10-Q 1 brhc10043809_10q.htm 10-Q

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: 001-39743

KINNATE BIOPHARMA INC.
(Exact name of registrant as specified in its charter)


Delaware
 
82-4566526
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
103 Montgomery Street, Suite 150
The Presidio of San Francisco
San Francisco, CA
 
94129
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (858) 299-4699



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
 
KNTE
 
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, a 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 ☒
 
As of November 7, 2022, the Registrant had 44,164,683 shares of common stock, $0.0001 par value per share, outstanding.
 


TABLE OF CONTENTS


Page
PART I—FINANCIAL INFORMATION  

Item 1.
1


 

1


 

2


 

3


 

4


 

5
 
 
Item 2.
17
 
 
Item 3.
29
 
 
Item 4.
29
 
 
PART II—OTHER INFORMATION
 

 
Item 1.
30


 
Item 1A.
30
 
 
Item 2.
114


 
Item 3.
114


 
Item 4.
114


 
Item 5.
114


 
Item 6.
115


 
116

Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10‑Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10‑Q, including statements regarding our future results of operations and financial position, business strategy, development plans, ongoing and planned future preclinical studies and clinical trials, future results of ongoing and planned future clinical trials, expected research and development costs, regulatory strategy, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. In some cases, investors can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10‑Q include, but are not limited to, statements about:
 

the ability of our ongoing and planned future preclinical studies and clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;


the timing, progress and results of ongoing and planned future preclinical studies and clinical trials for our current product candidates, and other product candidates we may develop, including statements regarding the timing of initiation and completion of preclinical studies or clinical trials and related preparatory work, the period during which the results of the preclinical studies or clinical trials will become available, and our research and development programs;


the timing, scope and likelihood of regulatory filings and approvals, including timing of investigational new drug applications (INDs) and final U.S. Food and Drug Administration (FDA) approval of our current product candidates and any other future product candidates;


the timing, scope or likelihood of foreign regulatory filings and approvals;


our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical trials;


our manufacturing, commercialization, and marketing capabilities and strategy;


our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;


the need to hire additional personnel and our ability to attract and retain such personnel;


the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;


our expectations regarding the approval and use of our product candidates in combination with other drugs;


our competitive position and the success of competing therapies that are or may become available;


our estimates of the number of patients that we will enroll in our clinical trials;


the beneficial characteristics, and the potential safety, efficacy and therapeutic effects of our product candidates;


our ability to obtain and maintain regulatory approval of our product candidates;


our plans relating to the further development of our product candidates, including additional indications we may pursue;


existing regulations and regulatory developments in the United States, Europe and other jurisdictions;


our expectations regarding the impact of the COVID-19 pandemic on our business;


our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current product candidates and other future product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;


our continued reliance on third parties to conduct ongoing and planned future preclinical studies and clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;


our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;


the pricing and reimbursement of our current product candidates and other product candidates we may develop, if approved;


the rate and degree of market acceptance and clinical utility of our current product candidates and other product candidates we may develop;


our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;


our financial performance;


the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;


the impact of laws and regulations;


our expectations regarding the period during which we will remain an emerging growth company (EGC) under the Jumpstart Our Business Startups Act of 2012 (JOBS Act); and


our anticipated use of our existing resources.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10‑Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10‑Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, investors should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
 
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10‑Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and par value amounts)

   
September 30, 2022
   
December 31, 2021
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
34,502
   
$
116,096
 
Cash at consolidated joint venture
    26,469       33,593  
Short-term investments
   
196,477
     
103,362
 
Prepaid expenses and other current assets
   
3,727
     
5,639
 
Total current assets
   
261,175
     
258,690
 
Property and equipment, net
   
3,171
     
956
 
Right-of-use lease assets
    3,581       -  
Long-term investments
   
31,097
     
105,449
 
Restricted cash
    371       371  
Deferred offering costs
    641       641  
Other non-current assets
    2,097       757  
Total assets
 
$
302,133
   
$
366,864
 
                 
Liabilities, Redeemable Convertible Noncontrolling Interests and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
3,058
   
$
3,148
 
Accrued expenses
   
11,319
     
9,239
 
Current portion of operating lease liabilities     966       -  
Total current liabilities
   
15,343
      12,387  
Operating lease liabilities, long-term     3,449       -  
Total liabilities
    18,792       12,387  
Commitments and contingencies (See Note 12)
           
Redeemable convertible noncontrolling interests     35,000       35,000  
Stockholders’ equity:
               
Preferred stock, $0.0001 par value; 200,000,000 shares authorized at September 30, 2022 and December 31, 2021; 0 shares outstanding at September 30, 2022 and December 31, 2021
   
-
     
-
 
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at September 30, 2022 and December 31, 2021; 44,164,683 and 43,855,944 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
   
4
     
4
 
Additional paid-in capital
   
478,696
     
463,089
 
Accumulated other comprehensive loss
   
(2,559
)
   
(524
)
Accumulated deficit
   
(227,800
)
   
(143,092
)
Total stockholders’ equity
   
248,341
     
319,477
 
Total liabilities, redeemable convertible noncontrolling interests and stockholders’ equity
 
$
302,133
   
$
366,864
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share amounts)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2022
   
2021
   
2022
   
2021
 
                         
Operating expenses:
                       
Research and development
 
$
23,548
   
$
18,729
   
$
62,962
   
$
47,637
 
General and administrative
   
7,824
     
6,073
     
22,875
     
16,215
 
Total operating expenses
   
31,372
     
24,802
     
85,837
     
63,852
 
Loss from operations
   
(31,372
)
   
(24,802
)
   
(85,837
)
   
(63,852
)
Other income, net
   
635
     
100
     
1,129
     
248
 
Net loss
   
(30,737
)
   
(24,702
)
   
(84,708
)
   
(63,604
)
Net loss attributable to redeemable convertible noncontrolling interests
   
-
     
-
     
-
     
-
 
Net loss attributable to Kinnate
 
$
(30,737
)
 
$
(24,702
)
 
$
(84,708
)
 
$
(63,604
)
                                 
Weighted-average shares outstanding, basic and diluted
   
44,151,034
     
43,663,985
     
44,013,097
     
43,559,787
 
Net loss per share, basic and diluted
 
$
(0.70
)
 
$
(0.57
)
 
$
(1.92
)
 
$
(1.46
)
                                 
Comprehensive loss:
                               
Net loss
 
$
(30,737
)
 
$
(24,702
)
 
$
(84,708
)
 
$
(63,604
)
Other comprehensive loss:
                               
Unrealized gain (loss) on investments
   
178
   
38
   
(2,035
)
   
(27
)
Total comprehensive loss
   
(30,559
)
   
(24,664
)
   
(86,743
)
   
(63,631
)
Comprehensive loss attributable to redeemable convertible noncontrolling interests
   
-
     
-
     
-
     
-
 
Comprehensive loss attributable to Kinnate
 
$
(30,559
)
 
$
(24,664
)
 
$
(86,743
)
 
$
(63,631
)
 
See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)


 
Common Stock
   
Additional
Paid-in
   
Accumulated
Other Comprehensive
   
Accumulated
   
Total
Stockholders’
   
Redeemable Convertible Noncontrolling
 
 
 
Shares
   
Amount
   
Capital
   
Loss
   
Deficit
   
Equity
   
Interests
 
 
                                         
Balance at December 31, 2021
   
43,855,944
   
$
4
   
$
463,089
   
$
(524
)
 
$
(143,092
)
 
$
319,477
   
$
35,000
 
Stock-based compensation expense
   
-
     
-
     
4,777
     
-
     
-
     
4,777
     
-
 
Exercise of stock options
   
100,105
     
-
     
125
     
-
     
-
     
125
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
(26,902
)
   
(26,902
)
   
-
 
Other comprehensive loss
   
-
     
-
     
-
     
(1,656
)
   
-
     
(1,656
)
   
-
 
Balance at March 31, 2022
   
43,956,049
   
$
4
   
$
467,991
   
$
(2,180
)
 
$
(169,994
)
 
$
295,821
   
$
35,000
 
Stock-based compensation expense
    -       -       4,882       -       -       4,882       -  
Exercise of stock options     97,833       -       283       -       -       283       -  
Shares issued under employee stock purchase plan
    43,039       -       369       -       -       369       -  
Net loss     -       -       -       -       (27,069 )     (27,069 )     -  
Other comprehensive loss     -       -       -       (557 )     -       (557 )     -  
Balance at June 30, 2022
    44,096,921     $ 4     $ 473,525     $ (2,737 )   $ (197,063 )   $ 273,729     $ 35,000  
Stock-based compensation expense
    -       -       4,981       -       -       4,981       -  
Exercise of stock options
    67,762       -       190       -       -       190       -  
Net loss
    -       -       -       -       (30,737 )     (30,737 )     -  
Other comprehensive loss
    -       -       -       178       -       178       -  
Balance at September 30, 2022
    44,164,683     $
4     $
478,696     $
(2,559 )   $
(227,800 )   $
248,341     $
35,000  
 
                                                       
Balance at December 31, 2020
   
43,477,439
   
$
4
   
$
446,601
   
$
(9
)
 
$
(53,329
)
 
$
393,267
   
$
-
 
Stock-based compensation expense
   
-
     
-
     
2,793
     
-
     
-
     
2,793
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
(17,457
)
   
(17,457
)
   
-
 
Other comprehensive loss
   
-
     
-
     
-
     
(31
)
   
-
     
(31
)
   
-
 
Balance at March 31, 2021
   
43,477,439
   
$
4
   
$
449,394
   
$
(40
)
 
$
(70,786
)
 
$
378,572
   
$
-
 
Stock-based compensation expense
    -       -       3,760       -       -       3,760       -  
Exercise of stock options     116,147       -       139       -       -       139       -  
Shares issued under employee stock purchase plan
    29,159       -       495       -       -       495       -  
Issuance of Series A preferred stock to redeemable noncontrolling interest owners (NCI)
    -       -       -       -       -       -       35,000  
Issuance costs for Series A preferred stock to redeemable NCI
    -       -       (147 )     -       -       (147 )     -  
Net loss     -       -       -       -       (21,445 )     (21,445 )     -  
Other comprehensive loss     -       -       -       (34 )     -       (34 )     -  
Balance at June 30, 2021     43,622,745     $ 4     $ 453,641     $ (74 )   $ (92,231 )   $ 361,340     $ 35,000  
Stock-based compensation expense
    -       -       4,161       -       -       4,161       -  
Exercise of stock options
    59,926       -       193       -       -       193       -  
Net loss
    -       -       -       -       (24,702 )     (24,702 )     -  
Other comprehensive income
    -       -       -       38       -       38       -  
Balance at September 30, 2021
    43,682,671     $
4     $
457,995     $
(36 )   $
(116,933 )   $
341,030     $
35,000  

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
Nine Months Ended September 30,
 
 
 
2022
   
2021
 
Cash flows from operating activities:
           
Net loss
 
$
(84,708
)
 
$
(63,604
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Stock-based compensation expense
   
14,640
     
10,714
 
Depreciation
   
414
     
87
 
Amortization/accretion of investments
   
972
     
1,360
 
Loss on disposal of property and equipment
   
-
     
58
 
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
   
572
     
(152
)
Operating lease right-of-use assets and liabilities, net
   
834
     
-
 
Accounts payable and accrued expenses
   
1,990
     
2,995
 
Net cash used in operating activities
   
(65,286
)
   
(48,542
)
Cash flows from investing activities:
               
