10-Q 1 crvs-20240930x10q.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, 2024

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: 001-37719

Corvus Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

46-4670809

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

863 Mitten Road, Suite 102

Burlingame, CA

94010

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (650) 900-4520

Former name, former address and former fiscal year, if changed since last report: N/A

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

CRVS

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 any emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of November 12, 2024, 64,257,251 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

CORVUS PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2024

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

    

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations and Comprehensive Loss

4

Condensed Consolidated Statements of Change in Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

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

34

Item 4.

Controls and Procedures

34

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

SIGNATURES

82

2

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

September 30, 

December 31, 

    

2024

    

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

4,680

$

12,620

Marketable securities

 

36,971

 

14,529

Accounts receivable - related party

 

70

 

26

Prepaid and other current assets

 

1,200

 

781

Total current assets

 

42,921

 

27,956

Property and equipment, net

 

171

 

236

Operating lease right-of-use asset

284

1,149

Investment in Angel Pharmaceuticals

15,187

16,123

Other assets

252

89

Total assets

$

58,815

$

45,553

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,873

$

1,525

Operating lease liability

354

1,374

Accrued and other liabilities

 

4,215

 

3,970

Warrant liability

39,964

Total current liabilities

 

46,406

 

6,869

Total liabilities

 

46,406

 

6,869

Commitments and contingencies (Note 14)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock: $0.0001 par value; 10,000,000 shares authorized at September 30, 2024 and December 31, 2023; 0 shares issued and outstanding at each of September 30, 2024 and December 31, 2023

Common stock: $0.0001 par value; 290,000,000 shares authorized at September 30, 2024 and December 31, 2023; 62,580,031 and 49,038,582 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

6

 

5

Additional paid-in capital

 

398,038

 

374,363

Accumulated other comprehensive loss

 

(738)

 

(967)

Accumulated deficit

 

(384,897)

 

(334,717)

Total stockholders’ equity

 

12,409

 

38,684

Total liabilities and stockholders’ equity

$

58,815

$

45,553

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2024

    

2023

    

2024

    

2023

    

Operating expenses:

  

 

  

  

 

  

Research and development

$

5,222

$

3,965

$

13,411

$

12,527

General and administrative

 

2,033

 

1,595

 

6,032

 

5,229

Total operating expenses

 

7,255

 

5,560

 

19,443

 

17,756

Loss from operations

 

(7,255)

 

(5,560)

 

(19,443)

 

(17,756)

Interest income and other expense, net

 

566

 

425

 

1,316

 

1,204

Change in fair value of warrant liability

(32,846)

(31,030)

Sublease income - related party

56

Loss before equity method investment

(39,535)

(5,135)

(49,157)

(16,496)

Loss from equity method investment

(682)

(865)

(1,023)

(3,880)

Net loss

$

(40,217)

$

(6,000)

$

(50,180)

$

(20,376)

Net loss per share, basic and diluted

$

(0.60)

$

(0.12)

$

(0.86)

$

(0.43)

Shares used to compute net loss per share, basic and diluted

 

66,701,086

 

48,971,246

 

58,513,303

 

47,683,792

Other comprehensive loss:

 

 

  

 

 

  

Unrealized gain on marketable securities

 

152

 

5

 

142

 

45

Cumulative foreign currency translation adjustment

 

465

 

(80)

 

87

 

(925)

Comprehensive loss

$

(39,600)

$

(6,075)

$

(49,951)

$

(21,256)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Nine Months Ended September 30, 2024

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2023

49,038,582

$

5

$

374,363

$

(967)

$

(334,717)

$

38,684

Stock-based compensation expense

689

689

Unrealized loss on marketable securities

(15)

(15)

Foreign currency translation adjustment

(293)

(293)

Net loss

(5,701)

(5,701)

Balance at March 31, 2024

49,038,582

$

5

$

375,052

$

(1,275)

$

(340,418)

$

33,364

Common stock issued in connection with registered direct offering, net

13,512,699

1

16,404

16,405

Pre-funded warrants issued in connection with registered direct offering, net

5,031

5,031

Stock-based compensation expense

768

768

Unrealized loss on marketable securities

5

5

Foreign currency translation adjustment

(85)

(85)

Net loss

(4,262)

(4,262)

Balance at June 30, 2024

62,551,281

$

6

$

397,255

$

(1,355)

$

(344,680)

$

51,226

Common stock issued on exercise of stock options

28,750

50

50

Stock-based compensation expense

733

733

Unrealized gain on marketable securities

152

152

Foreign currency translation adjustment

465

465

Net loss

(40,217)

(40,217)

Balance at September 30, 2024

62,580,031

$

6

$

398,038

$

(738)

$

(384,897)

$

12,409

Nine Months Ended September 30, 2023

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2022

46,553,511

$

5

$

364,361

$

(563)

