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Table of Contents

 

 

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, 2021

OR

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

For the transition period fromto

Commission File Number: 001-40356

 

Rain Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-1130967

( State or other jurisdiction of

incorporation or organization)

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

8000 Jarvis Avenue, Suite 204

Newark, CA

94560

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 953-5559

 

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

 

RAIN

 

The Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of August 6, 2021, the registrant had 26,466,746 shares of common stock, $0.001 par value per share, outstanding, comprised of 18,739,276 shares of common stock, $0.001 par value per share and 7,727,470 shares of non-voting common stock, $0.001 par value per share.

 

 

 


Table of Contents

 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

1

 

Condensed Statements of Operations and Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2021 and 2020

2

 

Condensed Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the three and six months ended June 30, 2021 and 2020

3

 

Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2021 and 2020

4

 

Notes to Unaudited Condensed Financial Statements (Unaudited)

5

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

 

 

 

i


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Rain Therapeutics Inc.

Condensed Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020(1)

 

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,013

 

 

$

58,863

 

Short-term investments

 

 

46,634

 

 

 

 

Prepaid and other current assets

 

 

8,611

 

 

 

662

 

Total current assets

 

 

173,258

 

 

 

59,525

 

Property and equipment, net

 

 

113

 

 

 

99

 

Operating lease right-of-use asset

 

 

445

 

 

 

447

 

Deferred offering costs

 

 

 

 

 

385

 

Other assets

 

 

737

 

 

 

624

 

Total assets

 

$

174,553

 

 

$

61,080

 

Liabilities, convertible preferred stock, and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,895

 

 

$

816

 

Accrued research and development

 

 

4,002

 

 

 

1,527

 

Other accrued liabilities

 

 

1,282

 

 

 

935

 

Operating lease liability, current portion

 

 

157

 

 

 

141

 

Total current liabilities

 

 

9,336

 

 

 

3,419

 

Operating lease liability, net of current portion

 

 

315

 

 

 

312

 

Other long-term liabilities

 

 

68

 

 

 

69

 

Total liabilities

 

 

9,719

 

 

 

3,800

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; no shares

     and 3,731,208 shares authorized, issued and outstanding as

     of June 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

20,147

 

Series B convertible preferred stock, $0.001 par value; no shares

     and 12,542,198 shares authorized, issued and outstanding as

     of June 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

74,550

 

Total convertible preferred stock

 

 

 

 

 

94,697

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Common Stock, $0.001 par value; 250,000,000 and 24,000,000

     shares authorized as of June 30, 2021 and December 31,

     2020, respectively; 26,466,746 shares (comprised of

     18,739,276 shares of common stock and 7,727,470

     shares of non-voting common stock) and 3,530,975 shares

     issued and outstanding as of June 30, 2021 and

     December 31, 2020, respectively

 

 

27

 

 

 

4

 

Additional paid-in capital

 

 

218,360

 

 

 

1,149

 

Accumulated deficit

 

 

(53,553

)

 

 

(38,570

)

Total stockholders' equity (deficit)

 

 

164,834

 

 

 

(37,417

)

Total liabilities, convertible preferred stock, and stockholders' equity (deficit)

 

$

174,553

 

 

$

61,080

 

 

(1)

The balance sheet at December 31, 2020 has been derived from the audited financial statements included in Rain Therapeutics Inc.’s final prospectus for its initial public offering filed on April 23, 2021.

See accompanying notes to financial statements.

1


Table of Contents

 

Rain Therapeutics Inc.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,489

 

 

$

1,473

 

 

$

10,817

 

 

$

3,235

 

General and administrative

 

 

2,700

 

 

 

1,119

 

 

 

4,180

 

 

 

1,787

 

Total operating expenses

 

 

8,189

 

 

 

2,592

 

 

 

14,997

 

 

 

5,022

 

Loss from operations

 

 

(8,189

)

 

 

(2,592

)

 

 

(14,997

)

 

 

(5,022

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6

 

 

 

6

 

 

 

14

 

 

 

26

 

Interest expense, related party

 

 

 

 

 

(33

)

 

 

 

 

 

(64

)

Change in fair value of convertible promissory notes, related party

 

 

 

 

 

(5

)

 

 

 

 

 

(133

)

Total other income (expense), net

 

 

6

 

 

 

(32

)

 

 

14

 

 

 

(171

)

Net loss and comprehensive loss

 

$

(8,183

)

 

$

(2,624

)

 

$

(14,983

)

 

$

(5,193

)

Net loss per share, basic and diluted

 

$

(0.39

)

 

$

(0.78

)

 

$

(1.23

)

 

$

(1.60

)

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

 

 

20,825,334

 

 

 

3,360,388

 

 

 

12,225,929

 

 

 

3,250,039

 

 

See accompanying notes to financial statements.

2


Table of Contents

 

Rain Therapeutics Inc.

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

(In thousands, except share amounts)

(unaudited)

 

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred

Stock

 

 

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2020

 

 

3,731,208

 

 

$

20,147

 

 

 

12,542,198

 

 

$

74,550

 

 

 

 

3,530,975

 

 

$

4

 

 

$

1,149

 

 

$

(38,570

)

 

$

(37,417

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

 

 

 

165

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,800

)

 

 

(6,800

)

Balance as of March 31, 2021

 

 

3,731,208

 

 

$

20,147

 

 

 

12,542,198

 

 

$

74,550

 

 

 

 

3,530,975

 

 

$

4

 

 

$

1,314

 

 

$

(45,370

)

 

$

(44,052

)

Conversion of convertible preferred stock to common stock

 

 

(3,731,208

)

 

 

(20,147

)

 

 

(12,542,198

)

 

 

(74,550

)

 

 

 

15,069,330

 

 

 

15

 

 

 

94,682

 

 

 

 

 

 

94,697

 

Issuance of common stock upon IPO, net of issuance cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,845,011

 

 

 

8

 

 

 

121,486

 

 

 

 

 

 

121,494

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,430

 

 

 

 

 

 

85

 

 

 

 

 

 

85

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

793

 

 

 

 

 

 

793

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,183

)

 

 

(8,183

)

Balance as of June 30, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

26,466,746

 

 

$

27

 

 

$

218,360

 

 

$

(53,553

)

 

$

164,834

 

 

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred

Stock

 

 

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2019

 

 

3,731,208

 

 

$

20,147

 

 

 

 

 

$

 

 

 

 

2,986,385

 

 

$

3

 

 

$

236

 

 

$

(17,487

)

 

$

(17,248

)

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

289,377

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

199

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,569

)

 

 

(2,569

)

Balance as of March 31, 2020

 

 

3,731,208

 

 

$

20,147

 

 

 

 

 

$

 

 

 

 

3,275,762

 

 

$

3

 

 

$

435

 

 

$

(20,056

)

 

$

(19,618

)

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

135,048

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

196

 

 

 

 

 

 

196

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,624

)

 

 

(2,624

)

Balance as of June 30, 2020

 

 

3,731,208

 

 

$

20,147

 

 

 

 

 

$

 

 

 

 

3,410,810

 

 

$

3

 

 

$

631

 

 

$

(22,680

)

 

$

(22,046

)

 

See accompanying notes to financial statements.

 

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Rain Therapeutics Inc.

Condensed Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(14,983

)

 

$

(5,193

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

29

 

 

 

27

 

Stock-based compensation expense

 

 

958

 

 

 

395

 

Non-cash interest expense, related party

 

 

 

 

 

64

 

Change in fair value of convertible promissory notes, related party

 

 

 

 

 

133

 

Accretion and amortization of premium on short-term investments, net

 

 

2

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(7,949

)

 

 

35

 

Operating lease right-of-use asset and liability, net

 

 

21

 

 

 

22

 

Other assets

 

 

52

 

 

 

 

Accounts payable

 

 

3,079

 

 

 

356

 

Accrued research and development

 

 

2,475

 

 

 

(185

)

Other accrued liabilities

 

 

566

 

 

 

(83

)

Other long-term liabilities

 

 

 

 

 

5

 

Net cash used in operating activities

 

 

(15,750

)

 

 

(4,424

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(46,636

)

 

 

 

Purchases of property and equipment

 

 

(43

)

 

 

 

Net cash used in investing activities

 

 

(46,679

)

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

121,494

 

 

 

 

Proceeds from issuance of convertible promissory notes

 

 

 

 

 

6,435

 

Payments of issuance costs related to the issuance of convertible preferred stock

 

 

 

 

 

(94

)

Proceeds from stock option exercises

 

 

85

 

 

 

 

Net cash provided by financing activities

 

 

121,579

 

 

 

6,341

 

Net increase in cash and cash equivalents

 

 

59,150

 

 

 

1,917

 

Cash and cash equivalents at beginning of period

 

 

58,863

 

 

 

5,794

 

Cash and cash equivalents at end of period

 

$

118,013

 

 

$

7,711

 

Supplemental schedule of non-cash financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible preferred stock to common stock

 

$

94,697

 

 

 

 

 

See accompanying notes to financial statements.

