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, 2020

OR

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

For the transition period from                      to                     

Commission File Number 001-37355

 

VIKING THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-1073877

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

12340 El Camino Real, Suite 250

San Diego, California

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 704-4660

(Registrant’s telephone number, including area code)

 

 

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

 

 

Title of Each Class

 

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.00001 per share

 

VKTX

The Nasdaq Stock Market LLC

 

Warrants to purchase Common Stock, par value $0.00001 per share

 

VKTXW

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 


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

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Number of Shares Outstanding

as of April 15, 2020

Common stock, $0.00001 par value

 

72,596,448

 


VIKING THERAPEUTICS, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2020

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

 

1

 

 

 

 

 

 

 

Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2019 (unaudited)

 

2

 

 

 

 

 

 

 

Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)

 

3

 

 

 

 

 

 

 

Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

 

4

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

5

 

 

 

 

 

Item 2.

 

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

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

24

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

57

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

57

 

 

 

 

 

Item 5.

 

Other Information

 

57

 

 

 

 

 

Item 6.

 

Exhibits

 

58

 

 

 

 

 

SIGNATURES

 

59

 

 

 


PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Viking Therapeutics, Inc.

Balance Sheets

 

(In thousands, except share and per share amounts)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,260

 

 

$

8,377

 

Short-term investments – available for sale

 

 

253,901

 

 

 

267,261

 

Prepaid clinical trial and preclinical study costs

 

 

6,738

 

 

 

7,458

 

Prepaid expenses and other current assets

 

 

547

 

 

 

405

 

Total current assets

 

 

276,446

 

 

 

283,501

 

Right-of-use assets

 

 

530

 

 

 

598

 

Deferred public offering and other financing costs

 

 

99

 

 

 

128

 

Deposits

 

 

29

 

 

 

29

 

Total assets

 

$

277,104

 

 

$

284,256

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,098

 

 

$

2,431

 

Other accrued liabilities

 

 

5,135

 

 

 

4,044

 

Lease liability, current

 

 

309

 

 

 

302

 

Total current liabilities

 

 

8,542

 

 

 

6,777

 

Lease liability, net of current portion

 

 

279

 

 

 

360

 

Total long-term liabilities

 

 

279

 

 

 

360

 

Total liabilities

 

 

8,821

 

 

 

7,137

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized at March 31, 2020 and December 31, 2019; no shares issued and outstanding at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.00001 par value: 300,000,000 shares authorized at March 31, 2020 and December 31, 2019; 72,562,863, and 72,413,602 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

407,478

 

 

 

405,803

 

Accumulated deficit

 

 

(138,384

)

 

 

(128,697

)

Accumulated other comprehensive income (loss)

 

 

(812

)

 

 

12

 

Total stockholders’ equity

 

 

268,283

 

 

 

277,119

 

Total liabilities and stockholders’ equity

 

$

277,104

 

 

$

284,256

 

See accompanying notes to the financial statements.

 

 

1


+Viking Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

 

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

7,987

 

 

 

4,496

 

General and administrative

 

 

2,961

 

 

 

2,310

 

Total operating expenses

 

 

10,948

 

 

 

6,806

 

Loss from operations

 

 

(10,948

)

 

 

(6,806

)

Other income (expense):

 

 

 

 

 

 

 

 

Amortization of financing costs

 

 

(45

)

 

 

(30

)

Interest income, net

 

 

1,304

 

 

 

1,914

 

Realized gain (loss) on investments, net

 

 

2

 

 

 

(2

)

Total other income, net

 

 

1,261

 

 

 

1,882

 

Net loss

 

 

(9,687

)

 

 

(4,924

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities

 

 

(824

)

 

 

374

 

Comprehensive loss

 

$

(10,511

)

 

$

(4,550

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.13

)

 

$

(0.07

)

Weighted-average shares used to compute basic and diluted net loss per share

 

 

72,356

 

 

 

71,755

 

See accompanying notes to the financial statements.

 

 

2


Viking Therapeutics, Inc.

Statements of Stockholders’ Equity

 

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three-Month Period Ended March 31, 2020

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2019

 

 

72,413,602

 

 

$

1

 

 

$

405,803

 

 

$

(128,697

)

 

$

12

 

 

$

277,119

 

Employee stock-based compensation

 

 

33,903

 

 

 

 

 

 

1,525

 

 

 

 

 

 

 

 

 

1,525

 

Issuance of common stock under employee stock plans

 

 

10,000

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Issuance of common stock from warrant exercises

 

 

105,358

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

138

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(824

)

 

 

(824

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,687

)

 

 

 

 

 

(9,687

)

Balance at March 31, 2020

 

 

72,562,863

 

 

$

1

 

 

$

407,478

 

 

$

(138,384

)

 

$

(812

)

 

$

268,283

 

 

 

 

 

Three-Month Period Ended March 31, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2018

 

 

71,742,043

 

 

$

1

 

 

$

401,090

 

 

$

(102,918

)

 

$

(423

)

 

$

297,750

 

Employee stock-based compensation

 

 

(9,580

)

 

 

 

 

 

949

 

 

 

 

 

 

 

 

 

949

 

Issuance of common stock under employee stock plans

 

 

55,434

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Issuance of common stock from warrant exercises

 

 

239,760

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

374

 

 

 

374

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,924

)

 

 

 

 

 

(4,924

)

Balance at March 31, 2019

 

 

72,027,657

 

 

$

1

 

 

$

402,464

 

 

$

(107,842

)

 

$

(49

)

 

$

294,574

 

 

 

 

3


Viking Therapeutics, Inc.

Statements of Cash Flows

 

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(9,687

)

 

$

(4,924

)

 

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

 

Amortization of investment premiums (accretion of investment discounts), net

 

 

636

 

 

 

(101

)

 

Amortization of financing costs

 

 

45

 

 

 

30

 

 

Amortization of non-cash clinical trial costs

 

 

 

 

 

134

 

 

Stock-based compensation

 

 

1,652

 

 

 

1,034

 

 

Amortization of right-of-use assets

 

 

68

 

 

 

64

 

 

Interest expense related to operating lease liability

 

 

10

 

 

 

13

 

 

Realized (gain) loss on investments

 

 

(2

)

 

 

2

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

569

 

 

 

75

 

 

Accounts payable

 

 

650

 

 

 

716

 

 

Accrued expenses

 

 

1,840

 

 

 

(168

)

 

Lease liability

 

 

(83

)

 

 

(27

)

 

Net cash used in operating activities

 

 

(4,302

)

 

 

(3,152

)

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(56,435

)

 

 

(99,218

)

 

Proceeds from maturities of investments

 

 

67,587

 

 

 

91,609

 

 

Net cash provided by (used in) investing activities

 

 

11,152

 

 

 

(7,609

)

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Value of shares withheld related to employee tax withholding

 

 

(127

)

 

 

(84

)

 

Proceeds from warrant and option exercises and stock issuances under employee stock purchase plan

 

 

160

 

 

 

409

 

 

Net cash provided by financing activities

 

 

33

 

 

 

325

 

 

Net increase (decrease) in cash and cash equivalents

 

 

6,883

 

 

 

(10,436

)

 

Cash and cash equivalents beginning of period

 

 

8,377

 

 

 

24,779

 

 

Cash and cash equivalents end of period

 

$

15,260

 

 

$

14,343

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing

   transactions

 

 

 

 

 

 

 

 

 

Unpaid deferred public offering and other financing costs

 

$

66

 

 

$

 

 

See accompanying notes to the financial statements.

