nktx-10q_20200630.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 June 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: 001-39370

 

 

Nkarta, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-4515206

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

6000 Shoreline Court, Suite 102

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

 

(415) 582-4923

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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, $0.0001 par value per share

 

NKTX

 

 

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☐    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of August 17, 2020, the registrant had 32,674,391 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements:

1

 

Condensed Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019

1

 

Condensed Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019 (unaudited)

2

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019 (unaudited)

3

 

Condensed Statements of Cash Flows for the three and six months ended June 30, 2020 and 2019 (unaudited)

4

 

Notes to Unaudited Condensed Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

Signatures

67

 

 

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

 

 

the success, cost, timing and potential indications of our product candidate development activities and clinical trials, including our currently planned and potential future clinical trials of NKX101 and NKX019;

 

our ability to achieve our milestones for development of our product candidates;

 

our ability to obtain and maintain regulatory approval of our product candidates, including NKX101 and NKX019, in any of the indications for which we plan to develop them, and any related restrictions, limitations and/or warnings in the label of an approved product;

 

the future results of ongoing or later clinical trials, including of NKX101 and NKX019;

 

our ability to maintain our license agreement with National University of Singapore and St. Jude Children’s Research hospital with respect to certain rights to NKX101 and NKX019;

 

our ability to obtain funding for our operations, including funding necessary to complete the clinical trials of any of our product candidates;

 

risks associated with the COVID-19 pandemic, which may adversely impact our business, preclinical studies and clinical trials;

 

our plans to research, develop and commercialize our product candidates;

 

our ability to complete construction of manufacturing facilities to produce clinical and commercial products;

 

the size and growth potential of the markets for our products, and our ability to identify target patient populations and serve those markets, especially for diseases with small patient populations;

 

our ability to successfully commercialize our products, including obtaining reimbursement on favorable terms;

 

our ability to develop and maintain sales and marketing capabilities;

 

the rate and degree of market acceptance of our products;

 

our ability to obtain and maintain insurance coverage and reimbursement for our product candidates;

 

our ability to grow our organization and increase the size of our facilities to meet our anticipated growth;

 

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

our ability to attract and retain strategic partners with development, regulatory and commercialization expertise;

 

the success of competing therapies that are or become available;

 

our ability to attract and retain key scientific, commercial or management personnel;

 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act or a smaller reporting company;

 

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our products and our ability to operate our business without infringing on the intellectual property rights of others;

 

regulatory developments in the United States and foreign countries; and

 

other risks and factors listed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

 

In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.


You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and

i


it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

 

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

NKARTA, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,748,928

 

 

$

20,606,849

 

Short-term investments, available-for-sale

 

 

3,897,148

 

 

 

16,384,273

 

Prepaid expenses and other current assets

 

 

651,417

 

 

 

473,922

 

Total current assets

 

 

22,297,493

 

 

 

37,465,044

 

Restricted cash

 

 

412,914

 

 

 

268,535

 

Property and equipment, net

 

 

7,750,935

 

 

 

3,079,525

 

Operating lease right-of-use assets

 

 

9,016,992

 

 

 

7,143,570

 

Other long-term assets

 

 

4,137,405

 

 

 

455,078

 

Total assets

 

$

43,615,739

 

 

$

48,411,752

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,733,561

 

 

$

1,881,665

 

Operating lease liabilities, current portion

 

 

1,521,509

 

 

 

1,515,813

 

Preferred stock purchase right liability

 

 

41,641,000

 

 

 

1,477,645

 

Accrued and other current liabilities

 

 

4,602,209

 

 

 

3,289,492

 

Liability to related parties

 

 

10,245,450

 

 

 

 

Total current liabilities

 

 

59,743,729

 

 

 

8,164,615

 

Operating lease liabilities, net of current portion

 

 

7,826,109

 

 

 

5,780,394

 

Other long-term liabilities

 

 

119,963

 

 

 

134,372

 

Total liabilities

 

 

67,689,801

 

 

 

14,079,381

 

Commitments

 

 

 

 

 

 

 

 

Convertible preferred stock

 

 

59,814,882

 

 

 

59,814,882

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

Common stock

 

 

175

 

 

 

160

 

Additional paid-in capital

 

 

2,540,711

 

 

 

1,179,210

 

Accumulated other comprehensive loss

 

 

1,032

 

 

 

(2,139

)

Accumulated deficit

 

 

(86,430,862

)

 

 

(26,659,742

)

Total stockholders’ deficit

 

 

(83,888,944

)

 

 

(25,482,511

)

Total liabilities and stockholders’ deficit

 

$

43,615,739

 

 

$

48,411,752

 

 

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

1


NKARTA, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Collaboration revenue

 

$

 

 

$

2,308

 

 

$

 

 

$

115,385

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,861,986

 

 

 

3,620,858

 

 

 

15,121,824

 

 

 

5,914,975

 

General and administrative

 

 

2,493,595

 

 

 

1,052,272

 

 

 

4,642,016

 

 

 

1,992,110

 

Total operating expenses

 

 

10,355,581

 

 

 

4,673,130

 

 

 

19,763,840

 

 

 

7,907,085

 

Loss from operations

 

 

(10,355,581

)

 

 

(4,670,822

)

 

 

(19,763,840

)

 

 

(7,791,700

)

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of preferred stock

   purchase right liability

 

 

(40,741,000

)

 

 

 

 

 

(40,163,355

)

 

 

 

Interest income

 

 

27,176

 

 

 

21,855

 

 

 

151,787

 

 

 

59,754

 

Interest expense

 

 

 

 

 

(188,988

)

 

 

 

 

 

(188,988

)

Other income, net

 

 

4,288

 

 

 

 

 

 

4,288

 

 

 

 

Total other expense, net

 

 

(40,709,536

)

 

 

(167,133

)

 

 

(40,007,280

)

 

 

(129,234

)

Net loss

 

$

(51,065,117

)

 

$

(4,837,955

)

 

$

(59,771,120

)

 

$

(7,920,934

)

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(51,065,117

)

 

$

(4,837,955

)

 

$

(59,771,120

)

 

$

(7,920,934

)

Other comprehensive loss

 

 

4,574

 

 

 

 

 

 

3,171

 

 

 

 

Comprehensive loss

 

$

(51,060,543

)

 

$

(4,837,955

)

 

$

(59,767,949

)

 

$

(7,920,934

)

Net loss per share, basic and diluted

 

$

(30.06

)

 

$

(3.39

)

 

$

(36.13

)

 

$

(5.79

)

Weighted average shares used to compute net loss

   per share, basic and diluted

 

 

1,698,560

 

 

 

1,426,984

 

 

 

1,654,304

 

 

 

1,367,686

 

 

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

2


NKARTA, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(Unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

Loss

 

 

Deficit

 

Balance, December 31, 2019

 

 

27,283,973

 

 

$

59,814,882

 

 

 

 

1,600,601

 

 

$

160

 

 

$

1,179,210

 

 

$

(26,659,742

)

 

$

(2,139

)

 

$

(25,482,511

)

Vesting of shares of common

   stock subject to repurchase

 

 

 

 

 

 

 

 

 

17,494

 

 

 

1

 

 

 

13,509

 

 

 

 

 

 

 

 

 

13,510

 

Stock option exercises

 

 

 

 

 

 

 

 

 

2,871

 

 

 

1

 

 

 

481

 

 

 

 

 

 

 

 

 

482

 

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

482,059

 

 

 

 

 

 

 

 

 

482,059

 

Unrealized loss on short-

   term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,403

)

 

 

(1,403

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,706,003

)

 

 

 

 

 

(8,706,003

)

Balance, March 31, 2020

 

 

27,283,973

 

 

$

59,814,882

 

 

 

 

1,620,966

 

 

$

162

 

 

$

1,675,259

 

 

$

(35,365,745

)

 

$

(3,542

)

 

$

(33,693,866

)

Vesting of shares of common

   stock subject to repurchase

 

 

 

 

 

 

 

 

