10-Q
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Table of Contents
 
 
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
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:
001-40407
 
 
Vera Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
81-2744449
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
170 Harbor Way, 3rd Floor
South San Francisco, California
 
94080
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (650)
770-0077
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Class A common stock, $0.001 par value per share
 
VERA
 
The Nasdaq Stock Market LLC
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 August 10, 2021, the registrant had 21,277,614 shares of common stock, $0.001 par value per share, outstanding,
consisting
of 20,968,376 shares of Class A common stock, $0.001 par value per share and 309,238 shares of Class B common stock, $0.001 par value per share.
 
 
 

Table of Contents
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In this Quarterly Report on Form
10-Q,
unless otherwise stated or as the context otherwise requires, references to “Vera,” “the Company,” “we,” “us,” “our” and similar references refer to
Vera Therapeutics, Inc.
This Quarterly Report on Form
10-Q
also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VERA THERAPEUTICS, INC.
Condensed Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
 
    
June 30,
   
December 31,
 
    
2021
   
2020
 
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 91,625     $ 53,654  
Restricted cash, current
     50       50  
Prepaid expenses and other current assets
     4,201       557  
    
 
 
   
 
 
 
Total current assets
     95,876       54,261  
Restricted cash, noncurrent
     293       293  
Non-marketable equity securities
     1,478           
    
 
 
   
 
 
 
Total assets
   $ 97,647     $ 54,554  
    
 
 
   
 
 
 
Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)
                
Current liabilities:
                
Accounts payable
   $ 1,723     $ 909  
Restructuring liability, current
     360       962  
Accrued expenses and other current liabilities
     1,688       535  
    
 
 
   
 
 
 
Total current liabilities
     3,771       2,406  
Restructuring liability, noncurrent
     1,435       1,634  
Accrued and other noncurrent liabilities
     286       286  
    
 
 
   
 
 
 
Total liabilities
     5,492       4,326  
    
 
 
   
 
 
 
Commitments and contingencies (Note 12)
            
Redeemable convertible preferred stock, $0.001
par value; 0 and 
182,772,372 shares authorized, issued and outstanding as of June 30, 2021 and December 31, 2020
, respectively
              139,576  
Stockholders’ equity (deficit)
                
Preferred stock, $0.001 par value; 10,000,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of June 30, 2021 and December 31, 2020
 
 
 
 
 
 
 
 
 
 
Class A common stock, $0.001 par value; 500,000,000 and 273,986,920 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 20,968,376 and 355,296 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
     21           
Class B
non-voting
common stock, $0.001 par value; 14,600,000 and 21,593,607 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 309,238 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
                  
Additional
paid-in
capital
     191,732       2,099  
Accumulated deficit
     (99,598     (91,447
    
 
 
   
 
 
 
Total stockholders’ equity (deficit)
     92,155       (89,348
    
 
 
   
 
 
 
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)
   $ 97,647     $ 54,554  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
1

Table of Contents
VERA THERAPEUTICS, INC.
Condensed Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
 
    
Three months ended

June 30,
   
Six months ended

June 30,
 
    
2021
   
2020
   
2021
   
2020
 
Operating expenses:
                                
Research and development
   $ 3,235     $ 1,954     $ 6,167     $ 3,393  
General and administrative
     2,614       1,219       4,398       2,251  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     5,849       3,173       10,565       5,644  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (5,849     (3,173     (10,565     (5,644
Other income (expense):
                                
Interest income
     2                4       6  
Interest expense
     —         (63     —         (87
Gain on issuance of convertible notes
     —         1       —         63  
Change in fair value of convertible notes
     —         (369     —         (416
Change in fair value of
non-marketable
equity securities
     (281     —         (281     —    
Gain on sale of PNAi technology
     2,691       —         2,691       —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense)
     2,412       (431     2,414       (434
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss and comprehensive loss
   $ (3,437   $ (3,604   $ (8,151   $ (6,078
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share attributable to common stockholders, basic and diluted
   $ (0.33   $ (11.10   $ (1.49   $ (18.92
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average
 shares used in computing net loss per share attributable to common stockholders, basic and diluted
     10,499,937       324,720       5,470,609       321,207  
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
2

Table of Contents
VERA THERAPEUTICS, INC.
Condensed Statements of Redeemable Convertible Preferred Stock and
Stockholders’ Equity (Deficit) 
(unaudited)
(in thousands, except share amounts)
 
 
  
Redeemable Convertible

Preferred Stock
 
 
Class A Common Stock
 
  
Class B Common
Stock
 
  
Additional

Paid-in

Capital
 
  
Accumulated

Deficit
 
 
Total

Stockholders’

Equity
(Deficit)
 
 
  
Shares
 
 
Amount
 
 
Shares
 
  
Amount
 
  
Shares
 
  
Amount
 
Balance as of December 31, 2020
  
 
182,772,372
 
 
$
139,576
 
 
 
355,296
 
  
$
—  
 
  
 
—  
 
  
$
—  
 
  
$
2,099
 
  
$
(91,447
 
$
(89,348
Issuance of Class A common stock upon exercise of options
  
 
—  
 
 
 
—  
 
 
 
113,683
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
342
 
  
 
—  
 
 
 
342
 
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
404
 
  
 
—  
 
 
 
404
 
Net loss
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(4,714
 
 
(4,714
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Balances as of March 31, 2021
  
 
182,772,372
 
 
 
139,576
 
 
 
468,979
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
2,845
 
  
 
(96,161
 
 
(93,316
Class A common stock issued pursuant to initial public offering, net of issuance costs
  
     
 
     
 
 
5,002,500
 
  
 
5
 
  
 
—  
 
  
 
—  
 
  
 
48,406
 
  
 
—  
 
 
 
48,411
 
Conversion of preferred stock into common stock
  
 
(182,772,372
 
 
(139,576
 
 
15,464,775
 
  
 
16
 
  
 
309,238
 
  
 
—  
 
  
 
139,560
 
  
 
—  
 
 
 
139,576
 
Issuance of Class A common stock upon exercise of options
  
 
—  
 
 
 
—  
 
 
 
32,122
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
208
 
  
 
—  
 
 
 
208
 
Stock-based compensation
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
713
 
  
 
—  
 
 
 
713
 
Net loss
  
 
—  
 
 
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(3,437
 
 
(3,437
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Balances as of June 30, 2021
  
 
—  
 
 
$
—  
 
 
 
20,968,376
 
  
$
21
 
  
 
309,238
 
  
$
—  
 
  
$
191,732
 
  
$
(99,598
 
$
92,155
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
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VERA THERAPEUTICS, INC.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(unaudited)
(in thousands, except share amounts)
 
    
Redeemable Convertible

Preferred Stock
    
Common Stock
    
Additional

Paid-in

Capital
    
Accumulated

Deficit
   
Total

Stockholders’

Deficit
 
    
Shares
    
Amount
    
Shares
    
Amount
 
Balance as of
December
 31, 20
19
  
 
14,015,773
 
  
$
40,095
 
  
 
