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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 March 31, 2021

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: 001-39980

 

Sensei Biotherapeutics, Inc.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

83-1863385

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1405 Research Blvd, Suite 125

Rockville, MD

20850

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (240) 243-8000

 

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

 

SNSE

 

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 

The number of shares of Registrant’s Common Stock outstanding as of May 7, 2021 was 30,588,495.

 

 

 


 

Table of Contents

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Convertible Preferred Stock, Common Stock and Stockholders’ Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3.

Defaults Upon Senior Securities

23

Item 4.

Mine Safety Disclosures

23

Item 5.

Other Information

23

Item 6.

Exhibits

24

Signatures

 

25

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SENSEI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

169,418

 

 

$

16,596

 

Deferred offering costs

 

 

 

 

 

2,105

 

Prepaid expenses

 

 

3,307

 

 

 

1,375

 

Other current assets

 

 

60

 

 

 

 

Total current assets

 

 

172,785

 

 

 

20,076

 

Property and equipment, net

 

 

1,655

 

 

 

1,266

 

Deposits

 

 

36

 

 

 

86

 

Total assets

 

$

174,476

 

 

$

21,428

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

2,002

 

 

$

3,882

 

Other liabilities

 

 

473

 

 

 

948

 

Total current liabilities

 

 

2,475

 

 

 

4,830

 

Debt

 

 

567

 

 

 

567

 

Other non-current liabilities

 

 

182

 

 

 

138

 

Total liabilities

 

 

3,224

 

 

 

5,535

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Convertible preferred stock (Series AA) (Note 8)

 

 

 

 

 

61,411

 

Convertible preferred stock (Series BB) (Note 8)

 

 

 

 

 

10,925

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 1,230,000,000 shares authorized as of

   March 31, 2021, 30,588,495 shares and 1,875,422 shares issued and

   outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

3

 

 

 

 

Additional paid-in capital

 

 

291,633

 

 

 

55,969

 

Accumulated deficit

 

 

(120,384

)

 

 

(112,412

)

Total stockholders’ equity (deficit)

 

 

171,252

 

 

 

(56,443

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

174,476

 

 

$

21,428

 

 

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

1


SENSEI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

3,365

 

 

$

2,195

 

General and administrative

 

 

4,604

 

 

 

1,908

 

Total operating expenses

 

 

7,969

 

 

 

4,103

 

Loss from operations

 

 

(7,969

)

 

 

(4,103

)

Other expense:

 

 

 

 

 

 

 

 

Interest expense, including $0 and $645 with related parties in the three months

   ended March 31, 2021 and 2020, respectively

 

 

(3

)

 

 

(1,629

)

Fair value adjustments on embedded debt derivatives, including $0 and $575 with

   related parties in the three months ended March 31, 2021 and 2020, respectively

 

 

 

 

 

995

 

Gain on debt extinguishment

 

 

 

 

 

45

 

Net loss

 

 

(7,972

)

 

 

(4,692

)

Cumulative dividends on convertible preferred stock

 

 

 

 

 

(104

)

Net loss attributable to common stockholders

 

$

(7,972

)

 

$

(4,796

)

Net loss per common share, basic and diluted

 

$

(0.42

)

 

$

(4.00

)

Weighted-average number of shares used in computing net loss per common share, basic

   and diluted

 

 

18,904,853

 

 

 

1,199,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

2


 

SENSEI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK, COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share data)

 

 

 

Convertible

Preferred Stock

(Series A-F)

 

 

Convertible

Preferred Stock

(Series AA)

 

 

Convertible

Preferred Stock

(Series BB)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2019

 

 

15,257,663

 

 

$

47,545

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

369,491

 

 

$

 

 

$

23,650

 

 

$

(92,312

)

 

$

(68,662

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

194

 

Conversion of series A, B, C, D, E, F

   preferred stock into common stock

 

 

(15,257,663

)

 

 

(47,545

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

627,871

 

 

 

 

 

 

47,545

 

 

 

 

 

 

47,545

 

Conversion of common stock into series

   AA preferred stock

 

 

 

 

 

 

 

 

210,310,025

 

 

 

17,274

 

 

 

 

 

 

 

 

 

 

(148,732

)

 

 

 

 

 

(17,274

)

 

 

 

 

 

(17,274

)

Preferred stock issued in exchange for

   note redemption

 

 

 

 

 

 

 

 

188,173,050

 

 

 

15,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of series AA preferred stock

 

 

 

 

 

 

 

 

128,655,262

 

 

 

10,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

634,118

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,692

)

 

 

(4,692

)

Balance at March 31, 2020

 

 

 

 

$

 

 

 

527,138,337

 

 

$

43,297

 

 

 

 

 

$

 

 

 

 

1,482,748

 

 

$

 

 

$

54,115

 

 

$

(97,004

)

 

$

(42,889

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

 

 

$

 

 

 

747,683,172

 

 

$

61,411

 

 

 

52,680,306

 

 

$

10,925

 

 

 

 

1,875,422

 

 

$

 

 

$

55,969

 

 

$

(112,412

)

 

$

(56,443

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,349

 

 

 

 

 

 

1,349

 

Issuance of series BB preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,275,902

 

 

 

23,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of  preferred stock to

   common stock upon closing of the

   initial public offering

 

 

 

 

 

 

 

 

(747,683,172

)

 

 

(61,411

)

 

 

(165,956,208

)

 

 

(34,416

)

 

 

 

19,034,069

 

 

 

2

 

 

 

95,826

 

 

 

 

 

 

95,828

 

Issuance of common stock upon closing of the initial public offering, net of

   issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,030,295

 

 

 

1

 

 

 

138,488

 

 

 

 

 

 

138,489

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,648,709

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,972

)

 

 

(7,972

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

30,588,495

 

 

$

3

 

 

$

291,633

 

 

$

(120,384

)

 

$

171,252

 

 

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

 

 

3


 

 

SENSEI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(7,972

)

 

$

(4,692

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,349

 

 

 

194

 

Depreciation and amortization

 

 

98

 

 

 

23

 

Accretion on debt

 

 

 

 

 

1,578

 

Fair value adjustments on embedded debt derivatives

 

 

 

 

 

(995

)

Interest on capital lease

 

 

3

 

 

 

3

 

Gain on debt extinguishment

 

 

 

 

 

(45

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,992

)

 

 

(834

)

Deposits

 

 

50

 

 

 

(36

)

Accounts payable and accrued liabilities

 

 

(1,880

)

 

 

(1,104

)

Accrued interest

 

 

 

 

 

50

 

Other liabilities

 

 

(423

)

 

 

(602

)

Net cash used in operating activities

 

 

(10,767

)

 

 

(6,460

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(487

)

 

 

(52

)

Net cash used in investing activities

 

 

(487

)

 

 

(52

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from the exercise of common stock warrants and options

 

 

1

 

 

 

 

Capital lease payments

 

 

(10

)

 

 

(10

)

Proceeds on the issuance of series AA convertible preferred stock

 

 

 

 

 

10,567

 

Proceeds from issuance of common stock upon initial public offering, net of issuance costs

 

 

140,594

 

 

 

 

Proceeds on the issuance of series BB convertible preferred stock

 

 

23,491

 

 

 

 

Net cash provided by financing activities

 

 

164,076

 

 

 

10,557

 

Net increase in cash and cash equivalents

 

 

152,822

 

 

 

4,045

 

Cash and cash equivalents at beginning of period

 

 

16,596

 

 

 

251

 

Cash and cash equivalents at end of period

 

$

169,418

 

 

$

4,296

 

Supplemental disclosure of noncash financing and investing information:

 

 

 

 

 

 

 

 

Property and equipment additions included in accounts payable and accrued liabilities

 

$

15

 

 

$

5

 

Issuance costs included in accounts payable and accrued liabilities

 

$

534

 

 

$

 

Interest on financing

 

$

3

 

 

$

3

 

Conversion of series A, B, C, D, E, F convertible preferred stock into common stock

 

$

 

 

$

47,545

 

Conversion of series AA and BB convertible preferred stock into common stock

 

$

95,828

 

 

$

 

Conversion of common stock into series AA convertible preferred stock

 

$

 

 

$

17,274

 

Convertible preferred stock issued in exchange for note redemption

 

$

 

 

$

15,456

 

 

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

4


 

SENSEI BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED consolidated FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND OPERATIONS

Business

Sensei Biotherapeutics, Inc. (the “Company” or “Sensei”) is a clinical-stage immunotherapy company that was incorporated in 1999 as a Maryland corporation until incorporated in Delaware on December 1, 2017. The Company is engaged in the discovery and development of next generation therapies with an initial focus on treatments for cancer.

Liquidity and capital resources

Since its inception, the Company has devoted substantially all of its resources to advancing development of its portfolio of programs, establishing and protecting its intellectual property, conducting research and development activities, organizing and staffing the Company, business planning, raising capital and providing general and administrative support for these operations. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Since its inception, the Company has incurred substantial losses and had a net loss of $8.0 million for the three months ended March 31, 2021. As of March 31, 2021, the Company had an accumulated deficit of $120.4 million. The Company expects to generate operating losses and negative operating cash flows for the foreseeable future.

In February 2021, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 8,030,295 shares of its common stock at a public offering price of $19.00 per share, for aggregate gross proceeds of $152.6 million. The Company received $138.5 million in net proceeds after deducting underwriting discounts and estimated offering expenses payable by the Company.

The Company expects that its cash and cash equivalents as of March 31, 2021 of $169.4 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Reverse stock split

On January 29, 2021, the Company effected a reverse stock split of the Company’s common stock on a 48-for-1 basis (the “Reverse Stock Split”). In connection with the Reverse Stock Split, the conversion ratio for the Company’s Series AA and Series BB 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. Accordingly, all common stock share and per share amounts, as well as all preferred stock conversion ratios, for all periods presented in these financial statements have been retroactively adjusted, to reflect this reverse stock split and adjustment of the Series AA and BB convertible preferred stock conversion ratios.

 

5


 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The Company has prepared the accompanying condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States (“US GAAP”). The condensed consolidated financial statements include those accounts of the Company and its subsidiaries after elimination of all intercompany accounts and transactions.

Unaudited interim financial information

The condensed consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from these condensed consolidated financial statements, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The results for any interim period are not necessarily indicative of results for any future period.  

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods presented. Estimates are used for, but are not limited to, depreciation of equipment, the Company’s enterprise value, fair value of financial instruments, the Company’s ability to continue as a going concern and contingencies. Actual results may differ from those estimates.

Recently Issued Accounting Standards Updates

In February 2016, the FASB issued Accounting Standards Updates (“ASU”) No. 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize the liabilities related to all leases, including operating leases on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the impact of adopting ASU No. 2016-02 on the condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This update removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU No. 2018-13 on January 1, 2020 and it did not have a material effect on the condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. ASU No. 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company adopted ASU No. 2019-12 on January 1, 2020 and it did not have a material effect on the condensed consolidated financial statements and related disclosures.

 

6


 

 

3. PROPERTY AND EQUIPMENT, NET

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

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Office equipment and furniture

 

$

121

 

 

$

94

 

Research equipment

 

 

2,227

 

 

 

1,767

 

Total property and equipment

 

 

2,348

 

 

 

1,861

 

Less accumulated depreciation and amortization

 

 

(693

)

 

 

(595

)

Property and equipment, net

 

$

1,655

 

 

$

1,266

 

 

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was $98 thousand and $23 thousand, respectively.

4. Other current liabilities

Other current liabilities consist of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Compensation and benefits

 

$

440

 

 

$

916

 

Other

 

 

33

 

 

 

32

 

Total other current liabilities

 

$

473

 

 

$

948

 

 

5. Debt

 

In May 2020, the Company received $567 thousand in loan funding from the Paycheck Protection Program (“PPP”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Flexibility Act, and administered by the Small Business Administration. The unsecured loan (the “PPP Loan”) is with Silicon Valley Bank.

Under the terms of the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. To the extent the PPP Loan amount is not forgiven under the PPP Loan, the Company is obligated to make equal monthly payments of principal and interest, beginning after determination of forgiveness by the lender. If the Company applies for forgiveness before August 2021 and forgiveness is not granted, principal and interest payments will be required beginning in May 2022. If the Company does not apply for loan forgiveness by August 2021, principal and interest will be required beginning in August 2021.

6. FAIR VALUE MEASUREMENTS

The Company did not have any financial liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

The Company’s embedded debt derivatives during 2020 are measured at fair value using a probability-weighted discounted cash flow valuation methodology. The determination of the fair value of embedded debt derivatives includes inputs not observable in the market and as such, represents a Level 3 measurement. The methodology utilized requires inputs based on certain subjective assumptions, including probabilities of debt settlement scenarios and a discount rate. This approach results in the classification of these embedded debt derivatives as Level 3 of the fair value hierarchy.

The assumptions utilized to value the embedded debt derivatives during the three months ended March 31, 2020 prior to the settlement of such instruments included the actual outcome of the underling debt host contract, whether it was settled on a qualified financing prior to the contractual maturity date or settlement at the contractual maturity date. For the three months ended March 31, 2020, the Company recognized $1.0 million of income in the condensed consolidated statement of operations as other income—fair value adjustments on embedded debt derivatives.

7


 

The following table provides a reconciliation of embedded debt derivatives measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

 

 

 

Amount

 

Balance at December 31, 2019

 

$

3,920

 

Change in fair value

 

 

(995

)

Settlement

 

 

(2,925

)

Balance at March 31, 2020

 

$

 

 

There were no transfers among Level 1, Level 2 or Level 3 categories in the three months ended March 31, 2020.

7. COMMITMENTS AND CONTINGENCIES

Operating Lease

As of March 31, 2021, the Company leases office facilities and other equipment under operating leases, which expire at various dates through 2027. Lease expense for the three months ended March 31, 2021 and 2020 was $234 thousand and $304 thousand, respectively.

 The following table presents the future annual minimum payments required under noncancellable operating leases at March 31, 2021 (in thousands):

 

Remainder of 2021

 

$

796

 

2022

 

 

1,192

 

2023

 

 

1,201

 

2024

 

 

1,223

 

2025

 

 

1,259

 

2026

 

 

657

 

2027

 

 

59

 

Total operating lease obligations

 

$

6,387

 

 

As of March 31, 2021, the Company has letters of credit agreements outstanding totaling $515 thousand as security for office facility operating leases. 

Capital Lease

The Company leases research equipment under a capital finance lease. The capital lease asset is classified within property and equipment, net within the Company’s condensed consolidated balance sheets.

The following table presents the future annual minimum payments under the capitalized lease, together with the present value of net minimum lease payments at March 31, 2021 (in thousands):

 

Remainder of 2021

 

$

31

 

2022

 

 

41

 

2023

 

 

41

 

2024

 

 

14

 

Total capital lease obligations

 

 

127

 

Less amount representing interest

 

 

(16

)

Present value of minimum capital lease obligations

 

$

111

 

 

License Agreements

In the normal course of business, the Company enters into licensing agreements with various parties to obtain the right to make, use, and sell licensed products currently in development.

8


 

Litigation

The Company records estimated losses from loss contingencies, such as a loss arising from a litigation, when it determines that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Litigation is subject to many factors that are difficult to predict so that there can be no assurance, in the event of a material unfavorable result in one or more claims, the Company will not incur material costs.

During 2017, the Company became actively involved in a matter pending in the Ontario (Canada) Superior Court of Justice which names, among multiple other defendants, the Company and two former officers of the Company. The claims pending in this matter allege breach of contract by the Company and seek declaratory and other relief, including monetary damages from the Company, and the individual defendants, including the Company’s former officers. The claims by such plaintiffs were originally made in a lawsuit filed in Ontario during October 2011, but was not pursued by such plaintiffs in any material manner until 2017. The Company believes that there is no merit to the claims alleged against the Company and its former officers, including no alleged breach of contract by the Company, and intends to vigorously defend against the claims pertaining to the Company and its former officers. At the present stage of the suit, management believes the outcome in this matter is not likely to have any material impact on the Company’s results, cash flows, or financial position.

Coronavirus pandemic

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of these financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in 2021.

8. Equity

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.

Series BB Convertible Preferred Stock Issuance

In January 2021, the Company issued and sold 113,275,902 shares of Series BB convertible preferred stock at $0.207383 per share in exchange for $23.5 million in gross proceeds.

Initial Public Offering

In February 2021, the Company completed its IPO in which the Company issued and sold 8,030,295 shares of its common stock, including 1,030,243 shares pursuant to the partial exercise of the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, for aggregate gross proceeds of $152.6 million. The Company received approximately $138.5 million in net proceeds after deducting underwriting discounts and estimated offering expenses payable by the Company.

Upon closing of the IPO on February 8, 2021, all of the Company’s outstanding preferred stock converted into an aggregate of 19,034,069 shares of common stock.

On February 8, 2021, in connection with the IPO, the Company filed an Amended and Restated Certificate of Incorporation (the “Amended Certificate”) with the Secretary of State of the State of Delaware. The Amended Certificate, among other things: (i) authorized 250,000,000 shares of common stock; (ii) eliminated all references to the previously existing series of preferred stock; and (iii) authorized 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series.

9


 

Common Stock Warrants

The following is a summary of the common stock warrant activity related to common stock warrants issued in conjunction with equity and debt fundraising events for the three months ended March 31, 2021:

 

 

 

Number

of Common

Stock

Warrants

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value (in

thousands)

 

Outstanding at December 31, 2020

 

 

412,262

 

 

$

9.60

 

 

 

6.71

 

 

$

1,380

 

Granted

 

 

1,648,709

 

 

$

0.01

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,648,709

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

412,262

 

 

$

9.60

 

 

 

6.47

 

 

$

4,122

 

 

9. STOCK-BASED COMPENSATION

2018 Equity Incentive Plan

The Company’s 2018 Stock Incentive Plan (the “2018 Plan”), provided for the Company to grant qualified incentive options, nonqualified options, stock grants and other stock-based awards to employees and non-employees to purchase the Company’s common stock. Upon the effectiveness of the 2021 Plan (as defined below), no further issuances will be made under the 2018 Plan.

2021 Stock Option and Incentive Plan

The 2021 Equity Incentive Plan (the “2021 Plan”) was approved by the board of directors on January 27, 2021, and the Company’s stockholders on January 28, 2021 and became effective on the execution of the underwriting agreement related to the IPO. The 2021 Plan provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary corporations, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The number of shares initially reserved for issuance under the 2021 Plan was 5,000,000, which will automatically increase on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 4.0% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the board of directors.

2021 Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was approved by the Company’s board of directors on January 27, 2021, and became effective on the execution of the underwriting agreement related to the IPO. A total of 333,333 shares of common stock were initially reserved for issuance under this plan, which will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, by 1.0% of the total shares of common stock outstanding on December 31st of the preceding calendar year, or the Evergreen Measurement Date; provided, that the number of shares added to the share reserve will be reduced automatically to the extent necessary to avoid causing the share reserve to exceed a number of shares equal to 1.0% of the shares of common stock outstanding on the applicable Evergreen Measurement Date and the board of directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of the Company’s common stock than would otherwise occur.

Stock Options

During 2021, the Company granted options to purchase shares of common stock to employees, consultants, and nonexecutive directors pursuant to the 2018 Plan and 2021 Plan, respectively. The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock options on the grant dates at a weighted average fair value of $13.84.

The following is a summary of the stock option award activity during the three months ended March 31, 2021:

10


 

 

 

 

Number

of Stock

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2020

 

 

1,947,123

 

 

$

5.70

 

 

 

9.56

 

 

$

10,284

 

Granted

 

 

1,253,825

 

 

$

18.06

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(43,749

)

 

$

(6.00

)

 

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

3,157,199

 

 

$

10.60

 

 

 

9.50

 

 

$

23,557

 

Exercisable at March 31, 2021

 

 

446,771

 

 

$

15.70

 

 

 

9.04

 

 

$

5,096

 

Options expected to vest as of March 31, 2021

 

 

2,710,428

 

 

$

9.76

 

 

 

9.62

 

 

$

18,461

 

 

The total fair value of options vested during the three months ended March 31, 2021 was $1.1 million.

At March 31, 2021, there was approximately $21.4 million of unrecognized stock-based compensation expense associated with the stock options, which is expected to be recognized over a weighted-average period of 3.55 years.

Common Stock Warrants

The following is a summary of the employee-issued common stock warrant activity during the three months ended March 31, 2021:

 

 

 

Number

of Common

Stock

Warrants

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value (in

thousands)

 

Outstanding at December 31, 2020

 

 

57,212

 

 

$

7.62

 

 

 

3.64

 

 

$

98

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Outstanding and exercisable at March 31, 2021

 

 

57,212

 

 

$

7.62

 

 

 

3.39

 

 

$

495

 

 

As of March 31, 2021 there was no unrecognized stock-based compensation expense associated with the common stock warrants.

For the three months ended March 31, 2021 and 2020, the Company utilized the Black-Scholes option-pricing model for estimating the fair value of the stock options and common stock warrants granted. The following table presents the assumptions and the Company’s methodology for developing each of the assumptions used:

 

 

 

Three Months Ended

 

 

March 31, 2021

Volatility

 

91.5%-98.04%

Expected life (years)

 

5.52-6.08

Risk-free interest rate

 

0.5%–1.0%

Dividend rate

 

—%

 

 

Volatility—The Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies over the expected term.

 

Expected life—The expected life is estimated as the contractual term.

11


 

 

 

Risk-free interest rate—The risk-free rate for periods within the estimated life of the stock award is based on the U.S. Treasury yield curve in effect at the time of grant.

 

Dividend rate—The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future.

Stock-based compensation expense was recorded in the following line items in the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

509

 

 

$

51

 

General and administrative

 

 

840

 

 

 

143

 

Total stock-based compensation expense

 

$

1,349

 

 

$

194

 

 

10. EMPLOYEE RETIREMENT PLAN

The Company maintains a defined contribution 401(k) profit-sharing plan (the “Plan”) for all employees. Under the Plan, participants may make voluntary contributions up to the maximum amount allowable by law. The Plan is based on employees’ salary deferral, and the Company matches employees’ contributions up to 4% of the employees’ base salary. Employees are 100% vested in the Company’s match contributions. During the three months ended March 31, 2021 and 2020, the Company accrued expense of $29 thousand and $26 thousand, respectively.

11. RELATED-PARTY TRANSACTIONS

Debt

During March 2020, a principal owner of the Company purchased the 2019 Special Note directly from the original holder.

Consulting Agreement

During 2020, the Company entered into an agreement with a principal owner of the Company to provide consulting services to the Company in exchange for $1,500 thousand. Under the terms of the agreement, the Company recorded expense of $1,125 thousand in 2020, with payment made in January 2021. The contract was completed and the remaining balance of $375 thousand under the agreement was recorded as an expense in January 2021.

12. INCOME TAXES

          The Company recorded no provision for income taxes for the three months ended March 31, 2021 and 2020.

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities using statutory rates. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and research and development credits. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the Company’s otherwise recognizable net deferred tax assets.

13. NET LOSS PER SHARE

Basic and diluted net loss per share attributable to common stockholders is calculated as follows (in thousands except share and per share amounts):  

12


 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020