 

19,110

 

 

 

2

 

 

 

12,824

 

 

 

 

 

 

 

 

 

12,826

 

Stock option exercises

 

 

 

 

 

 

 

 

 

110,425

 

 

 

11

 

 

 

286,543

 

 

 

 

 

 

 

 

 

286,554

 

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

566,085

 

 

 

 

 

 

 

 

 

566,085

 

Unrealized gain on short-

   term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,574

 

 

 

4,574

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51,065,117

)

 

 

 

 

 

(51,065,117

)

Balance, June 30, 2020

 

 

27,283,973

 

 

$

59,814,882

 

 

 

 

1,750,501

 

 

$

175

 

 

$

2,540,711

 

 

$

(86,430,862

)

 

$

1,032

 

 

$

(83,888,944

)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

Loss

 

 

Deficit

 

Balance, December 31, 2018

 

 

6,170,349

 

 

$

12,709,293

 

 

 

 

1,231,840

 

 

$

123

 

 

$

187,790

 

 

$

(5,583,907

)

 

$

 

 

$

(5,395,994

)

Vesting of shares of common

   stock subject to repurchase

 

 

 

 

 

 

 

 

 

134,601

 

 

 

13

 

 

 

20,426

 

 

 

 

 

 

 

 

 

20,439

 

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66,878

 

 

 

 

 

 

 

 

 

66,878

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,082,979

)

 

 

 

 

 

(3,082,979

)

Balance, March 31, 2019

 

 

6,170,349

 

 

$

12,709,293

 

 

 

 

1,366,441

 

 

$

136

 

 

$

275,094

 

 

$

(8,666,886

)

 

$

 

 

$

(8,391,656

)

Beneficial conversion feature

   upon issuance of convertible

   promissory notes

 

 

 

 

 

260,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of shares of common

   stock subject to repurchase

 

 

 

 

 

 

 

 

 

96,030

 

 

 

10

 

 

 

4,731

 

 

 

 

 

 

 

 

 

4,741

 

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87,566

 

 

 

 

 

 

 

 

 

87,566

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,837,955

)

 

 

 

 

 

(4,837,955

)

Balance, June 30, 2019

 

 

6,170,349

 

 

$

12,970,163

 

 

 

 

1,462,471

 

 

$

146

 

 

$

367,391

 

 

$

(13,504,841

)

 

$

 

 

$

(13,137,304

)

 

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

3


NKARTA, INC.

CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(59,771,120

)

 

$

(7,920,934

)

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

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

1,048,144

 

 

 

154,444

 

Depreciation and amortization

 

 

281,405

 

 

 

164,896

 

Accretion and amortization of investments, net

 

 

(32,179

)

 

 

 

Non-cash lease expense

 

 

177,988

 

 

 

155,261

 

Change in fair value of preferred stock purchase right liability

 

 

40,163,355

 

 

 

 

Non-cash interest expense on convertible notes

 

 

 

 

 

188,988

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, prepaid expenses and other current assets

 

 

(368,614

)

 

 

130,949

 

Accounts payable and accrued and other liabilities

 

 

(27,402

)

 

 

44,096

 

Net cash used in operating activities

 

 

(18,528,423

)

 

 

(7,082,300

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,811,768

)

 

 

(704,801

)

Purchases of short-term investments

 

 

(3,577,525

)

 

 

 

Maturities of short-term investments

 

 

16,100,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

7,710,707

 

 

 

(704,801

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Liability to related party

 

 

10,245,450

 

 

 

 

Proceeds from stock option exercises

 

 

287,036

 

 

 

 

Proceeds from early exercise of stock options

 

 

11,925

 

 

 

41,780

 

Payments of deferred offering costs

 

 

(2,440,238

)

 

 

(14,769

)

'Proceeds from issuance of convertible notes, net of issuance costs

 

 

 

 

 

5,986,000

 

Net cash provided by financing activities

 

 

8,104,173

 

 

 

6,013,011

 

Net decrease in cash and cash equivalents

 

 

(2,713,543

)

 

 

