10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 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 001-39756

 

Silverback Therapeutics, Inc.

(Exact name of Registrant as specified in its Charter)

 

 

 

 

Delaware

81-1489190

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

500 Fairview Ave N, Suite 600

Seattle, Washington

98109

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (206) 456-2900

 

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

SBTX

The Nasdaq Stock Market LLC

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 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, a 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 8, 2022 there were 35,473,841 shares of registrant’s common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

 

 

 

Page

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

5

 

Condensed Balance Sheets

5

 

Condensed Statements of Operations and Comprehensive Loss

6

 

Condensed Statements of Stockholders’ Equity (Deficit)

7

 

Condensed Statements of Cash Flows

8

 

Notes to Unaudited Condensed Financial Statements

9

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

50

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. 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 words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

the proposed merger with ARS Pharmaceuticals, Inc. (“ARS Pharma”) and the expected timing, completion, effects and potential benefits thereof;
the expected exchange ratio and relative ownership percentages of the stockholders of ARS Pharma and Silverback in the combined company;
the expected level of Silverback net cash at the closing of the proposed merger;
our plans to divest our legacy programs;
our evaluation of strategic alternatives with a goal to enhance stockholder value, including the proposed merger with ARS Pharmaceuticals, Inc., or if the proposed merger with ARS Pharma is not consummated, the possibility of a different merger or sale of the company, the sale of the company’s assets in one or more transactions to one or more third parties or a liquidation and dissolution of the company;
our plans to reduce our workforce, the expected cash and non-cash charges related thereto and the timing thereof;
our plans to research, develop, and commercialize SBT8230 and any future product candidates;
our ability to attract and retain key scientific and management personnel;
our ability to attract and retain collaborators with development, regulatory and commercialization expertise;
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012;
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing upon the intellectual property rights of others;
the impact of the COVID-19 pandemic on our business and operations; and
other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or 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 listed under Part II, Item 1A, “Risk Factors” of 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.

Unless the context otherwise indicates, references in this Quarterly Report to the terms “Silverback”, “the Company”, “we”, “our” and “us” refer to Silverback Therapeutics, Inc., and references to our “common stock” refers to our voting common stock.

 

3


 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:

Failure to complete the Merger may result in us and ARS Pharma paying a termination fee to the other party and could harm the price of our common stock and future business and operations of each company.
We may not be able to divest our legacy programs within the timeframe under the Merger Agreement, on favorable terms or at all, which may result in the value of such assets not being included in the calculation of the exchange ratio.
If the conditions to the closing of the Merger are not met, the Merger may not occur.
The market price of our common stock following the Merger may decline as a result of the Merger.
We and ARS Pharma may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of our and ARS Pharma management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.
We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.
If the Merger is not completed, we may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the proposed Merger, or at all, and we may be unable to reestablish a viable operating business.
The COVID-19 pandemic has had, and could continue to have, an adverse impact on our business, including on our preclinical studies and planned clinical trials, supply chain, and business development activities.
We are currently party to an in-license agreement under which we were granted rights to manufacture certain components of our product candidates. If we breach our obligations under these agreements, we may be required to pay damages, lose our rights to these technologies or both, which would adversely affect our business and prospects.
We may rely on trade secret and proprietary know-how, which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
The price of our common stock could be subject to volatility related or unrelated to our operations.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Silverback Therapeutics, Inc.

Condensed Balance Sheets

(in thousands, except share and par value data)

(unaudited)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

218,690

 

 

$

254,045

 

Short-term investments

 

 

$

39,285

 

 

 

 

Prepaid expenses and other current assets

 

 

 

5,154

 

 

 

7,447

 

Total current assets

 

 

 

263,129

 

 

 

261,492

 

Long-term investments

 

 

 

24,218

 

 

 

64,780

 

Restricted cash

 

 

 

250

 

 

 

250

 

Right-of-use asset

 

 

 

3,917

 

 

 

4,733

 

Property and equipment, net

 

 

 

2,485

 

 

 

2,212

 

Total assets

 

