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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 June 30, 2021



 

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.)

 

 

 

10222 Barnes Canyon Road, Bldg. #2,

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 July 31, 2021, the registrant had 38,563,660 shares of common stock ($0.001 per share par value) outstanding.

 

 

 

 


 

CRINETICS PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2021

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited):

 

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

 

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

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  

 

25

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

Item 1A.

 

Risk Factors

 

26

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

Item 3.

 

Defaults Upon Senior Securities

 

26

Item 4.

 

Mine Safety Disclosures

 

26

Item 5.

 

Other Information

 

26

Item 6.

 

Exhibits

 

27

 

 

 

2


 

PART I — FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

178,771

 

 

$

93,087

 

Investment securities

 

 

24,991

 

 

 

77,793

 

Prepaid expenses and other current assets

 

 

7,593

 

 

 

6,612

 

Total current assets

 

 

211,355

 

 

 

177,492

 

Property and equipment, net

 

 

3,005

 

 

 

3,181

 

Operating lease right-of-use asset

 

 

2,069

 

 

 

2,232

 

Restricted cash

 

 

500

 

 

 

500

 

Other assets

 

 

 

 

 

40

 

Total assets

 

$

216,929

 

 

$

183,445

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

7,145

 

 

$

5,588

 

Accrued compensation and related expenses

 

 

3,888

 

 

 

4,066

 

Other current liabilities

 

 

886

 

 

 

835

 

Total current liabilities

 

 

11,919

 

 

 

10,489

 

Operating lease liability, non-current

 

 

3,558

 

 

 

4,014

 

Unvested stock liability

 

 

12

 

 

 

23

 

Total liabilities

 

 

15,489

 

 

 

14,526

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par; 10,000 shares authorized; no shares issued

     or outstanding at June 30, 2021 or at December 31, 2020

 

 

 

 

 

 

Common stock and paid-in capital, $0.001 par; 200,000 shares authorized;

    37,688 shares issued and 37,680 shares outstanding at June 30, 2021;

    33,017 shares issued and 33,001 shares outstanding at December 31, 2020

 

 

418,040

 

 

 

336,508

 

Accumulated other comprehensive income

 

 

10

 

 

 

25

 

Accumulated deficit

 

 

(216,610

)

 

 

(167,614

)

Total stockholders’ equity

 

 

201,440

 

 

 

168,919

 

Total liabilities and stockholders’ equity

 

$

216,929

 

 

$

183,445

 

 

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

 

3


 

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Grant revenues

 

$

 

 

$

 

 

$

 

 

$

71

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

20,487

 

 

 

12,607

 

 

 

38,071

 

 

 

26,469

 

General and administrative

 

 

5,602

 

 

 

4,322

 

 

 

10,936

 

 

 

8,313

 

Total operating expenses

 

 

26,089

 

 

 

16,929

 

 

 

49,007

 

 

 

34,782

 

Loss from operations

 

 

(26,089

)

 

 

(16,929

)

 

 

(49,007

)

 

 

(34,711

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

23

 

 

 

260

 

 

 

53

 

 

 

816

 

Other income (expense), net

 

 

(29

)

 

 

178

 

 

 

(42

)

 

 

44

 

Total other income (expense), net

 

 

(6

)

 

 

438

 

 

 

11

 

 

 

860

 

Net loss

 

 

(26,095

)

 

 

(16,491

)

 

 

(48,996

)

 

 

(33,851

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) on investment securities

 

 

(9

)

 

 

(40

)

 

 

(15

)

 

 

(21

)

Comprehensive loss

 

$

(26,104

)

 

$

(16,531

)

 

$

(49,011

)

 

$

(33,872

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$

(0.70

)

 

$

(0.53

)

 

$

(1.40

)

 

$

(1.21

)

Weighted average shares outstanding – basic and diluted

 

 

37,061

 

 

 

31,409

 

 

 

35,048

 

 

 

27,948

 

 

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

 

4


 

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

 

 

Deficit

 

 

Equity

 

Balance at April 1, 2021

 

