10-Q 1 alt-20220930x10q.htm 10-Q
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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 from                  to                 

Commission file number 001-32587

Graphic

ALTIMMUNE, INC.

(Exact Name of Registrant as Specified in its Charter)

    

Delaware

    

20-2726770

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

910 Clopper Road Suite 201S, Gaithersburg, Maryland

    

20878

(Address of Principal Executive Offices)

 

(Zip Code)

(240) 654-1450

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

ALT

The NASDAQ Global 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 Act).   Yes      No  

As of November 4, 2022, there were 49,159,056 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

ALTIMMUNE, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

1

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

1

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

2

Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)

3

Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)

5

Notes to Consolidated Financial Statements (unaudited)

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALTIMMUNE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

    

September 30, 

December 31, 

2022

2021

(Unaudited)

ASSETS

 

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

127,465

$

190,301

Restricted cash

 

34

 

34

Total cash, cash equivalents and restricted cash

 

127,499

 

190,335

Short-term investments

 

74,362

 

Accounts receivable

 

633

 

429

Income tax and R&D incentive receivables

 

3,720

 

5,410

Prepaid expenses and other current assets

 

4,790

 

7,952

Total current assets

 

211,004

 

204,126

Property and equipment, net

 

1,172

 

1,448

Intangible assets, net

 

12,419

 

12,419

Other assets

 

682

 

872

Total assets

$

225,277

$

218,865

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,419

$

2,034

Contingent consideration

6,090

Accrued expenses and other current liabilities

 

14,323

 

10,152

Total current liabilities

 

15,742

 

18,276

Other long-term liabilities

 

4,506

 

1,454

Total liabilities

 

20,248

 

19,730

Commitments and contingencies (Note 14)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.0001 par value; 200,000,000 shares authorized; 49,161,637 and 40,993,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

5

4

Additional paid-in capital

 

566,551

 

497,342

Accumulated deficit

 

(356,224)

 

(293,171)

Accumulated other comprehensive loss, net

 

(5,303)

 

(5,040)

Total stockholders’ equity

 

205,029

 

199,135

Total liabilities and stockholders’ equity

$

225,277

$

218,865

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2022

    

2021

    

2022

    

2021

Revenues

$

2

$

158

$

42

$

1,133

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

20,262

 

29,206

 

51,359

 

54,356

General and administrative

 

4,492

 

4,156

 

13,329

 

11,636

Impairment loss on construction-in-progress

 

 

 

 

8,070

Total operating expenses

 

24,754

 

33,362

 

64,688

 

74,062

Loss from operations

 

(24,752)

 

(33,204)

 

(64,646)

 

(72,929)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(64)

 

(33)

 

(191)

 

(67)

Interest income

 

1,053

 

13

 

1,402

 

88

Other income (expense), net

 

50

 

(286)

 

185

 

(293)

Total other income (expense), net

 

1,039

 

(306)

 

1,396

 

(272)

Net loss before income taxes

 

(23,713)

 

(33,510)

 

(63,250)

 

(73,201)

Income tax benefit

 

197

 

 

197

 

Net loss

 

(23,516)

 

(33,510)

 

(63,053)

 

(73,201)

Other comprehensive income — unrealized (loss) gain on short-term investments

 

(143)

 

(2)

 

(263)

 

4

Comprehensive loss

$

(23,659)

$

(33,512)

$

(63,316)

$

(73,197)

Net loss per share, basic and diluted

$

(0.48)

$

(0.81)

$

(1.37)

$

(1.79)

Weighted-average common shares outstanding, basic and diluted

 

49,286,535

 

41,370,768

 

45,881,547

 

40,843,905

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

Accumulated

Additional

Other

Total

    

Common Stock

    

Paid-In

    

Accumulated

    

Comprehensive

    

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity

Balance at December 31, 2021

40,993,768

$

4

$

497,342

$

(293,171)

$

(5,040)

$

199,135

Stock-based compensation

 

 

 

2,033

 

 

 

2,033

Exercise of stock options

 

95,771

 

 

197

 

 

 

197

Vesting of restricted stock awards including withholding, net

17,568

(170)

(170)

Issuance of common stock from Employee Stock Purchase Plan

 

16,450

 

 

113

 

 

 

113

Issuance of common stock in at-the-market offerings, net

 

335,485

 

 

2,990

 

2,990

Issuance of common stock upon exercise of warrants

1,760,854

Net loss

(19,430)

(19,430)

Balance at March 31, 2022

 

43,219,896

 

$

4

 

$

502,505

 

$

(312,601)

 

$

(5,040)

 

$

184,868

Stock-based compensation

 

 

$

 

$

2,048

 

$

 

$

 

$

2,048

Exercise of stock options

152,913

 

 

403

 

 

 

403

Vesting of restricted stock awards including withholding, net

 

(5,865)

 

 

(80)

 

 

 

(80)

Issuance of common stock in at-the-market offerings, net

2,157,717

1

21,346

21,347

Issuance of common stock related to contingent consideration liability

847,444

6,176

6,176

Unrealized (loss) gain on short-term investments

 

 

 

 

 

(120)

 

(120)

Net loss

 

 

 

 

(20,107)

 

 

(20,107)

Balance at June 30, 2022

 

46,372,105

 

$

5

 

$

532,398

 

$

(332,708)

 

$

(5,160)

 

$

194,535

Stock-based compensation

 

 

$

 

$

2,128

 

$

 

$

 

$

2,128

Exercise of stock options

76,161

 

 

268

 

 

 

268

Vesting of restricted stock awards including withholding, net

 

(7,744)

 

 

(140)

 

 

 

(140)

Issuance of common stock in at-the-market offerings, net

2,711,013

 

 

31,829

 

 

31,829

Issuance of common stock from Employee Stock Purchase Plan

9,945

 

 

68

 

 

68

Other increase

157

 

 

 

 

Unrealized loss on short-term investments

 

 

 

 

 

(143)

 

(143)

Net loss

 

 

 

 

(23,516)

 

 

(23,516)

Balance at September 30, 2022

 

49,161,637

 

$

5

 

$

566,551

 

$

(356,224)

 

$

(5,303)

 

$

205,029

The accompanying notes are an integral part of the unaudited consolidated financial statements.

3

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

Accumulated

Additional

Other

Total

    

Common Stock

    

Paid-In

    

Accumulated

    

Comprehensive

    

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity

Balance at December 31, 2020

37,142,946

$

4

$

417,337

$

(186,421)

$

(5,044)

$

225,876

Stock-based compensation

 

 

 

1,218

 

1,218

Vesting of restricted stock awards including withholding, net

 

(6,349)

 

 

(92)

 

(92)

Issuance of common stock from Employee Stock Purchase Plan

 

8,733

 

 

106

 

106

Retirement of common stock in exchange for common stock warrant

 

(1,000,000)

 

 

(7,540)

(9,660)

 

(17,200)

Issuance of common stock warrant in exchange for retirement of common stock

 

 

 

17,200

 

17,200

Issuance of common stock in at-the-market offerings, net

 

2,110,800

 

 

34,178

 

34,178

Issuance of common stock upon cashless exercise of warrants

1,050

10

10

Unrealized gain on short-term investments

5

5

Net loss

(14,864)

(14,864)

Balance at March 31, 2021

 

38,257,180

 

$

4

 

$

462,417

 

$

(210,945)

 

$

(5,039)

 

$

246,437

Stock-based compensation

 

 

$

 

$

1,485

 

$

 

$

 

$

1,485

Exercise of stock options

38,217

94

94

Vesting of restricted stock awards including withholding, net

 

(7,583)

 

 

(90)

 

 

 

(90)

Issuance of common stock in at-the-market offerings, net

 

1,405,710

 

 

18,178

 

 

 

18,178

Unrealized (loss) gain on short-term investments

 

 

 

 

 

1

 

1

Net loss

 

 

 

 

(24,827)

 

 

(24,827)

Balance at June 30, 2021

 

39,693,524

 

$

4

 

$

482,084

 

$

(235,772)

 

$

(5,038)

 

$

241,278

Stock-based compensation

 

 

$

 

$

1,497

 

$

 

$

 

$

1,497

Exercise of stock options

398

6

6

Vesting of restricted stock awards including withholding, net

 

(6,521)

 

 

(124)

 

 

 

(124)

Issuance of common stock from Employee Stock Purchase Plan

 

15,367

 

 

119

 

 

 

119

Unrealized loss on short-term investments

 

 

 

 

 

(2)

 

(2)

Net loss

(33,510)

(33,510)

Balance at September 30, 2021

 

39,702,768

 

$

4

 

$

483,582

 

$

(269,282)

 

$

(5,040)

 

$

209,264

The accompanying notes are an integral part of the unaudited consolidated financial statements.

4

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

    

Nine Months Ended September 30, 

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(63,053)

$

(73,201)

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

 

  

 

Change in fair value of contingent consideration liability

 

86

 

1,560

Impairment loss on construction-in-progress

 

 

8,070

Stock-based compensation expense

 

6,209

 

4,200

Depreciation and amortization

 

31

 

434

Unrealized (gains) losses on foreign currency exchange

 

(183)

 

297

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(204)

 

3,036

Prepaid expenses and other assets

 

3,204

 

(5,263)

Accounts payable

 

(615)

 

(606)

Accrued expenses and other liabilities

 

7,555

 

6,916

Income tax and R&D incentive receivables

 

1,690

 

(1,714)

Net cash used in operating activities

 

(45,280)

 

(56,271)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sales and maturities of short-term investments

 

 

82,406

Purchases of short-term investments

 

(74,292)

 

(7,592)

Purchases of property and equipment, net

 

(88)

 

(11,970)

Cash paid for internally developed patents

 

 

(190)

Net cash (used in) provided by investing activities

 

(74,380)

 

62,654

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Payments of deferred offering costs

(118)

Proceeds from issuance of common stock in at-the-market offerings, net

 

56,166

 

52,356

Proceeds from issuance of common stock from Employee Stock Purchase Plan

 

181

 

225

Proceeds from exercises of stock options, net

 

477

 

100

Net cash provided by financing activities

 

56,824

 

52,563

Net (decrease) increase in cash and cash equivalents and restricted cash

 

(62,836)

 

58,946

Cash, cash equivalents and restricted cash at beginning of period

 

190,335

 

115,952

Cash, cash equivalents and restricted cash at end of period

$

127,499

$

174,898

SUPPLEMENTAL NON-CASH ACTIVITIES:

 

 

Common stock issued related to contingent consideration liability

$

6,176

$

Operating lease liability and right of use asset addition

$

$

72

The accompanying notes are an integral part of the unaudited consolidated financial statements.

5

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Altimmune, Inc., headquartered in Gaithersburg, Maryland, United States, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware.

The Company is focused on developing treatments for obesity and liver diseases. The Company’s pipeline includes next generation peptide therapeutics for obesity and non-alcoholic steatohepatitis (“NASH”) (for both, pemvidutide, formerly known as ALT-801), and for chronic hepatitis B (HepTcell). Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff and raising capital, and has financed its operations through the issuance of common and preferred stock, long-term debt and proceeds from research grants and government contracts. The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K which was filed with the SEC on March 15, 2022. In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on the same basis as the audited consolidated financial statements, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2022 or any future years or periods.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2022, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC.

Use of Estimates

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic, including any resurgences or the emergence of new variants, may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change.

6

The Company considered the potential impact of the COVID-19 pandemic on the Company’s estimates and assumptions and determined that there was not a material impact to the Company’s unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2022. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

3. Fair Value Measurements

The Company’s assets measured at fair value on a recurring basis as of September 30, 2022 consisted of the following (in thousands):

Fair Value Measurement at September 30, 2022

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Cash equivalents - money market funds

$

123,921

$

123,921

$

$

Short-term investments

 

74,362

 

 

74,362

 

Total

$

198,283

$

123,921

$

74,362

$

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 consisted of the following (in thousands):

Fair Value Measurement at December 31, 2021

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Cash equivalents - money market funds

$

65,634

    

$

65,634

    

$

    

$

Total

$

65,634

$

65,634

$

$

Liabilities:

Contingent consideration liability (see Note 6)

$

6,090

$

$

$

6,090

Total

$

6,090

$

$

$

6,090

As described in Note 6 the remaining milestone payment underlying the contingent consideration liability was fully settled in shares of the Company’s common stock. As of September 30, 2022, the Company had no contingent consideration liability.

