UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2018
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: 001-38624
Vaccinex, Inc.
(Exact Name of Registrant as Specified in its Charter)
|
Delaware |
16-1603202 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
1895 Mount Hope Avenue Rochester, New York |
14620 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (585) 271-2700
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 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.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
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Emerging growth company |
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☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 13, 2018, the registrant had 11,475,749 shares of common stock, $0.0001 par value per share, outstanding.
FORM 10-Q
TABLE OF CONTENTS
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Page |
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Item 1. |
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3 |
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3 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
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4 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3. |
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32 |
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Item 4. |
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33 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 6. |
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66 |
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67 |
2
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
VACCINEX, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(in thousands, except share and per share data)
|
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Three Months Ended September 30, |
|
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Nine Months Ended September 30, |
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|||||||||||
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2018 |
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2017 |
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2018 |
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2017 |
|
||||
|
Revenue |
|
$ |
198 |
|
|
$ |
— |
|
|
$ |
530 |
|
|
$ |
— |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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Cost of revenue |
|
|
246 |
|
|
|
— |
|
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|
732 |
|
|
|
— |
|
|
Research and development |
|
|
5,314 |
|
|
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4,292 |
|
|
|
15,280 |
|
|
|
11,523 |
|
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General and administrative |
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1,092 |
|
|
|
1,040 |
|
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3,238 |
|
|
|
3,384 |
|
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Total costs and expenses |
|
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6,652 |
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|
|
5,332 |
|
|
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19,250 |
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14,907 |
|
|
Loss from operations |
|
|
(6,454 |
) |
|
|
(5,332 |
) |
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|
(18,720 |
) |
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(14,907 |
) |
|
Change in fair value of derivative liabilities |
|
|
31 |
|
|
|
157 |
|
|
|
369 |
|
|
|
(214 |
) |
|
Interest expense |
|
|
(44 |
) |
|
|
(361 |
) |
|
|
(392 |
) |
|
|
(988 |
) |
|
Loss on extinguishment of related party convertible promissory note |
|
|
(199 |
) |
|
|
— |
|
|
|
(2,379 |
) |
|
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— |
|
|
Other income (expense), net |
|
|
67 |
|
|
|
— |
|
|
|
53 |
|
|
|
(23 |
) |
|
Loss before provision for income taxes |
|
|
(6,599 |
) |
|
|
(5,536 |
) |
|
|
(21,069 |
) |
|
|
(16,132 |
) |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net loss |
|
|
(6,599 |
) |
|
|
(5,536 |
) |
|
|
(21,069 |
) |
|
|
(16,132 |
) |
|
Net loss attributable to noncontrolling interests |
|
|
— |
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|
|
— |
|
|
|
— |
|
|
|
— |
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Net loss attributable to Vaccinex, Inc. |
|
|
(6,599 |
) |
|
|
(5,536 |
) |
|
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(21,069 |
) |
|
|
(16,132 |
) |
|
Cumulative dividends on redeemable convertible preferred stock |
|
|
— |
|
|
|
(809 |
) |
|
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— |
|
|
|
(2,401 |
) |
|
Net loss attributable to Vaccinex, Inc. common stockholders, basic and diluted |
|
$ |
(6,599 |
) |
|
$ |
(6,345 |
) |
|
$ |
(21,069 |
) |
|
$ |
(18,533 |
) |
|
Net loss per share attributable to Vaccinex, Inc. common stockholders, basic and diluted |
|
$ |
(0.93 |
) |
|
$ |
(5.75 |
) |
|
$ |
(6.76 |
) |
|
$ |
(16.82 |
) |
|
Weighted-average shares used in computing net loss per share attributable to Vaccinex, Inc. common stockholders, basic and diluted |
|
|
7,078,715 |
|
|
|
1,102,520 |
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|
3,116,695 |
|
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1,101,723 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)
(in thousands, except share data)
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Redeemable Convertible Preferred Stock |
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Convertible Preferred Stock |
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Common Stock |
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Treasury Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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|
Additional Paid-in Capital |
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Redeemable Convertible Preferred Stock Shares |
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Common Stock Shares |
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Amount |
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Accumulated Deficit |
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Total Vaccinex, Inc. Stockholders’ Deficit |
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Noncontrolling Interests |
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Total Stockholders’ Equity (Deficit) |
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|||||||||||||||
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Balance as of December 31, 2016 |
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48,694,355 |
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$ |
103,736 |
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5,702,450 |
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$ |
7,684 |
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1,101,359 |
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$ |
— |
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$ |
53,789 |
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|
163 |
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|
|
836 |
|
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$ |
(11 |
) |
|
$ |
(168,527 |
) |
|
$ |
(107,065 |
) |
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$ |
— |
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|
$ |
(107,065 |
) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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249 |
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— |
|
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— |
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— |
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— |
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249 |
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— |
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249 |
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Issuance of Series D redeemable convertible preferred stock, net of issuance cost of $18 |
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|
4,395,604 |
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7,982 |
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— |
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— |
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— |
|
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— |
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|
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— |
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— |
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— |
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— |
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|
|
— |
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|
|
— |
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|
— |
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|
|
— |
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Exercise of stock options |
|
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— |
|
|
|
— |
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|
|
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— |
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|
— |
|
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|
2,037 |
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|
— |
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15 |
|
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— |
|
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— |
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|
— |
|
|
|
— |
|
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|
15 |
|
|
|
— |
|
|
|
15 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
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|
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— |
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|
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— |
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|
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— |
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|
|
— |
|
|
|
— |
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|
|
— |
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|
(16,132 |
) |
|
|
(16,132 |
) |
|
|
— |
|
|
|
(16,132 |
) |
|
Balance as of September 30, 2017 |
|
|
53,089,959 |
|
|
$ |
111,718 |
|
|
|
|
5,702,450 |
|
|
$ |
7,684 |
|
|
|
1,103,396 |
|
|
$ |
— |
|
|
$ |
54,053 |
|
|
|
163 |
|
|
|
836 |
|
|
$ |
(11 |
) |
|
$ |
(184,659 |
) |
|
$ |
(122,933 |
) |
|
$ |
— |
|
|
$ |
(122,933 |
) |
|
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|
Redeemable Convertible Preferred Stock |
|
|
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||||||||||||||||||||