$

(307,688)

$

56,115

Common stock issued on exercise of stock options

15,000

4

4

Stock-based compensation expense

492

492

Unrealized gain on marketable securities

41

41

Foreign currency translation adjustment

88

88

Net loss

(7,873)

(7,873)

Balance at March 31, 2023

46,568,511

$

5

$

364,857

$

(434)

$

(315,561)

$

48,867

Stock-based compensation expense

537

537

Unrealized loss on marketable securities

(1)

(1)

Foreign currency translation adjustment

(933)

(933)

Issuance of common stock in connection with at-the-market offering, net

2,329,851

7,516

7,516

Net loss

(6,503)

(6,503)

Balance at June 30, 2023

48,898,362

$

5

$

372,910

$

(1,368)

$

(322,064)

$

49,483

Common stock issued on exercise of stock options

8,168

8

8

Stock-based compensation expense

546

546

Unrealized gain on marketable securities

5

5

Foreign currency translation adjustment

(80)

(80)

Issuance of common stock in connection with at-the-market offering, net

132,052

327

327

Net loss

(6,000)

(6,000)

Balance at September 30, 2023

49,038,582

$

5

$

373,791

$

(1,443)

$

(328,064)

$

44,289

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended

September 30, 

    

2024

    

2023

    

Cash flows from operating activities

  

 

  

Net loss

$

(50,180)

$

(20,376)

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

 

  

 

  

Depreciation and amortization

 

65

 

123

Accretion related to marketable securities

 

(899)

 

(767)

Stock-based compensation

 

2,190

 

1,575

Change in fair value of warrant liability

 

31,030

 

Loss from equity method investment

 

1,023

 

3,880

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable - related party

 

(44)

 

577

Prepaid and other current assets

 

(419)

 

(142)

Operating lease right-of-use asset

865

794

Other assets

(163)

40

Accounts payable

 

348

 

(572)

Accrued and other liabilities

 

245

 

(2,989)

Operating lease liability

(1,020)

(911)

Net cash used in operating activities

 

(16,959)

 

(18,768)

Cash flows from investing activities

 

  

 

  

Purchases of marketable securities

 

(49,758)

 

(35,623)

Maturities of marketable securities

 

28,357

 

53,516

Purchases of property and equipment

 

 

(34)

Net cash (used in) provided by investing activities

 

(21,401)

 

17,859

Cash flows from financing activities

 

  

 

  

Proceeds from issuance of common stock, net (includes $1,794 in aggregate gross proceeds from related parties for the nine months ended September 30, 2024)

 

16,405

 

Proceeds from issuance of pre-funded warrants, net (includes $1,769 in aggregate gross proceeds from related parties for the nine months ended September 30, 2024)

 

5,031

 

Proceeds from issuance of common warrants (includes $1,472 in aggregate gross proceeds from related parties for the nine months ended September 30, 2024)

 

8,934

 

Proceeds from issuance of common stock in connection with at-the-market offering, net

7,843

Proceeds from exercise of common stock options

 

50

 

12

Net cash provided by financing activities

 

30,420

 

7,855

Net (decrease) increase in cash and cash equivalents

 

(7,940)

 

6,946

Cash and cash equivalents at beginning of the period

 

12,620

 

13,159

Cash and cash equivalents at end of the period

$

4,680

$

20,105

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

CORVUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Organization

Corvus Pharmaceuticals, Inc. (“Corvus” or the “Company”) was incorporated in Delaware on January 27, 2014 and commenced operations in November 2014. Corvus is a clinical-stage biopharmaceutical company. The Company’s operations are located in Burlingame, California, as of the filing of this Quarterly Report on Form 10-Q. In February 2025, the Company’s operations will be relocated to South San Francisco, California.

Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corvus Biopharmaceuticals, Ltd. and Corvus Hong Kong Limited. All intercompany accounts and transactions have been eliminated from the condensed consolidated financial statements.

Initial Public Offering

On March 22, 2016, the Company’s registration statement on Form S-1 (File No. 333-208850) relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on March 23, 2016. The public offering price of the shares sold in the IPO was $15.00 per share. The IPO closed on March 29, 2016, pursuant to which the Company sold 4,700,000 shares of its common stock. On April 26, 2016, the Company sold an additional 502,618 shares of its common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. The Company received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of our redeemable convertible preferred stock were converted into common stock.

Follow-on Public Offerings

In March 2018, the Company completed a follow-on public offering in which the Company sold 8,117,647 shares of common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $64.9 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

In February 2021, the Company completed a follow-on public offering in which the Company sold 9,783,660 shares of common stock at a price of $3.50 per share, which included 1,212,231 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $32.0 million, net of underwriting discounts and commissions and offering expenses.