322,007
 
  
$
—  
 
  
$
1,486
 
  
$
(38,034
 
$
(36,548
Issuance of common stock upon exercise of options
     —          —          2,491        —          15        —         15  
Stock-based compensation
     —                   —          —          61        —         61  
Net loss
     —          —          —          —          —          (2,474     (2,474
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Balances as of March 31, 2020
  
 
14,015,773
 
  
40,095
 
  
 
324,498
 
  
—  
 
  
1,562
 
  
(40,508
 
(38,946
Issuance of common stock upon exercise of options
     —          —          1,382        —          7        —         7  
Stock-based compensation
     —                   —          —          72        —         72  
Net loss
     —          —          —          —          —          (3,604     (3,604
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
Balance as of June 30, 2020
  
 
14,015,773
 
  
$
40,095
 
  
 
325,880
 
  
$
—  
 
  
$
1,641
 
  
$
(44,112
 
$
(42,471
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
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VERA THERAPEUTICS, INC.
Condensed Statements of Cash Flows
(unaudited)
(in thousands)
 
    
Six Months Ended

June 30,
 
    
2021
   
2020
 
Cash flows from operating activities
                
Net loss
   $ (8,151   $ (6,078
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation, amortization and accretion
     85       220  
Stock-based compensation
     1,117       72  
Restructuring payments
     (750     (58
Non-cash
interest expense on convertible notes
     —         69  
Issuance costs for convertible notes
     —         23  
Gain on issuance of convertible notes
     —         (63
Gain
on sale of 
PNAi technology
     (2,691 )     —    
Change in fair value of convertible notes
     —         416  
Change in fair value of
non-marketable
equity securities
     281       —    
Changes in operating assets and liabilities:
                
Prepaid expense and other current assets
     (3,644     (148
Accounts payable
     814       386  
Accrued and other current liabilities
     1,153       173  
Other liabilities
     —         8  
    
 
 
   
 
 
 
Net cash used in operating activities
     (11,786     (4,980
    
 
 
   
 
 
 
Cash flows from investing activities
                
Proceeds from sale of PNAi technology
     796       —    
Purchase of property and equipment
     —         (99
    
 
 
   
 
 
 
Net cash
provided by (used in) investing activities
     796       (99
    
 
 
   
 
 
 
Cash flows from financing activities
                
Proceeds from exercise of stock options
     550       84  
Proceeds from issuance of convertible notes
     —         5,602  
Proceeds from issuance of
Class A common 
stock upon initial public offering, net of underwriting discounts and commissions
     51,176       —    
Payment of offering costs related to initial public offering
     (2,765     —    
Payment issuance costs related to convertible promissory notes
     —         (23
Payment on capital lease obligations
              (80
    
 
 
   
 
 
 
Net cash provided by financing activities
     48,961       5,583  
    
 
 
   
 
 
 
Net increase in cash and cash equivalents and restricted cash
     37,971       504  
Cash, cash equivalents and restricted cash, beginning of period
     53,997       3,558  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash, end of period
   $ 91,968     $ 4,062  
    
 
 
   
 
 
 
Reconciliation of cash and cash equivalents and restricted cash to the balance sheets
                
Cash and cash equivalents
   $ 91,625     $ 3,699  
Restricted cash
     343       363  
    
 
 
   
 
 
 
Total cash and cash equivalents and restricted cash
   $ 91,968     $ 4,062  
    
 
 
   
 
 
 
Supplemental disclosure of cash flow information
                
Cash paid for interest
   $ —       $ 18  
Reclassification of redeemable convertible preferred stock
in
to common stock upon initial public offering
   $ 139,576     $ —    
Non-marketable equity securities received as partial proceeds from sale of PNAi technology
 
$
1,759
 
 
$
 
 
 
Lease assignment
 
$
136
 
 
$
 
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
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VERA THERAPEUTICS, INC.
Notes to Unaudited Condensed Financial Statements
(Amounts in thousands, except share and per share data)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Description of Business
Vera Therapeutics, Inc., (the “Company”) is a clinical stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. The Company is headquartered in South San Francisco, California and was incorporated in May 2016 in Delaware. In 2017, the Company acquired all of the outstanding shares of PNA Innovations, Inc. (“PNAi”), which was based in Woburn, Massachusetts
.
Reverse Stock Split
On May 7, 2021, the Company filed a certificate of amendment to its fourth amended and restated certificate of incorporation to effect a
11.5869-for-one
reverse stock split of its issued and outstanding Class A common stock. Adjustments corresponding to the reverse stock split were made to the ratio at which the Company’s redeemable convertible preferred stock converted into Class A common stock. Accordingly, all share and per share amounts related to Class A common stock, stock options and restricted stock awards for all periods presented in the accompanying unaudited condensed financial statements and notes thereto have been retroactively adjusted, where applicable to reflect the reverse stock split.
Initial Public Offering
On May 13, 2021, the Company’s registration statement on Form
S-1
for its initial public offering (the “IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”), and the shares of its Class A common stock commenced trading on the Nasdaq Global Select Market on May 14, 2021. The IPO closed on May 18, 2021, pursuant to which the Company issued and sold 4,350,000 shares of its Class A common stock at a public offering price of $11.00 per share. On May 20, 2021, the Company issued 652,500 shares of its Class A common stock to the underwriters of the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received total net proceeds of $48,411 from the IPO, after deducting underwriting discounts and commissions of $3,852, and offering costs of $2,765. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 15,464,775 shares of Class A common stock and 309,238 shares of Class B common stock.
Liquidity
Since inception, the Company has been primarily performing research and development activities, establishing and maintaining its intellectual property, hiring personnel and raising capital to support and expand these operations. The Company has incurred recurring net operating losses since its inception and had an accumulated deficit of $99,598 as of June 30, 2021. The Company had cash and cash equivalents of $91,625 as of June 30, 2021, and has not generated positive cash flow from operations. The Company has funded its operations primarily through the issuance of common stock, redeemable convertible preferred stock and convertible notes.
Management believes that the Company’s cash and cash equivalents as of June 30, 2021, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these unaudited condensed financial statements. While the Company believes that its current cash and cash equivalents are adequate to meet its needs for the next 12 months, the Company will need to raise additional capital in order to achieve its longer-term business objectives.
 
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2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. The U.S. dollar is the Company’s functional and reporting currency.
Unaudited Interim Condensed Financial Statements
The accompanying condensed balance sheet as of June 30, 2021, and condensed statements of operations and comprehensive loss, condensed statements of cash flows, and condensed statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended June 30, 2021 and 2020, are unaudited. The balance sheet as of December 31, 2020, was derived from the audited financial statements as of and for the year ended December 31, 2020. The unaudited condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2020 and in the opinion of management, reflect all adjustments consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2021, and the condensed results of its operations and its cash flows for the three and six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020, are also unaudited. The condensed results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2021, or any other period. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2020, included in the Company’s final prospectus dated May 13, 2021, for the IPO filed with the SEC on May 17, 2021, pursuant to Rule 424(b)(4) relating to the Company’s Registration Statement on Form
S-1,
as amended (File
No. 333-255492).
Emerging Growth Company Status
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (1) is no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited condensed financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Use of Estimates
The preparation of the Company’s unaudited condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Management estimates that affect the reported amounts of assets and liabilities include useful lives of fixed and intangible assets, the accrual of research and development expenses, restructuring liabilities, fair value of common stock and stock-based compensation expense, and the valuation allowance for deferred tax assets. The Company evaluates and adjusts its estimates and assumptions on an ongoing basis using historical experience and other factors. Actual results could differ materially from those estimates.
Deferred Offering Costs
Deferred offering costs consisting of legal, accounting and filing fees relating to the IPO are capitalized. The deferred offering costs were offset against the Company’s IPO proceeds upon the closing of the IPO.
Concentrations of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in a federally insured financial institution and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash and cash equivalents to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash and cash equivalents.
 
