life-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

or

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

For the transition period from                 to              

Commission File Number: 001-37378

 

ATYR PHARMA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-3435077

(State or other jurisdiction of incorporation or organization)

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

 

 

3545 John Hopkins Court, Suite #250, San Diego, CA

92121

(Address of principal executive offices)

(Zip Code)

(858) 731-8389

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

LIFE

The NASDAQ Capital Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 August 7, 2019, there were 3,890,185 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


 

ATYR PHARMA, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

3

Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

 

3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)

 

4

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 (unaudited)

 

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4. Controls and Procedures

 

24

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

25

Item 1A. Risk Factors

 

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

54

Item 3. Defaults Upon Senior Securities

 

54

Item 4. Mine Safety Disclosures

 

54

Item 5. Other Information

 

54

Item 6. Exhibits

 

54

SIGNATURES

 

56

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

aTyr Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,507

 

 

$

22,962

 

Available-for-sale investments, short-term

 

 

27,891

 

 

 

26,583

 

Prepaid expenses and other assets

 

 

1,473

 

 

 

1,258

 

Total current assets

 

 

43,871

 

 

 

50,803

 

Property and equipment, net

 

 

1,512

 

 

 

1,853

 

Right-of-use assets

 

 

3,164

 

 

 

 

Other assets

 

 

215

 

 

 

90

 

Total assets

 

$

48,762

 

 

$

52,746

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

664

 

 

$

1,040

 

Accrued expenses

 

 

1,582

 

 

 

2,026

 

Contract liability

 

 

536

 

 

 

 

Current portion of operating lease liability

 

 

705

 

 

 

 

Current portion of long-term debt, net of issuance costs and discount

 

 

7,817

 

 

 

7,767

 

Total current liabilities

 

 

11,304

 

 

 

10,833

 

Long-term operating lease liability, net of current portion

 

 

2,632

 

 

 

 

Long-term debt, net of current portion and issuance costs and discount

 

 

4,600

 

 

 

8,263

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 undesignated authorized shares; Class X Convertible Preferred Stock issued and outstanding shares – 1,643,961 and 2,285,952 as of June 30, 2019 and December 31, 2018, respectively

 

 

2

 

 

 

2

 

Common stock, $0.001 par value; 10,714,286 authorized shares; issued and outstanding shares – 3,531,370 and 2,186,389 as of June 30, 2019 and December 31, 2018, respectively

 

 

49

 

 

 

31

 

Additional paid-in capital

 

 

340,893

 

 

 

332,378

 

Accumulated other comprehensive loss

 

 

(32

)

 

 

(60

)

Accumulated deficit

 

 

(310,686

)

 

 

(298,701

)

Total stockholders’ equity

 

 

30,226

 

 

 

33,650

 

Total liabilities and stockholders’ equity

 

$

48,762

 

 

$

52,746

 

 

See accompanying notes.

 

 

 

3


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

94

 

 

$

 

 

$

94

 

 

$

 

Total revenues

 

 

94

 

 

 

 

 

 

94

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,314

 

 

 

6,484

 

 

 

6,659

 

 

 

12,634

 

General and administrative

 

 

2,421

 

 

 

3,476

 

 

 

4,953

 

 

 

7,546

 

Total operating expenses

 

 

5,735

 

 

 

9,960

 

 

 

11,612

 

 

 

20,180

 

Loss from operations

 

 

(5,641

)

 

 

(9,960

)

 

 

(11,518

)

 

 

(20,180

)

Total other income (expense), net

 

 

(207

)

 

 

(452

)

 

 

(467

)

 

 

(899

)

Net loss

 

$

(5,848

)

 

$

(10,412

)

 

$

(11,985

)

 

$

(21,079

)

Net loss per share attributable to common stock holders, basic and diluted

 

$

(1.80

)

 

$

(4.88

)

 

$

(4.23

)

 

$

(9.89

)

Weighted average common stock shares outstanding, basic and diluted

 

 

3,244,920

 

 

 

2,133,790

 

 

 

2,834,079

 

 

 

2,132,113

 

See accompanying notes.

