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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021

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 6, 2021, the registrant had 40,342,798 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, 2021 and December 31, 2020

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021 and 2020

3

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

 

Signatures

72

 

 


 

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, clinical trials, 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

 

and our anticipated use of our existing cash and cash equivalents.

 

 


 

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,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

409,964

 

 

$

434,219

 

Prepaid expenses and other current assets

 

 

2,313

 

 

 

1,773

 

Total current assets

 

 

412,277

 

 

 

435,992

 

Property and equipment, net

 

 

167

 

 

 

52

 

Other assets

 

 

8,845

 

 

 

10

 

Total assets

 

$

421,289

 

 

$

436,054

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,806

 

 

$

4

 

Payable and accrued liabilities due to related party

 

 

788

 

 

 

72

 

Accrued expenses and other current liabilities

 

 

7,385

 

 

 

6,128

 

Total current liabilities

 

 

13,979

 

 

 

6,204

 

Other non-current liabilities

 

 

2,296

 

 

 

5

 

Total liabilities

 

 

16,275

 

 

 

6,209

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 1,000,000,000 shares authorized as

   of June 30, 2021 and December 31, 2020, respectively; 40,325,270 and 39,844,522

   shares issued and outstanding as of June 30, 2021 and December 31, 2020,

   respectively

 

 

40

 

 

 

40

 

Additional paid-in capital

 

 

553,955

 

 

 

548,327

 

Accumulated deficit

 

 

(148,981

)

 

 

(118,522

)

Total stockholders’ equity

 

 

405,014

 

 

 

429,845

 

Total liabilities and stockholders’ equity

 

$

421,289

 

 

$

436,054

 

 

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,

 

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

Related-party revenue

 

$

 

 

$

527

 

 

 

$

 

 

$

1,182

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,213

 

 

 

7,663

 

 

 

 

21,062

 

 

 

11,491

 

General and administrative

 

 

5,086

 

 

 

3,172

 

 

 

 

9,445

 

 

 

4,645

 

Cost of services for related-party revenue

 

 

 

 

 

479

 

 

 

 

 

 

 

1,075

 

Total operating expenses

 

 

16,299

 

 

 

11,314

 

 

 

 

30,507

 

 

 

17,211

 

Loss from operations

 

 

(16,299

)

 

 

(10,787

)

 

 

 

(30,507

)

 

 

(16,029

)

Interest expense

 

 

(3

)

 

 

(219

)

 

 

 

(6

)

 

 

(434

)

Other income (expense), net

 

 

28

 

 

 

(305

)

 

 

 

54

 

 

 

(298

)

Loss before income taxes

 

 

(16,274

)

 

 

(11,311

)

 

 

 

(30,459

)

 

 

(16,761

)

Income tax provision

 

 

 

 

 

(20

)

 

 

 

 

 

 

(24

)

Net loss and comprehensive loss

 

 

(16,274

)

 

 

(11,331

)

 

 

 

(30,459

)

 

 

(16,785

)

Cumulative dividends allocated to preferred stockholders

 

 

 

 

 

(2,641

)

 

 

 

 

 

 

(4,624

)

Net loss attributable to common stockholders

 

$

(16,274

)

 

$

(13,972

)

 

 

$

(30,459

)

 

$

(21,409

)

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

 

$

(0.40

)

 

$

(4.41

)

 

 

$

(0.76

)

 

$

(6.78

)

Weighted-average shares of common stock used to compute net

   loss per share attributable to common stockholders, basic and

   diluted

 

 

40,247,110

 

 

 

3,164,707

 

 

 

 

40,151,802

 

 

 

3,157,387

 

 

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

 

2


 

ALX ONCOLOGY HOLDINGS INC.

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

(unaudited)

(in thousands, except share amounts)

 

 

 

Convertible Preferred Stock

 

 

 

Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2020

 

 

 

 

 

$

 

 

 

 

39,844,522

 

 

$

40

 

 

$

548,327

 

 

$

(118,522

)

 

$

429,845

 

Issuance of common stock under equity incentive plan

 

 

 

 

 

 

 

 

 

 

364,047

 

 

 

 

 

 

1,024

 

 

 

 

 

 

1,024

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,800

 

 

 

 

 

 

1,800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,185

)

 

 

(14,185

)

Balance as of March 31, 2021

 

 

 

 

 

$

 

 

 

 

40,208,569

 

 

$

40

 

 

$

551,151

 

 

$

(132,707

)

 

$

418,484

 

Issuance of common stock under equity incentive plan

 

 

 

 

 

 

 

 

 

 

114,488

 

 

 

 

 

 

464

 

 

 

 

 

 

464

 

Issuance of common stock under employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

2,213

 

 

 

 

 

 

103

 

 

 

 

 

 

103

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,237

 

 

 

 

 

 

2,237

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,274

)

 

 

(16,274

)

Balance as of June 30, 2021

 

 

 

 

 

$

 

 

 

 

40,325,270

 

 

$

40

 

 

$

553,955

 

 

$

(148,981

)

 

$

405,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (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,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(30,459

)

 

$

(16,785

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11

 

 

 

192

 

Non-cash lease costs

 

 

204

 

 

 

 

Stock-based compensation

 

 

4,037

 

 

 

3,004

 

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

 

Prepaid expenses and other current assets

 

 

(531

)

 

 

(1,137

)

Other assets

 

 

(9,038

)

 

 

 

Accounts payable

 

 

5,802

 

 

 

(2,003

)

Payable and accrued liabilities due to related party

 

 

716

 

 

 

 

Accrued expenses and other current liabilities

 

 

1,210

 

 

 

1,100

 

Other non-current liabilities

 

 

2,291

 

 

 

(135

)

Net cash used in operating activities

 

 

(25,757

)

 

 

(15,126

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(7

)

 

 

(10

)

Net cash used in investing activities

 

 

(7

)

 

 

(10

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options under equity incentive plan

 

 

1,479

 

 

 

 

Proceeds from issuance of common stock pursuant to employee stock purchase plan

 

 

103

 

 

 

 

Proceeds from issuance of convertible preferred stock, net

 

 

 

 

 

104,680

 

Principal payments on finance lease obligations

 

 

(73

)

 

 

 

Deferred offering costs

 

 

 

 

 

(458

)

Net cash provided by financing activities

 

 

1,509

 

 

 

104,222

 

Net increase (decrease) in cash and cash equivalents

 

 

(24,255

)

 

 

89,086

 

Cash and cash equivalents at beginning of period

 

 

434,219

 

 

 

9,017

 

Cash and cash equivalents at end of period

 

$

409,964

 

 

$

98,103

 

Supplemental disclosure

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3

 

 

$

188

 

Cash paid for taxes

 

$

274

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

 

 

$

22

 

Deferred offering costs incurred but not paid

 

$

 

 

$

1,953

 

Right-of-use asset acquired under operating leases

 

$

1,812

 

 

$

 

Right-of-use asset acquired under finance leases

 

$

834

 

 

$

 

Acquisition of property and equipment in accounts payable and other current liabilities

 

$

127

 

 

$

 

 

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, 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 was formed as a Delaware corporation on April 1, 2020, or Inception, 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 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, 2021, the Company has devoted substantially all of its efforts to the product development as well as formation and financing of the Company, 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.         

Management expects to incur additional losses in the future to conduct product candidate research and development and to conduct pre-commercialization activities and recognizes that the Company will likely 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. The Company believes that the existing capital resources will be sufficient to fund the projected operating requirements for at least the next twelve months.

 

(2) SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP and applicable rules and regulations of the Securities and Exchange Commission, or SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2021.

All intercompany balances and transactions have been eliminated in consolidation.

5


Reclassifications

Certain reclassifications have also been made within the condensed consolidated balance sheet as of December 31, 2020 to conform to the current year presentation. The Company reclassified approximately $0.1 million out of accrued expenses and other current liabilities into payable and accrued liabilities due to related-party. Total current liabilities as of December 31, 2020 did not change as a result of these reclassifications.

 

 

 

 

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, 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 materially differ from those estimates.

Significant Accounting Policies

With the exception of the change for the accounting of leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases, Topic 842, or Accounting Standards Codification (ASC) 842, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

Leases

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, leases are included in operating or finance lease right-of-use, or ROU, assets; current operating or finance lease liabilities; and non-current operating or finance lease liabilities.

 

Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made on or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The incremental borrowing rate is reevaluated upon a lease modification. The Company considered information available at the adoption date of Topic 842 to determine the incremental borrowing rate for leases in existence as of this date. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest, which is recorded in interest expense.

 

The Company elected to apply each of the practical expedients described in Topic 842 which allow companies (i) not to reassess prior conclusions on whether any expired or existing contracts are or contain a lease, lease classification, and initial direct costs, (ii) combine lease and non-lease components for all underlying assets groups, and (iii) not recognize ROU assets or lease liabilities for short term leases. A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

 

Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or 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 operating and finance 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 extended 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 Company adopted Topic 842 on January 1, 2021, with early adoption permitted using the alternative modified transition method, which applies the standard as of the effective date and therefore, the Company has not applied the standard to the comparative periods presented on the Company's financial statements. The Company elected the following practical expedients:

 

 

(i)

not to reassess prior conclusions on whether any expired or existing contracts are or contain a lease, lease classification, and initial direct costs;

 

(ii)

combine lease and non-lease components

 

(iii)

not to recognize ROU assets or lease liabilities for short term leases

6


 

As a lessee, the primary impact of the adoption of Topic 842 was the recognition of operating and finance lease ROU assets of $0.3 million and $0.2 million, respectively, and operating and finance lease liabilities of $0.3 million and $0.2 million, respectively, as of January 1, 2021. ROU assets are presented within other assets, current lease liabilities are presented within accrued expenses and other current liabilities, and non-current lease liabilities are presented within other non-current liabilities on the condensed consolidated balance sheet. See Note 5 "Leases" for additional details.

 

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 adopted this standard as of January 1, 2021 on a prospective basis and there was no material impact on its condensed consolidated financial statements and disclosures as a result of the adoption.

 

(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 Accounting Standards Codification (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

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. If quoted market prices are not available for the specific security, then the Company would estimate 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 following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

As of June 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

398,145

 

 

$

 

 

$

 

 

$

398,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

424,115

 

 

$

 

 

$

 

 

$

424,115

 

 

 

The Company did not have any outstanding financial liabilities to be re-measured on a recurring basis as of June 30, 2021 and December 31, 2020.

7


 

There were no transfers of assets or liabilities between the fair value measurement levels during the three and six months ended June 30, 2021 and 2020.

 

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

 

(4) BALANCE SHEET COMPONENTS

Property and Equipment, Net

The following table presents the components of property and equipment, net as of June 30, 2021 and December 31, 2020 (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Computer hardware and software

 

$

63

 

 

$

63