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The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current and potential future product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers.
The Company’s product candidates require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed, or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company
.
Impact of the
COVID-19
Pandemic
The
COVID-19
pandemic continues to evolve. The extent of the impact of the
COVID-19
pandemic on the Company’s business, operations, and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s development activities, planned clinical trial enrollment, future trial sites, contract research organizations, third-party manufacturers, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. The ultimate impact of the
COVID-19
pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with the Company’s employees working remotely. The Company will continue to actively monitor the evolving situation related to the
COVID-19
pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business. At this point, the extent to which the
COVID-19
pandemic may affect the Company’s business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds and are stated at fair value.
Restricted Cash
Restricted cash represents cash held by a financial institution as collateral for a letter of credit securing its operating lease for office and laboratory space and as collateral for a credit card, which are classified within current and
non-current
assets on the condensed balance sheets.
Comprehensive Loss
Comprehensive loss consists of net loss and other gains and losses affecting redeemable convertible preferred stock and stockholders’ equity (deficit) that, under U.S. GAAP, are excluded from net loss. The Company has no items of other comprehensive loss for the three and six months ended June 30, 2021 and 2020. As such, net loss equals comprehensive loss.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of employees’ salaries and related benefits, including stock-based compensation and termination expenses for employees engaged in research and development efforts, allocated overhead including rent, depreciation, information technology and utilities, contracted services, license fees, and external expenses to conduct and support the Company’s operations that are directly attributable to the Company’s research and development efforts. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.
 
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Costs incurred in obtaining technology licenses including upfront and milestone payments incurred under the Company’s licensing agreements are recorded as expense in the period in which they are incurred, provided that the licensed technology, method or process has no alternative future uses other than for the Company’s research and development activities
.
Research Contract Costs and Accruals
The Company enters into various research and development and other agreements with commercial firms, researchers, and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates.
Redeemable Convertible Preferred Stock
The Company records all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The carrying value of the Company’s redeemable convertible preferred stock is adjusted to reflect dividends if and when declared by the Company’s board of directors. No dividends have been declared by the board of directors since inception. The Company classifies its redeemable convertible preferred stock separate from total stockholders’ equity (deficit), as the redemption of such stock is not solely under the control of the Company.
Stock-Based Compensation
The Company recognizes compensation expense based on estimated fair values for all stock-based payment awards made to the Company’s employees, nonemployee directors and consultants that are expected to vest. The valuation of stock option awards is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the inputs used in the calculations, such as the fair value of the common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. The valuation of restricted stock awards is measured by the fair value of the Company’s common stock on the date of the grant.
For all stock options granted, the Company calculated the expected term using the simplified method (derived from the average midpoint between the weighted average vesting period and the contractual term of the award) for “plain vanilla” stock option awards, as the Company has limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. The estimate of expected volatility is based on comparative companies’ volatility. The risk-free rate is based on the yield available on United States Treasury
zero-coupon
issues corresponding to the expected term of the award. The Company records forfeitures when they occur.
The fair value of the shares of common stock underlying the stock options has historically been determined by the board of directors with the assistance of management and input from an independent third-party valuation firm, as there was no public market for the common stock. The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors, including the valuation of comparable companies, sales of redeemable convertible preferred stock, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors.
The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.
Income Taxes
The Company did not record an income tax provision for the three and six months ended June 30, 2021 and 2020 as net operating losses have been incurred since inception. The net deferred tax assets generated from net operating losses are fully offset by a valuation allowance.
 
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Net Loss Per Share Attributable to Common Stockholders
Net loss per share of common stock is computed using the
two-class
method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis.
The Company’s participating securities include the Company’s redeemable convertible preferred stock, as the holders were entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have
non-forfeitable
dividend rights in the event a dividend is paid on common stock. The holders of redeemable convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, did not and do not have a contractual obligation to share in losses of the Company, and therefore during periods of loss there is no allocation required under the
two-class
method.
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.
Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the
if-converted
method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive shares are not assumed to have been issued if their effect is anti-dilutive.
Leases
The Company leases office and laboratory space under operating leases and laboratory equipment under capital leases. Leases for which the Company assumes substantially all risks and rewards incidental to ownership of the leased assets are classified as capital leases. The leased assets and the corresponding lease liabilities (net of interest charges) are recognized on the balance sheet as property and equipment, based on the cost of the equipment, and borrowings, respectively, at the inception of the related lease. Each lease payment is apportioned between the reduction of the outstanding lease liability and the related interest expense. The interest expense is recorded on a basis that reflects a constant periodic rate of interest on the outstanding finance lease liability.
Leases for which substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentive received from the lessors) are recorded on a straight-line basis over the period of the lease.
Restructuring Costs
Restructuring costs primarily consist of contract termination costs related to leases and employee termination costs. The Company recognizes restructuring charges when the liability has been incurred. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations, cease use date of leased property and equipment, and the timing of employees leaving the Company.
Accretion expenses related to restructuring costs are included in general and administrative expenses.
Fair Value Option
The convertible notes issued in 2020, for which the Company elected the fair value option, are accounted for at fair value on a recurring basis with changes in fair value recognized in the statement of operations and comprehensive loss. Interest accrued on the convertible notes is recorded to interest expense.
Fair Value Measurements
Fair value is defined as the exchange price to sell an asset or transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value should be based on the assumptions market participants would use when pricing the asset or liability. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
 
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Table of Contents
Fair value measurements are classified and disclosed in one of the following three categories:
Level 1 – Quoted unadjusted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.
Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company
.
The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to their short-term nature.
Money market funds are highly liquid investments that are actively traded. The pricing information for the Company’s money market funds are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
The Company’s
non-marketable
equity securities (Note 5) are measured at fair value using an option pricing valuation methodology. The option pricing methodology relies on risk-neutral valuation which calculates the value of an asset by discounting the expected value of its future payoffs at the risk-free rate of return. The fair value of the non-marketable equity securities is derived from quoted prices for similar instruments and observable inputs in active markets. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.
There were no transfers between Levels 1, 2, or 3 for any of the periods presented. As of June 30, 2021, and December 31, 2020, the Company held $86,805 and $52,301, respectively, in money market funds with no unrealized gains or losses.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on its unaudited condensed financial statements.
On June 20, 2018, the FASB issued ASU
No. 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). This includes allowing for the measurement of awards at the grant date and recognition of awards with performance conditions when those conditions are probable, both of which are earlier than under current guidance for nonemployee awards. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its unaudited condensed financial statements.
In August 2018, the FASB issued ASU
No. 2018-13,
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
, which amends ASC 820, Fair Value Measurement. This standard modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its unaudited condensed financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842)
, subsequently amended by ASU
2018-10,
ASU
2018-11,
ASU
2018-20,
ASU
2019-01
and ASU
2019-10,
which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees of a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a
right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification on the balance sheets. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. The Company intends to utilize the modified retrospective approach to adopt this standard effective January 1, 2022. Additionally, the Company intends to utilize the package of available practical expedients, which allows it to (i) not reassess whether any expired or existing contracts are or contain leases; (ii) not reassess the lease classification for expired or existing leases; and (iii) not reassess the treatment of initial direct costs for any existing leases. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
 