 

$

293,999

 

 

$

333,467

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

 

$

2,114

 

 

$

2,078

 

Accrued expenses

 

 

 

8,148

 

 

 

11,727

 

Current portion of lease liability

 

 

 

881

 

 

 

1,087

 

Total current liabilities

 

 

 

11,143

 

 

 

14,892

 

Lease liability, net of current portion

 

 

 

4,065

 

 

 

4,760

 

Total liabilities

 

 

 

15,208

 

 

 

19,652

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value per share; 10,000,000 shares authorized at
   June 30, 2022 and December 31, 2021;
no shares issued and outstanding at
   June 30, 2022 and December 31, 2021

 

 

 

 

 

 

 

Common stock, $0.0001 par value per share; 200,000,000 shares authorized
   at June 30, 2022 and December 31, 2021,
35,187,344 and 35,133,934 shares
   issued and
35,169,725 and 35,107,651 shares outstanding at June 30, 2022 and
   December 31, 2021, respectively

 

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

 

510,607

 

 

 

500,349

 

Accumulated other comprehensive loss

 

 

 

(1,548

)

 

 

(326

)

Accumulated deficit

 

 

 

(230,272

)

 

 

(186,212

)

Total stockholders’ equity

 

 

 

278,791

 

 

 

313,815

 

Total liabilities, and stockholders’ equity

 

 

$

293,999

 

 

$

333,467

 

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

 

 

5


 

Silverback Therapeutics, Inc.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,245

 

 

$

17,749

 

 

$

29,142

 

 

$

29,988

 

General and administrative

 

 

7,553

 

 

 

6,762

 

 

 

15,354

 

 

 

13,408

 

Total operating expenses

 

 

19,798

 

 

 

24,511

 

 

 

44,496

 

 

 

43,396

 

Loss from operations

 

 

(19,798

)

 

 

(24,511

)

 

 

(44,496

)

 

 

(43,396

)

Interest income, net

 

 

369

 

 

 

15

 

 

 

436

 

 

 

33

 

Net loss

 

 

(19,429

)

 

 

(24,496

)

 

 

(44,060

)

 

 

(43,363

)

Unrealized loss on available-for-sale securities

 

 

(300

)

 

 

 

 

 

(1,222

)

 

 

 

Comprehensive loss

 

 

(19,729

)

 

 

(24,496

)

 

 

(45,282

)

 

 

(43,363

)

Net loss per share, basic and diluted

 

$

(0.55

)

 

$

(0.70

)

 

$

(1.25

)

 

$

(1.25

)

Weighted-average shares used in computing net loss per share
   attributable to common stockholders, basic and diluted

 

 

35,126,365

 

 

 

34,876,050

 

 

 

35,120,282

 

 

 

34,825,281

 

 

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

6


 

Silverback Therapeutics, Inc.

Condensed Statements of Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Loss

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2022

 

 

35,107,651

 

 

$

4

 

 

$

500,349

 

 

$

(326

)

 

$

(186,212

)

 

$

313,815

 

Exercise of common stock options and vesting of early exercised
   common stock options

 

 

15,679

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

19

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,949

 

 

 

 

 

 

 

 

 

4,949

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(922

)

 

 

 

 

 

(922

)

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,631

)

 

 

(24,631

)

Balance as of March 31, 2022

 

 

35,123,330

 

 

$

4

 

 

$

505,317

 

 

$

(1,248

)

 

$

(210,843

)

 

$

293,230

 

Exercise of common stock options, shares issued under the employee
   stock purchase plan, and vesting of early exercised common stock
   options

 

 

46,395

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,140

 

 

 

 

 

 

 

 

 

5,140

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

(300

)

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,429

)

 

 

(19,429

)

Balance as of June 30, 2022

 

 

35,169,725

 

 

$

4

 

 

$

510,607

 

 

$

(1,548

)

 

$

(230,272

)

 

$

278,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Loss

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2021

 

 

34,701,274

 

 

$

3

 

 

$

479,608

 

 

$

 

 

$

(96,734

)

 

$

382,877

 

Exercise of common stock options and vesting of early exercised
   common stock options

 

 

125,930

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

 

254

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,285

 

 

 

 

 

 

 

 

 

4,285

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,867

)

 

 

(18,867

)

Balance as of March 31, 2021

 

 

34,827,204

 

 

$

3

 

 

$

484,147

 

 

$

 

 

$

(115,601

)

 

$

368,549

 

Exercise of common stock options, shares issued under the employee
   stock purchase plan, and vesting of early exercised common stock
   options

 

 

135,881

 

 

 

1

 

 

 

866

 

 

 

 

 

 

 

 

 

867

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,730

 

 

 

 

 

 

 

 

 

4,730

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,496

)

 

 

(24,496

)

Balance as of June 30, 2021

 

 

34,963,085

 

 

$

4

 

 

$

489,743

 

 

$

 

 

$

(140,097

)

 

$

349,650

 

 

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

7


 

Silverback Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(44,060

)

 

$

(43,363

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

431

 

 

 

395

 

Stock-based compensation

 

 

10,089

 

 

 

9,015

 

Non-cash lease expense

 

 

513

 

 

 

565

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

2,293

 

 

 

749

 

Accounts payable and accrued expenses

 

 

(3,563

)

 

 

6,789

 

Lease liability

 

 

(598

)

 

 

(486

)

Net cash used in operating activities

 

 

(34,895

)

 

 

(26,336

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(618

)

 

 

(735

)

Net cash used in investing activities

 

 

(618

)

 

 

(735

)

Cash flows from financing activities:

 

 

 

 

 

 

Principal payments on term loan payable

 

 

 

 

 

(846

)

Proceeds from exercise of common stock options and employee stock purchase plan

 

 

158

 

 

 

1,037

 

Net cash provided by financing activities

 

 

158

 

 

 

191

 

Change in cash, cash equivalents, and restricted cash

 

 

(35,355

)

 

 

(26,880

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

254,295

 

 

 

386,919

 

Cash, cash equivalents, and restricted cash at end of period

 

$

218,940

 

 

$

360,039

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Right-of-use assets and lease liabilities derecognized

 

$

(303

)

 

$

 

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

 

 

8


 

Silverback Therapeutics, Inc.

Notes to Unaudited Condensed Financial Statements

1. Organization and Nature of Business

Silverback Therapeutics, Inc. (“Silverback” or “the Company”) is a biopharmaceutical company focused on leveraging its proprietary ImmunoTAC technology platform to develop systemically delivered and tissue targeted therapeutics for the treatment of chronic viral infections, cancer, and other serious diseases. The Company’s ImmunoTAC platform is the result of a focused effort to discover ways to systemically deliver disease-modifying small molecules in a directed fashion to sites of disease. The Company’s platform enables it to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed at specific disease sites. The Company was formed in Seattle, Washington and incorporated in the state of Delaware on January 4, 2016.

 

On March 28, 2022, the Company’s board of directors approved a corporate restructuring plan to discontinue the Company’s clinical development programs for SBT6050 and SBT6290 and to prioritize resources on the development of the Company’s SBT8230 program and early-stage discovery programs (the “March Restructuring Plan”). In connection with the March Restructuring Plan, the Company’s workforce was reduced by 27%, with substantially all of the reduction in personnel completed by July 15, 2022. The Company initiated the reduction in force on March 31, 2022 and provided severance payments, continuation of group health insurance coverage, and other benefits for a specified period to the affected employees.

 

On July 21, 2022, as amended on August 11, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with ARS Pharmaceuticals, Inc., a Delaware corporation (“ARS Pharma”), a biopharmaceutical company focused on the development of neffy, a needle-free epinephrine nasal spray, for the emergency treatment of Type I allergic reactions, and Sabre Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Silverback (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into ARS Pharma, with ARS Pharma surviving as a wholly owned subsidiary of Silverback (the “Merger”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Risks and Uncertainties

 

The Company is subject to a number of inherent risks which include, but are not limited to, the need to obtain adequate additional funding, possible failure of clinical trials or other events demonstrating a lack of clinical safety or efficacy of its product candidates, dependence on key personnel, reliance on third-party service providers for manufacturing drug product and conducting clinical trials, the ability to successfully secure its proprietary technology, and risks related to the regulatory approval and commercialization of a product candidate. Additionally, the development and commercialization of new drug products is highly competitive. Products or technologies developed by competitors may diminish or render obsolete the Company’s existing products under development.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $230.3 million as of June 30, 2022. The Company had cash, cash equivalents, and investments of $282.2 million as of June 30, 2022 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily through the issuance of redeemable convertible preferred stock, convertible notes, and the sale of common stock in connection with the Company’s initial public offering (“IPO”). The Company’s currently available cash, cash equivalents, and restricted cash as of June 30, 2022 are sufficient to meet its anticipated cash requirements for the 12 months following the date the financial statements are issued. Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least 12 months from the date the financial statements are issued.

Management expects operating losses to continue for the foreseeable future. There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that they will be sustained on a continuing basis. The Company may be unable to secure financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations.

9


 

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”).

Unaudited Interim Condensed Financial Statements

The accompanying condensed balance sheet as of June 30, 2022, the condensed statements of operations and comprehensive loss and condensed statements of stockholders’ equity (deficit) for the three and six months ended June 30, 2022 and 2021, and the condensed statements of cash flows for the six months ended June 30, 2022 and 2021, are unaudited. The balance sheet as of December 31, 2021 was derived from the audited financial statements as of and for the year ended December 31, 2021. The unaudited interim condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2022, the condensed results of its operations for the three and six months ended June 30, 2022 and 2021, and its cash flows for the six months ended June 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the six months ended June 30, 2022 and 2021 are also unaudited. The condensed results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other period.

Use of Estimates

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of equity awards, and valuation allowances for deferred tax assets. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.

The full extent to which the coronavirus (“COVID-19”) pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.

Fair Value of Financial Instruments

Cash and cash equivalents, restricted cash, and investments are carried at fair value. Accounts payable and accrued expenses are carried at cost, which approximates fair value given their short-term nature. The term loan payable is carried at cost, which approximates fair value as its effective interest rate approximates current market rates.

Cash and Cash Equivalents

Cash equivalents are comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase. At June 30, 2022 and December 31, 2021, the Company’s cash equivalents consisted of money market funds.

Restricted Cash

Restricted cash consists of a deposit securing a collateral letter of credit issued in connection with the Company’s facility operating lease.

10


 

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed balance sheets that sum to the amounts shown in the condensed statements of cash flows (in thousands):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Cash and cash equivalents

 

$

218,690

 

 

$

254,045

 

Restricted cash

 

 

250

 

 

 

250

 

Total cash and cash equivalents and restricted cash

 

$

218,940

 

 

$

254,295

 

Investments

The Company invests excess cash in investment grade intermediate-term fixed income securities. These investments are included in short-term and long-term investments on the condensed balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive loss. Realized gains and losses on the sale of these securities are recognized in net loss. Securities with a maturity date within 1 year of the balance sheet date are classified as short-term.

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the investments, duration and severity of the decline in value, and the Company's strategy and intentions for holding the investment.

Concentrations of Credit Risk

The Company is subject to credit risk from holding its cash and cash equivalents at a limited number of commercial banks. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings and U.S. Treasury Securities. Cash may consist of deposits held with banks that may at times exceed federally insured limits, however, exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the balance sheets. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Leases

Leases consist of the Company’s operating leases. In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at inception and evaluates each lease agreement to determine whether the lease is an operating or finance lease. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Operating lease ROU assets also include any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease.

The Company’s leases include options to extend or terminate the leases. Periods covered by an option to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise that option. Periods covered by an option to terminate a lease are included in the lease term when it is reasonably certain that the Company will not exercise that option.

Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have material short-term lease costs. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For real estate leases, the Company does not separate lease and non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Research and Development Expenses

11


 

All research and development costs are expensed in the period incurred. Research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of the Company’s ImmunoTAC technology platform, discovery efforts, and preclinical study and clinical trial activities related to the Company’s program pipeline. Direct costs include expenses incurred under agreements with CROs and other vendors that conduct the Company’s preclinical and clinical activities, expenses associated with manufacturing the Company’s product candidates including under agreements with contract development and manufacturing organizations and other vendors, and consulting fees. Indirect costs include personnel-related expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and recruiting costs for personnel engaged in research and development activities, facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, and equipment maintenance, and other unallocated research and development expenses incurred in connection with the Company’s research and development programs, including laboratory materials and supplies and license fees. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to the Company’s research and development efforts and have no alternative future uses.

The Company is obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when the Company does not expect the goods to be delivered or services to be performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company will adjust the amounts recorded accordingly. Since inception, the Company has not experienced any material differences between accrued or prepaid costs and actual costs.

Stock-Based Compensation

The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date based on the award’s estimated fair value using the Black-Scholes option pricing model. The estimated fair value of the awards is recognized into expense on a straight-line basis over the requisite service period. Stock-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed. Management evaluates when the achievement of a performance condition is probable based on the expected satisfaction of the performance condition at each reporting date. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. The option plan permits, but does not require, the inclusion of early exercise provisions in individual awards. Proceeds from early option exercises are recorded as a liability until the underlying restricted shares vest. While the restricted shares have voting rights, they are not considered outstanding for accounting purposes.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company presents one continuous Statement of Operations and Comprehensive Loss. The Company’s comprehensive loss includes unrealized gains and losses on investments.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, stock options, employee stock purchase rights, and unvested common stock subject to repurchase are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.

 

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

12


 

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.

3. Fair Value Measurements

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at 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 three levels of inputs that may be used to measure fair value include:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity.

The following table identifies the Company’s assets and liabilities that were measured at fair value on a recurring basis (in thousands):

 

June 30, 2022

 

Level

 

Amortized Cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Fair Value

 

Money market funds

 

1

 

$

218,690

 

 

$

 

 

$

 

 

$

218,690

 

Short-term investments - U.S. Treasury securities

 

1

 

 

40,077

 

 

 

 

 

 

(792

)

 

 

39,285

 

Long-term investments - U.S. Treasury securities

 

1

 

 

24,974

 

 

 

 

 

 

(756

)

 

 

24,218

 

Total

 

 

 

 

283,741

 

 

 

 

 

 

(1,548

)

 

 

282,193

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

1

 

 

253,945

 

 

 

 

 

 

 

 

 

253,945

 

Long-term investments - U.S. Treasury securities

 

1

 

 

65,106

 

 

 

 

 

 

(326

)

 

 

64,780

 

Total

 

1

 

$

319,051

 

 

$

 

 

$

(326

)

 

$

318,725

 

There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented.

The investments U.S. Treasury securities designated as short-term investments have an effective maturity date equal to or less than one year from the respective balance sheet date. Those designated as long-term investments have an effective maturity date that is more than one year, but less than two years, from the respective balance sheet date. The Company evaluated its investments for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For the investments, it is not more-likely-than-not that the Company will be required to sell the investments, and the Company does not intend to do so prior to the recovery of the amortized cost basis.

4. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Research and development expenses

 

$

5,760

 

 

$

6,528

 

Employee compensation and benefits

 

 

1,821

 

 

 

4,605

 

Professional services and other

 

 

567

 

 

 

594

 

Total accrued expenses

 

$

8,148

 

 

$

11,727

 

 

13


 

5. Leases

The Company leases office and laboratory space in Seattle, Washington. The components of lease expense and related cash flows were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Lease expense

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease expense

 

$

362

 

 

$

347

 

 

$

718

 

 

$

694

 

Variable lease expense

 

119

 

 

106

 

 

254

 

 

212

 

Total lease expense

 

$

481

 

 

$

453

 

 

$

972

 

 

$

906