10-Q
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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 March 31, 2022

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: 001-40703

 

Adagio Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

85-1403134

(State or other jurisdiction of

incorporation or organization)

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

1601 Trapelo Road, Suite 178
Waltham, MA

02451

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 819-0080

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

ADGI

 

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, 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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ☐

As of May 6, 2022, the registrant had 109,715,173 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

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

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

89

Item 6.

Exhibits

91

Signatures

92

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ADAGIO THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(UNaudited)

(In thousands, except share and per share amounts)

 

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

532,220

 

 

$

542,224

 

Marketable securities

 

 

 

 

 

49,194

 

Prepaid expenses and other current assets

 

 

22,081

 

 

 

25,293

 

Total current assets

 

 

554,301

 

 

 

616,711

 

Property and equipment, net

 

 

87

 

 

 

83

 

Operating lease right-of-use asset

 

 

1,648

 

 

 

 

Other non-current assets

 

 

237

 

 

 

3,297

 

Total assets

 

$

556,273

 

 

$

620,091

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

18,682

 

 

$

5,783

 

Accrued expenses

 

 

76,537

 

 

 

56,277

 

Operating lease liability, current

 

 

315

 

 

 

 

Total current liabilities

 

 

95,534

 

 

 

62,060

 

Early-exercise liability

 

 

3

 

 

6

 

Operating lease liability, non-current

 

 

1,344

 

 

 

 

Other non-current liability

 

 

 

 

 

6

 

Total liabilities

 

 

96,881

 

 

 

62,072

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

        Preferred stock (undesignated), $0.0001 par value; 10,000,000 shares
           authorized and
no shares issued and outstanding at March 31, 2022
           and December 31 2021

 

 

 

 

 

 

        Common stock, $0.0001 par value; 1,000,000,000 shares authorized,
           
109,675,173 shares issued and outstanding at March 31, 2022;
           
1,000,000,000 shares authorized, 111,251,660 shares
           issued and
110,782,909 shares outstanding at December 31, 2021

 

 

11

 

 

 

11

 

        Treasury stock, at cost; 0 shares and 468,751 shares at
           March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

852,156

 

 

 

850,125

 

Accumulated other comprehensive loss

 

 

 

 

 

(8

)

Accumulated deficit

 

 

(392,775

)

 

 

(292,109

)

Total stockholders’ equity (deficit)

 

 

459,392

 

 

 

558,019

 

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

 

$

556,273

 

 

$

620,091

 

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

1


 

ADAGIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(UNaudited)

(In thousands, except share and per share amounts)

 

 

Three Months
Ended
March 31,

 

 

Three Months
Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development(1)

 

$

92,035

 

 

$

34,032

 

Acquired in-process research and development(2)

 

 

 

 

 

1,000

 

Selling, general and administrative

 

 

8,704

 

 

 

3,677

 

Total operating expenses

 

 

100,739

 

 

 

38,709

 

Loss from operations

 

 

(100,739

)

 

 

(38,709

)

Other income (expense):

 

 

 

 

 

 

Other income (expense), net

 

 

73

 

 

 

9

 

Total other income (expense), net

 

 

73

 

 

 

9

 

Net loss

 

 

(100,666

)

 

 

(38,700

)

Other comprehensive income (loss)

 

 

 

 

 

 

Unrealized gain on available-for-sale securities, net of tax

 

 

8

 

 

 

 

Comprehensive loss

 

$

(100,658

)

 

$

(38,700

)

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

 

$

(0.93

)

 

$

 

Weighted-average common shares outstanding, basic and diluted

 

 

107,869,570

 

 

 

 

(1)
Includes related-party amounts of $2,000 and $188 for the three months ended March 31, 2022 and 2021, respectively (see Note 15).
(2)
Includes related-party amounts of $0 and $1,000 for the three months ended March 31, 2022 and 2021, respectively (see Note 15).

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

2


 

ADAGIO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands, except share amounts)

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at December 31, 2020

 

 

12,647,934

 

 

$

169,548

 

 

 

 

5,593,240

 

 

$

1

 

 

 

22,600,000

 

 

$

(85

)

 

$

154

 

 

$

 

 

$

(65,319

)

 

$

(65,249

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

587

 

 

 

 

 

 

 

 

 

587

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,700

)

 

 

(38,700

)

Balances at March 31, 2021

 

 

12,647,934

 

 

$

169,548

 

 

 

 

5,593,240

 

 

$

1

 

 

 

22,600,000

 

 

$

(85

)

 

$

741

 

 

$

 

 

$

(104,019

)

 

$

(103,362

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at December 31, 2021

 

 

 

 

$

 

 

 

 

110,782,909

 

 

$

11

 

 

 

468,751

 

 

$

 

 

$

850,125

 

 

$

(8

)

 

$

(292,109

)

 

$

558,019

 

Vesting of restricted common stock from early-exercised options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

50,353

 

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

47

 

Repurchase of unvested restricted common stock

 

 

 

 

 

 

 

 

 

(1,158,089

)

 

 

 

 

 

1,158,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,626,840

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,983

 

 

 

 

 

 

 

 

 

1,983

 

Unrealized gain on available-for-sale securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100,666

)

 

 

(100,666

)

Balances at March 31, 2022

 

 

 

 

$

 

 

 

 

109,675,173

 

 

$

11

 

 

 

 

 

$

 

 

$

852,156

 

 

$

 

 

$

(392,775

)

 

$

459,392

 

 

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

3


 

ADAGIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(UNAUDITED)

(In thousands)

 

 

Three Months
Ended
March 31, 2022

 

 

Three Months
Ended
March 31, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(100,666

)

 

$

(38,700

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,983

 

 

 

587

 

Net amortization of premiums and accretion of discounts on marketable securities

 

 

194

 

 

 

 

Amortization of operating lease right-of-use asset

 

 

80

 

 

 

 

Depreciation expense

 

 

4

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

3,212

 

 

 

(1,178

)

Other non-current assets

 

 

3,060

 

 

 

 

Accounts payable

 

 

12,899

 

 

 

3,164

 

Accrued expenses

 

 

20,260

 

 

 

12,386

 

Operating lease liabilities

 

 

(69

)

 

 

 

Other non-current liabilities

 

 

(6

)

 

 

 

Net cash used in operating activities

 

 

(59,049

)

 

 

(23,741

)

Cash flows from investing activities:

 

 

 

 

 

 

Maturities of marketable securities

 

 

49,000

 

 

 

 

Net cash provided by investing activities

 

 

49,000

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercises of stock options

 

 

47

 

 

 

 

Payments for repurchases of unvested restricted common stock

 

 

(2

)

 

 

 

Net cash provided by financing activities

 

 

45

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(10,004

)

 

 

(23,741

)

Cash and cash equivalents at beginning of period

 

 

542,224

 

 

 

114,988

 

Cash and cash equivalents at end of period

 

$

532,220

 

 

$

91,247

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Operating lease right-of-use asset recognized upon adoption of ASC 842

 

$

1,728

 

 

$

 

Deferred offering and issuance costs included in accrued expenses

 

$

 

 

$

55

 

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

4


 

ADAGIO THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Nature of the Business and Basis of Presentation

Adagio Therapeutics, Inc., together with its consolidated subsidiary (the “Company”), is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of differentiated products for the prevention and treatment of infectious diseases. The Company is developing its lead product candidate, adintrevimab, for the prevention and treatment of COVID-19, the disease caused by the virus SARS-CoV-2 and its variants. Beyond COVID-19, the Company is leveraging robust antibody discovery and development capabilities that have enabled expedited advancement of adintrevimab into clinical trials to develop therapeutic or preventative options for other infectious diseases, such as additional coronaviruses and influenza. The Company initiated clinical trials for adintrevimab in February 2021. Adintrevimab is designed to be a potent, long-acting and broadly neutralizing antibody for both the prevention and treatment of COVID-19. The Company was incorporated in the State of Delaware in June 2020. The Company operates as a virtual company and maintains a corporate headquarters for general and administrative purposes only. In addition, the Company engages third parties, including Adimab, LLC (“Adimab”), to perform ongoing research and development and other services on its behalf.

The Company is subject to a number of risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, completing clinical trials, the ability to raise additional capital to fund operations, obtaining regulatory approval for product candidates, market acceptance of products, competition from substitute products, protection of proprietary intellectual property, compliance with government regulations, the impact of COVID-19, dependence on key personnel, the ability to attract and retain qualified employees, and reliance on third-party organizations for the discovery, manufacturing, clinical and commercial success of its product candidates.

In July 2021, the Company effected a five-for-one stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of each series of the Company’s preferred stock (see Note 9). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratios.

In August 2021, the Company completed its initial public offering (“IPO”) pursuant to which it issued and sold 20,930,000 shares of its common stock, including 2,730,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were approximately $327.5 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. Upon the closing of the IPO, all shares of the Company’s convertible preferred stock then outstanding converted into 84,722,420 shares of common stock (see Note 10).

The Company has not generated any revenue since inception. The Company’s lead product candidate could require significant additional research and development efforts, including extensive clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales, including government supply contracts.

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from sales of convertible preferred stock and proceeds from the Company’s IPO. The Company has incurred losses and negative cash flows from operations since its inception, including a net loss of $100.7 million for the three months ended March 31, 2022. As of March 31, 2022, the Company had an accumulated deficit of $392.8 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim condensed consolidated financial statements.

The Company expects to seek additional funding through equity offerings, government or private-party grants, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders.

If the Company is unable to obtain sufficient capital, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion, or future 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.

5


 

Impact of the COVID-19 Coronavirus

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The evolving and constantly changing impact of the pandemic will directly affect the potential commercial prospects of adintrevimab and other product candidates for the prevention and treatment of COVID-19. The severity of the COVID-19 pandemic and the continued emergence of variants of concern (such as the widespread Omicron variant and its sublineages and the Delta variant), the availability, administration and acceptance of vaccines, monoclonal antibodies, antiviral agents and other therapeutic modalities, vaccine mandates by employers and/or local or national governments, and the potential development of “herd immunity” by the global population will affect the design and enrollment of the Company's clinical trials, the potential regulatory authorization or approval of the Company's product candidates and the commercialization of the Company's product candidates, if approved.

In addition, the Company's business and operations may be more broadly adversely affected by the COVID-19 pandemic. The COVID-19 outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen. The global COVID-19 pandemic continues to evolve rapidly, and the Company will continue to monitor it closely. The ultimate extent of the impact of the COVID-19 pandemic on the Company's business, financial condition, operations and product development timelines and plans remains highly uncertain and will depend on future developments, including the duration and spread of outbreaks and the continued emergence of variants, its impact on the Company's clinical trial design and enrollment, trial sites, contract research organizations (CROs), contract development and manufacturing organizations (CDMOs”), and other third parties with which the Company does business, as well as its impact on regulatory authorities and the Company's key scientific and management personnel. To date, the Company has experienced some delays and disruptions in its development activities as a result of the COVID-19 pandemic. Some of the Company's CROs, CDMOs and other service providers also continue to be impacted. The Company will continue to monitor developments as it addresses the disruptions, delays and uncertainties relating to the COVID-19 pandemic. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company's results and operations may be materially adversely affected and may affect the Company's ability to raise capital.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The accompanying condensed consolidated financial statements include the accounts of Adagio Therapeutics, Inc. and its wholly owned subsidiary, Adagio Therapeutics Security Corporation. All intercompany accounts and transactions have been eliminated in consolidation. The Company views its operations and manages its business in one operating segment, which is the business of discovering, developing and commercializing differentiated products for the prevention and treatment of infectious diseases.