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In June 2016, the FASB issued ASU
2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.
In August 2020, the FASB issued ASU
No. 2020-06,
Debt—Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging—Contracts in Entity
s Own Equity (Subtopic
815-40)
. This standard simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC
470-20
that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. ASU
2020-06
is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its financial statements.
3. OTHER FINANCIAL STATEMENT INFORMATION
Prepaid Expense and Other Current Assets
Prepaid expenses and other current assets consist of the following.
 
    
June 30,

2021
    
December 31,

2020
 
Prepaid
insurance
   $ 2,509      $ 27  
Prepaid contract costs
     1,132        —    
Deposits
     85        86  
Receivables on exercise of options
     —          52  
Other
     475        392  
    
 
 
    
 
 
 
Total prepaid expenses and other current assets
   $
 
4,201      $ 557  
    
 
 
    
 
 
 
Accrued Expenses 
and Other Current Liabilities
Accrued
expenses
and other current liabilities consist of the following.
 
    
June 30,

2021
    
December 31,

2020
 
Accrued payroll
   $ 558      $ 405  
Related party payable
     717        —    
Accrued expense and other
     413        130  
    
 
 
    
 
 
 
Total accrued expenses and other current liabilities
   $
 
1,688      $ 535  
    
 
 
    
 
 
 
Related party payable represents amounts due to Ares Trading S.A. (“Ares”), an affiliate of Merck KGaA, Darmstadt, Germany, related to manufacturing technology and
know-how
transfer services performed for atacicept pursuant to the license agreement between the Company and Ares (see Note 11).
4. NEUBASE ASSET SALE
On January 27, 2021, the Company entered into an asset purchase agreement with NeuBase Therapeutics, Inc. (“NeuBase”), whereby the Company agreed to sell all assets relating to its investment in PNAi, including all inventory, machinery, intellectual property, goodwill, and licenses, and NeuBase agreed to assume certain related liabilities. The sale of the Company’s investment in PNAi closed on April 26, 2021. The Company received
$796
 in cash and 
308,635 shares of
NeuBase
common stock, with a fair market value of $1,759 based on the closing price reported on the Nasdaq Capital Market on the date the sale closed. Of the total
NeuBase
shares issued to the Company, 162,260
were placed in escrow to secure certain obligations under the asset purchase agreement.
In connection with the sale, the Company also assigned certain leases for research and laboratory equipment to NeuBase (see Note 13). 
The Company recognized a gain of $2,691 on the sale of assets to NeuBase.
 
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5.
NON-MARKETABLE
EQUITY SECURITIES
The Company has an investment in NeuBase common stock with restrictions on the sale or transfer of the shares. Fair value is determined using alternative pricing sources and models utilizing market observable inputs. The Company reports the restricted equity securities as non-marketable equity securities on the balance sheet, and determines current or
non-current
classification based on the expected duration of the restriction.
The Company recorded a net unrealized loss
of $281
in other expense for the three months ended June 30, 2021. The carrying value is measured as the total initial cost, less the cumulative net unrealized loss
. The carrying value of the
non-marketable
equity securities as of June 30, 2021, is summarized below.
 
Initial
cost as of April 26, 2021
   $ 1,759  
Change in fair value
     (281
    
 
 
 
Balance as of June 30, 2021
   $ 1,478  
    
 
 
 
6. CONVERTIBLE NOTES
In March 2020, the Company issued convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $5,000 in the aggregate with a fixed accrued interest rate of 4% per annum. The convertible notes were either due on or after December 31, 2020, or upon a change of control of the Company, unless earlier converted. No principal or interest was payable prior to maturity as the convertible notes and any accrued interest would automatically convert upon a qualified financing event at a conversion price equal to 85% of the price per share of the qualified financing. Holders also had the option to convert their notes to shares of Series B redeemable convertible stock at a conversion price equal to $4.2926 per share on the maturity date or upon a change of control of the Company, if no qualified financing occurred prior to such date
.
Due to certain embedded features within the convertible notes, the Company elected to account for the convertible notes under the fair value option.
In April and May 2020, the Company issued additional convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $602 in the aggregate with the same terms as the convertible notes issued in March 2020.
In October 2020, the outstanding principal and accrued interest of $134, were automatically converted into 11,404,246 shares of the Company’s Series C redeemable convertible preferred stock in connection with the closing of the Company’s Series C redeemable convertible preferred stock financing (see Note 7) at a conversion price of $0.5030 per share, which was 85% of the $0.5918 original issuance price of the Series C redeemable convertible preferred stock.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
As of December 31, 2020, the Company’s redeemable convertible preferred stock consisted of the following balances.
 
    
ISSUE PRICE

PER SHARE
    
SHARES

AUTHORIZED
    
SHARES ISSUED

AND

OUTSTANDING
    
CARRYING

VALUE
    
AGGREGATE

LIQUIDATION

PREFERENCE
 
Series Seed
   $ 1.01        1,010,456        1,010,456      $ 1,789      $ 1,020  
Series
Seed-1
     1.92        1,787,640        1,787,640        3,718        3,430  
Series A
     2.15        6,120,111        6,120,111        12,851        13,136  
Series B
     4.29        5,097,566        5,097,566        21,737        21,882  
Series C
     0.59        168,756,599        168,756,599        99,481        99,870  
             
 
 
    
 
 
    
 
 
    
 
 
 
Total
              182,772,372        182,772,372      $ 139,576      $ 139,338  
             
 
 
    
 
 
    
 
 
    
 
 
 