Purchases of short-term and long-term investments
   
(131,082
)
   
(216,613
)
Sales and maturities of short-term and long-term investments
   
109,314
     
33,769
 
Purchases of property and equipment
   
(2,629
)
   
(68
)
Net cash used in investing activities
   
(24,397
)
   
(182,912
)
Cash flows from financing activities:
               
Contributions from redeemable noncontrolling interest owners, net
    -       34,853  
Proceeds from stock option exercises
   
598
     
332
 
Proceeds from issuance of common stock under employee stock purchase plan
    369       495  
Net cash provided by financing activities
   
967
     
35,680
 
Effect of exchange rate changes on cash and cash equivalents     (2 )     -  
Net decrease in cash, cash equivalents and restricted cash
   
(88,718
)
   
(195,774
)
Cash, cash equivalents and restricted cash at the beginning of the period
   
150,060
     
365,462
 
Cash, cash equivalents and restricted cash at the end of the period
 
$
61,342
   
$
169,688
 
 
               
Supplemental non-cash investing and financing activity:
               
Capitalized value of tenant improvement allowance
 
$
606
   
$
-
 
Operating lease liabilities arising from obtaining right-of-use assets
 
$
4,569
   
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Organization and Nature of Operations


Kinnate Biopharma Inc. (Kinnate or the Company) was incorporated in the State of Delaware in January 2018 and is headquartered in San Francisco, California. The Company is a biopharmaceutical company focused on the discovery and development of small molecule kinase inhibitors for difficult-to-treat, genomically defined cancers.


Since its inception, the Company has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. It has incurred losses and negative cash flows from operations since commencement of its operations. The Company had an accumulated deficit of $227.8 million and had cash and cash equivalents and short-term and long-term investments totaling $262.1 million as of September 30, 2022, exclusive of $26.4 million at its consolidated joint venture discussed in the paragraph below. From its inception through September 30, 2022, the Company has financed its operations primarily through issuances of common stock, including in the Company’s initial public offering (IPO), and private placements of convertible preferred stock.


In May 2021, the Company announced the closing of a Series A preferred stock financing of a China joint venture, Kinnjiu Biopharma Inc. (Kinnjiu), to enable the potential development and commercialization of certain targeted oncology product candidates across Greater China (People’s Republic of China, Hong Kong, Taiwan, and Macau). Contributions from noncontrolling interest members totaled $35.0 million before issuance costs of $0.2 million. As of September 30, 2022, the Company held an approximately 58% equity interest in Kinnjiu.



As the Company continues to pursue its business plan, it expects to finance its operations through the sale of equity, debt financings or other capital resources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (SEC).

Basis of Presentation


The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.


The accompanying unaudited interim consolidated financial statements include all known adjustments which, in the opinion of management, are necessary for a fair presentation of the results as required by GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2022.


The condensed consolidated financial statements include the accounts of the Company’s variable interest entity (VIE), Kinnjiu, for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
 

The Company evaluates its ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether the Company is the primary beneficiary of the VIE. In determining whether the Company is the primary beneficiary of a VIE and therefore required to consolidate the VIE, the Company applies a qualitative approach that determines whether the Company has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. As of September 30, 2022, the Company held an approximately 58% equity interest in Kinnjiu. Based on the Company’s assessment, the Company concluded that Kinnjiu is a VIE and the Company is the primary beneficiary.
 

The Company will continuously assess whether it is the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the periods presented, the Company has not provided any other financial or other support to the Company’s VIE that it was not contractually required to provide.



Operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of future results, particularly in light of the COVID-19 pandemic and its impact on domestic and global economies. To limit the spread of the COVID-19 virus, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced, or suspended operating activities. Between March 2020 and June 2021, the Company’s employees worked almost exclusively from home. Since June 2021, the Company’s employees have been working in a hybrid model both in the Company’s offices and also from home. Although some of the governmental orders and guidelines have terminated or are now less restrictive than when originally implemented, the Company continues to monitor and assess the spread of COVID-19 and may need to further adjust its working model from time to time. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, based, in part, on the length and severity of any additional restrictions and other limitations that may be imposed on the Company’s business. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from the COVID-19 pandemic on the costs and timing associated with the conduct of the clinical activities and other related business activities.

