Company Quick10K Filing
Quick10K
Tricida
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$35.52 49 $1,740
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-25 Regulation FD, Exhibits
8-K 2019-05-31 Shareholder Vote
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-20 Officers, Other Events, Exhibits
8-K 2019-01-07 Regulation FD, Exhibits
8-K 2018-12-28 Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-10-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-07-02 Amend Bylaw, Exhibits
FOXF Fox Factory Holding 2,850
PMT Pennymac Mortgage Investment Trust 1,420
GBX Greenbrier Companies 1,130
ZUMZ Zumiez 636
CNBKA Century Bancorp 523
SAL Salisbury Bancorp 108
P Pandora 0
DHCC Diamondhead Casino 0
PGUS Progreen 0
DWSS Morgan Stanley Smith Barney Spectrum Strategic 0
TCDA 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1. Organization and Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Fair Value Measurements and Fair Value of Financial Instruments
Note 4. Leases
Note 5. Other Balance Sheet Components
Note 6. Borrowings
Note 7. Commitments and Contingencies
Note 8. Stockholders' Equity
Note 9. Net Loss per Share
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 exhibit311ceo302certif.htm
EX-31.2 exhibit312cfo302certif.htm
EX-32.1 exhibit321ceoandcfo906.htm

Tricida Earnings 2019-06-30

TCDA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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: 001-38558
TRICIDA, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
46-3372526
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
7000 Shoreline Court, Suite 201, South San Francisco, CA 94080
(Address of principal executive offices, including zip code)
(415) 429-7800
(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 exchange on which registered
Common stock, par value $0.001 per share
TCDA
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
On August 5, 2019, the registrant had 49,390,364 shares of common stock, par value $0.001 per share, outstanding.




TABLE OF CONTENTS
Note Regarding Forward-Looking Statements
Part I. Financial Information
 
Item 1.
Financial Statements (Unaudited):
 
Condensed Balance Sheets as of June 30, 2019 and December 31, 2018
 
Condensed Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018
 
Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2019 and 2018
 
Condensed Statements of Cash Flows for the six months ended June 30, 2019 and 2018
 
Notes to Condensed Financial Statements
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
 
Signatures





NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements generally can be identified by words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “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:
estimates of our expenses, capital requirements and our needs for additional financing;
the prospects of veverimer (TRC101), our only product candidate, which is still in development;
our expectations regarding the timing of submitting the New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, and our ability to obtain approval for veverimer under the Accelerated Approval Program;
our expectations regarding the timing of the completion of our nonclinical studies;
the design of our ongoing confirmatory postmarketing trial, VALOR-CKD, including the sample size, trial duration, endpoint definition, event rate assumptions and eligibility criteria;
our expectations regarding the timing of the enrollment, completion and reporting of our confirmatory postmarketing trial, VALOR-CKD;
the outcome and results of our VALOR-CKD trial;
the market acceptance or commercial success of veverimer, if approved, and the degree of acceptance among physicians, patients, patient advocacy groups, health care payers and the medical community;
our expectations regarding competition, potential market size and the size of the patient population for veverimer, if approved for commercial use;
our expectations regarding our ability to draw under our credit facility with Hercules Capital, Inc.;
our expectations regarding the safety, efficacy and clinical benefit of veverimer;
our ability to achieve and maintain regulatory approval of veverimer, and any related restrictions, limitations and/or warnings in the label of veverimer;
our sales, marketing or distribution capabilities and our ability to commercialize veverimer, if we obtain regulatory approval;
our current and future agreements with third parties in connection with the manufacturing, commercialization, packaging and distribution of veverimer;
our expectations regarding the ability of our contract manufacturing partners to produce veverimer in the quantities and timeframe that we will require;
our expectations regarding our future costs of goods;
our ability to attract, retain and motivate key personnel and increase the size of our organization;
the scope of protection we are able to establish and maintain for intellectual property rights covering veverimer;
potential claims relating to our intellectual property and third-party intellectual property;
the duration of our intellectual property estate that will provide protection for veverimer;

1




our ability to establish collaborations in lieu of obtaining additional financing; and
our financial performance.
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. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Investors in our securities are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 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. Investors in our securities should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this Quarterly Report on Form 10-Q.

2




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRICIDA, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
 
June 30,
2019
 
December 31,
2018
 

 

Assets
Current assets:
 
 
 
Cash and cash equivalents
$
24,797

 
$
37,172

Short-term investments
369,037

 
203,906

Prepaid expenses and other current assets
4,666

 
3,269

Total current assets
398,500

 
244,347

Long-term investments
11,497

 
2,287

Property and equipment, net
1,892

 
1,215

Operating lease right-of-use assets
1,843

 

Total assets
$
413,732

 
$
247,849

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,673

 
$
8,460

Current operating lease liabilities
1,046

 

Accrued expenses and other current liabilities
22,296

 
6,344

Total current liabilities
28,015

 
14,804

 
 
 
 
Term Loan
37,463

 
38,071

Non-current operating lease liabilities
994

 

Other long-term liabilities
416

 
449

Total liabilities
66,888

 
53,324

Commitments and contingencies (Note 7)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value; 40,000,000 shares authorized, no shares issued or outstanding as of June 30, 2019 and December 31, 2018

 

Common stock, $0.001 par value; 400,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 49,276,445 and 42,148,247 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
49

 
42

Additional paid-in capital
612,883

 
386,830

Accumulated other comprehensive income (loss)
629

 
(153
)
Accumulated deficit
(266,717
)
 
(192,194
)
Total stockholders’ equity
346,844

 
194,525

Total liabilities and stockholders’ equity
$
413,732

 
$
247,849

See accompanying notes to condensed financial statements (unaudited).

3




TRICIDA, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
28,976

 
$
21,034

 
$
60,399

 
$
37,667

General and administrative
8,861

 
4,245

 
15,213

 
7,710

Total operating expenses
37,837

 
25,279

 
75,612

 
45,377

Loss from operations
(37,837
)
 
(25,279
)
 
(75,612
)
 
(45,377
)
Other income (expense), net
2,602

 
827

 
3,869

 
740

Interest expense
(1,391
)
 
(910
)
 
(2,780
)
 
(1,229
)
Net loss
(36,626
)
 
(25,362
)
 
(74,523
)
 
(45,866
)
Other comprehensive income (loss):
 
 
 
 

 

Net unrealized gain (loss) on available-for-sale investments
480

 
41

 
782

 
(13
)
Total comprehensive loss
$
(36,146
)
 
$
(25,321
)
 
$
(73,741
)
 
$
(45,879
)
Net loss per share, basic and diluted
$
(0.75
)
 
$
(10.89
)
 
$
(1.64
)
 
$
(19.91
)
Weighted-average number of shares outstanding, basic and diluted
48,674,238

 
2,329,085

 
45,489,861

 
2,304,087

See accompanying notes to condensed financial statements (unaudited).

4




TRICIDA, INC.
CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
 
Stockholders' Equity (Deficit)
 
Preferred Stock
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity (Deficit)
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at December 31, 2018

 
$

 
 
42,148,247

 
$
42

 
$
386,830

 
$
(153
)
 
$
(192,194
)
 
$
194,525

Issuance of warrants in connection with Term Loan

 

 
 

 

 
284

 

 

 
284

Issuance of common stock under equity incentive plans

 

 
 
527,859

 
1

 
736

 

 

 
737

Stock-based compensation

 

 
 

 

 
2,658

 

 

 
2,658

Net unrealized gain (loss) on available-for-sale investments

 

 
 

 

 

 
302

 

 
302

Net loss

 

 
 

 

 

 

 
(37,897
)
 
(37,897
)
Balance at March 31, 2019

 

 
 
42,676,106

 
43

 
390,508

 
149

 
(230,091
)
 
160,609

Issuance of common stock in connection with public equity offering, net of underwriter discounts, commissions and issuance costs

 

 
 
6,440,000

 
6

 
217,003

 

 

 
217,009

Issuance of common stock under equity incentive plans

 

 
 
160,339

 

 
959

 

 

 
959

Stock-based compensation

 

 
 

 

 
4,413

 

 

 
4,413

Net unrealized gain (loss) on available-for-sale investments

 

 
 

 

 

 
480

 

 
480

Net loss

 

 
 

 

 

 

 
(36,626
)
 
(36,626
)
Balance at June 30, 2019

 
$

 
 
49,276,445

 
$
49

 
$
612,883

 
$
629

 
$
(266,717
)
 
$
346,844


5




 
Convertible
Preferred Stock
 
 
Stockholders' Equity (Deficit)
 
Shares
 
Amount
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity (Deficit)
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
104,129,702

 
$
147,070

 
 
2,272,609

 
$
2

 
$
1,356

 
$
(13
)
 
$
(89,386
)
 
$
(88,041
)
Issuance of common stock under equity incentive plans

 

 
 
29,519

 

 
24

 

 

 
24

Stock-based compensation

 

 
 

 

 
353

 

 

 
353

Net unrealized gain (loss) on available-for-sale investments

 

 
 

 

 

 
(54
)
 

 
(54
)
Net loss

 

 
 

 

 

 

 
(20,504
)
 
(20,504
)
Balance at March 31, 2018
104,129,702

 
147,070

 
 
2,302,128

 
2

 
1,733

 
(67
)
 
(109,890
)
 
(108,222
)
Series A warrant exercise
95,936

 
458

 
 

 
$

 

 
$

 

 

Issuance of common stock under equity incentive plans

 

 
 
151,478

 

 
108

 

 

 
108

Reclassification of warrants from liability to equity

 

 
 

 

 
194

 

 

 
194

Stock-based compensation

 

 
 

 

 
970

 

 

 
970

Net unrealized gain (loss) on available-for-sale investments

 

 
 

 

 

 
41

 

 
41

Net loss

 

 
 

 

 

 

 
(25,362
)
 
(25,362
)
Balance at June 30, 2018
104,225,638

 
$
147,528

 
 
2,453,606

 
$
2

 
$
3,005

 
$
(26
)
 
$
(135,252
)
 
$
(132,271
)
See accompanying notes to condensed financial statements (unaudited).

6




TRICIDA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net loss
$
(74,523
)
 
$
(45,866
)
Adjustments to reconcile net loss to net cash used in operating activities:

 

Depreciation and amortization
341

 
280

Amortization of operating lease right-of-use assets
413

 

Amortization of Term Loan discount and issuance costs
1,011

 
504

Accretion (amortization) of premiums and discounts on investments
(2,031
)
 
(264
)
Stock-based compensation
7,071

 
1,323

Changes in fair value of compound derivative liability and warrants
165

 
(236
)
Changes in operating assets and liabilities:

 

Prepaid expenses and other assets
(1,393
)
 
229

Accounts payable
(3,785
)
 
4,652

Accrued expenses and other liabilities
16,240

 
5,303

Operating lease liabilities
(438
)
 

Net cash used in operating activities
(56,929
)
 
(34,075
)
Investing activities:

 

Purchase of investments
(299,085
)
 
(20,002
)
Maturities of investments
127,557

 
28,475

Purchase of property and equipment
(1,021
)
 
(542
)
Net cash provided by (used in) investing activities
(172,549
)
 
7,931

Financing activities:

 

Proceeds from equity offerings, net
217,930

 

Payments of equity offering costs
(921
)
 
(2,017
)
Proceeds from exercise of common stock under equity incentive plans
1,608

 
236

Proceeds from issuance of convertible preferred stock, net

 
85

Proceeds from leasehold improvement loan

 
220

Repayment of leasehold improvement loan
(65
)
 

Proceeds (payments) under Term Loan, net
(1,449
)
 
23,634

Net cash provided by financing activities
217,103

 
22,158

Net decrease in cash and cash equivalents
(12,375
)
 
(3,986
)
Cash and cash equivalents at beginning of period
37,172

 
9,774

Cash and cash equivalents at end of period
$
24,797

 
$
5,788

Supplemental disclosures

 

Cash paid for interest
$
1,650

 
$
539

Supplemental disclosures of non-cash financing activities

 

Deferred offering costs incurred but not paid
$

 
$
4,320

Warrants and compound derivative liability related to Term Loan
$
284

 
$
810

Purchase of property and equipment in accounts payable and accrued expenses
$
24

 
$
90

See accompanying notes to condensed financial statements (unaudited).

7




TRICIDA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization—Tricida, Inc. (the Company) was incorporated in the state of Delaware on May 22, 2013 and was granted its certification of qualification in the state of California on August 5, 2013, or inception. The Company is focused on the development and commercialization of its drug candidate, veverimer (TRC101), a non-absorbed, orally-administered polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal, or GI, tract. In May 2018, the Company completed its pivotal Phase 3 clinical trial, TRCA-301, that met both its primary and secondary endpoints in a highly statistically significant manner. In March 2019, the Company completed its 40-week extension trial, TRCA-301E. The TRCA-301E trial met all of its primary and secondary endpoints. The Company plans to submit a New Drug Application, or NDA, for veverimer in the third quarter of 2019 under the U.S. Food and Drug Administration’s, or FDA’s, Accelerated Approval Program. As part of the Accelerated Approval Program, a confirmatory postmarketing trial is required. The Company is currently conducting its confirmatory postmarketing trial, VALOR-CKD (also known as TRCA-303), to evaluate the efficacy and safety of veverimer in delaying CKD progression in subjects with metabolic acidosis.
The Company has sustained operating losses and expects such annual losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development and commercialization activities for veverimer, for which it expects to incur additional losses in the future. Through June 30, 2019, the Company has relied primarily on the proceeds from equity offerings and debt financing to finance its operations.
The Company recognizes that it may need to raise additional capital to fully implement its business plan, and if market conditions are favorable or if the Company identifies specific strategic opportunities or needs, intends to do so through the issuance of equity, borrowings, or strategic alliances with partner companies. However, if such financing is not available at adequate levels or on reasonable terms, the Company will need to reevaluate its operating plans.
Basis of Presentation—The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of June 30, 2019, the condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, the condensed statements of convertible preferred stock and stockholders' equity (deficit) for the three and six months ended June 30, 2019 and 2018 and the condensed statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company consider necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed balance sheet at December 31, 2018 has been derived from audited financial statements.
Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
With the exception of the change for the accounting of leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), or Topic 842, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, that are of significance, or potential significance, to the Company.
Leases—The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, operating leases are included in operating lease right-of-use (ROU) assets; current

8




operating lease liabilities; and non-current operating lease liabilities on its condensed balance sheets. The Company currently does not have any finance leases.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made on or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The Company considered information available at the adoption date of Topic 842 to determine the incremental borrowing rate for leases in existence as of this date. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
The Company elected to apply each of the practical expedients described in Accounting Standards Codification (ASC) Topic 842-10-65-1(f) which allow companies not to reassess: (i) whether any expired or existing agreements contain leases, (ii) the classification of any expired or existing leases, and (iii) the capitalization of initial direct costs for any existing leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short-term operating leases. A short-term is a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
Recent Accounting Pronouncements
Adopted Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, which amended prior accounting standards for leases. The Company adopted Topic 842 on January 1, 2019, using the alternative modified transition method, which applies the standard as of the effective date and therefore, the Company has not applied the standard to the comparative periods presented on the Company's condensed financial statements.
The Company elected the following practical expedients when assessing the transition impact available to lessees: (i) not to reassess whether any expired or existing contracts as of January 1, 2019, are or contain leases; (ii) not to reassess the lease classification for any expired or existing leases as of January 1, 2019; and (iii) not to reassess initial direct costs for any existing leases as of January 1, 2019.
As a lessee, the primary impact for the Company was the recognition of operating lease ROU assets of $2.3 million and operating lease liabilities of $2.5 million on its condensed balance sheet as of January 1, 2019. See Note 4 "Leases" for additional details.
Standards Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 implements an impairment model, known as the current expected credit loss model, based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize, as an allowance, its estimate of expected credit losses. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its financial statements.
In September 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC Topic 820, Fair Value Measurement. The FASB issued final guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Under the ASU, entities will no longer be required to disclose the amount of transfers between Level 1 and Level 2 of the fair value hierarchy. Public companies will be required to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective for public business entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption will be permitted in any interim or annual period. The Company plans to adopt this guidance on January 1, 2020. The new guidance only affects disclosures in the notes to the financial statements and will not affect the Company's financial statements.

9





NOTE 3. FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in the FASB's ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:
Level 1—Observable inputs, such as quoted prices in active markets;
Level 2—Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly 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 instrument’s anticipated life; and
Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company's policy is to recognize transfers in and out of Level 1, 2 and 3 as of the end of the reporting period. There were no transfers of assets or liabilities between the fair value measurement levels during the six months ended June 30, 2019.
The Company's financial instruments consist primarily of cash, cash equivalents, short-term and long-term investments, accounts payable and the Term Loan with Hercules.
Cash, cash equivalents and investments are reported at their respective fair values on the Company's condensed balance sheets. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets. The Company classifies U.S. government agency securities, commercial paper, corporate debt securities and asset-backed securities as Level 2. The Company's short-term and long-term investments are classified as available-for-sale.
The following tables set forth the fair value of the Company's cash and financial assets remeasured on a recurring basis based on the three-tier fair value hierarchy by significant investment category as of June 30, 2019 and December 31, 2018.

10




 
 
June 30, 2019
 
 
 
 
 
 
 
 
 
 
Reported as:
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Cash and Cash Equivalents
 
Short-Term Investments
 
Long-Term Investments
Cash
 
$
1,592

 
$

 
$

 
$
1,592

 
$
1,592

 
$

 
$

Level 1:
 

 

 

 

 

 

 

Money market fund
 
17,958

 

 

 
17,958

 
17,958

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agency securities
 
1,000

 

 
(1
)
 
999

 

 

 
999

Commercial paper
 
168,214

 
280

 

 
168,494

 

 
168,494

 

Corporate debt securities
 
164,255

 
294

 
(6
)
 
164,543

 
5,247

 
148,798

 
10,498

Asset-backed securities
 
51,683

 
62

 

 
51,745

 

 
51,745

 

Subtotal
 
385,152

 
636

 
(7
)
 
385,781

 
5,247

 
369,037

 
11,497

Total assets measured at fair value
 
$
404,702

 
$
636

 
$
(7
)
 
$
405,331

 
$
24,797

 
$
369,037

 
$
11,497

 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
Reported as:
(in thousands)
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
Cash and Cash Equivalents
 
Short-Term Investments
 
Long-Term Investments
Cash
 
$
3,021

 
$

 
$

 
$
3,021

 
$
3,021

 
$

 
$

Level 1:
 

 

 

 

 

 

 

Money market fund
 
33,154

 

 

 
33,154

 
33,154

 

 

Level 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
 
68,467

 

 
(63
)
 
68,404

 
997

 
67,407

 

Corporate debt securities
 
89,038

 
4

 
(63
)
 
88,979

 

 
86,692

 
2,287

Asset-backed securities
 
49,838

 
3

 
(34
)
 
49,807

 

 
49,807

 

Subtotal
 
207,343

 
7

 
(160
)
 
207,190

 
997

 
203,906

 
2,287

Total assets measured at fair value
 
$
243,518

 
$
7

 
$
(160
)
 
$
243,365

 
$
37,172

 
$
203,906

 
$
2,287


Interest income related to the Company's cash, cash equivalents and available-for-sale investments included in other income (expense), net was approximately $2.7 million and $0.4 million for the three months ended June 30, 2019 and 2018, respectively, and $4.2 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively. There were no gross realized gains and gross realized losses for the three and six months ended June 30, 2019 and 2018.
The following table summarizes the Company's available-for-sale investments that were in a continuous unrealized loss position but were not deemed to be other-than-temporarily impaired, as of June 30, 2019 and December 31, 2018.
 
 
June 30, 2019
 
December 31, 2018
(in thousands)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
U.S. government agency securities
 
$
999

 
$
(1
)
 
$

 
$

Commercial paper
 

 

 
67,407

 
(63
)
Corporate debt securities
 
9,251

 
(6
)
 
85,699

 
(63
)
Asset-backed securities
 

 

 
36,730

 
(34
)
Total
 
$
10,250

 
$
(7
)
 
$
189,836

 
$
(160
)

The Company held a total of 4 and 48 positions which were in an unrealized loss position as of June 30, 2019 and December 31, 2018, respectively. All available-for-sale investments in an unrealized loss position were in a continuous loss position for less than 12 months. As of June 30, 2019, unrealized losses on available-for-sale

11




investments were not attributable to credit risk. The Company determined that there were no other-than-temporary impairments as of June 30, 2019 because the Company does not intend to sell these securities nor does the Company believe that it will be required to sell these securities before the recovery of their amortized cost basis.
The following table summarizes the maturities of the Company’s cash equivalents (excluding money market funds) and available-for-sale investments, as of June 30, 2019.
(in thousands)
 
Amortized Cost
 
Fair Value
Mature in less than one year
 
$
373,673

 
$
374,284

Mature in one to five years
 
11,479

 
11,497

Total
 
$
385,152

 
$
385,781


The following table presents a reconciliation of financial liabilities measured at fair value on a recurring basis using Level 3 unobservable inputs for the six months ended June 30, 2019 and 2018.
 
 
Six Months Ended June 30,
 
 
2019
 
2018
(in thousands)
 
Compound Derivative Liability
 
Compound Derivative Liability
 
Warrant
Liability
Fair value at beginning of period
 
$
161

 
$

 
$
106

Additions
 

 
654

 
156

Change in fair value
 
165

 
(541
)
 
305

Reclassification to equity
 

 

 
(194
)
Issuance of convertible preferred stock on exercise of warrant
 

 

 
(373
)
Fair value at end of period
 
$
326

 
$
113

 
$


The following table presents information about significant unobservable inputs related to the Company's Level 3 financial liabilities as of June 30, 2019.
 
 
June 30, 2019
(in thousands)
 
Fair Value
 
Valuation Technique
 
Significant Unobservable Input
 
Range of Inputs
Compound derivative liability
 
$
326

 
Discounted cash flow
 
Discount rate
 
10.5
%
-
11.5
%
 
 
 
 
 
 
Probability of the occurrence of certain events
 
 
 
10.0
%

Term Loan
The estimated fair value of the Term Loan was $40.6 million as of June 30, 2019 which approximates the carrying value and is classified as Level 3. The Company utilized a market yield analysis and income approach to estimate a range of values for the Term Loan. The discount rate ranged between 10.5% and 11.5%.
NOTE 4. LEASES
The Company has an operating lease for its office and laboratory space in South San Francisco, California. Operating lease expense was $0.3 million for the three months ended June 30, 2019 and $0.5 million for the six months ended June 30, 2019. Cash paid within operating cash flows for operating leases was $0.5 million for the six months ended June 30, 2019. Expense related to short-term leases was not significant for the three and six months ended June 30, 2019.
The following table presents supplemental balance sheet information related to operating leases as of June 30, 2019.

12




(in thousands, except lease term and discount rate)
 
June 30, 2019
Operating lease right-of-use assets
 
$
1,843

Operating lease liabilities:
 
 
Current operating lease liabilities
 
1,046

Non-current operating lease liabilities
 
994

Total operating lease liabilities
 
$
2,040

Weighted average remaining lease term
 
2.0 years

Weighted average discount rate
 
8.0
%

The following table presents the maturities of the Company's operating lease liabilities as of June 30, 2019.
(in thousands)
 
June 30, 2019
2019 (remaining six months)
 
$
546

2020
 
1,108

2021
 
562

Total lease payments
 
2,216

Less: imputed interest
 
(176
)
Total operating lease liabilities
 
$
2,040


ASC Topic 840 Disclosures
The Company elected the alternative modified transition method and is required to present previously disclosed information under the prior accounting standard for leases. The following table presents the future minimum lease commitments under the Company’s operating leases as of December 31, 2018, as previously disclosed.
(in thousands)
 
December 31, 2018

2019
 
$
1,076

2020
 
1,108

2021
 
562

2022 and thereafter
 

Total future minimum lease payments
 
$
2,746



13




NOTE 5. OTHER BALANCE SHEET COMPONENTS
Property and Equipment, Net
The following table presents the components of property and equipment, net as of June 30, 2019 and December 31, 2018.
(in thousands)
 
June 30,
2019
 
December 31,
2018
Furniture and fixtures
 
$
193


$
193

Computer and lab equipment
 
2,898


1,888

Leasehold improvements
 
1,063


1,055

 
 
4,154


3,136

Less: accumulated depreciation and amortization
 
(2,262
)

(1,921
)
Total property and equipment, net
 
$
1,892


$
1,215


Depreciation and amortization expense was approximately $0.2 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.3 million for the six months ended June 30, 2019 and 2018.
Accrued Expenses and Other Current Liabilities
The following table presents the components of accrued expenses and other current liabilities as of June 30, 2019 and December 31, 2018.
(in thousands)
 
June 30,
2019
 
December 31,
2018
Accrued clinical and nonclinical study costs
 
$
6,674

 
$
2,168

Accrued contract manufacturing
 
11,077

 
1,676

Accrued compensation
 
2,368

 
1,565

Accrued professional fees and other
 
2,177

 
935

Total accrued expenses and other current liabilities
 
$
22,296

 
$
6,344


NOTE 6. BORROWINGS
Term Loan
On February 28, 2018, the Company entered into the Term Loan with Hercules. The Term Loan provided for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance‑based milestones. The first tranche, in the amount of $25.0 million, was funded on the closing date of the Term Loan.
On October 15, 2018, the Company entered into the second amendment to the Term Loan with Hercules, which amended certain terms of the Term Loan. After giving effect to the second amendment, the Term Loan continued to provide for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance‑based milestones. The second tranche was reduced from $25.0 million to $15.0 million and was funded on December 28, 2018. The Company accounted for the second amendment as a modification to the existing Term Loan.
On March 27, 2019, the Company modified the Term Loan with Hercules by entering into the third amendment to the Term Loan. After giving effect to the third amendment, the amount available under the Term Loan is increased from up to $100.0 million to up to $200.0 million to be funded in tranches, subject to certain performance-based milestones, and the maturity of the Term Loan is extended. Under the terms of the Term Loan, as amended by the third amendment, the $40.0 million principal outstanding remains outstanding, and additional tranches of $20.0 million and $15.0 million will be available for draw down prior to December 15, 2019 and December 15, 2020, respectively. An additional tranche of $75.0 million will be available for draw down between January 1, 2020 and December 15, 2020, on the condition that the Company obtains final approval from the FDA for the NDA for veverimer. A final tranche of $50.0 million will be available for draw down on or prior to December 15, 2021, upon

14




request by the Company and the approval of Hercules' investment committee. The Company accounted for the third amendment as a modification to the existing Term Loan.
The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 6.00% and (y) 9.85%. The maturity date is extended to April 1, 2023 and may be extended to April 1, 2024 if the tranche of $75.0 million described above is drawn. The Company will initially be making interest-only payments until April 1, 2021. If the Company achieves certain performance milestones and financial covenants, the interest-only period could be extended for up to an additional 24 months. Upon expiration of the interest-only period, the Company will repay the Term Loan in equal monthly installments comprised of principal and interest, based on a 30-month amortization schedule, through maturity. The Company will pay an additional amount of (a) $2.6 million due on March 1, 2022 and (b) the product of 7.55% and the aggregate loans funded under the Term Loan due at maturity or on any earlier date on which the loans become due. If the Company prepays the Term Loan, the Company will be required to pay a prepayment charge equal to (i) 2.00% of the amount being prepaid at any time during the first 12 months following the effective date of the third amendment (ii) 1.50% of the amount being prepaid after 12 months but prior to 24 months following the effective date of the third amendment (iii) 1.00% of the amount being prepaid after 24 months but prior to 36 months following the effective date of the third amendment and (iv) zero if prepaid any time after 36 months following the effective date of the third amendment but prior to the maturity.
The Term Loan is secured by substantially all of the Company's assets, except its intellectual property, which is the subject of a negative pledge; however, the collateral does consist of rights to payments and proceeds from the sale, licensing or disposition of all or any part of, or rights in, its intellectual property. Under the Term Loan, the Company is subject to certain covenants, including but not limited to requirements to deliver financial reports at designated times of the year and maintain a minimum level of cash. These covenants also limit or restrict the Company's ability to incur additional indebtedness or liens, acquire, own or make any investments, pay cash dividends, repurchase stock or enter into certain corporate transactions, including mergers and changes of control.
Warrants
In conjunction with the Term Loan entered into on February 28, 2018, the Company issued warrants to Hercules to purchase 53,458 shares of its common stock with an exercise price of $9.35 per share. The estimated fair value of the warrants at the date of issuance was approximately $0.2 million. The fair value of the common stock warrant liability was determined using the probability‑weighted expected return method. It was recorded at its fair value at inception and was remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the accompanying condensed statements of operations and comprehensive loss.
On April 10, 2018, the Company entered into amendments with Hercules that resulted in the reclassification of the warrant liability to stockholders' equity (deficit) as the amended terms of the warrants qualified for them to be accounted for as equity instruments and, as such, were no longer subject to remeasurement. The fair value of the common stock warrants of approximately $0.2 million was reclassified to stockholders' equity upon execution of the amendment.
In connection with the funding of the second tranche on December 28, 2018, the Company issued to Hercules a warrant to purchase 53,458 shares of its common stock with an exercise price of $9.35 per share. The common stock warrant was recorded in stockholders' equity (deficit) at its fair value of approximately $0.9 million on December 28, 2018.
In conjunction with the third amendment, the Company issued warrants to Hercules to purchase 16,721 shares of its common stock with an exercise price of $23.92 per share. The common stock warrants were recorded in stockholders' equity (deficit) at its fair value of approximately $0.3 million on March 27, 2019. The fair value of the common stock warrants were determined using an option-pricing model with the following assumptions: time to liquidity of 7.0 years, volatility of 75.0%, risk-free rate of 2.3% and stock price based on the March 27, 2019 closing price of the Company's common stock reported by The Nasdaq Global Select Market.
In connection with each subsequent draw down under the tranches described above, the Company is obligated to issue additional warrants to purchase a number of shares of the Company's common stock determined by dividing (x) an amount equal to 1.0% of the principal amount of the applicable tranche by (y) $23.92 subject to adjustments following certain corporate events.

15




Embedded Derivatives and Other Debt Issuance Costs
The Company determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. The Company initially recorded a compound derivative liability of $0.7 million, which is required to be marked to market in future periods.
As of June 30, 2019, the Company calculated the fair values of the compound derivative by computing the difference between the fair value of the Term Loan with the compound derivative using the “with and without” method under the income approach, and the fair value of the Term Loan without the compound derivative. The Company calculated the fair values using a probability‑weighted discounted cash flow analysis. The key valuation assumptions used consist of the discount rate of 11.0% and the probability of the occurrence of certain events of 10.0%. The compound derivative liability is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the condensed statements of operations and comprehensive loss. The fair value of the compound derivative liability was approximately $0.3 million as of June 30, 2019 and was classified as other long-term liabilities on the condensed balance sheet.
The facility fee, fair value of warrants at issuance, fair value of embedded derivatives which were bifurcated, and other debt issuance costs have been treated as debt discounts on the Company’s condensed balance sheets and together with the additional payment are being amortized to interest expense throughout the life of the Term Loan using the effective interest rate method.
As of June 30, 2019 and December 31, 2018, there were unamortized issuance costs and debt discounts of $3.8 million and $2.7 million, respectively, which were recorded as a direct deduction from the Term Loan on the condensed balance sheets.
The following table presents future payments of principal and interest on the Term Loan as of June 30, 2019.