuance of common stock under employee

   stock purchase plan (“ESPP”)

 

 

109,564

 

 

 

 

 

 

279

 

 

 

 

 

 

 

 

 

279

 

Issuance of common stock upon exercise of

   stock options

 

 

365,980

 

 

 

 

 

 

1,824

 

 

 

 

 

 

 

 

 

1,824

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,201

 

 

 

 

 

 

 

 

 

2,201

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,923

 

 

 

7,923

 

Balance at March 31, 2021

 

 

49,197,828

 

 

$

18

 

 

$

517,715

 

 

$

(3

)

 

$

(318,379

)

 

$

199,351

 

 

Three Months Ended March 31, 2020:

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

36,332,956

 

 

$

17

 

 

$

355,291

 

 

$

24

 

 

$

(220,988

)

 

$

134,344

 

Issuance of common stock under at the

   market ("ATM") equity offering

   program, net of issuance costs of $4

 

 

568,369

 

 

 

 

 

 

5,577

 

 

 

 

 

 

 

 

 

5,577

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(44

)

Lapse of repurchase rights related to

   common stock issued pursuant to early

   exercises

 

 

23,732

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Issuance of common stock upon exercise of

   stock options

 

 

60,682

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,619

 

 

 

 

 

 

 

 

 

1,619

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,206

)

 

 

(26,206

)

Balance at March 31, 2020

 

 

36,985,739

 

 

$

17

 

 

$

362,586

 

 

$

(20

)

 

$

(247,194

)

 

$

115,389

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


3


 

Gritstone bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

7,923

 

 

$

(26,206

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,595

 

 

 

1,626

 

Net amortization of premiums and discounts on marketable securities

 

 

107

 

 

 

(78

)

Stock-based compensation

 

 

2,201

 

 

 

1,619

 

Non-cash operating lease expense

 

 

1,900

 

 

 

1,850

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(182

)

 

 

32

 

Deposits and other long-term assets

 

 

(7

)

 

 

83

 

Accounts payable

 

 

1,637

 

 

 

865

 

Accrued compensation

 

 

(2,510

)

 

 

(1,825

)

Accrued and other non-current liabilities

 

 

(51

)

 

 

(38

)

Accrued research and development expenses

 

 

505

 

 

 

532

 

Lease liability

 

 

(1,950

)

 

 

(520

)

Deferred revenue

 

 

(514

)

 

 

(917

)

Net cash provided by (used in) operating activities

 

 

10,654

 

 

 

(22,977

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(89,610

)

 

 

(3,805

)

Maturities of marketable securities

 

 

1,000

 

 

 

17,167

 

Sales of marketable securities

 

 

 

 

 

3,021

 

Purchase of property and equipment

 

 

(990

)

 

 

(1,609

)

Net cash provided by (used in) investing activities

 

 

(89,600

)

 

 

14,774

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

2,103

 

 

 

5,659

 

Proceeds from issuance of common stock from public offering

 

 

21,170

 

 

 

 

Payments of deferred financing costs

 

 

(5,878

)

 

 

(4

)

Net cash provided by financing activities

 

 

17,395

 

 

 

5,655

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(61,551

)

 

 

(2,548

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

171,048

 

 

 

58,400

 

Cash, cash equivalents and restricted cash at end of period

 

$

109,497

 

 

$

55,852

 

Supplemental disclosures of non-cash investing and financing

   information

 

 

 

 

 

 

 

 

Property and equipment purchases accrued but not yet paid

 

$

509

 

 

$

946

 

Deferred financing costs included in accrued liabilities and

   accounts payable

 

$

46

 

 

$

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


Gritstone bio, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Organization

Description of Business

Gritstone bio, Inc. (“Gritstone” or the “Company”), previously known as “Gritstone Oncology, Inc.”, is a biotechnology company developing targeted immunotherapies for cancer and infectious disease. The Company was incorporated in the state of Delaware in August 2015, and is based in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

Liquidity

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. During the three months ended March 31, 2021, the Company had net income of $7.9 million and $10.7 million of cash provided by operating activities. The Company had an accumulated deficit of $318.4 million as of March 31, 2021. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from sales of commercial products. Management expects operating losses to continue for the foreseeable future. The Company has funded its operations to date primarily through private placements of its convertible preferred stock, the sale of common stock in public offerings, under an “at the market offering” (the “ATM Offering Program”) and private placement of common stock and pre-funded warrants, as well as proceeds from its collaboration arrangements. As of March 31, 2021, the Company had cash, cash equivalents and marketable securities of $198.0 million, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the filing date of this Quarterly Report on Form 10-Q.

2.

Summary of Significant Accounting Policies

Basis of Presentation

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

The accompanying interim condensed consolidated 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 (the “SEC”) for interim reporting.

The interim condensed consolidated 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 consolidated financial statements should be read in conjunction with the Company’s financial statements as of and for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 11, 2021.

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 liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the

5


reporting period. On an ongoing basis, management evaluates its estimates, including those related to preclinical and clinical study trial accruals, fair value of assets and liabilities, the fair value of right-of-use assets (“ROU Assets”) and lease liabilities, fair value of pre-funded warrants, revenue recognition, and the fair value of stock-based compensation awards. 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.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. The Company maintains cash equivalents and marketable securities with various high-credit-quality and capitalized financial institutions. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies, and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, and marketable securities and issuers of marketable securities to the extent recorded on the consolidated balance sheets. As of March 31, 2021, the Company has no off-balance sheet concentrations of credit risk.

Other Risks and Uncertainties

The Company is subject to a number of risks similar to those of other clinical-stage immunotherapy 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 products. 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.

In March 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) outbreak a pandemic. To date, the Company’s business has not been materially impacted by the COVID-19 pandemic. However, the Company has experienced slowing of patient recruitment and sample collection in its ongoing clinical trials and cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and operations, including ongoing and planned clinical trials. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with original maturities of three (3) months or less when purchased, are stated at 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.

6


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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Cash and cash equivalents

 

$

108,505

 

 

$

170,056

 

Restricted cash

 

 

992

 

 

 

992

 

Total cash, cash equivalents and restricted cash

 

$

109,497

 

 

$

171,048

 

Leases

The Company determines whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease. All of the Company’s leases are classified as operating leases. Leases with a term greater than one year are included in operating lease ROU Assets, lease liabilities, current portion, and lease liabilities, net of current portion in the Company’s condensed consolidated balance sheets at March 31, 2021 and December 31, 2020. The Company has elected not to recognize on the condensed consolidated balance sheets leases with terms of one year or less. Lease liabilities and their corresponding ROU Assets are recorded based on the present value of lease payments over the expected lease term. In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable. As such, the Company estimates the appropriate incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU Assets may be required for items such as initial direct costs paid or incentives received and impairment charges if we determine the ROU Asset is impaired.

The Company considers a lease term to be the non-cancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company recognizes lease expense on a straight-line basis over the expected lease term.

The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component. The lease components resulting in a ROU Asset have been recorded on the condensed consolidated balance sheets and amortized as lease expense on a straight-line basis over the lease term.

Revenue Recognition

The Company analyzes its collaboration agreements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the collaboration guidance and that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of the collaboration guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers guidance. Elements of collaboration arrangements that are reflective of a vender-customer relationship are accounted for pursuant to the revenue from contracts with customers guidance. The terms of the licensing and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration, and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of the accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or

7


services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (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 the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve (12) months, this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s condensed consolidated balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve (12) months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations, based on the relative standalone selling prices. The relative selling price for each performance obligation is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best estimate of the selling price for the performance obligation.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation, using an appropriate input or output method based on the nature of the good or service promised to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes, such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations (which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success) and estimating the progress towards satisfaction of performance obligations.

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (“FFCR Act”), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback

8


periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

On June 29, 2020, Assembly Bill 85 (“A.B. 85”) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits, including carryovers, may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The FFCR Act, CARES Act and A.B. 85 did not have a material impact on the Company’s condensed consolidated financial statements as of March 31, 2021; however, the Company continues to examine the impacts the FFCR Act, CARES Act and A.B. 85 may have on its business, results of operations, financial condition, liquidity and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASU 2020-06”). The standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the standard modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for the Company as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but not earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements (“ASU 2020-10”). The standard contains improvements to the FASB Accounting Standards Codification (the “Codification”) by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section of the Codification. The standard also improves various topics in the Codification so that entities can apply guidance more consistently on codifications that are varied in nature where the original guidance may have been unclear. The amendments in ASU 2020-10 are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-10 to have a material impact on its condensed consolidated financial statements and related disclosures.

9


3.

Cash Equivalents and Marketable Securities

The amortized costs, unrealized gains and losses and fair values of cash equivalents and marketable securities were as follows (in thousands):

 

 

 

March 31, 2021

 

Description

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

51,940

 

 

$

 

 

$

 

 

$

51,940

 

Commercial paper

 

 

6,000

 

 

 

 

 

 

 

 

 

6,000

 

Corporate debt securities

 

 

4,143

 

 

 

 

 

 

(1

)

 

 

4,142

 

Total cash equivalents

 

 

62,083

 

 

 

 

 

 

(1

)

 

 

62,082

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

31,724

 

 

 

2

 

 

 

(2

)

 

 

31,724

 

Corporate debt securities

 

 

17,444

 

 

 

 

 

 

(9

)

 

 

17,435

 

U.S. treasuries

 

 

40,335

 

 

 

7

 

 

 

 

 

 

40,342

 

Total short-term marketable securities

 

 

89,503

 

 

 

9

 

 

 

(11

)

 

 

89,501

 

Total

 

$

151,586

 

 

$

9

 

 

$

(12

)

 

$

151,583

 

 

 

 

December 31, 2020

 

Description

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

36,801

 

 

$

 

 

$

 

 

$

36,801

 

Total cash equivalents

 

 

36,801

 

 

 

 

 

 

 

 

 

36,801

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

1,002

 

 

 

 

 

 

 

 

 

1,002

 

Total short-term marketable securities

 

 

1,002

 

 

 

 

 

 

 

 

 

1,002

 

Total

 

$

37,803

 

 

$

 

 

$

 

 

$

37,803

 

All marketable securities held as of March 31, 2021 had contractual maturities of less than one year. There have been no material realized gains or losses on marketable securities for the periods presented. As of March 31, 2021, the Company did not hold any individual securities in an unrealized loss position for 12 months or greater. The Company has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by us. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. Thus, no credit loss existed as of or for the three months ended March 31, 2021. The Company will continue to assess the current and expected future economic and market conditions surrounding the COVID-19 pandemic, as further development arises.

See Note 4 for further information regarding the fair value of the Company’s financial instruments.

10


4.

Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established, which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritizes the inputs into three broad levels, as follows:

 

Level 1 inputs are quoted prices in active markets that are accessible at the market date for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the assets or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The carrying amounts reflected on the condensed consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued compensation and accrued liabilities approximate their fair values due to their short-term nature.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows (in thousands):

 

 

 

March 31, 2021

 

Description

 

Total

 

 

Level 1