10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)





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

 

For the quarterly period ended March 31, 2024



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: 001-38583

Crinetics Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

26-3744114

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

 

6055 Lusk Boulevard,

San Diego, California

92121

(Address of principal executive offices)

(Zip code)



Registrant’s telephone number, including area code: (858) 450-6464

 

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, par value $0.001 per share

 

CRNX

 

Nasdaq Global Select 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 May 6, 2024, the registrant had 78,859,510 shares of common stock ($0.001 per share par value) outstanding.

 

 

 


 

CRINETICS PHARMACEUTICALS, INC. QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2024

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited):

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

 

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

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

 

17

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

28

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 3.

 

Defaults Upon Senior Securities

 

29

Item 4.

 

Mine Safety Disclosures

 

29

Item 5.

 

Other Information

 

29

Item 6.

 

Exhibits

 

30

 

1


 

PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

395,924

 

 

$

54,897

 

Investment securities

 

 

505,037

 

 

 

503,658

 

Prepaid expenses and other current assets

 

 

16,267

 

 

 

15,598

 

Total current assets

 

 

917,228

 

 

 

574,153

 

Property and equipment, net

 

 

11,865

 

 

 

10,881

 

Operating lease right-of-use assets

 

 

45,760

 

 

 

46,549

 

Investment in Radionetics

 

 

 

 

 

470

 

Restricted cash

 

 

1,300

 

 

 

1,300

 

Other assets

 

 

2,000

 

 

 

2,000

 

Total assets

 

$

978,153

 

 

$

635,353

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

28,683

 

 

$

23,196

 

Accrued compensation and related expenses

 

 

14,829

 

 

 

14,517

 

Deferred revenue

 

 

2,463

 

 

 

2,056

 

Operating lease liabilities

 

 

5,792

 

 

 

4,173

 

Total current liabilities

 

 

51,767

 

 

 

43,942

 

Operating lease liabilities, non-current

 

 

46,712

 

 

 

47,555

 

Deferred revenue, non-current

 

 

4,741

 

 

 

4,750

 

Total liabilities

 

 

103,220

 

 

 

96,247

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par; 10,000 shares authorized; no shares issued
     or outstanding at March 31, 2024 or December 31, 2023

 

 

 

 

 

 

Common stock and paid-in capital, $0.001 par; 200,000 shares authorized;
    
78,539 shares issued and outstanding at March 31, 2024;
    
68,175 shares issued and outstanding at December 31, 2023

 

 

1,595,415

 

 

 

1,191,831

 

Accumulated other comprehensive loss

 

 

150

 

 

 

977

 

Accumulated deficit

 

 

(720,632

)

 

 

(653,702

)

Total stockholders’ equity

 

 

874,933

 

 

 

539,106

 

Total liabilities and stockholders’ equity

 

$

978,153

 

 

$

635,353

 

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

2


 

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Revenues

 

$

640

 

 

$

2,679

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

53,341

 

 

 

38,468

 

General and administrative

 

 

20,828

 

 

 

12,189

 

Total operating expenses

 

 

74,169

 

 

 

50,657

 

Loss from operations

 

 

(73,529

)

 

 

(47,978

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

7,320

 

 

 

2,038

 

Other expense, net

 

 

(251

)

 

 

(55

)

Total other income, net

 

 

7,069

 

 

 

1,983

 

Loss before equity method investment

 

 

(66,460

)

 

 

(45,995

)

Loss on equity method investment

 

 

(470

)

 

 

 

Net loss

 

$

(66,930

)

 

$

(45,995

)

Net loss per share:

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.93

)

 

$

(0.85

)

Weighted average shares - basic and diluted

 

 

72,289

 

 

 

53,908

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain (loss) on investment securities

 

$

(827

)

 

$

1,417

 

Comprehensive loss

 

$

(67,757

)

 

$

(44,578

)

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

3


 

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

Common Stock

 

 

Common stock
and Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Capital

 

 

Income (loss)

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2024

 

 

68,175

 

 

$

1,191,831

 

 

$

977

 

 

$

(653,702

)

 

$

539,106

 

Issuance of common stock, net of $15,810 of transaction costs

 

 

9,557

 

 

 

378,890

 

 

 

 

 

 

 

 

 

378,890

 

Exercise of stock options

 

 

605

 

 

 

11,240

 

 

 

 

 

 

 

 

 

11,240

 

Issuance of common stock upon vesting of restricted stock units

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

13,454

 

 

 

 

 

 

 

 

 

13,454

 

Comprehensive loss

 

 

 

 

 

 

 

 

(827

)

 

 

 

 

 

(827

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(66,930

)

 

 

(66,930

)

Balance at March 31, 2024

 

 

78,539

 

 

$

1,595,415

 

 

$

150

 

 

$

(720,632

)

 

$

874,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

53,877

 

 

$

759,432

 

 

$

(3,931

)

 

$

(439,173

)

 

 

316,328

 

Exercise of stock options

 

 

32

 

 

 

484

 

 

 

 

 

 

 

 

 

484

 

Issuance of common stock upon vesting of restricted stock units

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

8,096

 

 

 

 

 

 

 

 

 

8,096

 

Comprehensive income

 

 

 

 

 

 

 

 

1,417

 

 

 

 

 

 

1,417

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(45,995

)

 

 

(45,995

)

Balance at March 31, 2023

 

 

53,990

 

 

$

768,012

 

 

$

(2,514

)

 

$

(485,168

)

 

$

280,330

 

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

4


 

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three months ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(66,930

)

 

$

(45,995

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

13,454

 

 

 

8,096

 

Depreciation and amortization

 

 

474

 

 

 

283

 

Noncash lease expense

 

 

789

 

 

 

115

 

Accretion of purchase discounts and amortization
   of premiums on investment securities, net

 

 

(3,847

)

 

 

(530

)

Loss on disposal of property and equipment

 

 

42

 

 

 

 

Loss on equity method investment

 

 

470

 

 

 

 

Noncash license revenues

 

 

 

 

 

(2,000

)

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

212

 

 

 

1,516

 

Accounts payable and accrued expenses, compensation and related expenses

 

 

1,306

 

 

 

(1,345

)

Deferred revenue

 

 

398

 

 

 

(605

)

Operating lease liabilities

 

 

776

 

 

 

(253

)

Net cash used in operating activities

 

 

(52,856

)

 

 

(40,718

)

Investing activities:

 

 

 

 

 

 

Purchases of investment securities

 

 

(99,741

)

 

 

(22,671

)

Maturities of investment securities

 

 

101,382

 

 

 

71,442

 

Purchases of property and equipment

 

 

(1,332

)

 

 

(16

)

Net cash provided by investing activities

 

 

309

 

 

 

48,755

 

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock, net of $15,810 transaction costs

 

 

383,215

 

 

 

 

Proceeds from exercise of stock options

 

 

10,359

 

 

 

484

 

Net cash provided by financing activities

 

 

393,574

 

 

 

484

 

Net change in cash, cash equivalents and restricted cash

 

 

341,027

 

 

 

8,521

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

56,197

 

 

 

33,973

 

Cash, cash equivalents and restricted cash at end of period

 

$

397,224

 

 

$

42,494

 

Components of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

395,924

 

 

$

41,193

 

Restricted cash

 

 

1,300

 

 

 

1,301

 

Cash, cash equivalents and restricted cash at end of period

 

$

397,224

 

 

$

42,494

 

Noncash investing and financing activities:

 

 

 

 

 

 

Accrued financing costs

 

$

4,325

 

 

$

 

Stock options exercised receivable

 

$

881

 

 

$

 

Amounts accrued for purchases of property and equipment

 

$

168

 

 

$

33

 

Private company shares received under licensing arrangement

 

$

 

 

$

2,000

 

 

See the accompanying notes to these unaudited condensed consolidated financial statements.

5


 

Crinetics Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

Crinetics Pharmaceuticals, Inc. (the “Company”) is a clinical-stage pharmaceutical company incorporated in Delaware on November 18, 2008, and based in San Diego, California. The Company is focused on the discovery, development, and commercialization of novel therapeutics for rare endocrine diseases and endocrine-related tumors. In January 2017, the Company established a wholly-owned Australian subsidiary, Crinetics Australia Pty Ltd (“CAPL”), in order to conduct various preclinical and clinical activities for its development candidates.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023, and the related disclosures are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of its operations and cash flows for the three months ended March 31, 2024 and 2023 in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 28, 2024. The condensed consolidated balance sheet as of December 31, 2023, has been derived from the audited consolidated financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Principles of Consolidation and Foreign Currency Transactions

The condensed consolidated financial statements include the accounts of the Company and CAPL. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of both the Company and CAPL is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense), in the condensed consolidated statements of operations and comprehensive loss and were not material for all periods presented.

Segment Reporting

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker ("CODM") in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Liquidity

From inception, the Company has devoted substantially all of its efforts to drug discovery and development, and conducting preclinical studies and clinical trials. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. The Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $720.6 million as of March 31, 2024.

