mirm-10q_20190930.htm

 

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 September 30, 2019

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: 001-38981

 

Mirum Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

83-1281555

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

950 Tower Lane, Suite 1050, Foster City, California

94404

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 667-4085

 

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 $0.0001 per share

 

MIRM

 

Nasdaq Global 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 November 1, 2019, the registrant had 22,989,987 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Equity (Deficit)

4

 

Condensed Consolidated Statement of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

68

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,814

 

 

$

51,963

 

Short-term investments

 

 

95,445

 

 

 

 

Prepaid expenses and other current assets

 

 

3,058

 

 

 

12

 

Total current assets

 

 

129,317

 

 

 

51,975

 

Long-term investments

 

 

27,300

 

 

 

 

Property and equipment, net

 

 

631

 

 

 

 

Operating lease right-of-use assets

 

 

941

 

 

 

 

Other assets

 

 

84

 

 

 

 

Total assets

 

$

158,273

 

 

$

51,975

 

Liabilities, Redeemable Convertible Preferred Stock, Redeemable Common Stock

   and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,665

 

 

$

269

 

Accrued expenses

 

 

7,912

 

 

 

2,180

 

Operating lease liabilities

 

 

332

 

 

 

 

Total current liabilities

 

 

10,909

 

 

 

2,449

 

Operating lease liabilities, noncurrent

 

 

1,124

 

 

 

 

Other liabilities

 

 

37

 

 

 

 

Total liabilities

 

 

12,070

 

 

 

2,449

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, $0.0001 par value; zero and

   120,000,000 shares authorized as of September 30, 2019 (unaudited) and

   December 31, 2018, respectively; zero and 59,908,284 shares issued and

   outstanding as of September 30, 2019 (unaudited) and December 31, 2018,

   respectively; and liquidation value of $0 and $60,064 as of

   September 30, 2019 (unaudited) and December 31, 2018, respectively

 

 

 

 

 

59,849

 

Redeemable common stock, $0.0001 par value; zero and 1,859,151 shares issued and

   outstanding as of September 30, 2019 (unaudited) and December 31, 2018, respectively

 

 

 

 

 

6,990

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 and zero shares

   authorized as of September 30, 2019 (unaudited) and December 31,

   2018, respectively; zero shares issued and outstanding as of

   September 30, 2019 (unaudited) and December 31, 2018, respectively;

   and liquidation value of $0 as of September 30, 2019 (unaudited) and

   December 31, 2018, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 and 180,000,000 shares

   authorized as of September 30, 2019 (unaudited) and December 31, 2018, respectively;

   22,989,987 shares issued and 22,566,940 outstanding, excluding 423,047 shares

   subject to repurchase as of September 30, 2019 (unaudited); and 1,187,500 shares

   issued and 636,719 outstanding, excluding 550,781 shares subject to repurchase

   as of December 31, 2018

 

 

2

 

 

 

1

 

Additional paid-in capital

 

 

198,052

 

 

 

34

 

Accumulated deficit

 

 

(51,949

)

 

 

(17,348

)

Accumulated other comprehensive income

 

 

98

 

 

 

 

Total stockholders’ equity (deficit)

 

 

146,203

 

 

 

(17,313

)

Total liabilities, redeemable convertible preferred stock, redeemable common

   stock and stockholders’ equity (deficit)

 

$

158,273

 

 

$

51,975

 

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

1


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Period from May 2, 2018

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

to September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,159

 

 

$

3

 

 

$

28,611

 

 

$

3

 

General and administrative

 

 

3,708

 

 

 

62

 

 

 

7,474

 

 

 

72

 

Total operating expenses

 

 

15,867

 

 

 

65

 

 

 

36,085

 

 

 

75

 

Loss from operations

 

 

(15,867

)

 

 

(65

)

 

 

(36,085

)

 

 

(75

)

Interest income (expense)

 

 

785

 

 

 

(2

)

 

 

1,485

 

 

 

(2

)

Other income (expense), net

 

 

(5

)

 

 

 

 

 

(1

)

 

 

 

Net loss

 

$

(15,087

)

 

$

(67

)

 

$

(34,601

)

 

$

(77

)

Net loss per common share, basic and diluted

 

$

(0.84

)

 

$

(0.14

)

 

$

(4.47

)

 

$

(0.26

)

Weighted-average common shares outstanding, basic and

   diluted

 

 

17,996,065

 

 

 

476,905

 

 

 

7,745,241

 

 

 

290,570

 

 

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

2


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Period from May 2, 2018

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

to September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(15,087

)

 

$

(67

)

 

$

(34,601

)

 

$

(77

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale investments

 

 

77

 

 

 

 

 

 

123

 

 

 

 

Cumulative translation adjustments

 

 

(7

)

 

 

 

 

 

(25

)

 

 

 

Comprehensive loss

 

$

(15,017

)

 

$

(67

)

 