 
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In October 2020, the Company issued 135,180,800 shares of Series C redeemable convertible preferred stock for a purchase price of $0.5918 per share, payable in cash. Gross proceeds to the Company were $80,000. The Series C redeemable convertible preferred stock financing triggered the automatic conversion of the Company’s outstanding convertible notes into 11,404,246 shares of Series C redeemable convertible preferred stock based on price of $0.5030 per share (85% of the $0.5918 original issuance price of the Series C redeemable convertible preferred stock). In addition, the Company issued 22,171,553 shares of Series C redeemable convertible preferred stock to Ares as the initial payment for the Company’s license of atacicept from Ares (see Note 11).
In May 2021, immediately prior to the completion of the IPO (see Note 1), all outstanding shares of redeemable convertible preferred stock were automatically converted into 15,774,014 shares of common stock.
8. COMMON STOCK
As of June 30, 2021, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 500,000,000 shares of Class A common stock and 14,600,000 shares of Class B common stock, each with a par value of $0.001 per share. Each share of Class A common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Class B common stock is
non-voting.
The holders of Class A common stock, voting exclusively and as a separate class, have the exclusive right to vote for the election of one director of the Company. Class A common stockholders and holders of Class B common stock are entitled to receive dividends, as may be declared by the board of directors. Through June 30, 2021, no cash dividends have been declared or paid.
9. STOCK COMPENSATION
In April 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”) and the 2021 Equity Incentive Plan (“2021 EIP”), each of which became effective in connection with the IPO. The Company has reserved 220,251 and 2,212,335
shares of Class A common stock for future issuance under the ESPP and 2021 EIP, respectively.
The Company may not grant any additional awards under the 2017 Equity Incentive Plan (“2017 EIP”). The 2017 EIP will continue to govern outstanding equity awards granted thereunder. As of June 30, 2021, there
were 1,762,009 shares available for issuance under the 2021 EIP.
Stock option activity under the 2017 EIP and 2021 EIP was as follows:
 
 
  
NUMBER OF

OPTIONS
 
  
WEIGHTED-

AVERAGE

EXERCISE

PRICE PER

SHARE
 
  
WEIGHTED-

AVERAGE

REMAINING

CONTRACTUAL

LIFE (YEARS)
 
  
AGGREGATE

INTRINSIC

VALUE (000s)
 
Balance – December 31, 2020
     1,855,507      $ 2.99        9.79      $ 8  
Granted
     935,279        7.33                    
Exercised
     (145,805      3.77                    
Cancelled and forfeited
     (1,654      9.64                    
    
 
 
                            
Balance – June 30, 2021
     2,643,327        4.50        9.56      $ 499  
    
 
 
                            
Options exercisable – June 30, 2021
     57,465        3.54        9.11      $ 22,758  
    
 
 
                            
Unvested and expected to vest –June 30, 2021
     2,585,862      $ 4.52        9.57      $ 22,259  
    
 
 
                            
The aggregate intrinsic value of stock options exercised during the three and
si
x
months ended June 30, 2021, was $61 and $745, respectively. The weighted
-average 
grant date fair value of options granted during the three and six months ended June 30, 2021, was $8.60 and $7.11, respectively, per share. The weighted
-average 
grant date fair value of options vested during the three and six months ended June 30, 2021, was $2.22 and $2.42, respectively, per share.
 
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Table of Contents
Stock-Based Compensation Expense
The following tables summarize the stock-based compensation expense for stock options and restricted stock awards granted to employees and nonemployees that was recorded in the Company’s statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020.
 
    
THREE MONTHS ENDED

JUNE 30,
    
SIX MONTHS ENDED

JUNE 30,
 
    
2021
    
2020
    
2021
    
2020
 
Research and development
   $ 233      $ 1      $ 293      $ 4  
General and administrative
     480        71        824        129  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
   $ 713      $ 72      $ 1,117      $ 133  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
    
THREE MONTHS ENDED

JUNE 30,
    
SIX MONTHS ENDED

JUNE 30,
 
    
2021
    
2020
    
2021
    
2020
 
Employees
   $ 703      $ 70      $ 1,102      $ 129  
Nonemployees
     10        2        15        4  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
   $ 713      $ 72      $ 1,117      $ 133  
    
 
 
    
 
 
    
 
 
    
 
 
 
As of June 30, 2021, the Company had $9,438 of unrecognized stock-based compensation expense related to unvested stock options and restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 1.7 years, respectively.
The fair value of stock options granted during the three months ended June 30, 2021 and 2020 was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions.
 
    
THREE MONTHS ENDED

JUNE 30,
 
SIX MONTHS ENDED

JUNE 30,
    
2021
 
2020
 
2021
 
2020
Expected term (in years)
   5.5 – 6.1   5.8 –
 
6.1
  5.5 – 6.1   5.5 – 6.1
Expected volatility
   76.3% – 76.6%   75.6% –
 
75.7%
  76.3% –
 
76.6%
  74.0%
 – 
75.7%
Risk-free rate
   1.0% – 1.1%   0.4% –
 
0.4%
  0.6% –
 
1.1%
  0.4% – 1.7%
Dividend yield
   —     —     —    —  
Restricted Stock Awards
In October 2020, in conjunction with the Series C redeemable convertible preferred stock issuance, the Company restricted 49,636 shares of fully issued and outstanding Class A common stock held by the Company’s Chief Executive Officer and founder. The restriction allows the Company to repurchase shares that have not vested. The vesting term of restricted stock is one year. The grant date fair value of the restricted shares was $6.37.
The following table summarizes the activity for the Company’s restricted stock for the six months ended June 30, 2021.
 
    
NUMBER OF

SHARES
 
Unvested as of December 31, 2020
     41,363  
Vested
     (24,817
    
 
 
 
Unvested as of June 30, 2021
     16,546  
    
 
 
 
For each of the six months ended June 30, 2021 and 2020, the Company recognized $157 and $0, respectively, of stock-based compensation expense related to restricted stock awards that vested during the periods.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. There were no employer contributions under this plan for the three and six months ended June 30, 2021.
 
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Table of Contents
11. LICENSES AND COLLABORATIONS
Yale University
In 2017, PNAi entered into a collaborative research agreement (the “Yale CRA”) and license agreement (the “Yale License Agreement”) with Yale University, which were assigned to the Company upon the closing of the acquisition of PNAi by the Company in 2017. The purpose of the agreements was to fund the Yale University research program in the field of
nanoparticle-sized
nucleic acid mimics and peptide nucleic acids as gene editing therapeutics in return for an exclusive license to certain related patent rights owned by Yale University and the option to license any patents discovered or generated under the terms of the collaborative research agreement.
The Yale CRA required funding the labs of collaborators with $1,500 per year for a minimum of two years. The Yale CRA expired in 2019. No payments were made to Yale University pursuant to the Yale CRA during the year ended December 31, 2019 with no future obligation under this commitment.
As consideration for the Yale License Agreement, PNAi paid an initial fee of $37 and had the option to issue 5% of the company’s common stock on a fully diluted, as converted basis. If the shares were not issued, the agreement could be terminated at Yale University’s option. After the completion of the merger with PNAi, the Company exercised the option and issued 264,301 shares of common stock to Yale University with a fair value of $100. Under the Yale License Agreement, the Company reimbursed Yale University for patent related expenses. The Company reimbursed Yale University $45 for patent related expenses for the year ended December 31, 2019. The Company and Yale agreed to terminate the Yale License Agreement in 2020 and there are no future payment obligations under the Yale License Agreement.
Ares Trading S.A.
In October 2020, the Company entered into a license agreement with Ares (the “Ares Agreement”), pursuant to which the Company obtained an exclusive worldwide license to certain patents and related
know-how
to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases.
As consideration for the Ares Agreement, the Company issued to Ares a
non-refundable
license issue fee of 22,171,553 shares of Series C redeemable convertible preferred stock resulting in Ares becoming a related party to the Company. The Series C redeemable convertible preferred stock had a deemed issuance price of $0.5918 per share, or $13,121 in the aggregate.
In December 2020, the Company paid Ares $25,000 in milestone payments upon delivery and initiation of the transfer of specified information and materials. The Company is obligated to pay Ares aggregate milestone payments of up to $176,500 upon the achievement of specified BLA filing or regulatory approval milestones and up to $515,000 upon the achievement of specified commercial milestones.
The
non-refundable
license issue fee of $13,121 and milestone payments of $25,000 were recorded to research and development expense.
Ares is performing manufacturing technology and
know-how
transfer to the Company over a period not to exceed two years from the effective date of the Ares Agreement. The Company accrued $418 and $717 due to Ares for these services during the three and six months ended June 30, 2021, respectively.
Commencing on the first commercial sale of licensed products, the Company is obligated to pay Ares tiered royalties of low double-digit to
mid-teen
percentages on annual net sales of the licensed products covered by the license. The Company is obligated to pay royalties on a licensed
product-by-
licensed product and
country-by-country
basis from the first commercial sale of a product in a country until the latest of (i) 15 years after the first commercial sale of such licensed product in such country; (ii) the expiration of the last valid claim of a licensed patent that covers such licensed product in, or its use, importation or manufacture with respect to, such country; and (iii) expiration of all applicable regulatory exclusivity periods, including data exclusivity, in such country with respect to such product. If the Company were to sublicense its rights under the Ares Agreement, the Company is obligated to pay Ares a percentage ranging from the mid single-digit to the low double-digits of specified sublicensing income received.
 
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Table of Contents
12. COMMITMENTS AND CONTINGENCIES
The aggregate future minimum lease payments for operating leases as of June 30, 2021, are as follows.
 
    
Operating

Leases
(1)
    
Sublease

Income
 
2021 (remaining 6 months)
   $ 1,169      $ (928
2022
     2,381        (1,908
2023
     2,458        (1,971
2024
     2,538        (2,036
2025
     1,954        (1,569
    
 
 
    
 
 
 
Total payments
   $ 10,500      $ (8,412
    
 
 
    
 
 
 
 
(1)
Future minimum lease payments include repayment of outstanding restructuring liabilities
Facilities Leases
In April 2015, PNAi entered a lease for approximately 3,800 square feet of office and laboratory space for a term of 39 months in Woburn, Massachusetts. In January 2018, the Company elected to renew this lease for three years, beginning in August 2018. In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $50, which is secured by restricted cash that is classified as noncurrent based on the term of the underlying lease.
In April 2018, the Company entered into a lease for approximately 24,606 square feet of office and life science research space, which commenced on October 1, 2018, when the Company obtained control of the rented space for a term of 84 months in South San Francisco, California (“the South San Francisco Lease”). In connection with the South San Francisco Lease, the Company maintains a letter of credit issued to the lessor in the amount of $293, which is secured by restricted cash that is classified as noncurrent based on the term of the underlying lease.
The Company’s total future minimum commitment due pursuant to the South San Francisco Lease is $10,500 as of June 30, 2021. In November 2020, the Company entered into a
non-cancellable
sublease agreement for the facility, under the terms of which the Company is entitled to receive $8,412 in sublease payments over the term of the sublease, which ends concurrently with the original lease in September 2025. As tenant, the Company remains responsible for the $10,500 minimum lease commitment on the facilities.
The Company recorded rent expense totaling $535 and $1,070 for the three and six months ended June 30, 2020, respectively. No rent expense was recorded during the three and six months ended June 30, 2021.
Equipment Lease
The Company had certain leases on research and laboratory equipment which were assigned to a certain third party as of June 30, 2021. The Company recorded rent expense totaling $128 and $256 for the three and six months ended June 30, 2020, respectively. No rent expense was recorded during the three and six months ended June 30, 2021.
13. RESTRUCTURING AND RELATED ACTIVITIES
During the year ended December 31, 2019, the Company completely vacated its leased facilities in Woburn, Massachusetts. In connection with vacating the leased spaces, the Company recorded a discounted lease-related restructuring liability, which was calculated as the present value of the estimated future facility costs for which the Company would obtain no future economic benefit over the term of the lease, reduced for actual or estimated sublease rentals.
In July 2020, the Company initiated a restructuring plan to reduce operating expense as a result of the disposal of PNAi technology. The restructuring plan included reducing the number of employees, vacating leased facilities, and ceasing use of leased equipment.
As a result of this restructuring plan, the Company completely vacated its leased facilities in South San Francisco, California, which was subleased to a third party in November 2020, and returned certain leased equipment to the lessor. The Company recorded a discounted lease-related restructuring liability of $2,228 and $768 for the abandonment of the leased facilities and equipment, which was calculated as the present value of the estimated future lease costs for which the Company would obtain with no future economic benefit over the term of the leases. In addition, the Company recognized restructuring liability of $321 related to severance and other employee termination costs related to the reduction in the number of employees.
 
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The activity related to the restructuring liabilities for the three months ended June 30, 2021, is as follows.
 
    
Lease
 – 
related

exit costs
 
Balance as of March 31, 2021
   $ 2,041  
Accretion
     50  
Cash payments
     (160
Lease assignment to NeuBase
     (136
    
 
 
 
Balance as of June 30, 2021
   $ 1,795  
    
 
 
 
The activity related to the restructuring liabilities for the six months ended June 30, 2021, is as follows.
 
    
Lease
 – 
related

exit costs
    
Employee

termination
    
Total
 
Balance as of December 31, 2020
     2,584        12        2,596  
Accretion
     85        —          85  
Cash payments
     (738      (12      (750
Lease assignment to NeuBase
     (136      —          (136
    
 
 
    
 
 
    
 
 
 
Balance as of June 30, 2021
   $ 1,795      $ —        $ 1,795  
    
 
 
    
 
 
    
 
 
 
14. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following outstanding potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an
as-converted
basis).
 
    
THREE MONTHS ENDED

JUNE 30,
    
SIX MONTHS ENDED

JUNE 30,
 
    
2021
    
2020
    
2021
    
2020
 
Redeemable convertible preferred stock
     —          1,209,599        —          1,209,599  
Class A common stock options issued and outstanding
     2,643,327        214,138        2,643,327        214,138  
Unvested restricted stock awards
     16,546        —          16,546        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     2,659,873        1,423,737        2,659,873        1,423,737  
    
 
 
    
 
 
    
 
 
    
 
 
 
15. RELATED PARTY TRANSACTIONS
In October 2018, the Company entered into a sublease agreement for a portion of its South San Francisco office space, the term for which commenced on December 7, 2018. The Chief Executive Officer of the sublessor is a member of the Company’s board of directors. The initial sublease was established for approximately 400 square feet of space. Prior to the initial expiration of the sublease in April 2019, the space was expanded to approximately 3,700 square feet with the term of the lease extended for an additional two years. The monthly rent charged by the Company to the subtenant is subject to escalating rent payments according to the terms of the Company’s lease agreement, and the subtenant is required to reimburse the Company for monthly facility operating expenses based on its proportionate share of total square footage pursuant to the lease. The Company’s lease agreement provides that 50% of any profit resulting from the excess of the amount collected from the subtenant less the sum of monthly rent, operating expenses and reimbursement of direct expenditures made by the Company in order to arrange and maintain the sublease is to be shared with the lessor. To date, no profit has been realized on the sublease arrangement as the monthly collections from the subtenant are equivalent to the Company’s cost of rent, operating expense and recovery of professional fees to arrange the sublease. In June 2020, the sublease agreement was terminated. During the three and six months ended June 30, 2020, the Company recognized $82 and $160 of sublease income under this agreement, which was recorded as a reduction to the Company’s rent expense.
In October 2020, the Company entered into the Ares Agreement with Ares, pursuant to which the Company obtained an exclusive worldwide license to certain patents and related
know-how
to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases (See Note 3 and Note 11).
 
