mirm-10q_20210331.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 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: 001-38981

 

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

 

The 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  

As of April 30, 2021 the registrant had 30,453,374 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

 

 

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 Stockholders’ Equity

4

 

Condensed Consolidated Statements 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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

Signatures

79

 


i


 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

 

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part I, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

 

 

We have a very limited operating history, and we have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

 

Our business is dependent on the success of our product candidates, each of which require significant clinical testing before we can seek regulatory approval and potentially launch commercial sales.

 

 

We have encountered and may continue to encounter delays and difficulties enrolling patients in our clinical trials, and as a result, our clinical development activities could be delayed or otherwise adversely affected.

 

 

Our product candidates are subject to extensive regulation and compliance, which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.

 

 

Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.

 

 

Clinical drug development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results.

 

 

Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.

 

 

Our applications for marketing authorization with regulatory authorities may not be accepted or may require additional studies or manufacturing requirements to be completed before marketing authorization is granted.

 

 

Even if we obtain regulatory approval for our product candidates, our product candidates may not gain market acceptance among physicians, patients, tertiary care centers, transplant centers and others in the medical community.

 

 

We currently have a limited marketing and sales organization and as a company, we have never commercialized a product before. If we are unable to adequately establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate viable product revenues. Even if we adequately establish such capabilities, market acceptance or reimbursement of our products may be lower than expected.

 

 

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

 

 

We will need substantial additional financing to develop our product candidates and implement our operating plans. If we fail to obtain additional financing, we may be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

 

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

 

 

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our product candidates, if approved, may be adversely affected.

 

 

 

ii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,677

 

 

$

142,086

 

Short-term investments

 

 

122,436

 

 

 

89,734

 

Prepaid expenses and other current assets

 

 

4,642

 

 

 

4,530

 

Total current assets

 

 

217,755

 

 

 

236,350

 

Property and equipment, net

 

 

1,206

 

 

 

1,293

 

Operating lease right-of-use assets

 

 

1,854

 

 

 

1,949

 

Other assets

 

 

1,426

 

 

 

1,272

 

Total assets

 

$

222,241

 

 

$

240,864

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,658

 

 

$

3,151

 

Accrued expenses

 

 

27,781

 

 

 

13,411

 

Operating lease liabilities

 

 

653

 

 

 

636

 

Derivative liability

 

 

930

 

 

 

1,264

 

Total current liabilities

 

 

35,022

 

 

 

18,462

 

Revenue interest liability, net

 

 

50,860

 

 

 

47,651

 

Operating lease liabilities, noncurrent

 

 

2,452

 

 

 

2,627

 

Other liabilities

 

 

24

 

 

 

29

 

Total liabilities

 

 

88,358

 

 

 

68,769

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized

   as of March 31, 2021 and December 31, 2020, respectively;

   and zero shares issued and outstanding as of March 31, 2021

   and December 31, 2020, respectively

 

 

 

 

 

 

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

   authorized as of March 31, 2021 and December 31, 2020, respectively;

   30,420,789 shares issued and 30,198,129 shares outstanding,

   excluding 222,660 shares subject to repurchase as of March 31, 2021;

   and 30,032,600 shares issued and 29,776,544 shares outstanding,

   excluding 256,056 shares subject to repurchase as of December 31, 2020

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

357,583

 

 

 

345,180

 

Accumulated deficit

 

 

(223,703

)

 

 

(173,171

)

Accumulated other comprehensive income

 

 

 

 

 

83

 

Total stockholders’ equity

 

 

133,883

 

 

 

172,095

 

Total liabilities and stockholders’ equity

 

$

222,241

 

 

$

240,864

 

 

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 March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

38,134

 

 

$

17,340

 

General and administrative

 

 

9,479

 

 

 

4,692

 

Total operating expenses

 

 

47,613

 

 

 

22,032

 

Loss from operations

 

 

(47,613

)

 

 

(22,032

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

149

 

 

 

749

 

Interest expense

 

 

(3,381

)

 

 

 

Change in fair value of derivative liability

 

 

334

 

 

 

 

Other expense, net

 

 

(16

)

 

 

(23

)