$

(34,503

)

 

$

(77

)

 

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

 

3


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock,

Redeemable Common Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Series A Redeemable

Preferred Stock

 

 

Redeemable

Common Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity (Deficit)

 

Balance as of December 31, 2018

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

 

 

$

 

 

 

636,719

 

 

$

1

 

 

$

34

 

 

$

(17,348

)

 

$

 

 

$

(17,313

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

 

 

 

 

 

 

218

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,957

)

 

 

 

 

 

(5,957

)

Balance as of March 31, 2019

 

 

59,908,284

 

 

$

59,849

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

 

 

$

 

 

 

671,875

 

 

$

1

 

 

$

252

 

 

$

(23,305

)

 

$

 

 

$

(23,052

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A redeemable convertible

   preferred stock at $1.00259507 per share,

   net of issuance costs of $23

 

 

59,844,699

 

 

 

59,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,641

 

 

 

 

 

 

 

 

 

1,641

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,557

)

 

 

 

 

 

(13,557

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

28

 

Balance as of June 30, 2019

 

 

119,752,983

 

 

$

119,826

 

 

 

1,859,151

 

 

$

6,990

 

 

 

 

 

 

$

 

 

 

705,273

 

 

$

1

 

 

$

1,893

 

 

$

(36,862

)

 

$

28

 

 

$

(34,940

)

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,144

 

 

 

 

 

 

 

 

 

2,144

 

Conversion of Series A redeemable convertible

   preferred stock into common stock on initial

   public offering

 

 

(119,752,983

)

 

 

(119,826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,969,118

 

 

 

1

 

 

 

119,825

 

 

 

 

 

 

 

 

 

119,826

 

Reclassification of redeemable common stock

   into common stock on initial public offering

 

 

 

 

 

 

 

 

(1,859,151

)

 

 

(6,990

)

 

 

 

 

 

 

 

 

 

1,859,151

 

 

 

 

 

 

6,990

 

 

 

 

 

 

 

 

 

6,990

 

Issuance of common stock in initial public

   offering, net of issuance costs of $7,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000,000

 

 

 

 

 

 

67,200

 

 

 

 

 

 

 

 

 

67,200

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,087

)

 

 

 

 

 

(15,087

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

70

 

Balance as of September 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

$

 

 

 

22,566,940

 

 

$

2

 

 

$

198,052

 

 

$

(51,949

)

 

$

98

 

 

$

146,203

 

 

 

 

Series A Redeemable

Preferred Stock

 

 

Redeemable

Common Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance as of May 2, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Issuance of common stock at $0.0001 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

(10

)

Balance as of June 30, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

26

 

 

$

 

 

$

 

 

$

(10

)

 

$

 

 

$

(10

)

Issuance of common stock at $0.0001 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

812,474

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(67

)

 

 

 

 

 

(67

)

Balance as of September 30, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

812,500

 

 

$

1

 

 

$

 

 

$

(77

)

 

$

 

 

$

(76

)

 

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

 

4


 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

Period from

May 2, 2018 to

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(34,601

)

$

(77

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation

 

 

4,003

 

 

 

Depreciation and amortization

 

 

80

 

 

 

Amortization of operating lease right-of-use assets

 

 

124

 

 

 

Amortization of premium on investments

 

 

(199

)

 

 

Interest expense on convertible note

 

 

 

 

2

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(3,046

)

 

 

Operating lease right-of-use assets

 

 

(33

)

 

 

Other assets

 

 

(84

)

 

 

Accounts payable, accrued expenses and other liabilities

 

 

8,079

 

 

56

 

Operating lease liabilities

 

 

13

 

 

 

Net cash used in operating activities

 

 

(25,664

)

 

(19

)

Investing activities

 

 

 

 

 

 

 

Purchase of investments

 

 

(130,923

)

 

 

Proceeds from maturities of investments

 

 

8,500

 

 

 

Purchase of property and equipment

 

 

(214

)

 

 

Net cash used in investing activities

 

 

(122,637

)

 

 

Financing activities

 

 

 

 

 

 

 

Proceeds from convertible note, related party

 

 

 

 

50

 

Proceeds from the sale of common stock

 

 

 

 

1

 

Proceeds from the issuance of Series A redeemable convertible preferred stock, net

 

 

59,977

 

 

 

Proceeds from issuance of common stock in initial public offering, net of issuance costs

 

 

67,200

 

 

 

Net cash provided by financing activities

 

 

127,177

 

 

51

 

Effect of exchange rate on cash and cash equivalents

 

 

(25

)

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(21,149

)

 

32

 

Cash and cash equivalents at beginning of period

 

 

51,963

 

 

 

Cash and cash equivalents at end of period

 

$

30,814

 

$

32

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

$

1,444

 

$

 

Landlord paid tenant improvements

 

$

455

 

$

 

Deferred Series A redeemable convertible preferred stock issuance costs in accounts

   payable

 