(1,774,090

)

Cash, cash equivalents, and restricted cash beginning of period

 

 

20,875,385

 

 

 

7,956,487

 

Cash, cash equivalents, and restricted cash end of period

 

$

18,161,842

 

 

$

6,182,397

 

Reconciliation of cash, cash equivalents and restricted cash to the balance sheet:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,748,928

 

 

$

5,913,862

 

Restricted cash

 

 

412,914

 

 

 

268,535

 

Total cash, cash equivalents and restricted cash

 

$

18,161,842

 

 

$

6,182,397

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

$

354,785

 

 

$

434,869

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Deferred offering costs included in accrued and other liabilities

 

$

1,155,000

 

 

$

 

 

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

4


NKARTA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Description of the Business

Nkarta, Inc. (“Nkarta” or the “Company”) was incorporated in the State of Delaware in July 2015. The Company is a private biopharmaceutical company developing engineered natural killer (“NK”) cells to fight cancer. The Company is focused on leveraging the natural potent power of NK cells to identify and kill abnormal cells and recruit adaptive immune effectors to generate responses that are specific and durable. Nkarta is combining its NK expansion platform technology with proprietary cell engineering technologies to generate an abundant supply of NK cells, engineer enhanced NK cell recognition of tumor targets, and improve persistence for sustained activity in the body for the treatment of cancer. Nkarta’s goal is to develop off-the-shelf NK cell therapy product candidates to improve outcomes for patients. The Company’s operations are based in South San Francisco, California and it operates in one segment.

Initial Public Offering

On July 14, 2020, the Company completed its initial public offering (“IPO”). The Company’s Registration Statement on Form S-1 (File No. 333-239301) relating to the IPO was declared effective by the Securities and Exchange Commission (“SEC”) on July 9, 2020. The shares began trading on the Nasdaq Global Select Market on July 10, 2020. The Company issued 16,100,000 shares of its common stock, including 2,100,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at an offering price of $18.00 per share. Immediately prior to the closing of the Company’s IPO on July 14, 2020, all outstanding shares of the Company’s convertible preferred stock were converted into 14,689,215 shares of the Company’s common stock. In aggregate, the shares issued in the IPO generated approximately $265.5 million in net proceeds after deducting underwriting discounts and commissions and other offering costs.

Liquidity and Management Plans

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern. However, since inception, the Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, and conducting preclinical studies, and has not realized substantial revenues from its planned principal operations. In addition, the Company has a limited operating history, has incurred operating losses since inception and expects that it will continue to incur net losses into the foreseeable future as it continues its research and development activities. As of June 30, 2020, the Company had an accumulated deficit of $86.4 million and cash, cash equivalents, restricted cash and short-term investments of $22.1 million.

Management plans to continue to incur substantial costs in order to conduct research and development activities and additional capital will be needed to undertake these activities. The Company intends to raise such capital through debt or equity financings or other arrangements to fund operations. Management believes that the Company’s current cash, cash equivalents, restricted cash and short-term investments, including the net proceeds of approximately $265.5 million from the closing of its IPO in July 2020 as described above, together with the aggregate gross proceeds of $64.4 million from the issuance of 27,066,206 shares of the Series B preferred stock upon the closing of the Series B Milestone Closing (defined below) on July 1, 2020, will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared in accordance with U.S. generally accepted accounting principle (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the full year or any subsequent interim period. The condensed balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of

5


the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2019 included in the Registration Statement on Form S-1 and related Prospectus dated July 10, 2020 filed with the SEC pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended (“Prospectus”).

Certain prior period amounts reported in the Company’s Financial Statements and notes thereto have been reclassified to conform to the current period presentation, with no impact on previously reported operating results or financial position.

