grts-10q_20190630.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 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: 001-38663

 

Gritstone Oncology, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-4859534

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

5858 Horton Street, Suite 210

Emeryville, California

 

94608

(Address of Principal Executive Offices)

 

(Zip Code)

(510) 871-6100

(Registrant’s Telephone Number, Including Area Code)

 

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.

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, $0.0001 par value per share

 

GRTS

 

The Nasdaq Global Select Market

 

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 August 9, 2019, there were 35,773,598 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.


Gritstone Oncology, Inc.

Table of Contents

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements (unaudited)

 

1

 

 

Condensed Balance Sheets as of June 30, 2019 and December 31, 2018

 

1

 

 

Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018

 

2

 

 

Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018

 

3

 

 

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

 

5

 

 

Notes to Condensed Financial Statements (unaudited)

 

6

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

33

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

 

PART II. OTHER INFORMATION

 

34

Item 1.

 

Legal Proceedings

 

34

Item 1A.

 

Risk Factors

 

34

Item 2.

 

Unregistered Sales of Equity Securities and Uses of Proceeds

 

75

Item 3.

 

Defaults Upon Senior Securities

 

76

Item 4.

 

Mine Safety Disclosures

 

76

Item 5.

 

Other Information

 

76

Item 6.

 

Exhibits

 

77

 

 

 

 

 

SIGNATURES

 

78

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone Oncology, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except share and per

share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

107,728

 

 

$

52,183

 

Marketable securities

 

 

73,511

 

 

 

100,927

 

Prepaid expenses and other current assets

 

 

3,458

 

 

 

4,526

 

Total current assets

 

 

184,697

 

 

 

157,636

 

Property and equipment, net

 

 

18,966

 

 

 

29,494

 

Operating lease right-of-use assets

 

 

21,309

 

 

 

 

Deposits and other long-term assets

 

 

2,700

 

 

 

2,428

 

Long-term marketable securities

 

 

508

 

 

 

 

Total assets

 

$

228,180

 

 

$

189,558

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,253

 

 

$

4,825

 

Accrued compensation

 

 

2,621

 

 

 

3,951

 

Accrued liabilities

 

 

1,803

 

 

 

992

 

Lease liabilities, current portion

 

 

2,890

 

 

 

 

Deferred revenue, current portion

 

 

5,498

 

 

 

5,340

 

Total current liabilities

 

 

18,065

 

 

 

15,108

 

Deferred rent, net of current portion

 

 

 

 

 

1,353

 

Other non-current liabilities

 

 

 

 

 

12

 

Lease financing obligation, net of current portion

 

 

 

 

 

10,490

 

Lease liabilities, net of current portion

 

 

16,919

 

 

 

 

Deferred revenue, net of current portion

 

 

10,818

 

 

 

13,473

 

Total liabilities

 

 

45,802

 

 

 

40,436

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 10,000,000 shares

   authorized at June 30, 2019 and December 31, 2018; no shares issued

  and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized at June 30,

   2019 and December 31, 2018; 35,654,631 and 28,823,130 shares issued and

   outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

17

 

 

 

16

 

Additional paid-in capital

 

 

348,021

 

 

 

275,593

 

Accumulated other comprehensive income (loss)

 

 

76

 

 

 

(85

)

Accumulated deficit

 

 

(165,736

)

 

 

(126,402

)

Total stockholders’ equity

 

 

182,378

 

 

 

149,122

 

Total liabilities and stockholders’ equity

 

$

228,180

 

 

$

189,558

 

 

See accompanying notes to the unaudited condensed financial statements.

1


Gritstone Oncology, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Collaboration revenue

 

$

1,150

 

 

$

 

 

$

2,497

 

 

$

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,529

 

 

 

12,689

 

 

 

34,428

 

 

 

24,090

 

 

General and administrative

 

 

4,835

 

 

 

2,814

 

 

 

9,212

 

 

 

4,852

 

 

Total operating expenses

 

 

23,364

 

 

 

15,503

 

 

 

43,640

 

 

 

28,942

 

 

Loss from operations

 

 

(22,214

)

 

 

(15,503

)

 

 

(41,143

)

 

 

(28,942

)

 

Interest income, net

 

 

1,042

 

 

 

31

 

 

 

1,962

 

 

 

94

 

 

Net loss

 

 

(21,172

)

 

 

(15,472

)

 

 

(39,181

)

 

 

(28,848

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities, net of tax

 

 

9

 

 

 

58

 

 

 

161

 

 

 

43

 

 

Net and comprehensive loss

 

$

(21,163

)

 

$

(15,414

)

 

$

(39,020

)

 

$

(28,805

)

 

Net loss per share, basic and diluted

 

$

(0.63

)

 

$

(6.57

)

 

$

(1.25

)

 

$

(12.62

)

 

Weighted-average number of shares used in computing net loss per

   share, basic and diluted

 

 

33,582,844

 

 

 

2,353,337

 

 

 

31,273,696

 

 

 

2,285,906

 

 

 

See accompanying notes to the unaudited condensed financial statements.

2


Gritstone Oncology, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

Three Months Ended June 30, 2019:

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2019

 

 

 

 

$

 

 

 

29,024,382

 

 

$

16

 

 

$

276,703

 

 

$

67

 

 

$

(144,564

)

 

$

132,222

 

Issuance of common stock upon public

   offering at $11.50 per share for cash, net

   of issuance costs of $556

 

 

 

 

 

 

 

 

 

 

6,500,000

 

 

$

1

 

 

$

69,708

 

 

 

 

 

 

 

 

 

 

 

69,709

 

Unrealized loss on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Lapse of repurchase rights related to common

   stock issued pursuant to early exercises

 

 

 

 

 

 

 

 

49,563

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

80,686

 

 

 

 

 

 

276

 

 

 

 

 

 

 

 

 

276

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,317

 

 

 

 

 

 

 

 

 

1,317

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,172

)

 

 

(21,172

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

35,654,631

 

 

$

17

 

 

$

348,021

 

 

$

76

 

 

$

(165,736

)

 

$

182,378

 

 

Three Months Ended June 30, 2018:

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2018

 

 

17,797,529

 

 

$

156,937

 

 

 

2,264,024

 

 

$

1

 

 

$

2,440

 

 

$

(89

)

 

$

(75,003

)

 

$

84,286

 

Issuance of Series C convertible preferred stock

   at $13.04 per share for cash, net of issuance

   costs of $71

 

 

690,128

 

 

 

8,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,928

 

Unrealized loss on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

58

 

Lapse of repurchase rights related to common

   stock issued pursuant to early exercises

 

 

 

 

 

 

 

 

109,515

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

38

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

30,725

 

 

 

1

 

 

 

14

 

 

 

 

 

 

 

 

 

15

 

Issuance of common stock for

   consulting services

 

 

 

 

 

 

 

 

 

 

4,347

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

36

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

783

 

 

 

 

 

 

 

 

 

783

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,472

)

 

 

(15,472

)

Balance at June 30, 2018

 

 

18,487,657

 

 

$

165,865

 

 

 

2,408,611

 

 

$

2

 

 

$

3,311

 

 

$

(31

)

 

$

(90,475

)

 

$

78,672

 

 

Continued on next page.

See accompanying notes to the unaudited condensed financial statements.

 

3


Gritstone Oncology, Inc.

Condensed Statements of Stockholders’ Equity - Continued

(Unaudited)

(In thousands, except share amounts)

Six Months Ended June 30, 2019:

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

28,823,130

 

 

$

16

 

 

$

275,593

 

 

$

(85

)

 

$

(126,402

)

 

$

149,122

 

Cumulative effect of adopting new accounting

   standard (Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

(153

)

Issuance of common stock upon public

   offering at $11.50 per share for cash, net

   of issuance costs of $556

 

 

 

 

 

 

 

 

 

 

6,500,000

 

 

$

1

 

 

$

69,708

 

 

 

 

 

 

 

 

 

 

 

69,709

 

Unrealized gain on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Lapse of repurchase rights related to common

   stock issued pursuant to early exercises

 

 

 

 

 

 

 

 

100,877

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

230,624

 

 

 

 

 

 

362

 

 

 

 

 

 

 

 

 

362

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,324

 

 

 

 

 

 

 

 

 

2,324

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,181

)

 

 

(39,181

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

35,654,631

 

 

$

17

 

 

 

348,021

 

 

 

76

 

 

 

(165,736

)

 

 

182,378

 

Six Months Ended June 30, 2018:

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2017

 

 

17,797,529

 

 

$

156,937

 

 

 

2,152,525

 

 

$

1

 

 

$

2,045

 

 

$

(74

)

 

$

(61,627

)

 

$

97,282

 

Issuance of Series C convertible preferred stock

   at $13.04 per share for cash, net of issuance

   costs of $71

 

 

690,128

 

 

 

8,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,928

 

Unrealized loss on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Lapse of repurchase rights related to common

   stock issued pursuant to early exercises

 

 

 

 

 

 

 

 

172,563

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

60

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

38,919

 

 

 

1

 

 

 

20

 

 

 

 

 

 

 

 

 

21

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

 

40,257

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

13

 

Issuance of common stock for

   consulting services

 

 

 

 

 

 

 

 

 

 

4,347

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

36

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,137

 

 

 

 

 

 

 

 

 

1,137

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,848

)

 

 

(28,848

)

Balance at June 30, 2018

 

 

18,487,657

 

 

$

165,865

 

 

 

2,408,611

 

 

$

2

 

 

$

3,311

 

 

$

(31

)

 

$

(90,475

)

 

$

78,672

 

 

See accompanying notes to the unaudited condensed financial statements.


4


 

Gritstone Oncology, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

Operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(39,181

)

 

$

(28,848

)

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,130

 

 

 

1,882

 

 

Net amortization of premiums and discounts on marketable securities

 

 

(970

)

 

 

(180

)

 

Stock-based compensation

 

 

2,324

 

 

 

1,173

 

 

Non-cash operating lease expense

 

 

2,837

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

268

 

 

 

415

 

 

Deposits and other long-term assets

 

 

(272

)

 

 

74

 

 

Accounts payable

 

 

(867

)

 

 

(177

)

 

Accrued compensation

 

 

(1,329

)

 

 

(434

)

 

Accrued and other non-current liabilities

 

 

1,312

 

 

 

(765

)

 

Deferred rent

 

 

 

 

 

(206

)

 

Lease liability

 

 

(1,293

)

 

 

 

 

Deferred revenue

 

 

(2,497

)

 

 

 

 

Net cash used in operating activities

 

 

(37,538

)

 

 

(27,066

)

 

Investing activities

 

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(16,012

)

 

 

 

 

Maturities of marketable securities

 

 

44,050

 

 

 

20,220

 

 

Purchase of property and equipment

 

 

(4,831

)

 

 

(2,857

)

 

Net cash provided by investing activities

 

 

23,207

 

 

 

17,363

 

 

Financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

70,432

 

 

 

24

 

 

Payments of deferred financing costs

 

 

(556

)

 

 

(779

)

 

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

 

 

 

 

 

8,992

 

 

Net cash provided by financing activities

 

 

69,876

 

 

 

8,237

 

 

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

 

 

55,545

 

 

 

(1,466

)

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

53,175

 

 

 

39,999

 

 

Cash, cash equivalents and restricted cash at end of period

 

$

108,720

 

 

$

38,533

 

 

Supplemental disclosures of non-cash investing and financing

   information

 

 

 

 

 

 

 

 

 

Property and equipment purchases accrued but not yet paid

 

$

2,775

 

 

$

247

 

 

Deferred financing costs included in accrued liabilities and accounts payable

 

$

 

 

$

345

 

 

 

See accompanying notes to the unaudited condensed financial statements.

5


Gritstone Oncology, Inc.

Notes to Condensed Financial Statements

(Unaudited)

1.

Organization

Description of Business

Gritstone Oncology, Inc. (“Gritstone” or the “Company”) is an immuno-oncology company developing personalized cancer immunotherapies to fight multiple cancer types. The Company was incorporated in the state of Delaware on August 5, 2015, and is based in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

Public Offerings

In October 2018, the Company closed its initial public offering (“IPO”), of 6,854,202 shares of common stock, including 187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at an offering price to the public of $15.00 per share. The Company received net proceeds of approximately $92.6 million, after deducting underwriting discounts and commissions and offering costs. In connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were automatically converted into 19,409,132 shares of common stock. The related carrying value of $177.9 million was reclassified to common stock and additional paid-in capital.

In connection with the completion of its IPO, on October 2, 2018, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share.

In April 2019, the Company completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares of common stock at a price to the public of $11.50 per share. The Company received aggregate net proceeds from the offering of approximately $69.7 million, after deducting underwriting discounts and commissions and offering costs.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of Securities and Exchange Commission (“SEC”) for interim reporting.

The condensed financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation for interim reporting. The results of operations for any interim period are not necessarily indicative of results of operations for any future period.

Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s financial statements as of and for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 28, 2019.

Reverse Stock Split

On September 20, 2018, the Company amended and restated its amended and restated certificate of incorporation to effect a 1-for-6.9 reverse split (“Reverse Split”) of shares of the Company’s common and convertible preferred stock. The par value and the authorized shares of common stock and convertible preferred stock were not adjusted as a result of the Reverse Split. All of the share and per share information included in the accompanying financial statements has been adjusted to reflect the Reverse Split.

Need for Additional Capital

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had cash, cash equivalents, and marketable securities of $181.7 million and $153.1 million as of June 30, 2019 and December 31, 2018, respectively. The Company had an accumulated deficit of $165.7 million and $126.4 million as of June 30, 2019 and December 31, 2018, respectively. The Company had net losses of $21.2 million and $39.2 million for the three and six months ended June 30, 2019, respectively, and $15.5 million and $28.8 million for the three and six months ended June 30, 2018, respectively, and net cash used in operating activities of $37.5 million and $27.1 million for the six months ended June 30, 2019 and 2018,

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respectively. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from contracts with customers. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year following the date that these condensed financial statements are issued. Management expects operating losses to continue for the foreseeable future. As a result, the Company will need to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenue and expenses in the condensed financial statements and accompanying notes during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical and preclinical study trial accruals, fair value of assets and liabilities the present value of lease liabilities and the corresponding right-of-use assets (“ROU assets”), and the fair value of common stock and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Other Risks and Uncertainties

The Company is subject to a number of risks similar to those of other early-stage immuno-oncology companies, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its product candidates. The Company currently depends on third-party suppliers for key materials and services used in its research and development manufacturing process, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with maturities of three months or less when purchased, are stated at cost which approximates fair value. These assets include investments in money market funds that invest in U.S. Treasury obligations and certificates of deposit which are stated at fair value.

The Company has issued a letter of credit under a lease agreement which has been collateralized by a cash deposit for an equal amount and is recorded within deposits and other long-term assets on the balance sheet based on the term of the underlying lease. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands).

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Cash and cash equivalents

 

$

107,728

 

 

$

52,183

 

Restricted cash

 

 

992

 

 

 

992

 

Total cash, cash equivalents and restricted cash

 

$

108,720

 

 

$

53,175

 

 

Leases

Prior to January 1, 2019, the Company rented its office space and facilities under non-cancelable operating lease agreements and recognizes related rent expense on a straight-line basis over the term of the lease. The Company’s lease agreements contained rent holidays, scheduled rent increases, and renewal options. Rent holidays and scheduled rent increases were included in the determination of rent expense to be recorded ratably over the lease term. The Company did not assume renewals in its determination of the lease term unless they were deemed to be reasonably assured at the inception of the lease. The Company began recognizing rent expense on the date that it obtained the legal right to use and control the leased space. Deferred rent consisted of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company occupied.

Funding of leasehold improvements by the Company’s landlord was accounted for as a tenant improvement allowance and recorded as current and non-current deferred rent liabilities and amortized on a straight-line basis as a reduction of rent expense over the term of the lease.

In certain arrangements, the Company was involved in the construction of improvements to buildings it was leasing. To the extent the Company was involved with the structural improvements of the construction project or takes construction risk, the Company was considered to be the owner of the building and related improvements for accounting purposes during the construction period. The

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Company recorded the fair value of the building and related improvements subject to the lease within property and equipment on the balance sheet. The Company also recorded a corresponding lease financing obligation on its balance sheet representing the amounts financed by the lessor for the building and lessor financed improvements. Lessor financed improvement incentives due but not yet received of $1.2 million at December 31, 2017 were recorded as prepaid expense and other current assets on the condensed balance sheet. Such amounts were fully collected in April 2018. Once a construction project was complete, the Company considered the requirements for sale-leaseback accounting treatment. If the Company concluded the arrangement did not qualify for sale-leaseback accounting treatment, the building and related improvements remained on the Company’s condensed balance sheet and were subject to depreciation and assessment of impairment.

For such arrangements, at both pre and post the construction period, the Company bifurcated its lease payments into a portion allocated to the building and a portion allocated to the parcel of land on which the building had been built. The portion of the lease payments allocated to the land was treated for accounting purposes as operating lease payments, and therefore was recorded as rent expense in the condensed statements of operations and comprehensive loss. The portion of the lease payments allocated to the building were further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the lease financing obligation. The interest rate used for the lease financing obligation represented the Company’s estimated incremental borrowing rate at the inception of the lease, adjusted to reduce any built in loss.

Subsequent to January 1, 2019, the Company determines whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease. All of the Company’s leases are classified as operating leases. Leases with a term greater than one year are included in operating lease ROU assets, lease liabilities, current portion, and lease liabilities, net of current portion in our condensed balance sheet at June 30, 2019. The Company has elected not to recognize on the condensed balance sheet leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.  In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate 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 and impairment charges if we determine the ROU asset is impaired.

The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company recognizes lease expense on a straight-line basis over the expected lease term.

The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.  The lease components resulting in a ROU asset have been recorded on the condensed balance sheet and amortized as lease expense on a straight-line basis over the lease term.

Revenue Recognition

The Company analyzes its collaboration agreements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the collaboration guidance and that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of the collaboration guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customer guidance. For elements of collaboration arrangements that are accounted for pursuant to the revenue from contracts with customer guidance, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance.

The terms of the licensing and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration, and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of the accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

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Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each deliverable is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best estimate of the selling price for the deliverable.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service, is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the good or service promised to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU No. 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective on January 1, 2020. Early adoption is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures.

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 No. 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements and requires companies to disclose certain information. The new standard will be effective for fiscal years, and interim periods within those year, beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this accounting update on its financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which 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. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within that year. This new standard can be applied either retrospectively

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or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of adoption on its financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 , which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The standard adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period for public business entities for periods in which financial statements have not been issued. Amendments in the standard should be applied retrospectively to the date of initial application of Topic 606, but entities may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606, and should disclose the election. An entity may also elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. The Company is currently assessing the impact of this standard on its condensed financial statements.