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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2021

OR

 

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

 

For the transition period from                      to                     

Commission File Number 001-37355

 

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

 

 

 

 

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, 2021

Common stock, $0.00001 par value

 

78,100,168

 


VIKING THERAPEUTICS, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

 

1

 

 

 

 

 

 

 

Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)

 

2

 

 

 

 

 

 

 

Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)

 

3

 

 

 

 

 

 

 

Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)

 

4

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

5

 

 

 

 

 

Item 2.

 

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

 

19

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

25

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

58

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

58

 

 

 

 

 

Item 5.

 

Other Information

 

58

 

 

 

 

 

Item 6.

 

Exhibits

 

59

 

 

 

 

 

SIGNATURES

 

60

 

 

 


PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Viking Therapeutics, Inc.

Balance Sheets

 

(In thousands, except share and per share amounts)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,805

 

 

$

29,117

 

Short-term investments – available for sale

 

 

224,874

 

 

 

219,269

 

Prepaid clinical trial and preclinical study costs

 

 

7,559

 

 

 

7,276

 

Prepaid expenses and other current assets

 

 

625

 

 

 

442

 

Total current assets

 

 

249,863

 

 

 

256,104

 

Right-of-use assets

 

 

249

 

 

 

321

 

Deferred financing costs

 

 

27

 

 

 

48

 

Deposits

 

 

 

 

 

29

 

Total assets

 

$

250,139

 

 

$

256,502

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,848

 

 

$

3,988

 

Other accrued liabilities

 

 

7,789

 

 

 

7,811

 

Lease liability, current

 

 

279

 

 

 

330

 

Total current liabilities

 

 

12,916

 

 

 

12,129

 

Lease liability, net of current portion

 

 

-

 

 

 

29

 

Total long-term liabilities

 

 

-

 

 

 

29

 

Total liabilities

 

 

12,916

 

 

 

12,158

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.00001 par value: 300,000,000 shares authorized at March 31, 2021 and December 31, 2020; 77,178,081 and 73,215,940 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

419,528

 

 

 

412,589

 

Accumulated deficit

 

 

(182,202

)

 

 

(168,192

)

Accumulated other comprehensive loss

 

 

(104

)

 

 

(54

)

Total stockholders’ equity

 

 

237,223

 

 

 

244,344

 

Total liabilities and stockholders’ equity

 

$

250,139

 

 

$

256,502

 

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,

 

 

 

2021

 

 

2020

 

Revenues

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

11,535

 

 

 

7,987

 

General and administrative

 

 

2,693

 

 

 

2,961

 

Total operating expenses

 

 

14,228

 

 

 

10,948

 

Loss from operations

 

 

(14,228

)

 

 

(10,948

)

Other income (expense):

 

 

 

 

 

 

 

 

Amortization of financing costs

 

 

(21

)

 

 

(45

)

Interest income, net

 

 

239

 

 

 

1,304

 

Realized gain on investments, net

 

 

 

 

 

2

 

Total other income, net

 

 

218

 

 

 

1,261

 

Net loss

 

 

(14,010

)

 

 

(9,687

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Unrealized loss on securities

 

 

(50

)

 

 

(824

)

Comprehensive loss

 

$

(14,060

)

 

$

(10,511

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.19

)

 

$

(0.13

)

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

 

 

74,782

 

 

 

72,356

 

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, 2021

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2020

 

 

73,215,940

 

 

$

1

 

 

$

412,589

 

 

$

(168,192

)

 

$

(54

)

 

$

244,344

 

Employee stock-based compensation

 

 

 

 

 

 

 

 

1,577

 

 

 

 

 

 

 

 

 

1,577

 

Shares withheld related to employee tax withholding

 

 

(81,016

)

 

 

 

 

 

(473

)

 

 

 

 

 

 

 

 

(473

)

Issuance of common stock under employee stock plans

 

 

236,932

 

 

 

 

 

 

156

 

 

 

 

 

 

 

 

 

156

 

Issuance of common stock from warrant exercises

 

 

3,806,225

 

 

 

 

 

 

5,679

 

 

 

 

 

 

 

 

 

5,679

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

(50

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,010

)

 

 

 

 

 

(14,010

)

Balance at March 31, 2021

 

 

77,178,081

 

 

$

1

 

 

$

419,528

 

 

$

(182,202

)

 

$

(104

)

 

$

237,223

 

 

 

 

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

 

 

 

 

 

 

 

 

1,652

 

 

 

 

 

 

 

 

 

1,652

 

Shares withheld related to employee tax withholding

 

 

(17,124

)

 

 

 

 

 

(127

)

 

 

 

 

 

 

 

 

(127

)

Issuance of common stock under employee stock plans

 

 

61,027

 

 

 

 

 

 

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

 

 

 

See accompanying notes to the financial statements.

 

 

 

 

3


Viking Therapeutics, Inc.