Reverse Stock Split

On July 1, 2020, the Company effected a 1-for-3.7 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding common stock. Accordingly, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. The par value of the common stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, COVID-19, as a global pandemic, which continues to spread throughout the United States and around the world. COVID-19 pandemic is contributing to a general slowdown in the global economy and may affect the Company’s business, results of operations, financial condition, and future strategic plans. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and its impact on the Company’s planned preclinical studies and clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. At this time, the extent to which the COVID-19 pandemic may impact the Company’s financial condition or results of operations is uncertain. In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act had no impact on the Company’s income tax provision for the three and six months ended June 30, 2020. The Company continues to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows. The Company currently does not expect to apply for loans or grants under the CARES Act.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, preclinical studies, fair value of assets and liabilities, convertible preferred stock, share-based compensation and income taxes. Management bases its estimates on historical experience, knowledge of current events and actions it may undertake in the future that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

Deferred Offering Costs

The Company has deferred offering costs consisting of legal, accounting, printing and other fees and costs directly attributable to its IPO. The deferred offering costs will be offset against the proceeds from the IPO. As of June 30, 2020, deferred offering costs of $3.5 million were capitalized and included under other long-term assets on the balance sheets.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include convertible preferred stock, unvested common stock, and outstanding stock options under the Company’s equity incentive plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net

6


loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Recent Accounting Pronouncements

Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including available-for-sale debt securities. The Company adopted this standard in the first quarter of 2020. The adoption of this standard did not have a material impact on the Company’s financial statements.

Fair Value Measurements. In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurement. The amendments in ASU 2018-13 that relate to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments in ASU 2018-13 should be applied retrospectively to all periods presented upon their effective date. The Company adopted this standard in the first quarter of 2020. The adoption of this standard did not have a material impact on the Company’s disclosures.

There were no other significant updates to the recently issued accounting standards other than as disclosed herewith for the six months ended June 30, 2020. Although there are several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.

3. Net Loss Per Share

The following tables summarize the computation of the basic and diluted net loss per share:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(51,065,117

)

 

$

(4,837,955

)

 

$

(59,771,120

)

 

$

(7,920,934

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

1,815,833

 

 

 

1,704,229

 

 

 

1,775,961

 

 

 

1,700,822

 

Less: weighted average unvested common stock issued

   upon early exercise of common stock options

 

 

(117,273

)

 

 

(163,701

)

 

 

(121,657

)

 

 

(177,590

)

Less: weighted average unvested founder shares of

   common stock

 

 

 

 

 

(113,544

)

 

 

 

 

 

(155,546

)

Weighted average shares used to compute net loss per share,

   basic and diluted

 

 

1,698,560

 

 

 

1,426,984

 

 

 

1,654,304

 

 

 

1,367,686

 

Net loss per share, basic and diluted

 

$

(30.06

)

 

$

(3.39

)

 

$

(36.13

)

 

$

(5.79

)

 

The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

 

 

 

As of June 30,

 

 

 

2020

 

 

2019

 

Convertible preferred stock

 

 

7,374,034

 

 

 

1,667,658

 

Common stock options

 

 

2,424,747

 

 

 

261,858

 

Unvested common stock upon early exercise of common stock options

 

 

124,888

 

 

 

166,126

 

Unvested founder shares of common stock

 

 

 

 

 

84,459

 

 

 

 

9,923,669

 

 

 

2,180,101

 

 

7


Immediately prior to the closing of the Company’s IPO on July 14, 2020, all outstanding shares of the Company’s convertible preferred stock converted into 14,689,215 shares of the Company’s common stock.

4. Fair Value of Financial Instruments

The following tables summarize the fair value of the Company’s financial instruments:

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

June 30,

2020

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,374,380

 

 

$

6,374,380

 

 

$

 

 

$

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

1,201,596

 

 

 

 

 

$

1,201,596

 

 

 

 

Commercial paper

 

 

2,695,552

 

 

 

 

 

 

2,695,552

 

 

 

 

Total short-term investments

 

 

3,897,148

 

 

 

 

 

 

3,897,148

 

 

 

 

Total

 

$

10,271,528

 

 

$

6,374,380

 

 

$

3,897,148

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock purchase right liability

 

$

41,641,000

 

 

$

 

 

$

 

 

$

41,641,000

 

 

 

 

 

 

 

 

Fair Value Measurements Using