Item 1. Financial Statements
Item 1. Financial Statements.
A LIGOS T HERAPEUTICS , I NC .
C ONDENSED C ONSOLIDATED B ALANCE S HEETS
(Unaudited)
(In thousands, except
share and per share data)
September 30,
December 31,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
$
31,816
$
69,565
Restricted cash
556
538
Investments in
available-for-sale securities, at fair value
23,241
Investments in
held-to-maturity securities
15,007
48,098
Other current assets
3,073
2,025
Total current assets
73,693
120,226
Operating lease
right-of-use assets
7,054
7,570
Property and equipment, net
8,592
8,517
Other assets
2,844
188
Long-term investments in
held-to-maturity securities
10,019
Total assets
$
92,183
$
146,520
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,
AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable
$
7,682
$
3,767
Accrued liabilities
9,782
7,599
Operating lease liabilities, current
2,444
2,378
Finance lease liabilities, current
76
74
Total current liabilities
19,984
13,818
Derivative liabilities
620
461
Redeemable convertible preferred stock liabilities
14,560
3,174
Operating lease liabilities, net of current portion
10,696
11,701
Finance lease liabilities, net of current portion
130
178
Other liabilities
295
Total liabilities
46,285
29,332
Commitments and contingencies (Note 12)
Series A redeemable convertible preferred stock, $0.0001 par value; 101,962,864 shares authorized
as of September 30, 2020 and December 31, 2019; 10,857,395 and 10,819,843 shares issued and outstanding as of September 30, 2020 and December 31, 2019 respectively; aggregate minimum liquidation preference of $101,188 at
September 30, 2020
101,182
100,695
Series B-1 redeemable convertible preferred stock, $0.0001
par value; 77,764,055 shares authorized as of September 30, 2020 and December 31, 2019; 8,344,034 shares issued and outstanding as of September 30, 2020 and December 31, 2019; aggregate minimum liquidation preference of $85,005
at September 30, 2020
81,384
81,384
Stockholders deficit:
Common stock, $0.0001 par value; 278,000,000 shares authorized as of September 30, 2020 and
December 31, 2019, respectively; 4,104,585 and 3,927,803 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
Additional paid-in capital
3,620
1,421
Accumulated deficit
(140,320
)
(66,197
)
Accumulated other comprehensive income (loss)
32
(115
)
Total stockholders deficit
(136,668
)
(64,891
)
Total liabilities, redeemable convertible preferred stock, and stockholders deficit
$
92,183
$
146,520
The accompanying notes are an integral part of these consolidated financial statements.
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C ONDENSED C ONSOLIDATED
S TATEMENTS OF O PERATIONS AND C OMPREHENSIVE L OSS
(Unaudited)
(In thousands, except
share and per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Operating expenses:
Research and development
$
17,332
$
11,729
$
51,809
$
29,065
General and administrative
4,225
2,775
11,739
6,542
Total operating expenses
21,557
14,504
63,548
35,607
Loss from operations
(21,557
)
(14,504
)
(63,548
)
(35,607
)
Interest and other (expense) income, net
(11,740
)
453
(10,633
)
1,527
Loss before income tax expense
(33,297
)
(14,051
)
(74,181
)
(34,080
)
Income tax benefits
58
Net loss
(33,297
)
(14,051
)
(74,123
)
(34,080
)
Other comprehensive gain (loss):
Unrealized (loss) gain on
available-for-sale securities
(105
)
132
Unrealized (loss) gain on pension plans
(13
)
(38
)
15
(85
)
Other comprehensive (loss) and income
(118
)
(38
)
147
(85
)
Comprehensive loss
$
(33,415
)
$
(14,089
)
$
(73,976
)
$
(34,165
)
Net loss per share, basic and diluted
$
(11.00
)
$
(6.74
)
$
(26.20
)
$
(18.40
)
Weighted average shares of common stock, basic and diluted
3,027,825
2,084,719
2,829,160
1,851,811
The accompanying notes are an integral part of these consolidated financial statements.