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form
10-Q
and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated May 13, 2021 that forms a part of our Registration Statement on Form
S-1,
as amended (File
No. 333-255492),
as filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on May 17, 2021 (“Prospectus”).
Forward-Looking Statements
In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form
10-Q,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. Our lead product candidate is atacicept, a fusion protein self-administered as a subcutaneous injection once weekly that blocks both B lymphocyte stimulator and a proliferation-inducing ligand (“APRIL”), which stimulate B cells and plasma cells to produce autoantibodies contributing to certain autoimmune diseases. We are conducting a Phase 2b clinical trial of atacicept in patients with immunoglobulin A nephropathy (“IgAN”), a disease with a high unmet medical need and no approved therapies. IgAN is a serious and progressive autoimmune disease of the kidney that is driven by the production of immunogenic galactose-deficient IgA1
(“Gd-IgA1”).
IgAN patients with elevated
Gd-IgA1
are at increased risk of kidney-related morbidity and mortality. As reported in a Phase 2a clinical trial of 16 patients conducted by Merck KGaA, Darmstadt, Germany, atacicept is the first molecule in development to demonstrate a 60% or greater reduction in plasma
Gd-IgA1
in IgAN patients (75 mg dose, n=4 at 24 weeks), which we believe can be disease modifying. We initiated patient screening for our Phase 2b clinical trial in IgAN in the second quarter of 2021. In addition, we are evaluating additional diseases where atacicept’s reduction of autoantibodies may prove medically useful, including lupus nephritis (“LN”), a severe renal manifestation of systemic lupus erythematosus (“SLE”).
Since our inception, we have devoted substantially all of our resources to our research and development efforts,
pre-clinical
studies, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates, which we expect, if they ever occur, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.
 
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To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock and convertible promissory notes. As of June 30, 2021, we had $91.6 million in cash and cash equivalents. In May 2021, we completed our initial public offering (“IPO”) and issued 5,002,500 shares of Class A common stock for net proceeds of approximately $48.4 million, after deducting underwriting discounts and commissions, and offering related expenses. We believe, based on our current operating plan, that our cash and cash equivalents as of June 30, 2021, will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.
We have incurred significant operating losses since the commencement of our operations. Our net losses were $3.4 million and $3.6 million for the three months ended June 30, 2021 and 2020, respectively, and $8.2 million and $6.1 million for the six months ended June 30, 2021 and 2020, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidate, atacicept, and operate as a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of June 30, 2021, we had an accumulated deficit of $99.6 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses depends on the timing of when we pay these expenses, as reflected in the changes in our prepaid expense, accounts payable and other current liabilities balances.
We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:
 
 
continue our ongoing and planned research and development of our product candidate, atacicept, for the treatment of IgAN, LN and other indications;
 
 
conduct clinical trials and nonclinical studies for atacicept and any additional product candidates that we may pursue in the future;
 
 
seek to discover and develop additional product candidates and further expand our clinical product pipeline;
 
 
seek regulatory approvals for any product candidates that successfully complete clinical trials;
 
 
continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;
 
 
establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
 
 
develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how;
 
 
acquire, develop or
in-license
other product candidates and technologies;
 
 
attract, hire and retain additional clinical, scientific, quality control, and manufacturing management and administrative personnel;
 
 
add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
 
 
incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.
 
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We also expect to increase the size of our administrative function to support the growth of our business. Our net losses may fluctuate significantly from
quarter-to-quarter
and
year-to-year,
depending on the timing of our clinical trials and our expenditures on other research and development activities.
We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships, or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing
COVID-19
pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.
COVID-19
Pandemic
Since it was reported to have surfaced in December 2019, a novel strain of coronavirus
(COVID-19)
has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of
COVID-19
have intensified and governments around the world, including in the United States, Europe and Asia, have implemented travel restrictions, social distancing requirements,
stay-at-home
orders and have delayed the commencement of
non-COVID-19-related
clinical trials, among other restrictions. As a result, the current
COVID-19
pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.
As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. To date, we have initiated some and may take additional temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. For the safety of our employees and their families, we have temporarily reduced the presence of our employees in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the
COVID-19
pandemic on our current and future business and operations, including our expenses and planned clinical trial and other development timelines, as well as on our industry and the healthcare system.
As a result of the
COVID-19
pandemic, or similar pandemics and outbreaks, we have and may in the future experience severe disruptions, including:
 
 
interruption of or delays in receiving products and supplies from the third parties we rely on to, among other things, manufacture components of our instruments, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may impair our ability to sell our products and consumables;
 
 
limitations on our business operations by the local, state, or federal government that could impact our ability to sell or deliver our instruments and consumables;
 
 
business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cybersecurity and data accessibility limits, or communication or mass transit disruptions; and
 
 
limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.
 
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Results of Operations
Comparison of Three Months Ended June 30, 2021 and 2020
The following table summarizes our results of operations for the periods presented.
 
    
THREE MONTHS

ENDED JUNE 30,
    
CHANGE
 
(dollars in thousands)
  
2021
    
2020
    
AMOUNT
    
%
 
Operating expenses:
                                   
Research and development
   $ 3,235      $ 1,954      $ 1,281        66
General and administrative
     2,614        1,219        1,395        114
    
 
 
    
 
 
    
 
 
          
Total operating expenses
     5,849        3,173        2,676        84
    
 
 
    
 
 
    
 
 
    
 
 
 
Loss from operations
     (5,849      (3,173      (2,676      84
Other income (expense):
                                   
Interest income
     2        —          2        *  
Interest expense
     —          (63      63        *  
Gain on issuance of convertible notes
     —          1        (1      *  
Change in fair value of convertible notes
     —          (369      369        *  
Change in fair value of
non-marketable
equity securities
     (281      —          (281      *  
Other income
     2,691        —          2,691        *  
    
 
 
    
 
 
    
 
 
          
Total other income (expense)
     2,412        (431      2,843        660
    
 
 
    
 
 
    
 
 
          
Net loss and comprehensive loss
   $ (3,437    $ (3,604    $ 167        5
    
 
 
    
 
 
    
 
 
          
 
*
Not meaningful
Research and Development Expenses
Research and development expenses represent a substantial portion of our operating expenses. Our research and development expenses consist primarily of direct and indirect expenses incurred in connection with the discovery and development of our product candidates. Since October 2020, we have been engaged in the development of atacicept.
Research and development expenses are recorded as expense in the period they are incurred, and payments we make prior to the receipt of goods or services to be used in research and development efforts are deferred as prepaid expenses until the goods or services are received and used. The cost incurred in obtaining technology licenses, including initial and subsequent milestone payments incurred under our licensing agreements, are recorded as expense in the period in which they are incurred, as the licensed technology, method or process has no alternative future uses other than for our research and development activities.
The following table summarizes our research and development expenses incurred during the respective periods.
 
