ruby_Current_Folio_10Q

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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 June 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: 001-38586

RUBIUS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

    

46-2688109

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

399 Binney Street, Suite 300
Cambridge, Massachusetts
(Address of principal executive offices)

 

02139
(Zip code)

 

(617) 679-9600

(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

 

         RUBY

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes No 

Indicate by check mark whether the registrant has submitted electronically, if any, 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 July 31, 2019, the registrant had 79,651,358 shares of common stock, $0.001 par value per share, outstanding.

 

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10‑Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10‑Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

·

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

·

our ability to advance any product candidate into or successfully complete any clinical trial;

·

our ability or the potential to successfully manufacture our product candidates for clinical trials or for commercial use, if approved;

·

our plans to renovate, customize and operate our manufacturing facility purchased in 2018;

·

the potential for our identified research priorities to advance our technologies;

·

our ability to maintain regulatory approval, if obtained, of any of our current or future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

·

the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;

·

our ability to commercialize our products in light of the intellectual property rights of others;

·

developments relating to cellular therapies, including red blood cell therapies;

·

the success of competing therapies that are or become available;

·

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

·

the commercialization of our product candidates, if approved;

·

our plans to research, develop and commercialize our product candidates;

·

our ability to attract collaborators with development, regulatory and commercialization expertise;

·

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

·

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

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·

the rate and degree of market acceptance of our product candidates;

·

regulatory developments in the United States and foreign countries;

·

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

·

our ability to attract and retain key scientific or management personnel;

·

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

·

the impact of laws and regulations;

·

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

·

our expectations regarding the period during which we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act; and

·

our use of the proceeds from the initial public offering.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10‑Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10‑Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10‑Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10‑Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10‑Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10‑Q.

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Rubius Therapeutics, Inc.

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Page No.

PART I - FINANCIAL INFORMATION 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements

1

 

Condensed Consolidated Balance Sheets (Unaudited)

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

3

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

4

 

Notes to (Unaudited) Condensed Consolidated Financial Statements

6

Item 2. 

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

22

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

34

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

96

Item 3. 

Defaults Upon Senior Securities

97

Item 4. 

Mine Safety Disclosures

97

Item 5. 

Other Information

97

Item 6. 

Exhibits

98

Signatures 

99

 

 

 

 

 

 

 

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

June 30, 2019

 

December 31, 2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

141,084

 

$

307,064

Investments

 

 

221,246

 

 

96,987

Prepaid expenses and other current assets

 

 

4,196

 

 

9,737

Restricted cash

 

 

122

 

 

622

Total current assets

 

 

366,648

 

 

414,410

Operating lease, right-of-use-asset

 

 

27,643

 

 

 —

Property, plant and equipment, net

 

 

41,898

 

 

62,796

Restricted cash

 

 

1,735

 

 

1,735

Other assets

 

 

108

 

 

168

Total assets

 

$

438,032

 

$

479,109

Liabilities and Stockholders' Equity

 

 

 

 

 

  

Current liabilities:

 

 

 

 

 

  

Accounts payable

 

$

2,344

 

$

7,886

Accrued expenses and other current liabilities

 

 

13,805

 

 

7,616

Operating lease liabilities

 

 

5,076

 

 

4,502

Total current liabilities

 

 

21,225

 

 

20,004

Long-term debt, net of discount

 

 

49,422

 

 

24,347

Other long-term liabilities

 

 

604

 

 

309

Operating lease liabilities, net of current portion

 

 

23,137

 

 

41,441

Total liabilities

 

 

94,388

 

 

86,101

Commitments and contingencies (see Note 11)

 

 

 

 

 

  

Stockholders' equity:

 

 

 

 

 

  

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2019 and December 31, 2018; no shares issued or outstanding at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.001 par value; 150,000,000 shares authorized at June 30, 2019 and December 31, 2018; 80,077,679 and 79,234,853 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

80

 

 

79

Additional paid-in capital

 

 

564,527

 

 

543,040

Accumulated other comprehensive income (loss)

 

 

290

 

 

(29)

Accumulated deficit

 

 

(221,253)

 

 

(150,082)

Total stockholders' equity

 

 

343,644

 

 

393,008

Total liabilities and stockholders' equity

 

$

438,032

 

$

479,109

 

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

 

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenue

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

27,518

 

 

11,361

 

 

48,389

 

 

20,867

General and administrative

 

 

13,767

 

 

9,023

 

 

27,302

 

 

14,120

Total operating expenses

 

 

41,285

 

 

20,384

 

 

75,691

 

 

34,987

Loss from operations

 

 

(41,285)

 

 

(20,384)

 

 

(75,691)

 

 

(34,987)

Other income (expense):

 

 

  

 

 

  

 

 

 

 

 

  

Change in fair value of preferred stock warrant liability

 

 

 —

 

 

(1,718)

 

 

 —

 

 

(1,761)

Interest expense

 

 

(539)

 

 

(89)

 

 

(1,122)

 

 

(172)

Interest income and other income, net

 

 

2,434

 

 

952

 

 

4,842

 

 

1,270

Total other income (expense), net

 

 

1,895

 

 

(855)

 

 

3,720

 

 

(663)

Net loss

 

 

(39,390)

 

 

(21,239)

 

 

(71,971)

 

 

(35,650)

Net loss per share, basic and diluted

 

$

(0.50)

 

$

(2.43)

 

$

(0.92)

 

$

(4.17)

Weighted average common shares outstanding, basic and diluted

 

 

78,396,714

 

 

8,727,392

 

 

77,972,757

 

 

8,542,362

 

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive loss:

 

 

  

 

 

  

 

 

  

 

 

  

Net loss

 

$

(39,390)

 

$

(21,239)

 

$

(71,971)

 

$

(35,650)

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized gains (losses) on investments, net of tax of $0

 

 

209

 

 

18

 

 

319

 

 

(27)

Comprehensive loss

 

$

(39,181)

 

$

(21,221)

 

$

(71,652)

 

$

(35,677)

 

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

 

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(71,971)

 

$

(35,650)

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

 

 

 

 

 

  

Stock-based compensation expense

 

 

20,082

 

 

8,515

Depreciation and amortization expense

 

 

1,446

 

 

502

Change in fair value of preferred stock warrant liability

 

 

 —

 

 

1,761

Accretion of discount on investments

 

 

(1,215)

 

 

(120)

Loss on disposal of property and equipment

 

 

119

 

 

 —

Non-cash interest expense

 

 

114

 

 

21

Changes in operating assets and liabilities:

 

 

 

 

 

  

Prepaid expenses and other current assets

 

 

(1,142)

 

 

(265)

Operating lease, right-of-use-asset

 

 

2,052

 

 

 —

Accounts payable

 

 

(4,741)

 

 

3,033

Accrued expenses and other current liabilities

 

 

2,612

 

 

1,434

Deferred rent

 

 

 —

 

 

(18)

Operating lease liabilities

 

 

(67)

 

 

 —

Net cash used in operating activities

 

 

(52,711)

 

 

(20,787)

Cash flows from investing activities:

 

 

  

 

 

  

Purchases of property, plant and equipment

 

 

(17,415)

 

 

(1,458)

Purchases of investments

 

 

(176,899)

 

 

(78,425)

Sales and maturities of investments

 

 

54,174

 

 

13,710

Net cash used in investing activities

 

 

(140,140)

 

 

(66,173)

Cash flows from financing activities:

 

 

  

 

 

  

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 —

 

 

100,986

Payments of initial public offering costs

 

 

 —

 

 

(715)

Proceeds from repayment of promissory note

 

 

 —

 

 

245

Proceeds from borrowings under loan and security agreement

 

 

25,000

 

 

 —

Proceeds from issuance of common stock upon exercise of stock options

 

 

1,371

 

 

18

Net cash provided by financing activities

 

 

26,371

 

 

100,534

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(166,480)

 

 

13,574

Cash, cash equivalents and restricted cash at beginning of period

 

