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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: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

200 Sidney Street - 4th Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 945-9626

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

MCRB

The Nasdaq Global Select Market

 

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, 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 April 28, 2021, the registrant had 91,622,669 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Seres Therapeutics, Inc.

INDEX

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

5

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

 

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020

 

6

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020

 

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

 

8

Notes to Condensed Consolidated Financial Statements

 

9

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

 

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4. Controls and Procedures

 

32

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

33

Item 1A. Risk Factors

 

33

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

 

69

Item 3. Defaults Upon Senior Securities

 

69

Item 4. Mine Safety Disclosures

 

69

Item 5. Other Information

 

69

Item 6. Exhibits

 

70

 

 

 

SIGNATURES

 

71

 

 

2


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or the Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this report titled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

We have proprietary rights to trademarks used in this Quarterly Report on Form, which are important to our business and many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Quarterly Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This Quarterly Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

 

We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

 

We will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

 

Other than SER-109 and SER-287, we are early in our development efforts and may not be successful in our efforts to use our microbiome therapeutics platform to build a pipeline of product candidates and develop marketable drugs.

3


 

Our product candidates are based on microbiome therapeutics, which is an unproven approach to therapeutic intervention.

 

Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or prevented.

 

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired. Additionally, failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.

 

The Collaboration and License Agreement, or the License Agreement, with Société des Produits Nestlé S.A., or Nestlé, the successor in interest to Nestec Ltd., is important to our business. If we or Nestlé fail to adequately perform under the License Agreement, or if we or Nestlé terminate the License Agreement, the development and commercialization of our CDI and IBD product candidates, including SER-109, SER-287, and SER-301, would be delayed or terminated and our business would be adversely affected.

 

We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

 

We rely on third parties for certain aspects of the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

 

Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community necessary for commercial success.

 

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

 

If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

 

The COVID-19 pandemic caused by the novel strain of coronavirus has adversely impacted and could continue to adversely impact, our business, including our preclinical studies and clinical trials, results of operations and financial condition.

 

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

 

We may expand our operational capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

 

We will continue to incur costs as a result of being a public company, and our management will continue to devote substantial time to compliance initiatives and corporate governance practices.

 

4


 

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,579

 

 

$

116,049

 

Short term investments

 

 

176,221

 

 

 

137,567

 

Prepaid expenses and other current assets

 

 

6,574

 

 

 

5,774

 

Accounts receivable

 

 

2,604

 

 

 

9,387

 

Total current assets

 

 

251,978

 

 

 

268,777

 

Property and equipment, net

 

 

13,580

 

 

 

13,897

 

Operating lease assets

 

 

8,386

 

 

 

9,041

 

Restricted investments

 

 

1,400

 

 

 

1,400

 

Long term investments

 

 

29,749

 

 

 

49,825

 

Other non-current assets

 

 

602

 

 

 

 

Total assets

 

$

305,695

 

 

$

342,940

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,879

 

 

$

4,018

 

Accrued expenses and other current liabilities

 

 

13,153

 

 

 

14,226

 

Operating lease liabilities

 

 

5,250

 

 

 

5,115

 

Short term portion of note payable, net of discount

 

 

3,339

 

 

 

454

 

Deferred revenue - related party

 

 

21,242

 

 

 

22,602

 

Total current liabilities

 

 

47,863

 

 

 

46,415

 

Long term portion of note payable, net of discount

 

 

21,872

 

 

 

24,639

 

Operating lease liabilities, net of current portion

 

 

9,194

 

 

 

10,561

 

Deferred revenue, net of current portion - related party

 

 

82,284

 

 

 

85,572

 

Other long-term liabilities

 

 

777

 

 

 

1,003

 

Total liabilities

 

 

161,990

 

 

 

168,190

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 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, $0.001 par value; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020; 91,588,264 and 91,459,239 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

92

 

 

 

91

 

Additional paid-in capital

 

 

727,869

 

 

 

723,482

 

Accumulated other comprehensive (loss)

 

 

(15

)

