grts-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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.)

 

 

5959 Horton Street, Suite 300

Emeryville, California

 

94608

(Address of Principal Executive Offices)

 

(Zip Code)

(510) 871-6100

(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, $0.0001 par value per share

 

GRTS

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

As of May 1, 2020, there were 37,264,957 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 March 31, 2020 and December 31, 2019

 

1

 

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

 

2

 

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019

 

3

 

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

Notes to Condensed Financial Statements (unaudited)

 

5

Item 2.

 

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

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II. OTHER INFORMATION

 

32

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

82

Item 3.

 

Defaults Upon Senior Securities

 

83

Item 4.

 

Mine Safety Disclosures

 

83

Item 5.

 

Other Information

 

83

Item 6.

 

Exhibits

 

84

 

 

 

 

 

SIGNATURES

 

85

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone Oncology, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except share

amounts and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,860

 

 

$

57,408

 

Marketable securities

 

 

54,020

 

 

 

70,368

 

Prepaid expenses and other current assets

 

 

3,466

 

 

 

3,497

 

Total current assets

 

 

112,346

 

 

 

131,273

 

Property and equipment, net

 

 

25,847

 

 

 

26,911

 

Operating lease right-of-use assets

 

 

22,130

 

 

 

23,427

 

Deposits and other long-term assets

 

 

2,695

 

 

 

2,778

 

Total assets

 

$

163,018

 

 

$

184,389

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,008

 

 

$

4,621

 

Accrued compensation

 

 

2,775

 

 

 

4,598

 

Accrued liabilities

 

 

414

 

 

 

1,041

 

Accrued research and development expenses

 

 

2,311

 

 

 

1,779

 

Lease liabilities, current portion

 

 

3,421

 

 

 

2,505

 

Deferred revenue, current portion

 

 

4,511

 

 

 

4,956

 

Total current liabilities

 

 

18,440

 

 

 

19,500

 

Lease liabilities, net of current portion

 

 

20,101

 

 

 

20,985

 

Deferred revenue, net of current portion

 

 

9,088

 

 

 

9,560

 

Total liabilities

 

 

47,629

 

 

 

50,045

 

Commitments and contingencies (Notes 6 and 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

 

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

March 31, 2020 and December 31, 2019; 36,985,739 and 36,332,956

shares issued and outstanding at March 31, 2020 and December 31, 2019

 

 

17

 

 

 

17

 

Additional paid-in capital

 

 

362,586

 

 

 

355,291

 

Accumulated other comprehensive (loss) gain

 

 

(20

)

 

 

24

 

Accumulated deficit

 

 

(247,194

)

 

 

(220,988

)

Total stockholders’ equity

 

 

115,389

 

 

 

134,344

 

Total liabilities and stockholders’ equity

 

$

163,018

 

 

$

184,389

 

 

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 March 31,

 

 

2020

 

 

2019

 

 

Collaboration revenue

 

$

1,262

 

 

$

1,347

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

22,468

 

 

 

15,899

 

 

General and administrative

 

 

5,465

 

 

 

4,377

 

 

Total operating expenses

 

 

27,933

 

 

 

20,276

 

 

Loss from operations

 

 

(26,671

)

 

 

(18,929

)

 

Interest income, net

 

 

465

 

 

 

920

 

 

Net loss

 

 

(26,206

)

 

 

(18,009

)

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities, net of tax

 

 

(44

)

 

 

152

 

 

Net and comprehensive loss

 

$

(26,250

)

 

$

(17,857

)

 

Net loss per share, basic and diluted

 

$

(0.71

)

 

$

(0.62

)

 

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

   basic and diluted

 

 

36,798,562

 

 

 

28,938,891

 

 

 

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 March 31, 2020:

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

36,332,956

 

 

 

17

 

 

 

355,291

 

 

 

24

 

 

 

(220,988

)

 

 

134,344

 

