alxo-10q_20200630.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, 2020

OR

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

For the transition period from         to

Commission File Number: 001-39386

 

ALX ONCOLOGY HOLDINGS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

85-0642577

(State or other jurisdiction of

incorporation or organization)

 

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

866 Malcolm Road, Suite 100

Burlingame, California

 

94010

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: 650-466-7125

 

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 $0.001 per share

 

ALXO

 

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 21, 2020, the registrant had 36,967,320 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019

3

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

34

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

 

Signatures

82

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy, product candidates, planned preclinical studies and clinical trials, results of clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about: our financial performance; the sufficiency of our existing cash to fund our future operating expenses and capital expenditure requirements; the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing; our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and our ability to grow a sales team; the implementation of our strategic plans for our business and product candidates; our ability to obtain and maintain regulatory approval of our product candidates and the timing or likelihood of regulatory filings and approvals, including our expectation to seek special designations, such as orphan drug designation, for our product candidates for various diseases; our reliance on third parties to conduct preclinical research activities, and for the manufacture of our product candidates; the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates; the progress and focus of our current and future clinical trials, and the reporting of data from those trials; our ability to advance product candidates into and successfully complete clinical trials; the ability of our clinical trials to demonstrate the safety and efficacy of our product candidates, and other positive results; the success of competing therapies that are or may become available; developments relating to our competitors and our industry, including competing product candidates and therapies; our plans relating to the further development and manufacturing of our product candidates, including additional indications that we may pursue; existing regulations and regulatory developments in the United States and other jurisdictions; our potential and ability to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved; our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates; our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available; the scope of protection we are able to establish and maintain for intellectual property rights, including our technology platform and product candidates; our ability to retain the continued service of our key personnel and to identify, hire, and then retain additional qualified personnel; our expectations regarding the impact of the COVID-19 pandemic on our business; our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and our anticipated use of our existing cash and cash equivalents and the proceeds from our initial public offering.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

 

 

 


PART I—FINANCIAL INFORMATION

Item 1 – Financial Statements

ALX Oncology Holdings Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,103

 

 

$

9,017

 

Receivables due from related-party

 

 

527

 

 

 

536

 

Prepaid expenses and other current assets

 

 

1,393

 

 

 

256

 

Assets held for sale

 

 

641

 

 

 

 

Total current assets

 

 

100,664

 

 

 

9,809

 

Property and equipment, net

 

 

37

 

 

 

860

 

Other assets

 

 

2,411

 

 

 

7

 

Total assets

 

$

103,112

 

 

$

10,676

 

 

 

 

 

 

 

 

 

 

Liabilities, convertible preferred stock and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,865

 

 

$

3,748

 

Accrued expenses and other current liabilities

 

 

4,140

 

 

 

1,236

 

Term loan - current

 

 

1,714

 

 

 

 

Total current liabilities

 

 

7,719

 

 

 

4,984

 

Term loan - non-current

 

 

3,928

 

 

 

5,421

 

Other non-current liabilities

 

 

820

 

 

 

412

 

Deferred rent

 

 

 

 

 

135

 

Total liabilities

 

 

12,467

 

 

 

10,952

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 9,297,100 and 9,421,633

   shares authorized as of June 30, 2020 and December 31, 2019, respectively;

   9,297,081 shares issued and outstanding as of June 30, 2020 and December 31, 2019,

   respectively; aggregate liquidation preference of $75,412 and $73,571 as of June 30,

   2020 and December 31, 2019, respectively

 

 

60,933

 

 

 

60,933

 

Series B convertible preferred stock, $0.001 par value; 1,108,675 and 2,145,370 shares

   authorized as of June 30, 2020 and December 31, 2019, respectively; 1,016,727

   shares issued and outstanding as of June 30, 2020 and December 31, 2019,

   respectively; aggregate liquidation preference of $10,304 and $10,014 as of

   June 30, 2020 and December 31, 2019, respectively

 

 

9,430

 

 

 

9,430

 

