Company Quick10K Filing
Satsuma Pharmaceuticals
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-03-10
10-Q 2019-09-30 Filed 2019-11-12
S-1 2019-08-16 Public Filing
8-K 2020-06-12
8-K 2020-05-12
8-K 2020-03-10
8-K 2019-11-12
8-K 2019-09-17

STSA 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements (Unaudited).
Note 1. Organization and Summary of Significant Accounting Policies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 stsa-ex311_8.htm
EX-31.2 stsa-ex312_9.htm
EX-32.1 stsa-ex321_6.htm
EX-32.2 stsa-ex322_7.htm

Satsuma Pharmaceuticals Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 stsa-10q_20200331.htm 10-Q stsa-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2020

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: 001-39041

 

Satsuma Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-3039831

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

400 Oyster Point Boulevard, Suite 221

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 410-3200

 

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

 

STSA

 

Nasdaq Global Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of April 30, 2020, the registrant had 17,389,447 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 and Section 21E of the Securities Exchange Act of 1934. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

our expectations regarding the potential market size and size of the potential patient populations for STS101, if approved for commercial use;

 

our clinical and regulatory development plans;

 

our expectations with regard to the data to be derived from our ongoing and planned Phase 3 clinical trials;

 

the extent to which the COVID-19 coronavirus and related governmental regulations and restrictions may impact our business, including our research, clinical trials, manufacturing and financial condition;

 

the timing of commencement of future nonclinical studies and clinical trials and research and development programs;

 

our intentions and our ability to establish collaborations and/or partnerships;

 

the timing or likelihood of regulatory filings and approvals for STS101;

 

our commercialization, marketing and manufacturing plans and expectations;

 

the pricing and reimbursement of STS101, if approved;

 

the implementation of our business model and strategic plans for our business and STS101;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering STS101, including the projected terms of patent protection;

 

estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;

 

our use of proceeds from our initial public offering;

 

our future financial performance; and

 

developments and projections relating to our competitors and our industry, including competing therapies and procedures.

These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate and you should not rely upon forward-looking statements as predictions of future events. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section of this Quarterly Report on Form 10-Q titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. These forward-looking statements speak only as of the date of this Form Quarterly Report on 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

i


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Condensed Statements of Cash Flows

4

 

Notes to Unaudited Interim Condensed Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

66

Signatures

67

 

 

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

SATSUMA PHARMACEUTICALS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,903

 

 

$

22,755

 

Short-term marketable securities

 

 

77,877

 

 

 

84,942

 

Prepaid expenses and other current assets

 

 

8,099

 

 

 

7,047

 

Total current assets

 

 

108,879

 

 

 

114,744

 

Property and equipment, net

 

 

1,031

 

 

 

832

 

Long-term marketable securities

 

 

3,339

 

 

 

10,203

 

Other non-current assets

 

 

467

 

 

 

497

 

Total assets

 

$

113,716

 

 

$

126,276

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,438

 

 

$

4,282

 

Accrued and other current liabilities

 

 

1,813

 

 

 

1,710

 

Current portion of long-term debt

 

 

1,982

 

 

 

1,979

 

Total current liabilities

 

 

7,233

 

 

 

7,971

 

Long-term debt

 

 

2,478

 

 

 

2,951

 

Other noncurrent liabilities

 

 

15

 

 

 

19

 

Total liabilities

 

 

9,726

 

 

 

10,941

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized as of March 31, 2020 and December 31, 2019, respectively; 17,386,247 shares and 17,382,047 shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

2

 

 

 

2

 

Additional paid-in-capital

 

 

158,777

 

 

 

158,317

 

Accumulated other comprehensive (loss) income

 

 

(15

)

 

 

17

 

Accumulated deficit

 

 

(54,774

)

 

 

(43,001

)

Total stockholders’ equity

 

 

103,990

 

 

 

115,335

 

Total liabilities and stockholders’ equity

 

$

113,716

 

 

$

126,276

 

 

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

1


SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

$

9,648

 

 

$

2,150

 

General and administrative

 

 

2,523

 

 

 

564

 

Total operating expenses

 

$

12,171

 

 

$

2,714

 

Loss from operations

 

 

(12,171

)

 

 

(2,714

)

Interest income

 

502

 

 

 

21

 

Interest expense

 

 

(104

)

 

 

(122

)

Net loss

 

$

(11,773

)

 

$

(2,815

)

Unrealized loss on marketable securities

 

 

(32

)

 

 

 

Comprehensive loss

 

$

(11,805

)

 

$

(2,815

)

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

 

$

(0.68

)

 

$

(2.51

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

17,383,016

 

 

 

1,123,219

 

 

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

 

 

2


SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2020

 

 

 

 

$

 

 

 

 

17,382,047

 

 

$

2

 

 

$

158,317

 

 

$

17

 

 

$

(43,001

)

 

$

115,335

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

4,200

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

449

 

 

 

 

 

 

 

 

 

449

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,773

)

 

 

(11,773

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

Balances at March 31, 2020

 

 

 

 

$

 

 

 

 

17,386,247

 

 

$

2

 

 

$

158,777

 

 

$

(15

)

 

$

(54,774

)

 

$

103,990

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Deficit

 

Balances at January 1, 2019

 

 

3,046,355

 

 

$

11,648

 

 

 

 

1,083,280

 

 

$

1

 

 

$

2,693

 

 

$

 

 

$

(14,826

)

 

$

(12,132

)

Vesting of restricted stock

 

 

 

 

 

 

 

 

 

7,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,815

)

 

 

(2,815

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

53,721

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Balances at March 31, 2019

 

 

3,046,355

 

 

$

11,648

 

 

 

 

1,144,980

 

 

$

1

 

 

$

2,800

 

 

$

 

 

$

(17,641

)

 

$

(14,840

)

 

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

 

 

3


SATSUMA PHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(11,773

)

 

$

(2,815

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

49

 

 

 

31

 

Non-cash interest expense, and amortization of debt discount and

   issuance costs

 

 

30

 

 

 

29

 

Net amortization of premiums and accretion of discounts on

   marketable securities

 

 

(40

)

 

 

 

Stock-based compensation

 

 

449

 

 

 

54

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(1,022

)

 

 

(546

)

Accounts payable

 

 

(809

)

 

 

913

 

Accrued and other current liabilities

 

 

103

 

 

 

(724

)

Other non-current liabilities

 

 

(4

)

 

 

(2

)

Net cash used in operating activities

 

 

(13,017

)

 

 

(3,060

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(5,331

)

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

19,268

 

 

 

 

Purchases of property and equipment

 

 

(283

)

 

 

(22

)

Net cash provided by (used in) investing activities

 

 

13,654

 

 

 

(22

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(500

)

 

 

 

Proceeds from exercise of common stock options

 

 

11

 

 

 

53

 

Net cash (used in) provided by financing activities

 

 

(489

)

 

 

53

 

Net increase (decrease) in cash and cash equivalents

 

 

148

 

 

 

(3,029

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

Cash and cash equivalents, at beginning of period

 

 

22,755

 

 

 

5,205

 

Cash and cash equivalents, at end of period

 

$

22,903

 

 

$

2,176

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

77

 

 

$

87

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment in accounts payable

 

$

35

 

 

$

 

 

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

 

 

4


 

SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies

Description of the Business

Satsuma Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company developing a novel therapeutic for the acute treatment of migraine. The Company’s product candidate, STS101, is a drug-device combination of a proprietary dry-powder formulation of dihydroergotamine mesylate, or DHE, which can be quickly and easily self-administered by a proprietary pre-filled, single-use, nasal delivery device. The Company, headquartered in South San Francisco, was incorporated in 2016 in the state of Delaware.

Initial Public Offering

On September 12, 2019, the Company’s registration statement on Form S-1 (File No. 333-233347) relating to its initial public offering (“IPO”) of common stock became effective. The IPO closed on September 17, 2019 at which time the Company issued 5,500,000 shares of its common stock at a price of $15.00 per share, which did not include the issuance of any shares in connection with the exercise by the underwriters of their option to purchase up to 825,000 additional shares. The Company received an aggregate of $82.5 million gross proceeds, before underwriting discounts, commissions and offering costs. In addition, upon closing the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock converted into 9,936,341 shares of common stock. In connection with the completion of its IPO, on September 12, 2019, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share. In October 2019, the Company sold and issued an additional 552,116 shares of common stock at $15.00 per share to the underwriters of the IPO following the partial exercise of their option to purchase additional shares for gross proceeds of $8.3 million before underwriting discounts, commissions and offering costs.

Liquidity

 

The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, risks of clinical delays or failure, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on contract manufacturing organizations (“CMOs”), contract research organizations (“CROs”), compliance with government regulations and the need to obtain additional financing to fund operations. STS101 is currently under development and will require significant additional development efforts as the Company continues the development of, and seek regulatory approvals for, STS101 and begin to commercialize it, if approved. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance and reporting.

 

There can be no assurance that the Company’s development of STS101 will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that STS101 will obtain necessary government regulatory approval or that STS will be commercially viable, if approved. Even if STS101 development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biopharmaceutical companies. The extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and the impact on the Company's clinical trials, employees and vendors. At this point, the degree to which COVID-19 may impact the Company's financial condition or results of operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of Company to complete certain clinical trials and other efforts required to advance the development of its drug candidates and raise additional capital. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

 

The Company has incurred significant losses and negative cash flows from operations in all periods since its inception and had an accumulated deficit of $54.8 million as of March 31, 2020. The Company has historically financed its operations primarily through private placements of convertible preferred stock, a convertible promissory note, long-term debt and sale of common stock in the IPO. The Company has no products approved for sale, and the Company has not generated any revenue since its inception. The Company expects to incur significant additional operating losses over at least the next several years. There can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

5


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

As of March 31, 2020, the Company had cash, cash equivalents and marketable securities of $104.1 million. The Company’s management believes that the Company’s current cash, cash equivalents and marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these unaudited interim condensed financial statements as of and for the three months ended March 31, 2020 and through the end of 2021.

Basis of Presentation

The unaudited interim condensed financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

Unaudited Interim Financial Information

The accompanying balance sheet as of March 31, 2020, the statements of operations and comprehensive loss, the statements of convertible preferred stock and stockholders’ equity (deficit), and statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2020 and the results of its operations and its cash flows for the three months ended March 31, 2020 and 2019. The financial data and other information disclosed in these notes related to the three months ended March 31, 2020 and 2019 are also unaudited. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. The balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the unaudited interim condensed financial statements.

The accompanying interim unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission, or the SEC, on March 10, 2020.

Use of Estimates

The preparation of unaudited interim condensed 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 unaudited interim condensed financial statements and the reported amounts of income and expenses during the reporting period. Such estimates include the accrual of research and development expenses, deferred tax assets, useful lives of property and equipment and the fair value of stock-based awards. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. The inputs into management’s accounting estimates consider the economic impact of the outbreak of COVID-19. The extent to which the COVID-19 further affects our financial statements will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of COVID-19, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Accordingly, actual results could differ from those estimates and assumptions.

Concentration of Credit Risk

The Company has no significant off-balance sheet concentrations of credit risk. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and short-term marketable securities. Substantially all the Company’s cash is held by one financial institution that management believes to be of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company invests its cash equivalents in marketable securities and money market funds. The Company has not experienced any credit losses on its deposits of cash or cash equivalents.

Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities and market interest rates, if applicable. Refer to Note 2 for details on the fair value of marketable securities.

6


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which generally ranges from three to five years. Leasehold improvements are stated at cost and amortized over the shorter of the useful lives of the assets or the lease term. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations and comprehensive loss in the period realized. Accumulated depreciation as of March 31, 2020 and December 31, 2019 was $0.2 million.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock 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 stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, convertible preferred stock, convertible preferred stock tranche liability, obligation to issue additional common stock, convertible note, stock options and common stock subject to repurchase related to unvested restricted stock awards are considered to be potentially dilutive securities. Basic and diluted net loss per share attributable to common stockholders are presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security because it participates in dividends with common stock. The holders of convertible preferred stock do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because 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.

Income Taxes

On March 18, 2020, the Families First Coronavirus Response Act (“FFCR Act”), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous tax-related provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The FFCR Act and CARES Act did not have a material impact on the Company’s unaudited condensed financial statements as of March 31, 2020; however, the Company continues to examine the impacts the FFCR Act and CARES Act may have on its business, results of operations, financial condition and liquidity.

 

Recent 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.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No.2018-13 (Topic 820), Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurement in Topic 820. For public entities, ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company adopted this ASU on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s financial statements.

7


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued 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 or not 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. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. 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, 2021, and all interim periods within. The Company will adopt this ASU on January 1, 2021. 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 retained earnings in the period of adoption. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. In November 2019, the FASB issued ASU 2019-10, which delays the adoption dates for ASU 2016-02 for non-public entities. The Company is currently evaluating the impact the adoption of these ASUs will have on its financial statements and related disclosures. The Company expects to recognize a right-of-use asset and corresponding lease liability for its real estate operating leases upon adoption. See Note 9 for more information related to the Company’s lease obligations, which are presented on an undiscounted basis therein.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), to provide financial statement users with more useful information about expected credit losses, which was subsequently updated by ASU 2019-04, Codification Improvements to Topic 326, Financial Instrument - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. In November 2019, the FASB issued ASU No. 2019-10, according to which, the new standard is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, the new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. Early adoption is permitted. The Company is currently a SRC. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

8


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

2.

Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the unaudited interim condensed financial statements on a recurring basis. Fair value is 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, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices 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 assets or liabilities.

Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of March 31, 2020, financial assets measured and recognized at fair value were as follows (in thousands):

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Quoted Price

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government bonds

 

$

10,043

 

 

$

 

 

$

 

 

$

10,043

 

Corporate bonds

 

 

 

 

 

50,104

 

 

 

 

 

 

50,104

 

Asset backed securities

 

 

 

 

 

21,084

 

 

 

 

 

 

21,084

 

Marketable Securities

 

 

10,043

 

 

 

71,188

 

 

 

 

 

 

81,231

 

Money market funds (1)

 

 

22,879

 

 

 

 

 

 

 

 

 

22,879

 

Total fair value of assets

 

$

32,922

 

 

$

71,188

 

 

$

 

 

$

104,110

 

 

 

(1)

Included in cash and cash equivalents on the balance sheet.

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimate

Fair

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government bonds

 

$

10,043

 

 

$

83

 

 

$

 

 

$

10,126

 

Corporate bonds

 

 

50,104

 

 

 

 

 

 

(64

)

 

 

50,040

 

Asset backed securities

 

 

21,084

 

 

 

2

 

 

 

(36

)

 

 

21,050

 

Marketable securities

 

 

81,231

 

 

 

85

 

 

 

(100

)

 

 

81,216

 

Money market funds (1)

 

 

22,879

 

 

 

 

 

 

 

 

 

22,879

 

Total fair value of assets

 

$

104,110

 

 

$

85

 

 

$

(100

)

 

$

104,095

 

 

 

(1)

Included in cash and cash equivalents on the balance sheet.

9


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

As of December 31, 2019, financial assets measured and recognized at fair value were as follows (in thousands):

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Quoted

Price in

Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government bonds

 

$

10,062

 

 

$

 

 

$

 

 

$

10,062

 

Overnight repurchase agreements (1)

 

 

14,000

 

 

 

 

 

 

 

 

 

14,000

 

Corporate bonds

 

 

 

 

 

64,285

 

 

 

 

 

 

64,285

 

Asset backed securities

 

 

 

 

 

20,781

 

 

 

 

 

 

20,781

 

Marketable securities

 

 

24,062

 

 

 

85,066

 

 

 

 

 

 

109,128

 

Money market funds (1)

 

 

8,730

 

 

 

 

 

 

 

 

 

8,730

 

Total fair value of assets

 

$

32,792

 

 

$

85,066

 

 

$

 

 

$

117,858

 

 

 

(1)

Included in cash and cash equivalents on the balance sheet.

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimate

Fair

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government bonds

 

$

10,062

 

 

$

1

 

 

$

 

 

$

10,063

 

Overnight repurchase agreements (1)

 

 

14,000

 

 

 

 

 

 

 

 

 

14,000

 

Corporate bonds

 

 

64,285

 

 

 

17

 

 

 

(7

)

 

 

64,295

 

Asset backed securities

 

 

20,781

 

 

 

7

 

 

 

(1

)

 

 

20,787

 

Marketable securities

 

 

109,128

 

 

 

25

 

 

 

(8

)

 

 

109,145

 

Money market funds (1)

 

 

8,730

 

 

 

 

 

 

 

 

 

8,730

 

Total fair value of assets

 

$

117,858

 

 

$

25

 

 

$

(8

)

 

$

117,875

 

 

 

(1)

Included in cash and cash equivalents on the balance sheet.

There were no financial liabilities measured and recognized at fair value as of March 31, 2020 and December 31, 2019.

3.

Accrued and Other Current Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued salaries and benefits

 

$

555

 

 

$

1,145

 

Accrued research and development expenses

 

 

827

 

 

 

88

 

Accrued professional services

 

 

327

 

 

 

248

 

Accrued interest

 

 

24

 

 

 

27

 

Other

 

 

80

 

 

 

202

 

Total

 

$

1,813

 

 

$

1,710

 

 

10


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

4.

Convertible Preferred Stock

In April 2019, the Company issued 6,889,986 shares of its Series B convertible preferred stock at $8.95444 per share to certain investors for gross proceeds of $61.7 million.

Following the closing of the IPO, all outstanding shares of the redeemable convertible preferred stock converted into 9,936,341 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of redeemable convertible preferred stock outstanding as of March 31, 2020 and December 31,2019.

5.

Long-Term Debt

On October 26, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank. The Loan Agreement provides for loan advances of up to $10.0 million. The first advance (the “Term A Loan”) of $5.0 million was available for draw down by the Company as of the effective date of the Loan Agreement. The remaining $5.0 million (the “Term B Loan” and together with the Term A Loan, the “Term Loans”) is available for draw down by the Company in $1.0 million increments. Interest on the loan advances is payable monthly at a floating per annum rate equal to the greater of 1.5% above the prime rate or 6.5%. Upon the occurrence of an event of default, interest will increase to 5.0% above the rate that is otherwise applicable. The maturity date of the loan advances is May 1, 2022.

As of March 31, 2020, the future contractual maturities of debt by fiscal year are as follows (in thousands):

 

2020 (remaining nine months)

 

$

1,500

 

2021

 

 

2,000

 

2022

 

 

833

 

Total future maturities of debt

 

$

4,333

 

 

As of March 31, 2020, the term loan advances, net of debt discount and debt issuance costs, were $4.5 million and are included in current portion of long-term debt and long-term debt on the Company’s condensed balance sheet.

 

The Company accreted the final payment due at maturity using the effective interest rate method. The accrued liabilities related to the accretion of the final payment were $0.2 million and $0.1 million as of March 31, 2020 and December 31, 2019, respectively, included in long-term debt on the Company’s condensed balance sheet.

 

6.

Stock-Based Compensation

 

2019 Incentive Award Plan

The Company’s Board of Directors adopted and the Company’s stockholders approved, effective on the day of effectiveness of the registration statement on Form S-1, the 2019 Incentive Award Plan (the “2019 Plan”). Awards granted under the 2019 Plan may be either incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), or restricted stock units (“RSUs”). ISOs may be granted only to Company employees (including officers and directors who are also employees). Following the effectiveness of the 2019 Plan, the Company will not make any further grants under the 2016 Equity Incentive Plan. However, the 2016 Plan will continue to govern the terms and conditions of the outstanding awards granted under it. Shares of common stock subject to awards granted under the 2016 Plan that are forfeited or lapse unexercised and which following the effective date of the 2019 Plan are not issued under the 2016 Plan will be available for issuance under the 2019 Plan.

 

2016 Incentive Award Plan

In 2016, the Company established its 2016 Equity Incentive Plan (the “2016 Plan”) which provides for the granting of stock options to employees and consultants of the Company. Awards granted under the 2016 Plan may be either incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), or restricted stock units (“RSUs”). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and consultants.

11


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

The exercise price of ISOs and NSOs shall not be less than 100% of the estimated fair value of the shares on the date of grant. The exercise price of ISOs granted to an employee who, at the time of grant, owns stock representing more than 10% (“10% stockholder”) of the voting power of all classes of stock of the Company shall be no less than 110% of the estimated fair value of the shares on the date of grant. The options usually have a term of 10 years (or no more than five years if granted to a 10% stockholder). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions. Generally, options and restricted stock awards vest over a four-year period.

In January 2020, the number of shares of common stock available for issuance under the 2019 Plan was increased by 695,281 shares as a result of the automatic increase provision in the 2019 Plan.

Activity under the 2019 Plan and 2016 Plan is set forth below:

 

 

 

 

 

 

 

Outstanding Options

 

 

 

 

 

 

 

Shares

Available for

Grant

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term (Years)

 

Balance, January 1, 2020

 

 

1,778,044

 

 

 

1,568,874

 

 

$

3.55

 

 

 

8.85

 

Additional shares authorized

 

 

695,281

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

(574,700

)

 

 

574,700

 

 

$

28.71

 

 

 

9.93

 

Options exercised

 

 

 

 

 

(4,200

)

 

$

2.64

 

 

 

 

 

Balance, March 31, 2020

 

 

1,898,625

 

 

 

2,139,374

 

 

$

10.31

 

 

 

8.96

 

Exercisable as of March 31, 2020

 

 

566,730

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, March 31, 2020

 

 

2,139,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2020 and 2019 was $17.04 and $3.20 per share, respectively.

As of March 31, 2020, the total unrecognized stock-based compensation expense for stock options was $12.4 million, which is expected to be recognized over a weighted-average period of 3.1 years.

The total fair value of options vested for the three months ended March 31, 2020 and 2019 was $0.3 million and less than $0.1 million, respectively.

The Company accounts for forfeitures as they occur.

Stock-Based Compensation Associated with Awards to Employees and Non-employees

During the three months ended March 31, 2020 and 2019, the Company granted stock options to employees and non-employees to purchase 574,700 and 110,637 shares of common stock, respectively.

Fair Value of Common Stock

Prior to the IPO the fair value of the Company’s common stock underlying the stock options was determined by the Board of Directors with assistance from management and, in part, on input from an independent third-party valuation firm. The Board of Directors determined the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

 

12


SATSUMA PHARMACEUTICALS, INC.

Notes to Unaudited Interim Condensed Financial Statements (continued)

 

2019 Employee Share Purchase Plan

In September 2019, the Company adopted the 2019 Employee Share Purchase Plan (“ESPP”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. A total of 160,000 shares of common stock were initially reserved for issuance under the ESPP. The offering period and purchase period will be determined by the Board of Directors. As of March 31, 2020, 333,820 shares under the ESPP remain available for purchase and no offerings had been authorized.

 

Stock-Based Compensation Expense

Total stock-based compensation expense recorded related to options granted to employees and non-employees was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

185

 

 

$

21

 

General and administrative

 

 

264

 

 

 

33

 

 

 

$

449

 

 

$

54

 

 

 

7.

Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(11,773

)

 

$

(2,815

)

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

17,383,016

 

 

 

1,151,145