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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 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 August 3, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 29,242,967.

 

 

 


 

EIGER BIOPHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

Item 1. Financial Statements:

  

3

Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

  

3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)

  

4

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019 (unaudited)

  

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019 (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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

  

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

25

Item 4. Controls and Procedures

  

25

 

 

 

PART II. OTHER INFORMATION

  

 

Item 1. Legal Proceedings

  

26

Item 1A. Risk Factors

  

26

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

  

56

Item 3. Defaults Upon Senior Securities

  

56

Item 4. Mine Safety Disclosures

  

56

Item 5. Other Information

  

56

Item 6. Exhibits

  

57

Signatures

  

58

 

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

62,813

 

 

$

39,373

 

Debt securities, available-for-sale

 

 

27,962

 

 

 

55,621

 

Prepaid expenses and other current assets

 

 

6,564

 

 

 

5,390

 

Total current assets

 

 

97,339

 

 

 

100,384

 

Property and equipment, net

 

 

616

 

 

 

590

 

Operating lease right-of-use assets

 

 

1,421

 

 

 

1,654

 

Other assets

 

 

3,781

 

 

 

2,511

 

Total assets

 

$

103,157

 

 

$

105,139

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,180

 

 

$

6,414

 

Accrued liabilities

 

 

7,136

 

 

 

10,001

 

Current portion of operating lease liabilities

 

 

548

 

 

 

534

 

Current portion of long-term debt, net

 

 

3,283

 

 

 

 

Total current liabilities

 

 

16,147

 

 

 

16,949

 

Long-term debt, net

 

 

27,495

 

 

 

30,390

 

Operating lease liabilities

 

 

1,024

 

 

 

1,320

 

Total liabilities

 

 

44,666

 

 

 

48,659

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

27

 

 

 

24

 

Additional paid-in capital

 

 

330,433

 

 

 

297,863

 

Accumulated other comprehensive income

 

 

45

 

 

 

42

 

Accumulated deficit

 

 

(272,014

)

 

 

(241,449

)

Total stockholders’ equity

 

 

58,491

 

 

 

56,480

 

Total liabilities and stockholders’ equity

 

$

103,157

 

 

$

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

9,754

 

 

$

12,936

 

 

$

19,235

 

 

$

25,804

 

General and administrative

 

4,873

 

 

 

4,225

 

 

 

10,114

 

 

 

8,282

 

Total operating expenses

 

14,627

 

 

 

17,161

 

 

 

29,349

 

 

 

34,086

 

Loss from operations

 

(14,627

)

 

 

(17,161

)

 

 

(29,349

)

 

 

(34,086

)

Interest expense

 

(891

)

 

 

(869

)

 

 

(1,775

)

 

 

(1,634

)

Interest income

 

186

 

 

 

502

 

 

 

553

 

 

 

1,013

 

Other income (expense), net

 

6

 

 

 

1

 

 

 

6

 

 

 

(9

)

Net loss

$

(15,326

)

 

$

(17,527

)

 

$

(30,565

)

 

$

(34,716

)

Net loss per common share, basic and diluted

$

(0.60

)

 

$

(0.75

)

 

$

(1.22

)

 

$

(1.63

)

Weighted-average common shares outstanding, basic and diluted

 

25,501,514

 

 

 

23,408,652

 

 

 

25,001,432

 

 

 

21,338,551

 

 

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

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Net loss

 

$

(15,326

)

 

$

(17,527

)

 

$

(30,565

)

 

$

(34,716

)

 

Other comprehensive gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale debt securities, net

 

 

9

 

 

 

 

 

 

3

 

 

 

30

 

 

Comprehensive loss

 

$

(15,317

)

 

$

(17,527

)

 

$

(30,562

)

 

$

(34,686

)

 

 

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 (Loss)

 

 

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

 

Issuance of common stock upon offering at-the

   -market, net of issuance costs of $786

 

 

2,612,476

 

 

 

3

 

 

 

28,577

 

 

 

 

 

 

 

 

 

28,580

 

Issuance of common stock upon exercise of stock

   options

 

 

58,805

 

 

 

 

 

 

490

 

 

 

 

 

 

 

 

 

490

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,462

 

 

 

 

 

 

 

 

 

1,462

 

Unrealized gain on debt securities, net

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,326

)

 

 

(15,326

)

Balance at June 30, 2020

 

 

27,241,640

 

 

$

27

 

 

$

330,433

 

 

$

45

 

 

$

(272,014

)

 

$

58,491

 

 

 

 

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

 

