sbph-10q_20190630.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 June 30, 2019

OR

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

For the transition period from                      to                     

Commission File Number: 001-37718

 

Spring Bank Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

52-2386345

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

35 Parkwood Drive, Suite 210

Hopkinton, MA

01748

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (508) 473-5993

 

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

 

Title of Class

 

Trading

Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

SBPH

 

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 July 30, 2019, the registrant had 16,459,155 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Spring Bank Pharmaceuticals, Inc.

 

INDEX

 

 

 

 

 

PART I. FINANCIAL INFORMATION

Page    

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations and Comprehensive Loss

4

 

Consolidated Statements of Stockholders’ Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 6.

Exhibits

33

Exhibit Index

34

Signatures

35

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “design,” “expect,” “seek,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.

These forward-looking statements include, but are not limited to, statements about:

 

our ongoing and planned preclinical studies and clinical trials;

 

preclinical study data and clinical trial data and the timing of results of our ongoing clinical studies and/or trials;

 

our plans to seek and enter into clinical trial collaborations and other broader collaborations; and

 

our estimates regarding prospects, strategies, expenses, operating capital requirements, results of operations and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results or events to differ materially from the forward-looking statements that we make include, but are not limited to, the following:

Our business currently depends substantially on the success of clinical trials for inarigivir soproxil, which we refer to as inarigivir, which is still under development. If we are unable to obtain regulatory approval for, or successfully commercialize, inarigivir, our business will be materially harmed.

We are very early in our development efforts and our product candidates may not be successful in later stage clinical trials.  Results obtained in our preclinical studies and clinical trials to date are not necessarily indicative of results to be obtained in future clinical trials.  As a result, our product candidates may never be approved as marketable therapeutics.

We will need additional funding to complete the development of our product candidates and before we can expect to become profitable from the sales of our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We rely, and expect to continue to rely, on third parties to conduct our clinical trials and to manufacture our product candidates for preclinical and clinical testing. These third parties may not perform satisfactorily, which could delay our product development activities.

If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

We may not be able to retain key executives or to attract, retain and motivate key personnel. If we are unable to retain such key personnel, it could have a material adverse impact on our business and prospects.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to 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. You should also read carefully the factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 11, 2019, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

2


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

     Cash and cash equivalents

 

$

10,547

 

 

$

14,724

 

     Marketable securities

 

 

38,646

 

 

 

32,914

 

     Prepaid expenses and other current assets

 

 

2,402

 

 

 

1,649

 

Total current assets

 

 

51,595

 

 

 

49,287

 

     Marketable securities, long-term

 

 

 

 

 

16,804

 

     Property and equipment, net

 

 

2,353

 

 

 

2,319

 

     Operating lease right-of-use assets

 

 

2,850

 

 

 

 

     Restricted cash

 

 

234

 

 

 

234

 

     Other assets

 

 

35

 

 

 

167

 

Total

 

$

57,067

 

 

$

68,811

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

     Accounts payable

 

$

1,725

 

 

$

1,880

 

     Accrued expenses and other current liabilities

 

 

3,185

 

 

 

2,367

 

     Operating lease liabilities, current

 

 

332

 

 

 

 

Total current liabilities

 

 

5,242

 

 

 

4,247

 

     Warrant liabilities

 

 

805

 

 

 

8,511

 

     Operating lease liabilities, noncurrent

 

 

3,052

 

 

 

 

     Other long-term liabilities

 

 

27

 

 

 

193

 

Total liabilities

 

 

9,126

 

 

 

12,951

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value—authorized, 10,000,000 shares at June 30, 2019

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

     December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value—authorized, 200,000,000 shares at June 30, 2019

     and December 31, 2018; 16,459,155 and 16,434,614 shares issued and outstanding

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

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

159,975

 

 

 

157,931

 

Accumulated deficit

 

 

(111,818

)

 

 

(102,068

)

Accumulated other comprehensive loss

 

 

(218

)

 

 

(5

)

Total stockholders’ equity

 

 

47,941

 

 

 

55,860

 

Total

 

$

57,067

 

 

$

68,811

 

 

See accompanying notes to consolidated financial statements.

 

 

3


 

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In Thousands, Except Share and Per Share Data)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,275

 

 

$

5,555

 

 

$

12,842

 

 

$

9,532

 

General and administrative

 

 

2,490

 

 

 

2,399

 

 

 

5,300

 

 

 

4,622

 

Total operating expenses

 

 

9,765

 

 

 

7,954

 

 

 

18,142

 

 

 

14,154

 

Loss from operations

 

 

(9,765

)

 

 

(7,954

)

 

 

(18,142

)

 

 

(14,154

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

325

 

 

 

198

 

 

 

686

 

 

 

332

 

Change in fair value of warrant liabilities

 

 

4,885

 

 

 

3,971

 

 

 

7,706

 

 

 

5,173

 

Net loss

 

 

(4,555

)

 

 

(3,785

)

 

 

(9,750

)

 

 

(8,649

)

Unrealized gain (loss) on marketable securities

 

 

(97

)

 

 

(22

)

 

 

(213

)

 

 

1

 

Comprehensive loss

 

$

(4,652

)

 

$

(3,807

)

 

$

(9,963

)

 

$

(8,648

)

Net loss per common share - basic and diluted

 

$

(0.28

)

 

$

(0.29

)

 

$

(0.59

)

 

$

(0.66

)

Weighted-average number of shares outstanding - basic and diluted

 

 

16,443,379

 

 

 

13,179,072

 

 

 

16,440,192

 

 

 

13,085,820

 

 

See accompanying notes to consolidated financial statements.

 

 

 


4


 

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(In Thousands, Except Share and Per Share Data)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other

Comprehensive

 

 

Total

Stockholders’

 

For the Three Months Ended June 30, 2019

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at March 31, 2019

 

 

16,442,532

 

 

$

2

 

 

$

158,928

 

 

$

(107,263

)

 

$

(121

)

 

$

51,546

 

Stock-based compensation

 

 

 

 

 

 

 

 

982

 

 

 

 

 

 

 

 

 

982

 

Issuance of common stock for services rendered

 

 

16,023

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

Issuance of common stock in connection with

     at-the-market offering

 

 

600

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(97

)

 

 

(97

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,555

)

 

 

 

 

 

(4,555

)

Balance at June 30, 2019

 

 

16,459,155

 

 

$

2

 

 

$

159,975

 

 

$

(111,818

)

 

$

(218

)

 

$

47,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other

Comprehensive

 

 

Total

Stockholders’

 

For the Six Months Ended June 30, 2019

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2018

 

 

16,434,614

 

 

$

2

 

 

$

157,931

 

 

$

(102,068

)

 

$

(5

)

 

$

55,860

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,895

 

 

 

 

 

 

 

 

 

1,895

 

Issuance of common stock for services rendered

 

 

23,941

 

 

 

 

 

 

143

 

 

 

 

 

 

 

 

 

143

 

Issuance of common stock in connection with

     at-the-market offering

 

 

600

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(213

)

 

 

(213

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,750

)

 

 

 

 

 

(9,750

)

Balance at June 30, 2019

 

 

16,459,155

 

 

$

2

 

 

$

159,975

 

 

$

(111,818

)

 

$

(218

)

 

$

47,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other

Comprehensive

 

 

Total

Stockholders’

 

For the Three Months Ended June 30, 2018

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at March 31, 2018

 

 

13,153,879

 

 

$

1

 

 

$

117,469

 

 

$

(84,101

)

 

$

 

 

$

33,369

 

Stock-based compensation

 

 

 

 

 

 

 

 

664

 

 

 

 

 

 

 

 

 

664

 

Issuance of common stock for services rendered

 

 

1,414

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Issuance of common stock in connection with

     at-the-market offering, net of issuance costs

     of $14

 

 

27,274

 

 

 

 

 

 

386

 

 

 

 

 

 

 

 

 

386

 

Net unrealized gain (loss) on marketable securities

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

(22

)

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,785

)

 

 

 

 

 

(3,785

)

Balance at June 30, 2018

 

 

13,182,567

 

 

$

1

 

 

$

118,541

 

 

$

(87,863

)

 

$

(22

)

 

$

30,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other

Comprehensive

 

 

Total

Stockholders’

 

For the Six Months Ended June 30, 2018

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2017

 

 

12,961,993

 

 

$

1

 

 

$

113,984

 

 

$

(79,214

)

 

$

(23

)

 

$

34,748

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,298

 

 

 

 

 

 

 

 

 

1,298

 

Issuance of common stock for services rendered

 

 

3,245

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

46

 

Issuance of common stock in connection with

     at-the-market offering, net of issuance costs

     of $139

 

 

217,329

 

 

 

 

 

 

3,213

 

 

 

 

 

 

 

 

 

3,213

 

Net unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,649

)

 

 

 

 

 

(8,649

)

Balance at June 30, 2018

 

 

13,182,567

 

 

$

1

 

 

$

118,541

 

 

$

(87,863

)

 

$

(22

)

 

$

30,657

 

 

See accompanying notes to consolidated financial statements.

5


 

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

 

 

For the Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,750

)

 

$

(8,649

)

Adjustments for:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

171

 

 

 

86

 

Loss on the disposal of property and equipment

 

 

 

 

 

16

 

Operating lease right-of-use asset amortization

 

 

130

 

 

 

 

Change in fair value of warrant liabilities

 

 

(7,706

)

 

 

(5,173

)

Non-cash investment income

 

 

72

 

 

 

110

 

Non-cash stock-based compensation

 

 

2,013

 

 

 

1,349

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(753

)

 

 

(625

)

Other assets

 

 

132

 

 

 

 

Accounts payable

 

 

(155

)

 

 

(12

)

Accrued expenses and other liabilities

 

 

1,081

 

 

 

(62

)

Net cash used in operating activities

 

 

(14,765

)

 

 

(12,960

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of marketable securities

 

 

16,787

 

 

 

21,951

 

Purchases of marketable securities

 

 

(6,000

)

 

 

(22,000

)

Purchases of property and equipment

 

 

(205

)

 

 

(994

)

Net cash provided by (used in) investing activities

 

 

10,582

 

 

 

(1,043

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with at-the-market offering,

     net of issuance costs

 

 

6

 

 

 

3,213

 

Cash provided by financing activities

 

 

6

 

 

 

3,213

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(4,177

)

 

 

(10,790

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

14,958

 

 

 

24,133

 

Cash, cash equivalents and restricted cash, end of period

 

$

10,781

 

 

$

13,343

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

17

 

 

$

3

 

Cash paid for interest, net

 

$

 

 

$

 

 

See accompanying notes to consolidated financial statements.

 

 

6


 

Spring Bank Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

 

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Spring Bank Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company engaged in the discovery and development of a novel class of therapeutics using a proprietary small molecule nucleotide platform. The Company is developing its most advanced product candidate, inarigivir soproxil (“inarigivir”), for the treatment of chronic hepatitis B virus. Since inception in 2002 and prior to its initial public offering (“IPO”) in May 2016, the Company built its technology platform and product candidate pipeline, supported by grants and through private financings. The Company has three wholly owned subsidiaries: Sperovie Biosciences, Inc. formed in September 2015, SBP Securities Corporation formed in December 2016 and SBP International Limited formed in May 2019.

 

The Company’s success is dependent upon its ability to successfully complete clinical development and obtain regulatory approval of its product candidates, successfully commercialize approved products, generate revenue, and, ultimately, attain profitable operations. The Company’s operations to date have been primarily limited to the development of inarigivir, SB 11285, SB 9225 and the Company’s other product candidates.

Basis of Presentation and Liquidity

The accompanying consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”).

The accompanying interim financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018, and related interim information contained within the notes to the financial statements, are unaudited. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of June 30, 2019, results of operations for the three and six months ended June 30, 2019 and 2018, statement of stockholders’ equity for the three and six months ended June 30, 2019 and 2018 and its cash flows for the six months ended June 30, 2019 and 2018. These interim financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on March 11, 2019. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the full fiscal year or any interim period.

As of June 30, 2019, the Company had an accumulated deficit of $111.8 million and $49.2 million in cash, cash equivalents and marketable securities.

The Company expects to continue to incur significant and increasing losses for the foreseeable future. The Company anticipates that its expenses will increase significantly as it continues to develop inarigivir, SB 11285, SB 9225 and its other product candidates. The Company does not have any committed external source of funds. As a result, the Company will need additional financing to support its continuing operations. Adequate additional funds may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish valuable rights to its technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to the Company.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sperovie Biosciences, Inc., SBP Securities Corporation and SBP International Limited. Sperovie Biosciences, Inc. had operations consisting mainly of legal fees associated with intellectual property activities as of June 30, 2019. SBP Securities Corporation had assets primarily related to investments in marketable securities and operations consisting primarily of interest income as of June 30, 2019. SBP International Limited had operations consisting mainly of clinical trial oversight, including European data protection oversight, as of June 30, 2019. All intercompany balances and transactions have been eliminated in consolidation.

7


 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates relied upon in preparing the accompanying financial statements related to the fair value of common stock and warrant liabilities, accounting for stock-based compensation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates.

Cash and Cash Equivalents

Cash equivalents are stated at fair value and include short-term, highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Included in cash and cash equivalents as of June 30, 2019 and December 31, 2018 are money market fund investments of $9.0 million and $13.3 million, respectively, which are reported at fair value (Note 5).

Restricted Cash

As of June 30, 2019 and December 31, 2018, restricted cash consists of approximately $234,000, which is held as a security deposit required in conjunction with a lease agreement for the Company’s principal office and laboratory space entered into in October 2017.

Concentration of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. Substantially all of the Company’s cash is held at financial institutions that management believes to be of high credit quality. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

Investments in Marketable Securities

The Company invests excess cash balances in short-term and long-term marketable securities. The Company classifies investments in marketable securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. At each balance sheet date presented, all investments in securities are classified as available-for-sale. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary,” including the intention to sell and, if so, marks the investment to market through a charge to the Company’s consolidated statements of operations and comprehensive loss.

Property and Equipment, Net

Property and equipment are recorded at cost. Costs associated with maintenance and repairs are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives:

 

Asset Category

 

Useful Life

Equipment

 

5-7 years

Furniture and fixtures

 

5 years

Leasehold improvements

 

Lesser of 10 years or the remaining

term of the respective lease

 

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 


8


 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its 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 an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, an impairment loss is recorded for the difference between the carrying value and fair value of the asset. As of June 30, 2019, no such impairment has occurred.

Research and Development Costs

Research and development expenses consist primarily of costs incurred for the Company’s research activities, including discovery efforts, and the development of product candidates, which include:

 

expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical activities and clinical trials on the Company’s behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in the Company’s preclinical and clinical trials;

 

salaries, benefits and other related costs, including stock-based compensation expense, for personnel in the Company’s research and development functions;

 

costs of outside consultants, including their fees, stock-based compensation and related travel expenses;

 

the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

 

costs related to compliance with regulatory requirements; and

 

facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

The Company expenses research and development costs as incurred. The Company recognizes external development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its vendors and its clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in the Company’s consolidated financial statements as prepaid or accrued research and development expenses.

Warrants

The Company reviews the terms of all warrants issued and classifies the warrants as a component of permanent equity if they are freestanding financial instruments that are legally detachable and separately exercisable, contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. Warrants that meet these criteria are initially recorded at their grant date fair value and are not subsequently remeasured. Warrants that do not meet these criteria are classified as liabilities and remeasured to their fair value at each reporting period.

Stock-Based Compensation

The Company’s stock-based payments include stock options, performance-based restricted stock units and grants of common stock, including common stock subject to vesting. The Company accounts for all stock-based payment awards granted to employees and nonemployees using a fair value method. The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is generally the vesting period, on a straight-line basis. The Company measures the fair value of the performance-based restricted stock units relating to the total share return performance using a Monte Carlo valuation model. The Company adopted ASU 2018-07, Improvements to Nonemployee

9


 

Share-Based Payment Accounting, effective July 1, 2018, which aligns the accounting treatment of nonemployee awards with employee awards. Stock-based compensation expense is classified in the accompanying consolidated statements of operations and comprehensive loss based on the department to which the related services are provided.

Financial Instruments

The Company’s financial instruments consist of cash equivalents, marketable securities, accounts payable and liability classified warrants. The carrying amounts of cash and cash equivalents and accounts payable approximate their fair value due to the short-term nature of those financial instruments. The fair value of the marketable securities and liability classified warrants are remeasured to fair value each reporting period as described in Note 5.

Fair Value Measurements

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s assets and liabilities measured at fair value on a recurring basis include cash equivalents, marketable securities and warrant liabilities.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as if-converted method, for convertible securities, if inclusion of these instruments is dilutive. For the three and six months ended June 30, 2019 and 2018, both methods are equivalent. Basic and diluted net loss per share is described further in Note 2.

Income Taxes

Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company assesses its income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the consolidated financial statements. The Company classifies interest and penalties associated with such uncertain tax positions as a component of interest expense. As of June 30, 2019 and December 31, 2018, the Company has not identified any material uncertain tax positions.

10


 

Guarantees and Indemnifications

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.

The Company leases its principal office and laboratory space in Hopkinton, Massachusetts and previously leased research and development space in Milford, Massachusetts under non-cancelable operating leases. The Company has standard indemnification arrangements under these leases that require it to indemnify the landlords against liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or nonperformance under the Company’s lease.