2. Summary of Significant Accounting Policies
 
Use of Estimates


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Accounting estimates and management judgments reflected in the financial statements include: normal recurring accruals, including the accrual of research and development expenses; fair value of investments; valuation of deferred tax assets; and stock-based compensation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. Although the impact of the COVID-19 pandemic to the Company’s business and operating results present additional uncertainty, the Company continues to use the best information available to update its critical accounting estimates.

Leases


The Company determines if an arrangement is or contains a lease at inception. For leases with a term greater than one year, right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate which represents an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Condensed Consolidated Statement of Operations and Comprehensive Loss. The Company’s leases often include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. As of September 30, 2022, it is not reasonably certain that these options will be exercised, and they are not included within the lease term.
  
Redeemable Convertible Noncontrolling Interests


The shares third parties own in Kinnjiu represent an interest in the equity the Company does not control. The redeemable convertible noncontrolling interests attributable to other owners has been classified in temporary equity on the Condensed Consolidated Balance Sheets as the preferred stock is redeemable by the noncontrolling interests.


Since the preferred stock held at Kinnjiu does not represent a residual equity interest, net losses of Kinnjiu are not allocated to the preferred shares. As a result, the balance of the preferred stock classified as a redeemable convertible noncontrolling interest equals its carrying value. Additionally, net losses of Kinnjiu have not been allocated to the noncontrolling interest related to ordinary shares held by a third party as the amounts to be allocated have been immaterial to date.

Net Loss Per Share
 

Basic  net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the Company’s common stock options are considered to be potentially dilutive securities. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.


 

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts):
 
    Three Months Ended September 30,    
Nine Months Ended September 30,
 
    2022     2021    
2022
   
2021
 
Numerator
                       
Net loss attributable to Kinnate
  $ (30,737 )   $ (24,702 )  
$
(84,708
)
 
$
(63,604
)
Denominator
                               
Weighted-average shares outstanding used in computing net loss per share, basic and diluted
    44,151,034       43,663,985      
44,013,097
     
43,559,787
 
Net loss per share, basic and diluted
  $ (0.70 )   $ (0.57 )  
$
(1.92
)
 
$
(1.46
)


The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
 
   
Three Months Ended September 30,
    Nine Months Ended September 30,  
   
2022
   
2021
    2022
    2021
 
Options to purchase common stock
   
9,428,924
     
7,677,795
      9,428,924       7,677,795  
Non-vested restricted stock units
    316,337       -       316,337       -  
Total
    9,745,261       7,677,795       9,745,261       7,677,795  

Recently Adopted Accounting Pronouncements
  

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.


In February 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. As amended by ASU No. 2020-05, for all other entities, this ASU is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU No. 2016-02 is effective for the Company for the year ended December 31, 2022, and all interim periods within. In July 2018, the FASB issued supplemental adoption guidance and clarification to ASC 842 within ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. On January 1, 2022, the Company adopted ASC 842 using the modified retrospective approach. Accordingly, prior period financial information and disclosures have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under the previous lease standard. In addition, the Company elected the package of practical expedients available for existing contracts, which allowed it to carry forward historical assessments of lease identification, lease classification, and initial direct costs. As a result of adopting ASC 842, the Company recognized right-of-use assets and lease liabilities of $3.7 million and $4.2 million, respectively, on January 1, 2021, which are related to the Company’s facility operating leases. The difference between the right-of-use assets and lease liabilities is primarily attributed to unamortized lease incentives. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.

