vktx-10q_20180930.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 September 30, 2018

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 001-37355

 

VIKING THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-1073877

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

12340 El Camino Real, Suite 250

San Diego, California

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 704-4660

(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:

 

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  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Number of Shares Outstanding

as of October 31, 2018

Common stock, $0.00001 par value

 

71,459,857

 


VIKING THERAPEUTICS, INC.

FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Part I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

 

1

 

 

 

 

 

 

 

Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

2

 

 

 

 

 

 

 

Statements of Stockholders’ Equity for the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

3

 

 

 

 

 

 

 

Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

6

 

 

 

 

 

Item 2.

 

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

 

22

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

 

 

 

 

Part II.

 

OTHER INFORMATION

 

30

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

 

 

 

 

 

Item 1A.

 

Risk Factors

 

30

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

61

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

61

 

 

 

 

 

Item 5.

 

Other Information

 

61

 

 

 

 

 

Item 6.

 

Exhibits

 

62

 

 

 

 

 

SIGNATURES

 

63

 

 

 


PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Viking Therapeutics, Inc.

Balance Sheets

 

(In thousands, except share and per share amounts)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

169,506

 

 

$

8,988

 

Short-term investments – available for sale

 

 

134,656

 

 

 

11,587

 

Prepaid clinical trial and preclinical study costs

 

 

1,847

 

 

 

887

 

Prepaid expenses and other current assets

 

 

607

 

 

 

389

 

Total current assets

 

 

306,616

 

 

 

21,851

 

Deferred public offering and other financing costs

 

 

180

 

 

 

270

 

Total assets

 

$

306,796

 

 

$

22,121

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,215

 

 

$

1,529

 

Other accrued liabilities

 

 

3,528

 

 

 

2,257

 

Accrued interest, current

 

 

 

 

 

22

 

Convertible notes payable, current (net of discount of $0 and $404 at September 30, 2018 and December 31, 2017, respectively)

 

 

 

 

 

3,451

 

Debt conversion feature liability, current

 

 

 

 

 

1,398

 

Total current liabilities

 

 

4,743

 

 

 

8,657

 

Total liabilities

 

 

4,743

 

 

 

8,657

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized at September 30, 2018 and December 31, 2017; no shares issued and outstanding at September 30, 2018 and December 31, 2017

 

 

 

 

 

 

Common stock, $0.00001 par value: 300,000,000 shares authorized at September 30, 2018 and December 31, 2017; 71,284,604 and 35,817,104 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

 

Additional paid-in capital

 

 

399,847

 

 

 

94,339

 

Accumulated deficit

 

 

(97,678

)

 

 

(80,855

)

Accumulated other comprehensive loss

 

 

(117

)

 

 

(20

)

Total stockholders’ equity

 

 

302,053

 

 

 

13,464

 

Total liabilities and stockholders’ equity

 

$

306,796

 

 

$

22,121

 

 

See accompanying notes to the financial statements.

 

 

1


Viking Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

 

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,687

 

 

 

3,465

 

 

 

13,951

 

 

 

10,708

 

General and administrative

 

 

1,707

 

 

 

1,227

 

 

 

5,173

 

 

 

3,935

 

Total operating expenses

 

 

7,394

 

 

 

4,692

 

 

 

19,124

 

 

 

14,643

 

Loss from operations

 

 

(7,394

)

 

 

(4,692

)

 

 

(19,124

)

 

 

(14,643

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of debt conversion feature liability

 

 

 

 

 

(1,136

)

 

 

1,398

 

 

 

(288

)

Amortization of debt discount

 

 

 

 

 

(256

)

 

 

(404

)

 

 

(1,024

)

Amortization of financing costs

 

 

(30

)

 

 

(17

)

 

 

(90

)

 

 

(537

)

Interest income (expense), net

 

 

824

 

 

 

2

 

 

 

1,397

 

 

 

(1

)

Total other income (expense), net

 

 

794

 

 

 

(1,407

)

 

 

2,301

 

 

 

(1,850

)

Net loss

 

 

