aplt_Current_Folio_10Q

Table of Contents

 

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, 2019

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: 001-38898


Applied Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)


 

Delaware

81-3405262

(State or other jurisdiction of

incorporation or organization)

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

 

340 Madison Avenue, 19th Floor

New York, New York 10173

(212) 220-9226

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


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

APLT

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 1, 2019, the registrant had 17,134,190 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

Table of Contents

Table of Contents

 

 

Page

PART I. 

FINANCIAL INFORMATION

 

Item 1. 

Financial Statements (Unaudited)

3

 

Condensed Balance Sheets

3

 

Condensed Statements of Operations

4

 

Condensed Statement of Comprehensive Income

5

 

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

6

 

Condensed Statements of Cash Flows

8

 

Notes to Unaudited Condensed Financial Statements

9

Item 2. 

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

25

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. 

Controls and Procedures

34

PART II. 

OTHER INFORMATION

 

Item 1. 

Legal Proceedings

35

Item 1A. 

Risk Factors

35

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3. 

Defaults Upon Senior Securities

74

Item 4. 

Mine Safety Disclosures

74

Item 5. 

Other Information

74

Item 6. 

Exhibits

75

 

 

 

1

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

·

our plans to develop and commercialize our product candidates;

·

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

·

our ability to take advantage of expedited regulatory pathways for any of our product candidates;

·

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

·

our ability to successfully acquire or in‑license additional product candidates on reasonable terms;

·

our ability to maintain and establish collaborations or obtain additional funding;

·

our ability to obtain regulatory approval of our current and future product candidates;

·

our expectations regarding the potential market size and the rate and degree of market acceptance of such product candidates;

·

our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;

·

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

·

our intellectual property position and the duration of our patent rights;

·

developments or disputes concerning our intellectual property or other proprietary rights;

·

our expectations regarding government and third‑party payor coverage and reimbursement;

·

our ability to compete in the markets we serve;

·

the impact of government laws and regulations and liabilities thereunder;

·

developments relating to our competitors and our industry; and

·

other factors that may impact our financial results.

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

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

Unless the context otherwise requires, the terms “Applied,” “Applied Therapeutics,” “the company,” “we,” “us,” “our” and similar references in this Quarterly Report on Form 10-Q refer to Applied Therapeutics, Inc.

2

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

Applied Therapeutics, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30, 

 

December 31, 

 

 

 

2019

 

2018

 

 

    

(Unaudited)

    

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

  

 

CURRENT ASSETS:

 

 

  

 

 

  

 

Cash and cash equivalents

 

$

13,065

 

$

18,748

 

Prepaid expenses and other current assets

 

 

4,080

 

 

1,498

 

Investments

 

 

19,889

 

 

 —

 

Total current assets

 

 

37,034

 

 

20,246

 

Other assets

 

 

230

 

 

 —

 

TOTAL ASSETS

 

$

37,264

 

$

20,246

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

  

 

 

  

 

CURRENT LIABILITIES:

 

 

  

 

 

  

 

Accounts payable

 

 

1,688

 

 

3,015

 

Accrued expenses and other current liabilities

 

 

4,829

 

 

1,413

 

Total current liabilities

 

 

6,517

 

 

4,428

 

Total liabilities

 

 

6,517

 

 

4,428

 

Series A convertible preferred stock, $0.0001 par value; 0 shares and 3,093,898 shares authorized at September 30, 2019 and December 31, 2018, respectively; 0 shares and 3,093,898 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively; liquidation preference of $0 and $7,000 at September 30, 2019  and December 31, 2018, respectively

 

 

 —

 

 

6,254

 

Series B convertible preferred stock, $0.0001 par value; 0 shares and 7,790,052 shares authorized as of September 30, 2019  and December 31, 2018, respectively; 0 shares and 4,001,848 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively; liquidation preference of $0 and $29,964 as of September 30, 2019  and December 31, 2018, respectively

 

 

 —

 

 

29,156

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

  

 

 

  

 

Common stock, $0.0001 par value; 100,000,000 and 20,441,982 shares authorized as of September 30, 2019 and December 31, 2018, respectively; 17,134,190 shares and 5,513,531 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

 

1

 

 

 —

 

Additional paid-in capital

 

 

79,872

 

 

1,665

 

Accumulated other comprehensive loss

 

 

11

 

 

 —

 

Accumulated deficit

 

 

(49,137)

 

 

(21,257)

 

Total stockholders' equity (deficit)

 

 

30,747

 

 

(19,592)

 

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

37,264

 

$

20,246

 

 

The Notes to Condensed Financial Statements are an integral part of these statements.

