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: 001-36183

 

Eiger BioPharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

33-0971591

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2155 Park Boulevard

Palo Alto, CA

 

94306

(Address of Principal Executive Offices)

 

(Zip Code)

 

(650) 272-6138

(Registrant’s Telephone Number, Including Area Code)

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock (par value $0.001 per share)

EIGR

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  

As of May 4, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 25,056,402.

 

 

 


 

EIGER BIOPHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

Item 1. Financial Statements:

  

3

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

  

3

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

  

4

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

  

5

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

 

6

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

  

7

Notes to the Condensed Consolidated Financial Statements (unaudited)

  

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

23

Item 4. Controls and Procedures

  

23

 

 

 

PART II. OTHER INFORMATION

  

 

Item 1. Legal Proceedings

  

24

Item 1A. Risk Factors

  

24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

55

Item 3. Defaults Upon Senior Securities

  

55

Item 4. Mine Safety Disclosures

  

55

Item 5. Other Information

  

55

Item 6. Exhibits

  

56

Signatures

  

57

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Eiger,” and “the Company” refer to Eiger Biopharmaceuticals, Inc. Eiger, Eiger Biopharmaceuticals, the Eiger logo and other trade names, trademarks or service marks of Eiger are the property of Eiger Biopharmaceuticals, Inc. This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,629

 

 

$

39,373

 

Debt securities, available-for-sale

 

 

54,978

 

 

 

55,621

 

Prepaid expenses and other current assets

 

 

4,858

 

 

 

5,390

 

Total current assets

 

 

82,465

 

 

 

100,384

 

Property and equipment, net

 

 

638

 

 

 

590

 

Operating lease right-of-use assets

 

 

1,539

 

 

 

1,654

 

Other assets

 

 

3,781

 

 

 

2,511

 

Total assets

 

$

88,423

 

 

$

105,139

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,873

 

 

$

6,414

 

Accrued liabilities

 

 

4,009

 

 

 

10,001

 

Current portion of operating lease liabilities

 

 

551

 

 

 

534

 

Total current liabilities

 

 

13,433

 

 

 

16,949

 

Long-term debt, net

 

 

30,581

 

 

 

30,390

 

Operating lease liabilities

 

 

1,188

 

 

 

1,320

 

Total liabilities

 

 

45,202

 

 

 

48,659

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

24

 

 

 

24

 

Additional paid-in capital

 

 

299,849

 

 

 

297,863

 

Accumulated other comprehensive income

 

 

36

 

 

 

42

 

Accumulated deficit

 

 

(256,688

)

 

 

(241,449

)

Total stockholders’ equity

 

 

43,221

 

 

 

56,480

 

Total liabilities and stockholders’ equity

 

$

88,423

 

 

$

105,139

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

$

9,481

 

 

$

12,868

 

General and administrative

 

5,241

 

 

 

4,057

 

Total operating expenses

 

14,722

 

 

 

16,925

 

Loss from operations

 

(14,722

)

 

 

(16,925

)

Interest expense

 

(884

)

 

 

(765

)

Interest income

 

367

 

 

 

511

 

Other income (expense), net

 

 

 

 

(10

)

Net loss

$

(15,239

)

 

$

(17,189

)

Net loss per common share, basic and diluted

$

(0.62

)

 

$

(0.90

)

Weighted-average common shares outstanding, basic and diluted

 

24,501,350

 

 

 

19,168,448

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

 

2019

 

 

Net loss

 

$

(15,239

)

 

$

(17,189

)

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale debt securities, net

 

 

(6

)

 

 

30

 

 

Comprehensive loss

 

$

(15,245

)

 

$

(17,159

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

24,523,381

 

 

$

24

 

 

$

297,863

 

 

$

42

 

 

$

(241,449

)

 

$

56,480

 

Issuance of common stock upon exercise of stock

   options

 

 

2,895

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Issuance of common stock upon ESPP purchase

 

 

11,332

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Issuance of common stock upon offering at-the

   -market, net of issuance costs of $221

 

 

32,751

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

191

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,629

 

 

 

 

 

 

 

 

 

1,629

 

Unrealized loss on debt securities, net

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,239

)

 

 

(15,239

)

Balance at March 31, 2020

 

 

24,570,359

 

 

$

24

 

 

$

299,849

 

 

$

36

 

 

$

(256,688

)

 

$

43,221

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

19,211,759

 

 

$

19

 

 

$

237,795

 

 

$

(25

)

 

$

(171,197

)

 

$

66,592

 

Issuance of common stock upon exercise of stock

   options

 

 

41,546

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

56

 

 

 

 

 

 

 

 

 

56

 

Issuance of common stock upon ESPP purchase

 

 

7,138

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,195

 

 

 

 

 

 

 

 

 

1,195

 

Unrealized gain on debt securities, net

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,189

)

 

 

(17,189

)

Balance at March 31, 2019

 

 

19,260,443

 

 

$

19

 

 

$

239,170

 

 

$

5

 

 

$

(188,386

)

 

$

50,808

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

Eiger BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,239

)

 

$

(17,189

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

36

 

 

 

13

 

Amortization of debt securities discounts

 

 

(38

)

 

 

(121

)

Non-cash interest expense

 

 

191

 

 

 

177

 

Amortization of operating lease right-of-use assets

 

 

115

 

 

 

97

 

Common stock issued under Product Development Agreement

 

 

53

 

 

 

56

 

Stock-based compensation

 

 

1,629

 

 

 

1,195

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

332

 

 

 

(1,102

)

Other assets

 

 

(1,270

)

 

 

(2,270

)

Accounts payable

 

 

2,459

 

 

 

(307

)

Accrued liabilities

 

 

(5,893

)

 

 

669

 

Operating lease liabilities

 

 

(115

)

 

 

(100

)

Net cash used in operating activities

 

 

(17,740

)

 

 

(18,882

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of debt securities available-for-sale

 

 

(23,933

)

 

 

(1,943

)

Proceeds from maturities of debt securities available-for-sale

 

 

24,608

 

 

 

18,800

 

Purchase of property and equipment

 

 

(23

)

 

 

(1

)

Net cash provided by investing activities

 

 

652

 

 

 

16,856

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings in connection with term loan, net of issuance costs

 

 

 

 

 

6,627

 

Repayment of accrued exit fee and second amendment fee

 

 

 

 

 

(913

)

Repayment of term loan

 

 

 

 

 

(1,667

)

Proceeds from issuance of common stock upon stock option exercises

 

 

30

 

 

 

65

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

83

 

 

 

59

 

Issuance of common stock upon offering at-the-market, net of issuance costs

 

 

231

 

 

 

 

Net cash provided by financing activities

 

 

344

 

 

 

4,171

 

Net (decrease) increase in cash and cash equivalents

 

 

(16,744

)

 

 

2,145

 

Cash and cash equivalents at beginning of period

 

 

39,373

 

 

 

61,262

 

Cash and cash equivalents at end of period

 

$

22,629

 

 

$

63,407

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

694

 

 

$

777

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

Eiger BioPharmaceuticals, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Description of Business

Eiger BioPharmaceuticals, Inc. (the Company or Eiger) was incorporated in the State of Delaware on November 6, 2008. Eiger is a late-stage biopharmaceutical company focused on the development and commercialization of well-characterized drugs for life-threatening, rare and ultra-rare diseases with high unmet medical needs and no approved therapies. Eiger has reported positive proof-of-concept clinical results across five programs: lonafarnib monotherapy in Hutchinson-Gilford Progeria Syndrome (HGPS or Progeria) and Progeroid Laminopathies, lonafarnib boosted with ritonavir in Hepatitis Delta Virus (HDV), peginterferon lambda  (lambda) in HDV, and avexitide in both post-bariatric hypoglycemia (PBH) and congenital hyperinsulinism (CHI), all with first-in-class drugs, now under review for regulatory approvals, in Phase 3 clinical development, or advancing into Phase 3 development.

 

Eiger’s lead program is in Phase 3, developing lonafarnib, a first-in-class prenylation inhibitor, boosted with ritonavir, for the treatment of HDV infection, the most severe form of human viral hepatitis for which there is currently no approved therapy. The Company is also developing lonafarnib monotherapy for treatment of Progeria and Progeroid Laminopathies. Progeria and Progeroid Laminopathies are ultra-rare and rapidly fatal genetic conditions of accelerated aging in children. Lambda is the Company’s second program treating HDV and is Phase 3 ready. Lambda is a well-characterized, late-stage, first-in-class, type III interferon. The Company is developing avexitide, a well-characterized peptide, as a treatment for PBH, a debilitating and potentially life-threatening condition for which there is currently no approved therapy, and as a treatment CHI, an ultra-rare pediatric metabolic disorder.

 

The Company’s principal operations are based in Palo Alto, California and it operates in one segment.

Liquidity

As of March 31, 2020, the Company had $77.6 million of cash, cash equivalents and investments, comprised of $22.6 million of cash and cash equivalents and $55.0 million of debt securities available-for-sale. The Company had an accumulated deficit of $256.7 million and negative cash flows from operating activities as of March 31, 2020. The Company expects to continue to incur losses for the next several years.

In January and February 2020, the Company completed at-the-market offerings for a total of 32,751 shares of its common stock. The offerings were made under Eiger’s effective shelf registration statement and resulted in net proceeds to the Company of $0.4 million, after deducting commissions. The Company also incurred $0.2 million in offering expenses related to the registration statement and sales agreement, dated December 20, 2019, with Jefferies LLC.

Management believes that the currently available resources will be sufficient to fund its operations for at least the next 12 months following the issuance date of these unaudited condensed consolidated financial statements.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Eiger BioPharmaceuticals, Inc. and its wholly owned subsidiaries, EBPI Merger Inc., EB Pharma LLC, Eiger BioPharmaceuticals Europe Limited, and EigerBio Europe Limited 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 (the 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 financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the three months ended March 31, 2020 or for any other interim period or for any other future year. The balance sheet as of December 31, 2019, has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 13, 2020.

8


 

Use of Estimates

The preparation of unaudited condensed consolidated 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to clinical trial accrued liabilities, stock-based compensation, operating lease liabilities and income taxes. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Debt Securities

Short-term securities consist of debt securities classified as available-for-sale and have maturities greater than 90 days, but less than 365 days from the date of acquisition. All short-term securities are carried at fair value based upon quoted market prices. Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss). The cost of available-for-sale securities sold is based on the specific-identification method. Realized gains and losses on the sale of debt securities are determined using the specific-identification method and recorded in other (expense) income, net on the accompanying unaudited condensed consolidated statements of operations.

Accrued Research and Development Costs

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued liabilities in the unaudited condensed consolidated balance sheets and within research and development expense in the unaudited condensed consolidated statements of operations. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. The Company makes judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities.

Leases

The Company has a real estate lease for its office space in Palo Alto, California. The Company determines the initial classification and measurement of its right-of-use assets (ROU assets) and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

Rent expense for operating leases is recognized on a straight-line basis, unless the operating lease ROU assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the unaudited condensed consolidated statements of operations. For operating leases that reflect impairment, the Company will recognize the amortization of the operating lease ROU assets on a straight-line basis over the remaining lease term with rent expense still included in general and administrative expenses in the unaudited condensed consolidated statements of operations.

The Company elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance and insurance, which varies based on future outcomes, and thus is recognized in general and administrative expenses when incurred.

Net Loss per Share

Basic net loss per share of common stock is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

9


 

The following table sets forth the outstanding potentially dilutive securities which have been excluded in the calculation of diluted net loss per share because including such securities would be anti-dilutive (in common stock equivalent shares):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

3,736,288

 

 

 

2,722,171

 

Restricted stock units (unvested)

 

 

37,500

 

 

 

 

Total

 

 

3,773,788

 

 

 

2,722,171

 

 

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820). The standard eliminates, modifies and adds disclosure requirements for fair value measurements. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which defers the effective date for ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements.