 

 

4


Viking Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies

The Company

Viking Therapeutics, Inc., a Delaware corporation (the “Company”), is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are located in San Diego, California.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying balance sheet as of March 31, 2020, statements of operations for the three months ended March 31, 2020 and 2019, statements of stockholders’ equity for the three months ended March 31, 2020 and 2019 and statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2019 contained in the Annual Report on Form 10-K filed by the Company with the SEC on February 26, 2020. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of March 31, 2020, the results of operations for the three months ended March 31, 2020 and 2019, the statements of stockholders’ equity for the three months ended March 31, 2020 and 2019 and cash flows for the three months ended March 31, 2020 and 2019. The December 31, 2019 balance sheet included herein was derived from the audited financial statements, but it does not include all disclosures or notes required by GAAP for complete financial statements.

The financial data and other information disclosed in these notes to the financial statements related to the three months ended March 31, 2020 and 2019 are unaudited. Interim results are not necessarily indicative of results for an entire year.

 

Risks and Uncertainties

 

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.

In addition, the Company’s clinical trials have been affected by and may continue to be affected by the COVID-19 outbreak. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 outbreak. Some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the Company’s clinical trial operations.

 

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations and the Company’s clinical trials, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

 

Reclassification

 

Certain amounts reported in prior years in the financial statements have been reclassified to conform to the current year’s presentation.

These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Statements of Cash Flows for the three months ended March 31, 2020 to separate the lease accounting into separate line items: amortization of right-of-use assets, interest expense related to operating lease liability and lease liability whereas the net amount of these line items was

5


originally reports within the accrued expenses line item.  This change in classification does not affect previously reported cash used in operating activities in the Statements of Cash Flows.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements relate to accounting for an operating lease and certain commitments. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

Investments Available-for-Sale

Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization of premiums and accretion of discounts is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured depository institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Prepaid Clinical Trial and Preclinical Study Costs

Prepaid clinical trial and preclinical study costs represent advance payments by the Company for future clinical trial and preclinical study services to be performed by the clinical research organization and other research organizations.  Such amounts are recognized as research and development expense as the related clinical trial and preclinical study services are performed.    

 

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 4 for additional information.

Deferred Financing Costs

Deferred financing costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public or private sale of the Company’s common stock. Costs related to the public sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are reclassified to additional paid-in-capital as a reduction of the proceeds.  Costs related to the private sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are amortized over the term of the applicable purchase agreement.

 

6


Revenue Recognition

The Company has not recorded any revenues since its inception. However, in the future, the Company may enter into collaborative research and licensing agreements, under which the Company could be eligible for payments made in the form of upfront license fees, research funding, cost reimbursement, contingent event-based payments and/or royalties.

On January 1, 2018, the Company adopted Financial Accounting Standards Board Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “the new revenue standard”). ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new revenue standard is based on the principle that an entity should recognize revenue 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. To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.  

Research and Development Expenses

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of fees paid to contract research organizations (“CROs”) and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

The Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on the Company’s behalf. Clinical trial-related contracts vary significantly in length, and may be for a fixed amount based on milestones or deliverables, a variable amount based on actual costs incurred, capped at a certain limit, or a combination of these elements. The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events. The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs. The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include:

 

fees paid to CROs, consultants and laboratories in connection with preclinical studies;

 

fees paid to CROs, clinical trial sites, investigators and consultants in connection with clinical trials; and

 

fees paid to contract manufacturers and service providers in connection with the production, testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials.

Payments under some of these agreements depend on factors such as the milestones accomplished, including enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. To date, the Company has not experienced any events requiring it to make material adjustments to its accruals for service fees. If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates which could materially affect its results of operations. Adjustments to the Company’s accruals are recorded as changes in estimates become evident. Furthermore, based on amounts invoiced to the Company by its service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered.

Patent Costs

Costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense, as recoverability of such expenditures is uncertain.

Stock-Based Compensation

The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes option-valuation model (the “Black-Scholes model”). The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock

7


on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. At the grant date, the Company determines the grant date fair value, as a publicly traded company, using the intrinsic value, or the closing price of the Company’s common stock on the date of grant. At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

For the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), the Company generally recognizes compensation expense for the fair value of the purchase options, as measured on the grant date, and uses the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period. As the ESPP also allows for up to one increase in contributions during each purchase period, as an employee elects to increase his or her contributions, the Company treats this as an accounting modification. The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods.    

Income Taxes

The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.

ASC Topic 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with GAAP.  Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Net Loss per Common Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, the Company currently does not have any deemed common share equivalents; therefore, its basic and diluted net loss per share calculations are the same.

The following table presents the computation of basic and diluted net loss per common share (in thousands, except share and per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(9,687

)

 

$

(4,924

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

72,539,522

 

 

 

71,938,232

 

Less: Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(183,095

)

Denominator for basic and diluted net loss per share

 

 

72,356,427

 

 

 

71,755,137

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.13

)

 

$

(0.07

)

8


 

 

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):

 

 

 

As of March 31,

 

 

 

2020

 

 

2019

 

Common stock warrants

 

 

5,735,943

 

 

 

6,130,236

 

Restricted stock units

 

 

795,695

 

 

 

441,652

 

Common stock subject to repurchase

 

 

183,095

 

 

 

183,095

 

Common stock options

 

 

3,402,248

 

 

 

2,624,897

 

 

 

 

10,116,981

 

 

 

9,379,880

 

 

Segments

The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision making purposes.

 

 

2. Investments in Marketable Securities

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument.  As of March 31, 2020, the Company’s investments were in government money market funds and corporate debt securities.  As of December 31, 2019, the Company’s investments were in money market funds, commercial paper and corporate debt securities.  There were no sales of available-for-sale securities during the three months ended March 31, 2020 or during the year ended December 31, 2019.

 

Investments classified as available-for-sale as of March 31, 2020 consisted of the following (in thousands):

 

As of March 31, 2020

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Corporate debt securities  (2)

 

 

254,713

 

 

 

105

 

 

 

(917

)

 

 

253,901

 

 

 

$

254,713

 

 

$

105

 

 

$

(917

)

 

$

253,901

 

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At March 31, 2020, there were 43 securities in an unrealized gain position and there were 99 securities in an unrealized loss position. The unrealized gains were less than $15,000 individually and $105,000 in the aggregate.  The unrealized losses were less than $75,000 individually and $917,000 in the aggregate. Six of these securities have been in a continuous unrealized gain or loss position for more than 12 months. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.  

 

(2)

At March 31, 2020, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet, and $10.8 million of these securities were scheduled to mature outside of one year at the time of purchase.

9


 

Investments classified as available-for-sale as of December 31, 2019 consisted of the following (in thousands):

 

As of December 31, 2019

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Commercial paper  (2)

 

$

1,495

 

 

$

 

 

$

 

 

$

1,495

 

Corporate debt securities  (2)

 

 

265,754

 

 

 

190

 

 

 

(178

)

 

 

265,766

 

 

 

$

267,249

 

 

$

190

 

 

$

(178

)

 

$

267,261

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At December 31, 2019, there were 87 securities in an unrealized gain position and 66 securities in an unrealized loss position. The unrealized gains were less than $22,000 individually and $190,000 in the aggregate. The unrealized losses were less than $32,000 individually and $178,000 in the aggregate.  Nine of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.   

 

(2)

At December 31, 2019, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $5.9 million of these securities were scheduled to mature outside of one year.

 

 

3. Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable. The carrying amounts reported in the accompanying balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the short-term maturity of those instruments. Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 —Quoted prices in active markets for identical assets or liabilities.

Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of March 31, 2020 and December 31, 2019, all of the Company’s financial assets that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consist of money market funds and certificates of deposit. The Company’s financial assets valued based on Level 2 inputs consist of corporate debt securities, which consist of investments in highly-rated investment-grade corporations.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of March 31, 2020, the Company’s investments were in government money market funds and corporate debt securities.

10


The fair values of the Company’s financial instruments are presented below (in thousands):

 

 

 

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

13,010

 

 

$

13,010

 

 

$

 

 

$

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities, available-for-sale

 

 

253,901

 

 

 

 

 

 

253,901

 

 

 

 

Total financial assets

 

$

266,911

 

 

$

13,010

 

 

$

253,901

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

3,671

 

 

$

3,671

 

 

$

 

 

$

 

Corporate debt securities, available-for-sale

 

 

3,498

 

 

 

 

 

 

3,498

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper, available for sale

 

 

1,495

 

 

 

 

 

 

1,495

 

 

 

 

Corporate debt securities, available-for-sale

 

 

265,766

 

 

 

 

 

 

265,766

 

 

 

 

Total financial assets

 

$

274,430

 

 

$

3,671

 

 

$

270,759

 

 

$

 

 

4. Operating Leases – ROU Assets and Lease Liability Obligations

 

The Company has only one operating lease which is for office space that expires in January 2022. Below is a summary of the Company’s ROU assets and lease liabilities as of March 31, 2020 and December 31, 2019 (in thousands, except for years and %):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Right-of-use assets

 

$

530

 

 

$

598

 

 

 

 

 

 

 

 

 

 

Lease liability obligations, current

 

$

309

 

 

$

302

 

Lease liability obligations, less current portion

 

 

279

 

 

 

360

 

Total lease liability obligations

 

$

588

 

 

$

662

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term

 

1.83 years

 

 

2.08 years

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

6.00

%

 

 

6.00

%

 

During each of the three months ended March 31, 2020 and December 31, 2019, the Company recognized $77,000 in operating lease expenses, which are included in operating expenses in the Company’s statement of operations.

 

Approximate future minimum lease payments for the Company’s ROU assets over the remaining lease period as of March 31, 2020 are as follows (in thousands):

 

Remainder of 2020

 

 

250

 

2021

 

 

343

 

2022

 

 

29

 

Total minimum lease payments

 

$

622

 

Less: amount representing interest

 

$

(34

)

Total lease liability obligations

 

$

588

 

 

 


11


5. Stockholders’ Equity

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.00001 par value per share, with no shares of preferred stock outstanding as of March 31, 2020 and December 31, 2019. The Company’s Board of Directors is authorized to designate the terms and conditions of any preferred stock the Company may issue without further action by the stockholders of the Company.

 

Common Stock

The Company is authorized to issue up to 300,000,000 shares of common stock, $0.00001 par value per share.

In February 2014, the Company entered into a stock purchase agreement with one of its founders. The agreement provided for the purchase of 1,000,000 shares of the Company’s common stock at a price per share of $0.01 in exchange for future services to be rendered to the Company as measured by certain performance criteria. The shares were subject to a repurchase option and were to vest in two tranches of 500,000 shares each, upon achievement of the performance target or upon a triggering event as defined.

The Company determined that the fair value of the unrecognized expense was $168,000 at February 20, 2014, the grant date. In May 2015, the Company repurchased 633,810 of these shares at a purchase price of $0.00001 per share. In connection with the repurchase, the Company entered into an amendment to the stock purchase agreement to provide that the remaining 366,190 shares will continue to vest in two tranches of 183,095 shares each, upon achievement of the performance target or upon a triggering event as defined. The pro rata grant date fair value of the unrecognized expense is $62,000.  In October 2015, a triggering event became probable of occurrence and was deemed achieved in October 2016; therefore, the Company recorded $31,000 of stock-based compensation expense through December 31, 2016.  No similar expense was recognized during the three months ended March 31, 2020 and 2019.  The Company will continue to reassess at each reporting period whether it is probable that the performance target will be achieved, and if and when it is deemed probable, the Company will begin to record compensation expense using the fair value to determine stock-based compensation expense in its financial statements over the period the Company estimates the performance target will actually be achieved. 