Net loss before provision for income taxes

 

 

(50,527

)

 

 

(21,306

)

Provision for income taxes

 

 

5

 

 

 

4

 

Net loss

 

$

(50,532

)

 

$

(21,310

)

Net loss per share, basic and diluted

 

$

(1.68

)

 

$

(0.86

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

30,105,017

 

 

 

24,704,651

 

 

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 March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(50,532

)

 

$

(21,310

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale investments

 

 

(74

)

 

 

(149

)

Cumulative translation adjustments

 

 

(9

)

 

 

(4

)

Comprehensive loss

 

$

(50,615

)

 

$

(21,463

)

 

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

 

3


 

 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share and per share data)

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2020

 

 

 

 

$

 

 

 

29,776,544

 

 

$

3

 

 

$

345,180

 

 

$

(173,171

)

 

$

83

 

 

$

172,095

 

Issuance of common stock in connection with

   common stock option exercises

 

 

 

 

 

 

 

 

12,535

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Issuance of common stock in public offering,

   net of issuance costs of $25

 

 

 

 

 

 

 

 

375,654

 

 

 

 

 

 

7,038

 

 

 

 

 

 

 

 

 

7,038

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,285

 

 

 

 

 

 

 

 

 

5,285

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,532

)

 

 

 

 

 

(50,532

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

(83

)

Balance as of March 31, 2021

 

 

 

 

$

 

 

 

30,198,129

 

 

$

3

 

 

$

357,583

 

 

$

(223,703

)

 

$

 

 

$

133,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2019

 

 

 

 

$

 

 

 

22,600,338

 

 

$

2

 

 

$

200,119

 

 

$

(69,901

)

 

$

129

 

 

$

130,349

 

Issuance of common stock in follow-on public

   offering, net of issuance costs of $3,342

 

 

 

 

 

 

 

 

2,400,000

 

 

 

1

 

 

 

44,658

 

 

 

 

 

 

 

 

 

44,659

 

Restricted common stock vested in the period

 

 

 

 

 

 

 

 

33,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,573

 

 

 

 

 

 

 

 

 

2,573

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,310

)

 

 

 

 

 

(21,310

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

(153

)

Balance as of March 31, 2020

 

 

 

 

$

 

 

 

25,033,736

 

 

$

3

 

 

$

247,350

 

 

$

(91,211

)

 

$

(24

)

 

$

156,118

 

 

 

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

 

4


 

 

Mirum Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(50,532

)

 

$

(21,310

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

5,285

 

 

 

2,573

 

Depreciation and amortization

 

 

90

 

 

 

73

 

Amortization of operating lease right-of-use assets

 

 

95

 

 

 

83

 

Non-cash interest expense related to the revenue interest liability

 

 

3,381

 

 

 

 

Net amortization (accretion) on investments

 

 

6

 

 

 

(52

)

Change in fair value of derivative liability

 

 

(334

)

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(112

)

 

 

(158

)

Other assets

 

 

(160

)

 

 

 

Accounts payable, accrued expenses and other liabilities

 

 

17,228

 

 

 

476

 

Operating lease liabilities

 

 

(157

)

 

 

(36

)

Net cash used in operating activities

 

 

(25,210

)

 

 

(18,351

)

Investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities of investments

 

 

48,600

 

 

 

29,500

 

Proceeds from paydown of investments

 

 

2,000

 

 

 

4,359

 

Purchase of investments

 

 

(83,381

)

 

 

 

Purchase of property and equipment

 

 

(3

)

 

 

(98

)

Net cash (used in) provided by investing activities

 

 

(32,784

)

 

 

33,761

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in public offerings, net of issuance costs

 

 

6,914

 

 

 

44,659

 

Proceeds from issuance of common stock pursuant to equity award plans

 

 

80

 

 

 

 

Payment of issuance costs related to the revenue interest liability

 

 

(400

)

 

 

 

Net cash provided by financing activities

 

 

6,594

 

 

 

44,659

 

Effect of exchange rate on cash and cash equivalents

 

 

(9

)

 

 

(4

)

Net (decrease) increase in cash and cash equivalents

 

 

(51,409

)

 

 

60,065

 

Cash and cash equivalents at beginning of period

 

 

142,086

 

 

 

11,970

 

Cash and cash equivalents at end of period

 

$

90,677

 

 

$

72,035

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Operating cash flows paid for operating lease

 

$

212

 

 

$

107

 

 

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

(Unaudited)

1. Organization and 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 subsidiaries. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

The Company views its operations and manages its business as one operating segment.