2. Summary of Significant Accounting Policies

As of March 31, 2022, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (SEC) on March 31, 2022 (as subsequently amended by Amendment No. 1 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 29, 2022, the 2021 Form 10-K”) have not changed except as discussed below.

Leases

Effective January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASC 842”) using the required modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

The Company evaluates whether an arrangement is or contains a lease at the inception date. If determined to be or contain a lease, the Company determines the classification of the lease at the commencement date, which represents the date at which the lessor makes the underlying asset available for use by the Company. When determining the expected accounting lease term, the Company includes the noncancellable lease term, together with periods covered by (i) an option to extend the lease if the Company is reasonably certain to exercise such option, (ii) an option to terminate the lease if the Company is reasonably certain not to exercise such option and (iii) an option to extend or not terminate the lease where the exercise of such option is controlled by the lessor. The Company has elected the short-term lease exemption, which allows the Company to not recognize lease liabilities and right-of-use assets arising from lease arrangements with original lease terms of twelve months or less. The Company elected the practical expedient to not separate lease and non-lease components for its leases.

6


 

Right-of-use assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments under the arrangement. The Company measures its lease liabilities as the present value of the lease payments, discounted using an incremental borrowing rate, as interest rates implicit in lease arrangements are generally not readily determinable. The Company measures its right-of-use assets as the present value of its lease payments at the commencement date. The incremental borrowing rate represents the interest rate at which the Company could borrow an amount equal to the lease payments on a fully collateralized basis, over a similar term, in a similar economic environment. The Company recognizes rent expense for operating leases on a straight-line basis. The Company recognizes variable lease expenses as incurred.

The Company remeasures right-of-use assets and lease liabilities when a lease is modified, and the modification is not accounted for as a separate contract. A modification is accounted for as a separate contract if the modification grants the Company an additional right of use not included in the original lease arrangement and the increase in lease payments is commensurate with the additional right of use. The Company assesses its right-of-use assets for impairment in a manner consistent with its assessment for long-lived assets held and used in operations.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2022 and 2021 are unaudited.

The accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The accompanying consolidated balance sheet as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements, and the notes thereto, as of and for the year ended December 31, 2021, which are included in the Company’s 2021 Form 10-K.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of March 31, 2022 and December 31, 2021, the condensed consolidated results of operations for the three months ended March 31, 2022 and March 31, 2021, the condensed consolidated cash flows for the three months ended March 31, 2022 and March 31, 2021 and changes in stockholders’ equity (deficit) for the three months ended March 31, 2022 and March 31, 2021 have been made. The Company’s condensed consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, research and development expenses and related prepaid or accrued costs. Prior to the IPO, significant estimates and assumptions also included the valuation of common stock and resulting stock-based compensation expense. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ materially from those estimates or assumptions.

The Company is monitoring the potential impact of the COVID-19 pandemic on its business and condensed consolidated financial statements. The Company is not aware of any specific event or circumstance that would require any update to its estimates or judgments reflected in these condensed consolidated financial statements or a revision of the carrying value of its assets or liabilities as of the issuance date of these condensed consolidated financial statements. These estimates may change as new events occur and additional information is obtained.

Recently Issued and Adopted Accounting Pronouncements

The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.

7


 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”), as subsequently amended. ASC 842 sets forth the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASC 842 replaces the existing guidance in ASC No. 840, Leases (“ASC 840”). ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. A lessee is also required to record (i) a right-of-use asset and a lease liability on its balance sheets for all leases with a term of greater than 12 months regardless of their classification and (ii) lease expense on its statement of operations for operating leases and amortization and interest expense on its statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. The Company adopted the new standard and used the modified retrospective approach with January 1, 2022 as the initial date of application. The Company elected the available package of practical expedients which allowed the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. As a result of the adoption of ASC 842, the Company recorded (i) an operating lease liability, current of $0.3 million, (ii) an operating lease liability, non-current of $1.4 million and (iii) an operating lease right-of-use asset of $1.7 million, net of the unamortized balance of deferred rent liability as of the transition date. There was no impact from the adoption of ASC 842 to the Company’s results of operations and cash flows from operations. A summary of the impact of the adoption is as follows (in thousands):

 

December 31, 2021

 

Impact of Adoption

 

January 1, 2022

 

Operating lease right-of-use asset

$

 

$

1,728

 

$

1,728

 

Operating lease liability, current

 

 

 

308

 

 

308

 

Other non-current liability

 

6

 

 

(6

)

 

 

Operating lease liability, non-current

 

 

 

1,426

 

 

1,426

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). The main objective of this update and amendments is to provide information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date and utilize a methodology that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities are required to be recorded through an allowance for credit losses. The update limits the recognition of the amount of credit losses for available-for-sale debt securities to the amount by which the carrying value exceeds fair value. The measurement will be based on relevant information, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount and requires disclosure requirements related to credit risks. For public entities that qualify as a filer with the Securities and Exchange Commission, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years and early adoption is permitted. In November 2019, the FASB deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2016-13 is applied by means of a cumulative-effect adjustment to the opening retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the potential impact that the adoption of this standard may have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and improves the disclosures for convertible instruments and related earnings per share guidance. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance. For public entities that qualify as a filer with the Securities and Exchange Commission, excluding entities eligible to be smaller reporting companies, ASU 2020-06 is effective for fiscal annual periods beginning after December 15, 2021, including interim periods within those fiscal years. For nonpublic entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. ASU 2020-06 must be adopted as of the beginning of its annual fiscal year. ASU 2020-06 may be adopted through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the potential impact that the adoption of this standard may have on its consolidated financial statements and related disclosures.

3. Marketable Securities

Treasury securities held by the Company are classified as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities, and carried at fair value in the accompanying condensed consolidated balance sheet on a settlement date basis.

The Company did not hold any available-for-sale marketable securities as of March 31, 2022.

8


 

The following tables summarize the gross unrealized gains and losses of the Company’s marketable securities as of December 31, 2021 (in thousands):

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

U.S. Treasury securities

 

$

49,202

 

 

$

 

 

$

(8

)

 

$

49,194

 

No available-for-sale marketable securities held as of December 31, 2021 had remaining maturities greater than twelve months.

4. Fair Value Measurements

Fair Value Measurements

Certain assets of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

 

 

Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

 

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

Fair Value Measurements at
March 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

531,231

 

 

$

 

 

$

 

 

$

531,231

 

 

 

$

531,231

 

 

$

 

 

$

 

 

$

531,231

 

 

 

 

Fair Value Measurements at
December 31, 2021:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

541,220

 

 

$

 

 

$

 

 

$

541,220

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

49,194

 

 

 

 

 

 

 

 

 

49,194

 

 

 

$

590,414

 

 

$

 

 

$

 

 

$

590,414

 

The money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

The Company did not hold any U.S. Treasury securities as of March 31, 2022.

There were no changes to the valuation methods during the three months ended March 31, 2022 or March 31, 2021.

The Company evaluates transfers between levels at the end of each reporting period. There were no transfers into or out of Level 1, Level 2 or Level 3 fair value measurements during the three months ended March 31, 2022 or March 31, 2021.

9


 

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

March 31,
2022

 

 

December 31,
2021

 

Prepaid external research, development and manufacturing costs

 

$

19,062

 

 

$

20,582

 

Prepaid insurance

 

 

1,823

 

 

 

3,190

 

Prepaid compensation and other

 

 

1,196

 

 

 

1,521

 

 

 

$

22,081

 

 

$

25,293

 

 

6. Accrued Expenses

Accrued expenses consisted of the following (in thousands):