Issuance of common stock upon exercise

   of stock options

 

 

10,304

 

 

 

 

 

 

62

 

 

 

 

 

 

 

 

 

62

 

Vesting of common stock issued under

   Product Development Agreement

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Issuance of common stock upon public

  offering, net of $3,731 of issuance costs

 

 

5,175,000

 

 

 

5

 

 

 

53,189

 

 

 

 

 

 

 

 

 

53,194

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,487

 

 

 

 

 

 

 

 

 

1,487

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,527

)

 

 

(17,527

)

Balance at June 30, 2019

 

 

24,445,747

 

 

$

24

 

 

$

293,963

 

 

$

5

 

 

$

(205,913

)

 

$

88,079

 

 

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)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(30,565

)

 

$

(34,716

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

72

 

 

 

27

 

Amortization of debt securities discounts

 

 

(45

)

 

 

(192

)

Non-cash interest expense

 

 

388

 

 

 

352

 

Amortization of operating lease right-of-use assets

 

 

233

 

 

 

197

 

Common stock issued under Product Development Agreement

 

 

108

 

 

 

111

 

Stock-based compensation

 

 

3,091

 

 

 

2,682

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,374

)

 

 

(1,541

)

Other assets

 

 

(1,270

)

 

 

(2,162

)

Accounts payable

 

 

(1,234

)

 

 

1,323

 

Accrued liabilities

 

 

(2,684

)

 

 

73

 

Operating lease liabilities

 

 

(282

)

 

 

(206

)

Net cash used in operating activities

 

 

(33,562

)

 

 

(34,052

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of debt securities available-for-sale

 

 

(32,930

)

 

 

(60,247

)

Proceeds from maturities of debt securities available-for-sale

 

 

60,637

 

 

 

34,050

 

Purchase of property and equipment

 

 

(98

)

 

 

(19

)

Net cash provided by (used in) investing activities

 

 

27,609

 

 

 

(26,216

)

Financing activities

 

 

 

 

 

 

 

 

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

 

 

28,790

 

 

 

 

Proceeds from issuance of common stock upon stock option exercises

 

 

520

 

 

 

127

 

Proceeds from issuance of common stock upon ESPP purchase

 

 

83

 

 

 

59

 

Proceeds from issuance of common stock upon public offering, net of issuance costs

 

 

 

 

 

53,194

 

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

)

Net cash provided by financing activities

 

 

29,393

 

 

 

57,427

 

Net increase (decrease) in cash and cash equivalents

 

 

23,440

 

 

 

(2,841

)

Cash and cash equivalents at beginning of period

 

 

39,373

 

 

 

61,262

 

Cash and cash equivalents at end of period

 

$

62,813

 

 

$

58,421

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,395

 

 

$

1,242

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Costs of available-for-sale securities in accrued liabilities

 

$

 

 

$

1,404

 

 

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. 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 clinical 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. The Company is also advancing lonafarnib monotherapy for treatment of Progeria and Progeroid Laminopathies, with a New Drug Application (NDA) and Marketing Authorization Application (MAA) under review by the U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA), respectively. 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 also 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 June 30, 2020, the Company had $90.8 million of cash, cash equivalents and investments, comprised of $62.8 million of cash and cash equivalents and $28.0 million of debt securities available-for-sale. The Company had an accumulated deficit of $272.0 million and negative cash flows from operating activities as of June 30, 2020. The Company expects to continue to incur losses for the next several years.

During the six months ended June 30, 2020, the Company completed at-the-market (ATM) offerings for a total of 2,645,227 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 $29.0 million, after deducting commissions.

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 six months ended June 30, 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 income (expense), 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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

3,696,242

 

 

 

2,758,556

 

 

 

3,696,242

 

 

 

2,758,556

 

Restricted stock units (unvested)

 

 

37,500

 

 

 

 

 

 

37,500

 

 

 

 

Total

 

 

3,733,742

 

 

 

2,758,556

 

 

 

3,733,742

 

 

 

2,758,556

 

 

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 consolidated 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 June 30, 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.

10


 

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;

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 June 30, 2020 and December 31, 2019.

There were no transfers into or out of 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):

 

 

 

June 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

60,687

 

 

$

 

 

$

 

 

$

60,687

 

Corporate debt securities

 

 

 

 

 

8,968

 

 

 

 

 

 

8,968

 

U.S. treasury bills

 

 

 

 

 

18,994

 

 

 

 

 

 

18,994

 

Total

 

$

60,687

 

 

$

27,962

 

 

$

 

 

$

88,649

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2