 

33,017

 

 

$

339,976

 

 

$

19

 

 

$

(190,515

)

 

$

149,480

 

Issuance of common stock, net of transaction costs

 

 

4,562

 

 

 

72,558

 

 

 

 

 

 

 

 

 

72,558

 

Stock issued under Stock Purchase Plan

 

 

47

 

 

 

522

 

 

 

 

 

 

 

 

 

522

 

Vesting of shares subject to repurchase

 

 

5

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Exercise of stock options

 

 

49

 

 

 

745

 

 

 

 

 

 

 

 

 

745

 

Stock-based compensation

 

 

 

 

 

4,233

 

 

 

 

 

 

 

 

 

4,233

 

Comprehensive loss

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(26,095

)

 

 

(26,095

)

Balance at June 30, 2021

 

 

37,680

 

 

$

418,040

 

 

$

10

 

 

$

(216,610

)

 

$

201,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

33,001

 

 

$

336,508

 

 

$

25

 

 

$

(167,614

)

 

$

168,919

 

Issuance of common stock, net of transaction costs

 

 

4,562

 

 

 

72,558

 

 

 

 

 

 

 

 

 

72,558

 

Stock issued under Stock Purchase Plan

 

 

47

 

 

 

522

 

 

 

 

 

 

 

 

 

522

 

Vesting of shares subject to repurchase

 

 

8

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Exercise of stock options

 

 

62

 

 

 

802

 

 

 

 

 

 

 

 

 

802

 

Stock-based compensation

 

 

 

 

 

7,639

 

 

 

 

 

 

 

 

 

7,639

 

Comprehensive loss

 

 

 

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(48,996

)

 

 

(48,996

)

Balance at June 30, 2021

 

 

37,680

 

 

$

418,040

 

 

$

10

 

 

$

(216,610

)

 

$

201,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2020

 

 

24,587

 

 

$

219,432

 

 

$

167

 

 

$

(111,162

)

 

$

108,437

 

Issuance of common stock, net of transaction costs

 

 

8,223

 

 

 

107,856

 

 

 

 

 

 

 

 

 

107,856

 

Vesting of shares subject to repurchase

 

 

3

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Exercise of stock options

 

 

42

 

 

 

72

 

 

 

 

 

 

 

 

 

72

 

Stock issued under Stock Purchase Plan

 

 

27

 

 

 

407

 

 

 

 

 

 

 

 

 

407

 

Stock-based compensation

 

 

 

 

 

2,528

 

 

 

 

 

 

 

 

 

2,528

 

Comprehensive loss

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

(40

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,491

)

 

 

(16,491

)

Balance at June 30, 2020

 

 

32,882

 

 

$

330,300

 

 

$

127

 

 

$

(127,653

)

 

$

202,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

24,263

 

 

$

210,793

 

 

$

148

 

 

$

(93,802

)

 

$

117,139

 

Issuance of common stock, net of transaction costs

 

 

8,499

 

 

 

114,283

 

 

 

 

 

 

 

 

 

 

 

114,283

 

Vesting of shares subject to repurchase

 

 

9

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Exercise of stock options

 

 

84

 

 

 

127

 

 

 

 

 

 

 

 

 

127

 

Stock issued under Stock Purchase Plan

 

 

27

 

 

 

407

 

 

 

 

 

 

 

 

 

 

 

407

 

Stock-based compensation

 

 

 

 

 

4,675

 

 

 

 

 

 

 

 

 

4,675

 

Comprehensive loss

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(33,851

)

 

 

(33,851

)

Balance at June 30, 2020

 

 

32,882

 

 

$

330,300

 

 

$

127

 

 

$

(127,653

)

 

$

202,774

 

 

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

 

5


 

Crinetics Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(48,996

)

 

$

(33,851

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

7,639

 

 

 

4,675

 

Depreciation and amortization

 

 

454

 

 

 

479

 

Noncash lease expense

 

 

163

 

 

 

133

 

Accretion of purchase discounts and amortization

   of premiums on investment securities, net

 

 

170

 

 

 

(293

)

Other, net

 

 

(1

)

 

 

(25

)

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(941

)

 

 

(416

)

Accounts payable and accrued expenses, compensation and related expenses

 

 

1,901

 

 

 

1,560

 

Operating lease liability

 

 

(405

)

 

 

(347

)

Net cash used in operating activities

 

 

(40,016

)

 

 

(28,085

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of investment securities

 

 

(2,535

)

 

 

(70,102

)

Maturities of investment securities

 

 

55,153

 

 

 

104,115

 

Purchases of property and equipment

 

 

(278

)

 

 

(72

)

Net cash provided by investing activities

 

 

52,340

 

 

 

33,941

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of transaction costs

 

 

72,558

 

 

 

114,505

 

Proceeds from exercise of stock options

 

 

802

 

 

 

127

 

Net cash provided by financing activities

 

 

73,360

 

 

 

114,632

 

Net change in cash, cash equivalents and restricted cash

 

 

85,684

 

 

 

120,488

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

93,587

 

 

 

40,826

 

Cash, cash equivalents and restricted cash at end of period

 

$

179,271

 

 

$

161,314

 

Components of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

178,771

 

 

$

160,814

 

Restricted cash

 

 

500

 

 

 

500

 

Cash, cash equivalents and restricted cash at end of period

 

$

179,271

 

 

$

161,314

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Change in unvested stock liability

 

$

11

 

 

$

15

 

Amounts accrued for purchases of property and equipment

 

$

 

 

$

97

 

Stock issued under Stock Purchase Plan

 

$

522

 

 

$

407

 

Change in accrued public offering costs

 

$

 

 

$

222

 

 

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

 

6


 

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 June 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, 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 presentation of the Company’s financial position and the results of its operations and cash flows in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

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 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 in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Liquidity and Going Concern

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.

As of June 30, 2021, the Company had $203.8 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 has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $216.6 million as of June 30, 2021. 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

7


materially harm the Company’s business, results of operations and future prospects. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future.

COVID-19

The COVID-19 pandemic has caused significant business disruption around the globe. The extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the pandemic and the impact on the Company's clinical trials, employees and vendors. In response to the spread of COVID-19, the Company has restricted access to its offices to lab and a limited number of other personnel, while the remainder of its employees are continuing their work outside of the Company’s offices. While the pandemic has not yet had a material effect on the Company’s financial results, the degree to which COVID-19 may impact the Company's future financial condition or results of operations is uncertain.  A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of Company to complete certain clinical trials and other efforts required to advance the development of its drug candidates and raise additional capital.

In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020.  The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.  The CARES Act did not have a material impact on the Company’s income tax provision for 2020 or for the six months ended June 30, 2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements relate to accrued expenses and associated research and development expense, accrued amounts receivable under the Australian research and development tax incentive program, the assumptions underlying the determination of the estimated incremental borrowing rate for the determination of the Company’s operating lease right-of-use asset, and the assumptions underlying the determination of the fair value of equity awards for purposes of determining stock-based compensation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

8


The carrying amounts of the Company’s current financial assets, restricted cash and current financial liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash held in readily available checking and money market accounts, as well as short-term debt securities with maturities of three months or less when purchased. Restricted cash represents cash held as collateral for the Company’s facility lease and is reported as a long-term asset in the accompanying condensed consolidated balance sheets.

 

Investment Securities

All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments with contractual maturities less than 12 months at the balance sheet date are considered short-term investments. Investments with contractual maturities beyond one year are also classified as short-term due to the Company’s ability to liquidate the investment for use in operations within the next 12 months.