Issuance of common stock under at the

   market ("ATM") equity offering

  program, net of issuance costs of $4

 

 

568,369

 

 

 

 

 

 

5,577

 

 

 

 

 

 

 

 

 

5,577

 

Unrealized loss on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(44

)

Lapse of repurchase rights related to

   common stock issued pursuant to early

   exercises

 

 

23,732

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Issuance of common stock upon exercise of

   stock options

 

 

60,682

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,619

 

 

 

 

 

 

 

 

 

1,619

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,206

)

 

 

(26,206

)

Balance at March 31, 2020

 

 

36,985,739

 

 

$

17

 

 

$

362,586

 

 

$

(20

)

 

$

(247,194

)

 

$

115,389

 

 

Three Months Ended March 31, 2019:

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

28,823,130

 

 

 

16

 

 

 

275,593

 

 

 

(85

)

 

 

(126,402

)

 

 

149,122

 

Cumulative effect of adoption of Topic 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

(153

)

Unrealized gain on marketable securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

152

 

 

 

 

 

 

152

 

Lapse of repurchase rights related to

   common stock issued pursuant to early

   exercises

 

 

51,314

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Issuance of common stock upon exercise of

   stock options

 

 

149,938

 

 

 

 

 

 

86

 

 

 

 

 

 

 

 

 

86

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

 

 

 

 

1,007

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,009

)

 

 

(18,009

)

Balance at March 31, 2019

 

 

29,024,382

 

 

$

16

 

 

$

276,703

 

 

$

67

 

 

$

(144,564

)

 

$

132,222

 

 

See accompanying notes to the unaudited condensed financial statements.

3


Gritstone Oncology, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

Operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(26,206

)

 

$

(18,009

)

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,626

 

 

 

1,036

 

 

Net amortization of premiums and discounts on marketable securities

 

 

(78

)

 

 

(519

)

 

Stock-based compensation

 

 

1,619

 

 

 

1,007

 

 

Non-cash operating lease expense

 

 

1,850

 

 

 

1,344

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

32

 

 

 

778

 

 

Deposits and other long-term assets

 

 

83

 

 

 

(389

)

 

Accounts payable

 

 

865

 

 

 

(235

)

 

Accrued compensation

 

 

(1,825

)

 

 

(2,257

)

 

Accrued and other non-current liabilities

 

 

(38

)

 

 

104

 

 

Accrued research and development expenses

 

 

532

 

 

 

 

 

Lease liability

 

 

(520

)

 

 

(640

)

 

Deferred revenue

 

 

(917

)

 

 

(1,347

)

 

Net cash used in operating activities

 

 

(22,977

)

 

 

(19,127

)

 

Investing activities

 

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(3,805

)

 

 

(9,592

)

 

Maturities of marketable securities

 

 

17,167

 

 

 

13,600

 

 

Sales of marketable securities

 

 

3,021

 

 

 

 

 

Purchase of property and equipment

 

 

(1,609

)

 

 

(2,578

)

 

Net cash provided by investing activities

 

 

14,774

 

 

 

1,430

 

 

Financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

5,659

 

 

 

86

 

 

Payments of deferred financing costs

 

 

(4

)

 

 

 

 

Net cash provided by financing activities

 

 

5,655

 

 

 

86

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(2,548

)

 

 

(17,611

)

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

58,400

 

 

 

53,175

 

 

Cash, cash equivalents and restricted cash at end of period

 

$

55,852

 

 

$

35,564

 

 

Supplemental disclosures of non-cash investing and financing

   information

 

 

 

 

 

 

 

 

 

Property and equipment purchases accrued but not yet paid

 

$

946

 

 

$

513

 

 

Remeasurement of operating lease right-of-use asset for lease modification

 

$

 

 

$

1,779

 

 

 

See accompanying notes to the unaudited condensed financial statements.

4


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.

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, 2019, which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 11, 2020.