    
THREE MONTHS

ENDED JUNE 30,
    
CHANGE
 
(dollars in thousands)
  
2021
    
2020
    
AMOUNT
    
%
 
Direct research and development expenses
                                   
Consulting and contract research
   $ 2,213      $ 669      $ 1,544        231
Internal laboratory expenses
     —          188        188        *  
Indirect research and development expenses
                                   
Compensation and related benefits
     1,022        658        364        55
Facilities, depreciation and other
     —          439        (439      *  
Research and development expenses
   $ 3,235      $ 1,954      $ 1,281        66
 
*
Not meaningful
 
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Research and development expenses increased by $1.3 million, or 66%, to $3.2 million in the three months ended June 30, 2021, from $2.0 million in the three months ended June 30, 2020. The increase was primarily due to an increase of $1.5 million in consulting and contract research expense resulting primarily from
start-up
expenses for the Phase 2b clinical trial of atacicept initiated during the period, and an increase of $0.4 million of compensation and related expense to employees resulting primarily from the market rates at which clinical development professionals are compensated compared to those for personnel conducting internal preclinical research. These were partially offset by decreases of $0.4 million for facilities, depreciation and other expenses, as a result of the vacating and sublease of our leased facilities in South San Francisco in November 2020, and a decrease of $0.2 million of internal research and development resulting from our ceasing of internal research in September 2020.
General and Administrative
General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive management, legal, finance, human resources, and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, and other general overhead costs to support our operations. General and administrative expenses are recorded as expense in the period they are incurred, and payments we make prior to the receipt of goods or services to be used for general and administrative purposes efforts are deferred as prepaid expenses until the goods or services are received and used.
 
    
THREE MONTHS

ENDED JUNE 30,
    
CHANGE
 
(dollars in thousands)
  
2021
    
2020
    
AMOUNT
    
%
 
General and administrative
   $ 2,614      $ 1,219      $ 1,395        114
General and administrative expenses increased by $1.4 million, or 114%, to $2.6 million in the three months ended June 30, 2021, from $1.2 million in the three months ended June 30, 2020, due primarily to an increase of $0.4 million in insurance premium expense, an increase of $0.4 million in stock-based compensation and an increase of $0.3 million in legal expenses.
Total Other Income (Expense)
 
    
THREE MONTHS

ENDED JUNE 30,
    
CHANGE
 
(dollars in thousands)
  
2021
    
2020
    
AMOUNT
    
%
 
Total other income (expense)
     2,412      $ (431      2,843        660
Total other income increased by $2.8 million in total other income to $2.4 million total other income in the three months ended June 30, 2021, from $0.4 million other expense in the three months ended June 30, 2020, due to other income of $2.7 million recognized in the three months ended June 30, 2021, from the sale of assets to NeuBase.
 
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Liquidity and Capital Resources
To date, we have funded our operations primarily through the issuance and sale of redeemable convertible preferred stock and convertible promissory notes, and net proceeds from our IPO. From our inception through June 30, 2021, we have raised aggregate net cash proceeds of $190.0 million from the issuance and sale of redeemable convertible preferred stock and convertible notes and our IPO. Since the date of our incorporation, we have not generated any revenue from product sales and have incurred substantial operating losses and negative cash flows from operations.
We use our cash to fund operations, primarily to fund our research and development efforts, clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid assets.
We anticipate that we will continue to incur net losses for the foreseeable future as we continue research and development activities of atacicept, hire additional staff, including clinical, operational, financial and management personnel, and incur additional expenses associated with operating as a public company. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our clinical development activities. We expect that our research and development and general and administrative costs will increase in connection with conducting additional clinical trials and clinical trials for our current and future research programs and product candidates, contracting with third parties to support nonclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021 of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. All shares issued and sold were registered pursuant to a registration statement on Form
S-1,
as amended (File
No. 333-255492),
declared effective by the SEC on May 13, 2021.
As of June 30, 2021, we had cash and cash equivalents balance of $91.6 million. We believe, based on our current operating plan, that our cash and cash equivalents as of June 30, 2021, will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.
Cash Flows
The following table summarizes our cash flows for the periods indicated.
 
    
SIX MONTHS

ENDED JUNE 30,
 
(dollars in thousands)
  
2021
    
2020
 
Net cash used in operating activities
   $ (11,786    $ (4,980
Net cash provided by (used in) investing activities
     796        (99
Net cash provided by financing activities
     48,961        5,583  
    
 
 
    
 
 
 
Net increase in cash, cash equivalents and restricted cash
   $ 37,971      $ 504  
    
 
 
    
 
 
 
Operating Activities
In the six months ended June 30, 2021, we used $11.8 million of cash in operating activities, attributable to a net loss of $8.2 million, a $2.7 million
non-cash
gain on sale of assets to NeuBase, and a $3.6 million increase in prepaid expenses and other current assets.
 
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In the six months ended June 30, 2020, we used $5.0 million of cash in operating activities, attributable to a net loss of $6.1 million, partially offset by the
non-cash
expenses of $0.4 million resulting from a change in the fair value of convertible notes and an $0.4 million increase in accounts payable balances.
Investing Activities
In the
six
months ended June 30, 2021, our investing activities provided $0.8 million of cash resulting from the sale of assets to NeuBase.
Financing Activities
In the six months ended June 30, 2021, our financing activities provided $49.0 million of cash resulting from $51.2 million proceeds from our IPO, net of underwriting discounts and commissions, partially offset by the payment of $2.8 million of related offering costs during the period.
In the six months ended June 30, 2020, our financing activities provided $5.6 million of cash resulting from the issuance of convertible notes payable that were subsequently converted into Series C redeemable convertible preferred stock later in 2020.
Contractual Obligations
During the six months ended June 30, 2021, there were no material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Prospectus.
We enter into agreements in the normal course of business with various third parties for preclinical, clinical and other services. These contracts are generally cancellable without material penalty upon written notice. Payments associated with these agreements are not included in this table of contractual obligations.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these unaudited condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the financial statements, as well as revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Use of Estimates” in the Prospectus and the notes to our unaudited condensed financial statements appearing elsewhere in this Quarterly Report on Form
10-Q.
During the six months ended June 30, 2021, there were no material changes to our critical accounting policies from those discussed in the Prospectus.
 
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Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the date on which we have issued more than $1.0 billion of
non-convertible
debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by
non-affiliates,
or (iv) December 31, 2026.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our cash and cash equivalents as of June 30, 2021, consisted of readily available checking and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations. We do not believe that our cash or cash equivalents have significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one financial institution that is in excess of