As of March 31, 2024, the Company had $901.0 million in unrestricted cash, cash equivalents and investment securities, which the Company believes is sufficient to meet its funding requirements for at least the next 12 months.

The Company expects to continue to incur net losses for the foreseeable future and believes it will need to raise substantial additional capital to accomplish its business plan over the next several years. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings or other sources, including potential collaborations, licenses, and other similar arrangements. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and

6


 

prospects. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

During the three months ended March 31, 2024, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of common stock subject to repurchase and stock options outstanding under the Company’s stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities on loss per share would be antidilutive.

Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):

 

 

 

As of March 31,

 

 

2024

 

 

2023

 

Stock options

 

 

14,457

 

 

 

11,537

 

Restricted stock units

 

 

1,478

 

 

 

806

 

Employee stock purchase plan

 

 

292

 

 

 

276

 

Total

 

 

16,227

 

 

 

12,619

 

Recent Accounting Pronouncements

ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures (“Topic 280”), which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Lastly, the amendment requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its condensed consolidated financial statements and accompanying notes.

ASU 2023-09

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

 

3. INVESTMENT SECURITIES

 

The Company reports its available-for-sale investment securities at their estimated fair values. The following is a summary of the available-for-sale investment securities held by the Company as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

As of March 31, 2024

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

297,260

 

 

$

134

 

 

$

(109

)

 

$

297,285

 

Agency obligations

 

 

12,702

 

 

 

2

 

 

 

(4

)

 

 

12,700

 

Certificates of deposit

 

 

2,450

 

 

 

 

 

 

(7

)

 

 

2,443

 

Corporate debt securities

 

 

192,474

 

 

 

258

 

 

 

(123

)

 

 

192,609

 

Total

 

$

504,886

 

 

$

394

 

 

$

(243

)

 

$

505,037

 

 

7


 

 

 

As of December 31, 2023

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

279,577

 

 

$

731

 

 

$

(99

)

 

$

280,209

 

Agency obligations

 

 

21,271

 

 

 

16

 

 

 

(17

)

 

 

21,270

 

Certificates of deposit

 

 

2,450

 

 

 

2

 

 

 

(12

)

 

 

2,440

 

Corporate debt securities

 

 

196,399

 

 

 

526

 

 

 

(170

)

 

 

196,755

 

Commercial paper

 

 

2,984

 

 

 

 

 

 

 

 

 

2,984

 

Total

 

$

502,681

 

 

$

1,275

 

 

$

(298

)

 

$

503,658

 

 

As of March 31, 2024 and December 31, 2023, available-for-sale investment securities by contractual maturity were as follows (in thousands):

 

 

As of March 31, 2024

 

 

As of December 31, 2023

 

 

 

Amortized
Cost

 

 

Fair
Market
Value

 

 

Amortized
Cost

 

 

Fair
Market
Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

458,986

 

 

$

459,136

 

 

$

414,031

 

 

$

414,406

 

Due after one year through five years

 

 

45,900

 

 

 

45,901

 

 

 

88,650

 

 

 

89,252

 

Total

 

$

504,886

 

 

$

505,037

 

 

$

502,681

 

 

$

503,658

 

 

The following is a summary of the available-for-sale investment securities by length of time in a net loss position as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

As of March 31, 2024

 

 

 

Less Than 12 Months

 

 

More Than 12 Months

 

 

Total

 

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

109,356

 

 

$

(86

)

 

$

7,456

 

 

$

(23

)

 

$

116,812

 

 

$

(109

)

Agency obligations

 

 

7,699

 

 

 

(4

)

 

 

 

 

 

 

 

 

7,699

 

 

 

(4

)

Certificates of deposit

 

 

 

 

 

 

 

 

1,463

 

 

 

(7

)

 

 

1,463

 

 

 

(7

)

Corporate debt securities

 

 

69,062

 

 

 

(99

)

 

 

10,209

 

 

 

(24

)

 

 

79,271

 

 

 

(123

)

Total

 

$

186,117

 

 

$

(189

)

 

$

19,128

 

 

$

(54

)

 

$

205,245

 

 

$

(243

)

 

 

 

As of December 31, 2023

 

 

 

Less Than 12 Months

 

 

More Than 12 Months

 

 

Total

 

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Market
Value

 

 

Gross
Unrealized
Losses

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

10,400

 

 

$

(11

)

 

$

12,374

 

 

$

(88

)

 

$

22,774

 

 

$

(99

)

Agency obligations

 

 

8,170

 

 

 

(3

)

 

 

5,484

 

 

 

(14

)

 

 

13,654

 

 

 

(17

)

Certificates of deposit

 

 

244

 

 

 

(1

)

 

 

1,213

 

 

 

(11

)

 

 

1,457

 

 

 

(12

)

Corporate debt securities

 

 

3,595

 

 

 

 

 

 

32,612

 

 

 

(170

)

 

 

36,207

 

 

 

(170

)

Total

 

$

22,409

 

 

$

(15

)

 

$

51,683

 

 

$

(283

)

 

$

74,092

 

 

$

(298

)

 

The Company reviewed its investment holdings as of March 31, 2024 and December 31, 2023 and determined that the decline in fair value is attributable to changes in interest rates and not credit quality, and as the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. Therefore, there were no allowances for credit losses as of March 31, 2024 and December 31, 2023.

8


 

4. FAIR VALUE MEASUREMENTS

Investment Securities

The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.

Financial assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

 

 

 

As of March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

297,284

 

 

$

 

 

$

 

 

$

297,284

 

Agency obligations

 

 

 

 

 

12,701

 

 

 

 

 

 

12,701

 

Certificates of deposit

 

 

 

 

 

2,443

 

 

 

 

 

 

2,443

 

Corporate debt securities

 

 

 

 

 

192,609

 

 

 

 

 

 

192,609

 

Total assets measured at fair value

 

$

297,284

 

 

$

207,753

 

 

$

 

 

$

505,037

 

 

 

 

As of December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government obligations

 

$

280,209

 

 

$

 

 

$

 

 

$

280,209

 

Agency obligations

 

 

 

 

 

21,270

 

 

 

 

 

 

21,270

 

Certificates of deposit

 

 

 

 

 

2,440

 

 

 

 

 

 

2,440

 

Corporate debt securities

 

 

 

 

 

196,755

 

 

 

 

 

 

196,755

 

Commercial paper

 

 

 

 

 

2,984

 

 

 

 

 

 

2,984

 

Total assets measured at fair value

 

$

280,209

 

 

$

223,449

 

 

$

 

 

$

503,658

 

The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 3 during the three months ended March 31, 2024 and 2023.

 

 

5. BALANCE SHEET DETAILS

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

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Prepaid clinical costs

 

$

2,358

 

 

$

2,574

 

Prepaid research and development costs

 

 

444

 

 

 

1,238

 

Australian tax incentive receivable

 

 

711

 

 

 

747

 

Prepaid insurance

 

 

469

 

 

 

857

 

Interest receivable

 

 

3,173

 

 

 

3,051

 

Due from Radionetics (Note 11)

 

 

114

 

 

 

90

 

Landlord improvements receivable

 

 

4,561

 

 

 

5,210

 

Receivable for common stock issued

 

 

881

 

 

 

253

 

Other

 

 

3,556

 

 

 

1,578

 

Total

 

$

16,267

 

 

$

15,598

 

 

9


 

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

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Leasehold improvements

 

$

10,373

 

 

$

9,837

 

Lab equipment

 

 

4,936

 

 

 

4,253

 

Office equipment

 

 

2,009

 

 

 

1,854

 

Computers and software

 

 

25

 

 

 

5

 

Property and equipment at cost

 

 

17,343

 

 

 

15,949

 

Less accumulated depreciation and amortization

 

 

(5,478

)

 

 

(5,068

)

Total

 

$

11,865

 

 

$

10,881

 

Accounts payable and accrued expenses consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Accounts payable

 

$

10,756

 

 

$

6,548

 

Accrued clinical trial costs

 

 

5,717

 

 

 

5,527

 

Accrued research and development costs

 

 

4,245

 

 

 

2,312

 

Accrued outside services and professional fees

 

 

4,550

 

 

 

1,726

 

Accrued landlord improvements

 

 

2,926

 

 

 

3,816

 

Other accrued expenses

 

 

489

 

 

 

3,267

 

Total

 

$

28,683

 

 

$

23,196

 

 

 

6. OPERATING LEASES

In February 2018, as amended in March 2018, the Company entered into a non-cancellable operating lease for a facility in San Diego, California (the "2018 Lease"). The 2018 Lease has an initial term of seven years which expires in August 2025, and the Company has an option to extend the term of the 2018 Lease for an additional five years, a termination option subject to early termination fees and an option to sublease the facility. The 2018 Lease is subject to base lease payments and additional charges for common area maintenance and other costs and includes certain lease incentives and tenant improvement allowances. The Company’s estimated incremental fully collateralized borrowing rate of 8.0% was used in its present value calculation as the 2018 Lease does not have a stated rate and the implicit rate was not readily determinable.

In 2022, the Company entered into a lease agreement for laboratory and office space in San Diego, California (the "2022 Lease").

Under the terms of the 2022 Lease, the Company's expected future monthly minimum lease payments of $0.5 million, with six months of rent abatement in the first year, start on the earlier of (i) the date which is ten (10) months after substantial completion of demolition work, or (ii) the date of the substantial completion of improvements and first occupancy for business purposes, and the term expires on the date immediately preceding the one hundred thirty-seventh (137th) monthly anniversary of this lease payment start date. Lease payments are subject to annual 3% increases. The Company is also responsible for certain operating expenses and taxes during the term of the 2022 Lease. The 2022 Lease provides the Company with specified tenant improvement and landlord work allowances. The Company has (i) two options to extend the term of the 2022 Lease for an additional period of five (5) years each, and (ii) a right of first offer on adjacent space to the new facility, subject to the terms and conditions of the 2022 Lease. The 2022 Lease commenced in 2023 when the building was ready and available for its intended use. As of the date of the recording of the 2022 Lease, the Company is not reasonably certain that these options will be exercised. In September 2023, the Company recorded a right-of-use asset and corresponding lease liability in the accompanying condensed consolidated balance sheets in connection with the 2022 Lease.

In December 2023, the Company entered into a lease amendment to the 2022 Lease that moved the initial payment date and start of the hundred thirty-seventh month from September 2023 to November 2023. The amendment was a modification that did not result in a new contract as the modification did not provide the Company additional right-of-use assets. As a result, the Company recorded a $0.7 million reduction to right-of-use assets and lease liabilities in the accompanying condensed consolidated balance sheets.

The Company’s estimated incremental fully collateralized borrowing rate of 8.6% was used in its present value calculation as the 2022 Lease does not have a stated rate and the implicit rate was not readily determinable. The rate was determined using a synthetic credit rating analysis.

Under the terms of the 2018 Lease and 2022 Lease, the Company provided the lessors with irrevocable letters of credit in the amounts of $0.5 million and $0.8 million, respectively. The lessors are entitled to draw on the letters of credit in the event of any default by the Company under the terms of the leases.

10


 

As of March 31, 2024, the Company's future minimum payments under non-cancellable operating lease, were as follows (in thousands):

 

Year ending December 31,

 

Minimum
Payments

 

2024 (nine months)

 

$

4,173

 

2025

 

 

7,468

 

2026

 

 

6,795

 

2027

 

 

6,999

 

2028

 

 

7,209

 

Thereafter

 

 

50,975

 

Total future minimum lease payments

 

 

83,619

 

Less imputed interest

 

 

(31,115

)

Total operating lease liabilities

 

 

52,504

 

Less operating lease liabilities, current

 

 

(5,792

)

Operating lease liabilities, non-current

 

$

46,712

 

 

Operating lease cost was $2.0 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company’s weighted average remaining term was 10.8 years and 11.1 years, respectively. As of March 31, 2024 and December 31, 2023, the Company’s weighted-average discount rate was 8.6% and 8.6%, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating cash flow from operating leases was $0.3 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position or results of operations.

8. REVENUE RECOGNITION

Sanwa Kagaku Kenkyusho Co., Ltd

On February 25, 2022, the Company and Sanwa Kagaku Kenkyusho Co., Ltd. ("Sanwa"), entered into a license agreement (the “Sanwa License”) whereby the Company granted Sanwa an exclusive license to develop and commercialize paltusotine in Japan.

Under the Sanwa License, Sanwa has the right to receive data obtained by the Company through certain paltusotine studies. The Company assessed the Sanwa License and concluded that Sanwa is a customer within the agreement. Sanwa will assume all costs associated with clinical trials and regulatory applications associated with these processes in Japan. Further, the Company retains all rights to develop and commercialize the product outside Japan. The Company also granted Sanwa the right to purchase supply of paltusotine for clinical and commercial requirements at cost plus a pre-negotiated percentage which was a market rate and therefore not a material right.

The Company determined that its performance obligations under the Sanwa License comprised the license and data exchange. Certain professional services, such as the Company's participation on committees, were deemed to be immaterial to the context of the contract.

In exchange, the Company received a $13.0 million nonrefundable, upfront payment and will be eligible to receive up to an additional $25.5 million in milestone payments related to the achievement of certain development, regulatory and commercial goals. In addition, upon market approval of paltusotine in Japan, the Company will be eligible to receive certain sales-based royalties. Initially, the Company determined that the transaction price amounted to the upfront payment of $13.0 million.

During the three months ended March 31, 2024, the Company achieved a $1.0 million milestone for the first indication of the development milestones. As of March 31, 2024, the Company updated its estimated transaction price to $