UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
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( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of May 7, 2021, the registrant had
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements involve known and unknown risks, uncertainties related to the global COVID-19 pandemic and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
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our expectations regarding the potential market size and size of the potential patient populations for our single-agent and combination therapy candidates and any future single-agent and combination therapy candidates if approved for commercial use; |
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our clinical and regulatory development plans; |
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our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies; |
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the timing of commencement of future nonclinical studies and clinical trials and research and development programs; |
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our ability to acquire, discover, develop and advance single-agent and combination therapy candidates into, and successfully complete, clinical trials; |
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our intentions and our ability to establish collaborations and/or partnerships; |
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the timing or likelihood of regulatory filings and approvals for our single-agent and combination therapy candidates; |
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our commercialization, marketing and manufacturing capabilities and expectations; |
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our intentions with respect to the commercialization of our single-agent and combination therapy candidates; |
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the pricing and reimbursement of our single-agent and combination therapy candidates, if approved; |
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the potential effects of COVID-19 on our preclinical and clinical programs and business; |
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the implementation of our business model and strategic plans for our business and single-agent and combination therapy candidates, including additional indications for which we may pursue; |
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the scope of protection we are able to establish, maintain, protect and enforce for intellectual property rights covering our single-agent and combination therapy candidates including the projected terms of patent protection; |
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estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital; |
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our future financial performance; and |
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developments and projections relating to our competitors and our industry, including competing products. |
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Table of Contents
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PART I. |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
26 |
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Item 1A. |
26 |
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Item 2. |
27 |
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Item 3. |
27 |
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Item 4. |
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Item 5. |
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Item 6. |
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ii
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Terns Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited; in thousands, except share and per share data)
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March 31, 2021 |
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December 31, 2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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— |
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Notes receivable |
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— |
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Deferred offering costs |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Loans payable |
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— |
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Total current liabilities |
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Deferred rent, net of current portion |
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Taxes payable, non-current |
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Total liabilities |
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Commitments and contingencies |
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Convertible preferred stock, $ respectively; |
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— |
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Stockholders’ equity (deficit): |
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Common stock, $ authorized at March 31, 2021 and December 31, 2020, respectively; March 31, 2021 and December 31, 2020, respectively |
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— |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity (deficit) |
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( |
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Total liabilities, convertible preferred stock and stockholders’ equity (deficit) |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited; in thousands, except share and per share data)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest income |
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Other (expense) income, net |
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Total other (expense) income, net |
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( |
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Loss before income tax expense |
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( |
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( |
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Income tax expense |
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( |
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— |
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Net loss |
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( |
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( |
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Net loss attributable to non-controlling interest |
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— |
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Net loss attributable to common stockholders |
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$ |
( |
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$ |
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Net loss per share attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
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Weighted average common stock outstanding, basic and diluted |
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Other comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
( |
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Unrealized loss on available-for-sale securities, net of tax |
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( |
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— |
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Foreign exchange translation adjustment, net of tax |
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( |
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( |
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Comprehensive loss |
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( |
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( |
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Less: Comprehensive loss attributable to non-controlling interest |
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— |
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( |
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Comprehensive loss attributable to common stockholders |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Noncontrolling Interest, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited; in thousands, except share data)
Three Months Ended March 31, 2021 |
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Non- Controlling |
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Series A Convertible Preferred Stock |
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Series B Convertible Preferred Stock |
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Series C Convertible Preferred Stock |
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Common Stock |
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Additional Paid-in |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders’ (Deficit) |
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Interest |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances at December 31, 2020 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Conversion of preferred stock to common stock upon closing of the initial public offering |
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— |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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( |
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( |
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— |
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— |
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Sale of common stock in initial public offering, net of issuance costs of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on available-for-sale securities |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Unrealized loss on foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at March 31, 2021 |
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$ |
— |
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— |
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$ |
— |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Three Months Ended March 31, 2020 |
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Non- Controlling |
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Series A Convertible Preferred Stock |
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Series B Convertible Preferred Stock |
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Series C Convertible Preferred Stock |
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Common Stock |
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Additional Paid-in |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders’ |
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Interest |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Deficit |
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Balances at December 31, 2019 |
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$ |
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$ |
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$ |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at March 31, 2020 |
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$ |
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$ |
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$ |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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3
Terns Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited; in thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization expense |
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(Accretion) amortization on marketable securities |
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( |
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Change in deferred taxes and uncertain tax positions |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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( |
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Other assets |
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( |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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Deferred rent |
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( |
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Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
) |
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( |
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Purchase of investments |
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( |
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( |
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Proceeds from sales and maturities of investments |
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— |
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Net cash (used in) provided by investing activities |
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( |
) |
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Cash flows from financing activities: |
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Net proceeds from initial public offering |
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— |
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Proceeds from notes receivable |
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— |
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Payment of loans payable |
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( |
) |
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— |
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Payment of deferred offering costs |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
( |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock upon closing of the initial public offering |
|
$ |
|
|
|
$ |
— |
|
Deferred offering costs within accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Terns Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. |
Organization, Basis of Presentation and Summary of Significant Accounting Policies |
Terns Pharmaceuticals Inc. (Terns) is a clinical-stage biopharmaceutical company developing a portfolio of small-molecule single-agent and combination therapy candidates for the treatment of non-alcoholic steatohepatitis (NASH) and other chronic liver diseases.