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Rain Therapeutics Inc.

Notes to Condensed Financial Statements (unaudited)

 

Note 1 – Organization and Nature of Operations

 

Description of Business

 

Rain Therapeutics Inc. (“Rain” or the “Company”) was incorporated in the state of Delaware in April 2017. Rain is a late-stage precision oncology company developing therapies that target oncogenic drivers for which the Company is able to genetically select patients it believes will most likely benefit. This approach includes using a tumor-agnostic strategy to select patients based on their tumors’ underlying genetics rather than histology. Rain’s lead product candidate, milademetan (RAIN-32), is a small molecule, oral inhibitor of MDM2, which is oncogenic in numerous cancers. In addition to milademetan, the Company is also developing a preclinical program that is focused on inducing synthetic lethality in cancer cells by inhibiting RAD52. The Company operates in one business segment and its principal operations are in the United States, with its headquarters in Newark, California.

 

Reverse Stock Split

 

On April 15, 2021 and April 16, 2021, the Company’s board of directors (the “Board of Directors”) and stockholders, respectively, approved an amended and restated certificate of incorporation of the Company to effect a 1-for-1.0799 reverse stock split of the Company’s common stock. The reverse stock split was effected on April 16, 2021. The Company’s outstanding stock options were also adjusted to reflect the 1-for-1.0799 reverse stock split of the Company’s common stock. Accordingly, all common stock and stock options and related per share amounts in these financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The reverse stock split resulted in an adjustment to the Series A and Series B convertible preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion.

 

Initial Public Offering

 

On April 27, 2021, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 7,352,941 shares of common stock at a public offering price of $17.00 per share. On May 11, 2021, the Company issued an additional 492,070 shares of common stock in connection with the exercise of the underwriters’ option to purchase additional shares at the public offering price. The Company’s net proceeds from the sale of shares in the IPO, including the sale of shares pursuant to the exercise of the underwriters’ option to purchase additional shares, was $121.5 million, net of underwriting discounts and commissions, and other offering fees. In connection with the IPO, the Board of Directors and stockholders approved an amended and restated certificate of incorporation, which authorized 260,000,000 shares of common stock, 200,000,000 shares of which are designated as “Common Stock” and 50,000,000 shares of which are designated as “Non-Voting Common Stock” and 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s Board of Directors in one or more series.

 

Immediately prior to the closing of the IPO, 8,344,905 shares of the Company’s convertible preferred stock were exchanged for 7,727,470 shares of non-voting common stock. Upon the closing of the IPO, 7,928,501 shares of the Company’s convertible preferred stock were automatically converted into 7,341,860 shares of common stock. Following the IPO, there were no shares of convertible preferred stock outstanding.

Basis of Presentation

 

The accompanying interim unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. The year-end condensed balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020 included in the Company’s final prospectus for its IPO, filed pursuant to Rule 424(b) under the Securities Exchange Act of 1933, as amended, with the SEC on April 23, 2021 (the “Prospectus”). The unaudited financial information for the interim periods presented herein reflects all adjustments which,

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in the opinion of management, are necessary for a fair presentation of the financial condition and results of operation for the periods presented, with such adjustments consisting only of normal recurring adjustments.

 

Liquidity and Capital Resources

 

The Company has devoted substantially all of its efforts to drug discovery and development, raising capital and building operations. The Company has a limited operating history and has not generated any revenue since its inception, and the sales and income potential of the Company’s business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur net losses into the foreseeable future as it continues the development of its product candidates. From inception through June 30, 2021, the Company has funded its operations through net proceeds from its IPO in April 2021, and the issuance of convertible promissory notes and convertible preferred stock.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Management believes that the Company’s current cash, cash equivalents and short-term investments, which include the net proceeds of approximately $121.5 million from its IPO in April 2021, will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent liabilities in the Company’s financial statements and accompanying notes. The most significant estimate in the Company’s financial statements relates to the clinical trial expense accruals. Management evaluates its estimates on an ongoing basis. Although these estimates are based on the Company’s historical experience, knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents primarily represent funds invested in readily available checking and money market accounts.