On February 8, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with PoC Capital, LLC (“PoC”), pursuant to which, among other things, the Company issued to PoC 1,286,173 shares of its common stock.  Under the terms of the SPA, PoC agreed to fund $1.8 million in study costs associated with certain clinical studies.  Any study costs in excess of that amount were to be the Company’s sole responsibility.  The Company accounted for the $1.8 million as a prepaid expense on the balance sheet, which was fully amortized as of December 31, 2019.  During the three months ended March 31, 2019, the Company recorded amortization expense of $134,000 in clinical study costs related to the SPA with PoC.

 

On September 28, 2017, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which, on September 29, 2017, the Company sold to LPC 701,282 shares of common stock at a price of approximately $1.78 per share for an aggregate purchase price of $1.3 million, pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-212134), filed with the SEC on June 20, 2016, as amended by Amendment No. 1 thereto filed with the SEC on July 26, 2016, and declared effective on July 26, 2016, and the prospectus supplement thereto dated September 28, 2017.

 

On September 28, 2017, the Company also entered into a purchase agreement (the “Commitment Purchase Agreement”) and a registration rights agreement with LPC, pursuant to which the Company had the right to sell to LPC up to $15.0 million in shares of common stock, subject to certain limitations and conditions set forth in the Commitment Purchase Agreement. Upon the satisfaction of the conditions in the Commitment Purchase Agreement (the “Commencement”), which occurred on October 26, 2017, the Company has the right, from time to time at its sole discretion over the 30-month period from and after the first day of the month following the Commencement, to direct LPC to purchase up to 75,000 shares of common stock on any business day (subject to certain limitations contained in the Commitment Purchase Agreement), with such amounts increasing based on certain threshold prices set forth in the Commitment Purchase Agreement; however, not to exceed $1.0 million in total purchase proceeds per purchase date. The purchase price of shares of common stock that the Company elects to sell to LPC pursuant to the Commitment Purchase Agreement will be based on the market prices of the common stock at the time of such purchases as set forth in the Commitment Purchase Agreement. In addition to regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases or as additional purchases if the closing sale price of the common stock is not below certain threshold prices, as set forth in the Commitment Purchase Agreement. In all instances, the Company may not sell shares of its common stock to LPC under the Commitment Purchase Agreement if it would result in LPC beneficially owning more than 4.99% of the common stock. As consideration for LPC’s commitment to purchase shares of common stock pursuant to the Commitment Purchase Agreement, the Company issued to LPC 100,000 shares of common stock (the “LPC Commitment Shares”).  From inception of the Commitment Purchase Agreement through December 31, 2017, 343,051 shares were issued pursuant to the Commitment Purchase Agreement

12


resulting in aggregate gross proceeds of $802,000 in addition to the LPC Initial Shares and the LPC Commitment Shares.  No additional shares were issued during the years ended December 31, 2018 and 2019 or during the three months ended March 31, 2020.

 

On August 1, 2019, the Company entered into an At-The-Market Equity Offering Sales Agreement (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co. Inc. (together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, through or to the Agents, as sales agent or principal (the “ATM Offering”), shares of its common stock having an aggregate offering price of up to $75.0 million (the “ATM Shares”).  Any ATM Shares offered and sold in the ATM Offering will be issued pursuant to the Company’s universal shelf registration statement on Form S-3 (File No. 333-226133), filed with the SEC on July 11, 2018 and declared effective on July 19, 2018 and the 424(b) prospectus supplement relating to the ATM Offering dated August 1, 2019. No shares of the Company’s common stock were sold under the ATM Agreement from its inception through March 31, 2020.

On March 17, 2020, Company’s Board of Directors authorized a stock repurchase program, whereby the Company may purchase up to $50 million in shares of its common stock and outstanding warrants to purchase common stock, over a period of up to two years (the “Repurchase Program”). The Repurchase Program may be carried out at the discretion of a committee of the Company’s Board of Directors through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions. Through March 31, 2020, no shares of the Company’s common stock or warrants to purchase its common stock were repurchased by the Company under the Repurchase Program. Shares repurchased by the Company under the Repurchase Program, if any, are expected to be held in treasury until such time as they are reissued or retired by the Company.

 

6. Stock-Based Compensation

2014 Plan. The Company’s 2014 Equity Incentive Plan (the “2014 Plan”) provides that the compensation committee of the Company’s Board of Directors (the “Compensation Committee”) may grant or issue stock options, stock appreciation rights, restricted shares, restricted stock units and unrestricted shares, deferred share units, performance and cash-settled awards and dividend equivalent rights to participants under the 2014 Plan. Initially, a total of 1,527,770 shares of the Company’s common stock were reserved for issuance pursuant to the 2014 Plan, which number is also the limit on shares of common stock available for awards of incentive stock options. The number of shares available for issuance under the 2014 Plan will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 3.5% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year. The shares of common stock deliverable pursuant to awards under the 2014 Plan are authorized but unissued shares of the Company’s common stock, or shares of the Company’s common stock that the Company otherwise holds in treasury or in trust. Any shares of the Company’s common stock underlying awards that are settled in cash or otherwise expire, or are forfeited, terminated or cancelled (including pursuant to an exchange program established by the Compensation Committee) prior to the issuance of stock will again be available for issuance under the 2014 Plan. In addition, shares of the Company’s common stock that are withheld (or not issued) in payment of the exercise price or taxes relating to an award, and shares of the Company’s common stock equal to the number surrendered in payment of any exercise price or withholding taxes relating to an award, will again be available for issuance under the 2014 Plan.  As of December 31, 2019, there were 2,835,203 shares of the Company’s common stock available for grant and, effective January 1, 2020, an additional 2,534,476 shares of the Company’s common stock were added to the number of shares reserved for grant under the 2014 Plan in accordance with the terms of the 2014 Plan.

ESPP. Initially, a total of 458,331 shares of the Company’s common stock were reserved for issuance pursuant to the ESPP. The number of shares available for issuance under the ESPP will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year. The shares of common stock available for purchase pursuant to the ESPP are authorized but unissued shares of the Company’s common stock, shares of the Company’s common stock that the Company otherwise holds in treasury or shares of the Company’s common stock that were purchased on the open market in arms’ length transactions in accordance with applicable securities laws. Shares of the Company’s common stock will be offered for purchase under the ESPP as determined by the Compensation Committee through a series of successive offerings that each have a term of 24 months and consist of four consecutive purchase periods of six months each. Prior to the commencement of any future offering under the ESPP, the Compensation Committee may determine that the current offering shall end, may commence a new offering on the first day after the end of such terminal purchase period (or any desired later date), and may decide that future offerings will consist of one or more consecutive purchase periods, each to be of such duration as determined by the Compensation Committee; however, no offering will exceed 27 months and no purchase period will exceed one year. Each employee of the Company who (1) is an employee on the first date of any offering under the ESPP, (2) is customarily scheduled to work for more than 20 hours per week and more than five months per calendar year, and (3) meets such other criteria as may be determined by the Compensation Committee (consistent with

13


Section 423 of the Internal Revenue Code of 1986, as amended), is eligible to participate in the ESPP for each purchase period within such offering. The purchase price per share of the Company’s common stock under the ESPP may not be less than, and will initially be equal to, the lesser of: (1) 85% of the fair market value per share of the Company’s common stock on the first day of the offering, or (2) 85% of the fair market value per share of the Company’s common stock on the date the purchase right is exercised, which will be the last day of the applicable purchase period. As of December 31, 2019, there were 1,600,020 shares of the Company’s common stock available for issuance and, effective January 1, 2020, an additional 724,136 shares of the Company’s common stock were added to the number of shares reserved for issuance under the ESPP in accordance with the terms of the ESPP.

 

The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes model. The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. At the grant date, the Company determines the grant date fair value, as a publicly traded company, using the intrinsic value, or the closing price of its common stock on the date of grant. At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

For the ESPP, the Company generally recognizes compensation expense for the fair value of the purchase options, as measured on the grant date, and uses the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period. As the ESPP also allows for up to one increase in contributions during each purchase period, then as an employee elects to increase their contributions, the Company treats this as an accounting modification. The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods.

 

During the three months ended March 31, 2020 and 2019, the Company recognized the following stock-based compensation expense (in thousands):

 

 

 

Three Months March 31,

 

 

 

2020

 

 

2019

 

Stock-based compensation expense by type of award:

 

 

 

 

 

 

 

 

Stock options

 

$

824

 

 

$

642

 

Restricted stock and restricted stock units

 

 

764

 

 

 

335

 

Employee stock purchase plan

 

 

64

 

 

 

57

 

Total stock-based compensation expense included

   in expenses

 

$

1,652

 

 

$

1,034

 

Stock-based compensation expense by line item:

 

 

 

 

 

 

 

 

Research and development expenses

 

$

320

 

 

$

393

 

General and administrative expenses

 

 

1,332

 

 

 

641

 

Total stock-based compensation expense included

   in expenses

 

$

1,652

 

 

$

1,034

 

 

 

The following table sets forth the Company’s unrecognized stock-based compensation expense, net of estimated forfeitures, by type of award and the weighted-average period over which that expense is expected to be recognized (in thousands, except for years):

 

 

 

As of March 31, 2020

 

 

 

Unrecognized

Expense,

Net of

Estimated

Forfeitures

 

 

Weighted-

average

Recognition

Period

(in years)

 

 

 

 

 

 

 

 

 

 

Type of award:

 

 

 

 

 

 

 

 

Stock options

 

$

6,894

 

 

 

2.80

 

Restricted stock and restricted stock units

 

$

4,627

 

 

 

1.94

 

14


 

The following table is a summary of restricted stock activity during the three months ended March 31, 2020:

 

 

 

Shares of Restricted Stock

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested at December 31, 2019

 

 

183,095

 

 

$

0.17

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

 

 

$

 

Unvested at March 31, 2020

 

 

183,095

 

 

$

0.17

 

  

The following table summarizes restricted stock unit activity during the three months ended March 31, 2020:

 

 

 

Shares Subject to Restricted Stock Units

 

 

Weighted-

Average

Grant Date

Value

 

Unvested at December 31, 2019

 

 

352,726

 

 

$

7.35

 

Granted

 

 

493,996

 

 

$

7.77

 

Vested

 

 

(51,027

)

 

$

6.14

 

Forfeited

 

 

 

 

$

-

 

Unvested March 31, 2020

 

 

795,695

 

 

$

7.69

 

 

In January 2019, the Company issued 221,600 performance based restricted stock units (“PRSU awards”) to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.  The shares subject to these PRSU awards shall vest upon the Company achieving certain milestones, with 100% of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.  As of March 31, 2020, 20,000 PRSU awards were forfeited and three of the milestones were deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $734,000 through December 31, 2019 and $142,000 during the three months ended March 31, 2020.

 

In January 2020, the Company issued 244,000 PRSU awards to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.  The shares subject to these PRSU awards shall vest upon the Company achieving certain milestones, with 100% of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.  As of March 31, 2020, three of the milestones were deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $387,000 during the three months ended March 31, 2020.

 

The following table summarizes stock option activity during the three months ended March 31, 2020:

 

 

 

Shares Subject to Stock Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term (in years)

 

 

Aggregate Intrinsic Value

 

Options outstanding at December 31, 2019

 

 

2,580,476

 

 

$

4.90

 

 

 

 

 

 

 

 

 

Granted

 

 

831,772

 

 

$

7.47

 

 

 

 

 

 

 

 

 

Exercised

 

 

(10,000

)

 

$

1.19