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|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-in Capital |
|
|
Redeemable Convertible Preferred Stock Shares |
|
|
Common Stock Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total Vaccinex, Inc. Stockholders’ Deficit |
|
|
Noncontrolling Interests |
|
|
Total Stockholders’ Equity (Deficit) |
|
||||||||||||||
|
Balance as of December 31, 2017 |
|
|
53,089,959 |
|
|
$ |
111,718 |
|
|
|
|
5,702,450 |
|
|
$ |
7,684 |
|
|
|
1,103,396 |
|
|
$ |
— |
|
|
$ |
54,123 |
|
|
|
163 |
|
|
|
836 |
|
|
$ |
(11 |
) |
|
$ |
(187,249 |
) |
|
$ |
(125,453 |
) |
|
$ |
11,963 |
|
|
$ |
(113,490 |
) |
|
Initial public offering, net of issuance costs of $5,551 |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
3,333,334 |
|
|
|
— |
|
|
|
34,450 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,450 |
|
|
|
— |
|
|
|
34,450 |
|
|
Conversion of redeemable convertible preferred stock (Series B, B-1, B-2, C, D) to common stock |
|
|
(53,089,959 |
) |
|
|
(111,718 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
6,468,933 |
|
|
|
1 |
|
|
|
111,717 |
|
|
|
(163 |
) |
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
111,718 |
|
|
|
— |
|
|
|
111,718 |
|
|
Conversion of convertible preferred stock (Series A) to common stock |
|
|
— |
|
|
|
— |
|
|
|
|
(5,702,450 |
) |
|
|
(7,684 |
) |
|
|
570,238 |
|
|
|
— |
|
|
|
7,684 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Capital contribution |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,000 |
|
|
|
12,000 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
131 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
131 |
|
|
|
— |
|
|
|
131 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
700 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(21,069 |
) |
|
|
(21,069 |
) |
|
|
— |
|
|
|
(21,069 |
) |
|
Balance as of September 30, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
11,476,601 |
|
|
$ |
1 |
|
|
$ |
208,110 |
|
|
|
— |
|
|
|
852 |
|
|
$ |
(11 |
) |
|
$ |
(208,318 |
) |
|
$ |
(218 |
) |
|
$ |
23,963 |
|
|
$ |
23,745 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
|
Nine Months Ended September 30, |
|
||||||
|
|
2018 |
|
|
2017 |
|
|||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(21,069 |
) |
|
$ |
(16,132 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
166 |
|
|
|
152 |
|
|
Amortization of debt discount |
|
|
308 |
|
|
|
886 |
|
|
Net amortization of premiums and discounts on marketable securities |
|
|
(29 |
) |
|
|
— |
|
|
Stock-based compensation |
|
|
131 |
|
|
|
249 |
|
|
Change in fair value of derivative liabilities |
|
|
(369 |
) |
|
|
214 |
|
|
Loss on extinguishment of related party convertible promissory note |
|
|
2,379 |
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(286 |
) |
|
|
(13 |
) |
|
Prepaid expenses and other current assets |
|
|
(878 |
) |
|
|
(456 |
) |
|
Accounts payable |
|
|
323 |
|
|
|
60 |
|
|
Accrued expenses |
|
|
1,861 |
|
|
|
(169 |
) |
|
Deferred revenue |
|
|
(256 |
) |
|
|
69 |
|
|
Net cash used in operating activities |
|
|
(17,719 |
) |
|
|
(15,140 |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(16,092 |
) |
|
|
— |
|
|
Purchase of property and equipment |
|
|
(66 |
) |
|
|
(65 |
) |
|
Net cash used in investing activities |
|
|
(16,158 |
) |
|
|
(65 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory notes to related parties, net of issuance cost |
|
|
— |
|
|
|
5,976 |
|
|
Proceeds from issuance of Series D redeemable convertible preferred stock, net of issuance costs |
|
|
— |
|
|
|
7,982 |
|
|
Proceeds from initial public offering of common stock, net of commissions and underwriting discounts |
|
|
37,125 |
|
|
|
— |
|
|
Payments of initial public offering costs |
|
|
(2,675 |
) |
|
|
— |
|
|
Proceeds from exercise of stock options |
|
|
5 |
|
|
|
15 |
|
|
Repayment of convertible promissory note, related party |
|
|
(5,500 |
) |
|
|
— |
|
|
Proceeds from capital contribution |
|
|
12,000 |
|
|
|
— |
|
|
Net cash provided by financing activities |
|
|
40,955 |
|
|
|
13,973 |
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
7,078 |
|
|
|
(1,232 |
) |
|
CASH AND CASH EQUIVALENTS–Beginning of period |
|
|
4,180 |
|
|
|
1,661 |
|
|
CASH AND CASH EQUIVALENTS–End of period |
|
$ |
11,258 |
|
|
$ |
429 |
|
|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
275 |
|
|
$ |
— |
|
|
Purchase of property and equipment in accounts payable |
|
$ |
52 |
|
|
$ |
— |
|
|
Conversion of redeemable convertible preferred stock into common stock |
|
$ |
111,718 |
|
|
$ |
— |
|
|
Conversion of convertible preferred stock into common stock |
|
$ |
7,684 |
|
|
$ |
— |
|
|
Issuance of common stock |
|
$ |
1 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
1. |
COMPANY AND NATURE OF BUSINESS |
Description of Business
Vaccinex, Inc. (together with its subsidiaries, the “Company”) was incorporated in Delaware in April 2001 and is headquartered in Rochester, New York. The Company is a clinical-stage biotechnology company engaged in the discovery and development of targeted biotherapeutics to treat serious diseases and conditions with unmet medical needs, including cancer, neurodegenerative diseases, and autoimmune disorders. Since its inception, the Company has devoted substantially all of its efforts toward product research and development, marketing development and raising capital.