In March 2020, the FASB issued ASU No. 2020-4, Reference Rate Reform (Topic 848). The standard provides optional expedients for facilitating the effects of the reference rate reform on financial reporting. For the Company, there are two applicable optional expedients for contract modifications permitted for contracts that are modified because of the reference rate reform and meet the scope guidance. The modifications of contracts within the scope of ASC Topic 470 should be accounted for prospectively adjusting the effective interest rate. The modifications of contracts within the scope of ASC Topic 842 should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under ASC Topic 842  for modifications not accounted for as separate contracts. The pronouncement is effective for all entities as of March 12, 2020 through December 31, 2022. The Company plans to adopt upon the occurrence of such contract modification, but not later than December 31, 2022. The Company engaged in early-stage discussions with its lender and will assess the impact of the adoption once the contract is modified.

 

 

3.

Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). As of March 31, 2020 and December 31, 2019, the carrying amount of prepaid expenses and other current assets, accounts payable and accrued liabilities approximated their estimate fair value due to their relatively short maturities. Management believes the terms of its long term debt reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company’s debt approximated its fair value.

Assets and liabilities recorded at fair value on a recurring basis in the unaudited condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

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Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s money market funds are classified as Level 1 because they are valued using quoted market prices. The Company’s debt securities consist of available-for-sale securities and are classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data. There were no assets or liabilities classified as Level 3 as of March 31, 2020 and December 31, 2019.

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the periods presented.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):

 

 

 

March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,810

 

 

$

 

 

$

 

 

$

15,810

 

Corporate debt securities

 

 

 

 

 

21,473

 

 

 

 

 

 

21,473

 

Commercial paper

 

 

 

 

 

7,494

 

 

 

 

 

 

7,494

 

U.S. treasury bills

 

 

 

 

 

19,996

 

 

 

 

 

 

19,996

 

U.S. government bonds

 

 

 

 

 

11,015

 

 

 

 

 

 

11,015

 

Total

 

$

15,810

 

 

$

59,978

 

 

$

 

 

$

75,788

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,854

 

 

$

 

 

$

 

 

$

35,854

 

Corporate debt securities

 

 

 

 

 

16,644

 

 

 

 

 

 

16,644

 

Commercial paper

 

 

 

 

 

7,457

 

 

 

 

 

 

7,457

 

U.S. government Bonds

 

 

 

 

 

31,520

 

 

 

 

 

 

31,520

 

Total

 

$

35,854

 

 

$

55,621

 

 

$

 

 

$

91,475

 

 

There were no financial liabilities as of March 31, 2020 and December 31, 2019.

 

The following tables summarize the estimated value of the Company’s cash equivalents and debt securities and the gross unrealized holding gains and losses (in thousands):

 

 

 

March 31, 2020

 

 

 

Amortized cost

 

 

Unrealized gain

 

 

Unrealized loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,810

 

 

$

 

 

$

 

 

$

15,810

 

U.S. treasury bills

 

 

4,996

 

 

 

4

 

 

 

 

 

 

5,000

 

Total cash equivalents

 

$

20,806

 

 

$

4

 

 

$

 

 

$

20,810

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

21,520

 

 

$

 

 

$

(47

)

 

$

21,473

 

Commercial paper

 

 

7,494

 

 

 

 

 

 

 

 

 

7,494

 

U.S. treasury bills

 

 

14,937

 

 

 

59

 

 

 

 

 

 

14,996

 

U.S. government bonds

 

 

10,995

 

 

 

20

 

 

 

 

 

 

11,015

 

Total debt securities

 

$

54,946

 

 

$

79

 

 

$

(47

)

 

$

54,978

 

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December 31, 2019

 

 

 

Amortized cost

 

 

Unrealized gain

 

 

Unrealized loss

 

 

Estimated Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,854

 

 

$

 

 

$

 

 

$

35,854

 

Total cash equivalents

 

$

35,854

 

 

$

 

 

$

 

 

$

35,854

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

16,633

 

 

$

11

 

 

$

 

 

$

16,644

 

Commercial paper

 

 

7,457

 

 

 

 

 

 

 

 

 

7,457

 

U.S. government bonds

 

 

31,489

 

 

 

31

 

 

 

 

 

 

31,520

 

Total debt securities

 

$

55,579

 

 

$

42

 

 

$

 

 

$

55,621

 

 

As of March 31, 2020 and December 31, 2019, the contractual maturity of the available-for-sale debt securities is less than one year. The Company periodically reviews the available-for-sale investments for other-than-temporary impairment loss. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period and its intent to sell. For debt securities, it also considers whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the three months ended March 31, 2020, the Company did not recognize any other-than-temporary impairment losses. All debt securities with unrealized losses have been in a loss position for less than 12 months.