Realized gains and losses on investment securities are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company has not realized any significant gains or losses on sales of available-for-sale investment securities during any of the periods presented. As all the Company’s investment holdings are in the form of debt securities, unrealized gains and losses that are determined to be temporary in nature are reported as a component of accumulated other comprehensive income (loss). A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. Interest income is recognized when earned, as are the amortization of purchase premiums and accretion of purchase discounts on investment securities.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and investment securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institution in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Leases

The Company determines if an arrangement is a lease at the inception of the arrangement. Leases with a term longer than 12 months that are determined to be operating leases are included in operating lease assets, accrued expenses and other current liabilities and noncurrent operating lease liabilities in the condensed consolidated balance sheets based on the present value of the minimum lease payments called for under the arrangement. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Research and Development Expenses

Research and development (“R&D”) expenses consist primarily of salaries, payroll taxes, employee benefits and stock-based compensation for individuals involved in R&D efforts, as well as consulting expenses, third-party R&D expenses, laboratory supplies, clinical materials and overhead, including facilities and depreciation costs, offset by the Australian Tax Incentive discussed below. R&D expenses are charged to expense as incurred. Payments made prior to the receipt of goods or services to be used in R&D are capitalized until the goods or services are received.

Costs incurred under contracts with contract research organizations that conduct and manage the Company’s clinical trials are also included in research and development expenses. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drive the recording of expenses such as start-up and initiation activities, enrollment and treatment of patients, or the completion of other clinical trial activities. Expenses related to clinical trials are accrued based on estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts that the Company is obligated to pay under its clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or

9


scope of work to be performed), the Company adjusts its accruals accordingly on a prospective basis. Revisions to contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.

Accrued R&D expenses were $3.4 million at June 30, 2021 and $2.1 million at December 31, 2020 and are included in accounts payable and accrued expenses in the condensed consolidated balance sheets.

Australian Tax Incentive

CAPL is eligible to obtain a cash refund from the Australian Taxation Office for eligible R&D expenditures under the Australian R&D Tax Incentive Program (the “Australian Tax Incentive”). The Australian Tax Incentive is recognized as a reduction to R&D expense when there is reasonable assurance that the Australian Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured.

The Company recognized a reduction to R&D expense of $0.2 million and $0.2 million for the three and six months ended June 30, 2021, respectively; for the three and six months ended June 30, 2020, the Company recognized a reduction to R&D expense of $0.2 million and $0.4 million, respectively.  

Stock-Based Compensation

Stock-based compensation expense represents the estimated grant date fair value of the Company’s equity awards, consisting of stock options and shares issued under the Company’s Employee Stock Purchase Plan, recognized over the requisite service period of such awards (usually the vesting period) on a straight-line basis. For stock awards for which vesting is subject to performance-based milestones, the expense is recorded over the remaining service period after the point when the achievement of the milestone is probable, or the performance condition has been achieved. The Company estimates the fair value of all stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur.

Comprehensive Loss

Comprehensive loss is comprised of the Company’s net loss and the unrealized gain or loss on the Company’s investment securities held for all periods presented.

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 would be antidilutive.

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

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Common stock options

 

 

6,145

 

 

 

3,990

 

Unvested common stock subject to repurchase

 

 

9

 

 

 

23

 

 

 

 

6,154

 

 

 

4,013

 

 

Recently Adopted Accounting Pronouncements

ASU 2020-06

In August 2020, the Financial Accounting Standards Board (“FASB’) issued Accounting Standards Update (“ASU’)  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) (“ASU 2020-06’). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain

10


contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC 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. The Company adopted ASU 2020-06 as of January 1, 2021, which did not have an impact on its consolidated financial statements.

Recent Accounting Pronouncements

ASU 2016-13

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. This update is effective for the company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated financial statements.

3. INVESTMENT SECURITIES

The Company reports its available-for-sale investment securities at their estimated fair values based on quoted market prices for identical or similar instruments. The following is a summary of the available-for-sale investment securities held by the Company as of June 30, 2021 and December 31, 2020 (in thousands):

 

 

 

As of June 30, 2021

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Market

Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

22,094

 

 

$

3

 

 

$

(1

)

 

$

22,096

 

Certificates of deposit

 

 

1,911

 

 

 

6

 

 

 

 

 

 

1,917

 

Corporate debt securities

 

 

976

 

 

 

2

 

 

 

 

 

 

978

 

Total

 

$

24,981