 

 

 

4


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Net loss

 

$

(5,848

)

 

$

(10,412

)

 

$

(11,985

)

 

$

(21,079

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on available-for-sale investments, net of tax

 

 

8

 

 

 

51

 

 

 

28

 

 

 

35

 

Comprehensive loss

 

$

(5,840

)

 

$

(10,361

)

 

$

(11,957

)

 

$

(21,044

)

 

See accompanying notes.

 

 


 

5


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

 

Three and Six Months Ended June 30, 2019

 

 

 

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

2,285,952

 

 

$

2

 

 

 

2,186,389

 

 

$

31

 

 

$

332,378

 

 

$

(60

)

 

$

(298,701

)

 

$

33,650

 

Conversion of preferred stock to common stock

 

 

(641,991

)

 

 

 

 

 

229,283

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Issuance of common stock from at the market offerings, net of offering costs

 

 

 

 

 

 

 

 

193,670

 

 

 

3

 

 

 

1,378

 

 

 

 

 

 

 

 

 

1,381

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

571

 

 

 

 

 

 

 

 

 

571

 

Net unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

20

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,137

)

 

 

(6,137

)

Balance as of March 31, 2019

 

 

1,643,961

 

 

$

2

 

 

 

2,609,342

 

 

$

37

 

 

$

334,324

 

 

$

(40

)

 

$

(304,838

)

 

$

29,485

 

Issuance of common stock upon release of restricted stock units

 

 

 

 

 

 

 

 

7,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

1,515

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Issuance of common stock from at the market offerings, net of offering costs

 

 

 

 

 

 

 

 

252,872

 

 

 

3

 

 

 

1,143

 

 

 

 

 

 

 

 

 

1,146

 

Issuance of common stock from registered direct offering, net

 

 

 

 

 

 

 

 

 

 

660,154

 

 

 

9

 

 

 

4,909

 

 

 

 

 

 

 

 

 

 

 

4,918

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

509

 

 

 

 

 

 

 

 

 

509

 

Net unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,848

)

 

 

(5,848

)

Balance as of June 30, 2019

 

 

1,643,961

 

 

$

2

 

 

 

3,531,370

 

 

$

49

 

 

$

340,893

 

 

$

(32

)

 

$

(310,686

)

 

$

30,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Six Months Ended June 30, 2018

 

 

 

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2017

 

 

2,285,952

 

 

$

2

 

 

 

2,129,968

 

 

$

30

 

 

$

328,519

 

 

$

(120

)

 

$

(264,186

)

 

$

64,245

 

Issuance of common stock upon exercise of options and release of restricted stock units

 

 

 

 

 

 

 

 

2,823

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

928

 

 

 

 

 

 

 

 

 

928

 

Net unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,667

)

 

 

(10,667

)

Balance as of March 31, 2018

 

 

2,285,952

 

 

$

2

 

 

 

2,132,791

 

 

$

30

 

 

$

329,455

 

 

$

(136

)

 

$

(274,853

)

 

$

54,498

 

Issuance of common stock upon exercise of options and release of restricted stock units

 

 

 

 

 

 

 

 

238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

1,778

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,211

 

 

 

 

 

 

 

 

 

1,211

 

Net unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,412

)

 

 

(10,412

)

Balance as of June 30, 2018

 

 

2,285,952

 

 

$

2

 

 

 

2,134,807

 

 

$

30

 

 

$

330,694

 

 

$

(85

)

 

$

(285,265

)

 

$

45,376

 

 

 

 

 

See accompanying notes.

 

 

6


 

aTyr Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(11,985

)

 

$

(21,079

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

324

 

 

 

376

 

Stock-based compensation

 

 

1,080

 

 

 

2,139

 

Debt discount accretion and non-cash interest expense

 

 

387

 

 

 

501

 

Accretion of discount of available-for-sale investment securities

 

 

(200

)

 

 

(119

)

Amortization of right-of-use assets

 

 

349

 

 

 

 

Gain on disposal of property and equipment

 

 

(3

)

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(361

)

 

 

198

 

Accounts payable and accrued expenses

 

 

(816

)

 

 

(1,780

)

Contract liability

 

 

536

 

 

 

 

Operating lease liability

 

 

(155

)

 

 

 