4.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Contract research costs

 

$

2,566

 

 

$

5,288

 

Compensation and related benefits

 

 

942

 

 

 

1,707

 

Contract manufacturing costs

 

 

315

 

 

 

2,510

 

Other

 

 

186

 

 

 

496

 

Total accrued liabilities

 

$

4,009

 

 

$

10,001

 

 

 

5.

Product Development Agreement

 

Product Development Agreement

On August 11, 2018, the Company entered into a Product Development Agreement and a First Project Agreement (the Product Agreements), pursuant to which the Company will receive development program support services for its HDV program. The services are to be provided from July 1, 2018 through the completion of the Phase 3 Clinical Study Reports and the subsequent new drug application (NDA) filing. As consideration, the Company has committed to pay fees of approximately $10.0 million in cash and stock over four years, including approximately $0.8 million for expert consultant fees and pass through costs to vendors, plus certain incentive-based regulatory milestone fees up to $1.0 million. As part of the aggregate payment, the Company issued 115,526 shares of common stock subject to quarterly vesting requirements related to successful performance of the services and achievement of budget timeline set forth in the Product Agreements. The Product Agreements can be terminated by either party due to material breach or by the Company without cause with 90 days prior written notice. For the three months ended March 31, 2020, the Company recognized research and development expense of $0.1 million related to the shares issued under the Product Agreements. Additionally, as of March 31, 2020, the total unrecognized compensation expense related to unvested restricted shares was $0.4 million, which the Company expects to recognize over an estimated weighted-average period of 2.0 years. 

 

6.

Debt

In December 2016, the Company entered into an aggregate $25.0 million loan with Oxford Finance LLC (the Oxford Loan). The loan matures on July 1, 2021. The Company borrowed $15.0 million in December 2016 (Tranche A). In May 2018, the Company entered into an amendment to the Oxford Loan and borrowed $5.0 million (Tranche B). On August 3, 2018, the Company borrowed the remaining $5.0 million (Tranche C) under the Oxford Loan.

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The Oxford Loan bears interest at a floating rate per annum equal to the greater of either the 30-day U.S. Dollar LIBOR reported in the Wall Street Journal plus 6.41% or 6.95%. The interest only period for borrowed funds is until February 1, 2019, followed by 30 equal monthly payments of principal plus accrued interest. At the time of final payment, the Company is required to pay an exit fee of 7.5% of the original principal balance of borrowed funds, or $1.9 million. In addition, at the time of final payment of Tranche B, the Company is required to pay an additional exit fee of $0.1 million. The Company recorded as a liability and debt discount the exit fee at the origination of the term loan. In addition, the Company incurred loan origination fees and debt issuance costs of $0.4 million which were recorded as a direct deduction from the carrying amount of the related debt liability as a debt discount.

On March 5, 2019, the Company entered into the third amendment to the Oxford Loan (the Amended Oxford Loan) to refinance the Oxford Loan. The Amended Oxford Loan increased the aggregate amount available to be borrowed to $35.0 million and extended the maturity date to March 1, 2024. On March 5, 2019, prior to entering into the Amended Oxford Loan, the outstanding balance of the Oxford Loan was $23.3 million. At the time of entering into the Amended Oxford Loan, the Company borrowed an additional $6.7 million in principal under the Amended Oxford Loan, which increased the total amount borrowed to $30.0 million (Amended Tranche A). The remaining $5.0 million (Amended Tranche B) is available to the Company provided that certain milestones are achieved by February 2021. The Company does not currently expect to draw down Amended Tranche B.