Registered Direct Offering

On May 6, 2024, the Company completed a registered direct offering which resulted in gross proceeds of approximately $30.6 million. The financing consisted of the sale of 13,512,699 shares of common stock and accompanying common stock warrants to purchase 13,078,509 shares of common stock (or pre-funded warrants in lieu thereof) at a combined offering price of $1.7312 per share, and the sale of pre-funded warrants to purchase 4,144,085 shares of common stock and accompanying common warrants to purchase 4,010,927 shares of common stock (or pre-funded warrants in lieu thereof) at a combined offering price of $1.7311 per share. The common warrants have an exercise price of $3.50 per share of common stock (or $3.4999 per pre-funded warrant in lieu thereof), are exercisable at any time after the date of issuance, subject to certain ownership limitations, and expire on June 30, 2025. The pre-funded

7

warrants have an exercise price of $0.0001 and are exercisable any time after the date of the issuance, subject to certain ownership limitations.

Liquidity

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of soquelitinib, ciforadenant and mupadolimab. The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of soquelitinib, ciforadenant and mupadolimab, as well as product candidates under the Company’s other development programs. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of soquelitinib, ciforadenant and mupadolimab or any other product candidates.

The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit of $384.9 million as of September 30, 2024. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from sales of commercial products. Management expects operating losses to continue for the foreseeable future. The Company has funded its operations to date primarily through the sale of redeemable convertible preferred stock and common stock. As of September 30, 2024, the Company had cash, cash equivalents and marketable securities of $41.7 million. On October 29, 2024, the Company received approximately $5.9 million in cash from the early exercise of 1,677,220 common stock warrants. Management believes that the Company’s cash, cash equivalents and marketable securities will be sufficient to fund the Company’s planned operations for a period of at least 12 months from the date these condensed consolidated financial statements are issued. To fund the Company's planned operations, the Company will need to raise additional capital. The Company intends to raise additional capital through private and public equity offerings, including its “at-the-market” offering program, debt financings, the potential exercise of common warrants outstanding with an exercise price of $3.50 per share and potential future collaboration, license and development agreements. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company or at all. If the Company is unsuccessful in its efforts to raise additional capital or if sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate one or more of its development programs, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its obligations on a timely basis or at all. Failure to manage discretionary spending or raise additional capital, as needed, may adversely impact the Company’s ability to achieve its intended business objectives.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s functional and reporting currency is the U.S. dollar, except for its investment in its equity method investee which is the Chinese renminbi (RMB). The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business.

8

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for fair statement of the condensed consolidated financial statements presented.

The condensed consolidated balance sheet as of December 31, 2023 was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 19, 2024.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

Investments in Equity Securities

The Company uses the equity method of accounting for its equity investment if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee.

The Company’s proportionate share of the net income (loss) resulting from the equity method investment is reported under the line item captioned “income (loss) from equity method investment” in the Condensed Consolidated Statements of Operations and Comprehensive Loss and the carrying value of the equity method investments is reported under the line captioned “Investment in Angel Pharmaceuticals” in the Condensed Consolidated Balance Sheets. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and the foreign currency translation adjustment as applicable.

For equity method investees with a functional currency different than the Company’s reporting currency, the Company follows the guidance under ASC 830-10-15-5, pursuant to which, the foreign currency financial statements of a foreign investee accounted for by the equity method should be translated to the reporting entity's reporting currency.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.

See Note 5, “Equity Method Investment,” for further information.

Concentrations of Credit Risk and Other Risks and Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with two financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company’s marketable securities consist of investments in U.S. Treasury securities and U.S. government agency securities, which can be subject to certain credit risks. However, the Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer, and monitoring the ongoing creditworthiness

9

of the financial institutions and issuers. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.

The Company is subject to a number of risks similar to other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, and protection of proprietary technology. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology and immune-mediated therapies.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance included in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding.

Warrants that meet all of the criteria for equity classification are required to be recorded as a component of additional paid-in capital at the time of issuance, or when the conditions for equity classification are met, and are not remeasured. Warrants that do not meet the required criteria for equity classification are classified as liabilities. The Company adjusts such warrants to fair value at each reporting period until the warrants are exercised or expire. Any change in fair value is recognized in the Company’s statements of operations and comprehensive loss.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024 from those discussed in our Form 10-K.

10

Recent Accounting Pronouncements

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which modifies the disclosure or presentation requirements related to variety of FASB Accounting Standard Codification topics. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K is effective. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the associated amendment will be removed from the Codification and will not become effective for any entities. The Company is currently evaluating the effect of adopting this ASU.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends the guidance in ASC 740, Income Taxes. The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard “for annual financial statements that have not yet been issued or made available for issuance.” As adoption is either prospectively or retrospectively, the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of this ASU but does not expect any material impacts upon adoption.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expense. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of ASU 2024-03 on its financial statement presentation and disclosures.

