prvl-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019    

 

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: 001-38939

 

Prevail Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-2129632

(State or other jurisdiction of

incorporation or organization)

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

 

430 East 29th Street, Suite 1520

New York, New York 10016

10016

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (917) 336-9310

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.0001 per share

PRVL

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

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

As of November 6, 2019, the registrant had 34,102,019 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Balance Sheets

2

 

Statements of Operations

3

 

Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit

4

 

Statements of Cash Flows

5

 

Notes to Unaudited Financial Statements

6

 

 

 

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

 

 

 

 

 

 

PART II.

OTHER INFORMATION

31

 

 

 

Item 1.

Legal Proceedings

31

Item 1a.

Risk Factors

31

Item 2.

Recent Sales of Unregistered Securities

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

 

SIGNATURES

81

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

 

our expectations regarding the initiation, timing, scope and results of our development activities, including our planned clinical trials;

 

 

the timing of and plans for regulatory filings;

 

our plans to obtain and maintain regulatory approvals of our product candidates in any of the indications for which we plan to develop them;

 

 

the potential benefits of our product candidates and technologies;

 

our expectations regarding our ability to identify additional gene therapy product candidates;

 

the market opportunities for our product candidates and our ability to maximize those opportunities;

 

our business strategies and goals;

 

estimates of our expenses, capital requirements and need for additional financing;

 

our expectations regarding potentially establishing manufacturing capabilities;

 

the performance of our third-party suppliers and manufacturers,

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others;

 

 

our expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;

 

 

our ability to identify, recruit and retain key personnel;

 

regulatory development in the United States and foreign countries; and

 

our expectations regarding the uses of the net proceeds from our initial public offering and the sufficiency of such net proceeds together with our existing cash and cash equivalents to fund our operations.

 

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target” or “will” or the negative of these terms or other similar expressions intended to identify statements about the future. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

1


PART I—FINANCIAL INFORMATION

Prevail Therapeutics Inc.

Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

183,074

 

 

$

63,014

 

Prepaid expenses and other current assets

 

 

7,425

 

 

 

563

 

Total current assets

 

 

190,499

 

 

 

63,577

 

Property and equipment, net

 

 

2,527

 

 

 

678

 

Operating lease right-of-use assets

 

 

10,312

 

 

 

8,534

 

Restricted cash

 

 

91

 

 

 

91

 

TOTAL ASSETS

 

$

203,429

 

 

$

72,880

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED

   STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,952

 

 

$

1,241

 

Accrued expenses and other current liabilities

 

 

5,089

 

 

 

1,477

 

Operating lease liabilities

 

 

1,134

 

 

 

917

 

Total current liabilities

 

 

11,175

 

 

 

3,635

 

Long-term operating lease liabilities

 

 

10,226

 

 

 

7,952

 

TOTAL LIABILITIES

 

 

21,401

 

 

 

11,587

 

COMMITMENTS AND CONTINGENCIES (Note 13)

REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

 

 

 

 

 

 

 

Series Seed Preferred Stock - $0.0001 par value, 0 and 6,480,000 shares authorized,

   issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

3,524

 

Series A Preferred Stock - $0.0001 par value, 0 and 9,072,000 shares authorized,

   0 and 8,997,085 shares issued and outstanding as of September 30, 2019

   and December 31, 2018, respectively

 

 

 

 

 

76,186

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Common stock - $0.0001 par value, 200,000,000 and 28,398,600 shares

   authorized as of September 30, 2019 and December 31, 2018, respectively,

   34,098,819 and 7,209,000 shares issued and outstanding as

   of September 30, 2019 and December 31, 2018, respectively

 

 

3

 

 

 

1

 

Additional paid-in capital

 

 

248,286

 

 

 

2,496

 

Accumulated deficit

 

 

(66,261

)

 

 

(20,914

)

Total stockholders’ equity (deficit)

 

 

182,028

 

 

 

(18,417

)

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED

   STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

203,429

 

 

$

72,880

 

 

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

2


Prevail Therapeutics Inc.

Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

16,836

 

 

$

4,599

 

 

$

37,202

 

 

$

9,110

 

General and administrative

 

 

4,452

 

 

 

920

 

 

 

10,050

 

 

 

2,520

 

Operating loss

 

 

(21,288

)

 

 

(5,519

)

 

 

(47,252

)

 

 

(11,630

)

Change in fair value of derivative liabilities

 

 

 

 

 

 

 

 

 

 

 

(781

)

Interest income

 

 

989

 

 

 

320

 

 

 

1,905

 

 

 

543

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

(471

)

Total other income (expense), net

 

 

989

 

 

 

320

 

 

 

1,905

 

 

 

(709

)

Net loss

 

$

(20,299

)

 

$

(5,199

)

 

$

(45,347

)

 

$

(12,339

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.62

)

 

$

(0.99

)

 

$

(1.68

)

 

$

(2.47

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

32,864,156

 

 

 

5,244,585

 

 

 

26,950,854

 

 

 

4,989,604

 

 

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


 

3


Prevail Therapeutics Inc.

Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands except share data)

 

 

 

Series Seed

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Deficit

 

For the three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,021,194

 

 

$

3

 

 

$

246,998

 

 

$

(45,962

)

 

$

201,039

 

Stock-based compensation and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,276

 

 

 

 

 

 

1,276

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,625

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(20,299

)

 

 

(20,299

)

Balance at September 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,098,819

 

 

$

3

 

 

$

248,286

 

 

$

(66,261

)

 

$

182,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

1,497

 

 

$

(8,967

)

 

$

(7,469

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

478

 

 

 

 

 

 

478

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,199

)

 

 

(5,199

)

Balance at September 30, 2018

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

1,975

 

 

$

(14,166

)

 

$

(12,190

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

2,496

 

 

$

(20,914

)

 

$

(18,417

)

Issuance of Series B Preferred Stock, net of issuance costs of $166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,958,046

 

 

 

49,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,017

 

 

 

 

 

 

3,017

 

Conversion of convertible preferred stock into common stock upon the closing of initial public offering

 

 

(6,480,000

)

 

 

(3,524

)

 

 

(8,997,085

)

 

 

(76,186

)

 

 

(3,958,046

)

 

 

(49,834

)

 

 

19,435,131

 

 

 

1

 

 

 

129,542

 

 

 

 

 

 

129,543

 

Issuance of common stock upon closing of

initial public offering, net of issuance costs of $3,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,353,000

 

 

 

1

 

 

 

113,214

 

 

 

 

 

 

113,215

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,688

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

s

 

 

 

(45,347

)

 

 

(45,347

)

Balance at September 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,098,819

 

 

$

3

 

 

$

248,286

 

 

$

(66,261

)

 

$

182,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

6,480,000

 

 

$

3,524

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

886

 

 

$

(1,827

)

 

$

(940

)

Issuance of Series A Preferred Stock, net of

issuance costs of $93

 

 

 

 

 

 

 

 

7,666,716

 

 

 

64,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Stock shares issued as a

result of conversion of convertible note

- related party

 

 

 

 

 

 

 

 

1,330,369

 

 

 

11,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,089

 

 

 

 

 

 

1,089

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,339

)

 

 

(12,339

)

Balance at September 30, 2018

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

1,975

 

 

$

(14,166

)

 

$

(12,190

)

 

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

 

4


Prevail Therapeutics Inc.

Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(45,347

)

 

$

(12,339

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

201

 

 

 

29

 

Stock-based compensation

 

 

3,017

 

 

 

1,089

 

Amortization of convertible note discount, issuance costs and other non-cash

   interest

 

 

 

 

 

471

 

Change in fair value of derivative liabilities

 

 

 

 

 

781

 

Other

 

 

 

 

 

12

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(6,862

)

 

 

(916

)

Operating lease right-of-use asset

 

 

1,326

 

 

 

220

 

Accounts payable

 

 

3,711

 

 

 

1,867

 

Accrued expenses and other current liabilities

 

 

3,612

 

 

 

616

 

Operating lease liabilities

 

 

(613

)

 

 

(210

)

Net cash used in operating activities

 

 

(40,955

)

 

 

(8,380

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,050

)

 

 

(304

)

Net cash used in investing activities

 

 

(2,050

)

 

 

(304

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

116,251

 

 

 

 

Payment of issuance costs for preferred stock

 

 

(166

)

 

 

 

Payment of issuance costs for common stock

 

 

(3,037

)

 

 

(93

)

Proceeds from exercise of stock options

 

 

17

 

 

 

 

Proceeds from issuance of Series A Preferred Stock

 

 

 

 

 

65,000

 

Proceeds from issuance of Series B Preferred Stock

 

 

50,000

 

 

 

 

Net cash provided by financing activities

 

 

163,065

 

 

 

64,907

 

Net increase in cash, cash equivalents and restricted cash

 

 

120,060

 

 

 

56,223

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

63,105

 

 

 

12,836

 

Cash, cash equivalents, and restricted cash at end of period

 

$

183,165

 

 

$

69,059

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Conversion of convertible note plus accrued interest into 1,330,369 shares of Series

   A Preferred Stock

 

$

 

 

$

11,279

 

Right-of-use asset obtained in exchange for operating lease obligation

 

$

3,104

 

 

$

7,740

 

Conversion of preferred stock to common stock upon the initial public offering

 

$

129,543

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30,

 

 

 

2019

 

 

2018

 

Reconciliation of cash, cash equivalents and restricted cash reported within the Balance Sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

183,074

 

 

$

68,968

 

Restricted Cash

 

 

91

 

 

 

91

 

Total cash, cash equivalents and restricted cash

 

 

183,165

 

 

 

69,059

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5


 

 

Prevail Therapeutics Inc.

Notes to the Financial Statements (Unaudited)

1. NATURE OF THE BUSINESS

Prevail Therapeutics Inc., or the Company, was incorporated in the State of Delaware on July 6, 2017. The Company is a biotechnology company engaged in the research and development of novel gene therapies in an effort to treat Parkinson’s disease and other neurodegenerative diseases. Since beginning operations, the Company has devoted substantially all its efforts to research and development, recruiting management and technical staff, administration, and raising capital. In May 2019, the U.S. Food and Drug Administration, or FDA, declared the Investigational New Drug, or IND, application associated with the Company’s lead program, PR001, for the treatment of patients with Parkinson’s disease with GBA1 mutations, or PD-GBA, as open.

Stock Split - In June 2019, the Board of Directors of the Company approved a 1.62-for-one forward stock-split of the Company’s outstanding shares of common stock, convertible preferred stock and options outstanding and available for future issuance. The stock split became effective on June 7, 2019. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this forward stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective per share value and exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities.

Initial Public Offering - In June 2019, the Company completed its initial public offering, or IPO, whereby the Company sold an aggregate of 7,353,000 shares of its common stock at a price of $17.00 per share. The shares began trading on The Nasdaq Global Select Market on June 20, 2019. The aggregate net proceeds received by the Company from the offering were approximately $113.2 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company of $11.8 million. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted into 19,435,131 shares of common stock. Additionally, the Company is authorized to issue 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. On June 24, 2019, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, in connection with the closing of the IPO.

Significant Risks and Uncertainties - The Company is subject to a number of risks common to early-stage biotechnology companies. Principal among these risks are the uncertainties in the development process, development of the same or similar technological innovations by competitors, protection of proprietary technology, dependence on key personnel, compliance with government regulations and approval requirements, and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its qualified employees, consultants and contractors to be successful with its objectives.

Liquidity and Capital Resources- Since its inception, the Company has incurred operating losses and has consistently used cash in operations. The Company has not recognized any revenue to date, devoting its efforts and capital resources to research and development of its product candidates. The Company’s activities have been primarily funded by the sale of shares of convertible preferred stock and common stock (see Note 8). The Company manages its capital resources to ensure the Company will continue as a going concern while maximizing the return to stockholders through the optimization of the debt and equity balances.