The Company is subject to a number of risks common to other early-stage biotechnology companies including, but not limited to, the successful development and commercialization of its product candidates, rapid technological change and competition, dependence on key personnel and collaborative partners, uncertainty of protection of proprietary technology and patents, clinical trial uncertainty, fluctuation in operating results and financial performance, the need to obtain additional funding, potential product liability, compliance with governmental regulations, technological and medical risks, customer demand, management of growth and effectiveness of marketing by the Company. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.
Initial Public Offering
In August 2018, the Company completed its initial public offering (the “IPO”) in which it issued and sold 3,333,334 shares of its common stock, $0.0001 par value, at a public offering price of $12.00 per share. The Company received net proceeds of $37.2 million after deducting underwriting discounts and commissions of $2.8 million, but before deducting offering expenses of $2.7 million. In addition, in connection with the IPO:
|
|
• |
all shares of the Company’s then-outstanding convertible preferred stock were automatically converted and reclassified into 7,039,155 shares of its common stock, $0.0001 par value; |
|
|
• |
a 1-for-10 reverse stock split of the Company’s common stock was effected; and |
|
|
• |
the Company repaid a $1.5 million convertible promissory note issued in June 2016 (the “June 2016 Note”), held by a related party, Vaccinex (Rochester), L.L.C. (“Vaccinex LLC”), which is majority owned and controlled by Dr. Maurice Zauderer, the Company’s President, Chief Executive Officer and a member of its board of directors. |
Liquidity
These condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of $17.7 million and $15.1 million for the nine months ended September 30, 2018 and 2017, respectively, an accumulated deficit of $208.3 million and $187.2 million and stockholders’ equity of $23.7 million as of September 30, 2018 and stockholders’ deficit of $113.5 million as of December 31, 2017, respectively. The Company’s ability to continue as a going concern is at issue due to its historical net losses and negative cash flows from operations, and its need for additional financing to fund future operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. The Company believes that its existing cash and cash equivalents and marketable securities balances of $11.3 million and $16.1 million as of September 30, 2018, respectively, are
7
sufficient to provide liquidity to fund its operations through the 3rd quarter of 2019. Management is currently evaluating different strategies to obtain the required funding of future operations and growth. These strategies may include, but are not limited to, additional funding from current or new investors, refinancing of existing debt obligations or obtaining additional debt financing, or a secondary public offering of the Company’s common stock. There can be no assurances that the Company will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs or on favorable terms.
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Consolidation
These condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and following the requirements of the Securities and Exchange Commission ("SEC"), for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2018. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the final prospectus related to the Company’s IPO (the “Prospectus”), which was filed with the SEC on August 10, 2018 pursuant to Rule 424(b) of the Securities Act of 1933, as amended, relating to the Company’s Registration Statement on Form S-1 (File No. 333-226103). The accounting policies followed in the preparation of these consolidated condensed financial statements are consistent in all material respects with those presented in Note 2 to the financial statements included in the Company’s Prospectus, except for the Company’s accounting policy, as described below, for its recently purchased marketable securities.
Marketable Securities
Marketable securities consist of investments with original maturities greater than 90 days at their acquisition date.
The Company classifies all of its marketable securities as available-for-sale securities. The Company’s marketable securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive loss, which is a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other-than-temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.
8
These condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Such management estimates include those relating to assumptions used in the valuation of stock option awards, the valuation of derivative instruments, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates.
Concentration of Credit Risk, Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. Cash equivalents are deposited in interest-bearing money market accounts and short-term investments consist of highly liquid U.S. government treasury bills and notes. The Company deposits its cash with multiple financial institutions and cash balances may occasionally be in excess of the amounts insured by the Federal Deposit Insurance Corporation. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date.
The Company depends on third-party manufacturers for the manufacture of drug substance and drug product for clinical trials. The Company also relies on certain third parties for its supply chain. Disputes with these third- party manufacturers or shortages in goods or services from third-party suppliers could delay the manufacturing of the Company’s product candidates and adversely impact its results of operations.
Comprehensive Loss
The Company did not have any other comprehensive income or loss for any of the periods presented and therefore comprehensive loss did not differ from net loss.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. In addition, the FASB issued ASU Nos. 2016-08, 2016-10 and 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarification on the new guidance in ASC No. 606. ASU Nos. 2016-08, 2016-10 and 2016-12 are all effective beginning the same period as ASU No. 2014-09. The Company plans to adopt the new revenue standards using the modified retrospective method when they become effective for the Company, which is at the earlier of losing the emerging growth company status or the Company’s fiscal year beginning January 1, 2019. The Company is in the process of evaluating the effect that the new revenue standards will have on its condensed consolidated financial statements and related disclosures.
9
In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the ASC No. 840, Leases. ASU No. 2016-02 requires lessees to recognize all leases, with exception of short-term leases, as lease liabilities on the balance sheet. Under ASU No. 2016-02, a lease is defined as a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset during the lease term. ASU No. 2016-02 also requires additional disclosure about the amount, timing and uncertainty of cash flow from leases. The new standard is effective for the Company at the earlier of losing the emerging growth company status or the Company’s fiscal year beginning January 1, 2020, and interim periods therein. Early adoption is permitted. This new standard will require the present value of these leases to be recorded in the condensed consolidated balance sheets as a right-of-use asset and lease liability. The Company will adopt the new standard with modified retrospective method for fiscal year effective January 1, 2020 and is continuing to evaluate the impact of this guidance on its condensed consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU No. 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. ASU No. 2016-15 should be applied using the retrospective transition method, requiring adjustment to all comparative periods presented, unless it is impracticable for some of the amendments, in which case those amendments would be made prospectively as of the earliest date practicable. ASU No. 2016-15 is effective for the Company at the earlier of losing the emerging growth company status or the Company’s fiscal year beginning January 1, 2019, and interim periods therein. The Company early adopted the new standard on January 1, 2018 using the retrospective transition method. The adoption of ASU No. 2016-15 did not have a material impact on its condensed consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarified guidance on applying modification accounting to changes in the terms or conditions of a share-based payment award. Changes that do not impact the award’s fair value, vesting conditions, or classification as an equity or liability instrument will not be subject to modification accounting. ASU No. 2017-09 is effective prospectively for the Company at the earlier of losing the emerging growth company status or the Company’s fiscal year beginning January 1, 2019, and interim periods therein. The Company early adopted the new standard on January 1, 2018 using the prospective method, and the adoption of ASU No. 2017-09 did not have a material impact on its condensed consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, application of award forfeitures to expense, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for the Company’s fiscal year effective January 1, 2018. On January 1, 2017, the Company adopted the standard early and there was no material impact on its condensed consolidated financial statements and related disclosures.
10
Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
As of September 30, 2018 |
|
|
As of December 31, 2017 |
|
|||
|
|
$ |
3,145 |
|
|
$ |
3,140 |
|
|
|
Research equipment |
|
|
3,102 |
|
|
|
2,998 |
|
|
Furniture and fixtures |
|
|
350 |
|
|
|
350 |
|
|
Computer equipment |
|
|
214 |
|
|
|
214 |
|
|
Property and equipment, gross |
|
|
6,811 |
|
|
|
6,702 |
|
|
Less: accumulated depreciation and amortization |
|
|
(6,267 |
) |
|
|
(6,101 |
) |
|
Property and equipment, net |
|
$ |
544 |
|
|
$ |
601 |
|
Depreciation and amortization expense related to property and equipment was $54,000 for the three months ended September 30, 2018 and 2017, and $166,000 and $152,000 for the nine months ended September 30, 2018 and 2017, respectively.
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
As of September 30, 2018 |
|
|
As of December 31, 2017 |
|
|||
|
Accrued clinical trial cost |
|
$ |
3,260 |
|
|
$ |
891 |
|
|
Accrued consulting and legal |
|
|
287 |
|
|
|
239 |
|
|
Accrued payroll and related benefits |
|
|
227 |
|
|
|
311 |
|
|
Accrued interest |
|
|
— |
|
|
|
192 |
|
|
Accrued other |
|
|
44 |
|
|
|
324 |
|
|
Accrued expenses |
|
$ |
3,818 |
|
|
$ |
1,957 |
|
|
4. |
MARKETABLE SECURITIES |
As of September 30, 2018, the fair value of available-for-sale marketable securities was as follows (in thousands):