(6,600

)

 

 

(6,099

)

 

 

(16,823

)

 

 

(16,493

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities

 

 

30

 

 

 

2

 

 

 

(97

)

 

 

3

 

Comprehensive loss

 

$

(6,570

)

 

$

(6,097

)

 

$

(16,920

)

 

$

(16,490

)

Basic and diluted net loss per common share

 

$

(0.11

)

 

$

(0.22

)

 

$

(0.32

)

 

$

(0.67

)

Weighted-average shares used to compute basic and diluted net loss per share

 

 

61,232

 

 

 

27,470

 

 

 

52,943

 

 

 

24,666

 

See accompanying notes to the financial statements.

 

 

2


Viking Therapeutics, Inc.

Statements of Stockholders’ Equity

 

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three-Month Period Ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at June 30, 2018

 

 

60,652,794

 

 

$

1

 

 

$

231,587

 

 

$

(91,078

)

 

$

(147

)

 

$

140,363

 

Employee stock-based compensation

 

 

(205

)

 

 

 

 

 

747

 

 

 

 

 

 

 

 

 

747

 

Issuance of common stock under employee stock plans

 

 

21,604

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

157

 

Issuance of common stock from warrant exercises

 

 

1,110,411

 

 

 

 

 

 

2,342

 

 

 

 

 

 

 

 

 

2,342

 

Sale of common stock, net of issuance costs

 

 

9,500,000

 

 

 

 

 

 

165,014

 

 

 

 

 

 

 

 

 

165,014

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,600

)

 

 

 

 

 

(6,600

)

Balance at September 30, 2018

 

 

71,284,604

 

 

$

1

 

 

$

399,847

 

 

$

(97,678

)

 

$

(117

)

 

$

302,053

 

 

 

 

 

Nine-Month Period Ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2017

 

 

35,817,104

 

 

$

 

 

$

94,339

 

 

$

(80,855

)

 

$

(20

)

 

$

13,464

 

Employee stock-based compensation

 

 

(22,546

)

 

 

 

 

 

1,890

 

 

 

 

 

 

 

 

 

1,890

 

Issuance of common stock under employee stock plans

 

 

257,289

 

 

 

 

 

 

470

 

 

 

 

 

 

 

 

 

470

 

Issuance of common stock from warrant exercises

 

 

4,457,757

 

 

 

 

 

 

7,167

 

 

 

 

 

 

 

 

 

7,167

 

Sale of common stock, net of issuance costs

 

 

30,775,000

 

 

 

1

 

 

 

295,981

 

 

 

 

 

 

 

 

 

295,982

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(97

)

 

 

(97

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,823

)

 

 

 

 

 

(16,823

)

Balance at September 30, 2018

 

 

71,284,604

 

 

$

1

 

 

$

399,847

 

 

$

(97,678

)

 

$

(117

)

 

$

302,053

 

 

 

 

 

Three-Month Period Ended September 30, 2017

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at June 30, 2017

 

 

27,697,284

 

 

$

 

 

$

77,265

 

 

$

(70,671

)

 

$

(6

)

 

$

6,588

 

Employee stock-based compensation

 

 

(219

)

 

 

 

 

 

344

 

 

 

 

 

 

 

 

 

344

 

Issuance of common stock under employee stock plans

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock, net of issuance costs

 

 

801,282

 

 

 

 

 

 

1,391

 

 

 

 

 

 

 

 

 

1,391

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,099

)

 

 

 

 

 

(6,099

)

Balance at September 30, 2017

 

 

28,498,847

 

 

$

 

 

$

79,000

 

 

$

(76,770

)

 

$

(4

)

 

$

2,226

 


3


 

 

Nine-Month Period Ended September 30, 2017

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

Balance at December 31, 2016

 

 

20,823,873

 

 

$

 

 

$

68,327

 

 

$

(60,277

)

 

$

(7

)

 

$

8,043

 

Employee stock-based compensation

 

 

(10,655

)

 

 

 

 

 

1,073

 

 

 

 

 

 

 

 

 

1,073

 

Issuance of common stock under employee stock plans

 

 

33,012

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

20

 

Sale of common stock, net of issuance costs

 

 

7,652,617

 

 

 

 

 

 

9,580

 

 

 

 

 

 

 

 

 

9,580

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,493

)

 

 

 

 

 

(16,493

)

Balance at September 30, 2017

 

 

28,498,847

 

 

$

 

 

$

79,000

 

 

$

(76,770

)

 

$

(4

)

 

$

2,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


Viking Therapeutics, Inc.