Net cash used in operating activities

 

 

(10,844

)

 

 

(19,764

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(10

)

 

 

(549

)

Purchases of available-for-sale investment securities

 

 

(30,080

)

 

 

(23,375

)

Maturities of available-for-sale investment securities

 

 

29,000

 

 

 

42,500

 

Proceeds from sale of property and equipment

 

 

26

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(1,064

)

 

 

18,576

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock through employee stock purchase plan

 

 

8

 

 

 

28

 

Proceeds from issuance of common stock through option exercises and release of restricted stock units

 

 

 

 

 

8

 

Proceeds from issuance of common stock through at the market offerings, net of offering costs

 

 

2,527

 

 

 

 

Proceeds from issuance of common stock through registered direct offering, net of offering costs

 

 

4,918

 

 

 

 

Repayments on borrowing

 

 

(4,000

)

 

 

(667

)

Net cash provided by (used in) financing activities

 

 

3,453

 

 

 

(631

)

Net change in cash and cash equivalents

 

 

(8,455

)

 

 

(1,819

)

Cash and cash equivalents at beginning of period

 

 

22,962

 

 

 

21,091

 

Cash and cash equivalents at the end of period

 

$

14,507

 

 

$

19,272

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

7


 

aTyr Pharma, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies

Organization and Business

aTyr Pharma, Inc. (we, us, and our) was incorporated in the state of Delaware on September 8, 2005. We are focused on the discovery and development of innovative medicines based on novel immunological pathways.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) and follow the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2018, contained in our Annual Report on Form 10-K filed with the SEC on March 26, 2019. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

Reverse Stock Split

On June 28, 2019, we filed a Certificate of Amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-14 reverse stock split of our issued and outstanding common stock. The reverse stock split became effective at 5:00 p.m. Eastern Time on June 28, 2019 and our common stock began trading on a split-adjusted basis on The Nasdaq Capital Market on July 1, 2019. The accompanying condensed consolidated financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units, preferred stock conversions to common stock and per share amounts contained in our condensed consolidated financial statements have been retrospectively adjusted.  

Liquidity and Financial Condition

We have incurred losses and negative cash flows from operations since our inception. As of June 30, 2019, we had an accumulated deficit of $310.7 million and we expect to continue to incur net losses for the foreseeable future. We believe that our existing cash, cash equivalents and available-for-sale investments, of $42.4 million as of June 30, 2019, will be sufficient to meet our anticipated cash requirements for a period of one year from the filing date of this Quarterly Report.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for our product candidates. We anticipate that we will seek to fund our operations through public or private equity or debt financings, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates.

 

8


 

Use of Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements and accompanying notes. The most significant estimates in our condensed consolidated financial statements relate to clinical trials and research and development expense accruals. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates and assumptions.

Leases

On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016‑02, Leases (Topic 842) (ASU No. 2016-02). For our long-term operating leases, we recognized a right-of-use asset and a lease liability in our condensed consolidated balance sheets. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to exclude from our condensed consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and we elected to not separate lease components and non-lease components for our long-term leases.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses in our condensed consolidated statements of operations.

Prior period amounts continue to be reported in accordance with our historic accounting practices under previous lease guidance, Accounting Standards Codification (ASC) 840, Leases. See “―Recent Accounting Pronouncements” below, for more information about the impact of the adoption on ASU No. 2016-02.

Revenue Recognition

We have entered into a research collaboration and option agreement. The terms of this arrangement include payments to us for research and development services and potential development milestone payments. Performance of obligations under the agreement began in the second quarter of 2019.

We evaluate our agreements under ASC 606, Revenue from Contracts with Customers (Topic 606) and ASC 808, Collaborative Arrangements (Topic 808). We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted average number of common shares outstanding that are subject to repurchase. Diluted net loss per share is calculated by dividing the net loss by the weighted average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of convertible preferred stock, warrants for common stock, options and restricted stock units outstanding under our stock option plan and estimated shares to be purchased under our employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position.

 

9


 

Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common share equivalents):

 

 

Three and Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Class X Preferred Stock (if-converted to common stock)

 

 

587,445

 

 

 

816,851

 

Common stock warrants

 

 

477,639

 

 

 

477,639

 

Common stock options and restricted stock units

 

 

409,568

 

 

 

425,450

 

Employee stock purchase plan

 

 

2,067

 

 

 

1,942

 

 

 

 

1,476,719

 

 

 

1,721,882

 

 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The new standard was effective beginning after December 15, 2018, including interim periods within those periods, using a modified retrospective approach. We adopted ASU No. 2016-02 on January 1, 2019 and recognized a $3.5 million right-of-use asset and $3.5 million lease liability in our condensed consolidated balance sheet for the discounted value of future lease payments from the adoption of this ASU. The adoption did not have any impact on our retained earnings.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU No. 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2020, including periods within those fiscal years. We are currently evaluating the impact of ASU No. 2016-13 and do not expect the adoption of this guidance will have a material impact on our condensed consolidated financial position or results of operations.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update require an entity to apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.  ASU No. 2018-07 was effective for fiscal years beginning after December 15, 2018 which we adopted in January 1, 2019.  The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements to provide updates for technical corrections, clarifications, and other minor improvements that affect a wide variety of Topics in the Codification including Amendments to Subtopic 718-40, Compensation–Stock Compensation–Income Taxes, which clarifies that an entity should recognize excess tax benefits (that is, the difference in tax benefits between the deduction for tax purposes and the compensation cost recognized for financial statement reporting) in the period in which the amount of the deduction is determined, including deductions that are taken on the entity’s tax return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether (1) the entity will receive a tax deduction and (2) the amount of the tax deduction is resolved. ASU No. 2018-09 included other Topics which currently do not apply to us. The transition and effective date of ASU No. 2018-09 are based on the facts and circumstances of each amendment. Some of the amendments in ASU No. 2018-09 do not require transition guidance and are effective immediately and others have transition guidance with effective dates for annual periods beginning after December 15, 2018 which we adopted in January 1, 2019. The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) to clarify the interaction between Topic 808 and Topic 606. A collaborative arrangement, as defined by the guidance in Topic 808, is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that

 

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depend on the activity’s commercial success. Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Some entities apply revenue guidance directly or by analogy to all or part of their arrangements, and others apply a different accounting method as an accounting policy. Those accounting differences result in diversity in practice on how entities account for transactions on the basis of their view of the economics of the collaborative arrangement. The amendments for ASU No. 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for which financial statements have not yet been issued and (2) for all other entities for periods which financial statements have not yet been made available for issuance. An entity may not adopt the amendments earlier than its adoption date of Topic 606. We decided to early adopt ASU No. 2018-18 and the adoption of this guidance did not have a material impact on our condensed consolidated financial position or results of operations.

2. Fair Value Measurements

The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to us for loans with similar terms, which is considered a Level 2 input, we believe that the carrying value of our long-term debt approximates their fair value. Investment securities are recorded at fair value.

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in corporate debt securities and commercial paper. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities is recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

Assets measured at fair value on a recurring basis are as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of  June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

10,828

 

 

$

10,828

 

 

$

 

 

$

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

 

7,191

 

 

 

 

 

 

7,191

 

 

 

 

Commercial paper

 

 

13,404

 

 

 

 

 

 

13,404

 

 

 

 

Corporate debt securities

 

 

7,296

 

 

 

 

 

 

7,296

 

 

 

 

Total short-term investments

 

 

27,891

 

 

 

 

 

 

27,891

 

 

 

 

Total assets measured at fair value

 

$

38,719

 

 

$

10,828

 

 

$

27,891

 

 

$

 

 

 

11


 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of  December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

16,019

 

 

$

16,019

 

 

$

 

 

$

 

Available-for-sale investments, short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

 

7,773

 

 

 

 

 

 

7,773

 

 

 

 

Commercial paper

 

 

6,144

 

 

 

 

 

 

6,144

 

 

 

 

Corporate debt securities

 

 

12,666

 

 

 

 

 

 

12,666

 

 

 

 

Total short-term investments

 

 

26,583

 

 

 

 

 

 

26,583

 

 

 

 

Total assets measured at fair value

 

$

42,602

 

 

$

16,019