The Amended Oxford Loan bears interest at a floating rate per annum equal to the greater of either the 30-day U.S. Dollar LIBOR reported in the Wall Street Journal plus 6.64% or 9.15%. The Amended Oxford Loan has an interest only period until April 1, 2021, followed by 36 equal monthly payments of principal and interest. Upon the receipt of Amended Tranche B, the interest only period for borrowed funds will be extended by one year until April 1, 2022, followed by 24 equal monthly payments of principal plus accrued interest. At the time of final payment, the Company is required to pay an exit fee of 7.5% of the original principal balance of borrowed funds, or $2.3 million. In addition, the Company is required to pay an additional exit fee of $1.0 million. The Company recorded as a liability and debt discount the exit fee for the Amended Oxford Loan. At the date of the Amended Oxford Loan, the Company paid $0.9 million for the accrued portion of the Oxford Loan exit fee and the Tranche B additional exit fee. The loan discount balance at the time of the Amended Oxford Loan was $0.2 million, which is being amortized over the remaining term of the Amended Oxford Loan.

The Company is also required to pay a 5.0% success fee of the total amount drawn under the Amended Oxford Loan within 30 days following the FDA’s approval of the Company’s first product, excluding lonafarnib in Progeria and Progeroid Laminopathies. This fee is enforceable within 10 years from the funding of Amended Tranche A. The Company determined that the success fee met the scope exemption from derivative accounting and should be accounted for under the guidance for contingencies. Accordingly, the Company will record a liability for the success fee upon receipt of approval from the FDA. The Amended Oxford Loan includes contingent interest features and mandatory prepayment features upon an event of default that meet the definition of a derivative but were not bifurcated from the debt instrument as their fair value was deemed to be insignificant. In connection with the execution of the Oxford Loan, the Company agreed to certain customary representations and warranties.

The refinancing of the term loan did not have a material impact on terms, conditions, representations, warranties, covenants or agreements set forth in the Oxford Loan. The loan is secured by the perfected first priority liens on the Company's assets, including a commitment by the Company to not allow any liens to be placed upon the Company’s intellectual property. The loan includes customary events of default, including failure to pay amounts due, breaches of covenants and warranties, material adverse effect events, certain cross defaults and judgments, and insolvency. If the Company is unable to comply with these covenants or if the Company defaults on any portion of the outstanding borrowings, the lenders can also impose a 5.0% penalty, restrict access to additional borrowings under the loan and security agreement, and accelerate the maturity of the debt.

The Company is permitted to make voluntary prepayments of the Amended Oxford Loan with a prepayment fee, calculated as of the loan origination date, equal to (i) 2.0% of the loan prepaid during the first 12 months and (ii) 1.0% of the loan prepaid in months 13-24. The Company is required to make mandatory prepayments of the outstanding loan upon the acceleration by lender following the occurrence of an event of default, along with a payment of the final payment, the prepayment fee and any other obligations that are due and payable at the time of prepayment.

 

The Company accounts for the amortization of the debt discount utilizing the effective interest method. Long-term debt and unamortized discount balances are as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Face value of long-term debt

 

$

30,000

 

 

$

30,000

 

Exit fee

 

 

3,277

 

 

 

3,277

 

Unamortized debt discount associated with exit fee, debt issuance costs and loan

   origination fees

 

 

(2,696

)

 

 

(2,887

)

Long-term debt, net

 

$

30,581

 

 

$

30,390

 

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7.

Stock-Based Compensation

The following table summarizes stock option activity under the Company’s stock-based compensation plan during the three months ended March 31, 2020 (in thousands, except option and share data):

 

 

 

Shares

Available for

Grant

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding as of December 31, 2019

 

 

823,598

 

 

 

2,767,617

 

 

$

12.14

 

 

 

7.94

 

 

$

8,218

 

Additional options authorized

 

 

1,226,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

(1,014,150

)

 

 

1,014,150

 

 

$

7.05

 

 

 

 

 

 

 

 

 

Restricted stock units granted

 

 

(37,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

(2,895

)

 

$

10.22

 

 

 

 

 

 

 

 

 

Canceled and forfeited

 

 

42,584

 

 

 

(42,584

)

 

$

12.04

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2020

 

 

1,040,701

 

 

 

3,736,288

 

 

$

10.76

 

 

 

8.19

 

 

$

1,644

 

Vested and exercisable as of March 31, 2020

 

 

 

 

 

 

1,568,410

 

 

$

11.97

 

 

 

6.90

 

 

$

728

 

 

During the three months ended March 31, 2020 and 2019, the Company granted stock options for the purchase of 1,014,150 and 781,750 shares of the Company’s common stock, respectively, with a weighted-average grant date fair value of $4.54 and $9.59 per share for the three months ended March 31, 2020 and 2019, respectively.