$

 

$

55

 

Conversion of Series A redeemable convertible preferred stock into common stock

   on initial public offering

 

$

119,826

 

$

 

Reclassification of redeemable common stock into common stock on initial public offering

 

$

6,990

 

$

 

Property and equipment purchases included in accounts payable

 

$

43

 

$

 

 

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

5


 

Mirum Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Mirum Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on May 2, 2018, and is headquartered in Foster City, California. The Company is a biopharmaceutical company focused on the development and commercialization of a late-stage pipeline of novel therapies for debilitating liver diseases. The Company’s pipeline consists of two clinical-stage product candidates, maralixibat and volixibat, with mechanisms of action that have potential utility across a wide range of orphan liver diseases. The Company commenced significant operations in November 2018.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Mirum Pharmaceuticals AG. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Reverse Stock Split

On July 3, 2019, the Company effected a 1-for-8 reverse stock split of its common stock. The par value and the authorized number of shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the conversion price of the Company’s Series A redeemable convertible preferred stock (the “Series A Preferred Stock”) to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

Initial Public Offering

On July 22, 2019, the Company completed its initial public offering (“IPO”) of its common stock. In connection with its IPO, the Company issued and sold 5,000,000 shares of its common stock at a price of $15.00 per share. As a result of the IPO, the Company received $67.2 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses. At the closing of the IPO, 119,752,983 shares of outstanding Series A Preferred Stock were automatically converted into 14,969,118 shares of common stock, and 1,859,151 shares of redeemable common stock were reclassified into permanent equity due to the expiration of the deemed redemption feature. Following the IPO, there were no shares of Series A Preferred Stock or shares of redeemable common stock outstanding.

Liquidity

The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven. As of September 30, 2019, the Company had an accumulated deficit of $51.9 million and cash, cash equivalents and investments of $153.6 million, which is available to fund future operations. The Company believes that its cash, cash equivalents and investments as of September 30, 2019 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying unaudited condensed consolidated financial statements. As such, the unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities.

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2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The unaudited condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the period from May 2, 2018 to December 31, 2018 included in the Company’s prospectus dated July 17, 2019 that forms a part of the Company’s Registration Statement on Form S-1 (File No. 333-232251), as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended, on July 18, 2019.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to accrued research and development expenses, the valuation of common stock, equity awards and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based upon historical experience, knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The carrying amounts reported in the unaudited condensed consolidated balance sheet for cash and cash equivalents are valued at cost, which approximate their fair value. Cash equivalents may consist of money market accounts, money market funds, U.S. treasury bills and repurchase agreements.

The Company invests in certain reverse repurchase agreements, which are collateralized by deposits in the form of U.S. Treasury Securities for an amount no less than 102% of their value. The Company does not record an asset or liability for the collateral as the Company does not intend to sell or re-pledge the collateral. The collateral has the prevailing credit rating of at least the U.S. Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

Investments

The Company classifies all investments as available-for-sale, as the sale of such securities may be required prior to maturity. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than twelve months from the balance sheet date, are classified as a current asset.

Investments are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income.

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Fair Value of Financial Instruments

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of all cash equivalents, investments, accounts payable and accrued liabilities are reasonable estimates of their fair value.

There were no transfers between Levels 1, 2 or 3 for the periods presented.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation, ranging from three to five years. Leasehold improvements are amortized over the shorter of their useful lives or the related lease term. As of September 30, 2019, and December 31, 2018, property and equipment consisted primarily of leasehold improvements of $0.5 million and zero, respectively. Accumulated depreciation as of September 30, 2019 and December 31, 2018 was $0.1 million and zero, respectively.

Accrued Research and Development Expenses

The Company accrues and expenses clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations and clinical trial sites. The Company determines the estimates by reviewing contracts, vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

The Company makes estimates of accrued expenses as of each balance sheet date based on facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception. Nonrefundable advance payments for goods and services are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Research and Development Expenses

Research and development expenses consist primarily of fees paid to contract research organizations and other vendors for clinical, non-clinical and manufacturing services, salaries and benefits, including stock-based compensation expense, consultant expenses, costs related to acquiring manufacturing materials, costs related to compliance with regulatory requirements and license payments related to acquiring intellectual property rights for the Company’s product candidates. Research and development expenses are expensed as incurred.

Leases

In accordance with Accounting Standards Update (“ASU”) No. 2016-02, as adopted on January 1, 2019, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our unaudited condensed consolidated balance sheet.

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Operating lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. Operating lease ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company determines the lease term as the noncancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the unaudited condensed consolidated balance sheet. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase and common stock options because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share were the same.

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

As of September 30,

 

 

 

2019

 

 

2018

 

Options to purchase common stock

 

 

3,206,812

 

 

 

 

Common stock subject to repurchase

 

 

423,047

 

 

 

 

Total

 

 

3,629,859