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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 September 30, 2020

or

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

For the transition period from                       to                     

Commission File Number: 001-37708

 

Syndax Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Delaware

32-0162505

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

 

 

35 Gatehouse Drive, Building D, Floor 3

Waltham, Massachusetts

02451

(Address of Principal Executive Offices)

(Zip Code)

(781) 419-1400

(Registrant’s Telephone Number, Including Area Code)

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SNDX

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 (Section 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 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 November 4, 2020, there were 40,869,222 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.

 

 

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are subject to the “safe harbor” created by those sections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “would,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “intend,” “project” or “continue,” or the negative or plural of these terms or other comparable terminology.

Forward-looking statements include, but are not limited to, statements about:

 

statements regarding the impact of the COVID-19 pandemic and its effects on our operations, research and development and clinical trials and potential disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;

 

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

 

the timing of the progress and receipt of data from the Phase 1/2 clinical trial of SNDX-5613 in patients with relapsed/refractory (R/R) acute leukemia and the potential use of SNDX-5613 to treat acute leukemias;

 

the timing of the progress and receipt of data from the Phase 1/2 clinical trial of axatilimab in chronic Graft Versus Host Disease (cGVHD);

 

the timing of the progress and receipt of data from the Phase 2 trial, AGAVE-201, of axatilimab in cGVHD

 

our ability to replicate results in future clinical trials;

 

our expectations regarding the potential safety, efficacy or clinical utility of our product candidates;

 

our ability to obtain and maintain regulatory approval for our product candidates and the timing or likelihood of regulatory filings and approvals for such candidates;

 

our ability to maintain our licenses with Bayer Pharma AG, Eddingpharm Investment Company Limited, Kyowa Kirin Co., Ltd., UCB Biopharma Sprl, and Vitae Pharmaceuticals, Inc., a subsidiary of AbbVie plc.;

 

the potential milestone and royalty payments under certain of our license agreements;

 

the implementation of our strategic plans for our business and development of our product candidates;

 

the scope of protection we establish and maintain for intellectual property rights covering our product candidates and our technology;

 

the market adoption of our product candidates by physicians and patients;

 

developments relating to our competitors and our industry; and

 

political, social and economic instability, natural disasters or public health crisis, including but not limited to the COVID-19 pandemic, in countries where we or our collaborators do business.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this report in greater detail in the section titled “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

ii


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Unaudited Financial Statements:

 

 

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended
September 30, 2020 and 2019

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020
and 2019

 

3

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

Item 2.

 

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

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

 

56

 

 

 

 

 

Item 6.

 

Exhibits

 

57

 

 

 

iii


 

Part I:

FINANCIAL INFORMATION

Item 1:

Financial Statements

SYNDAX PHARMACEUTICALS, INC.

(unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,356

 

 

$

24,609

 

Restricted cash

 

 

115

 

 

 

 

Short-term investments

 

 

113,803

 

 

 

35,166

 

Prepaid expenses and other current assets

 

 

7,158

 

 

 

2,556

 

Total current assets

 

 

177,432

 

 

 

62,331

 

Property and equipment, net

 

 

214

 

 

 

281

 

Right-of-use asset, net

 

 

396

 

 

 

716

 

Other assets

 

 

1,267

 

 

 

197

 

Total assets

 

$

179,309

 

 

$

63,525

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,836

 

 

$

6,178

 

Accrued expenses and other current liabilities

 

 

9,431

 

 

 

10,195

 

Current portion of deferred revenue

 

 

1,517

 

 

 

1,517

 

Current portion of right-of-use liability

 

 

373

 

 

 

478

 

Total current liabilities

 

 

15,157

 

 

 

18,368

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, less current portion

 

 

11,995

 

 

 

13,133

 

Right-of-use liability, less current portion

 

 

172

 

 

 

419

 

Loan payable

 

 

20,006

 

 

 

 

Other long-term liabilities

 

 

2

 

 

 

5

 

Total long-term liabilities

 

 

32,175

 

 

 

13,557

 

Total liabilities

 

 

47,332

 

 

 

31,925

 

Commitments

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized; 0 shares

   outstanding at September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 38,834,381

   and 27,140,484 shares issued and outstanding at September 30, 2020 and

   December 31, 2019, respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

680,125

 

 

 

527,067

 

Accumulated other comprehensive income

 

 

53

 

 

 

 

Accumulated deficit

 

 

(548,205

)

 

 

(495,470

)

Total stockholders’ equity

 

 

131,977

 

 

 

31,600

 

Total liabilities and stockholders’ equity

 

$

179,309

 

 

$

63,525

 

 

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

1


 

SYNDAX PHARMACEUTICALS, INC.

(unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License fees

$

379

 

 

$

379

 

 

$

1,138

 

 

$

1,138

 

Total revenues

 

379

 

 

 

379

 

 

 

1,138

 

 

 

1,138

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

14,408

 

 

 

9,923

 

 

 

34,913

 

 

 

33,492

 

General and administrative

 

5,824

 

 

 

3,605

 

 

 

17,787

 

 

 

10,980

 

Total operating expenses

 

20,232

 

 

 

13,528

 

 

 

52,700

 

 

 

44,472

 

Loss from operations

 

(19,853

)

 

 

(13,149

)

 

 

(51,562

)

 

 

(43,334

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(635

)

 

 

 

 

 

(1,722

)

 

 

 

Interest income

 

177

 

 

 

395

 

 

 

735

 

 

 

1,349

 

Other expense

 

(126

)

 

 

(75

)

 

 

(186

)

 

 

(62

)

Total other (expense) income

 

(584

)

 

 

320

 

 

 

(1,173

)

 

 

1,287

 

Net loss

$

(20,437

)

 

$

(12,829

)

 

$

(52,735

)

 

$

(42,047

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

$

(64

)

 

$

(33

)

 

$

53

 

 

$

50

 

Comprehensive loss

$

(20,501

)

 

$

(12,862

)

 

$

(52,682

)

 

$

(41,997

)

Net loss attributable to common stockholders

$

(20,437

)

 

$

(12,829

)

 

$

(56,641

)

 

$

(42,047

)

Net loss per share attributable to common stockholders—basic

   and diluted

$

(0.46

)

 

$

(0.41

)

 

$

(1.43

)

 

$

(1.40

)

Weighted-average number of common shares used to compute

   net loss per share attributable to common stockholders

   —basic and diluted

 

44,156,808

 

 

 

31,630,639

 

 

 

39,714,490

 

 

 

30,103,338

 

 

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

 

2


 

SYNDAX PHARMACEUTICALS, INC.

(unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(52,735

)

 

$

(42,047

)

Adjustments to reconcile net loss to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

68

 

 

 

(580

)

Amortization and accretion of investments

 

 

(195

)

 

 

 

Non-cash operating lease expense

 

 

321

 

 

 

226

 

Non-cash interest expense

 

 

276

 

 

 

 

Stock-based compensation

 

 

7,022

 

 

 

4,480

 

Other

 

 

2

 

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(5,789

)

 

 

(62

)

Accounts payable

 

 

(2,342

)

 

 

5,193

 

Deferred revenue

 

 

(1,138

)

 

 

(1,138

)

Accrued expenses and other liabilities

 

 

(1,119

)

 

 

(3,959

)

Net cash used in operating activities

 

 

(55,629

)

 

 

(37,885

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(150,350

)

 

 

(68,892

)

Proceeds from sales and maturities of short-term investments

 

 

71,960

 

 

 

75,077

 

Net cash (used in)/provided by investing activities

 

 

(78,390

)

 

 

6,185

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in at-the-market stock offering, net

 

 

 

 

 

830

 

Proceeds from direct stock offering, net

 

 

142,734

 

 

 

27,379

 

Proceeds from debt agreement, net

 

 

19,730

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

242

 

 

 

125

 

Proceeds from stock option exercises

 

 

3,060

 

 

 

178

 

Net cash provided by financing activities

 

 

165,766

 

 

 

28,512

 

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED

  CASH

 

 

31,747

 

 

 

(3,188

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—beginning of period

 

 

24,724

 

 

 

33,985

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —end of period

 

$

56,471

 

 

$

30,797

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,133

 

 

$

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND

  FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance costs in accounts payable and accrued expenses

 

$

 

 

$

126

 

 

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

3


 

SYNDAX PHARMACEUTICALS, INC.

(unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

Syndax Pharmaceuticals, Inc. (“we,” “us,” “our” or the “Company”) is a clinical stage biopharmaceutical company developing an innovative pipeline of cancer therapies. We were incorporated in Delaware in 2005. We base our operations in Waltham, Massachusetts and we operate in one segment.

2. Basis of Presentation

The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The interim unaudited condensed financial statements have been prepared on the same basis as the annual audited financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020, and the results of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (“SEC”) on March 5, 2020.

In 2011, the Company established a wholly owned subsidiary in the United Kingdom. There have been no activities for this entity to date. In 2014, the Company established a wholly owned U.S. subsidiary, Syndax Securities Corporation. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

3. Summary of Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies, which are disclosed in the audited consolidated financial statements for the year ended December 31, 2019 and the notes thereto are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 5, 2020. Since the date of that filing, there have been no material changes to the Company’s significant accounting policies except as noted below.

Significant Risks and Uncertainties

With the global spread of the ongoing COVID-19 pandemic in 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The Company anticipates that the COVID-19 pandemic could have an impact on the clinical development timelines for one or more of our clinical programs. The extent to which the COVID-19 pandemic impacts the Company’s business, clinical development, manufacturing of clinical and commercial drug substance and drug product, and regulatory efforts, the corporate development objectives and the value of and market for the Company’s common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.  The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on its business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and ability to execute on the strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our late-stage product candidate; delays or problems in the supply of the Company’s products, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing the Company’s intellectual property rights; complying with applicable regulatory requirements.  In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

4


 

Debt Issuance Cost

Debt issuance costs consist of payments made to secure commitments under certain debt financing arrangements. These amounts are recognized as interest expense over the period of the financing arrangement using the effective interest method. If the financing arrangement is canceled or forfeited, or if the utility of the arrangement to the Company is otherwise compromised, these costs are recognized as interest expense immediately. The Company’s consolidated financial statements present debt issuance costs related to a recognized debt liability as a direct reduction from the carrying amount of that debt liability.

Derivative Financial Instruments

The Company accounts for derivative financial instruments as either equity or liabilities in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging, based on the characteristics and provisions of each instrument. Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives are not clearly and closely related to the host instruments on issuance date. The Company did not have any material embedded derivatives that required bifurcation upon issuance or as of September 30, 2020.

Use of Estimates

The preparation of 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 the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of costs and expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Management anticipates that the COVID-19 pandemic will have an impact on the clinical and pre-clinical development timelines for the Company’s clinical and pre-clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

4. Revenue from Contracts with Customers

On December 19, 2014 (the “Effective Date”), the Company entered into a license agreement with Kyowa Kirin, Co., Ltd. (the “KKC License Agreement”), under which the Company granted KKC an exclusive license to develop and commercialize entinostat in Japan and Korea. Under the terms of the KKC License Agreement, the Company will be responsible for the manufacture and supply of the products during the development activities. In addition to the license and manufacturing obligations, the Company is obligated to provide KKC access to know-how and regulatory information the Company may develop over the life of the entinostat patent. Lastly, to the extent additional intellectual property is developed during the term of the agreement, KKC will receive the right to the intellectual property when and if available. KKC will conduct the development, regulatory approval filings, and commercialization activities of entinostat in Japan and Korea. KKC paid the Company $25.0 million upfront, which included a $7.5 million equity investment and a $17.5 million non-refundable cash payment. In addition, to the extent certain development and commercial milestones are achieved, KKC will be required to pay the Company up to $75.0 million in milestone payments over the term of the license agreement. The term of the agreement commenced on the Effective Date and, unless earlier terminated in accordance with the terms of the agreement, will continue on a country-by-country and product-by-product basis, until the later of: (i) the date all valid claims of the last effective patent among the Company’s patents expires or is abandoned, withheld, or is otherwise invalidated in such country; and (ii) 15 years from the date of the first commercial sale of a product in the Japan or Korea.

The equity purchase and the up-front payment of the license fee were accounted for separately. The Company allocated the amount of consideration equal to the fair value of the shares on the Effective Date, which resulted in $7.7 million of proceeds allocated to the equity purchase and the remaining consideration of $17.3 million allocated to the up-front license fee.

In October 2017, the Company announced that KKC enrolled the first Japanese patient into a local pivotal study of entinostat for the treatment of hormone receptor positive, human epidermal growth factor receptor 2 negative breast cancer. In accordance with the terms of the license agreement, KKC paid the Company a $5.0 million milestone payment which the Company received in December 2017.

The Company determined that the performance obligations associated with the KKC License Agreement include (i) the combined license, rights to access and use materials and data, and rights to additional intellectual property, and (ii) the clinical supply obligation. All other goods or services promised to KKC are immaterial in the context of the agreement. Under ASC 606, the identification of the clinical supply obligation as a distinct performance obligation separate and apart from the license performance

5


 

obligation resulted in a change in the performance period. The start of the performance period under ASC 606 was determined to be the contract inception date, December 19, 2014. The clinical supply was identified as a separate performance obligation under ASC 606 as (i) the Company is not providing a significant service of integration whereby the clinical supply and other promises are inputs into a combined output, (ii) the clinical supply does not significantly modify or customize the other promises nor is it significantly modified or customized by them, and (iii) the clinical supply is not highly interdependent or highly interrelated with the other promises in the agreement as KKC could choose not to purchase the clinical supply from the Company without significantly affecting the other promised goods or services. The Company further concluded that the clinical supply represented an immaterial performance obligation and therefore the entire $17.3 million allocated to the upfront payment was allocated to the combined license and will be recognized ratably over the performance period, representing contract inception though 2029. In 2017, KKC achieved a development milestone, and was required to pay the Company $5.0 million. The Company is recognizing the development milestone consideration over the performance period coinciding with the license to intellectual property. As the Company determined that its performance obligations associated with the KKC Agreement at contract inception were not distinct and represented a single performance obligation, and that the obligations for goods and services provided would be completed over the performance period of the agreement, any payments received by the Company from KKC, including the upfront payment and progress-dependent development and regulatory milestone payments, are recognized as revenue using a time-based proportional performance model over the contract term (December 2014 through 2029) of the collaboration, within license fees. To date no commercial milestone payments or royalties have been achieved.

Contract liabilities consisted of deferred revenue, as presented on the consolidated balance sheet, as of September 30, 2020. Deferred revenue related to the KKC License Agreement was $13.5 million as of September 30, 2020 and will be recognized over the remainder of the contract term. The Company will continue to monitor the impact of the results of E2112 on the KKC License Agreement. As of the date of these financial statements the agreement remains in force.

5. Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands, except share and per

share data)

 

 

(In thousands, except share and per

share data)

 

Numerator—basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(20,437

)

 

$

(12,829

)

 

$

(52,735

)

 

$

(42,047

)

Deemed dividend due to warrant reset

 

 

 

 

 

 

 

(3,906

)

 

 

 

Net loss attributable to common

   stockholders—basic and diluted

$

(20,437

)

 

$

(12,829

)

 

$

(56,641

)

 

$

(42,047

)

Net loss per share attributable to common

   stockholders—basic and diluted

$

(0.46

)

 

$

(0.41

)

 

$

(1.43

)

 

$

(1.40

)

Denominator—basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares

   used to compute net loss per share attributable

   to common stockholders—basic and diluted

 

44,156,808

 

 

 

31,630,639

 

 

 

39,714,490

 

 

 

30,103,338

 

 

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares):

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

6,770,660

 

 

 

6,053,654

 

Warrants to purchase common stock

 

 

689,242

 

 

 

4,595,039

 

Employee Stock Purchase Plan

 

 

18,838

 

 

 

15,223

 

Non-vested restricted stock units (RSUs)

 

 

18,500

 

 

 

 

 

6


 

   As discussed in Note 13, in March 2019, the Company sold 2,095,039 shares of common stock as well as 2,500,000 pre-funded warrants and 4,595,039 Series 1 and Series 2 warrants. The pre-funded warrants are exercisable into shares of common stock for $0.0001 per share. In January 2020, the Company sold 3,036,719 shares of common stock as well as 1,338,287 pre-funded warrants. The warrants are exercisable into shares of common stock for $0.0001 per share. The shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing earnings per share. As of September 30, 2020, there were 5,557,952 pre-funded warrants outstanding.

In May 2020, a holder of pre-funded warrants exchanged 280,335 warrants for 280,332 shares of common stock in a cashless exercise. Additionally, in May 2020, holders of Series 1 and Series 2 warrants, exercised 3,489,131 warrants and received 1,512,229 shares of common stock in a cashless exercise. In August 2020, a holder of Series 1 and Series 2 warrants, exercised 416,666 warrants in exchange of 130,151 shares of common stock in a cashless exercise.

As of September 30, 2020, there were 344,620 shares of our common stock issuable upon the exercise of Series 1 warrants outstanding, at an exercise price of $10.00 per share, and there were 344,622 shares of our common stock issuable upon the exercise of Series 2 warrants outstanding, at an exercise price of $13.00 per share.

6. Significant Agreements

Vitae Pharmaceuticals, Inc.

In October 2017, the Company entered into a license agreement (the “AbbVie License Agreement”) with Vitae Pharmaceuticals, Inc. (“Vitae”), a subsidiary of AbbVie Inc. (“AbbVie”), under which Vitae granted the Company an exclusive, sublicensable, worldwide license to a portfolio of preclinical, orally available, small molecule inhibitors of the interaction of Menin with the Mixed Lineage Leukemia (“MLL”) protein (the “Menin Assets”). The Company made a nonrefundable upfront payment of $5.0 million to AbbVie in the fourth quarter of 2017. Additionally, subject to the achievement of certain milestone events, the Company may be required to pay AbbVie up to $99.0 million in one-time development and regulatory milestone payments over the term of the AbbVie License Agreement. In the event that the Company or any of its affiliates or sublicensees commercializes the Menin Assets, the Company will also be obligated to pay AbbVie low single to low double-digit royalties on sales, subject to reduction in certain circumstances, as well as up to an aggregate of $70.0 million in potential one-time, sales-based milestone payments based on achievement of certain annual sales thresholds. Under certain circumstances, the Company may be required to share a percentage of non-royalty income from sublicensees, subject to certain deductions, with AbbVie. The Company is solely responsible for the development and commercialization of the Menin Assets. Each party may terminate the AbbVie License Agreement for the other party’s uncured material breach or insolvency; and the Company may terminate the AbbVie License Agreement at will at any time upon advance written notice to AbbVie. AbbVie may terminate the AbbVie License Agreement if the Company or any of its affiliates or sublicensees institutes a legal challenge to the validity, enforceability, or patentability of the licensed patent rights. Unless terminated earlier in accordance with its terms, the AbbVie License Agreement will continue on a country-by-country and product-by-product basis until the later of: (i) the expiration of all of the licensed patent rights in such country; (ii) the expiration of all regulatory exclusivity applicable to the product in such country; and (iii) 10 years from the date of the first commercial sale of the product in such country. As of the date of the AbbVie License Agreement, the asset acquired had no alternative future use nor had it reached a stage of technological feasibility. As the processes or activities that were acquired along with the license do not constitute a “business,” the transaction has been accounted for as an asset acquisition. In June 2019, the Company achieved certain development and regulatory milestones. As a result, in June 2019, the Company recorded $4.0 million as research and development expense. The $4.0 million plus accrued interest was paid in May 2020.