Series C convertible preferred stock, $0.001 par value; 11,055,981 and 0 shares

   authorized as of June 30, 2020 and December 31, 2019, respectively; 11,055,966

   and 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019,

   respectively; aggregate liquidation preference of $107,504 and $0 as of June 30,

   2020 and December 31, 2019, respectively

 

 

104,680

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 1,519,618,271 shares authorized; 3,166,946 shares

    issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

5,166

 

 

 

2,140

 

Accumulated deficit

 

 

(89,567

)

 

 

(72,782

)

Total stockholders’ deficit

 

 

(84,398

)

 

 

(70,639

)

Total liabilities, convertible preferred stock and stockholders’ deficit

 

$

103,112

 

 

$

10,676

 

 

See accompanying notes to these condensed consolidated financial statements (unaudited).

1


ALX ONCOLOGY HOLDINGS INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Related-party revenue

 

$

527

 

 

$

1,295

 

 

$

1,182

 

 

$

2,327

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,663

 

 

 

3,628

 

 

 

11,491

 

 

 

7,361

 

General and administrative

 

 

3,172

 

 

 

679

 

 

 

4,645

 

 

 

1,267

 

Cost of services for related-party revenue

 

 

479

 

 

 

1,177

 

 

 

1,075

 

 

 

2,115

 

Total operating expenses

 

 

11,314

 

 

 

5,484

 

 

 

17,211

 

 

 

10,743

 

Loss from operations

 

 

(10,787

)

 

 

(4,189

)

 

 

(16,029

)

 

 

(8,416

)

Interest expense

 

 

(219

)

 

 

 

 

 

(434

)

 

 

 

Other expense, net

 

 

(305

)

 

 

 

 

 

(298

)

 

 

(2

)

Loss before income taxes

 

 

(11,311

)

 

 

(4,189

)

 

 

(16,761

)

 

 

(8,418

)

Income tax provision

 

 

(20

)

 

 

(8

)

 

 

(24

)

 

 

(17

)

Net loss and comprehensive loss

 

 

(11,331

)

 

 

(4,197

)

 

 

(16,785

)

 

 

(8,435

)

Cumulative dividends allocated to preferred stockholders

 

 

(2,641

)

 

 

(981

)

 

 

(4,624

)

 

 

(1,886

)

Net loss attributable to common stockholders

 

$

(13,972

)

 

$

(5,178

)

 

$

(21,409

)

 

$

(10,321

)

Net loss per share attributable to common stockholders, basic and

   diluted

 

$

(4.41

)

 

$

(1.68

)

 

$

(6.78

)

 

$

(3.39

)

Weighted-average shares of common stock used to compute net

   loss per share attributable to common stockholders, basic and

   diluted

 

 

3,164,707

 

 

 

3,087,355

 

 

 

3,157,387

 

 

 

3,047,924

 

 

See accompanying notes to these condensed consolidated financial statements (unaudited).

 

2


ALX ONCOLOGY HOLDINGS INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2018

 

 

9,297,081

 

 

$

60,933

 

 

 

 

3,161,747

 

 

$

3

 

 

$

1,758

 

 

$

(53,539

)

 

$

(51,778

)

Vesting of early exercised stock

   options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

76

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,238

)

 

 

(4,238

)

Balance as of March 31, 2019

 

 

9,297,081

 

 

 

60,933

 

 

 

 

3,161,747

 

 

 

3

 

 

 

1,855

 

 

 

(57,777

)

 

 

(55,919

)

Vesting of early exercised stock

   options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

60

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,197

)

 

 

(4,197

)

Issuance of convertible

   preferred stock, net of

   issuance costs

 

 

1,016,727

 

 

 

9,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

10,313,808

 

 

$

70,363

 

 

 

 

3,161,747

 

 

$

3

 

 

$

1,935

 

 

$

(61,974

)

 

$

(60,036

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of December 31, 2019

 

 

10,313,808

 

 

$

70,363

 

 

 

 

3,166,946

 

 

$

3

 

 

$

2,140

 

 

$

(72,782

)

 

$

(70,639

)

Vesting of early exercised stock

  options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

151

 

 

 

 

 

 

151

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,454

)

 

 

(5,454

)

Issuance of convertible

  preferred stock, net of

  issuance costs

 

 

11,055,966

 

 

 

104,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2020

 

 

21,369,774

 

 

 

175,043

 

 

 

 

3,166,946

 

 

 

3

 

 

 

2,307

 

 

 

(78,236

)

 

 

(75,926

)

Vesting of early exercised stock

  options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,853

 

 

 

 

 

 

2,853

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,331

)

 

 

(11,331

)

Balance as of June 30, 2020

 

 

21,369,774

 

 

$

175,043

 

 

 

 

3,166,946

 

 

$

3

 

 

$

5,166

 

 

$

(89,567

)

 

$

(84,398

)

 

See accompanying notes to these condensed consolidated financial statements (unaudited).

3


ALX ONCOLOGY HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(16,785

)

 

$

(8,435

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

192

 

 

 

206

 

Stock-based compensation

 

 

3,004

 

 

 

136

 

Amortization of term loan discount and issuance costs

 

 

221

 

 

 

 

Changes in fair value of compound derivative liability and warrants

 

 

408

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Receivables due from related-party

 

 

9

 

 

 

(418

)

Prepaid expenses and other current assets

 

 

(1,137

)

 

 

327

 

Accounts payable

 

 

(2,003

)

 

 

476

 

Accrued expenses and other current liabilities

 

 

1,100

 

 

 

(483

)

Deferred rent

 

 

(135

)

 

 

2

 

Net cash used in operating activities

 

 

(15,126

)

 

 

(8,189

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(10

)

 

 

(415

)

Net cash used in investing activities

 

 

(10

)

 

 

(415

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from related parties for issuance of convertible preferred stock, net of issuance costs

 

 

68,452

 

 

 

6,829

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

36,228

 

 

 

2,601

 

Deferred offering costs

 

 

(458

)

 

 

 

Net cash provided by financing activities

 

 

104,222

 

 

 

9,430

 

Net increase in cash and cash equivalents

 

 

89,086

 

 

 

826

 

Cash and cash equivalents at beginning of period

 

 

9,017

 

 

 

8,262

 

Cash and cash equivalents at end of period

 

$

98,103

 

 

$

9,088

 

Supplemental disclosure

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

188

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

22

 

 

$

41

 

Deferred offering costs incurred but not paid

 

$

1,953

 

 

$

 

 

See accompanying notes to these condensed consolidated financial statements (unaudited).

 

4


ALX ONCOLOGY HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) ORGANIZATION

Organization

ALX Oncology Holdings Inc., or the Company, was formed as a Delaware corporation on April 1, 2020, or Inception. The Company was formed for the purpose of completing the Company’s initial public offering of its common stock and related transactions in order to carry on the business of ALX Oncology Limited. After Inception, ALX Oncology Limited became a wholly-owned subsidiary of the Company as a result of the internal reorganization. As part of the internal reorganization, all of the equity, option and warrant holders of ALX Oncology Limited became equity, option and warrant holders of the Company, holding the same number of corresponding shares, options and/or warrants in the Company as they did in ALX Oncology Limited immediately prior to the internal reorganization. The information included herein is presented as that of ALX Oncology Holdings Inc. unless such information refers to a date prior to April 1, 2020, in which case it will reflect that of ALX Oncology Limited, the predecessor company. The Company is a clinical-stage immuno-oncology company focused on helping patients fight cancer by developing therapies that block the CD47 checkpoint pathway and bridge the innate and adaptive immune system.

The Company owns subsidiaries, consisting of ALX Oncology Limited, incorporated in Ireland; ALX Oncology Inc., incorporated in the United States, and Alexo International Holdings Ltd, incorporated in Malta; Alexo Therapeutics International, incorporated in the Cayman Islands, which is a wholly-owned subsidiary of Alexo International Holdings Ltd. and Sirpant Therapeutics, incorporated in the Cayman Islands, which is a wholly-owned subsidiary of Alexo Therapeutics International, or collectively, the Subsidiaries.

As of June 30, 2020, the Company has devoted substantially all of its efforts to the formation and financing of the Company, as well as product development, and has not realized product revenues from its planned principal operations. The Company has no manufacturing facilities and all manufacturing related activities are contracted out to third-party service providers.

Liquidity and Capital Resources

In July 2020, the Company consummated its initial public offering and issued 9,775,000 shares of common stock for net proceeds of approximately $172.7 million, after deducting underwriting discounts and commissions of $13.0 million and before deducting offering-related expenses. Upon the closing of the initial public offering, all shares of convertible preferred stock outstanding and accrued cumulative dividends were automatically converted into 23,934,533 shares of common stock. See Note 12 to these condensed consolidated financial statements for additional details.

As of June 30, 2020, the Company had cash and cash equivalents of $98.1 million, together with net proceeds from the Company’s initial public offering of $172.7 million, will be sufficient to fund its planned operations for a period of at least twelve months following the issuance of these financial statements.

Management expects to incur additional losses in the future to conduct product candidate research and development and to conduct pre-commercialization activities and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to raise such capital through the sale of additional equity, debt financings or strategic alliances with third parties. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company. If the Company is unsuccessful in its efforts to raise additional financing, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all.

 

(2) SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and the applicable rules and regulations of the U.S. Securities and Exchange Commission, or SEC, for interim reporting.

5


Principles of Consolidation

All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Condensed Consolidated Financial Statements

The condensed consolidated balance sheet as of June 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statements of convertible preferred stock and stockholders' deficit for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, are unaudited. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2020, and its results of operations for the periods presented. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of the results to be expected for any subsequent periods, including the year ended December 31, 2020, and therefore should not be relied upon as an indicator of future results. The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited consolidated financial statements as of that date. The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 and the notes thereto, which are included in the Company’s final prospectus for the Company’s initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, with the SEC on July 17, 2020.

Reverse Stock Split

On July 8, 2020, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a 1-for-6.5806 reverse split of its common stock and convertible preferred stock. The par values of the common and convertible preferred stock were not adjusted as a result of the reverse stock split. All authorized, issued and outstanding common stock, convertible preferred stock, stock options, warrants, and related per share amounts contained in the condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effected on July 9, 2020.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates, including those related to the estimated useful lives of long-lived assets, clinical trial accruals, fair value of assets and liabilities, Series B convertible preferred stock warrant liability, term loan compound derivative liability, term loan, valuation of the Company’s common stock, income taxes and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company holds its cash and cash equivalents in checking and money market accounts. The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and are stated at fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits, and invests in money market funds. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents. The Company has not experienced any losses on its deposits of cash and cash equivalents.

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 potential 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.

6


The Company’s product candidates require approvals from the U.S. Food and Drug Administration, or FDA, 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.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets (Note 4). Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheet and the resulting gain or loss is reflected in the condensed consolidated statement of operations and comprehensive loss. Maintenance and repairs are charged to the condensed consolidated statement of operations and comprehensive loss as incurred.

 

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2020, $2.4 million of deferred offering costs were capitalized and recorded as other assets on the condensed consolidated balance sheet. The deferred offering costs were reclassified to additional paid-in capital upon the consummation of the Company's initial public offering in July 2020. See Note 12 to these condensed consolidated financial statements for additional details.

Impairment of Long-Lived Assets

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairment charges recognized in the three and six months ended June 30, 2020 and 2019.

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the condensed consolidated financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where observable prices or inputs are not available valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

The Company’s financial instruments consist of cash and cash equivalents, receivables due from related-party, accounts payable, the term loan compound derivative liability and the Series B convertible preferred stock warrant liability. The term loan compound derivative liability and the Series B convertible preferred stock warrant liability are re-measured at the end of every period and carried at fair value (Note 3). The recorded value of the Company’s receivables due from related-party and accounts payable approximates its current fair value due to the relatively short-term nature of these items.

Term Loan

The Company accounts for the Loan and Security Agreement, dated as of December 20, 2019, as amended, with Silicon Valley Bank, or SVB, and WestRiver Innovation Lending Fund VIII, LP, or WestRiver, collectively as lenders, and SVB, as administrative agent and collateral agent, as a liability measured at net proceeds less debt discount and is accreted to the face value of the term loan over its expected term using the effective interest method. The Company considers whether there are any embedded features in its debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging.

7


Convertible Preferred Stock

The Company records convertible preferred stock net of issuance costs on the dates of issuance, which represents the carrying value. In the event of a change of control of the Company, proceeds will be distributed in accordance with the liquidation preferences set forth in its organization documents unless the holders of convertible preferred stock have converted their convertible preferred stock into common stock. Convertible preferred stock are classified outside of stockholders’ deficit on the accompanying condensed consolidated balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such an event would occur. Upon the consummation of the Company’s initial public offering in July 2020, all shares of convertible preferred stock outstanding and accrued cumulative dividends were automatically converted into 23,934,533 shares of common stock. See Note 12 to these condensed consolidated financial statements for additional details.

Series B Convertible Preferred Stock Warrant Liability

The Company has issued freestanding warrants to purchase its Series B convertible preferred stock. Freestanding warrants for the Company’s convertible preferred stock that are classified outside of permanent equity are recorded at fair value, and are subject to re-measurement at the end of every period until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering. Upon exercise, the Series B convertible preferred stock warrant liability would be reclassified to additional paid-in capital, with any change in fair value recognized as a component of other expense, net. Following the Company’s initial public offering, the warrants were automatically converted to warrants to purchase shares of common stock. See Note 5 to these condensed consolidated financial statements for additional details.

Revenue Recognition

To date, the Company has derived revenue from providing research and development services on a time and materials basis to a related-party.

The Company recognizes such revenues over time as services are delivered, and invoices the customer as the work is incurred in arrears.

Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (Topic 606) on a full retrospective basis. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

As part of the Company’s consideration as to whether the Company has entered into a contract with a customer, it considers whether it is probable that it will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of Topic 606, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Cost of Services for Related-Party Revenue

The Company incurs costs associated with related-party services including direct labor and associated employee benefits, laboratory supplies, and other expenses. These costs are recorded in cost of services for related-party revenue as a component of total operating expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of salaries and benefits, stock-based compensation expense, lab supplies and facility costs, as well as fees paid to nonemployees and entities that conduct certain research and development activities on behalf of the Company and expenses incurred in connection with license agreements (Note 8). Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are

8


capitalized and recorded in prepaid expenses and other current assets, and then expensed as the related goods are delivered or the services are performed.

Clinical and Manufacturing Accruals

The Company records accruals for estimated costs of research, preclinical studies and clinical trials, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers, including contract research organizations, or CROs, and contract manufacturing organizations, or CMOs. The Company’s contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

The Company makes significant judgments and estimates in determining the accrual balance at the end of each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. To assist in its estimates the Company relies upon the receipt of timely and accurate reporting from its clinical and non-clinical studies and other third-party vendors. Through June 30, 2020, there have been no material differences from the Company’s accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to, the number of patients enrolled, the rate of patient enrollment, and the actual services performed, and related costs may vary from the Company’s estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial position and results of operations.

Stock-based Compensation Expense

The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all stock-based payments made to employees, directors and non-employees based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation expense to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards to employees and directors using the Black-Scholes option-pricing model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return and the estimated fair value of the underlying common stock on the date of grant. The Company accounts for the effect of forfeitures as they occur.

Segment Reporting

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

Foreign Currency Transactions

The functional currency of the Company’s operation and each of its subsidiaries is U.S. dollars. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate prevailing on the balance sheet date. Expenses are translated at the average exchange rates prevailing during the applicable period. Foreign currency transaction gains and losses are included in the consolidated statement of operations and comprehensive loss and recorded in other expense, net, and were immaterial for the three and six months ended June 30, 2020 and 2019, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the condensed consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the condensed consolidated statements of operations and comprehensive loss in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be

9


realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit.

Comprehensive Loss

Comprehensive loss is equal to net loss for all periods presented.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share 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, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

The Company applies the two-class method to compute basic and diluted net loss per share when it has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires net loss available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all net loss for the period had been distributed. The Company’s convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities. The participating securities are not required to participate in the losses of the Company, and therefore during periods of loss there is no allocation required under the two-class method.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases (ASU 2016-02). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU No. 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. In June 2020, the FASB issued ASU No. 2020-05, which extends the effective date of ASU No. 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2021. The new standard is effective for the Company beginning January 1, 2022. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of this guidance on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. ASU 2019-12 is effective for the Company beginning January 1, 2022. Early adoption is permitted. The Company is currently in the process of evaluating the effects of the adoption of this guidance on the Company’s financial statements and does not expect it to have a material impact on its condensed consolidated financial statements.

New Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company early adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In September 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The FASB issued final guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Under the ASU, entities will no longer be required to disclose the amount of transfers between Level 1 and Level 2 of the fair value hierarchy. Public companies will be required to disclose changes in unrealized gains and losses for the period included in other comprehensive income

10


for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for public business entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on its condensed consolidated financial statements.

(3) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level 1—Observable inputs, such as quoted prices in active markets

Level 2—Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

The Company’s financial instruments consist of cash and cash equivalents, receivables due from related-party, accounts payable, the term loan compound derivative liability and the Series B convertible preferred stock warrant liability.

Cash and cash equivalents are reported at their respective fair values on the Company’s condensed consolidated balance sheets. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets.

The Company measures its Series B convertible preferred stock warrant liability and term loan compound derivative liability at fair value on a recurring basis and these are classified as Level 3 liabilities. The fair value of the Series B convertible preferred stock warrant liability was determined using an option-pricing model. The Company calculated the fair value of the term loan compound derivative liability by computing the difference between the fair value of the term loan with the compound derivative using the “with and without” method under the income approach, and the fair value of the term loan without the compound derivative. The valuation methodology and underlying assumptions are discussed further in Note 5.

The following table sets forth the Company’s financial liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

As of June 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

90,110

 

 

 

 

 

 

 

 

$

90,110

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compound derivative liability

 

$

 

 

 

 

 

 

64

 

 

$

64

 

Warrant liability

 

$

 

 

 

 

 

 

756

 

 

$

756

 

11


 

 

 

As of December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compound derivative liability

 

$

 

 

 

 

 

 

51

 

 

$

51

 

Warrant liability

 

$

 

 

 

 

 

 

361

 

 

$

361

 

 

The following table is a reconciliation of all financial liabilities measured at fair value using Level 3 unobservable inputs (in thousands):

 

 

 

 

 

 

 

Compound

 

 

 

Warrant

 

 

Derivative

 

 

 

Liability

 

 

Liability

 

Fair value at December 31, 2019

 

$

361

 

 

$

51

 

Change in fair value

 

 

395

 

 

 

13

 

Fair value at June 30, 2020

 

$

756

 

 

$

64

 

 

The Company did not have any outstanding financial assets or liabilities to be re-measured on a recurring basis as of June 30, 2019.

 

There were no transfers of assets or liabilities between the fair value measurement levels during the six months ended June 30, 2020 and the year ended December 31, 2019.

 

The carrying values of the Company’s financial instruments, such as accounts payable and accrued expenses and other current liabilities, approximate fair value due to the short-term nature of these items.

Term Loan

The estimated fair value of the Term Loan was $5.8 million as of June 30, 2020, which approximates the carrying value and is classified as Level 3. The Company utilized a market yield analysis and income approach to estimate a value for the Term Loan. The key valuation assumptions used consist of the discount rate of 16.5% and the probability of the occurrence of a change in control event of 10.0%.

(4) BALANCE SHEET COMPONENTS

Property and Equipment, Net

The following table presents the components of property and equipment, net as of June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Computer hardware and software

 

$

61

 

 

$

146

 

Machinery and equipment

 

 

41

 

 

 

1,698

 

Furniture and fixtures

 

 

9

 

 

 

36

 

Leasehold improvements

 

 

18

 

 

 

429

 

 

 

 

129

 

 

 

2,309

 

Less: accumulated depreciation and amortization

 

 

(92

)

 

 

(1,449

)

Total property and equipment, net

 

$

37

 

 

$

860

 

 

Depreciation and amortization expense was $0.1 million for the three months ended June 30, 2020 and 2019, and $0.2 million for the six months ended June 30, 2020 and 2019.

 

At June 30, 2020, certain lab equipment and other assets for an aggregated net book value of $0.6 million relating to the asset transfer with Tallac Therapeutics, Inc. (formerly known as Tollnine, Inc., or Tollnine), or Tallac Therapeutics, met the criteria as assets held for sale. Those assets are reported at the lower of carrying value or fair value less costs to sell. In July 2020, the Company

12


received $0.6 million cash in exchange for the transfer of such assets. See Note 12 to these condensed consolidated financial statements for additional details.

Accrued Expenses and Other Current Liabilities

The following table presents the components of accrued expenses and other current liabilities as of June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued professional fees

 

$

2,219

 

 

$

122

 

Accrued compensation

 

 

671

 

 

 

924

 

Accrued clinical and nonclinical study costs

 

 

800

 

 

 

 

Accrued contract manufacturing

 

 

149

 

 

 

53

 

Other

 

 

301

 

 

 

137

 

Total accrued expenses and other current liabilities

 

$

4,140

 

 

$

1,236

 

 

(5) TERM LOAN

The Company’s wholly-owned subsidiaries Alexo Therapeutics International and Sirpant Therapeutics, as borrowers, entered into a Loan and Security Agreement, or the Loan Agreement, dated as of December 20, 2019, with SVB and WestRiver, collectively as lenders, and SVB, as administrative agent and collateral agent.

As a result of the internal reorganization, in May 2020 the Company entered into a Joinder and First Amendment to the Loan and Security Agreement, or the Joinder Amendment, and Amended and Restated Warrants to Purchase Stock, or the Amended Warrants. The purpose for entering into the Joinder Amendment was to add the newly established ALX Oncology Holdings Inc. as additional borrower to the Term Loan. Concurrently, the Company modified the Amended Warrants to change the issuer from ALX Oncology Limited to ALX Oncology Holdings Inc. The Company accounted for the First Amendment to the Loan and Security Agreement as a modification.

The Loan Agreement provides for term loans in an aggregate principal amount of up to $10.0 million funded in two tranches, subject to the satisfaction of a certain milestone. The first tranche, in the amount of $6.0 million, was funded on the closing date of the Loan Agreement in December 2019. A second tranche of $4.0 million was available on or before March 31, 2020, upon the Company’s achievement of an equity financing resulting in net cash proceeds in an amount of at least $30.0 million to the Company. The Company elected not to draw down on the second tranche, which is no longer available.

The loans under the Loan Agreement bear interest at a floating per annum interest rate equal to the greater of 7.0% or 2.0% plus the prime rate as reported in The Wall Street Journal. The Wall Street Journal prime rate was 3.25% as of June 30, 2020. Therefore, the rate applicable to the Company as of June 30, 2020 was 7.0%.

The Company is required to make interest-only payments for the first 12 months after the closing of the Loan Agreement, followed by consecutive equal monthly payments of principal and interest commencing on January 1, 2021 and continuing through the maturity date of September 1, 2022. The Loan Agreement also provides for a final payment equal to 6.0% multiplied by the aggregate principal amount of the term loans funded, which is due on the maturity date, upon the acceleration of the term loans, or upon prepayment of the term loans. If the Company elects to prepay the term loans, there is also a prepayment fee of between 1.0% and 3.0% of the principal amount being prepaid depending on the timing and circumstances of prepayment.

In conjunction with the Loan Agreement, the Company has issued warrants to purchase 61,292 Series B convertible preferred stock to SVB and WestRiver with an exercise price of $9.4972 per share. Following the Company’s initial public offering, these warrants were automatically converted to warrants to purchase 61,292 shares of common stock at an exercise price of $9.4972 per share. The estimated fair value of the warrants at the date of issuance was approximately $0.4 million. The fair value of the Series B convertible preferred stock warrant liability was determined using the Black-Scholes option-pricing model. As of June 30, 2020, the various assumptions used in the option-pricing model were time to liquidity of 2.0 to 9.5 years, volatility of 99.9% and risk-free rate of 0.6%. It was recorded at its fair value at inception and is being re-measured at each financial reporting period with any changes in fair value being recognized as a component of other expense, net in the accompanying condensed consolidated statement of operations and comprehensive loss. As of June 30, 2020, the fair value of the Series B convertible preferred stock warrant liability was approximately $0.8 million and was recorded in other non-current liabilities on the condensed consolidated balance sheets.

13


The loans under the Loan Agreement are secured by substantially all of the Company’s assets, except the Company’s intellectual property, which is the subject of a negative pledge.

The Company determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. The Company recorded a term loan compound derivative liability of approximately $51,000 which will be marked-to-market in future periods. The Company calculated the fair value of the compound derivative by computing the difference between the fair value of the term loan with the compound derivative using the “with and without” method under the income approach, and the fair value of the term loan without the compound derivative. The Company calculated the fair values using a probability-weighted discounted cash flow analysis. The key valuation assumptions used consist of the discount rate and the probability of the occurrence of a change in control event. The term loan compound derivative liability is being re-measured at each financial reporting period with any changes in fair value being recognized as a component of other expense, net in the condensed consolidated statement of operations and comprehensive loss. As of June 30, 2020, the fair value of the compound derivative liability was approximately $64,000 and was recorded in other non-current liabilities on the condensed consolidated balance sheets.

The fair value of Series B convertible preferred stock warrant liability at issuance, fair value of embedded derivatives which were bifurcated and other debt issuance costs have been treated as debt discounts on the Company’s condensed consolidated balance sheet and together with the final payment are being amortized to interest expense throughout the life of the term loan using the effective interest rate method.

As of June 30, 2020, there were unamortized issuance costs and debt discounts of $0.4 million, which were recorded as a direct deduction from the term loan on the condensed consolidated balance sheet. Interest expense for the term loan was $0.2 million and $0.4 million for the three months and six months ended June 30, 2020, respectively.

The following table presents future payments of principal and interest as of June 30, 2020 is as follows (in thousands):

 

 

 

 

 

June 30,

2020

 

2020 (remaining six months)

 

 

 

$

214

 

2021

 

 

 

 

3,743

 

2022

 

 

 

 

3,007

 

 

 

 

 

 

6,964

 

Less: amount representing interest

 

 

 

$

(604

)

Less: amount representing final payment

 

 

 

 

(360

)

Term loan, gross

 

 

 

 

6,000

 

Less: unamortized issuance costs and debt discounts

 

 

 

 

(358

)

Less: current portion

 

 

 

 

(1,714

)

Non-current portion of term loan

 

 

 

$

3,928

 

 

(6) CAPITAL STRUCTURE

Common Stock

Common stock reserved for future issuance, on an as if converted basis, as of June 30, 2020 and December 31, 2019, consists of the following and have been adjusted for the 1-for-6.5806 reverse split:

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Convertible preferred stock issued and outstanding

 

 

21,369,774

 

 

 

10,313,808

 

Stock options issued and outstanding

 

 

3,874,815

 

 

 

1,183,745

 

Stock options authorized for future issuance

 

 

111,869

 

 

 

566,900

 

Warrants issued and outstanding

 

 

61,292

 

 

 

61,292

 

Warrants authorized for future issuance

 

 

 

 

 

30,646

 

Total

 

 

25,417,750

 

 

 

12,156,391

 

 

14


Convertible Preferred Stock

As of June 30, 2020 and December 31, 2019, the Company’s convertible preferred stock consisted of the following and have been adjusted for the 1-for-6.5806 reverse split (in thousands, except share amounts):

 

 

 

June 30, 2020

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

Aggregate

 

 

 

Authorized

 

 

Issued And

 

 

Net

 

 

Liquidation