Recently Issued Accounting Pronouncements Not Yet Adopted
  

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASC 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU No. 2016-13 added Topic 326, Financial Instruments—Credit Losses, made several consequential amendments to the Codification. ASU No. 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those years. For all other entities, the standard is effective for annual periods beginning after December 15, 2022 and interim periods, therein. Early adoption is permitted. Since the Company has elected to use the extended transition period under the JOBS Act available to EGCs, the ASU is effective for the Company for fiscal years beginning after December 15, 2022. The Company does not expect the adoption to have a material impact on its financial statements.


In December 2019, the FASB issued ASU No. 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes (ASU No. 2019-12). Among other items, the amendments in ASU No. 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU No. 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU No. 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. For EGCs, the standard is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. The Company does not expect the ASU to have a material impact on its financial statements and related disclosures.

3. Cash, cash equivalents and restricted cash


The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

   
September 30, 2022
   
December 31, 2021
 
Cash and cash equivalents
 
$
34,502
   
$
116,096
 
Cash at consolidated joint venture     26,469
      33,593
 
Restricted cash, non-current
   
371
     
371
 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows
 
$
61,342
   
$
150,060
 


The cash at the consolidated joint venture represents cash held at Kinnjiu and the use of such cash is limited to the operations of Kinnjiu (see Note 11). The restricted cash balance relates to the Company’s office lease in San Diego, California (see Note 12).

4. Property and Equipment, Net


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

   
September 30, 2022
   
December 31, 2021
 
Furniture and fixtures
 
$
760
   
$
5
 
Computers and equipment
   
442
     
381
 
Computer software
   
69
     
69
 
Leasehold improvements
    2,452       638  
Property and equipment
   
3,723
     
1,093
 
Less accumulated depreciation
   
(552
)
   
(137
)
Property and equipment, net
 
$
3,171
   
$
956
 

5. Accrued Expenses


Accrued expenses consisted of the following (in thousands):

   
September 30, 2022
   
December 31, 2021
 
Accrued research and development
 
$
6,963
   
$
4,842
 
Accrued compensation
   
3,740
     
3,344
 
Accrued legal fees
   
183
     
425
 
Other accruals
   
433
     
628
 
Total
 
$
11,319
   
$
9,239
 

6. Investments


The Company has invested its excess cash in marketable securities as of September 30, 2022 and December 31, 2021. The following is a summary by significant investment category (in thousands):

   
September 30, 2022
 
    Maturity
    Amortized
    Unrealized
    Unrealized
    Estimated
 
   
in Years
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Corporate debt securities
 
less than 1
   
$
12,187
   
$
-
   
$
(108
)
 
$
12,079
 
Commercial paper
 
less than 1
     
31,526
     
-
     
-
     
31,526
 
U.S. Treasury securities
  less than 1       155,084       -       (2,212 )     152,872  
Short-term investments
       
$
198,797
   
$
-
   
$
(2,320
)
 
$
196,477
 
                                       
Corporate debt securities
   
1 - 2
   
$
23,262
   
$
-
   
$
(187
)
 
$
23,075
 
Asset-backed securities
   
1 - 2
     
8,072
     
-
     
(50
)
   
8,022
 
Long-term investments
         
$
31,334
   
$
-
   
$
(237
)
 
$
31,097
 

    December 31, 2021
 
    Maturity
    Amortized
    Unrealized
    Unrealized
    Estimated
 
 
 
in Years
   
Cost
   
Gains
   
Losses
   
Fair Value
 
Corporate debt securities
  less than 1     $ 27,450     $ -     $ (25 )   $ 27,425  
U.S. Treasury securities   less than 1       60,226       -       (67 )     60,159  
Asset-backed securities
  less than 1       15,798       -       (20 )     15,778  
Short-term investments
        $ 103,474     $ -     $ (112 )   $ 103,362  
                                       
 U.S. Treasury securities     1 - 2     $ 105,861     $ -     $ (412 )   $ 105,449  
Long-term investments
          $ 105,861     $ -     $ (412 )   $ 105,449  


At September 30, 2022 and December 31, 2021, the Company held securities in a total unrealized loss position of $2.6 million and $0.5 million, respectively. The Company generally does not intend to sell any investments prior to recovery of their amortized cost basis for any investment in an unrealized loss position. Further, such investments are invested in high grade securities. As such, the Company has classified these losses as temporary in nature.