The Company records stock-based compensation of stock options granted by estimating the fair value of stock-based awards using the Black-Scholes option pricing model and amortizes the fair value of the stock-based awards granted over the applicable vesting period of the awards on a straight-line basis. The fair value of stock options was estimated using the following weighted-average assumptions:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

2019

 

Expected term (in years)

 

5.27-6.08

 

5.27-6.08

 

Contractual term (in years)

 

10.00

 

10.00

 

Volatility

 

73.00%-76.00%

 

79.62%-81.04%

 

Risk free interest rate

 

0.46%-1.37%

 

2.34%-2.57%

 

Dividend yield

 

 

 

 

Stock-Based Compensation Expense

Total stock-based compensation expense recognized was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

389

 

 

$

365

 

General and administrative

 

 

1,240

 

 

 

830

 

Total

 

$

1,629

 

 

$

1,195

 

 

 

As of March 31, 2020, the total unrecognized compensation expense related to unvested options was $14.0 million, which the Company expects to recognize over an estimated weighted average period of 3.0 years.

Restricted Stock Units

 

In the first quarter of 2020, the Company revised its non-employee director compensation policy to approve the granting of restricted stock units (RSUs) in accordance with the Restated 2013 Equity Incentive Plan (the Restated 2013 Plan). Each eligible director who has served for less than six months during the prior calendar year and continues to serve as a non-employee member of the board is granted RSUs, which are pro-rated for the period served during the prior calendar year.

 

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The RSUs granted to non-employee directors will begin vest on the one-year anniversary of the grant date, subject to the eligible director’s continuous services through the vesting date, and will vest in full upon a change in control, as defined under the Restated 2013 Plan. For RSU’s granted to employees during the three months ended March 31, 2020, the vesting will begin on the one-year anniversary through the two-year anniversary of the grant date. The fair value of all RSUs are measured at the grant date based on the closing market price of the Company’s common stock and is recognized as stock-based compensation expense on a straight-line basis over the vesting period.

 

For the three months ended March 31, 2020, the Company granted 37,500 RSUs with a weighted-average grant date fair value of $6.95 per share. The Company recognized $20,000 in stock-based compensation expense, which is included in general and administrative expenses. As of March 31, 2020, the total unrecognized compensation expense related to unvested RSUs was $0.2 million, which the Company expects to recognize over an estimated weighted-average period of 1.1 years.

 

8.

Income Taxes

The Company did not record tax expense for the three months ended March 31, 2020 and 2019 due to the Company’s loss position and full valuation allowance.

 

 

9.

Commitments and Contingencies

Lease Agreements

In October 2017, the Company entered into a non-cancelable operating facility lease agreement for 8,029 square feet of office space located at 2155 Park Blvd. in Palo Alto, California 94306. The lease commenced on March 1, 2018 and expires in February 2023. The lease has a three-year renewal option prior to expiration; however, the Company is not reasonably assured to exercise this option. The lease includes rent escalation clauses throughout the lease term. In October 2017, the Company provided a security deposit of $0.3 million. The Company also has three additional operating leases that are included in its lease accounting but are not considered significant for disclosure.

The maturity of the Company’s operating lease liabilities as of March 31, 2020 were as follows (in thousands):

 

Undiscounted lease payments

 

March 31, 2020

 

2020

 

 

520

 

2021

 

 

674

 

2022

 

 

662

 

2023

 

 

113

 

Total undiscounted payments

 

 

1,969

 

Less: imputed interest

 

 

230

 

Present value of future lease payments

 

 

1,739

 

Less: current portion of operating lease liabilities

 

 

551

 

Operating lease liabilities