 

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 $108.9 million and $127.8 million as of March 31, 2020 and December 31, 2019, respectively. The Company had an accumulated deficit of $247.2 million and $221.0 million as of March 31, 2020 and December 31, 2019, respectively. The Company had net losses of $26.2 million and $18.0 million for the three months ended March 31, 2020 and March 31, 2019, respectively, and net cash used in operating activities of $23.0 million and $19.1 million for the three months ended March 31, 2020 and 2019, 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 sales of commercial products. 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.

5


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 preclinical and clinical study trial accruals, fair value of assets and liabilities, the fair value of right-of-use assets (“ROU assets”) and lease liabilities, revenue recognition, and the fair value of 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.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. The Company maintains cash equivalents and marketable securities with various high-credit-quality and capitalized financial institutions. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies, and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, and marketable securities and issuers of marketable securities to the extent recorded on the balance sheets. Through March 31, 2020, the Company has no off-balance sheet concentrations of credit risk.

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.

In March 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) outbreak a pandemic. To date, the Company’s operations have not been significantly impacted by the COVID-19 outbreak. However, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and operations, including ongoing and planned clinical trials. The impact of the COVID-19 coronavirus outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with original 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 condensed balance

6


sheets 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).

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

54,860

 

 

$

57,408

 

Restricted cash

 

 

992

 

 

 

992

 

Total cash, cash equivalents and restricted cash

 

$

55,852

 

 

$

58,400

 

 

Leases

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 the Company’s condensed balance sheets at March 31, 2020 and December 31, 2019. The Company has elected not to recognize on the condensed balance sheets 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 ROU assets may be required for items such as initial direct costs paid or incentives received and impairment charges if the Company determines 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 sheets 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

7


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.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed 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 condensed 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.

8


Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (“FFCR Act”), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The FFCR Act and CARES Act did not have a material impact on the Company’s condensed financial statements as of March 31, 2020; however, the Company continues to examine the impacts the FFCR Act and CARES Act may have on its business, results of operations, financial condition and liquidity.

Recently Issued Accounting Pronouncements

In December 2019, the FASB (“Financial Accounting Standards Board”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The pronouncement is effective for the Company for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently in the process of evaluating the effects of the provisions of ASU 2019-12 on its condensed financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13—Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which represents a new credit loss standard that will change the impairment model for most financial assets and certain other financial instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective and transition date of January 1, 2020. Specifically, this guidance will require entities to utilize a new “expected loss” model as it relates to trade and other receivables. In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position. The standard is effective for interim and annual periods beginning after December 15, 2019. The Company adopted this new standard on January 1, 2020 with no material impact on its condensed 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 Company adopted this standard on January 1, 2020 with no material impact on its condensed 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 or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this standard on January 1, 2020 with no material impact on its condensed financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18—Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard provides guidance on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) by aligning the unit of account guidance between the two topics and clarifying whether certain transactions between collaborative participants should be accounted for as revenue under Topic 606. The standard is effective for interim and annual periods beginning after

9


December 15, 2019. The Company adopted this standard on January 1, 2020 with no material impact on its condensed financial statements and related disclosures.

3.

Cash Equivalents and Marketable Securities

The amortized cost, unrealized gains and losses and fair values of cash equivalents and marketable securities were as follows (in thousands):

 

 

 

March 31, 2020

 

Description

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

46,270

 

 

$

 

 

$

 

 

$

46,270

 

U.S. government treasuries

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

Total cash equivalents

 

 

47,270

 

 

 

 

 

 

 

 

 

47,270

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

630

 

 

 

 

 

 

(1

)

 

 

629

 

Commercial paper

 

 

25,952

 

 

 

37

 

 

 

 

 

 

25,989

 

Corporate debt securities

 

 

24,909

 

 

 

6

 

 

 

(62

)

 

 

24,853

 

U.S. government treasuries

 

 

2,549

 

 

 

 

 

 

 

 

 

2,549

 

Total short-term marketable securities

 