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 March 31, 2021, the Company had an accumulated deficit of $223.7 million and cash, cash equivalents and investments of $213.1 million, which are available to fund future operations. The Company believes that its cash, cash equivalents and investments as of March 31, 2021 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. 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.

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 consolidated balance sheet as of December 31, 2020 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 in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2020, as filed with the SEC on March 9, 2021.

Use of Estimates

The preparation of 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 the revenue interest liability, accrued research and development expenses, the valuation of derivative liabilities, equity award compensation 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.

 

6


 

 

Significant Accounting Policies

There have been no significant changes to the accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Company’s audited consolidated financial statements included in the Annual Report, except as discussed below.

Stock-Based Compensation

The Company recognizes stock-based compensation for all stock-based awards based on the grant date fair value of the award. For stock-based awards with service conditions, the fair value of the awards is amortized on a straight-line basis over the requisite service period in which the awards are expected to vest, and forfeitures are recognized as they occur. For stock-based awards with performance conditions, stock-based compensation is recognized when it is considered probable that the performance conditions will be satisfied. At each reporting period, the Company reassesses the probability of the achievement of the performance conditions to estimate the number of shares to be released. Any change in stock-based compensation resulting from an adjustment in the estimated shares to be released is treated as accumulative catch-up in the period of adjustment. For stock-based awards with market conditions, stock-based compensation is recognized over the appropriate requisite service period.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average 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 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, common stock options, contingently issuable employee stock purchase plan shares, contingently issuable performance stock units (“PSUs”) and contingently issuable underwriter option shares because their effect would be anti-dilutive due to the Company’s net loss. Since the Company incurred a net loss in each of the periods presented, basic and diluted net loss per share were the same.

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Options to purchase common stock

 

 

6,263,306

 

 

 

5,071,740

 

Common stock subject to repurchase

 

 

222,660

 

 

 

256,056

 

Employee stock purchase plan contingently issuable

 

 

32,578

 

 

 

12,931

 

PSUs contingently issuable

 

 

227,537

 

 

 

 

Underwriter option shares contingently issuable

 

 

 

 

 

562,500

 

Total

 

 

6,746,081

 

 

 

5,903,227

 

 

Recently Adopted Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2018-18, Collaborative Arrangements (Topic 818): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. As the Company entered into collaboration agreements in April 2021, the Company adopted this standard on January 1, 2021. There was no impact on the accompanying consolidated financial statements as of the adoption date.

Recent Accounting Pronouncements Not Yet Adopted

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”). ASU 2016-13 requires an entity to utilize a new impairment model that requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The new guidance requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new guidance. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit

7


 

deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. In March 2020, the FASB issued ASU No. 2020-3, Codification Improvements to Financial Instruments which makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard and clarifies the following areas (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses; (ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. For smaller reporting companies, the guidance will be effective during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements.

3. Fair Value Measurements

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type are presented in the following table (in thousands):

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

89,221

 

 

$

 

 

$

 

 

$

89,221

 

U.S. treasury bills

 

 

6,000

 

 

 

 

 

 

 

 

 

6,000

 

Corporate debt securities

 

 

 

 

 

6,506

 

 

 

 

 

 

6,506

 

Commercial paper

 

 

 

 

 

104,892

 

 

 

 

 

 

104,892

 

U.S. government bonds

 

 

 

 

 

5,038

 

 

 

 

 

 

5,038

 

Total financial assets

 

$

95,221

 

 

$

116,436

 

 

$

 

 

$

211,657

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

 

 

 

 

 

 

$

930

 

 

$

930

 

Total financial liabilities

 

$

 

 

$

 

 

$

930

 

 

$

930

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

127,783

 

 

$

 

 

$

 

 

$

127,783

 

U.S. treasury bills

 

