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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: 001-38327

 

Cue Biopharma, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-3324577

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

21 Erie Street

Cambridge, Massachusetts

 

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 949-2680

(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

CUE

Nasdaq Capital 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 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes      No

 

As of May 3, 2021, the registrant had 31,412,841 shares of Common Stock ($0.001 par value) outstanding.

 

 

 

 

 


 

CUE BIOPHARMA, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

5

 

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

5

 

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

6

 

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

7

 

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

8

 

Notes to the Consolidated Financial Statements (Unaudited)

9

 

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

23

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

35

 

Item 4. Controls and Procedures

35

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

36

 

Item 1A. Risk Factors

36

 

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

36

 

Item 3. Defaults Upon Senior Securities

36

 

Item 4. Mine Safety Disclosures

36

 

Item 5. Other Information

36

 

Item 6. Exhibits

37

 

  


2


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy,” “future,” “likely” or other comparable terms. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

 

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

 

 

our expectations regarding our ability to fund our projected operating requirements with our existing cash resources and the period in which we expect that such cash resources will enable us to fund such operating requirements;

 

 

our plans to develop our product candidates;

 

 

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;

 

 

the potential advantages of our product candidates;

 

 

the rate and degree of market acceptance and clinical utility of our product candidates, if approved;

 

 

our estimates regarding the potential market opportunity for our product candidates;

 

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

 

our intellectual property position;

 

 

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

 

the impact of government laws and regulations;

 

 

our competitive position;

 

 

developments relating to our competitors and our industry;

 

 

our ability to establish collaborations or obtain additional funding; and

 

 

the impacts of the COVID-19 pandemic.

 

3


 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, our limited operating history, limited cash and a history of losses; our ability to achieve profitability; our ability to advance our product candidates; potential setbacks in our research and development efforts, including negative or inconclusive results from our preclinical studies; our ability to secure required U.S. Food and Drug Administration (“FDA”) or other governmental approvals for our product candidates and the breadth of any approved indication; adverse effects on our business caused by public health pandemics, including the COVID-19 pandemic; negative or inconclusive results from our clinical studies or serious and unexpected drug-related side effects or other safety issues experienced by participants in our clinical trials; delays and changes in regulatory requirements, policy and guidelines, including potential delays in submitting required regulatory applications to the FDA; our reliance on licensors, collaborators, contract research organizations, suppliers and other business partners; our ability to obtain adequate financing to fund our business operations in the future; our ability to obtain, maintain and enforce necessary patent and other intellectual property protection; the availability of significant cash required to fund operations; competitive factors; general economic and market conditions; and the other risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our most recently filed Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and any subsequently filed Quarterly Report(s) on Form 10-Q. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.


4


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Cue Biopharma, Inc.

Consolidated Balance Sheets

(Unaudited in thousands, except share amounts)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,257

 

 

$

74,866

 

Marketable securities

 

 

 

 

 

10,003

 

Accounts receivable

 

 

1,413

 

 

 

1,417

 

Prepaid expenses and other current assets

 

 

2,735

 

 

 

1,241

 

Total current assets

 

 

77,405

 

 

 

87,527

 

Property and equipment, net

 

 

2,786

 

 

 

2,108

 

Operating lease right-of-use

 

 

5,656

 

 

 

6,774

 

Deposits

 

 

2,575

 

 

 

2,572

 

Restricted cash

 

 

150

 

 

 

150

 

Other long-term assets

 

 

149

 

 

 

402

 

Total assets

 

$

88,721

 

 

$

99,533

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,523

 

 

$

2,070

 

Accrued expenses

 

 

1,976

 

 

 

2,787

 

Research and development contract liability, current portion

 

 

7,145

 

 

 

6,681

 

Operating lease liability, current portion

 

 

4,989

 

 

 

4,777

 

Total current liabilities

 

 

16,633

 

 

 

16,315

 

Research and development contract liability, net of current portion

 

 

1,334

 

 

 

1,938

 

Operating lease liability, net of current portion

 

 

1,085

 

 

 

2,369

 

Total liabilities

 

$

19,052

 

 

$

20,622

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value; 10,000,000 shares authorized and 0 shares issued and

   outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 30,499,803

   and 30,351,366 shares issued and outstanding, at March 31, 2021 and

   December 31, 2020, respectively

 

 

31

 

 

 

30

 

Additional paid in capital

 

 

235,428

 

 

 

232,159

 

Accumulated other comprehensive income

 

 

 

 

 

7

 

Accumulated deficit

 

 

(165,790

)

 

 

(153,285

)

Total stockholders’ equity

 

 

69,669

 

 

 

78,911

 

Total liabilities and stockholders’ equity

 

$

88,721

 

 

$

99,533

 

 

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

5


Cue Biopharma, Inc.

Consolidated Statements of Operations and Other Comprehensive Loss

(Unaudited in thousands, except share and per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Collaboration revenue

 

$

1,553

 

 

$

900

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

4,255

 

 

 

3,989

 

Research and development

 

 

9,816

 

 

 

9,906

 

Total operating expenses

 

 

14,071

 

 

 

13,895

 

Loss from operations

 

 

(12,518

)

 

 

(12,995

)

Other income:

 

 

 

 

 

 

 

 

Interest income, net

 

 

13

 

 

 

177

 

Total other income

 

 

13

 

 

 

177

 

Net loss

 

$

(12,505

)

 

$

(12,818

)

Unrealized (loss) gain from available-for-sale securities

 

 

(7

)

 

 

259

 

Comprehensive loss

 

$

(12,512

)

 

$

(12,559

)

Net loss per common share – basic and diluted

 

$

(0.41

)

 

$

(0.48

)

Weighted average common shares outstanding – basic and diluted

 

 

30,434,525

 

 

 

26,569,681

 

 

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

6


Cue Biopharma, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited in thousands, except share and per share amounts)

 

For the three months ended March 31, 2021 and 2020:

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Comprehensive

Income/ (Loss)

 

 

Accumulated

Deficit

 

 

Stockholders’

Equity

 

Balance, December 31, 2019

 

 

26,562,178

 

 

$

26

 

 

$

163,068

 

 

$

(10

)

 

$

(108,500

)

 

$

54,584

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,175

 

 

 

 

 

 

 

 

 

3,175

 

Exercise of stock options

 

 

13,781

 

 

 

1

 

 

 

35

 

 

 

 

 

 

 

 

 

36

 

Unrealized gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

259

 

 

 

 

 

 

259

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,818

)

 

 

(12,818

)

Balance, March 31, 2020

 

 

26,575,959

 

 

$

27

 

 

$

166,278

 

 

$

249

 

 

$

(121,318

)

 

$

45,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

30,351,366

 

 

$

30

 

 

$

232,159

 

 

$

7

 

 

$

(153,285

)

 

$

78,911

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,436

 

 

 

 

 

 

 

 

 

2,436

 

Exercise of stock options

 

 

130,642

 

 

 

1

 

 

 

918

 

 

 

 

 

 

 

 

 

919

 

Issuance of common stock upon exercise of warrants, net

 

 

8,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

16,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of restricted stock awards

 

 

(6,919

)

 

 

 

 

 

(85

)

 

 

 

 

 

 

 

 

(85

)

Unrealized losses from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,505

)

 

 

(12,505

)

Balance, March 31, 2021

 

 

30,499,803

 

 

$

31

 

 

$

235,428

 

 

$

 

 

$

(165,790

)

 

$

69,669

 

 

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

7


Cue Biopharma, Inc.

Consolidated Statements of Cash Flows

(Unaudited in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,505

)

 

$

(12,818

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

318

 

 

 

263

 

Stock-based compensation

 

 

2,436

 

 

 

3,175

 

Change in operating lease right-of-use asset

 

 

1,118

 

 

 

998

 

Other non-cash expense

 

 

-

 

 

 

30

 

Amortization of premium/discount on purchased securities

 

 

(5

)

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Account receivable

 

 

4

 

 

 

150

 

Prepaid expenses and other current assets

 

 

(1,590

)

 

 

(994

)

Other assets

 

 

250

 

 

 

 

Deposits

 

 

(2

)

 

 

 

Accounts payable

 

 

203

 

 

 

717

 

Accrued expenses

 

 

(811

)

 

 

(1,083

)

Research and development contract liability

 

 

(139

)

 

 

(295

)

Operating lease liability

 

 

(1,072

)

 

 

(1,087

)

Net cash used in operating activities

 

 

(11,795

)

 

 

(10,944

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(648

)

 

 

 

Redemption of short-term investments

 

 

10,000

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

(9,950

)

Net cash (used in) provided by investing activities

 

 

9,352

 

 

 

(9,950

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

919

 

 

 

36

 

Restricted stock repurchase at vesting to cover taxes

 

 

(85

)

 

 

 

Net cash provided by financing activities

 

 

834

 

 

 

36

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(1,609

)

 

 

(20,858

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

75,016

 

 

 

44,440

 

Cash, cash equivalents, and restricted cash at end of period

 

$

73,407

 

 

$

23,582

 

Supplemental disclosures of non-cash investing activities:

 

 

 

 

 

 

 

 

Income taxes

 

$

206

 

 

$

 

Purchases of property and equipment in accounts payable or accrued expenses

 

$

250

 

 

$

141

 

 

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

8


Cue Biopharma, Inc.