 

54,040

 

 

 

43

 

 

 

(63

)

 

 

54,020

 

Total

 

$

101,310

 

 

$

43

 

 

$

(63

)

 

$

101,290

 

 

 

 

 

December 31, 2019

 

Description

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

42,133

 

 

$

 

 

$

 

 

$

42,133

 

Commercial paper

 

 

1,749

 

 

 

 

 

 

 

 

 

1,749

 

Corporate debt securities

 

 

2,500

 

 

 

 

 

 

 

 

 

2,500

 

Total cash equivalents

 

 

46,382

 

 

 

 

 

 

 

 

 

46,382

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

631

 

 

 

 

 

 

 

 

 

631

 

Commercial paper

 

 

31,476

 

 

 

15

 

 

 

 

 

 

31,491

 

Corporate debt securities

 

 

38,237

 

 

 

15

 

 

 

(6

)

 

 

38,246

 

Total short-term marketable securities

 

 

70,344

 

 

 

30

 

 

 

(6

)

 

 

70,368

 

Total

 

$

116,726

 

 

$

30

 

 

$

(6

)

 

$

116,750

 

 

All marketable securities held as of March 31, 2020, had contractual maturities of less than one year. There have been no material realized gains or losses on marketable securities for the periods presented. As of March 31, 2020, a total of 33 individual securities had been in an unrealized loss position for 12 months or less, and the losses were determined to be temporary. The Company determined that it has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, and that the gross unrealized losses above were caused by market fluctuations. No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by us. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. Thus no credit loss existed at March 31, 2020. The Company will continue to assess the current and expected future economic and market conditions surrounding the COVID-19 pandemic, as further development arises.

10


The following table shows the fair value and gross unrealized losses of our investments in individual securities that are in an unrealized loss position, aggregated by investment category as of March 31, 2020 (in thousands):

 

Description

 

Fair Value

 

 

Unrealized

Losses

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

630

 

 

$

(1

)

Corporate debt securities

 

 

21,343

 

 

 

(62

)

Total short-term marketable securities

 

$

21,973

 

 

$

(63

)

As of March 31, 2020, the Company does not have any marketable securities in an unrealized loss position with an allowance for credit losses given the losses are deemed to be due to something other than a deterioration in the creditworthiness of the marketable security.

See Note 4 for further information regarding the fair value of our financial instruments.

4.

Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities based on the assumptions that market participants would use in pricing the asset or liability in orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritizes the inputs into three broad levels as follows:

 

Level 1 inputs are quoted prices in active markets that are accessible at the market date for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the assets or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The carrying amounts reflected on the balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued compensation and accrued liabilities approximate their fair values due to their short-term nature.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows (in thousands):

 

 

 

March 31, 2020

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Money market funds

 

$

46,270

 

 

$

46,270

 

 

$

 

 

$

 

   U.S. government securities

 

 

1,000

 

 

 

 

 

 

1,000

 

 

 

 

Total cash equivalents

 

 

47,270

 

 

 

46,270

 

 

 

1,000

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Certificates of deposit

 

 

629

 

 

 

 

 

 

629

 

 

 

 

   Commercial paper

 

 

25,989

 

 

 

 

 

 

25,989

 

 

 

 

   Corporate debt securities

 

 

24,853

 

 

 

 

 

 

24,853

 

 

 

 

   U.S. government securities

 

 

2,549

 

 

 

 

 

 

2,549

 

 

 

 

Total short-term marketable securities

 

 

54,020

 

 

 

 

 

 

54,020

 

 

 

 

Total

 

$

101,290

 

 

$

46,270

 

 

$

55,020

 

 

$

 

11


 

 

 

 

December 31, 2019

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Money market funds

 

$

42,133

 

 

$

42,133

 

 

$

 

 

$

 

   Commercial paper

 

 

1,749

 

 

 

 

 

 

1,749

 

 

 

 