The Company’s cash and cash equivalents as of September 30, 2019 and December 31, 2018 were $183.1 million and $63.0 million respectively. In March 2019, the Company raised an aggregate of $49.8 million of net proceeds from its Series B Preferred Stock financing. In June 2019, the Company completed its IPO whereby the Company sold an aggregate of 7,353,000 shares of its common stock for aggregate net proceeds of approximately $113.2 million. Based on the Company’s cash and cash equivalents balance as of September 30, 2019, the Company estimates that its cash and cash equivalents balance will be sufficient to enable it to fund its operating expenses and capital expenditure requirements for at least 12 months. This estimate is based on assumptions that may prove to be incorrect, and the Company could use its available capital resources sooner than currently expected. Changing circumstances could cause the Company to consume capital resources sooner than currently anticipated, and the Company may need to spend more than currently planned due to circumstances beyond its control.

6


 

 

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The Company’s unaudited interim financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, for interim information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been or omitted pursuant to such rules and regulations. These unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s final prospectus for its IPO, dated June 19, 2019, and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on June 20, 2019.

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has irrevocably elected not to avail itself of this extended transition period, and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Significant estimates in the financial statements include, but are not limited to stock-based compensation, fair value of common and preferred stock derivative liabilities, operating lease right-of-use assets and liabilities, the recoverability of the Company’s net deferred tax assets and related valuation allowance, and accrued liabilities related to expenses incurred for research and development from external vendors. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. The Company tracks the progress of its various research and development studies and manufacturing projects to ensure related prepaid expenses and accrued expenses are in line with progress of each. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions.

Cash, Cash Equivalents and Restricted Cash—The Company’s cash and cash equivalents include short-term highly liquid investments which are readily convertible into cash. These investments include money market securities and commercial paper with maturities of three months or less when acquired. The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions, which are considered Level 1 inputs in the fair value hierarchy, as described below. The Company had cash and cash equivalents of $183.1 million as of September 30, 2019. Restricted cash represents cash on deposit with a financial institution as collateral in support of a letter of credit outstanding in favor of the Company’s landlord for office space. The restricted cash balance has been excluded from the cash balance and is classified as non-current restricted cash on the balance sheets as the lease expires after September 30, 2020.

Concentration of Credit Risk—The Company maintains cash deposits in excess of government-provided insurance limits. The Company maintains its cash balances with one high quality, accredited financial institution, and accordingly, such funds are not exposed to significant credit risk.

Leases—The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use, or ROU, assets, operating lease liabilities, and long-term operating lease liabilities in the Company’s balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide a readily determinable implicit rate, the Company’s uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.

The Company’s facilities operating leases have lease and non-lease components for which the Company has elected to apply the practical expedient and account for each lease component and related non-lease component as one single component. Operating lease cost is recognized on a straight-line basis over the lease term.

7

 


 

 

Property and Equipment, NetProperty and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of the asset, ranging from 3-7 years as follows:

 

Fixed Asset Type

 

Estimated

useful life

Laboratory Equipment

 

7 Years

Leasehold Improvements

 

Lesser of useful life or remaining lease term

Computer Equipment

 

3 Years

Furniture and Fixtures

 

7 Years

 

Expenditures for repairs and maintenance of assets are charged to expense as incurred, while major betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in the statements of operations.

Impairment of Long-Lived Assets—Long-lived assets, comprised of property and equipment, to be held and used and the right-of-use asset associated with the Company’s leased office space are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. To date, the Company has not recorded any impairment losses on long-lived assets.

Comprehensive Loss—The Company does not have items of other comprehensive loss for the three and nine months ended September 30, 2019 and 2018, and therefore does not present a statement of comprehensive loss. The Company’s comprehensive loss equals its net loss.

Fair Value Measurements—Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

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

 

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

 

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

The following table summarizes assets measured at fair value on a recurring basis at September 30, 2019:

September 30, 2019

 

Active Markets (Level 1)

 

 

Observable Inputs (Level 2)

 

 

Unobservable Inputs (Level 3)

 

 

Cash and cash equivalents:

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Cash

 

$

30

 

 

$

 

 

$

 

 

Money Market Funds

 

 

183,044

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

 

91

 

 

 

 

 

 

 

 

Total