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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended 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: 001-38096

 

G1 THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3648180

( State or other jurisdiction of
incorporation or organization)

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

 

 

        

79 T.W. Alexander Drive 4501 Research Commons, Suite 100
        Research Triangle Park, NC 27709

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (919) 213-9835

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

GTHX

The Nasdaq Stock Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

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

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

As of July 31, 2019, the registrant had 37,522,593 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Stockholders’ Equity

3

 

Condensed Statements of Cash Flows

4

 

Notes to Unaudited Condensed Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1A.

Risk Factors

27

Item 6.

Exhibits

28

Signatures

29

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

G1 Therapeutics, 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

 

$

324,911

 

 

$

369,290

 

Prepaid expenses and other current assets

 

 

3,366

 

 

 

843

 

Total current assets

 

 

328,277

 

 

 

370,133

 

Property and equipment, net

 

 

1,515

 

 

 

1,137

 

Restricted Cash

 

 

500

 

 

 

 

Operating lease assets

 

 

1,361

 

 

 

 

Total assets

 

$

331,653

 

 

$

371,270

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,292

 

 

$

3,377

 

Accrued expenses

 

 

14,232

 

 

 

8,985

 

Other current liabilities

 

 

369

 

 

 

 

Total current liabilities

 

 

17,893

 

 

 

12,362

 

Operating lease liabilities

 

 

1,090

 

 

 

 

Other non-current liabilities

 

 

 

 

 

88

 

Total liabilities

 

 

18,983

 

 

 

12,450

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 120,000,000 shares authorized as of

    June 30, 2019 and December 31, 2018, respectively; 37,530,607 and 37,268,792 shares

    issued as of June 30, 2019 and December 31, 2018, respectively; 37,503,941 and

    37,242,126 shares outstanding as of June 30, 2019 and December 31, 2018, respectively

 

 

4

 

 

 

4

 

Treasury stock, 26,666 shares

 

 

(8

)

 

 

(8

)

Additional paid-in capital

 

 

581,722

 

 

 

573,230

 

Accumulated deficit

 

 

(269,048

)

 

 

(214,406

)

Total stockholders’ equity

 

 

312,670

 

 

 

358,820

 

Total liabilities and stockholders' equity

 

$

331,653

 

 

$

371,270

 

 

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

 

1


 

G1 Therapeutics, Inc.

Condensed Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,489

 

 

 

18,385

 

 

 

41,569

 

 

 

35,732

 

General and administrative

 

 

9,094

 

 

 

3,268

 

 

 

16,896

 

 

 

6,646

 

Total operating expenses

 

 

32,583

 

 

 

21,653

 

 

 

58,465

 

 

 

42,378

 

Operating loss

 

 

(32,583

)

 

 

(21,653

)

 

 

(58,465

)

 

 

(42,378

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

1,893

 

 

 

785

 

 

 

3,823

 

 

 

1,099

 

Total other income, net

 

 

1,893

 

 

 

785

 

 

 

3,823

 

 

 

1,099

 

Net loss

 

$

(30,690

)

 

$

(20,868

)

 

$

(54,642

)

 

$

(41,279

)

Net loss per share, basic and diluted

 

$

(0.82

)

 

$

(0.64

)

 

$

(1.46

)

 

$

(1.33

)

Weighted average common shares outstanding, basic and diluted

 

 

37,470,926

 

 

 

32,781,921

 

 

 

37,434,156

 

 

 

31,080,650

 

 

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


2


 

G1 Therapeutics, Inc.

Condensed Statements of Stockholders’ Equity (unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

Common stock

 

 

Treasury stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Total stock-

holders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2018

 

 

37,268,792

 

 

$

4

 

 

 

(26,666

)

 

$

(8

)

 

$

573,230

 

 

$

(214,406

)

 

$

358,820

 

Exercise of common stock options

 

 

218,890

 

 

 

 

 

 

 

 

 

 

 

 

269

 

 

 

 

 

 

269

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,804

 

 

 

 

 

 

3,804

 

Net loss during quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,952

)

 

 

(23,952

)

Balance at March 31, 2019

 

 

37,487,682

 

 

$

4

 

 

 

(26,666

)

 

$

(8

)

 

$

577,303

 

 

$

(238,358

)

 

$

338,941

 

Exercise of common stock options

 

 

42,925

 

 

 

 

 

 

 

 

 

 

 

 

678

 

 

 

 

 

 

678

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,741

 

 

 

 

 

 

3,741

 

Net loss during quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,690

)

 

 

(30,690

)

Balance at June 30, 2019

 

 

37,530,607

 

 

$

4

 

 

 

(26,666

)

 

$

(8

)

 

$

581,722

 

 

$

(269,048

)

 

$

312,670

 

 

 

 

 

 

Common stock

 

 

Treasury stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Total stock-

holders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2017

 

 

28,420,511

 

 

$

3

 

 

 

(26,666

)

 

$

(8

)

 

$

222,511

 

 

$

(129,118

)

 

$

93,388

 

Public offering (Follow-on Financings)

 

 

3,910,000

 

 

 

 

 

 

 

 

 

 

 

 

108,424

 

 

 

 

 

 

108,424

 

Exercise of common stock options

 

 

381,040

 

 

 

 

 

 

 

 

 

 

 

 

647

 

 

 

 

 

 

647

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,594

 

 

 

 

 

 

1,594

 

Stock financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(488

)

 

 

 

 

 

(488

)

Net loss during quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,410

)

 

 

(20,410

)

Balance at March 31, 2018

 

 

32,711,551

 

 

$

3

 

 

 

(26,666

)

 

$

(8

)

 

$

332,688

 

 

$

(149,528

)

 

$

183,155

 

Public offering (ATM)

 

 

255,007

 

 

 

 

 

 

 

 

 

 

 

 

12,059

 

 

 

 

 

 

12,059

 

Exercise of common stock options

 

 

137,873

 

 

 

 

 

 

 

 

 

 

 

 

261

 

 

 

 

 

 

261

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,101

 

 

 

 

 

 

2,101

 

Stock financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(184

)

 

 

 

 

 

(184

)

Net loss during quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,868

)

 

 

(20,868

)

Balance at June 30, 2018

 

 

33,104,431

 

 

$

3

 

 

 

(26,666

)

 

$

(8

)

 

$

346,925

 

 

$

(170,396

)

 

$

176,524

 

 

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

 

 

 

 

 

 

 

 

 

 

 

3


 

G1 Therapeutics, Inc.

Condensed Statements of Cash Flows (unaudited)

(amounts in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(54,642

)

 

$

(41,279

)

Adjustments to reconcile net loss to net cash used in operating

   activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

129

 

 

 

67

 

Stock-based compensation

 

 

7,545

 

 

 

3,695

 

Gain/loss on disposal of property and equipment

 

 

 

 

 

7

 

Change in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(1,828

)

 

 

(813

)

Accounts payable

 

 

(713

)

 

 

(1,009

)

Accrued expenses and other liabilities

 

 

5,075

 

 

 

3,060

 

Deferred rent

 

 

 

 

 

3

 

Net cash used in operating activities

 

 

(44,434

)

 

 

(36,269

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(392

)

 

 

(184

)

Investment in restricted cash account

 

 

(500

)

 

 

 

Net cash used in investing activities

 

 

(892

)

 

 

(184

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from stock options and warrants exercised

 

 

947

 

 

 

908

 

Proceeds from public offerings, net of underwriting fees and commissions

 

 

 

 

 

120,483

 

Payment of public offering costs

 

 

 

 

 

(523

)

Net cash provided by financing activities

 

 

947

 

 

 

120,868

 

Net change in cash, cash equivalents and restricted cash

 

 

(44,379

)

 

 

84,415

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

369,290

 

 

 

103,812

 

End of period

 

$

324,911

 

 

$

188,227

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Prepaid project costs in accounts payable

 

 

522

 

 

 

 

Purchases of equipment in accounts payable

 

 

106

 

 

 

91

 

Costs for public offering in accounts payable and accrued expenses

 

 

 

 

 

148

 

 

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

4


 

G1 Therapeutics, Inc.

Notes to financial statements

(unaudited)

1. Business Description

G1 Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company based in Research Triangle Park, North Carolina focused on the discovery, development and commercialization of novel small molecule therapeutics for the treatment of patients with cancer. The Company was incorporated on May 19, 2008 in the state of Delaware.

The Company is advancing three clinical-stage programs. Trilaciclib is a first-in-class therapy designed to improve outcomes for patients being treated with chemotherapy. Lerociclib is a differentiated oral CDK4/6 inhibitor designed to enable more effective combination treatment strategies across multiple oncology indications. G1T48 is a potential best-in-class oral selective estrogen receptor degrader (SERD) for the treatment of ER+ breast cancer. The Company also has an active discovery program focused on cyclin-dependent kinase targets. The Company owns the global rights to all of its product candidates.

  

Trilaciclib, the Company’s most advanced clinical-stage candidate, is a first-in-class therapy designed to preserve bone marrow and immune system function during chemotherapy and improve patient outcomes. The FDA has granted Breakthrough Therapy Designation for trilaciclib based on myelopreservation data from three randomized, double-blind, placebo-controlled small cell lung cancer (SCLC) clinical trials, as well as safety data collected across all completed and ongoing clinical trials. The Breakthrough Therapy program is designed to expedite development and review of drugs intended for serious or life-threatening conditions. Based on written feedback from its end-of-Phase 2 meeting with the U.S. Food and Drug Administration (FDA) and discussions with European regulatory authorities, the Company plans to submit marketing applications in the U.S. and Europe for trilaciclib for myelopreservation in SCLC in 2020, with a pre-new drug application (NDA) meeting scheduled for next month. In June, the Company reported preliminary data from a randomized Phase 2 trial in triple-negative breast cancer (TNBC) showing statistically significant improvement in overall survival. The Company will present these data a medical conference later this year and will discuss these findings with the FDA next month. The Company plans to initiate additional clinical trials beginning in 2020 to evaluate the use of trilaciclib in additional tumor types and in combination with different chemotherapy regimens.

 

Lerociclib is a differentiated oral CDK4/6 inhibitor being developed for use in combination with other targeted therapies in multiple oncology indications, including estrogen receptor-positive, HER2-negative (ER+, HER2-) breast cancer. In 2018, the Company reported encouraging preliminary Phase 1b data from its Phase 1/2 trial in ER+, HER2- breast cancer (in combination with fulvestrant) and will report additional Phase 1b/2a data from this trial in the fourth quarter of 2019. In 2020, the Company plans to initiate a pivotal trial to evaluate lerociclib in combination with fulvestrant for the treatment of ER+, HER2- breast cancer. The Company’s plans for lerociclib include future combinations in other cancers, such as non-small cell lung cancer (NSCLC), where we initiated a Phase 1b/2 trial in 2018 in combination with the epidermal growth factor receptor (EGFR) tyrosine kinase inhibitor, Tagrisso® (osimertinib). Data from this trial will be presented at the European Society for Medical Oncology (ESMO) 2019 Congress. We believe that lerociclib has the potential to be best-in-class versus marketed CDK4/6 inhibitors for patients with ER+, HER2- breast cancer and to become a backbone therapy of multiple combination targeted therapy regimens for other tumors.

 

The Company is developing G1T48, a potential best-in-class oral SERD, as a monotherapy and in combination with oral CDK4/6 inhibitors (including lerociclib) for the treatment of ER+ breast cancer. In 2018, the Company initiated a Phase 1/2a clinical trial in ER+, HER2- breast cancer and will report preliminary data at the ESMO 2019 Congress. G1 is planning to initiate a pivotal trial of G1T48 in combination with an oral CDK4/6 inhibitor in 2020.

 

All three investigational therapies have the potential to become new standards of care for women with breast cancer and provide benefit in the early stages of their disease, including in the adjuvant setting.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations for the interim periods presented. 

The information presented in the condensed financial statements and related notes as of June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, is unaudited. The results for the three months ended June 30, 2019 are not necessarily

5


 

indicative of the results expected for the full fiscal year or any future period.  These interim financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 28, 2019, as amended on April 26, 2019 (collectively, “2018 Form 10-K”). The December 31, 2018 condensed balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements.

Reclassifications

The Company has reclassified certain prior period amounts in its condensed statements of cash flows to conform to the current period presentation. The reclassification relates to separately presenting accounts payable, accrued expenses, and deferred rent, which were previously included in the change in the accounts payable and accrued expenses caption. For the six months ended June 30, 2018, the Company reclassified $1.0 million into changes in accounts payable caption, $3.1 million into changes in the accrued expenses caption, and $3 thousand into the changes in deferred rent caption.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, estimates related to accrued expenses, accrued external clinical costs, stock-based compensation expense and deferred tax asset valuation allowance.  The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances.  Actual results could differ from those estimates.

 

Research and Development

Research and development expenses consist of costs incurred to further the Company’s research and development activities and include salaries and related employee benefits, manufacturing of pharmaceutical active ingredients and drug products, costs associated with clinical trials, nonclinical activities, regulatory activities, research-related overhead expenses and fees paid to expert consultants, external service providers and contract research organizations which conduct certain research and development activities on behalf of the Company. Costs incurred in the research and development of products are charged to research and development expense as incurred.

Each reporting period, the Company estimates and accrues expenses, the largest of which is related to accrued research and development expenses. This process involves reviewing contracts and purchase orders, identifying services that have been performed on the Company’s behalf, and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual costs.

Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided by vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time

Income taxes

The Company did not record a federal or state income tax benefit for the six months ended June 30, 2019 due to its conclusion that a full valuation allowance is required against the Company’s deferred tax assets.

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

6


 

In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, the Company reflects in the financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only when it is considered ‘more-likely-than-not’ that the position taken will be sustained by a taxing authority. As of June 30, 2019 and December 31, 2018, the Company had no unrecognized income tax benefits and correspondingly there is no impact on the Company’s effective income tax rate associated with these items. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying statements of operations. As of June 30, 2019 and December 31, 2018, the Company had no such accruals.

The Company had federal and state operating loss carryforwards of approximately $191.5 million that expire beginning in 2024 as of its fiscal year ending December 31, 2018 prior to any reductions under Section 382 of the Internal Revenue Code of 1986, as amended. Section 382 provides that a corporation that undergoes an “ownership change”, as defined therein, is subject to limitations on its ability to use its pre-change net operating loss carryforwards to offset future taxable income.

In April 2019, the Company completed an evaluation study whether an “ownership change” had occurred and determined that the limitation would be approximately $8.0 million, thereby reducing the net operating loss at June 30, 2019 to approximately $183.5 million. The Company continues to maintain a valuation allowance on the remaining NOL as it believes that it is more likely than not that all of the deferred tax asset associated with the NOLs will not be realized regardless of whether an “ownership change” has occurred.

Stock-Based Compensation

The primary type of stock-based payments utilized by the Company are stock options. The Company accounts for stock-based employee compensation arrangements by measuring the cost of employee services received in exchange for all equity awards granted based on the fair value of the award on the grant date. The fair value of each employee stock option is estimated on the date of grant using an options pricing model. The Company currently uses the Black-Scholes valuation model to estimate the fair value of its share-based payments. The model requires management to make a number of assumptions including expected volatility, expected life, risk-free interest rate and expected dividends.

The Company accounts for stock-based non-employee compensation arrangements by recording the expense of such services based on the fair value of the equity instrument as estimated using the Black-Scholes pricing model. The fair value of the equity instrument is charged to operating expense over the term of the service agreement. In accordance with the implementation of ASU No. 2018-07 on January 1, 2019, the fair value of non-employee stock options will no longer be re-measured each reporting period.

 

Leases

We determine if an arrangement is a lease at inception. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in operating lease assets, other current liabilities, and operating lease liabilities on our balance sheet at June 30, 2019. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, Topic 840. See “Adoption of New Accounting Standards – Impact of Adoption of Topic 842” below, for more information about the impact of the adoption of Topic 842.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718, Compensation – Stock Compensation, to include share-based payments issued to non-employees for goods or services. Consequently, non-employees and employees will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, but not earlier than the adoption of Topic 606, Revenue from

7


 

Contracts with Customers. The Company adopted ASU 2018-07 on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. In January 2019, the Company adopted ASU 2016-02 using the modified retrospective transition method with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with our historical reporting under previous lease guidance, ASC Topic 840. As part of the adoption, we have elected to account for separate lease and associated non-lease components as a single lease component for our real estate leases.

Impact of Adoption of Topic 842

With the adoption of Topic 842 on January 1, 2019, the Company recognized operating lease assets and operating lease liabilities of $1.5 million and $1.6 million, respectively, with the difference due to the de-recognition of current and non-current deferred rent. There was no impact to the opening accumulated deficit as of January 1, 2019.

The impact of the adoption of Topic 842 on the accompanying balance sheet as of January 1, 2019 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Adjustments Due to the Adoption of Topic 842

 

 

January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease assets

 

$

 

 

$

1,533

 

 

$

1,533

 

Accrued expenses

 

 

8,985

 

 

 

(9

)

 

 

8,976

 

Operating lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

352

 

 

 

352

 

Non-current operating lease liabilities

 

 

 

 

 

1,278

 

 

 

1,278

 

Other non-current liabilities

 

 

88

 

 

 

(88

)

 

 

 

Stockholders' equity

 

 

358,820

 

 

 

 

 

 

358,820

 

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU No. 2018-15, Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a cloud-based hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual and interim reporting periods beginning after December 15, 2019, and early adoption is permitted. The amendments under ASU 2018-15 may be applied either retrospectively or prospectively to all implementation costs incurred after adoption. The Company is evaluating the impact of ASU 2018-15 on its financial statements and the timing of adoption.

 

 

 

3. Fair Value Measurements

The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:

Level 1

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

8


 

Level 2

Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature.

At June 30, 2019 and December 31, 2018 these financial instruments and respective fair values have been classified as follows (in thousands):

 

 

 

Quoted prices

in active

markets for

identical

assets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

other

unobservable

inputs

(Level 3)

 

 

Balance at

June 30,

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

307,607

 

 

$

 

 

$

 

 

$

307,607

 

Certificates of Deposit

 

 

15,700

 

 

 

 

 

 

 

 

 

15,700

 

Total assets at fair value:

 

$

323,307

 

 

$

 

 

$

 

 

$

323,307

 

 

 

 

Quoted prices

in active

markets for

identical

assets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

other

unobservable

inputs

(Level 3)

 

 

Balance at

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

352,934

 

 

$

 

 

$

 

 

$

352,934

 

Certificates of Deposit

 

 

15,501

 

 

 

 

 

 

 

 

 

15,501

 

Total assets at fair value:

 

$

368,435

 

 

$

 

 

$

 

 

$

368,435

 

 

During the three and six months ended June 30, 2019 and the year ended December 31, 2018, there were no changes in valuation methodology.

 

4. Property and equipment

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

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Computer equipment

 

$

281

 

 

$

246

 

Laboratory equipment

 

 

613

 

 

 

611

 

Furniture and fixtures

 

 

297

 

 

 

293

 

Leasehold improvements

 

 

238

 

 

 

238

 

Construction in progress

 

 

535

 

 

 

71

 

Accumulated depreciation

 

 

(449

)

 

 

(322

)

Property and equipment, net

 

$

1,515

 

 

$

1,137

 

 

Depreciation expense relating to property and equipment was $65 thousand and $129 thousand for the three and six months ended June 30, 2019, respectively and $35 thousand and $67 thousand for the three and six months ended June 30, 2018, respectively.  

5. Patent license agreement

On November 23, 2016, the Company entered into a license agreement with the Board of Trustees of the University of Illinois (“the University”), which was amended on March 24, 2017.  Pursuant to the license agreement, as amended, the University licensed patent

9


 

rights to the Company, with rights of sublicense, to make, have made, use, import, sell and offer for sale products covered by certain patent rights owned by the University. The rights licensed to the Company are exclusive, worldwide, non-transferable rights, for all fields of use. Under the terms of the agreement the Company paid a one-time only, non-refundable license issue fee in the amount of $500 thousand which was charged to research and development expense in the fourth quarter of 2016.

The Company is also obligated to pay annual maintenance fees to the University. All annual minimum payments are fully creditable against any royalty payments made by the Company. Under the terms of the agreement, the Company must pay the University a royalty percentage on all net sales of products and a share of sublicensing revenues. In addition, the University is eligible to receive milestone payments of up to $2,625 thousand related to the initiation and execution of clinical trials and the first commercial sale of a product and the first commercial sale of a product in another country. To date, the Company has made milestone payments totaling $125 thousand, of which $0 was incurred and accrued for during the current period. The Company will be responsible for any future patent prosecution costs that may arise.

The term of the license agreement will continue until the later of (i) the expiration of the last valid claim within the patent rights covering the product in such country, (ii) the expiration of market exclusivity in such country and (iii) the 10th anniversary of the first commercial sale in such country. The University may terminate the agreement in the event (i) the Company fails to pay any amount or make any report when required to be made and fails to cure such failure within thirty (30) days after receipt of notice from the University, (ii) is in breach of any provision of the agreement and fails to remedy such breach within forty-five (45) days after receipt of notice, (iii) makes a report to the University under the agreement that is determined to be materially false, (iv) declares insolvency or bankruptcy or (v) takes an action that causes patent rights or technical information to be subject to lien or encumbrance and fails to remedy any such breach with in forty-five (45) days of receipt of notice from the University. The Company may terminate the agreement at any time on written notice to the University at least ninety (90) days prior to the termination date specified in the notice. Upon expiration or termination of the agreement, all rights revert to the University.

6. Accrued expenses

Accrued expenses are comprised as follows (in thousands):

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Accrued external research and professional fees

 

$

3,689

 

 

$

1,591

 

Accrued external clinical study costs

 

 

9,075

 

 

 

4,692

 

Accrued compensation expense

 

 

1,468

 

 

 

2,693

 

Deferred rent, current portion

 

 

 

 

 

9

 

Accrued expenses

 

$

14,232

 

 

$