 

309,421

 

 

104,572

Cash, cash equivalents and restricted cash at end of period

 

$

142,941

 

$

118,146

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized

 

$

1,033

 

$

 —

Cash paid for leases

 

$

1,084

 

$

 —

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

  

Lease assets obtained in exchange for new operating lease liabilities

 

$

27,944

 

$

 —

Purchases of property, plant and equipment included in accounts payable or accrued expenses

 

$

4,739

 

$

850

Amounts capitalized under build-to-suit lease transaction

 

$

 —

 

$

16,918

Deferred offering costs and issuance costs included in accounts payable or accrued expenses

 

$

 —

 

$

1,769

 

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

 

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

other

 

 

 

 

Total

 

 

Common stock

 

paid-in

 

comprehensive

 

Accumulated

 

stockholders’

 

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity (deficit)

Balances at December 31, 2018

 

79,234,853

 

$

79

 

$

543,040

 

$

(29)

 

$

(150,082)

 

$

393,008

Issuance of common stock

  upon exercise of stock

  options

 

619,342

 

 

 1

 

 

798

 

 

 —

 

 

 —

 

 

799

Stock-based compensation

  expense

 

 —

 

 

 —

 

 

9,478

 

 

 —

 

 

 —

 

 

9,478

Vesting of restricted

  common stock

 

 —

 

 

 —

 

 

22

 

 

 —

 

 

 —

 

 

22

Unrealized gains on

  investments

 

 —

 

 

 —

 

 

 —

 

 

110

 

 

 —

 

 

110

Cumulative effect adjustment

  for adoption of ASC 842

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

800

 

 

800

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(32,581)

 

 

(32,581)

Balances at March 31, 2019

 

79,854,195

 

 

80

 

 

553,338

 

 

81

 

 

(181,863)

 

 

371,636

Issuance of common stock

  upon exercise of stock

  options

 

223,484

 

 

 —

 

 

572

 

 

 —

 

 

 —

 

 

572

Stock-based compensation

  expense

 

 —

 

 

 —

 

 

10,604

 

 

 —

 

 

 —

 

 

10,604

Vesting of restricted

  common stock

 

 —

 

 

 —

 

 

13

 

 

 —

 

 

 —

 

 

13

Unrealized gains on

  investments

 

 —

 

 

 —

 

 

 —

 

 

209

 

 

 —

 

 

209

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(39,390)

 

 

(39,390)

Balances at June 30, 2019

 

80,077,679

 

$

80

 

$

564,527

 

$

290

 

$

(221,253)

 

$

343,644

 

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) - continued

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

Additional

 

other

 

 

 

 

Total

 

 

preferred stock

 

 

Common stock

 

paid-in

 

comprehensive

 

Accumulated

 

stockholders’

 

   

Shares

   

Amount

  

  

Shares

   

Amount

   

capital

   

loss

   

deficit

   

equity (deficit)

Balances at December 31, 2017

 

43,933,006

 

$

139,790

 

 

14,977,317

 

$

15

 

$

17,277

 

$

 —

 

$

(60,979)

 

$

(43,687)

Issuance of Series C

  convertible preferred stock,

  net of issuance costs of

  $214

 

7,912,432

 

 

100,986

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock

  upon exercise of stock

  options

 

 —

 

 

 —

 

 

19,750

 

 

 —

 

 

 4

 

 

 —

 

 

 —

 

 

 4

Stock-based compensation

  expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,613

 

 

 —

 

 

 —

 

 

2,613

Cumulative effect

  adjustment for adoption

  of ASU 2018-07

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(92)

 

 

 —

 

 

92

 

 

 —

Unrealized losses on

  investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(45)

 

 

 —

 

 

(45)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(14,411)

 

 

(14,411)

Balances at March 31, 2018

 

51,845,438

 

 

240,776

 

 

14,997,067

 

 

15

 

 

19,802

 

 

(45)

 

 

(75,298)

 

 

(55,526)

Issuance of common stock

  upon exercise of stock

  options

 

