10-Q
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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 March 31, 2022

OR

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

For the transition period from ____________ to ____________

Commission File Number: 001-40522

 

Monte Rosa Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

84-3766197

(State or other jurisdiction of

incorporation or organization)

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

 

 

645 Summer Street, Suite 102

Boston, Massachusetts

02210

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 949-2643

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

GLUE

 

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 May 5, 2022, the registrant had 46,668,422 shares of common stock, $0.0001 per share, outstanding.

 

 

 

 


 

Special note regarding forward-looking statements
 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. These statements are not guarantees of future results or performance and involve substantial risks and uncertainties. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

the initiation, timing, progress, results, cost and success of our current and future research and development programs and preclinical studies, including our expectations for our GSPT1-directed MGD molecules;
the initiation, timing, progress, results, cost and success of our future clinical trials, including statements regarding the period during which the results of the clinical trials will become available;
our ability to continue to develop our proprietary protein degradation platform called QuEENTM and to expand our proteomics and translational medicine capabilities;
the potential advantages of our platform technology and product candidates;
the extent to which our scientific approach and platform technology may target proteins that have been considered undruggable or inadequately drugged;
our plans to submit an IND application to the FDA for our lead GSPT1-directed MGD product candidate and future product candidates;
the potential benefits of strategic collaborations and our ability to enter into strategic collaborations with third parties who have the expertise to enable us to further develop our biological targets, product candidates and platform technology;
our ability to obtain and maintain regulatory approval of our product candidates;
our ability to manufacture, including through third-party manufacturers, our product candidates for preclinical use, future clinical trials and commercial use, if approved;
our ability to commercialize our product candidates, including our ability to establish sales, marketing and distribution capabilities;
the rate and degree of market acceptance of our product candidates;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
our ability to establish and maintain intellectual property rights covering our current and future product candidates and technologies;
the implementation of our business model and strategic plans for our business, product candidates, and technology;
estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;
our ability to obtain funding for our operations necessary to complete further development and commercialization of our product candidates;
our financial performance;
developments in laws and regulations in the United States and foreign countries;
the success of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
the impact of the COVID-19 pandemic on our business and operations; and

 


 

other risks and uncertainties, including those listed under the section entitled “Risk factors” and those included in “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, or our 2021 Annual Report, filed with the SEC on March 29, 2022.

 

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events and with respect to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

All of our forward-looking statements are as of the date of this Quarterly Report only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report that modify or impact any of the forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede such statements in this Quarterly Report.

 

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

We have applied for various trademarks that we use in connection with the operation of our business. All other trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective holders. Solely for convenience, the trademarks and trade names in this Quarterly Report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

From time to time, we may use our website, our Facebook page at Facebook.com/Monte-Rosa-Therapeutics, our Twitter at @MonteRosaTx and on our LinkedIn account at linkedin.com/company/monte-rosa-therapeutics to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at www.monterosatx.com. Investors are encouraged to review the Investor Relations section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, our Facebook page, our Twitter posts and our LinkedIn posts are not incorporated into, and does not form a part of, this Quarterly Report.

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets (Unaudited)

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

 

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

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

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

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

 

 

 

PART II.

OTHER INFORMATION

22

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

 


 

 


 

Part I ─ Financial Information

Item 1. Financial Statements

Monte Rosa Therapeutics, Inc.

Condensed consolidated balance sheets (unaudited)

 

 

(in thousands, except share and per share amounts)

 

March 31,

 

 

December 31,

 

(unaudited)

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,305

 

 

$

346,071

 

Marketable securities

 

 

178,858

 

 

 

 

Prepaid expenses and other current assets

 

 

3,203

 

 

 

2,595

 

Total current assets

 

 

320,366

 

 

 

348,666

 

Property and equipment, net

 

 

13,396

 

 

 

12,325

 

Operating lease right-of-use assets

 

 

6,910

 

 

 

 

Restricted cash

 

 

5,333

 

 

 

5,338

 

Total assets

 

$

346,005

 

 

$

366,329

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,511

 

 

$

6,558

 

Accrued expenses and other current liabilities

 

 

6,455

 

 

 

10,080

 

Current portion of operating lease liability

 

 

1,524

 

 

 

 

Total current liabilities

 

 

12,490

 

 

 

16,638

 

Defined benefit plan liability

 

 

2,183

 

 

 

2,176

 

Operating lease liability

 

 

5,457

 

 

 

 

Total liabilities

 

$

20,130

 

 

$

18,814

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized, 46,854,535 shares
   issued and
46,630,711 shares outstanding as of March 31, 2022; and 500,000,000
   shares authorized,
46,794,295 shares issued and 46,535,966 shares outstanding as of
   December 31, 2021

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

473,970

 

 

 

471,566

 

Accumulated other comprehensive loss

 

 

(2,133

)

 

 

(2,021

)

Accumulated deficit

 

 

(145,967

)

 

 

(122,035

)

Total stockholders’ equity

 

 

325,875

 

 

 

347,515

 

Total liabilities and stockholders’ equity

 

$

346,005

 

 

$

366,329

 

 

See accompanying notes to the condensed consolidated financial statements.

 

1


 

Monte Rosa Therapeutics, Inc.

Condensed consolidated statements of operations and comprehensive loss (unaudited)

 

(in thousands, except share and per share amounts)

 

Three months ended
March 31,

 

(unaudited)

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

17,915

 

 

$

9,273

 

General and administrative

 

 

6,387

 

 

 

2,231

 

Total operating expenses

 

 

24,302

 

 

 

11,504

 

Loss from operations

 

 

(24,302

)

 

 

(11,504

)

Other income (expense):

 

 

 

 

 

 

Interest and other income, net

 

 

149

 

 

 

6

 

Foreign currency exchange gain, net

 

 

96

 

 

 

182

 

Gain on disposal of fixed assets

 

 

125

 

 

 

 

Changes in fair value of preferred stock tranche obligations, net

 

 

 

 

 

(960

)

Total other income (expense)

 

 

370

 

 

 

(772

)

Net loss

 

$

(23,932

)

 

$

(12,276

)

Provision for pension benefit obligation

 

 

34

 

 

 

136

 

Unrealized loss on available-for-sale securities

 

 

(146

)

 

 

 

Comprehensive loss

 

$

(24,044

)

 

$

(12,140

)

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(23,932

)

 

$

(12,276

)

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

 

$

(0.51

)

 

$

(7.18

)

Weighted-average number of shares outstanding used in computing
   net loss per common share—basic and diluted

 

 

46,595,782

 

 

 

1,709,227

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

2


 

Monte Rosa Therapeutics, Inc.

Condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) (unaudited)

 

 

 

Convertible preferred stock

 

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share
amounts)
(unaudited)

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Additional
paid-in
capital

 

 

Accumulated
other
comprehensive
loss

 

 

Accumulated
deficit

 

 

Total
Stockholders’
equity (deficit)

 

Balance—January 1, 2021

 

 

53,631,514

 

 

$

67,764

 

 

 

 

1,685,534

 

 

$

1

 

 

$

404

 

 

$

(1,056

)

 

$

(48,077

)

 

$

(48,728

)

Restricted common stock vesting

 

 

 

 

 

 

 

 

 

36,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series B convertible preferred stock, net of issuance costs of $69

 

 

24,000,000

 

 

 

68,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series C convertible preferred stock, net of issuance costs of $163

 

 

32,054,521

 

 

 

94,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for pension benefit obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

136

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

252

 

 

 

 

 

 

 

 

 

252

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,276

)

 

 

(12,276

)

Balance—March 31, 2021

 

 

109,686,035

 

 

$

231,172

 

 

 

 

1,722,099

 

 

$

1

 

 

 

656

 

 

$

(920

)

 

$

(60,353

)

 

$

(60,616

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—January 1, 2022

 

 

 

 

$

 

 

 

 

46,535,966

 

 

$

5

 

 

$

471,566

 

 

$

(2,021

)

 

$

(122,035

)

 

$

347,515

 

Restricted common stock vesting

 

 

 

 

 

 

 

 

 

34,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options

 

 

 

 

 

 

 

 

 

60,240

 

 

 

 

 

 

153

 

 

 

 

 

 

 

 

 

153

 

Provision for pension benefit obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,251

 

 

 

 

 

 

 

 

 

2,251

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

(146

)

 

 

 

 

 

(146

)

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,932

)

 

 

(23,932

)

Balance—March 31, 2022

 

 

 

 

$

 

 

 

 

46,630,711

 

 

$

5

 

 

 

473,970

 

 

$

(2,133

)

 

$

(145,967

)

 

$

325,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the condensed consolidated financial statements.

3


 

Monte Rosa Therapeutics, Inc.

Condensed consolidated statements of cash flows (unaudited)

 

(in thousands)

 

Three months ended
March 31,

 

(unaudited)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(23,932

)

 

$

(12,276

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,251

 

 

 

252

 

Depreciation

 

 

753

 

 

 

274

 

Noncash lease expense

 

 

379

 

 

 

 

Net accretion of discounts/premiums on marketable securities

 

 

(45

)

 

 

 

Changes in fair value of preferred stock tranche obligations

 

 

 

 

 

960

 

Gain on disposal of property and equipment

 

 

(125

)

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(608

)

 

 

(1,381

)

Accounts payable

 

 

(2,184

)

 

 

(906

)

Accrued expenses and other current liabilities

 

 

(3,559

)

 

 

(738

)

Defined benefit plan liability

 

 

41

 

 

 

 

Operating lease liability

 

 

(375

)

 

 

 

Net cash used in operating activities

 

$

(27,404

)

 

$

(13,815

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,687

)

 

 

(2,217

)

Proceeds from sale of property and equipment

 

 

125

 

 

 

 

Purchases of marketable securities

 

 

(178,958

)

 

 

 

Net cash used in investing activities

 

$

(180,520

)

 

$

(2,217

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock

 

 

 

 

 

143,000

 

Payment of convertible preferred stock issuance costs

 

 

 

 

 

(231

)

Proceeds from exercise of employee stock options

 

 

153

 

 

 

 

Net cash provided by financing activities

 

$

153

 

 

$

142,769

 

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

 

$

(207,771

)

 

$

126,737

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

351,409

 

 

 

42,863

 

Cash, cash equivalents and restricted cash—end of period

 

$

143,638

 

 

$

169,600

 

Reconciliation of cash, cash equivalents and restricted cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,305

 

 

$

168,436

 

Restricted cash

 

 

5,333

 

 

 

1,164

 

Total cash, cash equivalents and restricted cash

 

$

143,638

 

 

$

169,600

 

Supplemental disclosure of noncash items

 

 

 

 

 

 

Settlement of preferred stock tranche obligation

 

$

 

 

$

20,640

 

Purchases of property and equipment in accounts payable

 

$

794

 

 

$

1,166

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

Monte Rosa Therapeutics, Inc.

Notes to the condensed consolidated financial statements

(unaudited)

1. Description of business, contribution and exchange, and liquidity

Business

Monte Rosa Therapeutics, Inc. is a biotechnology company developing a portfolio of novel small molecule precision medicines that employ the body’s natural mechanisms to selectively degrade therapeutically-relevant proteins. Monte Rosa Therapeutics AG, a Swiss operating company, was incorporated under the laws of Switzerland in April 2018. Monte Rosa Therapeutics, Inc was incorporated in Delaware in November 2019. As used in these condensed consolidated financial statements, unless the context otherwise requires, references to the Company or Monte Rosa refer to Monte Rosa Therapeutics, Inc. and its wholly owned subsidiaries Monte Rosa Therapeutics AG and Monte Rosa Therapeutics Securities Corp. The Company is headquartered in Boston, Massachusetts with research operations in both Boston and Basel, Switzerland.

Reverse Stock Split

The Company's board of directors approved a one-for-3.5305 reverse stock split of its issued and outstanding common stock and stock options and a proportional adjustment to the existing conversion ratios for the Company's preferred stock effective as of June 17, 2021. Accordingly, all share and per share amounts for all periods presented in the financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.

Initial Public Offering

In June 2021 the Company completed its initial public offering, or IPO, and issued an aggregate of 11,700,000 shares of common stock at a price to the public of $19.00 per share. The Company received aggregate net proceeds from the IPO of $203.6 million, after deducting underwriting discounts and commissions of $15.6 million and offering costs of $3.1 million. In connection with the IPO, the Company granted the underwriters a 30-day option to purchase an additional 1,755,000 shares. In July 2021, the underwriters exercised the option in full and the Company issued 1,755,000 shares of common stock for aggregate net proceeds of $31.0 million after deducting underwriter discounts and commissions of $2.3 million.

Immediately prior to consummation of the IPO, all outstanding shares of the Company's Series A, Series A-2, Series B and Series C convertible preferred stock were converted into 31,068,102 shares of common stock. The Company's common stock began trading on the Nasdaq Global Select Market on June 24, 2021 under the symbol “GLUE”.

Liquidity considerations

Since inception, the Company has devoted substantially all its efforts to business planning, research and development, recruiting management and technical staff, and raising capital and has financed its operations primarily through the issuance of convertible preferred shares.

The Company’s continued discovery and development of its product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

As of March 31, 2022, the Company had an accumulated deficit of $146.0 million. The Company has incurred losses and negative cash flows from operations since inception, including net losses of $23.9 million and $12.3 million for the three months ended March 31, 2022 and 2021, respectively. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future as the Company continues to develop its product candidates. The Company currently expects that its cash, cash equivalents and marketable securities of $317.2 million, excluding restricted cash of $5.3 million, as of March 31, 2022 will be sufficient to fund operating expenses and capital requirements for at least 12 months from the date the condensed consolidated financial statements are issued. However, additional funding will be necessary to fund future discovery research, pre-clinical and clinical activities. The Company will seek additional funding through public financings, debt financings, collaboration agreements, strategic alliances and licensing arrangements. Although it has been successful in raising capital in the past, there is no assurance that the Company will be successful in obtaining such additional financing on terms acceptable to it, if at all, and the Company may not be able to enter into collaborations or other arrangements. If the Company is unable to obtain funding, it could be forced to delay, reduce or eliminate its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect the Company’s business prospects, even the ability to continue operations.

5


 

2. Summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and are stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Updates, or ASUs, of the Financial Accounting Standards Board, or FASB. All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Financial Information

The Company’s condensed consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the rules and regulations of the SEC. In the Company’s opinion, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Recently issued accounting pronouncements

The Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jumpstart Our Business Startups Act (JOBS Act).

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. The Company is currently assessing the potential impact of adopting ASU 2016-13 on its financial statements and financial statement disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (i) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for the Company beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact adoption of ASU 2020-06 will have on its financial statements and disclosures.

Recently adopted accounting pronouncements

On January 1, 2022, the Company adopted Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842), and its associated amendments using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. There was no cumulative-effect adjustment recorded to retained earnings upon adoption. Under the standard, a lessee is required to recognize a lease liability and right-of-use (ROU) asset for all leases. The new guidance also modified the classification criteria and requires additional disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. Consistent with current guidance, a lessee’s recognition, measurement, and presentation of expenses and cash flows arising from a lease continues to depend primarily on its classification. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2022. In addition, the Company elected the following transitional practical expedients: (1) the short-term lease exception and (2) to not separate its non-lease components for its real estate, vehicle and equipment leases. Upon the adoption of this standard, the Company recorded operating lease right-of-use assets of $7.3 million and corresponding operating lease liabilities of $7.4 million as of January 1, 2022. The difference between the

6


 

value of the right-of-use assets and lease liabilities is due to the reclassification of existing deferred rent as of January 1, 2022.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12. ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted ASU 2019-12 on January 1, 2022. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

3. Fair value measurements

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

As of March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

123,634

 

 

$

 

 

$

 

 

$

123,634

 

Pension plan assets(1)

 

 

 

 

 

3,818

 

 

 

 

 

 

3,818

 

Corporate debt securities

 

 

 

 

 

111,076

 

 

 

 

 

 

111,076

 

U.S Treasury securities

 

 

 

 

 

67,782

 

 

 

 

 

 

67,782

 

Total assets measured at fair value

 

$

123,634

 

 

$

182,676

 

 

$

 

 

$

306,310

 

 

(1)
The fair value of pension plan assets has been determined as the surrender value of the portfolio of active insured members held within the Swiss Life Collective BVG Foundation collective investment fund.

Money market funds are highly liquid investments and are actively traded. The pricing information on the Company’s money market funds are based on quoted prices in active markets for identical securities. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

Marketable securities consist of corporate debt securities and U.S. Treasury securities which are classified as available-for-sale pursuant to ASC 320, Investments—Debt and Equity Securities. Marketable securities are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, The fair values of these investments are estimated by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities based on historical data and other observable inputs. All marketable securities have a maturity date within the next 12 months.

There were no transfers among Level 1, Level 2 or Level 3 categories in the three months ended March 31, 2022.

4. Marketable Securities

Marketable securities as of March 31, 2022 consisted of the following:

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Description

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

111,182

 

 

$

 

 

$

(106

)

 

$

111,076

 

U.S Treasury securities

 

 

67,822

 

 

 

5

 

 

 

(45

)

 

 

67,782

 

Total

 

$

179,004

 

 

$

5

 

 

$

(151

)

 

$

178,858

 

As of March 31, 2022, the Company held 13 marketable securities in an unrealized loss position, with an aggregate fair value of $80.3 million. There were no individual securities that were in a significant unrealized loss position as of March 31, 2022. The Company evaluates securities for other-than-temporary impairments based on quantitative and qualitative factors, and considered the decline in market value for the 13 securities in an unrealized loss position as of March 31, 2022, to be primarily attributable to the then current economic and market conditions. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that the Company will have to sell them before recovery of their carrying values. The Company also believes that it will be able to collect both principal and interest amounts due to it at maturity.

7


 

5. Property and Equipment, net

Property and equipment, net, consist of the following (in thousands):

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Laboratory equipment

 

$

14,664

 

 

$

12,315

 

Computer hardware and software

 

 

443

 

 

 

443

 

Furniture and fixtures

 

 

299

 

 

 

299

 

Leasehold improvements

 

 

1,119

 

 

 

1,119

 

Construction in process

 

 

150

 

 

 

852

 

Total property and equipment, at cost

 

$

16,675

 

 

$

15,028

 

Less: accumulated depreciation

 

 

(3,279

)

 

 

(2,703

)

Property and equipment, net

 

$

13,396

 

 

$

12,325

 

 

Depreciation expense for the three months ended March 31, 2022 and 2021, was $0.8 million and $0.3 million, respectively.

6. Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities in the condensed consolidated balance sheets. The Company has no finance leases as of March 31, 2022.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, management estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The components of lease expense for the three months ended March 31, 2022 are as follows (in thousands):

 

 

Three Months Ended

 

 

 

March 31, 2022

 

Operating lease expense

 

$

502

 

Variable lease expense

 

 

118

 

Total lease expense

 

$

620

 

The variable lease expenses generally include common area maintenance and property taxes. All lease related expenses have been recorded as research and development expense in the condensed consolidated statements of operations and comprehensive loss. There were no short-term lease costs in the three months ended March 31, 2022.

The weighted average remaining lease term and discount rate related to the Company's leases are as follows:

 

 

March 31, 2022

 

Weighted average remaining lease term (years)

 

 

3.9

 

Weighted average discount rate

 

 

7

%

Supplemental cash flow information relating to the Company's leases for the three months ended March 31, 2022 are as follows (in thousands):