 

29,997

 

 

 

 

 

 

 

 

 

29,997

 

Corporate debt securities

 

 

 

 

 

23,201

 

 

 

 

 

 

23,201

 

Commercial paper

 

 

 

 

 

41,460

 

 

 

 

 

 

41,460

 

U.S. government bonds

 

 

 

 

 

5,066

 

 

 

 

 

 

5,066

 

Asset-backed securities

 

 

 

 

 

2,006

 

 

 

 

 

 

2,006

 

Total financial assets

 

$

157,780

 

 

$

71,733

 

 

$

 

 

$

229,513

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$

 

 

$

 

 

$

1,264

 

 

$

1,264

 

Total financial liabilities

 

$

 

 

$

 

 

$

1,264

 

 

$

1,264

 

The carrying amounts of certain financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of March 31, 2021 and December 31, 2020 approximate their related fair values due to the short-term maturities of these instruments. Certain financial instruments classified within Level 2 of the fair value hierarchy include the types of instruments that trade in markets that are not considered to be active, but are valued based on

8


 

quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The carrying amount of the revenue interest liability as of March 31, 2021 and December 31, 2020 approximates its fair value and is based on the Company’s contractual repayment obligation to the Purchasers (as defined below), based on the current estimates of future revenues, over the life of the Revenue Interest Purchase Agreement (“RIPA”). The derivative liability is considered a Level 3 input based on the three-level hierarchy. Refer to Note 6 “Revenue Interest Purchase Agreement” for further information.

Derivative Liability

The debt pursuant to the RIPA contains embedded derivatives requiring bifurcation as a single compound derivative instrument. The Company estimated the fair value of the derivative liability at March 31, 2021 and December 31, 2020 using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative. The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability at March 31, 2021 and December 31, 2020. The estimated probability and timing of underlying events triggering the exercisability of the put options contained within the RIPA, forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative. As of March 31, 2021 and December 31, 2020, the discount rate used for valuation of the derivative liability is 15.7% and 15.9%, respectively.

The following table provides a summary of the change in the estimated fair value of the Company’s derivative liability, classified as Level 3 in the fair value hierarchy:

 

Balance at December 31, 2020

 

$

1,264

 

 

Change in fair value of derivative liability

 

 

(334

)

 

Balance at March 31, 2021

 

$

930

 

 

 

4. Financial Instruments

The fair value and amortized cost of cash equivalents and available-for-sale investments by major security type are presented in the following table (in thousands):

 

 

 

March 31, 2021

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

89,221

 

 

$

 

 

$

 

 

$

89,221

 

U.S. treasury bills

 

 

6,000

 

 

 

 

 

 

 

 

 

6,000

 

Corporate debt securities

 

 

6,500

 

 

 

6

 

 

 

 

 

 

6,506

 

Commercial paper

 

 

104,892

 

 

 

 

 

 

 

 

 

104,892

 

U.S. government bonds

 

 

5,037

 

 

 

1

 

 

 

 

 

 

5,038

 

Total cash equivalents and investments

 

$

211,650

 

 

$

7

 

 

$

 

 

$

211,657

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

89,221

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122,436

 

Total cash equivalents and investments

 

 

 

 

 

 

 

 

 

 

 

 

 

$

211,657

 

 

9


 

 

 

 

December 31, 2020

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Estimated

Fair

Value

 

Cash equivalents and investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

127,783

 

 

$

 

 

$

 

 

$

127,783

 

U.S. treasury bills

 

 

29,995

 

 

 

2

 

 

 

 

 

 

29,997

 

Corporate debt securities

 

 

23,126

 

 

 

75

 

 

 

 

 

 

23,201

 

Commercial paper

 

 

41,460

 

 

 

 

 

 

 

 

 

41,460

 

U.S. government bonds

 

 

5,067

 

 

 

 

 

 

(1

)

 

 

5,066

 

Asset-backed securities

 

 

2,001

 

 

 

5

 

 

 

 

 

 

2,006

 

Total cash equivalents and investments

 

$

229,432

 

 

$

82

 

 

$

(1

)

 

$

229,513

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

139,779

 

Short-term investments