 —

 

 

 —

 

 

12,750

 

 

 —

 

 

14

 

 

 —

 

 

 —

 

 

14

Stock-based compensation

  expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,902

 

 

 —

 

 

 —

 

 

5,902

Vesting of restricted common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

122

 

 

 —

 

 

 —

 

 

122

Unrealized losses on

  investments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

18

 

 

 —

 

 

18

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,239)

 

 

(21,239)

Balances at June 30, 2018

 

51,845,438

 

$

240,776

 

 

15,009,817

 

$

15

 

$

25,840

 

$

(27)

 

$

(96,537)

 

$

(70,709)

 

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

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RUBIUS THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

Rubius Therapeutics, Inc. (“Rubius” or the “Company”) is a therapeutics company focused on using its platform to develop red cell therapeutics for the treatment of patients with severe diseases. Rubius was incorporated in April 2013 as VL26, Inc. under the laws of the State of Delaware. In January 2015, the Company changed its name to Rubius Therapeutics, Inc.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the ability to establish clinical- and commercial-scale manufacturing processes and the ability to secure additional capital to fund operations. In addition, the Company is subject to uncertainty regarding the performance and safety of red cell therapeutics in humans. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On July 20, 2018, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold 12,055,450 shares of common stock, inclusive of 1,572,450 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $254.3 million, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the IPO, all of the shares of the Company’s outstanding convertible preferred stock then outstanding automatically converted into 51,845,438 shares of common stock (see Note 7).

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since inception, including net losses of $72.0 million for the six months ended June 30, 2019 and $89.2 million for the year ended December 31, 2018. As of June 30, 2019, the Company had an accumulated deficit of $221.3 million. The Company expects to continue to generate operating losses in the foreseeable future. As of August 13, 2019, the issuance date of the interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim condensed consolidated financial statements. The Company may seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

 

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2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2018, on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of June 30, 2019 and condensed consolidated results of operations for the three and six months ended June 30, 2019 and 2018 and the condensed consolidated cash flows for the six months ended June 30, 2019 and 2018 have been made. The Company’s condensed consolidated results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuation of common stock and the preferred stock warrant liability prior to the IPO and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments. The Company’s cash, cash equivalents and investments, as of June 30, 2019, consisted of U.S. government money market funds, U.S. government treasury bills, U.S. government agency bonds and U.S. government treasury notes. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and raw materials for its development programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

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.

Restricted Cash

As of each of June 30, 2019 and December 31, 2018, the Company maintained letters of credit totaling $1.8 million for the benefit of the landlords of its leased properties. The Company was required to maintain separate cash balances of these amounts to secure the letters of credit. Related to these separate cash balances, the Company classified $1.7 million

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as restricted cash (non-current) in its condensed consolidated balance sheet as of both June 30, 2019 and December 31, 2018, and classified $0.1 million and $0.6 million as restricted cash (current) in its condensed consolidated balance sheet as of June 30, 2019 and December 31, 2018, respectively.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

·

Level 1—Quoted prices in active markets for identical assets or liabilities.

·

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the Company’s long-term debt approximates its fair value due to its variable interest rate, which approximates a market interest rate.

Investments

The Company’s investments are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company classifies its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such investments are available for current operations.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Leases

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which was codified as Accounting Standards Codification (“ASC”), 842, Leases, to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019 using the modified retrospective transition method. The prior period results continue to be presented under ASC 840 based on the accounting standards originally in

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effect for such periods. The adoption of the new standard resulted in the recognition of a cumulative effect adjustment of $0.8 million to accumulated deficit due to the derecognition of the Company’s build-to-suit lease.

 

At the inception of an arrangement as lessee or lessor, the Company determines whether the arrangement is or contains a lease. Operating lease cost is recognized over the lease term on a straight-line basis. Variable lease cost and short-term leases (lease terms less than 12 months) are recognized as incurred.  When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

 

For lessee arrangements, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. Operating leases are recognized on the balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.