Statements of Cash Flows

 

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net loss

 

$

(16,823

)

 

$

(16,493

)

 

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

 

Amortization of debt discount on notes payable

 

 

404

 

 

 

1,024

 

 

Amortization of investment premiums

 

 

144

 

 

 

79

 

 

Amortization of financing costs

 

 

90

 

 

 

537

 

 

Amortization of non-cash clinical trial costs

 

 

541

 

 

 

648

 

 

Change in fair value of debt conversion feature liability

 

 

(1,398

)

 

 

288

 

 

Stock-based compensation

 

 

1,991

 

 

 

1,088

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,823

)

 

 

299

 

 

Accounts payable

 

 

(333

)

 

 

232

 

 

Accrued expenses

 

 

1,131

 

 

 

1,487

 

 

Net cash used in operating activities

 

 

(16,076

)

 

 

(10,811

)

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(167,290

)

 

 

(13,106

)

 

Proceeds from maturities of investments

 

 

43,952

 

 

 

15,772

 

 

Net cash (used in) provided by investing activities

 

 

(123,338

)

 

 

2,666

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock, net of underwriting discounts and commissions

 

 

296,607

 

 

 

7,832

 

 

Public offering and financing costs

 

 

(482

)

 

 

(124

)

 

Repayment of convertible notes payable

 

 

(3,833

)

 

 

(77

)

 

Value of shares withheld related to employee tax withholding

 

 

(101

)

 

 

(14

)

 

Proceeds from warrant and option exercises and stock issuance under employee stock purchase plan

 

 

7,741

 

 

 

20

 

 

Net cash provided by financing activities

 

 

299,932

 

 

 

7,637

 

 

Net increase in cash and cash equivalents

 

 

160,518

 

 

 

(508

)

 

Cash and cash equivalents beginning of period

 

 

8,988

 

 

 

3,076

 

 

Cash and cash equivalents end of period

 

$

169,506

 

 

$

2,568

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

81

 

 

$

123

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing

   transactions

 

 

 

 

 

 

 

 

 

Shares issued to cover future clinical trial costs

 

$

 

 

$

1,800

 

 

Unpaid deferred public offering and other financing costs

 

$

283

 

 

$

220

 

 

Shares issued as commitment fee in connection with Lincoln Park Agreement

 

$

 

 

$

180

 

 

See accompanying notes to the financial statements.

 

 

5


Viking Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies

The Company

Viking Therapeutics, Inc., a Delaware corporation (the “Company”), is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are located in San Diego, California.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying balance sheet as of September 30, 2018, statements of operations for the three and nine months ended September 30, 2018 and 2017, statements of stockholders’ equity for the three and nine months ended September 30, 2018 and 2017 and statements of cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2017 contained in the Annual Report on Form 10-K filed by the Company with the SEC on March 7, 2018. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of September 30, 2018, the results of operations for the three and nine months ended September 30, 2018 and 2017, the statements of stockholders’ equity for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. The December 31, 2017 balance sheet included herein was derived from the audited financial statements, but does not include all disclosures or notes required by GAAP for complete financial statements.

The financial data and other information disclosed in these notes to the financial statements related to the three and nine months ended September 30, 2018 and 2017 are unaudited. Interim results are not necessarily indicative of results for an entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements relate to determining the fair value of the debt conversion feature liability, through May 21, 2018, and accounting for certain commitments. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Adopted Accounting Standards

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has subsequently issued the following amendments to ASU 2014-09, which have the same effective date and transition date of January 1, 2018:

 

 

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations.