The Company has determined that there were no material declines in fair value of its investments due to credit-related factors as of September 30, 2022 and December 31, 2021.

7. 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 nonrecurring 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: Observable inputs such as quoted prices in active markets;

 Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


The carrying amounts of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses are generally considered to be representative of their fair value because of the short-term nature of these instruments. The Company’s investments, which may include money market funds and available-for-sale investment securities consisting of high-quality, marketable debt instruments of corporations and the U.S. government are measured at fair value in accordance with the fair value hierarchy.


The following tables present the hierarchy for assets measured at fair value on a recurring basis (in thousands):

   
Fair Value Measurements at September 30, 2022
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
33,485
   
$
-
   
$
-
   
$
33,485
 
Corporate debt securities
   
-
     
35,154
     
-
     
35,154
 
Commercial paper
   
-
     
31,526
     
-
     
31,526
 
U.S. Treasury securities
   
-
     
152,872
     
-
     
152,872
 
Asset-backed securities
   
-
     
8,022
     
-
     
8,022
 
Total cash equivalents and investments
 
$
33,485
   
$
227,574
   
$
-
   
$
261,059
 

   
Fair Value Measurements at December 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
115,049
   
$
-
   
$
-
   
$
115,049
 
Corporate debt securities
   
-
     
27,425
     
-
     
27,425
 
U.S. Treasury securities     -       165,608       -       165,608  
Asset-backed securities
   
-
     
15,778
     
-
     
15,778
 
Total cash equivalents and investments
 
$
115,049
   
$
208,811
   
$
-
   
$
323,860
 


Money market funds are classified as cash and cash equivalents in the Company’s balance sheets at September 30, 2022 and December 31, 2021.

8. Stockholders’ Equity


Under its Amended and Restated Articles of Incorporation dated December 7, 2020, the Company had a total of 1,200,000,000 shares of capital stock authorized for issuance, consisting of 1,000,000,000 shares of common stock, par value of $0.0001 per share, and 200,000,000 shares of preferred stock, par value of $0.0001 per share.

9. Equity Incentive Plans and Stock-Based Compensation
 
2020 Equity Incentive Plan
  

In December 2020, the Company adopted the 2020 Equity Incentive Plan (2020 Plan), which replaced the 2018 Equity Incentive Plan (2018 Plan). The 2020 Plan allows the Company to issue options for shares of its common stock, restricted stock units (RSUs) and other award types, up to a total of 5,218,000 shares (Equity Pool), subject to appropriate adjustments for stock splits, combinations and other similar events for issuance pursuant to awards made under the 2020 Plan. As of September 30, 2022, 1,514,696 shares of common stock remained available for future grants under the 2020 Plan.
    

The options that are granted under the 2020 and 2018 Plans are exercisable at various dates as determined upon grant and terminate within 10 years of the date of grant, unless the optionee owns 10% or more of the common shares at which point the expiration period is 5 years, or upon the employee’s termination (whereupon the terminated employee has thirty days after termination to exercise vested options from the date of termination). The vesting period generally occurs over two to four years unless there is a specific performance vesting trigger at which time those shares will vest when the performance trigger is probable to occur. RSUs granted under the 2020 Plan vest over four years from the grant date and represent share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock.

Stock Options
 

Stock option activity is as follows:

                Weighted-        
                Average     Aggregate  
          Weighted-     Remaining     Intrinsic  
          Average     Contractual     Value  
   
Options
   
Exercise Price
   
Term (in years)
   
(in thousands)
 
Outstanding at January 1, 2022
   
7,477,568