Notes to Consolidated Financial Statements (Unaudited)

For the three months ended March 31, 2021 and 2020

1.

Organization and Basis of Presentation

Cue Biopharma, Inc. (the “Company”) was incorporated in the State of Delaware on December 31, 2014 under the name Imagen Biopharma, Inc., and completed its organization, formation, and initial capitalization activities effective as of January 1, 2015. In October 2016, the Company changed its name to Cue Biopharma, Inc. The Company’s corporate office and research facilities are located in Cambridge, Massachusetts.

The Company is a clinical-stage biopharmaceutical company engineering a novel class of injectable biologics designed to selectively engage and modulate targeted T cells within the body to treat a broad range of cancers, chronic infectious diseases, and autoimmune disorders.

The Company is in the development stage and has incurred recurring losses and negative cash flows from operations since inception. As of March 31, 2021, the Company had unrestricted cash, cash equivalents, and marketable securities of approximately $73,257,000. Management believes that current cash and cash equivalents on hand at March 31, 2021 are sufficient to fund operations for at least the next twelve months from the date of issuance of these financial statements; however, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations and to fund increased research and development costs in order to seek approval for commercialization of its product candidates. The Company’s failure to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategies as this capital is necessary for the Company to perform the research and development activities required to commercialize the Company’s product candidates in order to generate future revenue streams.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States (“U.S. GAAP”) for financial information, which prescribes elimination of all significant intercompany accounts and transactions in the accounts of the Company and its wholly owned subsidiary, Cue Biopharma Securities Corporation, Inc., which was incorporated in the Commonwealth of Massachusetts in December 2018. In the opinion of management, these financial statements reflect all adjustments which are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2021.

Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021, or any future periods.

 

Public Offerings

In March 2020, the Company entered into an “at-the-market” (“ATM”) equity offering sales agreement (the “March 2020 ATM Agreement”) with Stifel Nicolaus & Company, Inc. (“Stifel”) to sell shares of the Company’s common stock for aggregate gross proceeds of up to $35 million, from time to time, through an ATM equity offering program under which Stifel would act as sales agent. As of March 31, 2021, the Company sold 1,824,901 shares of common stock under the March 2020 ATM Agreement for proceeds of approximately $34.3 million, net of commissions paid, but excluding estimated transaction expenses. Due to the issuance and sale of all the shares of common stock available for sale, the March 2020 ATM Agreement terminated in accordance with its terms.

In June 2020, the Company entered into an ATM equity offering sales agreement with Stifel (the “June 2020 ATM Agreement”) to sell shares of the Company’s common stock for aggregate gross proceeds of up to $40 million, from time to time, through an ATM equity offering program under which Stifel acts as sales agent.  The June 2020 ATM Agreement will terminate upon the earliest of (a) the sale of $40 million of shares of the Company’s common stock pursuant to the June 2020 ATM Agreement or (b) the termination of the June 2020 ATM Agreement by the Company or Stifel.  As of March 31, 2021, the Company sold 1,192,000 shares of common stock under the June 2020 ATM Agreement for proceeds of approximately $22.4 million, net of commissions paid, but excluding transaction expenses.

9


Consolidation

The accompanying consolidated financial statements include Cue Biopharma Inc. and its wholly owned subsidiary, Cue Biopharma Securities Corporation, Inc (collectively “the Company”). The Company has eliminated all intercompany transactions.

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include estimates related to collaboration revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and the useful life with respect to long-lived assets and intangibles. Actual results could differ from those estimates.

The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments and regulatory bodies throughout the world to issue “stay-at-home” or other similar orders, and enact restrictions on the performance of “non-essential” services, public gatherings and travel.