6


 

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance.

 

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which relates to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers.

 

In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU No. 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.

 

The Company evaluated the potential impact that these standards had on its financial position and results of operations.  There is no current impact of this new guidance on its financial statements as the Company does not currently have any revenue generating arrangements.

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which amends ASC Topic 230 to add or clarify guidance on eight classification issues related to the statement of cash flows such as debt prepayment or debt extinguishment costs, and contingent consideration payments made after a business combination. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017 and must be adopted using a retrospective transition method to each period presented but may be applied prospectively if retrospective application would be impracticable. Early adoption is permitted, including adoption in an interim period. The Company’s adoption of ASU 2016-15 on January 1, 2018 did not have a material effect on its financial statements and related disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (“ASU 2017-09”), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions, or classification of the award changes. The Company’s adoption of ASU 2017-09 on January 1, 2018 did not have a material effect on its financial statements and related disclosures.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718) (“ASU 2018-07”), which simplifies the accounting for non-employee share-based payment transactions. The new standard expands the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 (including interim periods within that fiscal year), with early adoption permitted. The Company adopted the new standard in the second quarter of 2018 and determined that the application of the new standard did not have a material effect on its financial statements and related disclosures.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the statement of operations. This ASU becomes effective for the Company in the first quarter of fiscal year 2019 and early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach and requires application of the new standard at the beginning of the earliest comparative period presented. The Company expects that the adoption of ASU 2016-02 will result in the recognition of material right-of-use assets and liabilities in its balance sheet related to its San Diego facilities lease (See Note 8), but it is not expected to have a material effect on its statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

7


Investments Available-for-Sale

Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization of premiums and accretion of discounts is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured depository institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Prepaid Clinical Trial and Preclinical Study Costs

Prepaid clinical trial and preclinical study costs represent advance payments by the Company for future clinical trial and preclinical study services to be performed by the clinical research organization and other research organizations.  Such amounts are recognized as research and development expense as the related clinical trial and preclinical study services are performed.  

Deferred Financing Costs

Deferred financing costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public or private sale of the Company’s common stock. Costs related to public sales of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are reclassified to additional paid-in-capital as a reduction of the proceeds.  Costs related to private sales of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are amortized over the term of the applicable purchase agreement.

Revenue Recognition

The Company has not recorded any revenues since its inception. However, in the future, the Company may enter into collaborative research and licensing agreements, under which the Company could be eligible for payments made in the form of upfront license fees, research funding, cost reimbursement, contingent event-based payments and/or royalties.

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers and all related amendments ("ASC 606" or "the new revenue standard"). ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts.

Research and Development Expenses

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of fees paid to contract research organizations (“CROs”) and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

8


The Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on the Company’s behalf. Clinical trial-related contracts vary significantly in length, and may be for a fixed amount, based on milestones or deliverables, a variable amount based on actual costs incurred, capped at a certain limit, or for a combination of these elements. The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events. The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs. The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include:

 

fees paid to CROs, consultants and laboratories in connection with preclinical studies;

 

fees paid to CROs, clinical trial sites, investigators and consultants in connection with clinical trials; and

 

fees paid to contract manufacturers and service providers in connection with the production, testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials.

Payments under some of these agreements depend on factors such as the milestones accomplished, including enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. To date, the Company has not experienced any events requiring it to make material adjustments to its accruals for service fees. If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates which could materially affect its results of operations. Adjustments to the Company’s accruals are recorded as changes in estimates become evident. Furthermore, based on amounts invoiced to the Company by its service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered.

In May 2014, the Company entered into the Master License Agreement, pursuant to which it acquired certain rights to a number of research and development programs from Ligand Pharmaceuticals Incorporated (“Ligand”). In doing so, the Company updated its policy on research and development to include the purchase of rights to intangible assets. In accordance with ASC Topic 730, Research and Development, intangible assets that are acquired and have an alternative future use, as defined, should be capitalized and reported as an intangible asset; however, the cost of acquired intangible assets that do not have alternative future uses should be reported as research and development expense as incurred. The Company notes that intangible assets acquired that are in the preclinical or clinical stages of development when acquired, and not approved by the U.S. Food and Drug Administration, are deemed to have not satisfied the definition of having an alternative future use, as defined. Accordingly, assets acquired in the preclinical and clinical stages of development are expensed as incurred in the Company’s statement of operations.