Statements of Cash Flows

 

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,010

)

 

$

(9,687

)

 

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

 

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

 

 

1,138

 

 

 

636

 

 

Amortization of financing costs

 

 

21

 

 

 

45

 

 

Stock-based compensation

 

 

1,577

 

 

 

1,652

 

 

Amortization of right-of-use assets

 

 

72

 

 

 

68

 

 

Interest expense related to operating lease liability

 

 

5

 

 

 

10

 

 

Realized gain on investments

 

 

 

 

 

(2

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(266

)

 

 

569

 

 

Accrued interest, net of interest received on maturity of investments

 

 

(166

)

 

 

748

 

 

Accounts payable

 

 

860

 

 

 

650

 

 

Other accrued liabilities

 

 

(22

)

 

 

1,092

 

 

Lease liability

 

 

(85

)

 

 

(83

)

 

Net cash used in operating activities

 

 

(10,876

)

 

 

(4,302

)

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(48,676

)

 

 

(56,435

)

 

Proceeds from maturities of investments

 

 

42,049

 

 

 

67,587

 

 

Net cash provided by (used in) investing activities

 

 

(6,627

)

 

 

11,152

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Value of shares withheld related to employee tax withholding

 

 

(473

)

 

 

(127

)

 

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

 

 

5,664

 

 

 

160

 

 

Net cash provided by financing activities

 

 

5,191

 

 

 

33

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(12,312

)

 

 

6,883

 

 

Cash and cash equivalents beginning of period

 

 

29,117

 

 

 

8,377

 

 

Cash and cash equivalents end of period

 

$

16,805

 

 

$

15,260

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing

   transactions

 

 

 

 

 

 

 

 

 

Unpaid deferred public offering and other financing costs

 

$

50

 

 

$

66

 

 

Receivable from exercise of warrants

 

$

173

 

 

$

 

 

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, 2021, statements of operations for the three months ended March 31, 2021 and 2020, statements of stockholders’ equity for the three months ended March 31, 2021 and 2020 and statements of cash flows for the three months ended March 31, 2021 and 2020 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “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, 2020 contained in the Annual Report on Form 10-K filed by the Company with the SEC on February 17, 2021. 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, 2021, the results of operations for the three months ended March 31, 2021 and 2020, the statements of stockholders’ equity for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020. The December 31, 2020 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, 2021 and 2020 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 slowdown or 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 pandemic. Clinical site initiation and patient enrollment have been and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients have not been and others may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, any inability 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 (“CROs”) and the Company’s clinical trials, all of which are uncertain and cannot be predicted. As of the date of the 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.

5


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 (“FASB”) Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “the 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 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 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 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.

FASB Accounting Standards Codification 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,

 

 

2021

 

 

2020

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(14,010

)

 

$

(9,687

)

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

74,965,522

 

 

 

72,539,522

 

 

Less: Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(183,095

)

 

Denominator for basic and diluted net loss per share

 

 

74,782,427

 

 

 

72,356,427

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.19

)

 

$

(0.13

)

 

 

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,

 

 

 

2021

 

 

2020

 

Common stock warrants

 

 

1,438,275

 

 

 

5,735,943

 

Restricted stock units

 

 

1,075,954

 

 

 

795,695

 

Common stock subject to repurchase

 

 

183,095

 

 

 

183,095

 

Common stock options

 

 

4,143,640

 

 

 

3,402,248

 

 

 

 

6,840,964

 

 

 

10,116,981

 

 

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, 2021 and December 31, 2020, the Company’s investments were in government money market funds, corporate debt securities and government debt securities.  There were no sales of available-for-sale securities during the three months ended March 31, 2021 or during the year ended December 31, 2020.

Investments classified as available-for-sale as of March 31, 2021 consisted of the following (in thousands):

 

As of March 31, 2021

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Commercial paper  (2)

 

 

42,962

 

 

 

 

 

 

 

 

 

42,962

 

Corporate debt securities  (2)

 

 

172,755

 

 

$

46

 

 

$

(136

)

 

$

172,665

 

Government debt securities  (2)

 

 

9,261

 

 

 

 

 

 

(14

)

 

 

9,247

 

 

 

$

224,978

 

 

$

46

 

 

$

(150

)

 

$

224,874

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At March 31, 2021, there were 26 securities in an unrealized gain position and there were 83 securities in an unrealized loss position. The unrealized gains were less than $13,000 individually and $46,000 in the aggregate.  The unrealized losses were less than $14,000 individually and $150,000 in the aggregate. Four 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, 2021, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet, and $52.9 million of the corporate debt 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, 2020 consisted of the following (in thousands):

 

As of December 31, 2020

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Commercial paper  (2)

 

$

27,973

 

 

$

 

 

$

 

 

$

27,973

 

Corporate debt securities  (2)

 

$

185,711

 

 

$

94

 

 

$

(136

)

 

$

185,669

 

Government debt securities  (2)

 

$

5,639

 

 

$

 

 

$

(12

)

 

$

5,627

 

 

 

$

219,323

 

 

$

94

 

 

$

(148

)

 

$

219,269

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At December 31, 2020, there were 38 securities in an unrealized gain position and 80 securities in an unrealized loss position. The unrealized gains were less than $35,000 individually and $94,000 in the aggregate. The unrealized losses were less than $21,000 individually and $148,000 in the aggregate.  Four 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, 2020, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $53.4 million of the corporate debt 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, 2021 and December 31, 2020, 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, 2021, the Company’s investments were in government money market funds, corporate debt securities and government debt securities.

10


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

 

 

 

 

 

 

Fair Value Measurements at March 31, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

13,952

 

 

$

13,952

 

 

$

 

 

$

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper, available-for-sale

 

 

42,962

 

 

 

 

 

 

42,962

 

 

 

 

Corporate debt securities, available-for-sale

 

 

172,665

 

 

 

 

 

 

172,665

 

 

 

 

Government debt securities, available-for-sale

 

 

9,247

 

 

 

 

 

 

9,247

 

 

 

 

Total financial assets

 

$

238,826

 

 

$

13,952

 

 

$

224,874

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government money market funds

 

$

26,868

 

 

$

26,868

 

 

$