 

 

(47

)

Accumulated deficit

 

 

(584,241

)

 

 

(548,776

)

Total stockholders’ equity

 

 

143,705

 

 

 

174,750

 

Total liabilities and stockholders’ equity

 

$

305,695

 

 

$

342,940

 

 

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

5


SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share data)

 

 

Three Months Ended

March 31,

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

Collaboration revenue - related party

$

4,648

 

 

$

5,462

 

Grant revenue

 

1,070

 

 

 

739

 

Collaboration revenue

 

 

 

 

1,988

 

Total revenue

 

5,718

 

 

 

8,189

 

Operating expenses:

 

 

 

 

 

 

 

Research and development expenses

 

29,303

 

 

 

21,743

 

General and administrative expenses

 

11,741

 

 

 

6,138

 

Total operating expenses

 

41,044

 

 

 

27,881

 

Loss from operations

 

(35,326

)

 

 

(19,692

)

Other (expense) income:

 

 

 

 

 

 

 

Interest income

 

966

 

 

 

159

 

Interest expense

 

(696

)

 

 

(716

)

Other (expense) income

 

(409

)

 

 

368

 

Total other (expense) income, net

 

(139

)

 

 

(189

)

Net loss

$

(35,465

)

 

$

(19,881

)

Net loss per share attributable to common stockholders, basic and

   diluted

$

(0.39

)

 

$

(0.28

)

Weighted average common shares outstanding, basic and diluted

 

91,527,800

 

 

 

70,821,514

 

Net loss

 

(35,465

)

 

 

(19,881

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

32

 

 

 

(10

)

Total other comprehensive income (loss)

 

32

 

 

 

(10

)

Comprehensive loss

$

(35,433

)

 

$

(19,891

)

 

 

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

6


SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands, except share data)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

(Loss)

 

 

Equity

(Deficit)

 

Balance at December 31, 2019

 

 

70,143,252

 

 

$

70

 

 

$

411,255

 

 

$

(459,649

)

 

$

 

 

$

(48,324

)

Issuance of common stock from at the market equity offering

 

 

1,230,531

 

 

 

1

 

 

 

4,177

 

 

 

 

 

 

 

 

 

 

4,178

 

Issuance of common stock upon exercise of stock options

 

 

110,967

 

 

 

1

 

 

 

59

 

 

 

 

 

 

 

 

 

60

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

110,000

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

Issuance of common stock under ESPP plan

 

 

76,317

 

 

 

 

 

 

249

 

 

 

 

 

 

 

 

 

249

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,959

 

 

 

 

 

 

 

 

 

1,959

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,881

)

 

 

 

 

 

(19,881

)

Balance at March 31, 2020

 

 

71,671,067

 

 

$

72

 

 

$

417,819

 

 

$

(479,530

)

 

$

(10

)

 

$

(61,649

)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

(Loss)

 

 

Equity

 

Balance at December 31, 2020

 

 

91,459,239

 

 

$

91

 

 

$

723,482

 

 

$

(548,776

)

 

$

(47

)

 

$

174,750

 

Issuance of common stock upon exercise of stock options

 

 

104,184

 

 

 

1

 

 

 

371

 

 

 

 

 

 

 

 

 

372

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP plan

 

 

24,191

 

 

 

 

 

 

392

 

 

 

 

 

 

 

 

 

392

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,624

 

 

 

 

 

 

 

 

 

3,624

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

32

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(35,465

)

 

 

 

 

 

(35,465

)

Balance at March 31, 2021

 

 

91,588,264

 

 

$

92

 

 

$

727,869

 

 

$

(584,241

)

 

$

(15

)

 

$

143,705

 

 

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

 

7


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(35,465

)

 

$

(19,881

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

3,624

 

 

 

1,959

 

Depreciation and amortization expense

 

 

1,476

 

 

 

1,802

 

Non-cash operating lease cost

 

 

655

 

 

 

536

 

Accretion of discount on investments

 

 

851

 

 

 

(66

)

Non-cash interest expense

 

 

118

 

 

 

314

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current and long-term assets

 

 

(1,402

)

 

 

203

 

Accounts receivable

 

 

6,783

 

 

 

(237

)

Deferred revenue

 

 

(4,648

)

 

 

(6,634

)

Accounts payable

 

 

973

 

 

 

590

 

Operating lease liabilities

 

 

(1,232

)

 

 

(1,066

)

Accrued expenses and other current and long-term liabilities

 

 

(1,229

)

 

 

(1,771

)

Net cash used in operating activities

 

 

(29,496

)

 

 

(24,251

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,342

)

 

 

(71

)

Purchases of investments

 

 

(46,944

)

 

 

(12,931

)

Sales and maturities of investments

 

 

27,548

 

 

 

22,439

 

Net cash (used in) provided by investing activities

 

 

(20,738

)

 

 

9,437

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

372

 

 

 

60

 

Proceeds from issuance of common stock and restricted common stock

 

 

 

 

 

120

 

Proceeds from at the market equity offering, net of commissions

 

 

 

 

 

4,116

 

Issuance of common stock under ESPP plan

 

 

392

 

 

 

249

 

Net cash provided by financing activities

 

 

764

 

 

 

4,545

 

Net decrease in cash and cash equivalents

 

 

(49,470

)

 

 

(10,269

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

116,049

 

 

 

65,126

 

Cash, cash equivalents and restricted cash at end of period

 

$

66,579

 

 

$

54,857

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

603

 

 

$

610

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Unsettled issuance of common stock from the at the market offering

 

$

 

 

$

62

 

Property and equipment purchases included in accounts payable and

   accrued expenses

 

$

268

 

 

$

133

 

 

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

8


SERES THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

1.

Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc.  The Company is a microbiome therapeutics company developing a novel class of live biotherapeutic drugs, which are consortia of microbes designed to treat disease by modulating the microbiome to treat or reduce disease by repairing the function of the microbiome to a non-disease state.  The Company’s lead product candidate, SER-109, is designed to reduce further recurrence of Clostridioides difficile infection (“CDI”), a debilitating infection of the colon, in patients who have received antibiotic therapy for recurrent CDI by treating the disruption of the colonic microbiome.  If approved by the U.S. Food and Drug Administration (“FDA”), we believe SER-109 will be a first-in-field oral microbiome drug.  SER-287 and SER-301 are being developed by the Company to treat ulcerative colitis (“UC”).  In addition, using its microbiome therapeutics platform, the Company is also developing product candidates to treat diseases where the microbiome is implicated, including SER-155, a consortium of cultivated bacteria, therapeutic candidate designed to reduce morbidity and mortality due to gastrointestinal infections, bacteremia and graft versus host disease (“GvHD”) in immunocompromised patients, including in patients receiving allogeneic hematopoietic stem cell transplantation (“allo-HSCT”) and solid organ transplants.  The Company continues to evaluate microbiome pharmacokinetic and pharmacodynamic data from across its clinical and pre-clinical portfolios using its reverse translation microbiome therapeutics capabilities to conduct research on various indications, including pathogen infection and antibiotic resistant bacteria, inflammatory and immune diseases, cancer, and metabolic diseases.  

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any product candidate developed will obtain necessary government regulatory approval, or that any approved product will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.        

Under Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

As of March 31, 2021, the Company had an accumulated deficit of $584,241 and cash, cash equivalents and investments of $272,549. For the three months ended March 31, 2021, the Company incurred a loss of $35,465 and used $29,496 of cash in operations.  The Company expects that its operating losses and negative cash flows will continue for the foreseeable future.  The Company expects that its cash, cash equivalents and short and long-term investments at March 31, 2021 of $272,549 will be sufficient to fund its operating expenses, capital expenditure requirements and debt service obligations for at least the next 12 months from issuance of the financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

9


The Company is eligible to receive contingent milestone payments under its license and collaboration agreement with Société des Produits Nestlé S.A. (“Nestlé”), successor in interest to Nestec Ltd., an affiliate of Nestlé Health Science US Holdings, Inc. (“Nestlé Health Science”), both of which are significant stockholders of the Company, if certain development milestones are achieved. However, these milestones are uncertain and there is no assurance that the Company will receive any of them.  Until such time, if ever, as the Company can generate substantial product revenue, the Company will finance its cash needs through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships, or marketing, distribution or licensing arrangements with third parties. The Company may not be able to obtain funding on acceptable terms, or at all. If the Company is unable to raise additional funds as and when needed, it would have a negative impact on the Company’s financial condition, which may require the Company to delay, reduce or eliminate certain research and development activities and reduce or eliminate discretionary operating expenses, which could constrain the Company’s ability to pursue its business strategies.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on March 2, 2021 (the “Annual Report”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2020 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

 

 

2.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In the condensed consolidated financial statements, the Company uses estimates and assumptions related to revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, operating expenses, clinical trials and employee-related amounts, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from the Company’s estimates.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and unvested restricted stock.

10


The restricted stock units granted by the Company entitle the holder of such awards to ordinary cash dividends paid to substantially all holders of the Company’s common stock, as if such shares were outstanding common shares at the time of the dividend. The dividends are paid in cash or shares of common stock when the applicable restricted stock unit vests. However, the unvested restricted stock units are not entitled to share in the residual net assets (deficit) of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Stock options to purchase common stock

 

 

11,596,379

 

 

 

10,755,593

 

Unvested restricted stock units

 

 

287,853

 

 

 

20,000

 

Shares issuable under ESPP

 

 

6,357

 

 

 

14,693

 

Total common stock equivalents

 

 

11,890,589

 

 

 

10,790,286

 

 

Recently Issued Accounting Standards  

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. This standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its condensed consolidated financial statements and related disclosures.

 

 

3.

Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

13,279

 

 

$

 

 

$

 

 

$

13,279

 

Commercial paper

 

 

 

 

 

2,600

 

 

 

 

 

 

2,600

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

14,491

 

 

 

 

 

 

14,491

 

Corporate bonds

 

 

 

 

 

78,300

 

 

 

 

 

 

78,300

 

Certificate of deposits

 

 

 

 

 

2,272

 

 

 

 

 

 

2,272

 

Government securities

 

 

 

 

 

110,907

 

 

 

 

 

 

110,907

 

 

 

$

13,279

 

 

$

208,570

 

 

$

 

 

$

221,849

 

11


 

 

 

 

Fair Value Measurements as of December 31, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

35,480

 

 

$

 

 

$

 

 

$

35,480

 

Commercial paper

 

 

 

 

 

10,313

 

 

 

 

 

 

10,313

 

Corporate bonds

 

 

 

 

 

2,014

 

 

 

 

 

 

2,014

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

12,343

 

 

$

 

 

$

12,343

 

Corporate bonds

 

 

 

 

 

68,289

 

 

 

 

 

 

68,289

 

Certificate of deposits

 

 

 

 

 

2,272

 

 

 

 

 

 

2,272

 

Government securities

 

 

 

 

 

104,488

 

 

 

 

 

 

104,488

 

 

 

$

35,480

 

 

$

199,719

 

 

$

 

 

$

235,199

 

 

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. Commercial paper, corporate bonds, certificate of deposits and government securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. There were no transfers between Level 1 or Level 2 during the three months ended March 31, 2021.

 

As of March 31, 2021 and December 31, 2020 the Company held a restricted investment of $1,400, which represent a certificate of deposit that is classified as Level 2 in the fair value hierarchy.

4.

Investments

Investments by security type consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31, 2021

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

14,491

 

 

$

 

 

$

 

 

$

14,491

 

Corporate bonds

 

 

78,337

 

 

 

5

 

 

 

(42

)

 

 

78,300

 

Certificate of deposit

 

 

2,272

 

 

 

 

 

 

 

 

 

2,272

 

Government securities

 

 

110,885