   Corporate debt securities

 

 

2,500

 

 

 

 

 

 

2,500

 

 

 

 

Total cash equivalents

 

 

46,382

 

 

 

42,133

 

 

 

4,249

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Certificates of deposit

 

 

631

 

 

 

 

 

 

631

 

 

 

 

   Commercial paper

 

 

31,491

 

 

 

 

 

 

31,491

 

 

 

 

   Corporate debt securities

 

 

38,246

 

 

 

 

 

 

38,246

 

 

 

 

Total short-term marketable securities

 

 

70,368

 

 

 

 

 

 

70,368

 

 

 

 

Total

 

$

116,750

 

 

$

42,133

 

 

$

74,617

 

 

$

 

 

The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. Commercial paper, corporate debt securities, certificates of deposits, and U.S. government securities are valued taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

There were no transfers between Level 1 and Level 2 during the periods presented. See Note 3 for further information regarding the amortized cost of our financial instruments.

5.

Property and Equipment, Net

Property and equipment and related accumulated depreciation and amortization are as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Computer equipment and software

 

$

946

 

 

$

863

 

Furniture and fixtures

 

 

2,007

 

 

 

2,007

 

Laboratory equipment

 

 

21,250

 

 

 

21,025

 

Leasehold improvements

 

 

13,579

 

 

 

11,102

 

Construction-in-progress

 

 

 

 

 

2,224

 

 

 

 

37,782

 

 

 

37,221

 

Less accumulated depreciation and amortization

 

 

(11,935

)

 

 

(10,310

)

Total property and equipment, net

 

$

25,847

 

 

$

26,911

 

 

Depreciation and amortization expense was $1.6 million and $1.0 million for the three months ended March 31, 2020 and 2019, respectively.

6.

Commitments and Contingencies

Leases

In November 2015, the Company entered into an 84-month non-cancelable operating lease, effective March 2016, for a facility in Emeryville, California, with laboratory and office space. In conjunction with signing the lease, the Company paid a cash security deposit of $50,000. The lease agreement includes an escalation clause for increased rent and a renewal provision allowing the Company to extend this lease for an additional three years at the prevailing

12


rental rate. In September 2018 the Emeryville lease was amended whereby the Company entered into a 12-month operating lease for additional temporary space. The Company may terminate the temporary space lease agreement with 30 days advanced written notice to the landlord.

In January 2019, the Company entered into a 120-month operating lease for a new facility in Emeryville, California with office and laboratory space for the Company’s new principal executive offices. In conjunction with signing the lease, the Company paid a cash security deposit of $0.6 million, which is recorded as a deposit on the Company’s condensed balance sheet as of March 31, 2020 and December 31, 2020. The lease agreement includes a free rent period, an escalation clause for increased rent and a renewal provision allowing the Company to extend this lease for an additional two five-year periods at the then market rental rate. The lessor provided the Company a tenant improvement allowance for a total of $4.0 million to complete the laboratory and office renovation. The Company’s obligation to pay rent commenced on November 1, 2019. The Company has determined the tenant improvements to be lessee owned and therefore has recorded a $9.7 million ROU Asset and a $14.3 million lease liability on the condensed balance sheet as of March 31, 2020.

In connection with the new lease agreement, the Company also entered into an agreement (the “Lease Termination Agreement”) to early terminate the Company’s existing lease dated November 2015 for its current premises. The then existing lease terminated in October 2019. The Company accounted for the Lease Termination Agreement as a separate contract and recorded an adjustment of $1.8 million to the ROU Asset and lease liability to reflect the remaining term of the modified agreement through October 2019.

In February 2016, the Company entered into a 67-month non-cancelable operating lease effective October 2016 for a facility in Cambridge, Massachusetts, with laboratory and office space. In conjunction with signing the lease, the Company paid a cash security deposit of $0.3 million, which is recorded in deposits and other long-term assets on the Company’s condensed balance sheet as of March 31, 2020. The lease agreement includes an escalation clause for increased rent and a renewal provision allowing the Company to extend this lease for an additional three years at the prevailing rental rate. The lessor provided the Company a tenant improvement allowance for a total of $2.1 million to complete the laboratory and office renovation.