Through June 30, 2019, the Company had not experienced any losses related to these indemnification obligations and no material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

Segment Information

Operating segments are identified as components of an enterprise about which separate and discrete financial information is available for evaluation by the chief operating decision maker, the Company’s chief executive officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment and does not track expenses on a program-by-program basis.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement. This ASU removes, modifies and adds certain disclosure requirements of ASC Topic 820. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2019. The Company is currently evaluating the impact that the adoption of this standard may have on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases are classified as either operating or finance, and classification is based on criteria similar to current lease accounting, but without explicit bright lines. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, “Leases (Topic 842) – Targeted Improvements” (ASU 2018-11), which addresses implementation issues related to the new lease standard. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. Under this standard, disclosures are required to enable users of financial statements in assessing the amount, timing, and uncertainty of cash flows arising from leases. The standard permits two transition methods, (1) to apply the new lease requirements at the beginning of the earliest period presented, or (2) to apply the new lease requirements at the effective date. Under both transition methods there is a cumulative effect adjustment.

 

The Company adopted the standard on the effective date of January 1, 2019 by applying the new lease requirements at the effective date. Prior periods continue to be presented based on the accounting standards originally in effect for such periods. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification. The Company will also apply the practical expedient not to separate lease and non-lease components for new and modified leases commencing after adoption. The standard had an impact of approximately $3.0 million on the Company’s assets and $3.4 million on its liabilities, as of January 1, 2019, for the recognition of right-of-use assets and lease liabilities, which are primarily related to the lease of its corporate headquarters in Hopkinton, Massachusetts. The standard did not have a material impact on the Company’s results of operations or liquidity (see Note 8).

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting

11


 

periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company adopted this standard as of January 1, 2019; however, the adoption of this standard did not impact the Company’s consolidated financial statements.

2. NET LOSS PER SHARE

The following table summarizes the computation of basic and diluted net loss per share of the Company for such periods (in thousands, except share and per share data):

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(4,555

)

 

$

(3,785

)

 

$

(9,750

)

 

$

(8,649

)

Weighted-average number of shares outstanding -

     basic and diluted

 

 

16,443,379

 

 

 

13,179,072

 

 

 

16,440,192

 

 

 

13,085,820

 

Net loss per common share - basic and diluted

 

$

(0.28

)

 

$

(0.29

)

 

$

(0.59

)

 

$

(0.66

)

 

Diluted net loss per common share is the same as basic net loss per common share for all periods presented.

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported:

 

 

For the Three and Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

Common stock warrants

 

 

1,662,124

 

 

 

1,787,124

 

Stock options, RSUs and Inducement awards

 

 

1,900,615

 

 

 

1,338,565

 

 

 

3. INVESTMENTS

Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

 

The following table summarizes the Company’s investments, by category, as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

June 30,

 

 

December 31,

 

Investments - Current:

 

2019

 

 

2018

 

Debt securities - available for sale

 

$

38,646

 

 

$

32,914

 

Total

 

$

38,646

 

 

$

32,914

 

 

 

 

 

 

 

 

 

 

Investments - Noncurrent:

 

 

 

 

 

 

 

 

Debt securities - available for sale

 

$

 

 

$

16,804

 

Total

 

$

 

 

$

16,804

 

12


 

A summary of the Company’s available-for-sale classified investments as of June 30, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

At June 30, 2019

 

 

 

Cost

Basis

 

 

Accumulated

Unrealized

Gains

 

 

Accumulated

Unrealized

Losses

 

 

Fair

Value

 

Investments - Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

10,975

 

 

$

 

 

$

(51

)

 

$

10,924

 

United States treasury securities

 

 

27,889

 

 

 

 

 

 

(167

)

 

 

27,722

 

Total

 

$

38,864

 

 

$

 

 

$

(218

)

 

$

38,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

 

 

Cost

Basis

 

 

Accumulated

Unrealized

Gains

 

 

Accumulated

Unrealized

Losses

 

 

Fair

Value

 

Investments - Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

16,028

 

 

$

 

 

$

(19

)

 

$

16,009

 

United States treasury securities

 

 

16,913

 

 

 

 

 

 

(8

)

 

 

16,905

 

Total

 

$

32,941

 

 

$

 

 

$

(27

)

 

$

32,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments - Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

4,930

 

 

$

2

 

 

$

 

 

$

4,932

 

United States treasury securities

 

 

11,852

 

 

 

20

 

 

 

 

 

 

11,872

 

Total

 

$

16,782

 

 

$

22

 

 

$

 

 

$

16,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amortized cost and fair value of the Company’s available-for-sale investments, by contract maturity, as of June 30, 2019 consisted of the following (in thousands):

 

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

38,864

 

 

$

38,646

 

Due after one year through two years

 

 

 

 

 

 

Total

 

$

38,864

 

 

$

38,646

 

 

 

4. PROPERTY AND EQUIPMENT, NET

Property and equipment as of June 30, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Equipment

 

$

1,278

 

 

$

1,064

 

Furniture and fixtures

 

 

382