The extent to which the COVID-19 pandemic impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of the COVID-19 pandemic, the extent of its impact on worldwide macroeconomic conditions, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic as of March 31, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, estimates related to collaboration revenue, the accounting for potential liabilities and accrued expenses, the assumptions utilized in valuing stock-based compensation issued for services, the realization of deferred tax assets, and assessments of impairment related to long-lived assets and intangibles. The Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Despite the Company’s efforts, the ultimate impact of the COVID-19 pandemic depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which the COVID-19 pandemic will negatively impact its financial results or liquidity.

Cash Concentrations

The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with a financial institution with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.  The Company currently invests available cash in money market funds.

Marketable Securities

Marketable securities consist of investments with original maturities greater than ninety days and less than one year from the balance sheet date.  The Company classifies all of its investments as available-for-sale securities.  Accordingly, these investments are recorded at fair value, which is based on quoted market prices.  Unrealized gains and losses are recognized and determined on a specific identification basis and are included in other comprehensive loss. Realized gains and losses are determined on a specific identification basis and are included in other income on the consolidated income statement of operations and other comprehensive loss.  Amortization and accretion of discounts and premiums is recorded in interest income.  The Company has invested available cash in United States Treasury obligations.

10


Restricted Cash

The Company had $150,000 in restricted cash deposited with a commercial bank to collateralize a credit card as of March 31, 2021 and December 31, 2020.

Property and Equipment

Property and equipment is recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from dispositions of property and equipment are included in income and expense when realized. Amortization of leasehold improvements is provided using the straight-line method over the shorter of the lease term or the useful life of the underlying assets. Depreciation of property and equipment is provided using the straight-line method over the following estimated useful lives:

 

Laboratory equipment

 

5 years

Computer and office equipment

 

3 years

Furniture and fixtures

 

3-8 years

 

The Company recognizes depreciation and amortization expense in general and administrative expenses and in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss, depending on how each category of property and equipment is utilized in the Company’s business activities.

Trademark

Trademark consists of the Company’s right, title and interest to the CUE BIOLOGICS Mark, and any derivative mark incorporating CUE, throughout the world, together with all associated goodwill and common law rights appurtenant thereto, including, but not limited to, any right, title and interest in any corporate name, company name, business, name, trade name, dba, domain name, or other source identifier incorporating CUE.

The Company has classified the trademark as a component of other long-term assets, having a useful life of 15 years. The Company evaluates the status of this intangible asset for amortization and impairment at each quarter end and year end reporting date. For each of the three months ended March 31, 2021 and 2020, the Company recorded approximately $3,000 in amortization expense on a straight-line basis.

Revenue Recognition

The Company recognizes collaboration revenue under certain of the Company’s license and collaboration agreements that are within the scope of Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company’s contracts with customers typically include promises related to licenses to intellectual property and research and development services.  If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the “most likely amount” method to estimate the amount of variable consideration, to predict the amount of consideration to which it will be entitled for its one open contract. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. Currently, the Company has one contract with an option to acquire additional goods and/or services in the form of additional research and development services for additional product candidates which it evaluated and determined that the option to acquire additional goods and/or services was not a material right related to the LG Chem Collaboration Agreement.

11


Research and Development Expenses

Research and development expenses consist primarily of compensation costs, fees paid to consultants, outside service providers and organizations (including research institutes at universities), facility costs, and development and clinical trial costs with respect to the Company’s product candidates.

Research and development expenses incurred under contracts are expensed ratably over the life of the underlying contracts, unless the achievement of milestones, the completion of contracted work, or other information indicates that a different pattern of performance is more appropriate.  Other research and development expenses are charged to operations as incurred.  

Nonrefundable advance payments are recognized as an expense as the related services are performed. The Company evaluates whether it expects the services to be rendered at each quarter end and year end reporting date. If the Company does not expect the services to be rendered, the advance payment is charged to expense. Nonrefundable advance payments for research and development services are included in prepaid and other current assets on the balance sheet.  To the extent that a nonrefundable advance payment is for contracted services to be performed within 12 months from the reporting date, such advance is included in current assets; otherwise, such advance is included in non-current assets.

The Company evaluates the status of its research and development agreements and contracts, and the carrying amount of the related assets and liabilities, at each quarter end and year end reporting date, and adjusts the carrying amounts and their classification on the balance sheet as appropriate.

