10-Q 1 mcrb-20220331.htm 10-Q 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 March 31, 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: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

200 Sidney Street - 4th Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

 

(617) 945-9626

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

MCRB

The Nasdaq Stock Market LLC

(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 April 27, 2022, the registrant had 92,230,428 shares, shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Seres Therapeutics, Inc.

INDEX

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

5

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

5

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2022 and 2021

 

6

Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

 

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4. Controls and Procedures

 

37

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

38

Item 1A. Risk Factors

 

38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

78

Item 3. Defaults Upon Senior Securities

 

78

Item 4. Mine Safety Disclosures

 

78

Item 5. Other Information

 

78

Item 6. Exhibits

 

79

 

 

 

SIGNATURES

 

80

 

 

2


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or the Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, manufacturing activities and related timing, commercialization efforts, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this report titled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary 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, changed circumstances or otherwise.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

We have proprietary rights to trademarks used in this Quarterly Report, which are important to our business and many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Quarterly Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. This Quarterly Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
Other than SER-109, we are early in our development efforts and may not be successful in our efforts to use our microbiome therapeutics platform to build a pipeline of product candidates and develop marketable drugs.

3


 

Our product candidates are based on microbiome therapeutics, which is an unproven approach to therapeutic intervention.
Clinical drug development involves a risky, lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Delays or difficulties in the enrollment of patients in clinical trials, could result in our receipt of necessary regulatory approvals being delayed or prevented.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we or our collaborators will not be able to commercialize our product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired. Additionally, failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
Our collaboration and license agreements with Société des Produits Nestlé S.A. and NHSc Pharma Partners (collectively, Nestlé) are important to our business. If we or Nestlé fail to adequately perform under these agreements, or if we or Nestlé terminate the agreements, the development and commercialization of our CDI and IBD product candidates, including SER-109, SER-287, and SER-301, could be delayed or terminated and our business would be adversely affected.
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We rely on third parties for certain aspects of the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
Even if any of our product candidates receive marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community necessary for commercial success.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.
The COVID-19 pandemic has adversely impacted and could continue to adversely impact, our business, including our preclinical studies and clinical trials, results of operations and financial condition.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We may expand our operational capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We will continue to incur costs as a result of being a public company, and our management will continue to devote substantial time to compliance initiatives and corporate governance practices.

 

4


 

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

153,192

 

 

$

180,002

 

Short term investments

 

 

94,809

 

 

 

110,704

 

Prepaid expenses and other current assets

 

 

15,249

 

 

 

12,922

 

Total current assets

 

 

263,250

 

 

 

303,628

 

Property and equipment, net

 

 

19,066

 

 

 

17,938

 

Operating lease assets

 

 

26,246

 

 

 

18,208

 

Restricted cash

 

 

8,185

 

 

 

8,000

 

Restricted investments

 

 

1,401

 

 

 

1,401

 

Long term investments

 

 

 

 

 

495

 

Other non-current assets

 

 

1,741

 

 

 

5,189

 

Total assets

 

$

319,889

 

 

$

354,859

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,791

 

 

$

13,735

 

Accrued expenses and other current liabilities (1)

 

 

48,278

 

 

 

45,094

 

Operating lease liabilities

 

 

6,849

 

 

 

6,610

 

Deferred revenue - related party

 

 

20,441

 

 

 

16,819

 

Total current liabilities

 

 

82,359

 

 

 

82,258

 

Long term portion of note payable, net of discount

 

 

50,437

 

 

 

24,643

 

Operating lease liabilities, net of current portion

 

 

20,346

 

 

 

17,958

 

Deferred revenue, net of current portion - related party

 

 

81,883

 

 

 

86,998

 

Other long-term liabilities (2)

 

 

3,908

 

 

 

11,495

 

Total liabilities

 

 

238,933

 

 

 

223,352

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2022 and December 31, 2021; no shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 92,210,305 and 91,889,418 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

92

 

 

 

92

 

Additional paid-in capital

 

 

752,057

 

 

 

745,829

 

Accumulated other comprehensive loss

 

 

(215

)

 

 

(60

)

Accumulated deficit

 

 

(670,978

)

 

 

(614,354

)

Total stockholders’ equity

 

 

80,956

 

 

 

131,507

 

Total liabilities and stockholders’ equity

 

$

319,889

 

 

$

354,859

 

[1] Includes related party amounts of $29,809 and $21,098 at March 31, 2022 and December 31, 2021, respectively (see Note 11)

[2] Includes related party amounts of $2,981 and $10,585 at March 31, 2022 and December 31, 2021, respectively (see Note 11)

 

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

5


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(unaudited, in thousands, except share and per share data)

 

 

Three Months Ended
March 31,

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

Collaboration revenue - related party

$

1,493

 

 

$

4,648

 

Grant revenue

 

 

 

 

1,070

 

Total revenue

 

1,493

 

 

 

5,718

 

Operating expenses:

 

 

 

 

 

Research and development expenses

 

39,649

 

 

 

29,303

 

General and administrative expenses

 

18,571

 

 

 

11,741

 

Collaboration (profit) loss sharing - related party

 

