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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: 001-38997

 

RAPT Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-3313701

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

561 Eccles Avenue

South San Francisco, California 94080

(Address of principal executive offices and zip code)

(650) 489-9000 

(Registrant’s telephone number, including area code)

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

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock $0.0001 par value per share

RAPT

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If 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 May 6, 2022, there were 29,644,130 shares of the registrants common stock outstanding.

 

 


 

RAPT THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

3

 

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

 

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three-Months Ended March 31, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Preferred Stock and Stockholders’ Equity for the Three-Months Ended March 31, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Cash Flows for the Three-Months Ended March 31, 2022 and 2021

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

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

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

Controls and Procedures

 

21

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

22

Item 1A.

Risk Factors

 

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

Item 3.

Defaults Upon Senior Securities

 

58

Item 4.

Mine Safety Disclosures

 

58

Item 5.

Other Information

 

58

Item 6.

Exhibits

 

59

Signatures

 

60

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,418

 

 

$

24,027

 

Marketable securities

 

 

140,590

 

 

 

165,627

 

Prepaid expenses and other current assets

 

 

2,656

 

 

 

3,319

 

Total current assets

 

 

175,664

 

 

 

192,973

 

Property and equipment, net

 

 

2,629

 

 

 

2,741

 

Operating lease right-of-use assets

 

 

6,322

 

 

 

 

Other assets

 

 

2,933

 

 

 

2,922

 

Total assets

 

$

187,548

 

 

$

198,636

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,936

 

 

$

1,999

 

Accrued expenses

 

 

8,276

 

 

 

6,326

 

Deferred revenue, current

 

 

645

 

 

 

1,016

 

Operating lease liabilities, current

 

 

1,481

 

 

 

 

Other current liabilities

 

 

22

 

 

 

254

 

Total current liabilities

 

 

12,360

 

 

 

9,595

 

Deferred rent, net of current portion

 

 

 

 

 

2,150

 

Deferred revenue, non-current

 

 

241

 

 

 

511

 

Operating lease liabilities, non-current

 

 

7,112

 

 

 

 

Total liabilities

 

 

19,713

 

 

 

12,256

 

Commitments

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

473,463

 

 

 

470,629

 

Accumulated other comprehensive loss

 

 

(1,117

)

 

 

(206

)

Accumulated deficit

 

 

(304,514

)

 

 

(284,046

)

Total stockholders' equity

 

 

167,835

 

 

 

186,380

 

Total liabilities and stockholders' equity

 

$

187,548

 

 

$

198,636

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

641

 

 

$

1,222

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

16,670

 

 

 

13,771

 

General and administrative

 

 

4,748

 

 

 

4,012

 

Total operating expenses

 

 

21,418

 

 

 

17,783

 

Loss from operations

 

 

(20,777

)

 

 

(16,561

)

Other income, net

 

 

309

 

 

 

47

 

Net loss

 

$

(20,468

)

 

$

(16,514

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(201

)

 

 

38

 

Unrealized loss on marketable securities

 

 

(710

)

 

 

(50

)

Total comprehensive loss

 

$

(21,379

)

 

$

(16,526

)

Net loss per share, basic and diluted

 

$

(0.69

)

 

$

(0.66

)

Weighted average number of shares used in computing net loss

   per share, basic and diluted

 

 

29,572,467

 

 

 

24,844,946

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

29,555,119

 

 

$

3

 

 

$

470,629

 

 

$

(206

)

 

$

(284,046

)

 

$

186,380

 

Issuances from employee stock plans

 

 

37,640

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,702

 

 

 

 

 

 

 

 

 

2,702

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

 

 

 

(201

)

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(710

)

 

 

 

 

 

(710

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,468

)

 

 

(20,468

)

Balance at March 31, 2022

 

 

29,592,759

 

 

$

3

 

 

$

473,463

 

 

$

(1,117

)

 

$

(304,514

)

 

$

167,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

24,773,361

 

 

$

2

 

 

$

319,196

 

 

$

(177

)

 

$

(214,842

)

 

$

104,179

 

Proceeds from issuances of common stock in “at the

   market” offerings, net of issuance costs

 

 

57,100

 

 

 

 

 

 

1,180

 

 

 

 

 

 

 

 

 

1,180

 

Issuances from employee stock plans

 