Terns was incorporated as an exempted company in the Cayman Islands in December 2016. In December 2020, the Company effected a de-registration of the Company in the Cayman Islands and a domestication in the State of Delaware, pursuant to which it became a Delaware corporation. Terns owns all of the share capital of Terns Pharmaceutical HongKong Limited (Terns Hong Kong) and Terns, Inc., a Delaware corporation (Terns U.S. Opco). Terns Hong Kong holds all of the share capital of Terns China Biotechnology Co., Ltd. (organized in Shanghai, People’s Republic of China (PRC)) (Terns China) and Terns (Suzhou) Biotechnology Co., Ltd. (organized in Suzhou, PRC) (Terns Suzhou).
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Terns and its wholly owned subsidiaries Terns U.S. Opco and Terns Hong Kong andits wholly owned subsidiaries Terns China and Terns Suzhou. Prior period reflects a variable interest in Terns China in which Terns had a majority interest and was the primary beneficiary. The noncontrolling interest attributable to the Company’s variable interest entity (VIE) is presented as a separate component from stockholders’ equity (deficit) in the condensed consolidated balance sheets, and a noncontrolling interest in the condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of noncontrolling interest, convertible preferred stock and stockholders’ equity (deficit). The Company’s condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.
Initial Public Offering
In February 2021, the Company completed an initial public offering (the “IPO”) of
Certificate of Incorporation
Prior to the IPO, the Company’s certificate of incorporation adopted in December 2020 in connection with the Domestication (the “December 2020 Charter”) authorized the Company to issue the following shares of capital stock: (i)
In February 2021, the Company’s amended and restated certificate of incorporation filed with the Secretary of State of the State of Delaware became effective in connection with the closing of IPO. Under the amended and restated certificate of incorporation, the Company is authorized to issue
Reverse Stock Split
Variable Interest Entity
The Company consolidates a VIE where it has been determined that the Company is the primary beneficiary of the entity’s operations. The Company has considered its relationships with a certain entity to determine whether the Company has a variable interest
5
in that entity, and if so, whether the Company is the primary beneficiary of the relationship. U.S. GAAP requires VIEs to be consolidated if an entity’s interest in the VIE is a controlling financial interest. Under the variable interest model, a controlling financial interest is determined based on which entity, if any, has (i) the power to direct the activities of the VIE that most significantly impacts the VIE’s economic performance and (ii) the obligations to absorb losses that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. The consolidation status of a VIE may change as a result of such reassessments. Changes in consolidation status are applied prospectively in accordance with U.S. GAAP.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic is rapidly evolving. The COVID-19 virus continues to impact countries worldwide, including the United States and China where the Company has business operations. The extent of the impact of the COVID-19 pandemic on 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 (CROs), third-party manufacturers and other third parties with whom the Company conducts 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 employees working remotely. The Company will continue to actively monitor the rapidly 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 in the United States and China, or that the Company determines are in the best interest of its employees and other third parties with whom the Company conducts 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.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to, the estimates for accruals of research and development expenses, accrual of research contract costs, unrecognized tax benefits, fair value of common stock and stock option valuations. On an ongoing basis, the Company evaluates its estimates and judgments, using historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheet as of March 31, 2021, the unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of noncontrolling interest, convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and the related disclosures are unaudited. These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2020, as filed with the SEC on March 30, 2021. Except for the change in certain policies described below, there have been no significant changes to the Company's significant accounting policies described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K for the fiscal year ended December 31, 2020.
Cash, Cash Equivalents, Restricted Cash and Marketable Securities
Cash and cash equivalents consist of standard checking accounts and money market funds. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Restricted cash represents a security deposit related to a lease.
6
The Company classifies as available-for-sale marketable securities with a remaining maturity when purchased of greater than three months. The Company’s marketable securities are maintained by investment managers and consist of government securities, corporate debt securities, asset-backed securities and commercial paper. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive loss as a component of stockholders’ equity (deficit) until realized. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded in interest income and/or expense. Realized gains and losses on debt securities are determined using the specific identification method and are included in other income (expense), net.
If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s condensed consolidated statements of operations and comprehensive loss.
The fair value and amortized cost of marketable securities by major security type as of March 31, 2021 is as follows:
|
|
As of March 31, 2021 |
|
|||||||||||||
(in thousands) |
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Money market funds |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Non-U.S. government securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Commercial paper |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |