lyra-10q_20200630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-39273

 

Lyra Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-1700838

(State or other jurisdiction of

incorporation or organization)

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

480 Arsenal Way

Watertown, MA

02472

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 393-4600

 

N/A

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

LYRA

 

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  

As of July 31, 2020, the registrant had 12,924,563 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, the anticipated impact of the novel coronavirus, or COVID-19, pandemic on our business, business strategy, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. 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 business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Condensed Consolidated Financial Statements (unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

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

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

Signatures

81

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

LYRA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

86,599

 

 

$

9,808

 

Prepaid expenses and other current assets

 

 

2,711

 

 

 

311

 

Total current assets

 

 

89,310

 

 

 

10,119

 

Property and equipment, net

 

 

329

 

 

 

237

 

Operating lease right-of-use assets

 

 

2,755

 

 

 

3,182

 

Restricted cash

 

 

329

 

 

 

329

 

Deferred offering costs

 

 

 

 

 

1,096

 

Total assets

 

$

92,723

 

 

$

14,963

 

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

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,146

 

 

$

1,069

 

Accrued expenses and other current liabilities

 

 

1,853

 

 

 

3,240

 

Operating lease liabilities

 

 

943

 

 

 

899

 

Total current liabilities

 

 

3,942

 

 

 

5,208

 

Operating lease liabilities, net of current portion

 

 

1,958

 

 

 

2,427

 

Total liabilities

 

 

5,900

 

 

 

7,635

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Series A-1 redeemable convertible preferred stock, $0.001 par value; no shares issued, authorized or

   outstanding at June 30, 2020; 34,017,033 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

39,742

 

Series A-2 redeemable convertible preferred stock, $0.001 par value; no shares issued, authorized or

   outstanding at June 30, 2020; 26,680,202 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

18,393

 

Series A-3 redeemable convertible preferred stock, $0.001 par value; no shares issued, authorized or

   outstanding at June 30, 2020; 30,070,487 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

38,114

 

Series A-4 redeemable convertible preferred stock, $0.001 par value; no shares issued, authorized or

   outstanding at June 30, 2020; 19,999,999 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

6,000

 

Series B redeemable convertible preferred stock, $0.001 par value; no shares issued, authorized or

   outstanding at June 30, 2020; 100,018,619 shares authorized and 98,351,953 shares issued and outstanding at

   December 31, 2019

 

 

 

 

 

28,417

 

Series C redeemable convertible preferred stock, $0.001 par value; no shares authorized, issued or outstanding

   at June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Total redeemable convertible preferred stock

 

 

 

 

 

130,666

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 and 275,000,000 shares authorized at

   June 30, 2020 and December 31, 2019, respectively; 12,924,563 and 230,860 shares issued and

   outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

13

 

 

 

 

Additional paid-in capital

 

 

223,339

 

 

 

4,419

 

Accumulated deficit

 

 

(136,529

)

 

 

(127,757

)

Total stockholders’ equity (deficit)

 

 

86,823

 

 

 

(123,338

)

Total liabilities, redeemable convertible preferred stock and stockholders’

   equity (deficit)

 

$

92,723

 

 

$

14,963

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

2,103

 

 

$

3,416

 

 

$

5,067

 

 

$

6,180

 

General and administrative

 

 

2,442

 

 

 

865

 

 

 

3,726

 

 

 

1,725

 

Total operating expenses

 

 

4,545

 

 

 

4,281

 

 

 

8,793

 

 

 

7,905

 

Loss from operations

 

 

(4,545

)

 

 

(4,281

)

 

 

(8,793

)

 

 

(7,905

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

5

 

 

 

80

 

 

 

21

 

 

 

115

 

Total other income

 

 

5

 

 

 

80

 

 

 

21

 

 

 

115

 

Net loss

 

$

(4,540

)

 

$

(4,201

)

 

$

(8,772

)

 

$

(7,790

)

Comprehensive loss

 

$

(4,540

)

 

$

(4,201

)

 

$

(8,772

)

 

$

(7,790

)

Net loss per share attributable to common stockholders—basic and

   diluted

 

$

(0.56

)

 

$

(23.04

)

 

$

(2.11

)

 

$

(44.64

)

Weighted-average common shares outstanding—basic and diluted

 

 

8,182,725

 

 

 

185,683

 

 

 

4,206,793

 

 

 

177,962

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3


 

LYRA THERAPEUTICS, INC.

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

(unaudited)

(in thousands, except share amounts)

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at March 31, 2019

 

 

209,119,674

 

 

$

130,430

 

 

 

 

170,156

 

 

$

 

 

$

4,348

 

 

$

(115,040

)

 

 

(110,692

)

Exercise of common stock options

 

 

 

 

 

 

 

 

 

50,462

 

 

 

 

 

 

87

 

 

 

 

 

 

87

 

Accretion of convertible preferred stock to

   redemption value

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

(78

)

 

 

 

 

 

(78

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

44

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,201

)

 

 

(4,201

)

Balance at June 30, 2019

 

 

209,119,674

 

 

$

130,508

 

 

 

 

220,618

 

 

$

 

 

$

4,401

 

 

$

(119,241

)

 

$

(114,840

)

Balance at March 31, 2020

 

 

287,426,285

 

 

$

160,197

 

 

 

 

230,860

 

 

$

 

 

$

5,208

 

 

$

(131,989

)

 

$

(126,781

)

Accretion of convertible preferred stock to

   redemption value

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

(30

)

Conversion of redeemable convertible preferred

   stock to common stock upon closing of initial

   public offering

 

 

(287,426,285

)

 

 

(160,227

)

 

 

 

8,335,248

 

 

 

8

 

 

 

160,219

 

 

 

 

 

 

160,227

 

Issuance of common stock from initial public

   offering, net of issuance costs of $7,072

 

 

 

 

 

 

 

 

 

4,025,000

 

 

 

4

 

 

 

57,324

 

 

 

 

 

 

57,328

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

19,661

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of

   warrants

 

 

 

 

 

 

 

 

 

313,794

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

619

 

 

 

 

 

 

619

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,540

)

 

 

(4,540

)

Balance at June 30, 2020

 

 

 

 

$

 

 

 

 

12,924,563

 

 

$

13

 

 

$

223,339

 

 

$

(136,529

)

 

$

86,823

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2018

 

 

209,119,674

 

 

$

130,353

 

 

 

 

170,156

 

 

$

 

 

$

4,377

 

 

$

(111,451

)

 

$

(107,074

)

Exercise of common stock options

 

 

 

 

 

 

 

 

 

50,462

 

 

 

 

 

 

87

 

 

 

 

 

 

87

 

Accretion of convertible preferred stock to

   redemption value

 

 

 

 

 

155

 

 

 

 

 

 

 

 

 

 

(155

)

 

 

 

 

 

(155

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

 

 

 

92

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,790

)

 

 

(7,790

)

Balance at June 30, 2019

 

 

209,119,674

 

 

$

130,508

 

 

 

 

220,618

 

 

$

 

 

$

4,401

 

 

$

(119,241

)

 

$

(114,840

)

Balance at December 31, 2019

 

 

209,119,674

 

 

$

130,666

 

 

 

 

230,860

 

 

$

 

 

$

4,419

 

 

$

(127,757

)

 

$

(123,338

)

Issuance of Series C redeemable convertible

   preferred stock, net of issuance costs of $201

 

 

78,306,611

 

 

 

29,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of convertible preferred stock to

   redemption value

 

 

 

 

 

115

 

 

 

 

 

 

 

 

 

 

(115

)

 

 

 

 

 

(115

)

Issuance of common stock warrants in conjunction

   with sale of Series C redeemable convertible

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

740

 

 

 

 

 

 

740

 

Conversion of redeemable convertible preferred

   stock to common stock upon closing of initial

   public offering

 

 

(287,426,285

)

 

 

(160,227

)

 

 

 

8,335,248

 

 

 

8

 

 

 

160,219

 

 

 

 

 

 

160,227

 

Issuance of common stock from initial public

   offering, net of issuance costs of $7,072

 

 

 

 

 

 

 

 

 

4,025,000

 

 

 

4

 

 

 

57,324

 

 

 

 

 

 

57,328

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

19,661

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of

   warrants

 

 

 

 

 

 

 

 

 

313,794

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

753

 

 

 

 

 

 

753

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,772

)

 

 

(8,772

)

Balance at June 30, 2020

 

 

 

 

$

 

 

 

 

12,924,563

 

 

$

13

 

 

$

223,339

 

 

$

(136,529

)

 

$

86,823

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4


LYRA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,772

)

 

$

(7,790

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

753

 

 

 

92

 

Depreciation expense

 

 

21

 

 

 

14

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,400

)

 

 

200

 

Operating lease right-of-use assets

 

 

440

 

 

 

436

 

Accounts payable

 

 

138

 

 

 

839

 

Accrued expenses and other current liabilities

 

 

(1,237

)

 

 

618

 

Operating lease liabilities

 

 

(438

)

 

 

(418

)

Net cash used in operating activities

 

 

(11,495

)

 

 

(6,009

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(85

)

 

 

(121

)

Net cash used in investing activities

 

 

(85

)

 

 

(121

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from the sale of Series C redeemable convertible preferred stock

 

 

30,392

 

 

 

 

Payment of offering costs related to sale of Series C redeemable convertible preferred

   stock

 

 

(205

)

 

 

 

Proceeds from initial public offering, net of underwriting discount

 

 

59,892

 

 

 

 

Payment of initial public offering costs

 

 

(1,708

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

87

 

Net cash provided by financing activities

 

 

88,371

 

 

 

87

 

Net increase (decrease) in cash and cash equivalents

 

 

76,791

 

 

 

(6,043

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

10,137

 

 

 

24,217

 

Cash and cash equivalents and restricted cash, end of period

 

$

86,928

 

 

$

18,174

 

Supplemental disclosure of non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

30

 

 

$

 

Conversion of redeemable convertible preferred stock

 

$

160,227

 

 

$

 

Allocation of Series C redeemable convertible preferred stock to common stock warrant

 

$

740

 

 

$

 

Series C redeemable convertible preferred stock issuance costs included in accounts

   payable and accrued expense

 

$

1

 

 

$

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

115

 

 

$

155

 

Right-of-use asset obtained in exchange of operating lease obligation

 

$

13

 

 

$

4,045

 

Deferred offering costs included in accounts payable and accrued expense

 

$

630

 

 

$

7

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

LYRA THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Basis of Presentation

Lyra Therapeutics, Inc. (the “Company”) is a clinical-stage therapeutics company focused on the development and commercialization of novel integrated drug and delivery solutions for the localized treatment of patients with ear, nose and throat (“ENT”) diseases. The Company’s proprietary technology platform, XTreo, is designed to precisely and consistently deliver medicines directly to the affected tissue for sustained periods with a single administration. The Company’s initial product candidates, LYR-210 and LYR-220, are bioresorbable polymeric matrices designed to be administered in a brief, non-invasive, in-office procedure and intended to deliver up to six months of continuous drug therapy to the sinonasal passages for the treatment of chronic rhinosinusitis (“CRS”). The Company was incorporated as a Delaware corporation on November 21, 2005 and is located in Watertown, Massachusetts. On July 16, 2018, the Company formerly changed its name from 480 Biomedical, Inc. to Lyra Therapeutics, Inc.

The Company is subject to risks common to companies in the therapeutics and pharmaceutical industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug 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, reliance on third party manufacturers, ability to transition from pilot-scale manufacturing to large-scale production of products and the need to obtain adequate additional financing to fund the development of its product candidates.

Since inception, the Company has funded its operations with proceeds from sales of redeemable convertible preferred stock and funding from government contracts. The Company has incurred recurring net losses since inception and had net losses of approximately $8.8 million and $7.8 million for the six months ended June 30, 2020 and 2019, respectively. In addition, the Company has an accumulated deficit of approximately $136.5 million at June 30, 2020. The Company expects to continue to generate operating losses for the foreseeable future. At June 30, 2020, the Company had approximately $86.6 million of cash and cash equivalents.

On May 5, 2020, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 4,025,000 shares of its common stock, including 525,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $16.00 per share, for aggregate gross proceeds of $64.4 million. The Company received approximately $57.3 million in net proceeds after deducting underwriting discounts and offering expenses payable by the Company.

The Company believes that its cash and cash equivalents as of June 30, 2020 will be sufficient to fund the Company’s operating plan for a period of at least one year from the issuance date of the condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through equity or debt financings, collaboration agreements, licensing arrangements or government grants. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.  The inability to obtain funding as and when needed would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding when needed, the Company could 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.  The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Upon the completion of the IPO of its common stock in May 2020, all outstanding redeemable convertible preferred stock of the Company converted into shares of common stock and all outstanding warrants to purchase common stock were automatically cashless exercised.

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COVID-19 Pandemic and CARES Act

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including by causing disruptions in the supply of the Company’s product candidates and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the Food and Drug Administration and other health authorities, which could result in delays of reviews and approvals, including with respect to the Company’s product candidates. In light of recent developments relating to the COVID-19 global pandemic, the Company discontinued enrollment at 67 patients in its ongoing Phase 2 LANTERN clinical trial and does not expect to enroll patients in the United States in Phase 2. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company currently defers the employer side social security payments and also is evaluating whether it will take advantage of other provisions, if any. The CARES Act also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company has not and does not plan on obtaining funding from such loans. The Company does not believe the CARES Act will have a material impact on its financial condition, results of operations, or liquidity.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance 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 United States generally accepted accounting principles as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2020 and the results of its operations and its cash flows for the three and six months ended June 30, 2020 and 2019. The results for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s final prospectus for its IPO dated April 30, 2020 and filed pursuant to Rule 424(b)(4) under the Securities Act on May 1, 2020.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s final prospectus for its IPO dated April 30, 2020 and filed pursuant to Rule 424(b)(4) under the Securities Act on May 1, 2020. Since the date of those financial statements, there have been no changes to its significant accounting policies except as noted below.

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Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of expenses during the reporting period. On an ongoing basis, the Company’s management evaluates its estimates, which include but are not limited to management’s judgments of accrued expenses, fair value of common stock, valuation of share-based awards, warrants to purchase common stock and deferred income taxes. Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.

The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The Company has utilized various valuation methodologies to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of preferred stock, the superior rights and preferences of securities senior to the Company’s common stock at the time of, and the likelihood of, achieving a liquidity event, such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

Restricted Cash

The Company had restricted cash of approximately $0.3 million as of June 30, 2020 and December 31, 2019, which was held in certificates of deposit at the Company’s financial institution to secure the Company’s letter of credit for its facility lease.

Concentrations of Credit Risk and Off-Balance Sheet Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains all its cash and cash equivalents at a single accredited financial institution, in amounts that exceed federally insured limits.

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign exchange hedging arrangements.

Net Loss per Share

The Company has reported losses since inception and has computed basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has computed diluted net loss per common share after giving consideration to all potentially dilutive common shares, including options to purchase common stock, warrants to purchase common stock and redeemable convertible preferred stock, outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential common shares have been anti-dilutive and basic and diluted loss per share have been the same.

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,540

)

 

$

(4,201

)

 

$

(8,772

)

 

$

(7,790

)

Accretion of redeemable convertible

   preferred stock

 

 

(30

)

 

 

(78

)

 

 

(115

)

 

 

(155

)

Net loss attributable to common stockholders

 

$

(4,570

)

 

$

(4,279

)

 

$

(8,887

)

 

$

(7,945

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares—basic

   and diluted

 

 

8,182,725

 

 

 

185,683

 

 

 

4,206,793

 

 

 

177,962

 

Net loss per share attributable to common

   stockholders—basic and diluted

 

$

(0.56

)

 

$

(23.04

)

 

$

(2.11

)

 

$

(44.64

)

 

The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive (in common stock equivalent shares retroactively adjusted):

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Series A-1 redeemable convertible preferred stock

 

 

 

 

 

986,466

 

Series A-2 redeemable convertible preferred stock

 

 

 

 

 

773,712

 

Series A-3 redeemable convertible preferred stock

 

 

 

 

 

872,031

 

Series A-4 redeemable convertible preferred stock

 

 

 

 

 

579,993

 

Series B redeemable convertible preferred stock

 

 

 

 

 

2,852,177

 

Stock options

 

 

1,347,394

 

 

 

719,941

 

Total

 

 

1,347,394

 

 

 

6,784,320

 

 

Recently Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”), which modifies the disclosure requirements on fair value measurements. The Company adopted ASU No. 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements. The Company adopted ASU No. 2018-15 on January 1, 2020 on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which makes a number of changes meant to add or clarify guidance on accounting for income taxes. The new guidance will become effective for the Company on January 1, 2022. Early adoption is permitted. The Company currently is evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.

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3. Fair Value Measurements

The Company did not have financial assets and liabilities measured at fair value at June 30, 2020 and December 31, 2019.

There have been no changes to the valuation methods used during the three and six months ended June 30, 2020 and 2019. There were no transfers within the fair value hierarchy during the three and six months ended June 30, 2020 and 2019.

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.

In connection with the Company’s sale of Series C redeemable convertible preferred stock (“Series C Preferred Stock”) the Company issued to investors warrants for the purchase of common stock (“Warrants”). The proceeds from the issuance of the Series C Preferred Stock were allocated between the Series C Preferred Stock and Warrants based on their relative fair values at the time of issuance.

4. Property and Equipment

Property and equipment consist of the following at June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Property and equipment:

 

 

 

 

 

 

 

 

Laboratory equipment

 

$

1,761

 

 

$

1,715

 

Computer software and equipment

 

 

616

 

 

 

595

 

Office furniture and fixtures

 

 

301

 

 

 

301

 

Leasehold improvements

 

 

317

 

 

 

317

 

Construction in progress

 

 

184

 

 

 

138

 

 

 

$

3,179

 

 

$

3,066

 

Accumulated depreciation

 

 

(2,850

)

 

 

(2,829

)

Property and equipment, net

 

$

329

 

 

$

237

 

 

The Company recognized approximately $13,000 and $6,000 of depreciation expense for the three months ended June 30, 2020 and 2019, respectively, and $21,000 and $14,000 of depreciation expense for the six months ended June 30, 2020 and 2019.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Payroll and employee related expenses

 

$

1,131

 

 

$

885

 

Third-party research and development expenses

 

 

294

 

 

 

1,344

 

Professional and consulting fees

 

 

319

 

 

 

901

 

Other

 

 

109

 

 

 

110

 

Total accrued expenses and other current liabilities

 

$

1,853

 

 

$

3,240

 

 

6. Redeemable Convertible Preferred Stock

On January 10, 2020, the Company filed an amended and restated certificate of incorporation which authorized its Board of Directors to issue up to 299,300,288 shares of preferred stock, par value $0.001 per share.

In January 2020, the Company issued 78,306,611 shares of Series C Preferred Stock for $0.38811 per share, in exchange for gross cash proceeds of approximately $30.4 million.

Upon the completion of the IPO of its common stock in May 2020, all outstanding redeemable convertible preferred stock of the Company converted into shares of common stock.

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7. Preferred and Common Stock

On January 10, 2020, the Company filed an amended and restated certificate of incorporation which authorized its Board of Directors to issue up to 400,000,000 shares of common stock, par value $0.001 per share.

On May 5, 2020, the Company filed a restated certificate of incorporation which authorizes its Board of Directors to issue up to 200,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of undesignated preferred stock, par value $0.001 per share.

The holders of common stock are entitled to one vote for each share held. Common stockholders are not entitled to receive dividends, unless declared by the Board of Directors.

The Company’s Board of Directors approved a one-for-34.483 reverse stock split of its issued and outstanding common stock and stock options and a proportional adjustment to the existing conversion ratios for the Company’s redeemable convertible preferred stock pursuant to an amendment to the Company’s amended and restated certificate of incorporation effective as of April 27, 2020. Accordingly, all common stock shares, per share amounts, and additional paid in capital amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.

In May 2020, the Company completed its IPO in which the Company issued and sold 4,025,000 shares of its common stock, including 525,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $16.00 per share, for aggregate gross proceeds of $64.4 million. The Company received approximately $57.3 million in net proceeds after deducting underwriting discounts and offering expenses payable by the Company. In connection with this financing, all outstanding shares of redeemable convertible preferred stock converted into — shares of the Company’s common stock, all outstanding Warrants were automatically cashless exercised resulting in the issuance of 313,794 shares of the Company’s stock and the issuance to one of our directors, in lieu of compensation payable by the Company under a consulting agreement, of 19,661 fully vested shares of the Company’s common stock.

The Company has reserved for future issuances the following shares of common stock as of June 30, 2020:

 

 

 

As of

June 30, 2020

 

Stock options

 

 

2,896,467

 

Employee stock purchase plan

 

 

150,000

 

Total