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C ONDENSED C ONSOLIDATED
S TATEMENTS OF C HANGES IN R EDEEMABLE C ONVERTIBLE P REFERRED S TOCK AND S TOCKHOLDERS
D EFICIT
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30, 2020
Series A Redeemable Convertible
Preferred Stock
Series B-1 Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Other
Comprehensive
Income (Loss)
Total
Stockholders
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance as of June 30, 2020
10,857,395
$
101,182
8,344,034
$
81,384
4,035,978
$
$
2,300
$
(107,023
)
$
150
$
(104,573
)
Issuance of common stock upon exercise of stock options
68,607
148
148
Stock-based compensation
1,016
1,016
Vesting of early exercised common stock options
156
156
Other comprehensive loss
(118
)
(118
)
Net loss
(33,297
)
(33,297
)
Balance as of September 30, 2020
10,857,395
$
101,182
8,344,034
$
81,384
4,104,585
$
$
3,620
$
(140,320
)
$
32
$
(136,668
)
Nine Months Ended September 30, 2020
Series A Redeemable Convertible
Preferred Stock
Series B-1 Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Other
Comprehensive
Income (Loss)
Total
Stockholders
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance as of December 31, 2019
10,819,843
$
100,695
8,344,034
$
81,384
3,927,803
$
$
1,421
$
(66,197
)
$
(115
)
$
(64,891
)
Issuance of Series A redeemable covertible stock upon exercise of Series A warrants
37,552
487
Issuance of common stock upon exercise of stock options
176,782
243
243
Stock-based compensation
1,674
1,674
Vesting of early exercised common stock options
282
282
Other comprehensive income
147
147
Net loss
(74,123
)
(74,123
)
Balance as of September 30, 2020
10,857,395
$
101,182
8,344,034
$
81,384
4,104,585
$
$
3,620
$
(140,320
)
$
32
$
(136,668
)
The accompanying notes are an integral part of these consolidated financial statements.
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Three Months Ended September 30, 2019
Series A Redeemable Convertible
Preferred Stock
Series B-1 Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance as of June 30, 2019
10,806,432
$
100,519
$
3,036,574
$
$
635
$
(33,963
)
$
(44
)
$
(33,372
)
Stock-based compensation
151
151
Vesting of early exercised common stock
224
224
Issuance of common stock upon exercise of stock options
652,527
70
70
Other comprehensive loss
(38
)
(38
)
Net loss
(14,051
)
(14,051
)
Balance as of September 30, 2019
10,806,432
$
100,519
$
3,689,101
$
$
1,080
$
(48,014
)
$
(82
)
$
(47,016
)
Nine Months Ended September 30, 2019
Series A Redeemable Convertible
Preferred Stock
Series B-1 Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance as of December 31, 2018
10,806,432
$
100,519
$
3,036,574
$
$
182
$
(13,934
)
$
3
$
(13,749
)
Stock-based compensation
604
604
Vesting of early exercised common stock
224
224
Issuance of common stock upon exercise of stock options
652,527
70
70
Other comprehensive loss
(85
)
(85
)
Net loss
(34,080
)
(34,080
)
Balance as of September 30, 2019
10,806,432
$
100,519
$
3,689,101
$
$
1,080
$
(48,014
)
$
(82
)
$
(47,016
)
The accompanying notes are an integral part of these consolidated financial statements.