3. Net Loss per Share

The following table shows the calculation of net loss per share (in thousands, except share and per share data):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2024

    

2023

    

2024

    

2023

    

Numerator:

  

 

  

  

 

  

Net loss - basic and diluted

$

(40,217)

$

(6,000)

$

(50,180)

$

(20,376)

Denominator:

 

 

  

 

 

  

Weighted average common shares outstanding used to compute basic and diluted net loss per share

 

66,701,086

 

48,971,246

 

58,513,303

 

47,683,792

Net loss per share, basic and diluted

$

(0.60)

$

(0.12)

$

(0.86)

$

(0.43)

Weighted average common shares outstanding for the three and nine months ended September 30, 2024 includes 4,144,085 shares of common stock issuable upon the conversion of pre-funded warrants described in Note 8.

The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2024

    

2023

    

2024

    

2023

    

Common warrants (1)

17,089,436

 

17,089,436

 

Outstanding options

9,911,650

 

7,762,672

9,911,650

 

7,762,672

11

(1)Based on the treasury stock method, such common warrants that are in-the-money should be included in the calculation of diluted earnings per share (“EPS”) if the impact is not anti-dilutive. Therefore, as the Company was in a net loss position for the three and nine months ended September 30, 2024 and other expense from the revaluation of the common warrants was $32.8 million and $31.0 million for the three and nine months ended September 30, 2024, respectively, the impact of including the common warrants in calculating diluted EPS would be antidilutive and the Company has excluded the common warrants from the calculation of diluted net loss per share.

4. Fair Value Measurements

Financial assets and liabilities are measured and recorded at fair value. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3—Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

There have been no transfers of assets and liabilities between levels of hierarchy.

The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

12

Financial Assets

The following tables present information as of September 30, 2024 and December 31, 2023 about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):

September 30, 2024

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

4,551

$

$

$

4,551

Marketable securities

 

33,170

 

3,801

 

 

36,971

$

37,721

$

3,801

$

$

41,522

December 31, 2023

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

12,280

$

$

$

12,280

Marketable securities

10,356

 

4,173

 

 

14,529

$

22,636

$

4,173

$

$

26,809

As of September 30, 2024, all marketable securities had a maximum remaining maturity of less than two years.

As of September 30, 2024 and December 31, 2023, the fair value of available for sale marketable securities by type of security were as follows (in thousands):

September 30, 2024

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

33,025

$

145

$

$

33,170

U.S. Government agency securities

3,790

11

3,801

$

36,815

$

156

$

$

36,971

December 31, 2023

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

10,348

$

8

$

$

10,356

U.S. Government agency securities

4,166

7

4,173

$

14,514

$

15

$

$

14,529

Financial Liabilities

The following tables present information as of September 30, 2024 about the Company’s liabilities that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):

September 30, 2024

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Warrant liability

$

$

$

39,964

$

39,964

The Company had no financial liabilities as of December 31, 2023.

13

During the nine months ended September 30, 2024, the changes in the Company’s warrant liability were as follows (in thousands):

Warrants

Warrant liability balance as of December 31, 2023

$

Issuance of warrants

8,934

Change in fair value

31,030

Warrant liability balance as of September 30, 2024

$

39,964

The Company uses the Black-Scholes pricing model to determine the fair value of its warrant liabilities using Level 3 inputs. Inputs used to determine estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date, the term of the warrants, and the expected volatility of the underlying stock. The significant unobservable input used in the fair value measurement of the warrant liabilities is the estimated term of the warrants.

The key inputs into valuation models used to estimate the fair value of the warrant liabilities as of May 6, 2024, the issuance date, and as of September 30, 2024 were as follows:

May 6,

2024

September 30,

(Date of

2024

Issuance)

Risk-free interest rate

4.0

%  

5.1

%  

Expected volatility

80.5

%  

104.4

%  

Expected term (in years)

0.75

1.15

Share price

$

5.28

$

1.91

5. Equity Method Investment

Angel Pharmaceuticals Co. Ltd. (“Angel”) is a corporate venture in the People’s Republic of China designed to develop, manufacture, and commercialize soquelitinib, ciforadenant and mupadolimab compounds for distribution within the countries of China, Taiwan, Macao, and Hong Kong based on intellectual property licenses to be contributed to Angel by the Company.

As of September 30, 2024 and December 31, 2023, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel Employee Stock Ownership Plan, and is accounted for as an equity method investment. The Company recognized its share of income/loss in Angel for the total amount of $0.7 million and $1.0 million as loss from equity method investment in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024, respectively.

Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

As of

As of

Balance Sheet Data

    

September 30, 2024

December 31, 2023

 

(in thousands)

Current assets

$

15,738

$

17,628

Non-current assets

 

1,342

 

1,427

Current liabilities

 

871

 

1,725

Non-current liabilities