3

Table of Contents

Applied Therapeutics, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,453

 

$

2,726

 

$

18,582

 

$

6,111

General and administrative

 

 

3,294

 

 

598

 

 

9,331

 

 

1,418

Total operating expenses

 

 

10,747

 

 

3,324

 

 

27,913

 

 

7,529

LOSS FROM OPERATIONS

 

 

(10,747)

 

 

(3,324)

 

 

(27,913)

 

 

(7,529)

OTHER INCOME (EXPENSE), NET:

 

 

  

 

 

  

 

 

  

 

 

  

Interest income (expense), net

 

 

34

 

 

(584)

 

 

33

 

 

(1,400)

Other expense

 

 

 —

 

 

(373)

 

 

 —

 

 

(873)

Total other income (expense), net

 

 

34

 

 

(957)

 

 

33

 

 

(2,273)

Net loss

 

$

(10,713)

 

$

(4,281)

 

$

(27,880)

 

$

(9,802)

Net loss attributable to common stockholders—basic and diluted

 

$

(10,713)

 

$

(4,281)

 

$

(27,880)

 

$

(9,802)

Net loss per share attributable to common stockholders—basic and diluted

 

$

(0.63)

 

$

(0.78)

 

$

(1.98)

 

$

(1.79)

Weighted-average common stock outstanding—basic and diluted

 

 

17,095,870

 

 

5,497,871

 

 

14,085,579

 

 

5,473,414

 

The Notes to Condensed Financial Statements are an integral part of these statements.

 

4

Table of Contents

Applied Therapeutics Inc.

Condensed Statement of Comprehensive Income

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2019

    

2018

    

2019

    

2018

Net Loss

 

$

(10,713)

 

$

(4,281)

 

$

(27,880)

 

$

(9,802)

Other comprehensive income (loss)

 

 

 

 

 

  

 

 

  

 

 

  

Unrealized gain (loss) on marketable securities

 

 

11

 

 

 —

 

 

11

 

 

 —

Income tax related to unrealized gain or loss on marketable securities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Other comprehensive income (loss), net of tax

 

 

11

 

 

 —

 

 

11

 

 

 —

Comprehensive income (loss), net of tax

 

$

(10,702)

 

$

(4,281)

 

$

(27,869)

 

$

(9,802)

 

The Notes to Condensed Financial Statements are an integral part of these statements.

 

 

 

 

5

Table of Contents

Applied Therapeutics, Inc.

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

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

Convertible

 

 

$0.0001

 

Additional

 

 

 

 

Accumulated Other

 

Total

 

 

Preferred Stock

 

Preferred Stock

 

 

Par Value

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

 

Deficit

BALANCE, December 31, 2017

 

 

3,093,898

 

$

6,254

 

 

 —

 

$

 —

  

  

 

5,458,450

 

$

 —

 

$

775

 

$

(4,736)

 

$

 —

 

$

(3,961)

Issuance of common stock in exchange for license

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

26

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(2,335)

 

 

 —

 

 

(2,335)

BALANCE, March 31, 2018

 

 

3,093,898

 

 

6,254

 

 

 —

 

 

 —

 

 

 

5,458,450

 

 

 —

 

 

801

 

 

(7,071)

 

 

 —

 

 

(6,296)

Exercise of options for common stock issued under Equity Incentive Plan

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

9,171

 

 

 —

 

 

 9

 

 

 —

 

 

 —

 

 

 9

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

76

 

 

 —

 

 

 —

 

 

76

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(3,185)

 

 

 —

 

 

(3,185)

BALANCE, June 30, 2018

 

 

3,093,898

 

 

6,254

 

 

 —

 

 

 —

 

 

 

5,467,621

 

 

 —

 

 

886

 

 

(10,256)

 

 

 —

 

 

(9,396)

Exercise of options for common stock issued under Equity Incentive Plan

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

36,739

 

 

 —

 

 

28

 

 

 —

 

 

 —

 

 

28

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

78

 

 

 —

 

 

 —

 

 

78

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(4,281)

 

 

 —

 

 

(4,281)

BALANCE, September 30, 2018

 

 

3,093,898

 

$

6,254

 

 

 —

 

$

 —

 

 

 

5,504,360

 

$

 —

 

$

992

 

$

(14,537)

 

$

 —

 

$

(13,571)

 

6

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

Convertible

 

 

$0.0001

 

Additional

 

 

 

 

Accumulated Other

 

Total

 

 

Preferred Stock

 

Preferred Stock

 

 

Par Value

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Deficit

BALANCE, December 31, 2018

 

 

3,093,898

 

$

6,254

 

 

4,001,848

 

$

29,156

  

  

 

5,513,531

 

$

 —

 

$

1,665

 

$

(21,257)

 

$

 —

 

$

(19,592)

Issuance of Series B convertible preferred stock for cash, net of issuance costs of $266

 

 

 —

 

 

 —

 

 

442,925

 

 

3,051

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock warrants in connection with the issuance of Series B convertible preferred stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

80

 

 

 —

 

 

 —

 

 

80

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

325

 

 

 —

 

 

 —

 

 

325

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(8,730)

 

 

 —

 

 

(8,730)

BALANCE, March 31, 2019

 

 

3,093,898

 

 

6,254

 

 

4,444,773

 

 

32,207

 

 

 

5,513,531

 

 

 —

 

 

2,070

 

 

(29,987)

 

 

 —

 

 

(27,917)

Conversion of Series A convertible preferred stock into common stock upon closing of initial public offering

 

 

(3,093,898)

 

 

(6,254)

 

 

 —

 

 

 —

 

 

 

3,093,898

 

 

 —

 

 

6,254

 

 

 —

 

 

 —

 

 

6,254

Conversion of Series B convertible preferred stock into common stock upon closing of initial public offering

 

 

 —

 

 

 —

 

 

(4,444,773)

 

 

(32,207)

 

 

 

4,444,773

 

 

 —

 

 

32,207

 

 

 —

 

 

 —

 

 

32,207

Issuance of common stock upon initial public offering, net of issuance costs of $5,383

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

4,000,000

 

 

 1

 

 

34,617

 

 

 —

 

 

 —

 

 

34,618

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

3,279

 

 

 —

 

 

 —

 

 

3,279

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

 

 

(8,437)

 

 

 —

 

 

(8,437)

BALANCE, June 30, 2019

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

17,052,202

 

 

 1

 

 

78,427

 

 

(38,424)

 

 

 —

 

 

40,004

Exercise of options for common stock issued under Equity Incentive Plan

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

81,988

 

 

 —

 

 

226

 

 

 —

 

 

 —

 

 

226

Stock-based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

1,219

 

 

 —

 

 

 —

 

 

1,219

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

(10,713)

 

 

 —

 

 

(10,713)

Other comprehensive income (loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

11

 

 

11

BALANCE, September 30, 2019

 

 

 —

 

$

 —

 

 

 —

 

$

 —

 

 

 

17,134,190

 

$

 1

 

$

79,872

 

$

(49,137)

 

$

11

 

$

30,747

 

The Notes to Condensed Financial Statements are an integral part of these statements.

 

 

7

Table of Contents

Applied Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

  

 

 

  

Net loss

 

$

(27,880)

 

$

(9,802)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

4,823

 

 

180

Non-cash interest expense

 

 

 —

 

 

1,399

Payment of security deposit for long-term lease

 

 

(230)

 

 

 —

Change in fair value of derivative liability

 

 

 —

 

 

809

Change in fair value of warrant liability

 

 

 —

 

 

64

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses

 

 

(2,702)

 

 

(1,097)

Accounts payable

 

 

(1,327)

 

 

1,833

Accrued expenses and other current liabilities

 

 

3,416

 

 

1,301

Net cash used in operating activities

 

 

(23,900)

 

 

(5,313)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchase of available-for-sale securities

 

 

(19,878)

 

 

 —

Net cash used in investing activities

 

 

(19,878)

 

 

 —

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

 

 

  

Proceeds from issuance of Series B convertible preferred stock, net of cash issuance costs of $186

 

 

3,131

 

 

 —

Proceeds from issuance of convertible promissory notes, net of cash issuance costs of $440

 

 

 

 

 

5,560

Payment of offering costs

 

 

(2,463)

 

 

 —

Proceeds from the initial public offering, net of underwriter commissions

 

 

37,200

 

 

 —

Exercise of stock options for common stock under Equity Incentive Plan

 

 

227

 

 

37

Net cash provided by financing activities

 

 

38,095

 

 

5,597

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(5,683)

 

 

284

Cash and cash equivalents at beginning of period

 

 

18,748

 

 

3,277

Cash and cash equivalents at end of period

 

$

13,065

 

$

3,561

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

  

 

 

  

Issuance of warrants in connection with convertible promissory notes

 

$

 —

 

$

74

Issuance of warrants in connection with Series B convertible preferred stock

 

$

80

 

$

 —

Derivative liability in connection with issuance of convertible promissory notes

 

$

 —

 

$

1,896

Conversion of Preferred Stock to Equity Following IPO

 

$

38,461

 

$

 —

 

The Notes to Condensed Financial Statements are an integral part of these statements.

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Applied Therapeutics, Inc.

Notes to Condensed Financial Statements (Unaudited)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Business

Applied Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company developing a pipeline of novel product candidates against validated molecular targets in indications of high unmet medical need. In particular, the Company is currently targeting treatments for cardiovascular disease, galactosemia and diabetic complications. The Company was incorporated in Delaware on January 20, 2016 and is headquartered in New York, New York.

On May 16, 2019, the Company completed an initial public offering (“IPO”) in which the Company issued and sold 4,000,000 shares of its common stock at a public offering price of $10.00 per share, for aggregate gross proceeds of $40.0 million. The Company received net of proceeds $34.6 million, after deducting underwriting discounts and commissions and offering costs. Prior to the completion of the IPO, the Company primarily funded its operations with proceeds from the sale of convertible preferred stock (see Note 8).

In connection with the IPO, the Company effected a 55.2486-for-1 stock split of its issued and outstanding shares of common stock and convertible preferred stock. The stock split became effective on April 26, 2019. Stockholders entitled to fractional shares as a result of the forward stock split received cash payment in lieu of receiving fractional shares. All share and per share amounts for all periods presented in the accompanying condensed financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective per share value and exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities.

Upon the closing of the IPO on May 16, 2019, all of the then-outstanding shares of convertible preferred stock automatically converted into 7,538,671 shares of common stock on a one-for-one basis. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding.

The accompanying unaudited condensed financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s final prospectus that forms a part of the Company’s Registration Statement on Form S-1 (Reg. No. 333-230838), filed with the SEC pursuant to Rule 424(b)(4) on May 14, 2019 (the “Prospectus”).

The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments which are necessary for a fair presentation of the Company’s financial position as of September 30, 2019, results of operations for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

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Liquidity

The Company has incurred, and expects to continue to incur, significant operating losses and negative cash flows for at least the next several years as it continues to develop its drug candidates. To date, the Company has not generated any revenue, and it does not expect to generate revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates.

Management believes that the Company’s existing cash, together with the net proceeds from the IPO, will allow the Company to continue its operations for at least 12 months from the issuance date of these financial statements.  If the Company is unable to obtain additional funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and reliance on third‑party manufacturers.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the condensed financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Prospectus. Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2019.

Stock‑Based Compensation

The Company accounts for its stock-based compensation as expense in the condensed statements of operations based on the awards' grant date fair values. The Company accounts for forfeitures as they occur by reversing any expense recognized for unvested awards.

The Company estimates the fair value of options granted using the Black-Scholes option pricing model with the exception of stock options that include service, performance and market conditions, which are valued using the Monte-Carlo simulation model. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. The Company has historically been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. The Company uses the

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simplified method as allowed by the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.  A Monte-Carlo simulation is an analytical method used to estimate fair value by performing a large number of simulations or trial runs and thereby determining a value based on the possible outcomes from these trial runs based on the specific vesting conditions.

The fair value of stock-based payments is recognized as expense over the requisite service period which is generally the vesting period, with the exception of the fair value of stock-based payments for awards that include service, performance and market conditions, which is recognized as expense over the derived service period determined using the Monte-Carlo simulation.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in the statement of stockholders’ (deficit) equity as a reduction of proceeds generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the statement of operations.

Upon closing the IPO in May 2019, $2.6 million in deferred offering costs were reclassified from prepaid and other current assets and recorded against the IPO proceeds reducing additional paid-in capital.  As of September 30, 2019, the Company did not have any deferred offering costs recorded in prepaid and other current assets.

Investments

We have investments in marketable debt securities. We determine the appropriate classification of our investments at the date of purchase and reevaluate the classifications at the balance sheet date. Marketable debt securities with maturities of 12 months or less are classified as short-term. Marketable debt securities with maturities greater than 12 months are classified as long-term. The Company’s marketable securities are accounted for as available for sale (“AFS”). AFS securities are reported at fair value. Unrealized gains and losses, after applicable income taxes, are reported in accumulated other comprehensive income/(loss).

 

We conduct an other-than-temporary impairment (“OTTI”) analysis on a quarterly basis or more often if a potential loss-triggering event occurs. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell. For AFS securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis and

(ii) the amortized cost basis cannot be recovered as a result of credit losses.

Recently Adopted Accounting Pronouncements

The new accounting pronouncements recently adopted by the Company are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Prospectus as filed with the SEC on May 14, 2019.  Except as described below, there have been no new accounting pronouncements adopted by the Company during the nine months ended September 30, 2019.

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases on their balance sheet date (“ASU No. 2016-02”). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018. In July 2018, an amendment was made that allows companies the option of using the effective date of the new standard as the initial application date (at the beginning of the period in which the new standard is adopted, rather than at the beginning of the earliest comparative period). This

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update includes a short-term lease exception for leases with a term of 12 months or less, in which a lessee can make an accounting policy election not to recognize the associated lease assets and lease liabilities on its balance sheet. Additionally, in March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements (“ASU No. 2019-01”). ASU No. 2019-01 clarifies the transition guidance related to interim disclosures provided in the year of adoption. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease did not significantly change from previous U.S. GAAP. The modified retrospective method includes several optional practical expedients that entities may elect to apply, as well as transition guidance specific to nonstandard leasing transactions. The Company adopted Topic 842 on January 1, 2019 using a cumulative-effect adjustment on the effective date of the standard, for which comparative periods are presented in accordance with the previous guidance under ASC 840.

In adopting Topic 842, the Company elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which does not require the reassessment of the following: i) whether existing or expired arrangements are or contain a lease; ii) the lease classification of existing or expired leases; and iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. Additionally, the Company made an accounting policy election not to recognize assets or related lease liabilities with a lease term of twelve months or less in its condensed balance sheet.

The adoption of this standard did not have an impact on the Company’s condensed balance sheet as all of the Company’s leases are for terms that are less than 12 months. Additionally, the adoption of this standard did not have a material impact on the Company’s condensed statements of operations or condensed statement of cash flows. On August 6, 2019 the Company entered into a lease for approximately 6,579 square feet of new office space in New York City (the “Lease”). The Lease will commence upon delivery of the premise after certain improvements are made, which is anticipated to be on or about November 1, 2019 (the “Commencement Date”), for a five-year period. Under the Lease, the Company will pay monthly rent of approximately $38,000 for the first year following the Commencement Date, and such rent will increase by a nominal percentage every year following the first anniversary of the Commencement Date. The Company will also pay a real estate tax escalation, as additional rent, over a base year. Total lease obligation over the term of the lease will be approximately $2.4 million.

Recently Issued Accounting Pronouncements

The FASB issued authoritative guidance that amends guidance on reporting credit losses for assets, including available-for-sale marketable securities and any other financial assets not excluded from the scope that have the contractual right to receive cash. For available-for-sale marketable securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, will require that credit losses be presented as an allowance rather than as a write-down. We are currently in the process of evaluating the impact of this guidance on our condensed financial statements.

 

 

 

 

2. LICENSE AGREEMENT

Columbia University

In October 2016, the Company entered into a license agreement (the “2016 Columbia Agreement”) with the Trustees of Columbia University (“Columbia University”) to obtain an exclusive royalty-bearing sublicensable license in respect to certain patents. As part of the consideration for entering into the 2016 Columbia Agreement, the Company issued to Columbia University shares equal to 5% of its outstanding common stock on a fully diluted basis at the time of issue. The common stock had a fair value of $0.5 million at the time of issuance. The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3 million for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the achievement of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2016 Columbia Agreement. The

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Company will also be required to pay tiered royalties to Columbia University in the low‑ to mid‑single digit percentages on the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified offsets and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University, which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the 10th anniversary of the effective date of the 2016 Columbia Agreement. The Company has not granted any sublicenses under the 2016 Columbia Agreement.  However, if the Company sublicenses the rights granted under the 2016 Columbia Agreement to one or more third parties, it will be required to pay Columbia University a portion of the net sublicensing revenue received from such third parties, at percentages between 10% and 20%, depending on the stage of development at the time such revenue is received from such third parties.

In January 2019, the Company entered into a second license agreement with Columbia University (the “2019 Columbia Agreement”). Pursuant to the 2019 Columbia Agreement, Columbia University granted the Company a royalty-bearing, sublicensable license that is exclusive with respect to certain patents, and non-exclusive with respect to certain know-how, in each case to develop, manufacture and commercialize PI3k inhibitor products. The license grant is worldwide. Under the 2019 Columbia Agreement, the Company is obligated to use commercially reasonable efforts to research, discover, develop and market licensed products for commercial sale in the licensed territory, and to comply with certain obligations to meet specified development and funding milestones within defined time periods. Columbia University retains the right to conduct, and grant third parties the right to conduct, non-clinical academic research using the licensed technology; provided that such research is not funded by a commercial entity or for-profit entity or results in rights granted to a commercial or for-profit entity. As consideration for entering into the 2019 Columbia Agreement, the Company made a nominal upfront payment to Columbia University.  The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3 million for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the achievement of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2019 Columbia Agreement. The Company will also be required to pay tiered royalties to Columbia University in the low- to mid-single digit percentages on the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified offsets and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University, which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the tenth anniversary of the effective date of the 2019 Columbia Agreement.

The Company has not granted any sublicenses under the 2019 Columbia Agreement. However, if the Company sublicenses the rights granted under the 2019 Columbia Agreement to one or more third parties, it will be required to pay Columbia University a portion of the net sublicensing revenue received from such third parties, at percentages between 10% and 50%, depending on the stage of development at the time such revenue is received from such third parties. The 2019 Columbia Agreement will terminate upon the expiration of all the Company’s royalty payment obligations in all countries. The Company may terminate the 2019 Columbia Agreement for convenience upon 90 days’ written notice to Columbia University. At its election, Columbia University may terminate the 2019 Columbia Agreement, or convert the licenses granted to the Company into non-exclusive, non-sublicensable licenses, in the case of (a) the Company’s uncured material breach upon 30 days’ written notice (which shall be extended to 90 days if the Company is diligently attempting to cure such material breach), (b) the Company’s failure to achieve the specified development and funding milestone events, or (c) the Company’s insolvency.

In March 2019, and in connection with the 2016 Columbia Agreement, the Company entered into a research services agreement (the “2019 Columbia Research Agreement” and collectively with the 2016 Columbia Agreement and 2019 Columbia Agreement, the “Columbia Agreements”) with Columbia University with the purpose of analyzing structural and functional changes in brain tissue in an animal model of galactosemia, and the effects of certain compounds whose intellectual property rights were licensed to the Company as part of the 2016 Columbia Agreement on any such structural and functional changes.  The 2019 Columbia Research Agreement has a term of 12 months from its effective date; provided that the Company can terminate the 2019 Columbia Research Agreement without cause with at least 30 days’ prior written notice. The services covered by the 2019 Columbia Research Agreement will be performed by Columbia University in two parts consisting of six months. The decision to proceed with Part 2 of the 2019 Columbia Research Agreement shall be made solely by the Company and will be contingent on the success of the research performed in Part 1. In consideration for the services performed by Columbia University in Part 1, the Company will be required to pay $0.1 million to Columbia University for staffing, supplies and indirect costs. If the Company decides to

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continue the research defined in Part 2, the Company will be required to pay an additional $0.2 million to Columbia University.

During the three and nine months ended September 30, 2019, the Company recorded  $17,000 and $42,000, respectively, in research and development expense and $28,000  and $0.3 million, respectively, in general and administrative expense related to the Columbia Agreements. During the three and nine months ended September 30, 2018, the Company recorded $0.1 million and $0.2 million, respectively, in research and development expense and $43,000 and $98,000, respectively, in general and administrative expense related to the Columbia Agreements. In aggregate, the Company has incurred $1.7 million in expense from the execution of the Columbia Agreements through September 30, 2019.

As of September 30, 2019, the Company had $0.1 million due to Columbia University included in accrued expenses and $0.1 million included in accounts payable. As of December 31, 2018, the Company had $0.1 million due to Columbia University included in accrued expenses and $0.1 million included in accounts payable.

 

3. FAIR VALUE MEASUREMENTS

The following table summarizes, as of September 30, 2019, the Company's financial assets and liabilities that are measured at fair value on a recurring basis, according to the fair value hierarchy described in the significant accounting policies described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Prospectus. As of December 31, 2018, the Company did not have financial assets or liabilities that are measured at fair value on a recurring basis (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2019

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Cash

 

$

12,933

 

$

 —

 

$

 —

 

$

12,933

Money market funds

 

 

133

 

 

 —

 

 

 —

 

 

133

Total cash and cash equivalents

 

$

13,065

 

$

 —

 

$

 —

 

$

13,065

Commercial paper and corporate bonds

 

 

 —

 

 

7,522

 

 

 —

 

 

7,522

U.S. government agency debt securities

 

 

 —

 

 

12,367

 

 

 —

 

 

12,367

Total marketable securities

 

$

 —

 

$

19,889

 

$

 —

 

$

19,889

Total financial assets measured at fair value on a recurring basis

 

$

13,065

 

$

19,889

 

$

 —

 

$

32,954

 

Investments in commercial paper, corporate bonds, and U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted prices in less active markets or other directly or indirectly observable inputs. Fair values of corporate bonds and U.S. government agency debt securities were derived from a consensus or weighted average price based on input of market prices from multiple sources at each reporting period. With regard to commercial paper, all of the securities had high credit ratings and one year or less to maturity; therefore, fair value was derived from accretion of purchase price to face value over the term of maturity or quoted market prices for similar instruments if available. During the three and nine months ended September 30, 2019, there were no transfers of financial assets between Level 1 and Level 2.

During the three and nine months ended September 30, 2018, the Company had Level 1 financial assets (cash) and Level 3 financial liabilities that were measured at fair value on a recurring basis. The Company's convertible promissory notes issued on February 5, 2018 (the "2018 Notes") (see Note 4), contained certain features which met the criteria to be bifurcated and accounted for separately from the 2018 Notes (the "Derivative Liability").  Also in connection with the issuance of the 2018 Notes, the Company had a contingent obligation to issue common stock warrants ("2018 Notes Warrants") upon the conversion of the 2018 Notes into Series B convertible preferred stock ("Series B Preferred Stock") (the "Warrant Liability"). The Derivative Liability and the Warrant Liability were initially recorded at fair value of $1.9 million and $0.1 million, respectively, and were subsequently remeasured at fair value at each reporting period. In November 2018, the Derivative Liability was settled in connection with the extinguishment of the 2018 Notes (see Note 4).

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The following table provides a roll forward of the aggregate fair values of the Derivative Liability and Warrant Liability as of September 30, 2018, for which fair value is determined using Level 3 inputs (in thousands):

 

 

 

 

 

 

 

 

 

    

Derivative

    

Warrant

 

 

Liability

 

Liability

Balance as of January 1, 2018

 

$

 —

 

$

 —

Initial fair value of Derivative Liability

 

 

1,896

 

 

 —

Initial fair value of Warrant Liability

 

 

 —

 

 

74

Change in fair value

 

 

180

 

 

 6

Balance as of March 31, 2018

 

$

2,076

 

$

80

Change in fair value

 

 

294

 

 

21

Balance as of June 30, 2018

 

$

2,370

 

$

101

Change in fair value

 

 

335

 

 

38

Balance as of September 30, 2018

 

$

2,704

 

$

139

 

Changes in the fair value of the Derivative Liability and Warrant Liability were recognized in other income (expense), net in the condensed statement of operations. The Company recognized other expense in connection with the Derivative Liability of $0.3 million and $0.8 million during the three and nine months ended September 30, 2018, respectively. The Company recognized other income in connection with the Warrant Liability of $38 thousand and $65 thousand during the three and nine months ended September 30, 2018, respectively.

 

4. INVESTMENTS

Marketable Securities

Marketable securities, which the Company classifies as available-for-sale securities, primarily consist of high quality commercial paper, corporate bonds, and U.S. government debt obligations. Marketable securities with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term; otherwise, they are classified as long-term on the condensed consolidated balance sheets.

The following tables provide the Company’s marketable securities by security type as of September 30, 2019 and December 31, 2018 (in thousands):