The Company has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (1) for lessee and lessor arrangements within all asset classes, combine lease and non-lease components as a single component, with the lease expense recognized over the expected term on a straight-line basis and (2) for lessee arrangements, apply short-term lease exemption for all leases that qualify, where a right-of-use asset or lease liability will not be recognized for leases with terms of one year or less.

 

Recently Adopted Accounting Pronouncements

ASU No. 2018-07, Compensation —  Stock Compensation

In June 2018, the FASB issued ASU  No. 2018-07, Compensation — Stock Compensation (Topic 718), Improvements to Non-Employee Share-Based Payment Accounting (“ASU 2018-07”). This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. For public entities, ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities, ASU 2018-07 is effective for annual periods beginning after December 15, 2019. Early adoption was permitted for all entities but no earlier than the Company’s adoption of ASU 2014-09.

During the third quarter of 2018, the Company adopted ASU 2018-07 with an effective date of January 1, 2018 by remeasuring outstanding equity-classified awards issued to non-employees for which a measurement date had not been established through a cumulative-effect adjustment to accumulated deficit as of January 1, 2018. The Company has elected to estimate the expected term of options utilizing the “simplified” method for both employee and non-employee options that qualify as “plain-vanilla” options. The Company has elected to account for forfeitures for non-employee options as they occur rather than apply an estimated forfeiture rate to stock-based compensation expense.  

 

The following table summarizes the cumulative effect to the Company’s condensed consolidated balance sheet upon the adoption of ASU 2018-07 on January 1, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

Balance at

    

 

 

    

Balance at

 

 

December 31, 2017

 

Adjustments

 

January 1, 2018

Additional paid-in capital

 

$

17,277

 

$

(92)

 

$

17,185

Accumulated deficit

 

 

(60,979)

 

 

92

 

 

(60,887)

 

The $0.1 million adjustment is the result of the change in fair value of the unvested awards, representing awards for which a measurement date had not been established, using an expected term rather than the contractual term of the awards.

 

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The results for the three and six months ended June 30, 2018 have been revised to reflect the adoption of ASU 2018-07 effective January 1, 2018. The following table summarizes the impact of the adoption to the Company’s previously issued condensed consolidated statement of operations and comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2018

 

June 30, 2018

 

    

As previously 

    

 

 

    

As previously 

    

 

 

 

 

reported 

 

As revised 

 

reported 

 

As revised 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Research and development

 

$

11,965

 

$

11,361

 

$

21,615

 

$

20,867

General and administrative

 

 

16,279

 

 

9,023

 

 

22,076

 

 

14,120

Total operating expenses

 

 

28,244

 

 

20,384

 

 

43,691

 

 

34,987

Loss from operations

 

 

(28,244)

 

 

(20,384)

 

 

(43,691)

 

 

(34,987)

Net loss attributable to common stockholders

 

$

(29,099)

 

$

(21,239)

 

$

(44,354)

 

$

(35,650)

Net loss per share, basic and diluted

 

$

(3.33)

 

$

(2.43)

 

$

(5.19)

 

$

(4.17)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(29,099)

 

$

(21,239)

 

$

(44,354)

 

$

(35,650)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments, net of tax of $0

 

 

18

 

 

18

 

 

(27)

 

 

(27)

Comprehensive loss

 

$

(29,081)

 

$

(21,221)

 

$

(44,381)

 

$

(35,677)

 

As of the adoption date of January 1, 2018, the Company had 330,917 outstanding options to non-employees for which a measurement date had not been established. As of the adoption date of January 1, 2018, the Company had 4,767,014 shares of restricted common stock held by non-employees that were being accounted for as stock options for which a measurement date had not been established. The weighted average fair value of these awards was $5.88 per share as of January 1, 2018. The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of outstanding awards granted to non-employees for which a measurement date had not been established as of the adoption date of January 1, 2018:

 

 

 

 

 

Risk-free interest rate

 

 

2.3

%

Expected volatility

 

 

74

%

Expected dividend yield

 

 

 —

 

Expected term (in years)

 

 

6.1

 

Common stock value

 

$

6.28

 

 

ASU No. 2016-02, Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized over the lease term based on an effective interest method for financing leases or on a straight-line basis for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to previous guidance for operating leases under ASC 840. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years.

ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption.

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The Company adopted ASC 842 using the modified retrospective approach with an effective date of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods. This standard provides a number of optional practical expedients in transition. The Company applied the package of practical expedients to leases that commenced prior to the effective date, whereby it elected not to reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The Company elected the short-term lease recognition exemption for all leases that qualify, where a right-of-use asset or lease liability will not be recognized for short term leases that have terms of one year or less.  The most significant effects of adoption were the recognition of material new right-of-use assets and corresponding liabilities on its condensed consolidated balance sheet related to its existing facility operating leases (see Note 12). In addition, the Company has a material lease where the Company was deemed the owner during the construction period and for which the construction was not complete as of January 1, 2019. The Company took control of the leased space during the first quarter of 2019 at which time the lease commenced.  Under ASC 842, as the commencement date of this material lease had not occurred, the new right-of-use assets and corresponding liabilities related to this lease were not recognized on the condensed consolidated balance sheet as of date of adoption, January 1, 2019, however, were recognized upon the commencement date of January 28, 2019.  The adoption of this standard has had a material impact on the Company’s financial position but is not expected to significantly affect the Company’s results of operations.

The following table summarizes the financial impact on the Company’s condensed consolidated balance sheet upon the adoption of ASU 2016-02 and the cumulative effect adjustment on January 1, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

Balance at

    

 

 

    

Balance at

 

 

December 31, 2018

 

Adjustments

 

January 1, 2019

Operating lease, right-of-use-asset

 

$

 —

 

$

1,751

 

$

1,751

Property, plant and equipment, net

 

 

62,796

 

 

(45,142)

 

 

17,654

Deferred rent

 

 

143

 

 

(143)

 

 

 —

Accrued expenses and other current liabilities

 

 

12,118

 

 

(4,451)

 

 

7,667

Lease liability, net of current portion

 

 

41,441

 

 

(41,441)

 

 

 —

Operating lease liabilities

 

 

 —

 

 

616

 

 

616

Operating lease liabilities, net of current portion

 

 

 —

 

 

1,226

 

 

1,226

Accumulated deficit

 

 

(150,082)

 

 

800

 

 

(149,282)

ASU No. 2018-15, Intangibles–Goodwill and Other–Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted. The Company early-adopted this standard on January 1, 2019 on a prospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements for fair value measurements. For all entities, this guidance is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company currently is evaluating the impact the adoption of ASU 2018-13 may have on its disclosures.

 

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3. Investments and Fair Value of Financial Assets and Liabilities

Investments by security type consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

Amortized Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

U.S. treasury notes (due within one year)

 

$

188,030

 

$

268

 

$

 —

 

$

188,298

U.S. government agency bonds (due within one year)

 

 

32,926

 

 

22

 

 

 —

 

 

32,948

 

 

$

220,956

 

$

290

 

$

 —

 

$

221,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Amortized Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

U.S. treasury notes (due within one year)

 

$

79,312

 

$

 —

 

$

(26)

 

$

79,286

U.S. government agency bonds (due within one year)

 

 

17,704

 

 

 —

 

 

(3)

 

 

17,701

 

 

$

97,016

 

$

 —

 

$

(29)

 

$

96,987

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurements at June 30, 2019 using:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Cash equivalents:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

141,084

 

$

 —

 

$

 —

 

$

141,084

Investments:

 

 

 

 

 

 

 

 

 

 

 

  

U.S. government agency bonds

 

 

 —

 

 

32,948

 

 

 —

 

 

32,948

U.S. treasury notes

 

 

 —

 

 

137,150

 

 

 —

 

 

137,150

U.S. treasury bills

 

 

 —

 

 

51,148

 

 

 —

 

 

51,148

 

 

$

141,084

 

$

221,246

 

$

 —

 

$

362,330