10-Q 1 vera-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from

 

to

 

 

 

Commission File Number: 001-40407

 

Vera Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

81-2744449

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

8000 Marina Boulevard, Suite 120

Brisbane, California

94005

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 770-0077

 

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

 

Class A common stock, $0.001 par value per
share

VERA

The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

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

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

As of May 12, 2022, the registrant had 27,065,473 shares of common stock, $0.001 par value per share, outstanding, consisting of 26,769,188 shares of Class A common stock, $0.001 par value per share and 309,238 shares of Class B common stock, $0.001 par value per share.

 

 


 

Table of Contents

 

 

Page

Number

 

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

1

 

 

PART I. FINANCIAL INFORMATION

4

 

 

Item 1. Condensed Financial Statements (Unaudited)

4

 

 

Condensed Balance Sheets

4

 

 

Condensed Statements of Operations and Comprehensive Loss

5

 

 

Condensed Statements of Stockholders’ Equity

6

 

 

Condensed Statements of Cash Flows

7

 

 

Notes to Condensed Financial Statements

8

 

 

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

22

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

29

 

 

Item 4. Controls and Procedures

29

 

 

PART II. OTHER INFORMATION

30

 

 

Item 1. Legal Proceedings

30

 

 

Item 1A. Risk Factors

31

 

 

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

82

 

 

Item 3. Defaults Upon Senior Securities

82

 

 

Item 4. Mine Safety Disclosures

82

 

 

Item 5. Other Information

82

 

 

Item 6. Exhibits

83

 

 

SIGNATURES

84

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “Vera,” “the Company,” “we,” “us,” “our” and similar references refer to Vera Therapeutics, Inc.

This Quarterly Report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our Class A common stock involves a high degree of risk. Below is a list of some of the material risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q:

We have not completed any clinical trials for our lead product candidate, atacicept, and have no products approved for commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.
We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and drug development programs of our product candidates or future commercialization efforts.

 

1


 

We have incurred net losses since inception, and we expect to continue to incur net losses for the foreseeable future. In addition, we may be unable to continue as a going concern over the long-term.
We are substantially dependent on the success of our product candidates, atacicept and MAU868, which are currently in the clinical development stage. If we are unable to complete development of, obtain regulatory approval for and commercialize our product candidates in one or more indications and in a timely manner, our business, financial condition, results of operations and prospects will be significantly harmed.
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control, including difficulties in identifying patients with immunoglobulin A nephropathy (IgAN), the availability of competitive products, and significant competition for recruiting patients in clinical trials.
The incidence and prevalence for target patient populations of atacicept in specific indications are based on estimates and third-party sources. If the market opportunities for atacicept, or any future product candidate we may develop, if and when approved, are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability might be materially and adversely affected.
Interim, initial, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
We face significant competition, which may result in others discovering, developing or commercializing products before or more successfully than us.
Changes in methods of manufacturing or formulation of our product candidates may result in additional costs or delays.
Our product candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other approved products or investigational new drugs that may result in a safety profile that could inhibit regulatory approval, prevent market acceptance, limit their commercial potential or result in significant negative consequences.
Even if any product candidate we develop receives regulatory approval, it could be subject to significant post-marketing regulatory requirements and will be subject to continued regulatory oversight.
Biosimilars to our product candidates may provide competition sooner than anticipated.
The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our clinical trials.
Unfavorable global economic conditions could adversely affect our business, financial condition and results of operations.
Our success depends on our ability to protect our intellectual property and our proprietary technologies. If we or our potential licensors, licensees, or collaborators are unable to obtain or maintain patent protection with respect to our product candidates, proprietary technologies and their uses, our business, financial condition, results of operations and prospects could be significantly harmed.
The terms of our loan agreement place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.
Our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees and key consultants.
We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators.
If we breach our license agreement (Ares Agreement) with Ares Trading S.A. (Ares), an affiliate of Merck KGaA, Darmstadt, Germany, related to atacicept, or the license agreement with Novartis International Pharmaceutical AG (Novartis) related to MAU868, we could lose the ability to continue the development and commercialization of atacicept or MAU868, respectively.
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical product candidates would be adversely affected.
Patent terms may be inadequate to protect our competitive position on atacicept, MAU868 or any future product candidates we may develop for an adequate amount of time.

2


 

We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs, to conduct certain aspects of our nonclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize atacicept, MAU868 or future product candidates we may develop and our business, financial condition, results of operations and prospects could be significantly harmed.
The manufacture of drugs is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide adequate supply of our product candidates for clinical trials or our product for patients, if approved, could be delayed or prevented.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.
The price of our Class A common stock may be volatile, and you could lose all or part of your investment.
If we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock.
Our principal stockholders and management own a significant percentage of our outstanding voting stock and will be able to exert significant control over matters subject to stockholder approval.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
We may be subject to securities litigation, which is expensive and could divert management attention.

3


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VERA THERAPEUTICS, INC.

Condensed Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,506

 

 

$

79,674

 

Marketable securities

 

 

39,432

 

 

 

 

Prepaid expenses and other current assets

 

 

6,805

 

 

 

2,863

 

Total current assets

 

 

157,743

 

 

 

82,537

 

Restricted cash, noncurrent

 

 

293

 

 

 

293

 

Property and equipment, net

 

 

16

 

 

 

 

Operating lease right-of-use assets

 

 

6,275

 

 

 

 

Prepaid expenses and other noncurrent assets

 

 

67

 

 

 

51

 

Non-marketable equity securities

 

 

580

 

 

 

867

 

Total assets

 

$

164,974

 

 

$

83,748

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,328

 

 

$

1,385

 

Operating lease liabilities

 

 

2,490

 

 

 

 

Restructuring liability

 

 

 

 

 

377

 

Accrued expenses and other current liabilities

 

 

10,151

 

 

 

5,928

 

Total current liabilities

 

 

19,969

 

 

 

7,690

 

Long-term debt

 

 

4,937

 

 

 

4,923

 

Operating lease liabilities, noncurrent

 

 

5,357

 

 

 

 

Restructuring liability, noncurrent

 

 

 

 

 

1,257

 

Accrued and other noncurrent liabilities

 

 

286

 

 

 

286

 

Total liabilities

 

 

30,549

 

 

 

14,156

 

Stockholders’ equity

 

 

 

 

 

 

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

 

 

 

 

 

 

Class A common stock, $0.001 par value; 500,000,000 shares
   authorized as of March 31, 2022 and December 31, 2021;
   
26,756,235 and 20,968,376 shares issued and outstanding as of
   March 31, 2022 and December 31, 2021, respectively

 

 

27

 

 

 

21

 

Class B non-voting common stock, $0.001 par value; 14,600,000 shares authorized as of March 31, 2022 and December 31, 2021; 309,238 shares issued and outstanding as of March 31, 2022 and December 31, 2021.

 

 

 

 

 

 

Additional paid-in capital

 

 

275,551

 

 

 

193,627

 

Accumulated other comprehensive loss

 

 

(12

)

 

 

 

Accumulated deficit

 

 

(141,141

)

 

 

(124,056

)

Total stockholders’ equity

 

 

134,425

 

 

 

69,592

 

Total liabilities and stockholders’ equity

 

$

164,974

 

 

$

83,748

 

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

 

4


 

VERA THERAPEUTICS, INC.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

12,549

 

 

$

2,932

 

General and administrative

 

 

4,472

 

 

 

1,784

 

Total operating expenses

 

 

17,021

 

 

 

4,716

 

Loss from operations

 

 

(17,021

)

 

 

(4,716

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

26

 

 

 

2

 

Interest expense

 

 

(118

)

 

 

 

Other income

 

 

315

 

 

 

 

Change in fair value of non-marketable equity securities

 

 

(287

)

 

 

 

Total other (expense) income

 

 

(64

)

 

 

2

 

Net loss

 

$

(17,085

)

 

$

(4,714

)

Other comprehensive loss:

 

 

 

 

 

 

Change in unrealized loss on marketable securities

 

 

(12

)

 

 

 

Total loss and other comprehensive loss

 

$

(17,097

)

 

$

(4,714

)

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

 

$

(0.71

)

 

$

(12.23

)

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

 

 

24,227,282

 

 

 

385,401

 

 

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

 

 

5


 

VERA THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Loss

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

20,968,376

 

 

$

21

 

 

 

309,238

 

 

$

 

 

$

193,627

 

 

$

 

 

$

(124,056

)

 

$

69,592

 

Issuance of common stock from underwritten follow-on offering, net of offering costs

 

 

5,742,026

 

 

 

6

 

 

 

 

 

 

 

 

 

80,028

 

 

 

 

 

 

 

 

 

80,034

 

Issuance of common stock pursuant to exercise of options

 

 

17,946

 

 

 

 

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Issuance of common stock pursuant to employee stock purchase plan

 

 

8,458

 

 

 

 

 

 

 

 

 

 

 

 

169

 

 

 

 

 

 

 

 

 

169

 

Issuance of common stock upon vesting of restricted stock units

 

 

19,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,662

 

 

 

 

 

 

 

 

 

1,662

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,085

)

 

 

(17,085

)

Balances as of March 31, 2022

 

 

26,756,235

 

 

$

27

 

 

 

309,238

 

 

$

 

 

$

275,551

 

 

$

(12

)

 

$

(141,141

)

 

$

134,425

 

 

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Class A Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of December 31, 2020

 

 

182,772,372

 

 

$

139,576

 

 

 

355,296

 

 

$

 

 

$

2,099

 

 

$

(91,447

)

 

$

(89,348

)

Issuance of Class A common stock upon exercise of options

 

 

 

 

 

 

 

 

113,683

 

 

 

 

 

 

342

 

 

 

 

 

 

342

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

404

 

 

 

 

 

 

404

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,714

)

 

 

(4,714

)

Balances as of March 31, 2021

 

 

182,772,372

 

 

$

139,576

 

 

 

468,979

 

 

$

 

 

$

2,845

 

 

$

(96,161

)

 

$

(93,316

)

 

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

 

6


 

VERA THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(17,085

)

 

$

(4,714

)

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

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

9

 

 

 

35

 

Reduction in the carrying amount of operating lease right-of-use assets

 

 

564

 

 

 

 

Stock-based compensation

 

 

1,662

 

 

 

404

 

Restructuring payments

 

 

 

 

 

(590

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,942

)

 

 

(127

)

Other assets

 

 

271

 

 

 

 

Accounts payable

 

 

5,943

 

 

 

(198

)

Accrued and other current liabilities

 

 

4,223

 

 

 

1,069

 

Operating lease liabilities

 

 

(626

)

 

 

 

Net cash used in operating activities

 

 

(8,981

)

 

 

(4,121

)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(18

)

 

 

 

Purchase of marketable securities

 

 

(39,437

)

 

 

 

Net cash used in investing activities

 

 

(39,455

)

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

234

 

 

 

342

 

Proceeds from issuance of Class A common stock offering, net of
   underwriting discounts and commissions

 

 

86,130

 

 

 

 

Payment of costs related to underwritten follow-on offering

 

 

(6,096

)

 

 

 

Payment of deferred offering costs

 

 

 

 

 

(369

)

Payment on capital lease obligations

 

 

 

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

80,268

 

 

 

(28

)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

31,832

 

 

 

(4,149

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

79,967

 

 

 

53,997

 

Cash, cash equivalents and restricted cash, end of period

 

$

111,799

 

 

$

49,848

 

Reconciliation of cash and cash equivalents and restricted cash to the balance sheets

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,506

 

 

$

49,505

 

Restricted cash

 

 

293

 

 

 

343

 

Total cash and cash equivalents and restricted cash

 

$

111,799

 

 

$

49,848

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest expense

 

$

104

 

 

$

 

Cash paid for operating leases

 

$

656

 

 

$

 

Deferred offering costs included in accounts payable

 

$

 

 

$

729

 

Deferred offering costs included in accrued and other current liabilities

 

$

 

 

$

195

 

 

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

 

7


 

VERA THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business

Vera Therapeutics, Inc., (the “Company”) is a clinical late-stage stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. The Company is headquartered in Brisbane, California and was incorporated in May 2016 in Delaware. In 2017, the Company acquired all of the outstanding shares of PNA Innovations, Inc. (“PNAi”), which was based in Woburn, Massachusetts.

Reverse Stock Split

On May 7, 2021, the Company filed a certificate of amendment to its fourth amended and restated certificate of incorporation to effect a 11.5869-for-one reverse stock split of its issued and outstanding Class A common stock. Adjustments corresponding to the reverse stock split were made to the ratio at which the Company’s redeemable convertible preferred stock converted into Class A common stock. Accordingly, all share and per share amounts related to Class A common stock, stock options and restricted stock awards for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable to reflect the reverse stock split.

Initial Public Offering

On May 13, 2021, the Company’s registration statement on Form S-1 for its initial public offering (the “IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”), and the shares of its Class A common stock commenced trading on the Nasdaq Global Select Market on May 14, 2021. The IPO closed on May 18, 2021, pursuant to which the Company issued and sold 4,350,000 shares of its Class A common stock at a public offering price of $11.00 per share. On May 20, 2021, the Company issued 652,500 shares of its Class A common stock to the underwriters of the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received total net proceeds of $48.4 million from the IPO, after deducting underwriting discounts and commissions of $3.9 million, and offering costs of $2.8 million. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 15,464,776 shares of Class A common stock and 309,238 shares of Class B common stock.

 

Follow-on Public Offering

On February 14, 2022, the Company completed a follow-on public offering pursuant to which the Company issued and sold 5,742,026 shares of its Class A common stock at a public offering price of $15.00 per share, including 748,959 shares of Class A common stock pursuant to the full exercise of the underwriters' option to purchase additional shares. The Company received total net proceeds of approximately $80.0 million, after deducting underwriting discounts and commissions of $5.2 million, and offering costs of approximately $0.8 million.

Liquidity

Since inception, the Company devoted substantially all of its resources to its research and development efforts, pre-clinical studies and clinical trials, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. The Company has incurred recurring net operating losses since its inception and had an accumulated deficit of $141.1 million as of March 31, 2022. The Company had cash, cash equivalents and marketable securities of $150.9 million as of March 31, 2022, and has not generated positive cash flow from operations. The Company has funded its operations primarily through the issuance of common stock, redeemable convertible preferred stock, debt financing and convertible notes. Management expects to continue to incur losses and negative cash flows from operations for at least the next several years.

Management believes that the Company’s cash, cash equivalents and marketable securities as of March 31, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months subsequent to the issuance date of these financial statements. The Company intends to raise additional capital through public or private equity offerings or debt financing or other capital sources, which may include strategic collaborations or other arrangements with third parties in order to achieve its long-term business objectives. If the Company fails to obtain necessary capital when needed on acceptable terms, or at all, it could force the Company to delay, limit, reduce or terminate its product development programs, commercialization efforts or other operations.

8


 

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. The U.S. dollar is the Company’s functional and reporting currency.

Unaudited Interim Condensed Financial Statements

The accompanying condensed balance sheet as of March 31, 2022, and condensed statements of operations and comprehensive loss, condensed statements of cash flows, and condensed statements of redeemable convertible preferred stock and stockholders’ equity for the three months ended March 31, 2022 and 2021, are unaudited. The balance sheet as of December 31, 2021, was derived from the audited financial statements as of and for the year ended December 31, 2021. The unaudited condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2021 and in the opinion of management, reflect all adjustments consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2022, and the condensed results of its operations and its cash flows for the three months ended March 31, 2022. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022, are also unaudited. The condensed results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022, or any other period. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s final prospectus dated May 13, 2021, for the IPO filed with the SEC on May 17, 2021, pursuant to Rule 424(b)(4) relating to the Company’s Registration Statement on Form S-1, as amended (File No. 333-255492).

Emerging Growth Company Status

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (1) is no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Use of Estimates

The preparation of the Company’s financial statements 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 condensed financial statements and the reported amounts of expenses during the reporting period. Management estimates that affect the reported amounts of assets and liabilities include the accrual of research and development expenses, restructuring liabilities, fair value of common stock and stock-based compensation expense, determination of incremental borrowing rate for operating leases, the valuation allowance for deferred tax assets, and fair value of marketable and non-marketable securities. The Company evaluates and adjusts its estimates and assumptions on an ongoing basis using historical experience and other factors. Actual results could differ materially from those estimates.

Deferred Offering Costs

Deferred offering costs consisting of legal, accounting and filing fees relating to the IPO are capitalized. The deferred offering costs were offset against the Company’s IPO proceeds upon the closing of the IPO.

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in a federally insured financial institution and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash and cash equivalents to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash and cash equivalents.

 

9


 

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current and potential future product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers. The Company relies on one supply chain for each of its product candidates. If any of the single source suppliers in any of the supply chains fails to satisfy the Company's requirements on a timely basis, it could suffer delays in its clinical development programs and activities, which could adversely affects is operating results.

 

The Company’s product candidates require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed, or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic continues to evolve. The extent of the impact of the COVID-19 pandemic on the Company’s business, operations, and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s development activities, planned clinical trial enrollment, future trial sites, contract research organizations, third-party manufacturers, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with the Company’s employees working remotely. The Company will continue to actively monitor the evolving situation related to the COVID-19 pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business. At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds and are stated at fair value.

Marketable Securities

 

The Company holds investments in marketable securities, consisting of U.S. government securities. Marketable securities with stated maturities of three months or less from the date of purchase are classified as cash equivalents and those with stated maturities of greater than three months as marketable securities on the balance sheet. The Company designated these securities as available-for-sale to support current operations and are reported at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss within stockholders’ equity. Interest, amortization and accretion of purchase premiums and discounts on marketable debt securities are included in other income (expense), net, in the condensed statements of operations and comprehensive loss.

 

The cost of available-for-sale marketable securities sold is based on the specific identification method. Realized gains and losses on the sale of available-for-sale marketable securities are recorded in other income (expense), net.

 

The Company regularly reviews all of the marketable securities for decline in fair value to determine whether unrealized losses have resulted from credit loss or other factors. The review includes considerations for the cause of the impairment but is not limited to (i) the consideration of the cause of the decline, (ii) any currently recorded expected credit losses and (iii) the creditworthiness of the respective security issuers. A decline of fair value below cost basis is considered an other-than-temporary impairment if the Company has the intent to sell the security or it is more likely than not that the company will be required to sell the security before recovery of the entire cost basis. Regardless of the Company’s intent or requirement to sell the security, an impairment is considered other-than-temporary if the Company does not expect to recover the entire cost basis. In those instances, an impairment charge equal to the difference between fair value and the cost basis is recorded in other income (expense), on the condensed statements of operations and comprehensive loss.

 

The amortized or accreted cost basis of the marketable securities approximates its fair value.

10


 

Restricted Cash

Restricted cash represents cash held by a financial institution as collateral for a letter of credit securing the Company's operating lease for office and laboratory space, which is classified within non-current assets on the condensed balance sheets.

Comprehensive Loss

Comprehensive loss consists of two components: net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element of stockholder's equity and are excluded from net loss. For the three months ended March 31, 2022, other comprehensive loss consists of unrealized gains and losses on marketable securities.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of employees’ salaries and related benefits, including stock-based compensation and termination expenses for employees engaged in research and development efforts, allocated overhead including rent, depreciation, information technology and utilities, contracted services, license fees, and external expenses to conduct and support the Company’s operations that are directly attributable to the Company’s research and development efforts. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Costs incurred in obtaining technology licenses including upfront and milestone payments incurred under the Company’s licensing agreements are recorded as expense in the period in which they are incurred, provided that the licensed technology, method or process has no alternative future uses other than for the Company’s research and development activities. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone.

Research Contract Costs and Accruals

The Company enters into various research and development and other agreements with commercial firms, researchers, and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates.

Stock-Based Compensation

The Company recognizes compensation expense based on estimated fair values for all stock-based payment awards made to the Company’s employees, nonemployee directors and consultants that are expected to vest. The valuation of stock option awards is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the inputs used in the calculations, such as the fair value of the common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. The valuation of restricted stock awards is measured by the fair value of the Company’s common stock on the date of the grant.

For all stock options granted, the Company calculated the expected term using the simplified method (derived from the average midpoint between the weighted average vesting period and the contractual term of the award) for “plain vanilla” stock option awards, as the Company has limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. The estimate of expected volatility is based on comparative companies’ volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records forfeitures when they occur.

Prior to the IPO, the fair value of the shares of common stock underlying the stock options was determined by the board of directors with the assistance of management and input from an independent third-party valuation firm, as there was no public market for the common stock. The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors, including the valuation of comparable companies, sales of redeemable convertible preferred stock, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors. Subsequent to the IPO, the Company determines the fair value using the market closing price of its common stock on the date of grant.

11


 

The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

Income Taxes

The Company did not record an income tax provision for the three months ended March 31, 2022 and 2021, as net operating losses have been incurred since inception. The net deferred tax assets generated from net operating losses are fully offset by a valuation allowance.

Net Loss Per Share Attributable to Common Stockholders

Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis.

Prior to the IPO, the Company’s participating securities included the Company’s redeemable convertible preferred stock, as the holders were entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of redeemable convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, did not and do not have a contractual obligation to share in losses of the Company, and therefore during periods of loss there is no allocation required under the two-class method.

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive shares are not assumed to have been issued if their effect is anti-dilutive.

Leases

The Company leases office and laboratory space under operating leases and determines if the arrangement is a lease at inception. These leases contain lease and non-lease components. Non-lease components include payments for maintenance, utilities, real estate taxes, and management fees. The lease and non-lease components are combined and accounted as a single lease component. Payments made under operating leases (net of any incentive received from the lessors) are recorded on a straight-line basis over the term of the lease.

These leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on the Company's understanding of what the credit rating would be in a similar economic environment. Operating leases are included in operating lease right-of-use assets and operating lease liabilities, current and non-current, on the balance sheets.

Leases may include one or more options to renew. The Company does not assume renewals in determination of the lease term unless the renewals are deemed to be reasonably assured. The lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Restructuring Costs

Restructuring costs primarily consist of contract termination costs related to leases and employee termination costs. The Company recognizes restructuring charges when the liability has been incurred. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations, cease use date of leased property and equipment, and the timing of employees leaving the Company.

12


 

Accretion expenses related to restructuring costs are included in general and administrative expenses.

Fair Value Measurements

Fair value is defined as the exchange price to sell an asset or transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value should be based on the assumptions market participants would use when pricing the asset or liability. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 – Quoted unadjusted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.

Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed in the condensed financial statements on a recurring basis. The Company’s financial instruments consist of cash and cash equivalents, marketable securities, prepaid expenses and other current assets, accounts payable and accrued expenses. Cash and marketable securities are reported at their respective fair values on our condensed balance sheets. The remaining financial instruments are reported on our condensed balance sheets at cost, which approximate their fair value due to their short-term nature.

Money market funds are highly liquid investments that are actively traded. The pricing information for the Company’s money market funds are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

The Company’s non-marketable equity securities (Note 6) are measured at fair value using an option pricing valuation methodology. The option pricing methodology relies on risk-neutral valuation which calculates the value of an asset by discounting the expected value of its future payoffs at the risk-free rate of return. The fair value of the non-marketable equity securities is derived from quoted prices for similar instruments and observable inputs in active markets. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between Levels 1, 2, or 3 for any of the periods presented. As of March 31, 2022, and December 31, 2021, the Company held $105.3 million and $73.8 million, respectively, in money market funds.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from Accounting Standards Codification (ASC) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance became effective for the Company beginning on the first quarter of 2021 on a prospective basis. The Company adopted this

standard on January 1, 2021, and it did not have a material impact on the Company's condensed financial statements or related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), subsequently amended by ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01 and ASU 2019-10, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees of a contract. 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. 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 on the balance sheets. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. The Company adopted this standard on January 1, 2022, using the optional transition method, which allows for the prospective application of the standard. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the standard, which allowed the Company to carry forward historical lease classification, to not reassess prior conclusions related to initial direct costs, and to not reassess whether any expired or existing contracts are or contain leases. The Company also elected the practical expedient to not separate lease and non-lease

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components for all leases. In connection with the adoption of the new guidance, the Company recognized $6.8 million of operating lease right-of-use assets and $8.5 million of operating lease liabilities and derecognized $1.6 million of restructuring lease liability, with immaterial effect to the statements of operations and comprehensive loss and cash flows.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its condensed financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of the cessation of London Interbank Offered Rate (LIBOR), the amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this amendment do not apply to contract modifications made and hedge relationships entered into or evaluated after December 31, 2022. The amendments in this ASU are elective and are effective for all entities as of March 12, 2020 through December 31, 2022. The Company continues to evaluate contractual arrangements that reference LIBOR and the impact this standard will have on its condensed financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. ASU 2020-06 is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its condensed financial statements and related disclosures.

3. OTHER FINANCIAL STATEMENT INFORMATION

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Prepaid contract costs

 

$

5,117

 

 

$

320

 

Prepaid insurance

 

 

452

 

 

 

1,193

 

Prepaid recruiting fees

 

 

258

 

 

 

253

 

Prepaid rent

 

 

219

 

 

 

219

 

Prepaid follow-on financing costs

 

 

 

 

 

275

 

Prepaid audit fees

 

 

 

 

 

123

 

Other

 

 

759

 

 

 

480

 

Total prepaid expenses and other current assets

 

$

6,805

 

 

$

2,863

 

 

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Accrued research and development contract costs

 

$

5,200

 

 

$

364

 

Accrued development milestone

 

 

2,000

 

 

 

2,000

 

Related party payable

 

 

1,640

 

 

 

1,022

 

Accrued payroll

 

 

460

 

 

 

1,458

 

Accrued legal fees

 

 

253

 

 

 

457

 

Accrued expenses and other

 

 

598

 

 

 

627

 

Total accrued expenses and other current liabilities

 

$

10,151

 

 

$

5,928

 

 

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Related party payable represents amounts due to Ares Trading S.A. (“Ares”), an affiliate of Merck KGaA, Darmstadt, Germany, related to manufacturing technology and know-how transfer services performed for atacicept pursuant to the license agreement between the Company and Ares (see Note 12).

4. NEUBASE ASSET SALE

On January 27, 2021, the Company entered into an asset purchase agreement with NeuBase Therapeutics, Inc. (“NeuBase”), whereby the Company agreed to sell all assets relating to its investment in PNAi, including all inventory, machinery, intellectual property, goodwill, and licenses, and NeuBase agreed to assume certain related liabilities. The sale of the Company’s investment in PNAi closed on April 26, 2021. The Company received $0.8 million in cash and 308,635 shares of NeuBase common stock, with a fair market value of $1.8 million based on the closing price reported on the Nasdaq Capital Market on the date the sale closed. Of the total NeuBase shares issued to the Company, 162,260 were placed in escrow to secure certain obligations under the asset purchase agreement. In connection with the sale, the Company also assigned certain leases for research and laboratory equipment to NeuBase (see Note 13). The Company recognized a gain of $2.7 million on the sale of assets to NeuBase.

As of March 31, 2022, 54,070 NeuBase shares have been released from escrow.

5. MARKETABLE SECURITIES

Marketable securities are debt securities measured at fair value on a recurring basis and accounted for as available-for-sale. These securities are classified within Level 2 in the fair value hierarchy because the Company uses quoted market prices to the extent available or alternative pricing sources to determine fair value. Marketable securities have maturities less than one year as of the condensed balance sheet date.

Unrealized gains and losses are reported as a component of other comprehensive loss. Fair value of the debt securities totaled $39.4 million as of March 31, 2022. The Company did not hold marketable debt securities as of December 31, 2021.

The following table summarizes the unrealized gains and losses in the Company's investments in marketable securities (in thousands):