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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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 November 3, 2022, the registrant had 26,564,826 shares of common stock, $0.001 par value per share, outstanding, comprised of 18,837,356 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

    

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021

3

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the three and nine months ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the three and nine months ended September 30, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 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

36

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

Signatures

40

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Rain Therapeutics Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(unaudited)

September 30,

December 31,

2022

2021 (1)

Assets

Current assets:

Cash and cash equivalents

$

39,834

$

24,780

Short-term investments

50,874

115,438

Prepaid and other current assets

3,037

5,928

Total current assets

93,745

146,146

Property and equipment, net

103

165

Operating lease right-of-use asset

291

386

Other assets

496

443

Total assets

$

94,635

$

147,140

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

4,084

$

6,112

Accrued research and development

4,353

4,349

Other accrued liabilities

4,413

5,694

Operating lease liability, current portion

163

160

Total current liabilities

13,013

16,315

Operating lease liability, net of current portion

149

252

Other long-term liabilities

64

69

Total liabilities

13,226

16,636

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.001 par value; 250,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 26,564,826 shares (comprised of 18,837,356 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 September 30, 2022 and December 31, 2021, respectively

27

27

Additional paid-in capital

224,694

220,530

Accumulated other comprehensive loss

(302)

(89)

Accumulated deficit

(143,010)

(89,964)

Total stockholders’ equity

81,409

130,504

Total liabilities and stockholders’ equity

$

94,635

$

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.

3

Table of Contents

Rain Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Operating expenses:

Research and development

$

14,510

$

15,284

$

42,322

$

26,101

General and administrative

3,901

3,154

11,257

7,334

Total operating expenses

18,411

18,438

53,579

33,435

Loss from operations

(18,411)

(18,438)

(53,579)

(33,435)

Other income:

Interest income

370

11

533

25

Other income

1

1

Total other income, net

370

12

533

26

Net loss

$

(18,041)

$

(18,426)

$

(53,046)

$

(33,409)

Net loss per share, basic and diluted

$

(0.68)

$

(0.70)

$

(2.00)

$

(1.96)

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

26,564,615

26,466,746

26,535,474

17,025,032

Net loss

$

(18,041)

$

(18,426)

$

(53,046)

$

(33,409)

Other comprehensive loss:

Unrealized gain (loss) on short-term investments

71

5

(213)

5

Comprehensive loss

$

(17,970)

$

(18,421)

$

(53,259)

$

(33,404)

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

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

Exercise of stock options

3,890

15

15

Issuance of common stock from employee stock purchase plan

31,058

147

147

Stock-based compensation expense

932

932

Unrealized gain on investments

71

71

Net loss

(18,041)

(18,041)

Balance as of September 30, 2022

$

$

26,564,826

$

27

$

224,694

$

(143,010)

$

(302)

$

81,409

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 (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

Stock-based compensation expense

862

862

Unrealized gain on investments

5

5

Net loss

(18,426)

(18,426)

Balance as of September 30, 2021

$

$

26,466,746

$

27

$

219,222

$

(71,979)

$

5

$

147,275

See accompanying notes to condensed consolidated financial statements.

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Rain Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Nine Months Ended
September 30,

2022

2021

Operating activities

Net loss

$

(53,046)

$

(33,409)

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

In-process research and development expense

(1,000)

5,500

Depreciation and amortization expense

62

50

Stock-based compensation expense

3,591

1,820

Amortization of premium and accretion of discounts on short-term investments, net

(35)

33

Changes in operating assets and liabilities:

Prepaid and other current assets

2,891

(6,663)

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

(5)

20

Other assets

(53)

366

Accounts payable

(2,028)

2,862

Accrued research and development

4

3,834

Other accrued liabilities

(286)

(2,117)

Net cash used in operating activities

(49,905)

(27,704)

Investing activities

Purchases of short-term investments

(34,764)

(136,852)

Purchases of property and equipment

(128)

Payment of in-process research and development expense

(2,500)

Maturities of short-term investments

99,150

Net cash provided by (used in) investing activities

64,386

(139,480)

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

573

85

Net cash provided by financing activities

573

121,579

Net increase (decrease) in cash and cash equivalents

15,054

(45,605)

Cash and cash equivalents at beginning of period

24,780

58,863

Cash and cash equivalents at end of period

$

39,834

$

13,258

Supplemental schedule of non-cash investing and financing activities:

Conversion of convertible preferred stock to common stock

$

$

94,697

Non-cash in-process research and development accrual

$

(1,000)

$

3,000

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 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, is a small molecule, oral inhibitor of the MDM2-p53 complex that reactivates p53. 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 September 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 September 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 foreseeable future as it continues the development of its product candidates. From inception through September 30, 2022,

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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 (expense) 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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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. The fair value of restricted stock units (“RSUs”) granted is based on the Company’s closing stock price on the date of grant. 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 (the “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.

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.

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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 and RSUs 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 nine months ended September 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 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.

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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, 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 nine months ended September 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 September 30, 2022:

Money market funds

$

7,874

$

$

$

7,874

Commercial paper

44,774

44,774

U.S. government securities

20,080

20,080

U.S. agency bonds

16,167

16,167

Corporate debt securities

992

992

Total cash equivalents and short-term investments

$

27,954

$

61,933

$

$

89,887

Reported as:

Cash and cash equivalents (includes cash of $821)

$

39,834

Short-term investments

50,874

Total cash, cash equivalents and short-term investments

$

90,708

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

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.

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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 pricing 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):

September 30, 2022

Amortized

Unrealized

Unrealized

Estimated

Cost

Gains

Losses

Fair Value

Money market funds

$

7,874

$

$

$

7,874

Commercial paper

44,823

1

(50)

44,774

U.S. government securities

20,259

(179)

20,080

U.S. agency bonds

16,228

2

(63)

16,167

Corporate debt securities

1,005

(13)

992

Cash equivalents and investments

$

90,189

$

3

$

(305)

$

89,887

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):

September 30,
2022

December 31, 2021

Due within one year

$

50,133

$

105,173

Due within one to two years

741

10,265

Total

$

50,874