Short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data (Level 2). The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments had quoted prices as of September 30, 2022 as shown below (in thousands):

September 30, 2022

Amortized Cost

Unrealized Loss

Market Value

United States treasury securities

    

$

17,784

    

$

(112)

    

$

17,672

Commercial paper and corporate debt securities

49,931

(124)

49,807

Asset backed securities

 

6,910

 

(27)

 

6,883

Total

$

74,625

$

(263)

$

74,362

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. Assets recorded at fair value on a non-recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired. During the nine months ended September 30, 2022, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis. During the year ended December 31, 2021, the Company recorded non-cash impairment charges to property and equipment, net on a non-recurring basis (see below).

7

Lonza Manufacturing Agreement

In March 2021, the Company expanded its manufacturing collaboration with Lonza Houston, Inc. (“Lonza”) for the manufacture of AdCOVID or other adenovirus-based vaccines. Under the expanded agreement, the Company had committed approximately $23.0 million to Lonza to procure long-lead equipment and construct a dedicated manufacturing suite for clinical and commercial production of adenovirus-based vaccines. In June 2021, the Company announced the discontinuation of further development of AdCOVID following the Company’s review of findings from its Phase 1 clinical trial. Construction continued at Lonza, and the Company assessed its strategic options with respect to the suite. This work was completed during the fourth quarter of 2021. The Company capitalized a total of $11.4 million as construction-in-progress (“CIP”) during the nine months ended September 30, 2021 under this expanded agreement.

In connection with the discontinuation of further development of AdCOVID, the Company recorded a non-cash impairment charge of $8.1 million in the unaudited consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021 to write-down the CIP associated with the construction of the Lonza facility to its fair value of $3.3 million as of September 30, 2021. As of September 30, 2021, the fair value of the CIP related assets was primarily determined utilizing the cost approach, which reflected the replacement cost of the asset being appraised, adjusted for contractual restrictions on the assets, the probability of satisfying the contractual restrictions, physical deterioration, functional obsolescence and economic obsolescence. The fair value measurement was considered a Level 3 measurement within the valuation hierarchy.

Furthermore, the remaining $3.3 million CIP was fully charged to impairment during the three months ended December 31, 2021 upon termination of the agreement.

4. Operating Leases

The Company rents office and laboratory space in the United States which expires in April 2025. Rent expense under the Company’s operating leases was $0.1 million and $0.4 million during each of the three and nine months ended September 30, 2022 and 2021, respectively. Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreement. The office space lease also includes an option to renew the lease as of the end of the term. The Company has determined that the lease renewal option is not reasonably certain of being exercised.

The cash paid for operating lease liabilities for each of the nine months ended September 30, 2022 and 2021 was $0.4 million.

Supplemental other information related to the operating leases balance sheet information is as follows (in thousands):

 

September 30, 2022

December 31, 2021

 

Operating lease obligations (see Note 5 and 7)

    

$

1,230

    

$

1,535

Operating lease right-of-use assets (included in "Other assets" in Balance Sheet)

$

649

$

798

Weighted-average remaining lease term (years)

 

2.6

 

3.3

Weighted-average discount rate

 

7.2

%  

 

7.2

%

8

5. Accrued Expenses

Accrued expenses and other current liabilities consist of the following (in thousands):

September 30, 2022

December 31, 2021

Accrued professional services

    

$

624

    

$

396

Accrued payroll and employee benefits

 

2,110

 

2,313

Accrued research and development

 

9,930

 

6,988

Lease obligation, current portion (see Note 4)

 

442

 

411

Income tax payable

1,169

Accrued interest and other

 

48

 

44

Total accrued expenses and other current liabilities

$

14,323

$

10,152

6. Contingent Consideration

The Company entered into an Agreement and Plan of Merger and Reorganization, dated July 8, 2019, by and among the Company, Springfield Merger Sub, Inc., Springfield Merger Sub, LLC, Spitfire Pharma, Inc. and David Collier, as the Stockholder Representative (the “Spitfire Merger Agreement”) to acquire all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”). Spitfire was a privately held, preclinical pharmaceutical company developing a novel GLP-1/glucagon receptor dual agonist for the treatment of NASH.

The transaction closed on July 12, 2019. The Company issued 1,887,250 unregistered shares of its common stock as upfront consideration to certain former securityholders of Spitfire, representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.

The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business. The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

The Spitfire Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows:

a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Spitfire Merger Agreement;
a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation (first patient, first dosing) of a Phase 2 clinical trial of a product candidate anywhere in the world (a “Phase 2 Milestone Event”); and
payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the Amended and Restated License Agreement, dated July 12, 2019, by and between Mederis Diabetes, LLC and Spitfire, within ten years following the approval of a new drug application filed with the FDA.

The Regulatory Milestones were payable in shares of the Company’s common stock, with the number of shares of the Company’s common stock issued in connection with each milestone amount, if any, dependent on the share price at the time of achievement. The number of shares issued in consideration for the IND Milestone Consideration Amount was determined based on the lower of (A) the average of the closing prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95.

9

The number of shares issued in consideration for the Phase 2 Milestone Consideration Amount was determined based on the lower of (A) the average of the closing trading prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.

The contingent payments related to the Regulatory Milestones were stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity (“ASC 480”). Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months following issuance and 50% are released at 6 months following issuance. The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies. Accordingly, the Company will recognize the Sales Milestones when the contingency is probable and the amount can be reasonably estimated.

On November 3, 2020, the Company received acknowledgement from the Australian Government Department of Health on the Company’s submitted clinical trial notification (“CTN”) which triggered the obligation to settle the IND Milestone payment to the former owners. As a result, on November 19, 2020, the Company issued 1,694,906 shares of its common stock valued at $9.57 per share for the amount value of $13.6 million to the former Spitfire stockholders. Pursuant to the Spitfire Merger Agreement, the Company issued the shares within sixty days of the submission of the CTN, which was October 29, 2020. From September 30, 2020 through November 19, 2020, the date of issuance, the Company recognized a decrease in the fair value of the IND Milestone payment of $5.4 million to research and development expense and reclassified the balance in the contingent consideration liability associated with the fair value of the IND Milestone payment to equity in the Company’s consolidated balance sheet.

On April 26, 2022, the Company dosed the first patient in the Phase 2 MOMENTUM trial of pemvidutide in obesity, which triggered the obligation to pay the Phase 2 Milestone Consideration Amount to the former owners. As a result, on June 10, 2022, the Company issued 847,444 shares of its common stock valued at $8.55 per share for the amount value of $7.2 million to the former Spitfire stockholders. From the last valuation date on March 31, 2022 through June 10, 2022, the date of issuance, the Company recognized an increase in the fair value of the Phase 2 Milestone Consideration Amount of $1.9 million to research and development expense and reclassified the balance in the contingent consideration liability to equity in the Company’s consolidated balance sheet. As of September 30, 2022, the Company had no contingent consideration liability.

Below is a summary of the contingent consideration activity (in thousands):

Nine Months Ended September 30, 

2022

2021

Beginning balance

    

$

6,090

    

$

5,390

Change in fair value

 

86

 

1,560

Fair value of payments settled in common stock (Phase II Milestone)

 

(6,176)

 

Ending balance

$

$

6,950

7. Other Long-Term Liabilities

During the nine months ended September 30, 2022, the Company received a total of $3.4 million in cash for research and development (“R&D”) incentive credit that the Company earned during the fiscal years 2021 and 2020 through the participation in the Australian research and development incentive credit program administered through the Australian Tax Office. The Company recorded the receipt as long-term liability until there is reasonable assurance that the Company will comply with the conditions attached to the incentive credit. See Note 2. Summary of Significant Accounting Policies in the Company’s 2021 Annual Report on Form 10-K for accounting policies related to research and development incentive credits.

10

The Company’s other long-term liabilities are summarized as follows (in thousands):

September 30, 2022

December 31, 2021

Research and development incentive credit

$

3,402

$

Lease obligation, long-term portion (see Note 4)

    

788

    

1,124

Conditional economic incentive grants

 

250

 

250

Other

 

66

 

80

Total other long-term liabilities

$

4,506

$

1,454

8. Common Stock

Public Offering

On July 16, 2020, the Company offered and sold (i) 3,369,564 shares of common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants of the Company to purchase 1,630,436 shares of common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of the Company’s common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The Company has assessed the Pre-Funded Warrants for appropriate equity or liability classification and determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”). The Pre-Funded Warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the Pre-Funded Warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time of issuance. As of September 30, 2022, 760,870 of the Pre-Funded Warrants were exercised, leaving 869,566 remaining Pre-Funded Warrants unexercised.

At-the-Market Offerings

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C. and B. Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offerings program under which the Company offered and sold shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million (the “Shares”) through the Sales Agents (the “2021 Offering”). All the Shares offered and sold in the 2021 Offering were issued pursuant to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on December 31, 2020, which was declared effective on January 11, 2021 (“2021 Shelf”), the prospectus supplement relating to the 2021 Offering filed with the SEC on February 25, 2021 and any applicable additional prospectus supplements related to the 2021 Offering that form a part of the Registration Statement.

During the nine months ended September 30, 2022, the Company sold 5,204,415 shares of Common Stock under the 2021 Agreement resulting in approximately $56.2 million in proceeds, net of $1.9 million commission and other offering costs. As of September 30, 2022, the Company has sold 10,004,869 shares of Common Stock under the 2021 Agreement resulting in approximately $121.0 million in proceeds, net of $4.0 million commission and other offering costs, As of September 30, 2022, there were no remaining shares available for issuance under the 2021 Agreement. The Company

11

recorded approximately $0.3 million of other offering costs which offset the proceeds received from the shares sold through September 30, 2022.

Exchange Agreement

On February 25, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with an investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,000,000 shares of the Company’s common stock, par value $0.0001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.0001 per share. The Exchange Warrants did not have an expiration date and were exercisable at any time except that the Exchange Warrants could not be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99% of the Company’s common stock, subject to certain exceptions. In accordance with FASB Accounting Standards Codification Topic 505, Equity, the Company recorded the retirement of the common stock exchanged as a reduction of common shares outstanding and a corresponding debit to additional paid-in-capital and accumulated deficit at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants were classified as equity in accordance with ASC 480 and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in-capital and is not subject to remeasurement. The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants. On January 24, 2022, the Exchange Warrants to purchase 1,000,000 shares were net exercised, resulting in the issuance of 999,984 shares of common stock, and no Exchange Warrants remain outstanding.

9. Warrants

A summary of warrant activity during the nine months ended September 30, 2022 is as follows:

Weighted-Average

    

    

Weighted

Remaining

Number of

Average

Contractual Term

Warrants

Exercise Price

(Years)

Warrants outstanding, December 31, 2021

 

2,776,191

 

Expired

(155)

Exercises (see Note 8)

 

(1,760,870)

 

Warrants outstanding, September 30, 2022

 

1,015,166

 

$

0.66

1.2

The warrants outstanding as of September 30, 2022 included 869,566 Pre-Funded Warrants with an exercise price of $0.0001 per-share and no expiration date.

10. Stock-Based Compensation

Stock Options

The Company’s stock option awards generally vest over four years and typically have a contractual life of ten years. As of September 30, 2022, there was $13.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.6 years. During the nine months ended September 30, 2022, the Company granted 1,433,427 stock options with a weighted average exercise price of $8.39 and per share weighted average grant date fair value of $6.97.

12

Information related to stock options outstanding as of September 30, 2022 is as follows (in thousands, except share and per share data):

    

    

    

Weighted-Average