SEC Filing | Rain Oncology Inc.

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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, 2022


☐	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 July 28, 2022, the registrant had 26,564,826 shares of common stock, $0.001 par value per share, outstanding, comprised of 18,837,353 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.

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		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the three and six months ended June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
	Signatures	39

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Rain Therapeutics Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(unaudited)


	June 30,		December 31,
	2022		2021 (1)
Assets
Current assets:
Cash and cash equivalents	$	43,409	$	24,780
Short-term investments		62,344		115,438
Prepaid and other current assets		3,856		5,928
Total current assets		109,609		146,146
Property and equipment, net		121		165
Operating lease right-of-use asset		323		386
Other assets		610		443
Total assets	$	110,663	$	147,140
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,075	$	6,112
Accrued research and development		5,840		4,349
Other accrued liabilities		4,052		5,694
Operating lease liability, current portion		162		160
Total current liabilities		12,129		16,315
Operating lease liability, net of current portion		185		252
Other long-term liabilities		64		69
Total liabilities		12,378		16,636
Commitments and contingencies		—		—
Stockholders' equity:
Common Stock, $0.001 par value; 250,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 26,529,878 shares (comprised of 18,802,408 shares of common stock and 7,727,470 shares of non-voting common stock) and 26,475,812 shares (comprised of 18,748,342 shares of common stock and 7,727,470 shares of non-voting common stock) issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		27		27
Additional paid-in capital		223,600		220,530
Accumulated other comprehensive loss		(373)		(89)
Accumulated deficit		(124,969)		(89,964)
Total stockholders' equity		98,285		130,504
Total liabilities and stockholders' equity	$	110,663	$	147,140

(1)	The balance sheet at December 31, 2021 has been derived from the audited financial statements included in Rain Therapeutics Inc.’s Annual Report on Form 10-K filed on March 3, 2022.

See accompanying notes to condensed consolidated financial statements.

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Rain Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	14,257	$	5,489	$	27,812	$	10,817
General and administrative		3,461		2,700		7,356		4,180
Total operating expenses		17,718		8,189		35,168		14,997
Loss from operations		(17,718)		(8,189)		(35,168)		(14,997)
Other income:
Interest income		107		6		163		14
Net loss	$	(17,611)	$	(8,183)	$	(35,005)	$	(14,983)
Net loss per share, basic and diluted	$	(0.66)	$	(0.39)	$	(1.32)	$	(1.23)
Weighted-average shares used to compute net loss per share, basic and diluted		26,529,482		20,825,334		26,520,662		12,225,929

Net loss	$	(17,611)	$	(8,183)	$	(35,005)	$	(14,983)
Other comprehensive loss:
Unrealized loss (gain) on short-term investments		16		—		(284)		—
Comprehensive loss	$	(17,595)	$	(8,183)	$	(35,289)	$	(14,983)

See accompanying notes to condensed consolidated financial statements.

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Rain Therapeutics Inc.

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

(In thousands, except share amounts)

(unaudited)


	Series A			Series B										Accumulated
	Convertible Preferred			Convertible Preferred						Additional				Other		Total
	Stock			Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Equity
Balance as of December 31, 2021	—	$	—	—	$	—	26,475,812	$	27	$	220,530	$	(89,964)	$	(89)	$	130,504
Exercise of stock options	—		—	—		—	24,262		—		106		—		—		106
Issuance of common stock from employee stock purchase plan	—		—	—		—	26,804		—		293		—		—		293
Stock-based compensation expense	—		—	—		—	—		—		1,242		—		—		1,242
Unrealized loss on investments	—		—	—		—	—		—		—		—		(300)		(300)
Net loss	—		—	—		—	—		—		—		(17,394)		—		(17,394)
Balance as of March 31, 2022	—	$	—	—	$	—	26,526,878	$	27	$	222,171	$	(107,358)	$	(389)	$	114,451
Exercise of stock options	—		—	—		—	3,000		—		12		—		—		12
Stock-based compensation expense	—		—	—		—	—		—		1,417		—		—		1,417
Unrealized gain on investments	—		—	—		—	—		—		—		—		16		16
Net loss	—		—	—		—	—		—		—		(17,611)		—		(17,611)
Balance as of June 30, 2022	—	$	—	—	$	—	26,529,878	$	27	$	223,600	$	(124,969)	$	(373)	$	98,285


	Series A			Series B										Accumulated
	Convertible Preferred			Convertible Preferred						Additional				Other		Total
	Stock			Stock			Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Loss		Equity
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

See accompanying notes to condensed consolidated financial statements.

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Rain Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities
Net loss	$	(35,005)	$	(14,983)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization expense		44		29
Stock-based compensation expense		2,659		958
Amortization of premium and accretion of discounts on short-term investments, net		50		2
Changes in operating assets and liabilities:
Prepaid and other current assets		2,072		(7,949)
Operating lease right-of-use asset and liability, net		(3)		21
Other assets		(167)		52
Accounts payable		(4,037)		3,079
Accrued research and development		1,491		2,475
Other accrued liabilities		(1,646)		566
Net cash used in operating activities		(34,542)		(15,750)

Investing activities
Purchases of short-term investments		(17,140)		(46,636)
Purchases of property and equipment		—		(43)
Maturities of short-term investments		69,900		—
Net cash provided by (used in) investing activities		52,760		(46,679)

Financing Activities
Proceeds from initial public offering		—		121,494
Proceeds from the issuance of common stock under the Company's equity incentive plans and employee stock purchase plan		411		85
Net cash provided by financing activities		411		121,579
Net increase in cash and cash equivalents		18,629		59,150
Cash and cash equivalents at beginning of period		24,780		58,863
Cash and cash equivalents at end of period	$	43,409	$	118,013

Supplemental schedule of non-cash investing and financing activities:
Conversion of convertible preferred stock to common stock	$	—	$	94,697

See accompanying notes to condensed consolidated financial statements.

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Rain Therapeutics Inc.

Notes to Condensed Consolidated 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 the Company believes will be most likely to 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, is a small molecule, oral inhibitor of mouse double minute 2, which may be 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.

On June 22, 2022, the Company formed Rain Oncology Australia Pty Ltd (“Rain Oncology Australia”), a wholly owned subsidiary incorporated under the laws of Australia. As of June 30, 2022, Rain Oncology Australia was not yet operational.

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.

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. As of June 30, 2022, there were no shares of convertible preferred stock outstanding.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) related to a quarterly report on Form 10-Q. These condensed consolidated financial statements include the accounts of the Company and Rain Oncology Australia. All significant inter-company transactions, balances and expenses have been eliminated upon consolidation. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). The year-end balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The unaudited financial information for the interim periods presented herein reflects all adjustments which, 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

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foreseeable future as it continues the development of its product candidates. From inception through June 30, 2022, 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 condensed consolidated 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 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 condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements and accompanying notes. The most significant estimate in the Company’s condensed consolidated 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 include commercial paper, readily available money market and checking 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 condensed consolidated balance sheets even though the stated maturity date may be one year or more beyond the current condensed consolidated 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 condensed consolidated 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 consolidated 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 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 condensed consolidated balance sheets.

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The Company capitalized deferred offering costs of $0.3 million consisting of all direct legal, professional, accounting and other third-party fees incurred in connection with the Company’s at-the-market (“ATM”) facility, during the three months ended June 30, 2022, which are recorded as other assets on the condensed consolidated balance sheet.

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 condensed consolidated 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 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.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

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Effective January 1, 2022, we adopted ASU 2019-12 - Simplifying the Accounting for Income Taxes. The adoption of this standard did not impact the Company’s condensed consolidated financial statements or related disclosures.

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 includes unrealized gains / losses from short-term investments.

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, shares from the 2021 Employee Stock Purchase Plan (the “ESPP”), 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. For the periods 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 Developments Regarding the COVID-19 Pandemic

Efforts to control the outbreak of COVID-19 have resulted in challenges to businesses and facilities in various industries around the world, including disruptions to the global economy and supply chains. To date, COVID-19 has not had a material impact on the Company’s expenditures.

The Company is unable to predict the ultimate effects of COVID-19 on the U.S. or global economy or its operations. The Company continues to monitor developments affecting its workforce, suppliers, and operations. The extent of the impact of COVID-19 will depend on its duration, actions by government authorities, and impacts on the Company’s employees, or vendors. These developments are continuously evolving, and the Company cannot predict whether COVID-19 will have a material impact on its financial condition, results of operations or cash flows.

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 does not anticipate that the adoption of ASU 2016-13 will have a significant impact on its condensed consolidated financial statements or the related 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, 2022. 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

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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 cash, prepaid expenses and other current assets, deferred offering costs, accounts payable, accrued research and development and other current liabilities are reasonable estimates of their fair value due to the short-term nature of these accounts.

The Company’s money market funds under 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, 2022.

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, 2022:
Money market funds	$	11,870	$		$	—	$	11,870
Commercial paper				56,276		—		56,276
U.S. government securities		25,036				—		25,036
U.S. agency bonds				9,435		—		9,435
Corporate debt securities				1,992		—		1,992
Total cash equivalents and short-term investments	$	36,906	$	67,703	$	—	$	104,609
Reported as:
Cash and cash equivalents (includes cash of $1,144)							$	43,409
Short-term investments								62,344
Total cash, cash equivalents and short-term investments							$	105,753


	Fair Value Measurements at Reporting Date Using:
	Level 1		Level 2		Level 3		Total
As of December 31, 2021:
Money market funds	$	10,585	$	—	$	—	$	10,585
Commercial paper		—		84,616		—		84,616
U.S. government securities		27,824				—		27,824
U.S. agency bonds		—		8,531		—		8,531
Corporate debt securities		—		8,265		—		8,265
Total cash equivalents and short-term investments	$	38,409	$	101,412	$	—	$	139,821
Reported as:
Cash and cash equivalents (includes cash of $397)							$	24,780
Short-term investments								115,438
Total cash, cash equivalents and short-term investments							$	140,218

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Note 4 – Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and AFS securities. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds and U.S. government securities were classified as Level 1 instruments.

Investments in commercial paper, corporate debt securities and U.S. agency bonds are valued using Level 2 inputs. The Company classifies investments within Level 2 if the investments are valued using model driven valuations using observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

The following table summarizes, by major types of cash equivalents, and investments that are measured at fair value on a recurring basis (in thousands):


	June 30, 2022
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Money market funds	$	11,870	$	—	$	—	$	11,870
Commercial paper		56,312		7		(43)		56,276
U.S. government securities		25,283		—		(247)		25,036
U.S. agency bonds		9,507		—		(72)		9,435
Corporate debt securities		2,010		—		(18)		1,992
Cash equivalents and investments	$	104,982	$	7	$	(380)	$	104,609


	December 31, 2021
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Money market funds	$	10,585	$	—	$	—	$	10,585
Commercial paper		84,642		2		(28)		84,616
U.S. government securities		27,870		—		(46)		27,824
U.S. agency bonds		8,546		—		(15)		8,531
Corporate debt securities		8,267		—		(2)		8,265
Cash equivalents and investments	$	139,910	$	2	$	(91)	$	139,821

The contractual maturities of the Company’s AFS securities were as follows (in thousands):


	June 30, 2022		December 31, 2021
Due within one year	$	62,344	$	105,173
Due within one to two years		—		10,265
Total	$	62,344	$	115,438

The available-for-sale investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current condensed consolidated balance sheet date, which reflects management’s intention to use the proceeds from sales of these securities to fund the Company’s operations, as necessary. There were no realized gains or losses due to investment sales for the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, $92.7 million of the Company’s marketable securities were in gross unrealized loss positions, of which none had been in such position for greater than 12 months and $52.6 million will mature within three months of June 30, 2022.

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At each reporting date, the Company performs an evaluation of its marketable securities to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include (i) the financial strength of the issuing institution, (ii) the length of time and extent for which fair value has been less than the cost basis and (iii) the Company’s intent and ability to hold its investments in unrealized loss positions until their amortized cost basis has been recovered. Based on the Company’s evaluation, it determined that its unrealized losses were not other-than-temporary at June 30, 2022 and December 31, 2021. The Company does not intend to sell the investments before maturity, and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost bases.

Note 5 - Condensed Consolidated Balance Sheet Details

Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (in thousands):


	June 30, 2022		December 31, 2021
Prepaid insurance	$	2,160	$	827
Prepaid research		1,099		4,329
Prepaid other		248		96
FICA tax credit receivable		238		452
Other current assets		92		205
Deposits		19		19
Prepaid and other current assets	$	3,856	$	5,928

Property and equipment, net, consist of the following (in thousands):


	June 30, 2022		December 31, 2021
Furniture and equipment	$	204	$	204
Leasehold improvements		67		67
Computer equipment		50		50
	$	321	$	321
Less: accumulated depreciation and amortization expense		(200)		(156)
Property and equipment, net	$	121	$	165

Depreciation expense for the six months ended June 30, 2022 and 2021 was $44,000 and $29,000, respectively.

Other Non-Current Assets

Other non-current assets consist of the following (in thousands):


	June 30, 2022		December 31, 2021
FICA tax credit receivable	$	177	$	298
Deposits		75		75
Other		70		70
Other non-current assets	$	322	$	443

Note 6 – Convertible Preferred Stock and Stockholders’ Equity

In connection with the reverse stock split on April 16, 2021, the Company filed a certificate of amendment to its certificate of incorporation, which authorized 260,000,000 shares of capital stock, consisting of 250,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of undesignated preferred stock, par value $0.001 per share that may be issued from time to time by the Company’s Board of Directors in one or more series. Of the 250,000,000 shares of common stock, 200,000,000 shares were designated as “Common Stock” and 50,000,000 shares were designated as “Non-Voting Common Stock”.

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Rights, preferences, powers, privileges and restrictions, qualifications and limitations for holders of the Company’s Common Stock and Non-Voting Common Stock are:

Voting Common Stock Voting Rights. Each holder of Voting Common Stock, as such, shall be entitled to one vote for each share of Voting Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Voting Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation, including any certificate of designations relating to any series of Preferred Stock (each hereinafter referred to as a “Preferred Stock Designation”), that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation (including any Preferred Stock Designation).

Non-Voting Common Stock Voting Rights. Non-Voting Common Stock (i) shall be non-voting except as may be required by law and (ii) shall not entitle the holder thereof to vote on the election of directors at any time.

Non-Voting Common Stock Conversion. Each holder of shares of Non-Voting Common Stock shall have the right to convert each share of Non-Voting Common Stock held by such holder into one share (subject to appropriate adjustment in the event of any stock dividend, stock split, reverse stock split, combination or other similar recapitalization with respect to the Voting Common Stock) of Voting Common Stock at such holder’s election by providing written notice to the Company; provided, however, that such shares of Non-Voting Common Stock may only be converted into shares of Voting Common Stock during such time or times as immediately prior to or as a result of such conversion would not result in the holder(s) thereof beneficially owning (for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (collectively, the “Exchange Act”)), when aggregated with affiliates with whom such holder is required to aggregate beneficial ownership for purposes of Section 13(d) of the Exchange Act, in excess of the Beneficial Ownership Limitation. The “Beneficial Ownership Limitation” means initially 9.99% of the Voting Common Stock. Any holder of Non-Voting Common Stock may increase the Beneficial Ownership Limitation with respect to such holder, not to exceed 19.99% of the Voting Common Stock, upon 61 days’ prior written notice to the Company and may decrease the Beneficial Ownership Limitation at any time upon providing written notice of such election to the Company; provided, however, that no holder may make such an election to change the percentage with respect to such holder unless all holders managed by the same investment advisor as such electing holder make the same election. Before any holder of Non-Voting Common Stock shall be entitled to convert any shares of Non-Voting Common Stock into shares of Voting Common Stock, such holder shall (A) surrender the certificate or certificates therefor (if any), duly endorsed, at the principal corporate office of the Company or of any transfer agent for the Non-Voting Common Stock, and (B) provide written notice to the Company, during regular business hours at its principal corporate office, of such conversion election (in form satisfactory to the Company) and shall state therein the name or names (i) in which the certificate or certificates representing the shares of Voting Common Stock into which the shares of Non-Voting Common Stock are so converted are to be issued (if such shares of Voting Common Stock are certificated) or (ii) in which such shares of Voting Common Stock are to be registered in book-entry form (if such shares of Voting Common Stock are uncertificated). If the shares of Voting Common Stock into which the shares of Non-Voting Common Stock are to be converted are to be issued in a name or names other than the name of the holder of the shares of Non-Voting Common Stock being converted, such notice shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the holder. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates representing the number of shares of Voting Common Stock to which such holder shall be entitled upon such conversion (if such shares of Voting Common Stock are certificated) or shall register such shares of Voting Common Stock in book-entry form (if such shares of Voting Common Stock are uncertificated). Such conversion shall be deemed to be effective immediately prior to the close of business on the date of such surrender of the shares of Non-Voting Common Stock to be converted following or contemporaneously with the provision of written notice of such conversion election as required by this section, the shares of Voting Common Stock issuable upon such conversion shall be deemed to be outstanding as of such time, and the person or persons entitled to receive the shares of Voting Common Stock issuable upon such conversion shall be deemed to be the record holder or holders of such shares of Voting Common Stock as of such time. Notwithstanding anything herein to the contrary, shares of Non-Voting Common Stock represented by a lost, stolen or destroyed stock certificate may be converted if the holder thereof notifies the Company or its transfer agent that such certificate

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has been lost, stolen or destroyed and makes an affidavit of that fact acceptable to the Company and executes an agreement acceptable to the Company to indemnify the Company from any loss incurred by it in connection with such certificate. The effectiveness of any conversion of any shares of Non-Voting Common Stock into shares of Voting Common Stock is subject to the expiration or early termination of any applicable premerger notification and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

Dividends. Subject to the rights of the holders of any outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive any dividends to the extent permitted by law when, as and if declared by the board of directors of the Corporation (the “Board”).