 

Patent Expenses

The Company is the exclusive worldwide licensee of, and has patent applications pending for, numerous domestic and foreign patents. Due to the significant uncertainty associated with the successful development of one or more commercially viable product candidates based on the Company’s research efforts and any related patent applications, all patent costs, including patent-related legal fees, filing fees and other costs are charged to expense as incurred. For the three months ended March 31, 2021 and 2020, patent expenses were $520,000 and $655,000, respectively. Patent expenses are included in general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss.

Licensing Fees and Costs

Licensing fees and costs consist primarily of costs relating to the acquisition of the Company’s license agreement (the “Einstein License Agreement”) with the Albert Einstein College of Medicine (“Einstein”), including related royalties, maintenance fees, milestone payments and product development costs. Licensing fees and costs are charged to research and development expense as incurred.

Long-Lived Assets

The Company reviews long-lived assets, consisting of property and equipment, for impairment at each fiscal year end or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The Company has not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.

Leases

 

The Company adopted Accounting Standards Update 2016-02, Leases (“ASC 842”) as of January 1, 2019, which supersedes the existing guidance for lease accounting, ASC, Topic 840, Leases. ASC 842 requires a lessee to record a right-of-use asset and a corresponding lease liability for most lease arrangements on the balance sheet.  Under the standard, disclosure of key information about leasing arrangements to assist users of the financial statements with assessing the amount, timing and uncertainty of cash flows arising from leases are required.

 

12


 

Stock-Based Compensation

The Company periodically issues stock-based awards to officers, directors, employees, Scientific and Clinical Advisory Board members, non-employees and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers, directors, employees, Scientific and Clinical Advisory Board members and outside consultants, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. Stock option grants, which are generally time-vested, are measured at the grant date fair value and charged to operations on a straight-line basis over the service period, which generally approximates the vesting term. The Company also grants performance-based awards periodically to officers of the Company. The Company recognizes compensation costs related to performance awards over the requisite service period if and when the Company concludes that it is probable that the performance condition will be achieved.  

The fair value of stock options and restricted stock units is determined utilizing the Black-Scholes option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the life of the equity award, the exercise price of the stock option as compared to the fair value of the common stock on the grant date, and the estimated volatility of the common stock over the term of the equity award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Until the Company has established a trading market for its common stock, estimated volatility is based on the average historical volatilities of comparable public companies in a similar industry. The expected dividend yield is based on the current yield at the grant date; the Company has never declared or paid dividends and has no plans to do so for the foreseeable future. As permitted by Staff Accounting Bulletin No. 107, due to the Company’s lack of trading history and option activity, management utilizes the simplified method to estimate the expected term of options at the date of grant. The exercise price is determined based on the fair value of the Company’s common stock at the date of grant. The Company accounts for forfeitures as they occur.

The Company recognizes the fair value of stock-based compensation in general and administrative expenses and in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss, depending on the type of services provided by the recipient of the equity award.

Comprehensive Income (Loss)

Components of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which they are recognized.  Other comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.   Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss).  Comprehensive income (loss) includes net income (loss) as well as changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.  The Company’s only element of other comprehensive income (loss) in all periods presented was unrealized gain or loss on available-for-sale securities.

Earnings (Loss) Per Share

The Company’s computation of earnings (loss) per share (“EPS”) for the respective periods includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares that would result from the exercise of outstanding stock options and warrants as if they had been exercised at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Basic and diluted loss per common share is the same for all periods presented because all outstanding stock options and warrants are anti-dilutive.

At March 31, 2021 and 2020, the Company excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

 

 

March 31,

 

 

 

2021

 

2020

 

Common stock warrants

 

 

851,969

 

 

1,189,827

 

Common stock options

 

 

5,738,757

 

 

5,507,572

 

Nonvested restricted stock units

 

 

213,336

 

 

250,001

 

Total

 

 

6,804,062

 

 

6,947,400

 

13


 

Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.

Level 1.   Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.

Level 2.   Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3.   Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently traded non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.

The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.

The Company had approximately $67,997,000 in cash equivalents that was measured and recorded at fair value on the Company’s balance sheet as of March 31, 2021. The Company had approximately $72,943,000 in cash equivalents and $10,003,000 in short-term marketable securities that were measured and recorded at fair value on the Company’s balance sheet as of December 31, 2020.