Patent Costs

Costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense, as recoverability of such expenditures is uncertain.

Stock-Based Compensation

The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. At the point that it becomes probable that the performance conditions will be met, the Company records a cumulative catch-up of the expense from the grant date to the current date, and the Company then amortizes the remainder of the expense over the remaining service period.

Income Taxes

The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.

9


ASC Topic 740-10, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with GAAP.  Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Net Loss per Common Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method.  For purposes of this calculation, the Company currently does not have any deemed common share equivalents; therefore, its basic and diluted net loss per share calculations are the same.

The following table presents the computation of basic and diluted net loss per common share (in thousands, except share and per share data):

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(6,600

)

 

$

(6,099

)

 

$

(16,823

)

 

$

(16,493

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

61,414,775

 

 

 

27,714,880

 

 

 

53,154,530

 

 

 

24,939,198

 

 

Less: Weighted-average shares subject to repurchase

 

 

(183,095

)

 

 

(245,096

)

 

 

(211,257

)

 

 

(273,257

)

 

Denominator for basic net loss per share

 

 

61,231,680

 

 

 

27,469,784

 

 

 

52,943,273

 

 

 

24,665,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.11

)

 

$

(0.22

)

 

$

(0.32

)

 

$

(0.67

)

 

 

 

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):

 

 

 

As of September 30,

 

 

 

2018

 

 

2017

 

Common stock warrants

 

 

6,744,779

 

 

 

12,479,837

 

Restricted stock units

 

 

138,125

 

 

 

56,250

 

Common stock subject to repurchase

 

 

183,095

 

 

 

245,096

 

Common stock options

 

 

2,014,047

 

 

 

1,589,894

 

Shares issuable upon conversion of debt

 

 

 

 

 

2,941,206

 

 

 

 

9,080,046

 

 

 

17,312,283

 

 

Segments

The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision making purposes.

 

 

2. Investments in Marketable Securities

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue

10


or type of instrument. As of September 30, 2018 and December 31, 2017, the Company’s investments were in government money market funds, certificates of deposit, commercial paper and corporate debt securities. There were no sales of available-for-sale securities during the three and nine months ended September 30, 2018 or during the year ended December 31, 2017.

 

Investments classified as available-for-sale as of September 30, 2018 consisted of the following (in thousands):

 

As of September 30, 2018

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Commercial paper  (2)

 

$

3,458

 

 

$

 

 

$

 

 

$

3,458

 

Corporate debt securities  (2)

 

 

131,314

 

 

 

 

 

 

(116

)

 

 

131,198

 

 

 

$

134,772

 

 

$

 

 

$

(116

)

 

$

134,656

 

 

 

(1)

Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. At September 30, 2018, there were three securities in an unrealized gain position and there were 111 securities in an unrealized loss position. These unrealized losses were less than $10,000 individually and $116,000 in the aggregate. These securities have not been in a continuous unrealized gain or loss position for more than 12 months. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

 

(2)

At September 30, 2018, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet, and $7.5 million of these securities were scheduled to mature outside of one year at the time of purchase.

 

Investments classified as available-for-sale as of December 31, 2017 consisted of the following (in thousands):

 

As of December 31, 2017

 

Amortized

Cost

 

 

Gross

Unrealized

Gains  (1)

 

 

Gross

Unrealized

Losses  (1)

 

 

Aggregate

Estimated

Fair Value

 

Certificates of deposit  (2)

 

$

249

 

 

$

 

 

$

 

 

$

249

 

Corporate debt securities  (2)

 

 

11,357

 

 

 

 

 

 

(19

)

 

 

11,338

 

 

 

$

11,606