 

31,620

 

 

 

 

 

 

121

 

 

 

 

 

 

 

 

 

121

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,687

 

 

 

 

 

 

 

 

 

2,687

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

 

 

 

38

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

(50

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,514

)

 

 

(16,514

)

Balance at March 31, 2021

 

 

24,862,081

 

 

$

2

 

 

$

323,184

 

 

$

(189

)

 

$

(231,356

)

 

$

91,641

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

RAPT THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(20,468

)

 

$

(16,514

)

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

 

 

 

 

 

 

 

 

Amortization of premium on marketable securities

 

 

341

 

 

 

218

 

Depreciation and amortization

 

 

261

 

 

 

280

 

Stock-based compensation expense

 

 

2,702

 

 

 

2,687

 

Gain (loss) on foreign currency translation

 

 

(201

)

 

 

38

 

Non-cash operating lease expense

 

 

428

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

652

 

 

 

(112

)

Accounts payable, accrued expenses and other current liabilities

 

 

1,891

 

 

 

362

 

Deferred revenue

 

 

(641

)

 

 

(841

)

Deferred rent

 

 

 

 

 

(28

)

Operating lease liabilities

 

 

(543

)

 

 

 

Net cash used in operating activities

 

 

(15,578

)

 

 

(13,910

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(6,055

)

 

 

(15,734

)

Proceeds from maturities of marketable securities

 

 

30,041

 

 

 

28,372

 

Purchase of property and equipment

 

 

(149

)

 

 

(227

)

Net cash provided by investing activities

 

 

23,837

 

 

 

12,411

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock in “at the market” offerings, net of

   issuance costs

 

 

 

 

 

1,180

 

Proceeds from issuance of common stock under employee stock plans

 

 

132

 

 

 

121

 

Net cash provided by financing activities

 

 

132

 

 

 

1,301

 

Net increase (decrease) in cash and cash equivalents

 

 

8,391

 

 

 

(198

)

Cash and cash equivalents at beginning of period

 

 

24,027

 

 

 

24,918

 

Cash and cash equivalents at end of period

 

$

32,418

 

 

$

24,720

 

Supplemental disclosures of non-cash investing and financing information

 

 

 

 

 

 

 

 

Right-of-use asset obtained in exchange for lease obligation

 

$

(6,585

)

 

$

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

6


RAPT THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Description of the Business

RAPT Therapeutics, Inc. (“RAPT” or the “Company”) is a clinical-stage, immunology-based biopharmaceutical company focused on discovering, developing and commercializing oral small molecule therapies for patients with significant unmet needs in inflammatory diseases and oncology. Utilizing its proprietary drug discovery and development engine, the Company develops highly selective small molecules that are designed to modulate the critical immune responses underlying these diseases.

The Company is located in South San Francisco, California.   

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and pursuant to Article 10 of Regulation S‑X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Companys financial position and the results of its operations and cash flows. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. 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 disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 with the SEC.

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and include the consolidated accounts of the Company and its wholly-owned subsidiary, RAPT Therapeutics Australia Pty Ltd. All intercompany balances and transactions have been eliminated in consolidation.

Revenue

License and collaborative agreement revenue consists of license, milestone and royalty payments generated through agreements with strategic partners for the development and commercialization of certain product candidates. The terms of an agreement may include a non-refundable upfront fee, payments based upon achievement of milestones and royalties on net product sales. If a portion of the nonrefundable upfront fee or other payments received is allocated to continuing performance obligations under the terms of an agreement, such portion is recorded as deferred revenue and recognized as revenue when or as the underlying performance obligation is satisfied.

The Company recognizes revenue when it transfers promised goods or services to customers or counterparties in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of the promised goods or services in the agreement; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the agreement; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to performance obligations based on estimated selling prices; and (v) recognition of revenue when or as the Company satisfies each performance obligation.

Licenses: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an agreement, the Company will recognize revenue from the nonrefundable, upfront fee allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. If a license is bundled with other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligations to determine whether the combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

7


Milestone payments: If an agreement includes event-based or milestone payments, the Company evaluates whether the events or milestones are considered likely to be achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is unlikely that a significant revenue reversal would occur, the value of the associated event-based or milestone payments is included in the transaction price. Event-based or milestone payments that are not within the control of the Company are not included in the transaction price until they become likely to be achieved.

Royalties: If an agreement includes sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Stock-Based Compensation

The Company measures stock-based compensation expense for all employee and non-employee stock-based awards based on their grant date fair value using the Black-Scholes option-pricing model. Subsequent to the adoption of ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, stock-based compensation expense for non-employee stock-based awards is also measured based on the grant date fair value with the estimated fair value expensed over the period for which the non-employee is required to provide service in exchange for the award. For stock-based awards with service conditions only, stock-based compensation expense is recognized over the requisite service period using the straight-line method. For awards with performance conditions, the Company evaluates the probability of achieving performance conditions at each reporting date. The Company recognizes stock-based compensation expense using an accelerated attribution method when it is deemed probable that the performance condition will be met. Forfeitures are recognized as they occur.

The fair value of restricted stock awards granted after the Company’s initial public offering (“IPO”) is determined based on the stock price on the date of grant. The estimated fair value is amortized as compensation expense over the service period of the award.

Stock-based compensation expense related to the Company’s employee stock purchase plan is recognized based on the fair value of each award estimated on the first day of the offering period using the Black‑Scholes option-pricing model and recorded as expense over the service period using the straight‑line method.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the number of potential dilutive securities outstanding during the period calculated in accordance with the treasury stock method. Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of including potential dilutive securities is anti-dilutive.

Marketable Securities

Marketable securities primarily consist of commercial paper, corporate bonds and U.S. government agency securities. The Company has classified its marketable securities as available-for-sale and may sell these securities prior to their stated maturities. The Company views these marketable securities as available to support current operations and classifies marketable securities with maturities beyond 12 months as current assets. The Company’s marketable securities are carried at estimated fair value, which is derived from independent pricing sources based on quoted prices in active markets for similar securities. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss), net of tax. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in other income, net on the condensed consolidated statements of operations.

Leases

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or financing leases. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s Condensed Consolidated Balance Sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses an implicit rate when readily available, or its incremental borrowing rate based on the information available at lease commencement date, in determining the present value of lease payments. ROU assets represent our right to use underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease

8


incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. Lease agreements with both lease and nonlease components are generally accounted for together as a single lease component.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s condensed consolidated financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amended the guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For available-for-sale debt securities, credit losses will be presented as an allowance rather than as a write-down. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to increase awareness of the amendments and to expedite improvements to Topic 326. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses, Topic 326, which provided companies an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. These ASUs do not change the core principle of the guidance in ASU 2016-13; instead, these amendments are intended to clarify and improve operability of certain topics. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which defer the effective date of the new credit loss standard. ASU 2016-13 and its related amendments are effective for the Company’s fiscal year beginning after December 15, 2022 and early adoption is permitted. The Company is currently assessing when it will adopt ASU 2016-13 and the impact that adoption will have on its condensed consolidated financial statements and related disclosures.


9


 

 

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Financial instruments such as cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

Assets and liabilities recorded at fair value on a recurring basis in the balance sheet are categorized based on the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

To date, the Company has not recorded any impairment charges on marketable securities due to other-than-temporary declines in market value. In determining whether a decline is other than temporary, the Company considers various factors, including the length of time and extent to which the market value has been less than amortized cost, the financial condition and near-term prospects of the issuer and the Company’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

The Company estimates the fair values of investments in corporate debt securities, commercial paper and U.S. government agency securities using valuations obtained from third-party pricing services. 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 securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

Cash equivalents and marketable securities, all of which are classified as available-for-sale securities and measured at fair value on a recurring basis, consisted of the following (in thousands):

 

 

 

 

 

As of March 31, 2022

 

 

 

Fair Value

Hierarchy

Level

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds—classified

   as cash equivalents

 

Level 1

 

$

31,373

 

 

$

 

 

$

 

 

$

31,373

 

Corporate debt

 

Level 2

 

 

63,416

 

 

 

 

 

 

(531

)

 

 

62,885

 

Commercial paper

 

Level 2

 

 

48,364

 

 

 

 

 

 

 

 

 

48,364

 

U.S. government agency securities

 

Level 2

 

 

29,755

 

 

 

 

 

 

(414

)

 

 

29,341

 

Total

 

 

 

$

172,908

 

 

$

 

 

$

(945

)

 

$

171,963

 

10


 

 

 

 

 

 

As of December 31, 2021

 

 

 

Fair Value

Hierarchy

Level

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds—classified

   as cash equivalents

 

Level 1

 

$

22,658

 

 

$

 

 

$

 

 

$

22,658

 

Corporate debt

 

Level 2

 

 

52,704

 

 

 

 

 

 

(139

)

 

 

52,565

 

Asset-backed securities

 

Level 2

 

 

23,882

 

 

 

 

 

 

(21

)

 

 

23,861

 

Commercial paper

 

Level 2

 

 

59,532

 

 

 

 

 

 

 

 

 

59,532

 

U.S. government agency securities

 

Level 2

 

 

29,744

 

 

 

 

 

 

(75

)

 

 

29,669

 

Total

 

 

 

$

188,520

 

 

$

 

 

$

(235

)

 

$

188,285

 

 

The Company does not intend to sell the securities that are in an unrealized loss position and the Company believes it is more likely than not that the investments will be held until recovery of the amortized cost bases. The Company has determined that the gross unrealized losses on marketable securities as of March 31, 2022 were temporary in nature.

The following table presents the remaining contractual maturities of the Company’s marketable securities as of March 31, 2022 (in thousands):

 

 

March 31, 2022

 

Due in less than one year

 

$

147,431

 

Due in more than one year

 

 

24,532

 

Total

 

$

171,963

 

 

4. Property and Equipment

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Laboratory equipment

 

$

6,399

 

 

$

6,291

 

Leasehold improvements

 

 

3,295

 

 

 

3,295

 

Computer equipment

 

 

446

 

 

 

482

 

Furniture and fixtures

 

 

394

 

 

 

357

 

Total property and equipment

 

 

10,534

 

 

 

10,425

 

Less accumulated depreciation and amortization

 

 

(7,905

)

 

 

(7,684

)

Property and equipment, net

 

$

2,629

 

 

$

2,741

 

Depreciation and amortization expense was $0.3 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued research and development expenses

 

$

5,220

 

 

$

2,205

 

Accrued compensation

 

 

2,359

 

 

 

3,652

 

Accrued professional and consulting services

 

 

580

 

 

 

415

 

Other

 

 

117

 

 

 

54

 

Total accrued expenses

 

$

8,276

 

 

$

6,326

 

 

11


 

6. Leases

The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2022 using the modified retrospective approach. The Company elected to apply the modified retrospective approach that allowed it to continue applying the guidance in effect, at the time of adoption, in the comparative periods presented in the Condensed Consolidated Balance Sheets and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit on the date of adoption. The Company also elected the package of practical expedients, which permits it not to reassess under the new standard the  prior conclusions about lease identification, lease classification and initial direct costs. Lastly, the Company elected the short-term lease practical expedients allowed under the standard and the practical expedient to use hindsight in determining the lease term for all its leases.

As a result of applying the modified retrospective approach to adopt the lease guidance, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of January 1, 2022 (in thousands):

Balance Sheet

 

December 31, 2021

 

 

Effect of

adoption of

ASC 842

 

 

January 1,

2022

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

 

 

$

6,585

 

 

$

6,585

 

Total assets

 

$

 

 

$

6,585

 

 

$

6,585

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, current

 

$

 

 

$

1,471

 

 

$

1,471

 

Deferred rent (1)

 

 

2,386

 

 

 

(2,386

)

 

 

 

Operating lease liabilities, non-current

 

 

 

 

 

7,500

 

 

 

7,500

 

Total Lease Liabilities

 

$

2,386

 

 

$

6,585

 

 

$

8,971

 

(1)      Included in other liabilities and deferred rent, net of current portion on the balance sheet.

 

In May 2015, the Company entered into an operating lease for 30,376 square feet of laboratory and office facilities in South San Francisco, California, which expires in May 2022. In April 2018, the Company amended the lease agreement to include an additional 6,378 square feet of laboratory and office space increasing the total leased premises to 36,754 square feet. The lease amendment extended the lease term to November 2026 and contained scheduled rent increases over the lease term and an option for the Company to extend the lease for an additional five-year term.

The Company does not have any financing lease agreements as of March 31, 2022.

The following table summarizes maturities of operating lease liabilities as of March 31, 2022 (in thousands):

2022 (remaining nine months)

 

$

1,553

 

2023

 

 

2,109

 

2024

 

 

2,183

 

2025

 

 

2,259

 

2026

 

 

2,137

 

Thereafter

 

 

 

Total future undiscounted lease payments

 

 

10,241

 

Less: Imputed interest

 

 

(1,648

)

Total Lease Liabilities

 

$

8,593

 

The following table summarizes the balance sheet classification of operating leases at March 31, 2022 (in thousands):

Operating leases

 

 

 

 

Operating lease right-of-use assets

 

$

6,322

 

 

 

 

 

 

Operating lease liabilities, current

 

 

1,481

 

Operating lease liabilities, non-current

 

 

7,112

 

Total operating lease liabilities

 

$

8,593

 

For the three months ended March 31, 2022, the Company incurred $0.4 million of lease expense included in operating expenses in the condensed consolidated statement of operations in relation to the operating lease. Variable lease expense was $0.1 million for the three months ended March 31, 2022. Rent expense was $0.6 million during the three months ended March 31, 2021.

12


Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2022 was $0.5 million and was included in net cash used in operating activities in the Company’s condensed consolidated statements of cash flows.    

As of March 31, 2022, the weighted-average remaining lease term and discount rate for the Company’s operating leases was 4.58 years and 8.0%, respectively.

7. Collaboration Agreements

Collaboration and License Agreement with Hanmi

In December 2019, the Company entered into a Collaboration and License Agreement (the “Hanmi Agreement”) with Hanmi Pharmaceutical Ltd. (“Hanmi”), pursuant to which the Company granted Hanmi an exclusive license to develop, manufacture and commercialize FLX475 and related compounds and products with respect to human cancers in the Republic of Korea, the Republic of China (Taiwan) and the People’s Republic of China, including the special administrative regions of Macau and Hong Kong (the “Hanmi Territory”), and certain sublicense rights.

In consideration of the rights granted under the Hanmi Agreement, the Company was entitled to $10.0 million in an upfront payment of $4.0 million and a near-term milestone payment of $6.0 million. The milestone payment was received in April 2020. Additionally, the Company will be eligible to receive contingent payments of up to $108.0 million upon the achievement of specified milestones, as well as double-digit royalties on future net sales of FLX475 in the Hanmi Territory.

The transaction price as of March 31, 2022 was $10.4 million, consisting of the upfront fee of $4.0 million, the near-term milestone payment of $6.0 million and $0.4 million related to the supply of FLX475 to Hanmi. The Company recognizes revenue for the performance obligation by applying the cost-based input method over the estimated service period. The Company determined that this method most faithfully depicts the transfer of its performance obligations to Hanmi as it reflects the progress made towards providing Hanmi with the necessary know-how to continue developing FLX475 in the Hanmi Territory.

For the three months ended March 31, 2022 and 2021, the Company recognized $0.6 million and $1.2 million, respectively, as revenue pursuant to the Hanmi Agreement. As of March 31, 2022 and December 31, 2021, deferred revenue related to the Hanmi Agreement was $0.9 million and $1.5 million, respectively. The deferred revenue is expected to be recognized over the estimated remaining period of the Company’s Phase 1/2 clinical trial of FLX475.

8. Common Stock

As of March 31, 2022, the Company had reserved the following shares of common stock for future issuance:

 

Options issued and outstanding under the 2019 Equity Incentive Plan and

   2015 Stock Plan

 

 

2,764,372

 

Restricted stock units issued and outstanding under the 2019 Equity

   Incentive Plan

 

 

27,000

 

Options available for future grants under the 2019 Equity Incentive Plan

 

 

3,104,284

 

Shares reserved under the 2019 Employee Stock Purchase Plan

 

 

557,259

 

Total

 

 

6,452,915

 

 

As of March 31, 2022, there was up to $90.9 million available for future issuance of shares of common stock under the Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. and Stifel, Nicolaus & Company, Incorporated (the “ATM Sales Agreement”).  

 

13


 

9. Stock-based Compensation

Stock option activity under the 2019 Equity Incentive Plan (the “2019 Plan”) is set forth below for the three months ended March 31, 2022:

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Shares

 

 

Price Per

 

 

Term

 

 

Value

 

 

 

Outstanding