 

Available-for-Sale Investments

 

The Company holds investment grade securities consisting of money market funds, commercial paper, corporate debt securities, U.S. government securities and U.S. agency bonds, classified as available-for-sale (“AFS”) securities at the time of purchase, since it is the Company’s intent that these investments be available for current operations. The Company has classified all of its AFS securities as current assets on the balance sheets even though the stated maturity date may be one year or more beyond the current balance sheet date, which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary.

 

The Company carries these securities at fair value and reports unrealized gains and losses, if any, as a separate component of accumulated other comprehensive loss. The cost of debt securities is adjusted for amortization of purchase premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income in the statements of operations and comprehensive loss. Realized gains and losses on sales of securities are determined using the specific identification method and recorded in other income (expense), net in the condensed statement of operations and comprehensive loss.

 

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investment. Once an impairment is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is

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established. Declines in the value of AFS securities determined to be other than temporary are included in other income (expense), net.

 

Deferred Offering Costs

 

The Company capitalized deferred offering costs consisting of all direct and incremental legal, professional, accounting and other third-party fees incurred in connection with the Company’s IPO. Upon the completion of the IPO in April 2021, the total deferred offering costs of $2.5 million were reclassified to additional paid-in capital on the balance sheets.  

 

Research and Development Costs

 

Research and development costs primarily consist of costs associated with the Company’s research and development activities, including its drug discovery efforts, and the preclinical and clinical development of its product candidates. Research and development costs are expensed as incurred.

 

Preclinical Studies and Clinical Trial Accruals

 

The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants, clinical research organizations and clinical site agreements in connection with conducting preclinical activities and clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company reflects preclinical study and clinical trial expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the preclinical study or clinical trial as measured by the timing of various aspects of the preclinical study, clinical trial or related activities. The Company determines accrual and prepaid estimates through review of the underlying contracts along with preparation of financial models taking into account correspondence with clinical and other key personnel and third- party service providers as to the progress of preclinical studies, clinical trials or other services being conducted. During the course of a preclinical study or clinical trial, the Company adjusts its expense recognition if actual results differ from its estimates. To date, the Company has not experienced any material differences between accrued costs and actual costs incurred.

 

Stock-Based Compensation

 

Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (generally the vesting period) on a straight-line basis. The Company recognizes forfeitures as they occur. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Prior to the IPO, the exercise price for all stock options granted was at the estimated fair value of the underlying common stock as determined on the date of grant by the Company’s Board of Directors.

 

 

Comprehensive Loss

 

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for the periods presented.

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted-average number of shares of common stock plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include convertible preferred stock, unvested common stock and outstanding stock options under the Company’s equity incentive plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share.

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For the period presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

 

Recent Accounting Pronouncements

 

Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.

 

Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 is effective for the Company for the fiscal year beginning after December 15, 2021 and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on the Company’s financial statements.

 

Debt and Equity Instruments. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The guidance is effective for the Company beginning on January 1, 2024, with early adoption permitted. The Company elected to adopt this standard on January 1, 2020 under the modified retrospective transition method with no material impact on its financial statements and disclosures.

 

There were no other significant updates to the recently issued accounting standards other than as disclosed herein for the six months ended June 30, 2021. Although there are several other new accounting pronouncements issued or proposed by the FASB, based on the Company’s preliminary assessment, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.

Note 3 – Fair Value Measurements

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 non-recurring 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: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The carrying amounts of prepaid expenses and other current assets, accounts payable, accrued liabilities and other current liabilities are reasonable estimates of their fair value due to the short-term nature of these accounts.

The Company’s cash and cash equivalents are classified using Level 1 inputs within the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. There were no transfers between levels of the fair value hierarchy during the six months ended June 30, 2021.

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Table of Contents

 

The following table summarizes financial assets that the Company measured at fair value on a recurring basis, classified in accordance with the fair value hierarchy (in thousands):

 

 

 

Fair Value Measurements at Reporting Date Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

113,238

 

 

$

 

 

$

 

 

$

113,238

 

Commercial paper

 

 

 

 

 

31,961

 

 

 

 

 

 

31,961

 

U.S. government securities

 

 

 

 

 

9,108

 

 

 

 

 

 

9,108

 

U.S. agency bonds

 

 

 

 

 

6,062

 

 

 

 

 

 

6,062

 

Corporate debt securities

 

 

 

 

 

3,502

 

 

 

 

 

 

3,502

 

Total investments

 

$

113,238

 

 

$

50,633

 

 

$

 

 

$

163,871

 

Reported as: