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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, 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: 001-38898

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.)

545 Fifth Avenue, Suite 1400

New York, New York 10017

(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

Name of each exchange on which registered

Common Stock, par value $0.0001

APLT

The Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 10, 2021, the registrant had 26,215,514 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Table of Contents

Page

Special Note Regarding Forward-Looking Statements

2

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

4

Condensed Balance Sheets

4

Condensed Statements of Operations

5

Condensed Statements of Comprehensive Loss

6

Condensed Statements of Stockholders’ Equity

7

Condensed Statements of Cash Flows

9

Notes to Condensed Financial Statements (Unaudited)

10

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

Signatures

82

1

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “opportunity,” “plan,” “predict,” “project”, “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q:

the potential impact of the Covid-19 pandemic on the timing and progress of our ongoing clinical trials, our business, results of operations, liquidity, and operations and our ability to mitigate those potential impacts;
our plans to develop, market 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 license additional product candidates on reasonable terms and advance product candidates into, and successfully complete, clinical studies;
our ability to maintain and establish collaborations or obtain additional funding;
our ability to obtain and timing of regulatory approval of our current and future product candidates;
the anticipated indications for our product candidates, if approved;
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;

2

Table of Contents

developments relating to our competitors and our industry; and
other factors that may impact our financial results.

The foregoing list of risks is not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

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 we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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

3

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)

As of

As of

September 30, 

December 31,

2021

2020

 

(Unaudited)

ASSETS

 

 

 

CURRENT ASSETS:

 

  

 

  

 

Cash and cash equivalents

$

70,207

$

57,466

Investments

38,595

39,363

Prepaid expenses and other current assets

 

8,141

 

5,764

Total current assets

 

116,943

 

102,593

Operating lease right-of-use asset

1,404

1,712

Security deposits and leasehold improvements

200

201

TOTAL ASSETS

$

118,547

$

104,506

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

CURRENT LIABILITIES:

 

 

  

Current portion of operating lease liabilities

$

436

$

406

Accounts payable

9,170

640

Accrued expenses and other current liabilities

 

21,237

 

20,189

Total current liabilities

 

30,843

 

21,235

NONCURRENT LIABILITIES:

Noncurrent portion of operating lease liabilities

1,003

1,332

Total noncurrent liabilities

1,003

1,332

Total liabilities

 

31,846

 

22,567

STOCKHOLDERS’ EQUITY:

 

  

 

  

Common stock, $0.0001 par value; 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 26,214,399 shares and 22,493,661 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

3

2

Additional paid-in capital

 

326,108

 

242,780

Accumulated other comprehensive loss

(254)

(112)

Accumulated deficit

 

(239,156)

 

(160,731)

Total stockholders' equity

 

86,701

 

81,939

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

118,547

$

104,506

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

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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, 

    

2021

    

2020

    

2021

    

2020

OPERATING EXPENSES:

Research and development

$

17,597

$

19,945

$

46,846

$

47,974

General and administrative

10,833

10,020

31,658

22,744

Total operating expenses

 

28,430

29,965

 

78,504

70,718

LOSS FROM OPERATIONS

 

(28,430)

(29,965)

 

(78,504)

(70,718)

OTHER INCOME (EXPENSE), NET:

 

  

 

  

 

 

Interest income (expense), net

 

76

131

 

321

435

Other income (expense)

 

(64)

(10)

 

(242)

11

Total other income (expense), net

 

12

121

 

79

446

Net loss

$

(28,418)

$

(29,844)

$

(78,425)

$

(70,272)

Net loss attributable to common stockholders—basic and diluted

$

(28,418)

$

(29,844)

$

(78,425)

$

(70,272)

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

$

(1.09)

$

(1.33)

$

(3.08)

$

(3.22)

Weighted-average common stock outstanding—basic and diluted

 

26,177,079

 

22,426,203

 

25,472,590

 

21,790,207

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

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Applied Therapeutics Inc.

Condensed Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

Net Loss

$

(28,418)

$

(29,844)

$

(78,425)

$

(70,272)

Other comprehensive income (loss)

 

 

Unrealized gain (loss) on marketable securities

 

(69)

 

(65)

 

(142)

 

(92)

Other comprehensive gain (loss), net of tax

 

(69)

 

(65)

 

(142)

 

(92)

Comprehensive income (loss), net of tax

$

(28,487)

$

(29,909)

$

(78,567)

$

(70,364)

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

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Applied Therapeutics Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share and per share data)

(Unaudited)

 

Common Stock

 

 

 

 

$0.0001

 

Additional

 

Accumulated Other

Total

 

Par Value

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

Equity

BALANCE, January 1, 2020

18,531,560

$

1

$

99,378

$

(66,770)

$

(2)

$

32,607

Issuance of common stock upon secondary public offering, net of issuance costs of $714

3,152,712

1

134,127

134,128

Exercise of options for common stock issued under Equity Incentive Plan

35,027

81

81

Private placement issuance costs

(41)

(41)

Exercise of warrants for common stock

249,978

Stock-based compensation expense

1,331

1,331

Net loss

(12,369)

(12,369)

Other comprehensive income (loss)

91

91

BALANCE, March 31, 2020

21,969,277

2

234,876

(79,139)

89

155,828

Exercise of options for common stock issued under Equity Incentive Plan

324,614

1,342

1,342

Private placement issuance costs

(6)

(6)

Secondary public offering issuance costs

(25)

(25)

Registration of Form S-3 offering costs

(495)

(495)

Exercise of warrants for common stock

37,251

Stock-based compensation expense

1,737

1,737

Net loss

(28,059)

(28,059)

Other comprehensive income (loss)

(118)

(118)

BALANCE, June 30, 2020

22,331,142

$

2

$

237,429

$

(107,198)

$

(29)

$

130,204

Exercise of options for common stock issued under Equity Incentive Plan

125,544

242

242

Stock-based compensation expense

2,403

2,403

Net loss

(29,844)

(29,844)

Other Comprehensive Income (Loss)

(65)

(65)

BALANCE, September 30, 2020

22,456,686

$

2

$

240,074

$

(137,042)

$

(94)

$

102,940

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Common Stock

 

 

 

 

$0.0001

 

Additional

Accumulated Other

 

Total

 

Par Value

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

BALANCE, January 1, 2021

22,493,661

$

2

$

242,780

$

(160,731)

$

(112)

$

81,939

Issuance of common stock upon secondary public offering, net of issuance costs of $203

 

3,450,000

 

1

 

74,386

 

 

74,387

Exercise of options for common stock issued under Equity Incentive Plan

 

37,400

 

 

67

 

 

67

Exercise of options for common stock not yet issued

(465)

(1)

(1)

Restricted Stock Unit released for common stock issued under Equity Incentive Plan

1,988

Exercise of warrants for common stock

27,855

69

69

Stock-based compensation expense

2,981

2,981

Net loss

(24,179)

(24,179)

Other comprehensive income (loss)

(42)

(42)

BALANCE, March 31, 2021

26,010,439

$

3

$

320,282

$

(184,910)

$

(154)

$

135,221

Secondary public offering issuance costs

35

35

Issuance of common stock for options exercised in prior periods under Equity Incentive Plan

465

1

1

Exercise of options for common stock issued under Equity Incentive Plan

82,668

341

341

Exercise of options for common stock not yet issued

(920)

(1)

(1)

Restricted Stock Unit released for common stock issued under Equity Incentive Plan

37,884

Exercise of warrants for common stock

 

 

 

 

 

Stock-based compensation expense

2,702

2,702

Net loss

 

 

 

 

(25,828)

 

(25,828)

Other comprehensive income (loss)

(31)

(31)

BALANCE, June 30, 2021

 

26,130,536

$

3

$

323,360

$

(210,738)

$

(185)

$

112,440

Issuance of common stock for options exercised in prior periods under Equity Incentive Plan

920

1

1

Exercise of options for common stock issued under Equity Incentive Plan

70,368

103

103

Exercise of options for common stock not yet issued

(115)

(1)

(1)

Restricted Stock Unit released for common stock issued under Equity Incentive Plan

12,690

Exercise of warrants for common stock

Stock-based compensation expense

2,645

2,645

Net Loss

(28,418)

(28,418)

Other Comprehensive Income (Loss)

(69)

(69)

BALANCE, September 30, 2021

 

26,214,399

$

3

$

326,108

$

(239,156)

$

(254)

$

86,701

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Applied Therapeutics, Inc.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

Nine Months Ended

September 30, 

    

2021

    

2020

OPERATING ACTIVITIES:

  

  

Net loss

$

(78,425)

$

(70,272)

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

 

Stock-based compensation expense

 

8,328

5,471

Amortization of operating lease right-of-use assets

308

281

Change in operating lease liability

(299)

(263)

Changes in operating assets and liabilities:

 

Financed insurance premium

(4,434)

Prepaid expenses

 

(1,107)

3,396

Accounts payable

 

8,530

(6,739)

Accrued expenses and other current liabilities

 

149

11,127

Amortization of leasehold improvements

1

Amortization of insurance premium

3,163

1,540

Net cash used in operating activities

 

(63,786)

 

(55,459)

INVESTING ACTIVITIES:

Purchase of available-for-sale securities

(109,119)

(127,558)

Proceeds from sale of available-for-sale securities

5,539

17,109

Proceeds from maturities of available-for-sale securities

104,206

62,536

Net cash provided by/(used in) investing activities

626

(47,913)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from Secondary Public Offering, net of cash issuance costs of $702

74,420

134,102

Payment of Private Placement offering costs

(206)

Payment of registration statement on Form S-3 offering costs

(493)

Proceeds from financed insurance premium

4,434

Financed insurance premium down payment

(793)

Repayments of short-term borrowings

(3,534)

(1,074)

Exercise of stock options for common stock under Equity Incentive Plan

 

512

1,665

Exercise of Warrants

69

Net cash provided by financing activities

 

75,901

 

133,201

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

12,741

29,829

Cash and cash equivalents at beginning of period

 

57,466

18,850

Cash and cash equivalents at end of period

$

70,207

$

48,679

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Shelf offering costs still in accrued expense

$

$

2

Insurance premium obtained in exchange for a short-term loan

$

$

(4,015)

Unrealized gain (loss) on marketable securities

$

(142)

$

92

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 rare metabolic diseases such as Galactosemia, Sorbitol Dehydrogenase deficiency, (“SORD” deficiency), and diabetic complications including diabetic cardiomyopathy. 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 (the “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 proceeds of $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).

On November 12, 2019, the Company completed a private placement (the “Private Placement”), pursuant to which it issued and sold 1,380,344 shares of the Company’s common stock at a price of $14.50 per share, for net proceeds of $18.4 million after deducting placement agent discounts and commissions and offering costs.

On January 28, 2020, the Company completed its secondary public offering (the “Secondary Public Offering”), pursuant to which it issued and sold 2,741,489 shares of common stock at a public offering price of $45.50 per share, with an additional 411,223 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. The aggregate net proceeds received by the Company from the offering, after deducting underwriting discounts and commissions and offering costs, were $134.1 million.

On June 4, 2020, the Company filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) under which the Company may, from time to time, sell securities in one or more offerings having an aggregate offering price of up to $300.0 million. The Shelf Registration Statement was declared effective as of June 15, 2020.

On June 12, 2020, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“Goldman”), as a sales agent to sell shares of the Company’s common stock, from time to time, having an aggregate offering price of up to $100 million. Goldman may act as an agent on the Company’s behalf or purchase shares of the Company’s common stock as a principal. As of September 30, 2021, the Company has not sold any shares of common stock pursuant to the Equity Distribution Agreement.

In February 2021, the Company completed an underwritten public offering of 3,450,000 shares of common stock (the “February Offering”), including the exercise in full of the underwriters’ option to purchase 450,000 additional shares of common stock, which option closed on February 19, 2021. The shares were offered at a price to the public of $23.00 per share, resulting in aggregate net proceeds of approximately $74.4 million, after deducting underwriting discounts and commissions and offering expenses.

The accompanying unaudited condensed financial statements 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, 2020 included in the Annual Report, filed with the SEC on March 18, 2021 (the “Annual Report”).

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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, 2021, results of operations for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

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, cash equivalents, and investments together with the net proceeds from the February Offering, 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 may 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, 2020, and the notes thereto, which are included in the Annual Report. There have been no material changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2021.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The new standard intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to

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primarily be made prospectively, with some changes to be made retrospectively. The Company adopted the amendment in January 2021 with no impact on the 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 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.

The 2016 Columbia Agreement will terminate upon the expiration of all the Company’s royalty payment obligations in all countries. The Company may terminate the 2016 Columbia Agreement for convenience upon 90 days’ written notice to Columbia University. At its election, Columbia University may terminate the 2016 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 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.

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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”) 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 had a term of 12 months from its effective date and expired in accordance with its terms.

On October 3, 2019, and in connection with the 2019 Columbia Agreement, the Company entered into a research services agreement (the “PI3k Columbia Research Agreement” and collectively with the 2016 Columbia Agreement, 2019 Columbia Agreement and 2019 Columbia Research Agreement, the “Columbia Agreements”) with Columbia University with the purpose of analyzing PI3k inhibitors for the treatment of lymphoid malignancies. The PI3k Columbia Research Agreement had a term of 18 months from its effective date and expired in accordance with its term.

During the three and nine months ended September 30, 2021, the Company recorded $0 and $0, respectively, in research and development expense and $46,000 and $0.2 million, respectively, in general and administrative expense related to the Columbia Agreements. During the three and nine months ended September 30, 2020, the Company recorded $0 and $0.3 million, respectively, in research and development expense and $33,000 and $0.1 million, respectively, in general and administrative expense related to the Columbia Agreements. In aggregate, the Company has incurred $2.5 million in expense from the execution of the Columbia Agreements through September 30, 2021.

As of September 30, 2021, 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, 2020, the Company had $0.1 million due to Columbia University included in accrued expenses.

University of Miami

2020 Miami License Agreement

On October 28, 2020, the Company entered into a license agreement with the University of Miami (the “2020 Miami License Agreement”) relating to certain technology that is co-owned by the University of Miami (UM), the University of Rochester (UR) and University College London (UCL). UM was granted an exclusive agency from UR and UCL to license each of their rights in the technology. Pursuant to the 2020 Miami License Agreement, UM, on behalf of itself and UR and UCL, granted the Company a royalty-bearing, sublicensable license that is exclusive with respect to certain patent applications and patents that may grant from the applications, and non-exclusive with respect to certain know-how, in each case to research, develop, make, have made, use, sell and import products for use in treating and/or detecting certain inherited neuropathies, in particular those caused by mutation in the sorbitol dehydrogenase (SORD) gene. The license grant is worldwide. Under the 2020 Miami License Agreement, the Company is obligated to use commercially reasonable efforts to develop, manufacture, market and sell licensed products in the licensed territory, and to comply with certain obligations to meet specified development milestones within defined time periods. UM retains for itself, UR, and UCL the right to use the licensed patent rights and licensed technology for their internal non-

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commercial educational, research and clinical patient care purposes, including in sponsored research and collaboration with commercial entities.

Under the terms of the 2020 Miami License Agreement, the Company was obligated to pay UM an up-front non-refundable license fee of $1.1 million, and a second non-refundable license fee of $0.5 million due on the first anniversary of the date of the license. The Company will be required to make further payments to UM of up to an aggregate $2.2 million for the achievement of specified patenting and development milestones, and up to an aggregate of $4.1 million for achievement of late stage regulatory milestones. The Company will also be required to pay royalties ranging from 0.88% - 5% on the Company’s, the Company’s affiliates’ and the Company’s sublicensees’ net sales of licensed products. If the Company sublicenses the rights granted under the 2020 Miami License Agreement to one or more third parties, the Company will be required to pay to UM a portion of the non-royalty sublicensing revenue received from such third parties ranging from 15% – 25%.

The 2020 Miami License Agreement terminates upon the later of the expiration of all issued patents and filed patent applications or 10 years after the first commercial sale of the last product or process for which a royalty is due, unless earlier terminated. In addition, the 2020 Miami License Agreement may be terminated by the Company at any time upon 60 days prior written notice to UM, and may be terminated by either the Company or UM upon material breach of an obligation if action to cure the breach is not initiated within 60 days of receipt of written notice.

During the three and nine months ended September 30, 2021, the Company recorded $0.2 million in research and development expense related to the 2020 Miami License Agreement. In aggregate, the Company has incurred $2.3 million in expense from execution of the 2020 Miami License Agreement through September 30, 2021.

The Company had $0.7 million and $1.6 million due to UM included in accrued expenses as of September 30, 2021 and December 31, 2020, respectively, relating to the 2020 Miami License Agreement.

2020 Miami Option Agreement

On October 28, 2020, the Company entered into an option agreement with the University of Miami (the “2020 Miami Option Agreement”) concerning certain research activities and technology relating to SORD neuropathy that may be pursued and developed by UM. Under the 2020 Miami Option Agreement, if UM conducts such research activities, then UM is obligated to grant the Company certain option rights to access and use the research results and to obtain licenses to any associated patent rights upon the Company making specified payments to UM within specified time limits. If the Company elects to obtain option rights the Company will be required to make payments to UM in the low-six figures to the low-seven figures, depending upon the rights the Company elects to obtain, and the Company will be obligated to make certain milestone payments in the high-six figures to mid-seven figures if UM conducts and completes certain research activities within specified time periods and the Company elects to receive rights to use the results of that research.

2020 Miami Sponsored Research Agreement

On December 14, 2020, the Company entered into a research agreement with the University of Miami (the “2020 Miami Research Agreement”), under which the University of Miami will conduct a research study relating to SORD neuropathy and deliver a final report on the study to the Company. The term of the research agreement is from December 14, 2020 through December 30, 2021. The consideration for the 2020 Miami Research Agreement was $0.3 million.

During the three and nine months ended September 30, 2021, the Company recorded $0.1 million and $0.2 million, respectively, in research and development expense in relation to the 2020 Miami Research Agreement. The Company recorded $0.2 million and $3,740 as of September 30, 2021 and December 31, 2020, respectively, in accrued expense in relation to the 2020 Miami Research Agreement.

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Bayh-Dole Act

Some of the intellectual property rights the Company has licensed, including certain rights licensed in the agreements described above, may have been generated through the use of U.S. government funding. As a result, the U.S. government may have certain rights to intellectual property embodied in the Company’s current or future product candidates under the Bayh-Dole Act of 1980, or Bayh-Dole Act, including the grant to the government of a non-exclusive, worldwide, freedom to operate license under any patents, and the requirement, absent a waiver, to manufacture products substantially in the United States.  To the extent any of the Company’s current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

3. FAIR VALUE MEASUREMENTS

The following tables summarize, as of September 30, 2021, 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 in the Company’s audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Annual Report.

As of September 30, 2021

(in thousands)

Level 1

Level 2

Level 3

Total

Cash

$

17,309

$

$

$

17,309

Money market funds

52,898

52,898

Total cash and cash equivalents

$

70,207

$

$

$

70,207

U.S. government agency debt securities

38,595

38,595

Total marketable securities

$

$

38,595

$

$

38,595

Total financial assets measured at fair value on a recurring basis

$

70,207

$

38,595

$

$

108,802

Investments in 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 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. During the period ended September 30, 2021, there were no transfers of financial assets between Level 1 and Level 2.

4. INVESTMENTS

Marketable Securities

Marketable securities, which the Company classifies as available-for-sale securities, primarily consist of 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 balance sheets.

The following tables provide the Company’s marketable securities by security type (in thousands):

As of September 30, 2021

As of December 31, 2020

Gross

Gross

 

Gross

Gross

 

    

Unrealized

    

Unrealized

    

Estimated

    

    

Unrealized

    

Unrealized

    

Estimated

(in thousands)

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

US government agency debt security

38,849

2

(256)

38,595

39,475

11

(123)

39,363

Total

$

38,849

$

2

$

(256)

$

38,595

$

39,475

$

11

$

(123)

$

39,363

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As of September 30, 2021, the Company’s investment portfolio reported an unrealized loss of $0.3 million. Based on its evaluations, the Company determined that a credit loss allowance is not required since the decline was not related to underlying credit issues of the counterparties. The counterparties to these investments have high credit quality with investment grade ratings of at least AA+ or above, along with a history of no defaults. No single investment in the portfolio had an individually material unrealized loss and in the aggregate. The total amount of unrealized losses of $0.3 million as of September 30, 2021 was only 0.65% of the total amortized costs basis of the investment portfolio. In addition, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost bases. Accordingly, based on the foregoing evaluation, the Company did not record any credit losses during the three and nine months ended September 30, 2021 and the entire amount of the decline in fair value below the amortized cost basis was recorded as an unrealized loss, net of tax, in other comprehensive loss in the Statements of Comprehensive Loss. Unrealized gains are also reflected, net of tax, as other comprehensive income (loss) in the Statements of Comprehensive Loss.

Contractual maturities of the Company’s marketable securities are summarized as follows:

As of September 30, 2021

As of December 31, 2020

Gross

Gross

 

Gross

Gross

 

Unrealized

Unrealized

    

Estimated

Unrealized

Unrealized

    

Estimated

(in thousands)

Cost

    

Gains

    

Losses

    

Fair Value

    

Cost

    

Gains

    

Losses

    

Fair Value

Due in one year or less

$

38,849

$

2

$

(256)

$

38,595

$

39,475

$

11

$

(123)

$

39,363

Due in one through two years

Total

$