Liquidation. Upon the dissolution, liquidation or winding up of the Company, subject to the rights of the holders of any outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive the assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares held by them. The Non-Voting Common Stock shall rank on parity with the Voting Common Stock as to distributions of assets upon dissolution, liquidation or winding up of the Company, whether voluntary or involuntary.

Convertible Preferred Stock

Series A Convertible Preferred Stock. In April 2018, the Company entered into a Series A convertible preferred stock purchase agreement, pursuant to which the Company issued 2,098,269 shares of Series A convertible preferred stock for an aggregate purchase price of $11.0 million, net of issuance costs. In December 2018, the Company issued an additional 1,390,788 shares of Series A convertible preferred stock for an aggregate purchase price of $7.3 million, net of issuance costs.

Series B Convertible Preferred Stock. In September 2020, the Company entered into a Series B convertible preferred stock purchase agreement, pursuant to which the Company issued 10,636,510 shares of Series B convertible preferred stock for an aggregate purchase price of $63.2 million, net of issuance costs.

Rights, preferences, powers, privileges and restrictions, qualifications and limitations for holders of the Company’s Series A convertible preferred stock and Series B convertible preferred stock are:

●

Dividends: Each holder of the Company’s Series A and Series B convertible preferred stock is entitled to receive non-cumulative dividends, when and if declared by the Company’s Board of Directors. No dividends have been declared to date.

●

Liquidation Preferences: In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A and Series B convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, an amount per share equal to the original issue price plus declared but unpaid dividends.

●

Conversion: Each share of Series A and Series B convertible preferred stock is convertible at the option of the holder, at any time, into the number of shares of common stock determined by dividing the applicable purchase price by the applicable conversion price at the time of conversion. Each share of Series A and Series B convertible preferred stock will be automatically converted into common stock immediately upon (i) the closing of a firm commitment underwritten IPO resulting in at least $50.0 million of gross proceeds to the Company or (ii) the receipt by the Company of a written request for automatic conversion from the holders of a majority of the outstanding shares of Series A and Series B convertible preferred stock.

●

Voting: The holders of the Series A and Series B convertible preferred stock are entitled to one vote for each share of common stock into which such shares of Series A and Series B convertible preferred stock could then be converted; and with respect to such vote, such holders shall have full voting rights and powers equal to the voting rights and powers of the holders of the common stock.

●

Redemption: The Series A and Series B convertible preferred stock are not explicitly redeemable at the option of the holder at a specified date in the future or at the option of the Company.

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Prior to the IPO, the Company’s Series A and Series B convertible preferred stock were classified as temporary equity on the accompanying condensed consolidated balance sheet instead of in stockholders’ equity (deficit), as events triggering redemption that were not solely within the Company’s control because the preferred stockholders had the ability to effect a liquidation event. The Company determined not to adjust the carrying values of the Series A and Series B convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such liquidation events would occur.

On April 27, 2021, 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 and 7,928,501 shares of the Company’s convertible preferred stock converted into 7,341,860 shares of Common Stock. There were no outstanding shares of the Company’s convertible preferred stock as of June 30, 2022.

Equity Incentive Plan

In August 2020, the Company’s Board of Directors amended the Amended and Restated 2018 Stock Option—Stock Issuance Plan (the “2018 Plan”) to increase the maximum number of shares of common stock that may be issued over the term of the plan. The 2018 Plan provided for the grant of stock options, non-statutory stock options, incentive stock options and stock issuances to employees, nonemployees and consultants of the Company.

In April 2021, the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was approved by the Company’s Board of Directors and became effective on April 15, 2021. Upon the effectiveness of the 2021 Plan, no further grants may be made under the Company’s 2018 Plan.

The 2021 Plan allows the Company to grant equity-based awards to its officers, employees, directors and other key persons (including consultants). The Company initially reserved up to 3,246,120 shares of common stock for issuance under the 2021 Plan, plus (i) 1,722 shares that remained available for the issuance of awards under the 2018 Plan at the time the 2021 Plan became effective, and (ii) any shares subject to outstanding options or other share awards that were granted under the 2018 Plan that terminate or expire prior to exercise or settlement; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. The 2021 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through January 31, 2032, by 4.0% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s Board of Directors. As a result, the number of shares of common stock reserved for issuance under the 2021 Plan increased by 1,059,032 shares on January 1, 2022.

A summary of the Company’s stock option activities during the six months ended June 30, 2022 is as follows:


		Weighted-		Weighted-
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
		Price Per		Contract	Value (in
	Total Options	Share		Term (in years)	millions)
Outstanding as of December 31, 2021	1,734,696	$	8.50	8.8	$	7.6
Granted	889,952	$	8.80