UCB Biopharma Sprl

In 2016, the Company entered into a license agreement (the “UCB License Agreement”) with UCB Biopharma Sprl (“UCB”), under which UCB granted to the Company a worldwide, sublicenseable, exclusive license to UCB6352, which the Company refers to as axatilimab, an investigational new drug (“IND”) ready anti-CSF-1R monoclonal antibody. The Company made a nonrefundable upfront payment of $5.0 million to UCB in 2016. Additionally, subject to the achievement of certain milestone events, the Company may be required to pay UCB up to $119.5 million in one-time development and regulatory milestone payments over the term of the UCB License Agreement. In the event that the Company or any of its affiliates or sublicensees commercializes axatilimab, the Company will also be obligated to pay UCB low double-digit royalties on sales, subject to reduction in certain circumstances, as well as up to an aggregate of $250.0 million in potential one-time, sales-based milestone payments based on achievement of certain annual sales thresholds. Under certain circumstances, the Company may be required to share a percentage of non-royalty income from sublicensees, subject to certain deductions, with UCB. The Company is solely responsible for the development and commercialization of axatilimab, except that UCB is performing a limited set of transitional chemistry, manufacturing and control tasks related to axatilimab. Each party may terminate the UCB License Agreement for the other party’s uncured material breach or insolvency; and the Company may terminate the UCB License Agreement at will at any time upon advance written notice to UCB. UCB may terminate the UCB License Agreement if the Company or any of its affiliates or sublicensees institutes a legal challenge to the validity, enforceability, or patentability of the licensed patent rights. Unless terminated earlier in accordance with its terms, the UCB

7


 

License Agreement will continue on a country-by-country and product-by-product basis until the later of: (i) the expiration of all of the licensed patent rights in such country; (ii) the expiration of all regulatory exclusivity applicable to the product in such country; and (iii) 10 years from the date of the first commercial sale of the product in such country. As of the date of the UCB License Agreement, the asset acquired had no alternative future use nor had it reached a stage of technological feasibility. As the processes or activities that were acquired along with the license do not constitute a “business,” the transaction has been accounted for as an asset acquisition.

In July 2020, the Company met a clinical milestone under the UCB License Agreement associated with the Phase 1 dose-finding study. As a result, in July 2020, the Company recorded $2.0 million as research and development expense. The $2.0 million milestone payment was made in August 2020.

Eastern Cooperative Oncology Group

In March 2014, the Company entered into the ECOG Agreement with Eastern Cooperative Oncology Group, a contracting entity for the Eastern Cooperative Oncology Group—American College of Radiology Imaging Network Cancer Research Group (“ECOG-ACRIN”), that describes the parties’ obligations with respect to the NCI-sponsored pivotal Phase 3 clinical trial of entinostat. Under the terms of the ECOG Agreement, ECOG-ACRIN will perform this clinical trial in accordance with the clinical trial protocol and a mutually agreed scope of work. The Company is providing a fixed level of financial support for the clinical trial through an upfront payment of $0.7 million and a series of payments of up to $1.0 million each that are comprised of milestone payments through the completion of enrollment and time-based payments through the completion of patient monitoring post-enrollment. In addition, the Company is obligated to supply entinostat and placebo to ECOG-ACRIN for use in the clinical trial. From the second quarter of 2016 through the fourth quarter of 2018, the Company has entered into a number of amendments to the agreement to provide for additional study activities resulting in an increase of the contractual obligation of $5.1 million. The Company has agreed to provide this additional financial support to fund the additional activities required to ensure that the E2112 clinical trial will satisfy FDA registration requirements.

In May 2020, the Company announced that the E2112 trial did not achieve the primary endpoint of demonstrating a statistically significant overall survival benefit over hormone therapy alone. As a result the Company has decided to deprioritize the entinostat program to focus resources on advancing the remainder of its pipeline. As of September 30, 2020, the Company’s aggregate payment obligations under this agreement are approximately $24.7 million; and its estimated remaining payment obligations are approximately $3.8 million, which are estimated to be paid over a period of approximately two years. As of September 30, 2020, the Company has accrued $1.7 million related to the ECOG Agreement.

Data and inventions from the Phase 3 clinical trial are owned by ECOG-ACRIN. The Company has access to the data generated in the clinical trial, both directly from ECOG-ACRIN under the ECOG Agreement as well as from the NCI. Additionally, ECOG-ACRIN has granted the Company a non-exclusive royalty-free license to any inventions or discoveries that are derived from entinostat as a result of its use during the clinical trial, along with a first right to negotiate an exclusive license to any of these inventions or discoveries. Either party may terminate the ECOG Agreement in the event of an uncured material breach by the other party or if the U.S. Food and Drug Administration (“FDA”) or National Cancer Institute (“NCI”) withdraws the authorization to perform the clinical trial in the United States. The parties may jointly terminate the ECOG Agreement if the parties agree that safety-related issues support termination of the clinical trial. The Company records the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which the services and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by patient enrollment and the timing of various aspects of the clinical trial. The Company determines accrual estimates through financial models, taking into account discussion with applicable personnel and ECOG-ACRIN as to the progress or state of consummation of the clinical trial or the services completed.

Bayer Pharma AG (formerly known as Bayer Schering Pharma AG)

In March 2007, the Company entered into a license agreement (the “Bayer Agreement”) with Bayer Schering Pharma AG (“Bayer”) for a worldwide, exclusive license to develop and commercialize entinostat and any other products containing the same active ingredient. Under the terms of the Bayer Agreement, the Company paid a nonrefundable upfront license fee of $2.0 million and is responsible for the development and marketing of entinostat. The Company recorded the $2.0 million license fee as research and development expense during the year ended December 31, 2007, as it had no alternative future use. The Company will pay Bayer royalties on a sliding scale based on net sales, if any, and make future milestone payments to Bayer of up to $150.0 million in the event that certain specified development and regulatory goals and sales levels are achieved.

7. Fair Value Measurements

The carrying amounts of cash and cash equivalents, restricted cash, accounts payable, and accrued expenses approximated their estimated fair values due to the short-term nature of these financial instruments. Fair value is defined 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. Valuation techniques used to measure fair

8


 

value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

 

 

Level 1—

Quoted prices (unadjusted) in active markets that are accessible at the market date for identical unrestricted assets or liabilities.

 

Level 2—

Inputs other than Level 1 that 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 for which all significant inputs 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 and that are significant to the fair value of the assets or liabilities.

During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy for any periods presented.

A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows:

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

(unadjusted)

 

 

Other

 

 

Significant

 

 

 

Total

 

 

in Active

 

 

Observable

 

 

Unobservable

 

 

 

Carrying

 

 

Markets

 

 

Inputs

 

 

Inputs

 

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,356

 

 

$

56,356

 

 

$

 

 

$

 

Short-term investments

 

 

113,803

 

 

 

 

 

 

113,803

 

 

 

 

Total assets

 

$

170,159

 

 

$

56,356

 

 

$

113,803

 

 

$

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,609

 

 

$

23,439

 

 

$

1,170

 

 

$

 

Short-term investments

 

 

35,166

 

 

 

 

 

 

35,166

 

 

 

 

Total assets

 

$

59,775

 

 

$

23,439

 

 

$

36,336

 

 

$

 

 

Cash and cash equivalents of $56.4 million and $23.4 million as of September 30, 2020 and December 31, 2019, respectively, consisted of overnight investments and money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of $1.2 million as of December 31, 2019, consisted of highly rated corporate bonds and commercial paper and are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Short-term investments of $113.8 million and $35.2 million as of September 30, 2020 and December 31, 2019, respectively, consisted of commercial paper, highly rated corporate bonds and asset backed securities and are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

9


 

The short-term investments are classified as available-for-sale securities. As of September 30, 2020, the remaining contractual maturities of the available-for-sale securities were less than one year, and the balance in the Company’s accumulated other comprehensive income was comprised solely of activity related to the Company’s available-for-sale securities. There were no realized gains or losses recognized on the sale or maturity of available-for-sale securities during the nine months ended September 30, 2020 and 2019. As a result, the Company did not reclassify any amounts out of accumulated other comprehensive income for the same periods. The Company has a limited number of available-for-sale securities in insignificant loss positions as of September 30, 2020, which the Company does not intend to sell and has concluded it will not be required to sell before recovery of the amortized cost for the investment at maturity. The following table summarizes the available-for-sale securities:

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

(In thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

86,919

 

 

$

42

 

 

$

(2

)

 

$

86,959

 

Corporate bonds

 

 

26,831

 

 

 

13

 

 

 

 

 

 

 

26,844

 

 

 

$

113,750

 

 

$

55

 

 

$

(2

)

 

$

113,803

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

15,675

 

 

$

5

 

 

$

 

 

$

15,680

 

Corporate bonds

 

 

18,361

 

 

 

 

 

 

(5

)

 

 

18,356

 

Asset-backed securities

 

 

2,300

 

 

 

 

 

 

 

 

 

2,300

 

 

 

$

36,336

 

 

$

5

 

 

$

(5

)

 

$

36,336

 

 

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Short-term deposits

 

$

5,567

 

 

$

1,297

 

Prepaid clinical supplies

 

 

145

 

 

 

166

 

Interest receivable on investments

 

 

228

 

 

 

116

 

Reimbursable costs

 

 

2

 

 

 

416

 

Prepaid insurance

 

 

896

 

 

 

214

 

Other

 

 

320

 

 

 

347

 

Total prepaid expenses and other current assets

 

$

7,158

 

 

$

2,556

 

 

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(In thousands)

 

Accrued professional fees

 

$

362

 

 

$

403

 

Accrued compensation and related costs

 

 

2,760

 

 

 

2,800

 

Accrued clinical costs

 

 

5,839

 

 

 

6,726

 

Other

 

 

470

 

 

 

266

 

Total accrued expenses and other current liabilities

 

$

9,431

 

 

$

10,195

 

 

10


 

10. Stock-Based Compensation

In January 2020, the number of shares of common stock available for issuance under the 2015 Omnibus Incentive Plan (“2015 Plan”), was increased by 1,085,619 shares due to the automatic annual provision to increase shares available under the 2015 Plan. As of September 30, 2020, the total number of shares of common stock available for issuance under the 2015 Plan was 628,153. The Company recognized stock-based compensation expense related to the issuance of stock option awards to employees and non-employees and related to the 2015 Employee Stock Purchase Plan (“ESPP”) in the condensed consolidated statements of comprehensive loss as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands)

 

 

(In thousands)

 

Research and development

$

620

 

 

$

510

 

 

$

1,713

 

 

$

1,581

 

General and administrative

 

2,443

 

 

 

1,040

 

 

 

5,309

 

 

 

2,899

 

Total

$

3,063

 

 

$

1,550

 

 

$

7,022

 

 

$

4,480

 

 

Compensation expense by type of award in the three and nine months ended September 30, 2020 and 2019 was as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(In thousands)

 

 

(In thousands)

 

Stock options

$

3,005

 

 

$

1,524

 

 

$

6,885

 

 

$

4,391

 

Employee Stock Purchase Plan

 

58

 

 

 

26

 

 

 

137

 

 

 

89

 

Total

$

3,063

 

 

$

1,550

 

 

$

7,022

 

 

$

4,480

 

 

During the nine months ended September 30, 2020, the Company granted 1,496,125 stock options to certain executives, consultants, and employees having service-based vesting conditions. The grant date fair value of the options granted in the nine months ended September 30, 2020, was $11.7 million, or $7.82 per share on a weighted-average basis and will be recognized as compensation expense over the requisite service period of three to four years.

In July 2020, in connection with the retirement of a certain employee, the Company modified the terms of this individual’s historical stock option awards. As a result of the modifications, the Company recognized approximately $1.0 million of incremental stock compensation expense during the period.

In April 2020, the Company granted 74,000 stock options to certain employees to purchase shares of common stock that contain a performance-based vesting criterion related to filing a New Drug Application with the FDA. In May 2020, these options were cancelled. No expense had been recognized related to this award.

In 2019, the Company granted 583,000 stock options to certain employees to purchase shares of common stock that contain certain performance-based vesting criteria, primarily related to the achievement of certain clinical and regulatory development milestones related to product candidates. Recognition of stock-based compensation expense associated with these performance-based stock options commences when the performance condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones. The achievement of one of the performance milestones was considered to be probable and the Company recorded approximately $180,000 of stock compensation expense associated with these awards for the nine months ended September 30, 2020. One performance milestone was not achieved by December 31, 2019, and therefore 194,338 stock options were cancelled on January 1, 2020. For the remaining award containing performance-based vesting criteria, the achievement of the milestone was not met, and therefore 194,331 stock options were cancelled in June 2020. No expense had been recognized related to this award for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, 311,871 options were exercised for cash proceeds of $3.1 million. During the nine months ended September 30, 2019, 25,857 options were exercised for cash proceeds of $0.2 million.

As of September 30, 2020, there was $15.5 million of unrecognized compensation cost related to employee and non-employee unvested stock options and RSUs granted under the 2015 and 2007 Plans, which is expected to be recognized over a weighted-average remaining service period of 2.7 years. Stock compensation costs have not been capitalized by the Company.

Restricted stock units

During the nine months ended September 30, 2020, the Company granted 18,500 shares of the Company’s restricted stock units. The shares are scheduled to vest in equal annual tranches over a four-year period on the anniversary date of the related grant. The fair value of these shares totaled $194,000 at the grant date, representing a weighted-average grant date fair value per share of $10.48.

11


 

11. Employee Stock Purchase Plan

In January 2020, the number of shares of common stock available for issuance under the ESPP, was increased by 250,000 shares as a result of the automatic increase provision of the ESPP. As of September 30, 2020, the total number of shares of common stock available for issuance under the ESPP was 1,073,288. The Company issued 33,706 shares during the first nine months of 2020.

The ESPP is considered a compensatory plan with the related compensation cost expensed over the six-month offering period starting on February 1 and on August 1. The compensation expense related to the ESPP for the three and nine months ended September 30, 2020, was approximately $58,000 and $137,000, respectively. The compensation expense related to the ESPP recorded in the three and nine months ended September 30, 2019, was approximately $26,000 and $89,000, respectively.

12. Loan Payable

In February 2020, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), which provided for aggregate maximum borrowings of up to $30.0 million, consisting of (i) a term loan of up to $20.0 million, which was funded on February 7, 2020 (the “Initial Advance”), and (ii) subject to Hercules’ investment committee approval, an additional term loan of up to $10.0 million, available for borrowing from February 7, 2020 to December 15, 2020 (the “Tranche 2 Advance”). Borrowings under the Loan Agreement bear interest at an annual rate equal to the greater of (i) 9.85% or (ii) 5.10% plus the Wall Street Journal prime rate. As of September 30, 2020, the Company’s interest rate under the Loan Agreement was 9.85%.

Borrowings under the Loan Agreement are repayable in monthly interest-only payments through October 1, 2021. After the interest-only payment period, borrowings under the Loan Agreement are repayable in equal monthly payments of principal and accrued interest until the maturity date of the loan, which is September 1, 2023. At the Company’s option, the Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium equal to (i) 2.0% of the principal amount outstanding if the prepayment occurs during the first year following the applicable loan being funded, (ii) 1.5% of the principal amount outstanding if the prepayment occurs during the second year following the applicable loan being funded, and (iii) 1.0% of the principal amount outstanding at any time thereafter but prior to the Maturity Date. In addition, the Company paid a $100,000 facility charge upon closing, which is being expensed over the term of the debt and will pay a $50,000 facility charge in connection with the Tranche 2 Advance. The Loan Agreement also provides for a final payment, payable upon maturity or the repayment in full of all obligations under the agreement, of up to 4.99% of the aggregate principal amount of the Term Loan Advances (as defined in the Loan Agreement). The final payment will be accrued over the term of the debt.

Borrowings under the Loan Agreement are collateralized by substantially all of the Company’s and its subsidiaries personal property and other assets, other than its intellectual property. The Loan Agreement includes a minimum cash covenant of $12.5 million that has applied since October 1, 2020, subject to reduction upon satisfaction of certain conditions as set forth in the Loan Agreement. In addition, the Loan Agreement includes customary affirmative and restrictive covenants and representations and warranties, including a covenant against the occurrence of a “change in control,” financial reporting obligations, and certain limitations on indebtedness, liens (including a negative pledge on intellectual property and other assets), investments, distributions (including dividends), collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, and deposit accounts. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Loan Agreement, cross acceleration to third-party indebtedness and certain events relating to bankruptcy or insolvency. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding principal balance, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

In connection with the Loan Agreement, the Company was required to enter into separate deposit account control agreements with the lender in order to perfect the lender’s security interest in the cash collateral in the Company’s operating accounts. In the event of a default under the Loan Agreement, the lender would have the right to take control of the operating accounts and restrict the Company’s access to the operating accounts and the funds therein.

During the three and nine months ended September 30, 2020, the Company recognized $0.6 million and $1.6 million, respectively, of interest expense related to the Initial Advance pursuant to the Loan Agreement.

12


 

As of September 30, 2020, the Company’s maturities of principal obligations under its long-term debt are as follows:

 

Amount

 

Remainder of 2020

$

 

2021

 

2,285

 

2022

 

9,727

 

2023

 

7,988

 

    Total principal outstanding

 

20,000

 

Amortized final fee

 

217

 

Unamortized debt issuance costs

 

(211

)

    Total

$

20,006

 

 

13


 

13. Stockholders’ Equity

The following table presents the changes in stockholders’ equity for the three and nine months ended September 30, 2020:

(In thousands, except share data)

 

Common Stock

$0.0001

Par Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income / (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

27,140,484

 

 

$

3

 

 

$

527,067

 

 

$

 

 

$

(495,470

)

 

$

31,600

 

Stock purchase under ESPP

 

 

12,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,829

 

 

 

 

 

 

 

 

 

1,829

 

Proceeds from direct offering, net of $93

    offering expenses

 

 

3,036,719

 

 

 

 

 

 

24,201

 

 

 

 

 

 

 

 

 

24,201

 

Proceeds from pre-funded common stock

    warrant from direct offering, net of $41

    offering expenses

 

 

 

 

 

 

 

 

10,665

 

 

 

 

 

 

 

 

 

10,665

 

Deemed dividend from repricing Series 1

   and 2 warrants