In March 2017, the Company entered into a noncancelable operating lease (the “Pleasanton Lease”) to lease 42,620 square feet of office, cleanroom, and laboratory support manufacturing space in Pleasanton, California (the “Pleasanton Facility”). Subsequently, in April 2017, the Company took possession of the space. The Pleasanton Lease includes a free rent period, escalating rent payments and a term that expires on November 30, 2024. The Company has the option to extend the lease term for a period of five years at the then market rental rate. The Company’s obligation to pay rent commenced in December 2017. The Company obtained an irrevocable letter of credit in March 2017 in the initial amount of approximately $1.0 million as a security deposit to the Pleasanton Lease, which may be drawn down by the landlord in the event the Company fails to fully and faithfully perform all of its obligations. The letter of credit may be reduced based on certain levels of cash and cash equivalents the Company holds. As of March 31, 2020, none of the irrevocable letter of credit amount had been drawn. The Pleasanton Lease further provides that the Company is obligated to pay to the landlord its proportionate share of certain basic operating costs, including taxes and operating expenses.

In connection with the Pleasanton Lease, the Company received a tenant improvement allowance of $1.2 million from the landlord for the costs associated with the design, development and construction of tenant improvements for the Pleasanton Facility. The unamortized tenant improvement balance as of January 1, 2019 has been recognized as a component of ROU Assets on the condensed balance sheets as of March 31, 2020 and December 31, 2019.

In September 2018, the Company entered into a 24-month non-cancellable operating lease for an additional facility in Cambridge, Massachusetts with laboratory and office space. In conjunction with signing the lease, the Company prepaid the first twelve months base rent in the amount of $1.3 million, of which the remaining amount of $0.9 million as of January 1, 2019 was reclassified to the ROU Asset on the condensed balance sheet upon adoption of Topic 842. The Company also paid a cash security deposit of $0.3 million, which included $0.1 million for the last month’s rent and has been classified as part of the ROU Assets on the condensed balance sheets as of March 31, 2020 and December 31, 2019. The remaining security deposit is recorded in deposits and other long-term assets on the Company’s condensed balance sheet as of March 31, 2020.

13


In July 2019, the Company amended its Cambridge, Massachusetts laboratory and office space facility lease. The amendment extended the original 24-month lease term ending in August 2020 by another 12 months through August 2021 and added additional leased laboratory and office space. Upon six months written notice, the Company has the right to terminate the amended lease agreement. The amendment provides for annual base rent of approximately $3.4 million, effective July 2019. In conjunction with signing the lease amendment, the Company prepaid an additional twelve months base rent for both the original leased space and the additional leased space in the amount of $3.2 million, which was reclassified to the ROU Asset on the condensed balance sheet. The Company also paid a cash security deposit of $0.3 million, which included $0.1 million for the last month’s rent and has been classified as part of the ROU Assets on the condensed balance sheets as of March 31, 2020 and December 31, 2019. The remaining security deposit is recorded in deposits and other long-term assets on the Company’s condensed balance sheets as of March 31, 2020 and December 31, 2019.

In May 2019, the Company entered into a 64-month non-cancellable operating lease for additional office space in Pleasanton, California. The lessor provided the Company a tenant improvement allowance for a total of $0.1 million to complete the office renovation. The Company’s obligation to pay rent commenced on August 1, 2019. The Company has determined the tenant improvements to be lessee owned and therefore has recorded a $0.3 million ROU Asset and a $0.4 million lease liability on the condensed balance sheet as of March 31, 2020.

The Company’s operating leases include various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

The components of lease costs, which were included in our condensed statements of operations and comprehensive loss, were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

2019

 

Lease cost