(976

)

 

 

 

Total operating expenses

 

57,244

 

 

 

41,044

 

Loss from operations

 

(55,751

)

 

 

(35,326

)

Other (expense) income:

 

 

 

 

 

Interest income

 

384

 

 

 

966

 

Interest expense

 

(912

)

 

 

(696

)

Other expense

 

(345

)

 

 

(409

)

Total other (expense) income, net

 

(873

)

 

 

(139

)

Net loss

$

(56,624

)

 

$

(35,465

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.61

)

 

$

(0.39

)

Weighted average common shares outstanding, basic and diluted

 

92,164,419

 

 

 

91,527,800

 

Other comprehensive (loss) income:

 

 

 

 

 

Unrealized (loss) gain on investments, net of tax of $0

 

(155

)

 

 

32

 

Total other comprehensive (loss) income

 

(155

)

 

 

32

 

Comprehensive loss

$

(56,779

)

 

$

(35,433

)

 

 

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

6


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands, except share data)

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Comprehensive
(Loss) Income

 

 

Stockholders’
Equity

 

Balance at December 31, 2020

 

 

91,459,239

 

 

$

91

 

 

$

723,482

 

 

$

(548,776

)

 

$

(47

)

 

$

174,750

 

Issuance of common stock upon exercise of stock options

 

 

104,184

 

 

 

1

 

 

 

371

 

 

 

 

 

 

 

 

 

372

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

24,191

 

 

 

 

 

 

392

 

 

 

 

 

 

 

 

 

392

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,624

 

 

 

 

 

 

 

 

 

3,624

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

32

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(35,465

)

 

 

 

 

 

(35,465

)

Balance at March 31, 2021

 

 

91,588,264

 

 

$

92

 

 

$

727,869

 

 

$

(584,241

)

 

$

(15

)

 

$

143,705

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Shares

 

 

Par
Value

 

 

Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Comprehensive
(Loss)

 

 

Stockholders’
Equity

 

Balance at December 31, 2021

 

 

91,889,418

 

 

$

92

 

 

$

745,829

 

 

$

(614,354

)

 

$

(60

)

 

$

131,507

 

Issuance of common stock upon exercise of stock options

 

 

92,478

 

 

 

 

 

 

257

 

 

 

 

 

 

 

 

 

257

 

Issuance of common stock upon vesting of RSUs, net of tax withholdings

 

 

69,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

159,214

 

 

 

 

 

 

892

 

 

 

 

 

 

 

 

 

892

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,079

 

 

 

 

 

 

 

 

 

5,079

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(155

)

 

 

(155

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(56,624

)

 

 

 

 

 

(56,624

)

Balance at March 31, 2022

 

 

92,210,305

 

 

$

92

 

 

$

752,057

 

 

$

(670,978

)

 

$

(215

)

 

$

80,956

 

 

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

7


 

SERES THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(56,624

)

 

$

(35,465

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

5,079

 

 

 

3,624

 

Depreciation and amortization expense

 

 

1,570

 

 

 

1,476

 

Non-cash operating lease cost

 

 

1,058

 

 

 

655

 

Accretion (amortization) of discount (premiums) on investments

 

 

313

 

 

 

851

 

Amortization of debt issuance costs

 

 

133

 

 

 

118

 

Collaboration (profit) loss sharing - related party

 

 

(976

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current and long-term assets

 

 

(3,841

)

 

 

(1,402

)

Accounts receivable

 

 

 

 

 

6,783

 

Deferred revenue - related party

 

 

(1,493

)

 

 

(4,648

)

Accounts payable

 

 

(6,464

)

 

 

973

 

Operating lease liabilities

 

 

(1,507

)

 

 

(1,232

)

Accrued expenses and other current and long-term liabilities (3)

 

 

(3,693

)

 

 

(1,229

)

Net cash used in operating activities

 

 

(66,445

)

 

 

(29,496

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,950

)

 

 

(1,342

)

Purchases of investments

 

 

(28,156

)

 

 

(46,944

)

Sales and maturities of investments

 

 

44,078

 

 

 

27,548

 

Net cash provided by (used in) investing activities

 

 

12,972

 

 

 

(20,738

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

257

 

 

 

372

 

Issuance of common stock under ESPP

 

 

892

 

 

 

392

 

Proceeds from issuance of debt, net of issuance costs

 

 

27,606

 

 

 

 

Repayment of notes payable

 

 

(1,907

)

 

 

 

Net cash provided by financing activities

 

 

26,848

 

 

 

764

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(26,625

)

 

 

(49,470

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

188,002

 

 

 

116,049

 

Cash, cash equivalents and restricted cash at end of period

 

$

161,377

 

 

$

66,579

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

558

 

 

$

603

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

622

 

 

$

268

 

Prepaid rent reclassified to right-of-use assets

 

$

4,962

 

 

$

 

Lease liability arising from obtaining right-of-use assets

 

$

4,370

 

 

$

 

[3]Includes related party amounts of $(1,107) and $0 at March 31, 2022 and March 31, 2021, respectively (see Note 11)

 

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

8


 

SERES THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

1. Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc. The Company is a microbiome therapeutics platform company developing a novel class of biological drugs, which are designed to treat disease by modulating the microbiome to restore health by repairing the function of a disrupted microbiome to a non-disease state. The Company’s lead product candidate, SER-109, is designed to reduce further recurrences of Clostridioides difficile infection (“CDI”), a debilitating infection of the colon, in patients who have received antibiotic therapy for recurrent CDI by restructuring the colonic microbiome and changing its function. If approved by the U.S. Food and Drug Administration (“FDA”), the Company believes SER-109 will be a first-in-field oral microbiome drug. Building upon SER-109, the Company is developing therapeutic candidates, such as SER-155, to specifically target infections and antimicrobial resistance. SER-155, a microbiome therapeutic candidate consisting of a consortium of cultivated bacteria, is designed to reduce incidences of gastrointestinal infections, bloodstream infections and graft versus host disease ("GvHD”) in patients receiving allogeneic hematopoietic stem cell transplantation (“allo-HSCT”). The Company is evaluating additional preclinical stage programs to reduce incidence of infection, which the Company refers to as Infection Protection, in indications such as cancer neutropenia, solid organ transplant, and antimicrobial resistant infections more broadly. The Company is also continuing its research activities in ulcerative colitis ("UC"), including evaluating the potential to utilize biomarker-based patient selection and stratification for future studies. In addition, the Company continues to leverage microbiome pharmacokinetic and pharmacodynamic data from across its clinical and preclinical portfolios, using its reverse translation microbiome therapeutics capabilities to conduct research on various indications, including inflammatory and immune diseases, cancer, and metabolic diseases.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any product candidate developed will obtain necessary government regulatory approval, or that any approved product will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

Under Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

As of March 31, 2022, the Company had an accumulated deficit of $670,978 and cash, cash equivalents and investments of $248,001. For the three months ended March 31, 2022, the Company incurred a net loss of $56,624. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. The Company expects that its cash, cash equivalents and investments as of March 31, 2022 will be sufficient to fund its operating expenses, capital expenditure requirements, and debt service obligations for at least the next 12 months from issuance of the financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

9


 

The Company is eligible to receive contingent milestone payments under its license and collaboration agreements with Société des Produits Nestlé S.A., successor in interest to Nestec Ltd., and NHSc Pharma Partners (collectively, “Nestlé”) if certain development, regulatory approval or sales target milestones are achieved. NHSc Pharma Partners is affiliated with Société des Produits Nestlé S.A. and Nestlé Health Science US Holdings, Inc. (“Nestlé Health Science”), both of which are significant stockholders of the Company. The milestone payments are uncertain and there is no assurance that the Company will receive any of them. Until such time, if ever, as the Company can generate substantial product revenue, the Company will finance its cash needs through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships, or marketing, distribution or licensing arrangements with third parties. The Company may not be able to obtain funding on acceptable terms, or at all. If the Company is unable to raise additional funds as and when needed, it would have a negative impact on the Company’s financial condition, which may require the Company to delay, reduce or eliminate certain research and development activities and reduce or eliminate discretionary operating expenses, which could constrain the Company’s ability to pursue its business strategies.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 1, 2022 (the “Annual Report”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2021 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

 

2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In the condensed consolidated financial statements, the Company uses estimates and assumptions related to revenue recognition and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

Restricted Cash

 

The Company held restricted cash of $8,185 and $8,000 as of March 31, 2022 and December 31, 2021, respectively, which represents cash held for the benefit of the landlord for the Company's leases. The Company has classified the restricted cash as long-term on its consolidated balance sheet as the underlying leases are greater than 1 year.

Cash, cash equivalents and restricted cash were comprised of the following:

 

 

March 31

 

 

December 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

153,192

 

 

$

180,002

 

Restricted cash, non-current

 

 

8,185

 

 

 

8,000

 

Total cash, cash equivalents and restricted cash

 

$

161,377

 

 

$

188,002

 

 

10


 

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new standard as of January 1, 2022. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

 

3. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

86,994

 

 

$

 

 

$

 

 

$

86,994

 

Commercial paper

 

 

 

 

 

750

 

 

 

 

 

 

750

 

Government securities

 

 

 

 

 

3,000

 

 

 

 

 

 

3,000

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

21,598

 

 

 

 

 

 

21,598

 

Government securities

 

 

 

 

 

73,211

 

 

 

 

 

 

73,211

 

 

 

$

86,994

 

 

$

98,559

 

 

$

 

 

$

185,553

 

 

 

 

Fair Value Measurements as of December 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

70,322

 

 

$

 

 

$

 

 

$

70,322

 

Commercial paper

 

 

 

 

 

3,999

 

 

 

 

 

 

3,999

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

6,250

 

 

$

 

 

$

6,250

 

Corporate bonds

 

 

 

 

 

40,095

 

 

 

 

 

 

40,095

 

Government securities

 

 

 

 

 

64,854

 

 

 

 

 

 

64,854

 

 

 

$

70,322

 

 

$

115,198

 

 

$

 

 

$

185,520

 

 

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. Commercial paper, corporate bonds, and government securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. There were no