The carrying value of financial instruments (consisting of cash, a certificate of deposit, accounts payable, accrued compensation and accrued expenses) is considered to be representative of their respective fair values due to the short-term nature of those instruments.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (CECL). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new standard is effective for annual reporting periods beginning after December 15, 2022, including interim reporting periods within each annual reporting period for smaller reporting companies. The Company is still evaluating the impact of ASU 2016-13 on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The pronouncement became effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020. ASU No. 2019-12 is effective for the Company beginning in fiscal 2021. The Company adopted ASU No. 2019-12 on January 1, 2021 and it did not have a material impact on the Company’s financial position, results of operations or disclosures.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

3.

Fair Value

The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 

14


The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, and indicate the level of the fair value hierarchy utilized to determine such fair value:

 

 

 

Fair Value Measurements as of March 31, 2021

 

 

 

(in thousands)

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents

 

$

67,997

 

 

$

 

 

$

 

 

$

67,997

 

Total

 

$

67,997

 

 

$

 

 

$

 

 

$

67,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2020

 

 

 

(in thousands)

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents

 

$

72,943

 

 

$

 

 

$

 

 

$

72,943

 

Marketable securities

 

 

 

 

 

10,003

 

 

 

 

 

 

10,003

 

Total

 

$

72,943

 

 

$

10,003

 

 

$

 

 

$

82,946

 

 

As of March 31, 2021, the Company reported approximately $67,997,000 of cash equivalents. The Company’s cash equivalents that are invested in money market funds are valued using Level 1 inputs for identical securities.  As of December 31, 2020, the Company reported approximately $82,946,000 of cash equivalents and marketable securities.  During the year ended December 31, 2020, there were no transfers between Level 2 and Level 3.

The carrying values of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these balances.

 

 

4.

Marketable Securities

As of December 31, 2020, the fair value of available-for-sale marketable securities by type of security was as follows:

 

 

 

December 31, 2020

 

(In thousands)

 

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury Securities

 

$

9,995

 

 

$

7

 

 

$

 

 

$

10,003

 

 

 

$

9,995

 

 

$

7

 

 

$

 

 

$

10,003

 

 

At March 31, 2021, the Company had redeemed its entire investment in marketable securities. At December 31, 2020, marketable securities consisted of approximately $10,003,000 of investments that mature within twelve months.     

5.

Property and Equipment

Property and equipment as of March 31, 2021 and December 31, 2020 consisted of the following:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(in thousands)

 

Laboratory equipment

 

$

5,022

 

 

$

4,148

 

Furniture and fixtures

 

 

93

 

 

 

93

 

Computer equipment

 

 

268

 

 

 

268

 

Leasehold improvements

 

 

7

 

 

 

-

 

Construction in progress

 

 

421

 

 

 

405

 

 

 

 

5,811

 

 

 

4,915

 

Less accumulated depreciation

 

 

(3,025

)

 

 

(2,807

)

Net property and equipment

 

$

2,786

 

 

$

2,108

 

 

15


 

Depreciation expense for the three months ended March 31, 2021 and 2020 was approximately $218,000 and $194,000, respectively. Depreciation expense for the three months ended March 31, 2021 excludes trademark amortization expense of approximately $3,000, and amortization of capitalized license expenses of approximately $97,000.  Depreciation for the three months ended March 31, 2020 excludes trademark amortization expense of approximately $3,000, and amortization of capitalized license expenses of approximately $66,000 for the three months ended March 31, 2020. There were no disposals of property and equipment for the three months ended March 31, 2021 and 2020.

6.

Stock-Based Compensation

Stock Option Valuation

For stock options requiring an assessment of value during the three months ended March 31, 2021, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:

 

 

 

March 31, 2021

Risk-free interest rate

 

0.61 to 1.18%

Expected dividend yield

 

0%

Expected volatility

 

92.2-94.7%

Expected life

 

5.50 to 6.25 years

 

 

 

 

 

March 31, 2020

Risk-free interest rate

 

1.00-1.56%

Expected dividend yield

 

0%

Expected volatility

 

98.0-99.6%

Expected life

 

4.0 to 6.25 years

 

A summary of stock option activity for the three months ended March 31, 2021 is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

(in Years)

 

Stock options outstanding at December 31, 2020

 

 

5,030,899

 

 

$

9.10

 

 

 

5.51

 

Granted

 

 

868,500

 

 

 

14.73

 

 

 

 

 

Exercised

 

 

(130,642

)

 

 

7.02

 

 

 

 

 

Cancelled

 

 

(30,000

)

 

 

12.51

 

 

 

 

 

Stock options outstanding at March 31, 2021

 

 

5,738,757

 

 

 

9.79

 

 

 

6.01

 

Stock options exercisable at March 31, 2021

 

 

3,131,938

 

 

$

7.53

 

 

 

4.15

 

 

The Company recognized approximately $2,069,000 in stock-based compensation expense during the three months ended March 31, 2021, related to stock options activity. As of March 31, 2021, total unrecognized stock-based compensation expense was approximately $23,048,000, which is expected to be recognized as an operating expense in the Company’s consolidated statement of operations and other comprehensive loss over the weighted average remaining period of 2.6 years. During the three months ended March 31, 2021, the Company granted stock options to purchase 868,500 shares of common stock with an average grant date fair value of $11.26. During the three months ended March 31, 2020, the Company granted stock options to purchase 728,100 shares of common stock with an average grant date fair value of $13.02.

The intrinsic value of exercisable but unexercised in-the-money stock options at March 31, 2021 was approximately $16,435,000, based on a fair value of $12.20 per share on March 31, 2021.

 

Restricted Stock Units

On October 3, 2019, the Company granted 100,000 restricted stock units (“RSUs”) with time-based vesting conditions to an executive officer having an average grant date fair value of $7.53 per share. The RSUs vest in three substantially equal installments beginning on the grant date, and annually thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

 

16


 

On February 5, 2020, the Company granted 150,000 RSUs with time-based vesting conditions to an executive officer. One-half of the RSUs vest on September 30, 2021, and the balance vest on March 31, 2022, subject to the recipient’s continued service on each applicable vesting date. On March 31, 2020, the Company granted 50,000 RSUs with time-based vesting conditions to an executive officer. The RSUs vest in three substantially equal installments beginning on the grant date, and annually thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

On August 21, 2020, the Company granted 20,000 RSUs with time-based vesting conditions to an executive officer.  The RSUs vest in three substantially equal installments beginning on the grant date, and annually thereafter, subject to the recipient’s continued service on each applicable vesting date. Compensation expense is recognized on a straight-line basis.

 

The following table summarizes the RSU activity under the Company’s 2016 Omnibus Incentive Plan for the three months ended March 31, 2021:

 

Restricted Stock Units

 

Number of Shares

 

 

Weighted Average Grant Date Fair Value Per Share

 

Nonvested balance at December 31, 2020

 

 

230,002

 

 

$

16.66

 

Vested/Released

 

 

(16,666

)

 

$

14.19

 

Nonvested balance at March 31, 2021

 

 

213,336

 

 

$

16.86

 

 

The Company recognized approximately $367,000 in stock-based compensation during the three months ended March 31, 2021 related to RSU activity. As of March 31, 2021, total unrecognized stock-based compensation was approximately $2,406,000, which is expected to be recognized as an operating expense in the Company’s consolidated statement of operations and other comprehensive loss with a weighted average remaining period of 1 year.

 

Stock-based Compensation

Stock-based compensation expense for the three months ended March 31, 2021 and 2020 was included in the consolidated statement of operations and other comprehensive loss as follows:

 

 

 

Three Months Ended

March 31,

 

(in thousands)

 

2021

 

 

2020

 

General and administrative

 

$

1,114

 

 

$

1,017

 

Research and development

 

 

1,322

 

 

 

2,158

 

Total

 

$

2,436

 

 

$

3,175

 

 

 

7.

Warrants

The Company had two tranches of common stock warrants outstanding at March 31, 2021.  The first tranche was exercisable for an aggregate of 370,370 shares of common stock and was issued on June 15, 2015 with an exercise price of $2.70 per share.  These warrants were issued with a 7-year term and expire on June 15, 2022.  The second tranche was exercisable for an aggregate of 882,071 shares of common stock and was issued on December 27, 2017 with an exercise price of $9.38 per share. These warrants were issued with a 5-year term and expire on December 26, 2022. The intrinsic value of exercisable but unexercised in-the-money common stock warrants at March 31, 2021 was approximately $2,825,000 based on a fair value of $12.20 per share on March 31, 2021.

Each tranche of warrants was evaluated under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, and the Company determined that equity classification was appropriate.

 

The following table shows common stock warrants outstanding as of March 31, 2021:

 

 

 

Warrant Issued June 15, 2015- Tranche 1

 

 

Warrant Issued December 27, 2017- Tranche 2

 

 

Total

 

Shares remaining to be issued as of December 31, 2020

 

 

72,611

 

 

 

789,358