ngm-10q_20200930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended 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: 001-38853

NGM BIOPHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

26-1679911

(State or other jurisdiction of

incorporation or organization)

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

333 Oyster Point Boulevard

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 243-5555

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

 

Title of Each Class of Securities Registered

Trading Symbol

Name of Each Exchange on which Securities are Registered

Common Stock, par value $0.001 per share

NGM

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 9, 2020, the registrant had 69,019,269 shares of common stock, $0.001 par value per share, outstanding.

 


Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 (Audited)

 

1

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited)

 

2

 

 

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

 

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 (Unaudited)

 

4

 

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 (Unaudited)

 

5

 

 

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

 

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

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

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4.

 

Controls and Procedures

 

39

PART II.

 

OTHER INFORMATION

 

40

Item 1.

 

Legal Proceedings

 

40

Item 1A.

 

Risk Factors

 

40

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

92

Item 3.

 

Defaults Upon Senior Securities

 

92

Item 4.

 

Mine Safety Disclosures

 

92

Item 5.

 

Other Information

 

92

Item 6.

 

Exhibits

 

93

Signatures

 

94

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019*

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

253,976

 

 

$

245,598

 

Short-term marketable securities

 

 

33,973

 

 

 

98,913

 

Related party receivable from collaboration

 

 

7,215

 

 

 

5,206

 

Prepaid expenses and other current assets

 

 

7,076

 

 

 

5,531

 

Total current assets

 

 

302,240

 

 

 

355,248

 

Property and equipment, net

 

 

15,773

 

 

 

19,475

 

Restricted cash

 

 

1,499

 

 

 

1,874

 

Other non-current assets

 

 

6,570

 

 

 

3,806

 

Total assets

 

$

326,082

 

 

$

380,403

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,613

 

 

$

9,026

 

Accrued liabilities

 

 

28,579

 

 

 

22,991

 

Deferred rent, current

 

 

2,938

 

 

 

2,829

 

Deferred revenue, current

 

 

4,586

 

 

 

4,872

 

Total current liabilities

 

 

37,716

 

 

 

39,718

 

Deferred rent, non-current

 

 

7,179

 

 

 

9,392

 

Other non-current liabilities

 

 

4,315

 

 

 

 

Early exercise stock option liability

 

 

169

 

 

 

574

 

Total liabilities

 

 

49,379

 

 

 

49,684

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

no shares issued or outstanding as of September 30, 2020 and

December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 400,000,000 shares authorized;

68,934,767 and 66,960,279 shares issued and outstanding as of

September 30, 2020 and December 31, 2019, respectively

 

 

69

 

 

 

67

 

Additional paid-in capital

 

 

547,259

 

 

 

526,771

 

Accumulated other comprehensive gain

 

 

15

 

 

 

25

 

Accumulated deficit

 

 

(270,640

)

 

 

(196,144

)

Total stockholders' equity

 

 

276,703

 

 

 

330,719

 

Total liabilities and stockholders' equity

 

$

326,082

 

 

$

380,403

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

*The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements as of that date.

1


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Related party revenue

 

 

$

23,482

 

 

$

21,568

 

 

$

67,601

 

 

$

72,461

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

46,979

 

 

 

28,953

 

 

 

123,912

 

 

 

87,299

 

General and administrative

 

 

 

6,460

 

 

 

5,612

 

 

 

19,849

 

 

 

17,208

 

Total operating expenses

 

 

 

53,439

 

 

 

34,565

 

 

 

143,761

 

 

 

104,507

 

Loss from operations

 

 

 

(29,957

)

 

 

(12,997

)

 

 

(76,160

)

 

 

(32,046

)

Interest income

 

 

 

260

 

 

 

1,984

 

 

 

1,823

 

 

 

5,138

 

Other income (expense), net

 

 

 

(68

)

 

 

96

 

 

 

(159

)

 

 

54

 

Net loss

 

 

$

(29,765

)

 

$

(10,917

)

 

$

(74,496

)

 

$

(26,854

)

Net loss per share, basic and diluted

 

 

$

(0.43

)

 

$

(0.17

)

 

$

(1.09

)

 

$

(0.60

)

Weighted average shares used to compute

   net loss per share, basic and diluted

 

 

 

68,815,696

 

 

 

65,948,207

 

 

 

68,174,654

 

 

 

44,828,596

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

 

$

(29,765

)

 

$

(10,917

)

 

