torc-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended 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 No. 001-38359

 

resTORbio, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

81-3305277

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

500 Boylston Street, 13th Floor

Boston, MA

 

 

02116

(Address of principal executive offices)

 

(Zip Code)

(857) 315-5521

(Registrant’s telephone number, including area code)  

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

TORC

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth Company

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

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

As of August 13, 2019, the registrant had 36,221,660 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019

4

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2018

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

18

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

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

30

Signatures

32

 

 

i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

 

our plans to develop and commercialize RTB101 alone or in combination with rapalogs, such as everolimus or sirolimus, and other product candidates for the targeted indications and patient populations, including the therapeutic potential and clinical benefits thereof;

 

our ongoing and future clinical trials for RTB101 alone or in combination with rapalogs, such as everolimus or sirolimus, whether conducted by us or by any future collaborators, including the timing of initiation of these trials and of the anticipated results;

 

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

 

the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our intellectual property position and strategy;

 

our ability to identify additional product candidates with significant commercial potential;

 

our plans to enter into collaborations for the development and commercialization of product candidates;

 

the potential benefits of any future collaboration;

 

our expectations related to the use of cash, cash equivalents and marketable securities;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

developments relating to our competitors and our industry; and

 

the impact of government laws and regulations.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

1


PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

resTORbio, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share data)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,371

 

 

$

7,042

 

Marketable securities

 

 

111,425

 

 

 

100,986

 

Prepaid expenses

 

 

3,270

 

 

 

1,491

 

Other current assets

 

 

22

 

 

 

15

 

Total current assets

 

 

136,088

 

 

 

109,534

 

Restricted cash

 

 

245

 

 

 

84

 

Property and equipment, net

 

 

325

 

 

 

321

 

Total assets

 

$

136,658

 

 

$

109,939

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,242

 

 

$

2,989

 

Accrued liabilities

 

 

1,464

 

 

 

2,727

 

Total current liabilities

 

 

9,706

 

 

 

5,716

 

Other liabilities

 

 

11

 

 

 

19

 

Total liabilities

 

 

9,717

 

 

 

5,735

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of

   June 30, 2019 and December 31, 2018; 35,817,393 and

   28,055,344 shares issued and outstanding as of June 30, 2019 and

   December 31, 2018, respectively; 35,817,393 and 28,054,344

   shares vested as of June 30, 2019 and December 31, 2018,

   respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

227,561

 

 

 

175,635

 

Accumulated deficit

 

 

(100,794

)

 

 

(71,393

)

Accumulated other comprehensive gain (loss)

 

 

170

 

 

 

(41

)

Total stockholders’ equity

 

 

126,941

 

 

 

104,204

 

Total liabilities and stockholders’ equity

 

$

136,658

 

 

$

109,939

 

 

See accompanying notes to these condensed consolidated financial statements.

2


resTORbio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

16,553

 

 

$

11,845

 

 

$

25,405

 

 

$

19,951

 

General and administrative

 

 

2,616

 

 

 

2,268

 

 

 

5,455

 

 

 

4,362

 

Total operating expenses

 

 

19,169

 

 

 

14,113

 

 

 

30,860

 

 

 

24,313

 

Loss from operations

 

 

(19,169

)

 

 

(14,113

)

 

 

(30,860

)

 

 

(24,313

)

Other income, net

 

 

847

 

 

 

522

 

 

 

1,478

 

 

 

863

 

Loss before income taxes

 

 

(18,322

)

 

 

(13,591

)

 

 

(29,382

)

 

 

(23,450

)

Income tax expense

 

 

10

 

 

 

 

 

 

19

 

 

 

 

Net loss

 

$

(18,332

)

 

$

(13,591

)

 

$

(29,401

)

 

$

(23,450

)

Net loss per share, basic and diluted

 

$

(0.51

)

 

$

(0.48

)

 

$

(0.91

)

 

$

(0.95

)

Weighted-average common shares used in computing net loss

   per share, basic and diluted

 

 

35,684,368

 

 

 

28,046,315

 

 

 

32,248,646

 

 

 

24,802,713

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(18,332

)

 

$

(13,591

)

 

$

(29,401

)

 

$

(23,450

)

Unrealized gain (loss) on marketable securities

 

 

138

 

 

 

(30

)

 

 

211

 

 

 

(30

)

Comprehensive loss

 

$

(18,194

)

 

$

(13,621

)

 

$

(29,190

)

 

$

(23,480

)

 

See accompanying notes to these condensed consolidated financial statements.

 

 

3


resTORbio, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Shareholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2018

 

 

28,054,344

 

 

$

3

 

 

$

175,635

 

 

$

(71,393

)

 

$

(41

)

 

$

104,204

 

Issuance of common stock upon closing of public offering, net of

   issuance costs of $3,455

 

 

7,200,000

 

 

 

1

 

 

 

46,584

 

 

 

 

 

 

 

 

 

46,585

 

Vesting of restricted shares

 

 

500

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

662

 

 

 

 

 

 

 

 

 

662

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,069

)

 

 

 

 

 

(11,069

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

73

 

 

 

73

 

Balance at March 31, 2019

 

 

35,254,844

 

 

 

4

 

 

 

222,881

 

 

 

(82,462

)

 

 

32

 

 

 

140,455

 

Issuance of common stock upon closing of public offering, net of

   issuance costs of $228

 

 

487,934

 

 

 

 

 

 

3,163

 

 

 

 

 

 

 

 

 

3,163

 

Issuance of common stock pursuant to the at-the-market offering,

   net of issuance costs of $64

 

 

62,663

 

 

 

 

 

 

582

 

 

 

 

 

 

 

 

 

582

 

Vesting of restricted shares

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

4,423

 

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

(15

)

Exercise of stock options

 

 

7,029

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

944

 

 

 

 

 

 

 

 

 

944

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,332

)

 

 

 

 

 

(18,332

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138

 

 

 

138

 

Balance at June 30, 2019

 

 

35,817,393

 

 

$

4

 

 

$

227,561

 

 

$

(100,794

)

 

$

170

 

 

$

126,941

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

4


resTORbio, Inc.

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except share data)

 

 

 

Series A Redeemable

Convertible Preferred Stock

 

 

Series B Redeemable

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Shareholders

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

(Deficit)

 

Balance at December 31, 2017

 

 

15,527,951

 

 

$

41,674

 

 

 

4,792,716

 

 

$

39,946

 

 

 

 

4,562,640

 

 

$

1

 

 

$

1,849

 

 

$

(33,779

)

 

$

 

 

$

(31,929

)

Conversion of convertible preferred stock

   into common stock upon the closing of

   initial public offering

 

 

(15,527,951

)

 

 

(41,674

)

 

 

(4,792,716

)

 

 

(39,946

)

 

 

 

15,870,559

 

 

 

1

 

 

 

81,619

 

 

 

 

 

 

 

 

 

81,620

 

Issuance of common stock upon closing

   of initial public offering, net of

   issuance costs of $8,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,516,667

 

 

 

1

 

 

 

89,369

 

 

 

 

 

 

 

 

 

89,370

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,096,449

 

 

 

 

 

 

865

 

 

 

 

 

 

 

 

 

865

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

316

 

 

 

 

 

 

 

 

 

316

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,859

)

 

 

 

 

 

(9,859

)

Balance at March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,046,315

 

 

 

3

 

 

 

174,018

 

 

 

(43,638

)

 

 

 

 

 

130,383

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

402

 

 

 

 

 

 

 

 

 

402

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,591

)

 

 

 

 

 

(13,591

)

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

Balance at June 30, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

28,046,315

 

 

$

3

 

 

$

174,420

 

 

$

(57,229

)

 

$

(30

)

 

$

117,164

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

5


resTORbio, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)  

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(29,401

)

 

$

(23,450

)

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

 

 

 

 

 

 

 

 

Accretion on marketable securities

 

 

(625

)

 

 

(57

)

Depreciation and amortization expense

 

 

55

 

 

 

31

 

Stock-based compensation expense

 

 

1,607

 

 

 

1,583

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

(161

)

 

 

(84

)

Prepaid expenses and other current assets

 

 

(1,786

)

 

 

(1,573

)

Accounts payable

 

 

5,197

 

 

 

3,119

 

Accrued liabilities

 

 

(1,263

)

 

 

2,819

 

Funding advance

 

 

 

 

 

500

 

Other liabilities

 

 

(8

)

 

 

25

 

Net cash used in operating activities

 

 

(26,385

)

 

 

(17,087

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(48

)

 

 

(304

)

Maturities of marketable securities

 

 

67,500

 

 

 

 

Purchases of marketable securities

 

 

(77,104

)

 

 

(74,543

)

Net cash used in investing activities

 

 

(9,652

)

 

 

(74,847

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering, net of issuance costs

 

 

49,748

 

 

 

89,938

 

Proceeds from at-the-market offering, net of issuance costs

 

 

627

 

 

 

 

Proceeds from exercise of stock options

 

 

(9

)

 

 

 

Net cash provided by financing activities

 

 

50,366

 

 

 

89,938

 

Net increase (decrease) in cash and cash equivalents

 

 

14,329

 

 

 

(1,996

)

Cash and cash equivalents at beginning of period

 

 

7,042

 

 

 

53,349

 

Cash and cash equivalents at end of period

 

$

21,371

 

 

$

51,353

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

11

 

 

$

12

 

Conversion of redeemable convertible preferred stock into common stock

 

$

 

 

$

81,620

 

Issuance costs associated with at-the-market offering included in accounts payable

 

$

45

 

 

$

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

6


resTORbio, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

resTORbio, Inc. (collectively referred to with its wholly-owned, controlled subsidiary, resTORbio Securities Corp. as “resTORbio” or the “Company”) was incorporated in the State of Delaware on July 5, 2016. The Company is a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat aging-related diseases. The Company’s principal operations are located in Boston, Massachusetts.

Since inception, the Company has been primarily involved in research and development activities. The Company devotes substantially all of its efforts to product research and development, initial market development and raising capital. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the life sciences industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, product liability, and dependence on third parties and key individuals.

Public Offering

On March 22, 2019, the Company completed an underwritten public offering, whereby the Company sold 7,200,000 shares of its common stock at a price of $6.95 per share. The aggregate net proceeds received by the Company from the offering were approximately $46.6 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $3.5 million. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 1,080,000 shares of common stock at the public offering price, less underwriting discounts and commissions. On April 10, 2019, the Company sold an additional 487,934 shares of its common stock at a price of $6.95 per share. The aggregate net proceeds received by the Company were approximately $3.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $0.2 million. The remainder of the option expired unexercised.

At-the-Market Offering

On February 1, 2019, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the Securities and Exchange Commission (the “SEC”) in relation to the registration of common stock, preferred stock, warrants and/or units of any combination thereof (collectively, the “Securities”). The Company also simultaneously entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with SVB Leerink LLC and Cantor Fitzgerald & Co. (collectively, the “Sales Agents”), to provide for the offering, issuance and sale by the Company of up to an aggregate of $50.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf and subject to the limitations thereof. The Company will pay to the Sales Agents cash commissions of 3.0 percent of the gross proceeds of sales of common stock under the Sales Agreement. In June 2019, based on settlement date, the Company sold approximately 63,000 shares of common stock at a weighted-average selling price of $10.30 per share in accordance with the Sales Agreement for aggregate net proceeds of $0.6 million, after payment of cash commissions of 3.0 percent of the gross proceeds to the Sales Agent and incurred issuance costs of approximately $45,000 related to legal, accounting, and other fees in connection with the sale. As of June 30, 2019, $49.4 million remained available for sale under the Controlled Equity Offering Sales Agreement.

Liquidity

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses from operations since inception and has an accumulated deficit of $100.8 million as of June 30, 2019. As of June 30, 2019, the Company had $132.8 million of cash, cash equivalents, and marketable securities, which the Company believes will be sufficient to fund the Company’s current operating plan through at least the next twelve months from the date of filing this Quarterly Report on Form 10-Q.

7


2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position as of June 30, 2019 and the results of operations and cash flows for the interim periods ended June 30, 2019 and 2018. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 that was filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019 (the “2018 Form 10-K”). Interim results are not necessarily indicative of results for a full year or for any other interim period. The condensed consolidated financial statements include the accounts of resTORbio, Inc. and its wholly owned subsidiary, resTORbio Securities Corp. All inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as of the date of the condensed consolidated financial statements, and the reported amounts of any expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to accrued liabilities, income taxes, and stock-based compensation expense. Management bases its estimates on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances. Actual results may differ from those estimates or assumptions.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the 2018 Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three and six months ended June 30, 2019.

Fair Value Measurements

Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. The authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are as follows:

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

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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

8


The following table summarizes assets measured at fair value on a recurring basis at June 30, 2019 (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

June 30,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash

 

$

115

 

 

$

115

 

 

$

 

 

$

 

Money market funds (included in

   cash and cash equivalents)

 

 

21,256

 

 

 

21,256

 

 

 

 

 

 

 

U.S. treasury securities (included in

   marketable securities)

 

 

111,425

 

 

 

111,425

 

 

 

 

 

 

 

Total

 

$

132,796

 

 

$

132,796

 

 

$

 

 

$

 

The following table summarizes assets measured at fair value on a recurring basis at December 31, 2018 (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

December 31,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds (included in

   cash and cash equivalents)

 

$

6,804

 

 

$

6,804

 

 

$

 

 

$

 

U.S. treasury securities (included in

   cash and cash equivalents)

 

 

238

 

 

 

238

 

 

 

 

 

 

 

U.S. treasury securities (included in

   marketable securities)

 

 

100,986

 

 

 

100,986

 

 

 

 

 

 

 

Total

 

$

108,028

 

 

$

108,028

 

 

$

 

 

$

 

There have been no changes to the valuation methods utilized by the Company during the three and six months ended June 30, 2019 and 2018. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the three and six months ended June 30, 2019 and 2018.

 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize a right-of-use asset and a lease liability for operating leases, initially measured at the present value of the future lease payments, in the balance sheet. ASU 2016-02 also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-02 on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and should be applied using a retrospective transition method to each period presented. Early adoption is permitted. The Company does not expect the impact of ASU 2016-18 to be material to its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features (“ASU 2017-11”), which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the impact of ASU 2017-11 to be material to its consolidated financial statements.

9


In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which intends to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. For public entities, ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, ASU 2018-07 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASU No. 2016-10, Revenue from Contracts with Customers (“ASC 606”). The Company is currently evaluating the impact that the adoption of ASU 2018-07 will have on its consolidated financial statements.

3. Marketable Securities

As of June 30, 2019, the fair value of marketable securities by type of security was as follows (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

Description

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. government agency securities and treasuries

 

$

111,255

 

 

$

170

 

 

$

 

 

$

111,425

 

Total

 

$

111,255

 

 

$

170

 

 

$

 

 

$

111,425

 

As of December 31, 2018, the fair value of marketable securities by type of security was as follows (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

Description

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. government agency treasuries and securities

 

$

101,027

 

 

$

 

 

$

41

 

 

$

100,986

 

Total

 

$

101,027

 

 

$

 

 

$

41

 

 

$

100,986

 

 

The estimated fair value and amortized cost of the Company’s available-for-sale securities by contractual maturity are summarized as follows (in thousands):

 

 

 

June 30, 2019

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

111,255

 

 

$

111,425

 

Total

 

$

111,255

 

 

$

111,425

 

 

 

 

December 31, 2018

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

101,027

 

 

$

100,986

 

Total

 

$

101,027

 

 

$

100,986

 

 

10


4. Property and equipment, net

Property and equipment, net consists of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Leasehold improvements

 

$

68

 

 

$

65

 

Machinery and equipment

 

 

38

 

 

 

38

 

Furniture and fixtures

 

 

219

 

 

 

194

 

Computers

 

 

107

 

 

 

76

 

Office equipment

 

 

11

 

 

 

11

 

Software

 

 

22

 

 

 

22

 

Total property and equipment

 

 

465

 

 

 

406

 

Less: accumulated depreciation

 

 

(140

)

 

 

(85

)

Property and equipment, net

 

$

325

 

 

$

321

 

 

Depreciation and amortization expense was $28,000 and $55,000 for the three and six months ended June 30, 2019, respectively. Depreciation and amortization expense was $22,000 and $31,000 for the three and six months ended June 30, 2018, respectively.

5. Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Accrued payroll and related expenses

 

$

1,021

 

 

$

1,189

 

Accrued research and development expenses

 

 

299

 

 

 

1,028

 

Other

 

 

144

 

 

 

510

 

Total accrued liabilities

 

$