$

(74,496

)

 

$

(26,854

)

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale

   marketable securities

 

 

 

(122

)

 

 

(3

)

 

 

(10

)

 

 

366

 

Total comprehensive loss

 

 

$

(29,887

)

 

$

(10,920

)

 

$

(74,506

)

 

$

(26,488

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

66,886

 

 

$

67

 

 

$

526,771

 

 

$

25

 

 

$

(196,144

)

 

$

330,719

 

Issuance of common stock upon

   exercise of stock options

 

 

984

 

 

 

1

 

 

 

3,590

 

 

 

 

 

 

 

 

 

3,591

 

Vesting of common stock from

   early exercises

 

 

21

 

 

 

 

 

 

162

 

 

 

 

 

 

 

 

 

162

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,695

 

 

 

 

 

 

 

 

 

3,695

 

Changes in unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

 

 

 

(80

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,115

)

 

 

(19,115

)

Balance at March 31, 2020

 

 

67,891

 

 

$

68

 

 

$

534,218

 

 

$

(55

)

 

$

(215,259

)

 

$

318,972

 

Issuance of common stock upon

   exercise of stock options

 

 

680

 

 

 

1

 

 

 

2,365

 

 

 

 

 

 

 

 

 

2,366

 

Issuance of common stock in

   connection with employee

   stock purchase plan

 

 

109

 

 

 

 

 

 

1,285

 

 

 

 

 

 

 

 

 

1,285

 

Issuance of common stock

   under 401(k) Plan

 

 

6

 

 

 

 

 

 

119

 

 

 

 

 

 

 

 

 

119

 

Vesting of common stock from

   early exercises

 

 

16

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

123

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

3,723

 

 

 

 

 

 

 

 

 

3,723

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

192

 

 

 

 

 

 

192

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,616

)

 

 

(25,616

)

Balance at June 30, 2020

 

 

68,702

 

 

$

69

 

 

$

541,833

 

 

$

137

 

 

$

(240,875

)

 

$

301,164

 

Issuance of common stock upon

   exercise of stock options

 

 

195

 

 

 

 

 

 

1,257

 

 

 

 

 

 

 

 

 

1,257

 

Vesting of common stock from

   early exercises

 

 

17

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

4,049

 

 

 

 

 

 

 

 

 

4,049

 

Changes in unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(122

)

 

 

 

 

 

(122

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,765

)

 

 

(29,765

)

Balance at September 30, 2020

 

 

68,914

 

 

$

69

 

 

$

547,259

 

 

$

15

 

 

$

(270,640

)

 

$

276,703

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In Thousands)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock(1)

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity(Deficit)

 

Balance at December 31, 2018

 

 

47,267

 

 

$

294,874

 

 

 

 

6,733

 

 

$

7

 

 

$

39,258

 

 

$

(267

)

 

$

(147,193

)

 

$

(108,195

)

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

279

 

 

 

 

 

 

 

 

 

279

 

Issuance of common stock

   under 401(k) Plan

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

98

 

Vesting of common stock from

   early exercises

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

237

 

 

 

 

 

 

 

 

 

237

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,605

 

 

 

 

 

 

 

 

 

2,605

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

222

 

 

 

 

 

 

222

 

Net exercise of preferred stock

   warrant to Series A preferred

   stock

 

 

16

 

 

 

198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Cumulative effect adjustment

   upon adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,156

)

 

 

(6,156

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,268

)

 

 

(8,268

)

Balance at March 31, 2019

 

 

47,283

 

 

$

295,072

 

 

 

 

6,855

 

 

$

7

 

 

$

42,477

 

 

$

(45

)

 

$

(161,617

)

 

$

(119,178

)

Conversion of Series A, B, C, D, E

   convertible preferred stock to

   common stock concurrent with

   initial public offering

 

 

(47,283

)

 

 

(295,072

)

 

 

 

47,283

 

 

 

47

 

 

 

295,025

 

 

 

 

 

 

 

 

 

295,072

 

Issuance of common stock upon

   initial public offering, net of

   issuance cost

 

 

 

 

 

 

 

 

 

7,521

 

 

 

8

 

 

 

107,748

 

 

 

 

 

 

 

 

 

107,756

 

Issuance of common stock upon

   private placement

 

 

 

 

 

 

 

 

 

4,122

 

 

 

4

 

 

 

65,943

 

 

 

 

 

 

 

 

 

65,947

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

258

 

 

 

 

 

 

 

 

 

258

 

Vesting of common stock from

   early exercises

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

245

 

 

 

 

 

 

 

 

 

245

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,552

 

 

 

 

 

 

 

 

 

3,552

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

 

 

 

147

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,669

)

 

 

(7,669

)

Balance at June 30, 2019

 

 

 

 

 

 

 

 

 

65,899

 

 

$

66

 

 

$

515,248

 

 

$

102

 

 

$

(169,286

)

 

$

346,130

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

643

 

 

 

 

 

 

 

 

 

643

 

Vesting of common stock from

   early exercises

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

244

 

 

 

 

 

 

 

 

 

244

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,089

 

 

 

 

 

 

 

 

 

3,089

 

Changes in unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,917

)

 

 

(10,917

)

Balance at September 30, 2019

 

 

 

 

 

 

 

 

 

66,047

 

 

$

66

 

 

$

519,224

 

 

$

99

 

 

$

(180,203

)

 

$

339,186

 

 

(1)

In April 2019, the Company completed its initial public offering (“IPO”) and concurrent private placement with Merck Sharp & Dohme Corp. (“Merck”), in which the Company issued an aggregate of 7,521,394 and 4,121,683 shares of common stock, respectively, for net proceeds of $107.8 million and $65.9 million, respectively. Upon the closing of the IPO, all of the then outstanding shares of convertible preferred stock were automatically converted into shares of common stock and its related carrying amount of $295.1 million was reclassified to common stock and additional paid-in-capital.

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(74,496

)

 

$

(26,854

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

5,002

 

 

 

5,838

 

Amortization of discount on marketable securities

 

 

(208

)

 

 

(1,024

)

Stock-based compensation expense

 

 

11,467

 

 

 

9,246

 

Other non-cash expenses

 

 

236

 

 

 

212

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Related party receivable from collaboration

 

 

(2,009

)

 

 

3,669

 

Prepaid expenses and other assets

 

 

(3,715

)

 

 

(4,334

)

Accounts payable

 

 

(7,108

)

 

 

(1,318

)

Accrued expenses and other liabilities

 

 

9,765

 

 

 

4,485

 

Deferred rent

 

 

(2,104

)

 

 

(1,994

)

Deferred revenue

 

 

(286

)

 

 

(14,499

)

Net cash used in operating activities

 

 

(63,456

)

 

 

(26,573

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(29,399

)

 

 

(75,224

)

Proceeds from sales and maturities of marketable securities

 

 

94,537

 

 

 

172,767

 

Purchase of property and equipment

 

 

(1,605

)

 

 

(2,430

)

Net cash provided by investing activities

 

 

63,533

 

 

 

95,113

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial

   public offering, net of issuance costs

 

 

 

 

 

110,078

 

Proceeds from issuance of common stock upon completion

   of private placement

 

 

 

 

 

65,947

 

Proceeds from issuance of common stock upon exercise

   of stock options

 

 

7,214

 

 

 

1,153

 

Proceeds from issuance of common stock in connection

   with employee stock purchase plan

 

 

1,285

 

 

 

 

Payments of deferred financing costs

 

 

(573

)

 

 

 

Net cash provided by financing activities

 

 

7,926

 

 

 

177,178

 

Net increase in cash and cash equivalents

 

 

8,003

 

 

 

245,718

 

Cash, cash equivalents and restricted cash at beginning of

   period

 

 

247,472

 

 

 

59,172

 

Cash, cash equivalents and restricted cash at end of period

 

$

255,475

 

 

$

304,890

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Net exercise of convertible preferred stock warrant to Series

   A preferred stock

 

$

 

 

$

198

 

Vesting of common stock from early exercises

 

 

405

 

 

 

726

 

Deferred offering costs accrued but not yet paid

 

 

21

 

 

 

-

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6


 

NGM BIOPHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDSENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NGM Biopharmaceuticals, Inc. and its wholly-owned subsidiary (collectively, referred to as the “Company”) is a biopharmaceutical company focused on discovering and developing novel therapeutics based on scientific understanding of key biological pathways underlying liver and metabolic diseases, retinal diseases and cancer. The six most advanced proprietary product candidates in the Company’s portfolio are aldafermin (NGM282), NGM313, NGM621, NGM120, NGM395 and NGM707.

The Company was incorporated in Delaware in December 2007 and commenced operations in 2008. Its headquarters are located at 333 Oyster Point Blvd., South San Francisco, California 94080.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and Regulation S-X for interim consolidated financial information. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the United States Securities and Exchange Commission (“SEC”) on March 17, 2020 (the “Annual Report”). These unaudited condensed consolidated financial statements reflect all adjustments that management believes are necessary for a fair presentation of the periods presented. All such adjustments are of a normal recurring nature and are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

These unaudited condensed consolidated financial statements include the consolidated accounts of NGM Biopharmaceuticals, Inc. and its wholly-owned foreign subsidiary in Australia. All intercompany balances and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Specific accounts that require management estimates include, but are not limited to, the valuation of common stock and the associated stock-based compensation expense, contract manufacturing accruals, clinical trial accruals and revenue recognition in accordance with Accounting Standards Codification 606 (ASC 606). Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Need for Additional Capital

Since inception, the Company has incurred net losses and negative cash flow from operations. During the three and nine months ended September 30, 2020, the Company incurred net losses of $29.8 million and $74.5 million, respectively, compared to $10.9 million and $26.9 million, respectively, for the three and nine months ended September 30, 2019. As of September 30, 2020, the Company had an accumulated deficit of $270.6 million and does not expect to experience positive cash flows from operations in the near future. The Company had $287.9 million of cash, cash equivalents and marketable securities as of September 30, 2020, which it considers sufficient to fund its operations for a period of at least one year from the date these unaudited condensed consolidated financial statements are available for issuance. The Company plans to continue to fund its operations and pursue its strategy through public or private equity or debt financings, government or other third-party funding, collaborations, strategic alliances, licensing arrangements or a combination of these.

7


 

 

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables from collaborations, the related party receivables from collaboration and other current assets and liabilities approximate their respective fair values because of the short-term nature of those instruments.

Cash and Cash Equivalents

Cash and cash equivalents are stated at fair value. Cash equivalents are securities with an original maturity of three months or less at the time of purchase. The Company limits its credit risk associated with cash and cash equivalents by placing its investments with a bank it believes is highly creditworthy and with highly rated money market funds. As of September 30, 2020 and December 31, 2019, cash and cash equivalents consisted of bank deposits and investments in money market funds.

Marketable Securities

The appropriate classification of the Company’s marketable securities is determined at the time of purchase and such designations are re-evaluated at each balance sheet date. All of the Company’s securities are considered available-for-sale, carried at estimated fair values and reported in cash equivalents, short-term marketable securities or long-term marketable securities. Unrealized gains and losses on available-for-sale securities are excluded from net loss and reported in accumulated other comprehensive loss as a separate component of stockholders’ equity. Other income (expense), net, includes interest, amortization of purchase premiums and accretion of purchase discounts, realized gains and losses on sales of securities and other-than-temporary declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method.

The Company’s investments are regularly reviewed for other-than-temporary declines in fair value. This review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the fair value of an investment is below its carrying value and this decline is other-than-temporary, the Company reduces the carrying value of the security it holds and records a loss for the amount of such decline. As of September 30, 2020, the Company did not record any impairment related to other-than-temporary declines in the fair value of securities.

Restricted Cash

The Company’s restricted cash represents collateral in connection with the lease on the Company’s headquarters entered into in 2015 and is classified as a non-current asset on the condensed consolidated balance sheets as the collateral will not be returned to the Company in less than 12 months (Note 6).

Concentration of Credit and Other Risks

Cash and cash equivalents and marketable securities from the Company’s available-for-sale and marketable security portfolio potentially subject the Company to concentrations of credit risk. The Company is invested in money market funds and marketable securities through custodial relationships with major U.S. and Australian banks. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government.

8


 

Related party receivables from collaboration agreements (Note 5) are typically unsecured. Accordingly, the Company may be exposed to credit risk generally associated with its Research Collaboration, Product Development and License Agreement with Merck (“Collaboration Agreement”). To date, the Company has not experienced any losses related to these receivables.

Merck accounted for 100% of the Company’s revenue for the three and nine months ended September 30, 2020 and 2019.

Property and Equipment, Net

Property and equipment is recorded at cost and consists of computer equipment, laboratory equipment and office furniture and leasehold improvements. Maintenance and repairs, and training on the use of equipment, are expensed as incurred. Costs that improve assets or extend their economic lives are capitalized. Depreciation is recognized using the straight-line method based on an estimated useful life of the asset, which is as follows:

 

Computer equipment