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C ONDENSED C ONSOLIDATED
S TATEMENTS OF C ASH F LOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
2020
2019
Cash flows from operating activities:
Net loss
$
(74,123
)
$
(34,080
)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discount on investments
181
(786
)
Amortization of right of use assets
437
787
Depreciation expense
2,005
868
Stock-based compensation
1,674
604
Change in fair value of derivative liability
296
(294
)
Change in fair value of redeemable convertible preferrable stock liabilities
11,387
Changes in operating assets and liabilities:
Other assets
(1,049
)
(563
)
Right of use assets
95
Accounts payable
3,677
(248
)
Accrued liabilities
1,875
1,639
Operating lease liabilities
(939
)
229
Net cash and cash equivalents used in operating activities
(54,579
)
(31,749
)
Cash flows from investing activities:
Activities in
available-for-sale investments:
Maturities of investments
22,000
Purchase of investments
(45,279
)
Activities in
held-to-maturity investments:
Maturities of investments
43,100
76,000
Purchase of investments
(45,334
)
Purchases of property and equipment
(2,003
)
(2,065
)
Net cash and cash equivalents provided by investing activities
17,818
28,601
Cash flows from financing activities:
Proceeds from exercise of warrants for Series A redeemable convertible preferred stock
350
Payment of Series B-1 redeemable convertible preferred
stock issuance cost
(405
)
Payments on deferred offering costs
(1,066
)
Payments on finance lease
(46
)
(27
)
Proceeds from the exercise of common stock options
197
295
Net cash and cash equivalents (used in) provided by financing activities
(970
)
268
Net decrease in cash, cash equivalents, and restricted cash
(37,731
)
(2,880
)
Cash, cash equivalents, and restricted cash, beginning of period
70,103
24,547
Cash, cash equivalents, and restricted cash, end of period
$
32,372
$
21,667
The accompanying notes are an integral part of these consolidated financial statements.
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C ONDENSED C ONSOLIDATED S TATEMENTS
OF C ASH F LOWS
(Unaudited)
(In thousands)
Nine Months Ended Sept 30,
2020
2019
Reconciliation to amounts on the consolidated balance sheet:
Cash and cash equivalents
$
31,816
$
21,130
Restricted cash
556
537
Total cash, cash equivalents, and restricted cash
$
32,372
$
21,667
Supplemental disclosures of cash flow information:
Interest paid
$
4
$
3
Income taxes paid
$
$
Supplemental disclosures of noncash financing and investing activities:
Leasehold improvement directly paid by landlord
$
79
$
3,990
Equipment acquired through finance lease
$
$
198
Mark to market adjustment for
available-for-sale investments
$
132
$
Acquisition of right of use asset through operating lease obligation
$
$
252
Change in fair value of derivative liability upon exercise of warrants
$
137
$
Vesting of early exercised options
$
283
$
Receivable from exercise of common stock options
$
46
$
Deferred offering costs included in accounts payable and accrued liabilities
$
1,544
$
Property and equipment purchases in accounts payable
$
$
213
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
1.
Organization
Description of business
Aligos Therapeutics, Inc. (Aligos-US) was incorporated in the state of Delaware on
February 5, 2018 (inception). On September 10, 2018, the Company formed Aligos Belgium BVBA (Aligos-Belgium), a limited liability company organized under the laws of Belgium. On March 30, 2020, the Company
formed as a wholly owned subsidiary, Aligos Australia Pty LTD (Aligos-Australia), a proprietary limited company, and together with Aligos-US and Aligos-Belgium being the Company or
Aligos.
Aligos is a clinical-stage biopharmaceutical company developing novel therapeutics to address unmet medical needs in
viral and liver diseases, including chronic hepatitis B and coronaviruses therapeutics for non-alcoholic steatohepatitis (NASH).
The Company is devoting substantially all of its efforts to the research and development of its drug candidates. The Company has not generated
any product revenue to date. The Company is also subject to a number of risks similar to other companies in the biotechnology industry, including the uncertainty of success of its nonclinical studies and clinical trials, regulatory approval of drug
candidates, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on
third-parties, product liability, and dependence on key individuals.
Reverse stock split
On October 8, 2020, the Companys board of directors approved a
1-for-9.3197 reverse stock split (the Reverse Stock Split) of the Companys common stock and redeemable convertible preferred stock to be consummated
prior to the effectiveness of the Companys planned initial public offering (IPO). The par value and authorized shares of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock
split. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented. The
Company filed an amended and restated certificate of incorporation in Delaware on October 9, 2020 that automatically effectuated the Reverse Stock Split without any further action required.
Initial public offering
On October 20, 2020, the Company closed its IPO and issued 10,000,000 shares of its common stock at a public offering price of $15.00 per
share for net proceeds of $135,400, after deducting underwriting discounts and commissions of $10,500 and estimated expenses of $4,100. In connection with the IPO, all shares of Series A redeemable convertible preferred stock (Series A),
Series B-1 redeemable convertible preferred stock (Series B-1) and Series B-2 redeemable convertible preferred stock
(Series B-2) converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock. On November 5, 2020, the
underwriters of the IPO partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16,043 in net proceeds, after deducting underwriting discounts and commissions of
$1,208.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies
Liquidity
The
Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2020 and December 31, 2019, the Company had an accumulated deficit of approximately $140,320 and $66,197, respectively. Since
inception through September 30, 2020, the Company has funded operations primarily with the net proceeds from the issuance of redeemable convertible preferred stock and convertible notes. Management expects to continue to incur additional
substantial losses in the foreseeable future as a result of expanded research and development activities.
As of September 30, 2020,
the Company has unrestricted cash, cash equivalents and investments of approximately $70,064. In addition, the Company received net proceeds of approximately $151,443 from the sale of an aggregate of 11,150,000 shares of its common stock on
October 20, 2020 and on November 5, 2020 as part of its IPO, which is available to fund future operations. The Company expects to continue to spend substantial amounts to continue the nonclinical and clinical development of its current and
future programs. If the Company is able to gain marketing approval for drug candidates that are being developed, it will require significant additional amounts of cash beyond the net proceeds from its IPO in order to launch and commercialize such
drug candidates. In addition, other unanticipated costs may arise. Because the design and outcome of the Companys planned and anticipated clinical trials is highly uncertain, the Company cannot reasonably estimate the actual amounts necessary
to successfully complete the development and commercialization of any drug candidate the Company may develop.
The Company expects to
finance its cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. In addition, the Company may seek
additional capital to take advantage of favorable market conditions or strategic opportunities even if the Company believes it has sufficient funds for its current or future operating plans. Based on the Companys research and development
plans, it is expected that the Companys existing cash, cash equivalents and investments, will enable the Company to fund its operations for at least 12 months following the date the condensed consolidated financial statements are issued.
However, the Companys operating plan may change as a result of many factors currently unknown.
The accompanying condensed
consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the
normal course of business.
Risks and uncertainties
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations,
protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when
or if the Company will be able to achieve or maintain profitability. Drug candidates currently under development will require significant additional research and development efforts, including extensive nonclinical and clinical testing and
regulatory approval.
Moreover, it is particularly difficult to estimate with certainty the Companys future expenses given the
dynamic nature of its business, the COVID-19 pandemic and the macro-economic environment generally.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Risks and uncertainties, continued
The Companys ability to raise additional funds will depend on financial, economic and
other factors, many of which are beyond its control. In particular, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the
disruption persists or deepens, the Company could be unable to access additional capital, which could negatively affect its ability to consummate certain corporate development transactions or other important, beneficial or opportunistic investments.
If additional funds are not available to the Company when needed, on terms that are acceptable to the Company, or at all, the Company may choose to reduce discretionary spending through delaying, limiting, reducing or terminating nonclinical
studies, clinical trials or other research and development activities or eliminate one or more of its development programs altogether; or delay, limit, reduce or terminate its efforts to establish manufacturing and sales and marketing capabilities
or other activities that may be necessary to commercialize any future approved products, or reduce the Companys flexibility in developing or maintaining its sales and marketing strategy.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP for complete financial statements. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (ASC), and Accounting
Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB).
The condensed consolidated
balance sheet as of December 31, 2019 included herein was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by U.S. GAAP for complete financial
statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this
Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019, included in the
Companys final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), on October 19, 2020 (the Prospectus).
Principles of consolidation
The accompanying condensed consolidated financial statements include Aligos-US and its wholly owned
subsidiaries Aligos-Belgium and Aligos-Australia. All intercompany balances and transactions have been eliminated.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Use of estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and
assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets and liabilities, and disclosures of contingent assets
and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Areas where management uses subjective judgments include, but are not limited to right-of-use assets, lease obligations, impairment of long-lived assets, stock-based compensation, accrued research and development costs, pension liabilities, derivative
liabilities and redeemable convertible preferred stock liability in the accompanying condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these
estimates under different assumptions or conditions.
Unaudited interim financial information
The accompanying consolidated balance sheet as of September 30, 2020, the consolidated statements of operations and comprehensive loss for
the three and nine months ended September 30, 2020 and 2019, the consolidated statements of redeemable convertible preferred stock and stockholders deficit for the three and nine months ended September 30, 2020 and 2019, and the
consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited. The unaudited consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial
statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Companys consolidated financial position as of September 30, 2020 and the
consolidated results of its operations and cash flows for the three and nine months ended September 30, 2020 and 2019. The consolidated financial data and other information disclosed in these notes related to the three and nine months ended
September 30, 2020 and 2019 are unaudited. The consolidated results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other
interim periods, or any future year or period.
Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings, including the IPO, as deferred offering costs until such financings are consummated. After consummation of the financing, these costs are recorded as a reduction of the proceeds
received from the equity financing. If a planned equity financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss.
There were $2,610 and $0 in deferred offering costs recorded with other assets on the Companys condensed consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively.
13
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Investments
The Company determines the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity, otherwise debt securities are classified as available-for sale.
Held-to-maturity securities are carried at amortized cost. Available-for-sale debt
securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses
on available-for-sale debt securities are reported as a separate component of stockholders deficit. Premiums or discounts from par value are amortized to
investment income over the life of the underlying investment. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other (expense) income, net within the condensed
consolidated statements of operations and comprehensive loss.
For both
held-to-maturity and available-for-sale investments, the Company periodically reviews
each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If the Company believes an impairment of a security position is other than temporary, based on available
quantitative and qualitative information as of the report date, the loss will be recognized as other income (expense) in the Companys condensed consolidated statements of operations and a new cost basis in the investment is established. No
impairment charges were recorded during the nine months ended September 30, 2020 and 2019.
As of September 30, 2020 and
December 31, 2019, short-term investments consisted of U.S. Treasury securities with original maturities of less than one year. As of December 31, 2019, long-term investments consisted of U.S. Treasury securities with original maturities
of more than one year.
Research and development expenses
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and
development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, and third-party license fees. Non-refundable prepayments for goods or services that will be
used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed or until it is no longer expected that the goods
will be delivered or the services will be rendered.
Derivative liabilities
The Company accounts for certain warrants as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The
Company determined that its outstanding warrants are freestanding derivative instruments. The warrants are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is
recognized as a component of interest and other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss. The fair value of the warrants issued by the Company has been estimated using a probability-weighted
multi-scenario Black-Scholes option-pricing model. (Note 10).
14
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Redeemable convertible preferred stock liability
The freestanding instrument related to the commitment by certain preferred stockholders to purchase and the commitment by the Company to sell
its redeemable convertible preferred stock in a subsequent closing, contingent upon the achievement of certain developmental milestones or an election by preferred stockholders to waive such milestones, at a fixed price per share, is considered a
derivative liability (Redeemable Convertible Preferred Stock Liability). The Redeemable Convertible Preferred Stock Liability is measured at fair value as the underlying shares contain liquidation preferences upon certain deemed
liquidation events that are not solely within the Companys control and which are considered in-substance contingent redemption features (refer to Note 8 for further discussion on the redemption
rights of the redeemable convertible preferred stock). The Redeemable Convertible Preferred Stock Liability is subject to revaluation at each balance sheet date until settlement or extinguishment, with revaluations recognized as a component of
interest and other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss. The fair value of the Redeemable Convertible Preferred Stock Liability in subsequent closings has been estimated using a
probability-weighted multi-scenario Black-Scholes hybrid valuation method (Note 10).
The Companys shares of redeemable convertible
preferred stock were assessed at issuance for classification and redemption features requiring bifurcation. The Company presents as temporary equity any stock which (i) the Company undertakes to redeem at a fixed or determinable price on the
fixed or determinable date or dates, (ii) is redeemable at the option of the holders, or (iii) has conditions for redemption which are not solely within the control of the Company. The Companys preferred stock is redeemable upon a
deemed liquidation event which the Company determined is not solely within its control and thus has classified shares of preferred stock as temporary equity until such time as the conditions are removed or lapse. Because the occurrence of a deemed
liquidation event is not currently probable, the carrying values of the shares of redeemable convertible preferred stock are not being accreted to their redemption values. Subsequent adjustments to the carrying values of the shares of redeemable
convertible preferred stock would be made only when a deemed liquidation event becomes probable.
Fair value measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three
levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs (other than Level 1 quoted prices), such as quoted prices in active
markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3 Unobservable inputs that are supported by little or no market activity that are significant
to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Stock-based compensation
The Companys stock-based awards consist of restricted stock awards and stock options. For stock-based awards issued to employees and
nonemployees with service-based vesting, the Company measures the estimated fair value of the stock-based awards on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the
vesting period of the respective award. The Company has granted certain options with performance-based vesting for which expense is recognized over the explicit service period when achievement of the performance-based milestones is deemed probable.
The Company uses judgement to determine whether and, if so, how many awards are deemed probable of vesting at each reporting period. The fair value of stock-based awards with non-market performance conditions
is estimated on the grant date. The Company records expense for awards with service-based vesting using the straight-line method and for awards with performance conditions utilizing an accelerated attribution method. The Company accounts for
forfeitures as they occur.
The Company classifies stock-based compensation expense in its condensed consolidated statements of operations
and comprehensive loss in the same manner in which the award recipients cash compensation costs are classified.
The fair value of
each restricted stock award is determined based on the number of shares granted and the value of the Companys common stock on the date of grant. The fair value of each stock option award is estimated on the date of grant using the
Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of a number of complex assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and
expected term of the option. The Company had been a private company prior to the IPO and lacks company-specific historical and implied fair value information. Therefore, the Board of Directors (the Board) of the Company considered
numerous objective and subjective factors to determine the fair value of the Companys common stock options at each meeting in which awards were approved. The factors considered include, but are not limited to (i) the results of
contemporaneous independent third-party valuations of the Companys common stock and the prices, rights, preferences and privileges of the Companys redeemable convertible preferred stock relative to those of its common stock;
(ii) the lack of marketability of the Companys common stock; (iii) actual operating and financial results; (iv) current business conditions and projections; (v) the likelihood of achieving a liquidity event, such as an
initial public offering or sale of the Company, given prevailing market conditions, and (vi) precedent transactions involving the Companys shares.
The Company determined the expected stock volatility using a weighted-average of the historical volatility of a group of guideline companies
that issued options with substantially similar terms, and expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Companys stock
options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for
time periods approximately equal to the expected term of the award. The Company has not paid, and does not anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.
See Note 9 for the assumptions used by the Company in determining the grant date fair value of stock-based awards granted, as well as a summary
of the stock-based award activity under the Companys stock-based compensation plan, for the nine months ended September 30, 2020 and 2019.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
2.
Summary of significant accounting policies, continued
Net loss per share
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, without consideration for potentially dilutive securities.
Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the
weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock, stock options, common stock subject to
repurchase related to early exercise of stock options, unvested restricted stock subject to repurchase, warrants and convertible notes are considered to be potentially dilutive securities.
The Company applies the two-class method to calculate its basic and diluted net loss per
share as the Company has issued shares that meet the definition of participating securities. The two-class method is an earnings allocation formula that treats a participating security as having
rights to earnings that otherwise would have been available to common stockholders. The Companys participating securities contractually entitle the holders of such shares to participate in dividends; but do not contractually require the
holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities.
Accordingly, in periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since
dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Recently issued accounting standards
From time to time, new accounting pronouncements are issued by FASB that the Company adopts as of the specified effective date.
The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 and has the option to not opt out of the extended transition related to complying with new or revised
accounting standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company has the option to adopt the new or revised standard at the time nonpublic companies
adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to opt out of such extended transition period or (ii) no longer qualifies as an emerging growth company.
17
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
3.
Property and equipment
The components of property and equipment as of September 30, 2020 and December 31, 2019 were as follows:
September 30, 2020
December 31, 2019
Leasehold improvements
$
5,647
$
5,100
Lab equipment
4,747
3,204
Computer equipment
937
890
Furniture and office equipment
459
425
Vehicles
296
296
Asset under construction
19
110
Total, at cost
12,105
10,025
Accumulated depreciation
(3,513
)
(1,508
)
Total, net
$
8,592
$
8,517
Depreciation expense was $708 and $2,005 for the three and nine months ended September 30, 2020,
respectively, and $387 and $868 for the three and nine months ended September 30, 2019, respectively. Finance leases are also included in property and equipment as vehicles on the condensed consolidated balance sheets (Note 6).
18
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
4.
Investments
As of September 30, 2020 and December 31, 2019, amortized cost, gross unrealized gains and losses, and estimated fair values of total
fixed-maturity securities were as follows:
September 30, 2020
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Estimated
Fair
Value
Held-to-maturity
securities:
U.S. Treasury bonds
$
15,007
$
56
$
$
15,063
Available-for-sale
securities
U.S. Treasury bonds
23,109
132
23,241
$
38,116
$
188
$
$
38,304
December 31, 2019
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Estimated
Fair
Value
Held-to-maturity
securities:
U.S. Treasury bonds
$
58,117
$
31
$
(1)
$
58,147
Changes in fair value are related to changes in market interest rates. The Company expects to collect all
contractual principal and interest payments.
The following is a summary of maturities of securities held-to-maturity and available-for-sale as of September 30, 2020:
Held-to-maturity
Available-for-sale
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amounts maturing in:
One year or less
$
15,007
$
15,063
$
23,109
$
23,241
Total investments
$
15,007
$
15,063
$
23,109
$
23,241
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
4.
Investements , continued
The Company recorded interest income of $234 and $985 for three and nine months ended
September 30, 2020, respectively, and $345 and $1,308 for the three and nine months ended September 30, 2019, respectively, as a component of interest and other (expense) income, net on the Companys condensed consolidated statement
of operations and comprehensive loss.
5.
Accrued liabilities
Accrued liabilities consisted of the following as of:
September 30,
2020
December 31,
2019
Accrued payables
$
4,647
$
3,113
Accrued compensation
4,353
3,211
Liability with early exercised stock options
650
753
Other
132
522
Total
$
9,782
$
7,599
6.
Leases
The Company has operating and finance leases for corporate offices, research and development facilities, and certain vehicles. These leases
have remaining lease terms of four to eight and a half years, some of which include options to extend the leases for five to eight years. The Company has determined that it is not reasonably certain to exercise the options under any leases. The
lease of research and development facilities includes costs for utilities and common area maintenance, which have been included in the calculation of lease payments. Differences between lease payments as measured at lease inception and variations in
monthly payments will be recognized as operating expenses in the period in which the obligation is incurred.
Leases with an initial term
of 12 months or less are not recorded on the balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease terms. Leases with terms greater than 12 months are included in operating lease ROU assets
and operating lease liabilities in the Companys condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
20
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
6.
Leases, continued
Maturities of lease liabilities as of September 30, 2020 and are as follows:
Operating
Lease
Finance
Lease
Year ending December 31:
2020 (excluding the nine months ended September 30, 2020)
$
638
$
20
2021
2,612
79
2022
2,697
78
2023
2,694
41
2024
2,678
1
Thereafter
6,414
17,733
219
Less: imputed interest
(4,593
)
(13
)
Present value of lease liabilities
13,140
206
Less: current portion
(2,444
)
(76
)
Lease liabilities, net of current portion
$
10,696
$
130
The components of lease expense were as follows for the three and nine months ended September 30, 2020 and
2019:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Operating lease cost
$
464
$
568
$
1,397
$
1,774
Finance lease cost:
Amortization of
right-of-use assets
$
19
$
11
$
48
$
29
Interest on lease liabilities
2
2
7
Total finance lease cost
$
21
$
13
$
55
$
29
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
6.
Leases, continued
The Company made payments of $637 and $1,885 during the three and nine months ended
September 30, 2020, respectively, and $415 and $670 during the three and nine months ended September 30, 2019, respectively, which are included as cash flow from operations on the condensed consolidated statements of cash flows.
As of September 30, 2020 and December 31, 2019, $296 of finance lease ROU assets were presented as part of property and equipment on
the condensed consolidated balance sheet with accumulated amortization of $94 and $47, respectively.
Additional information related to the
Companys leases was as follows as of September 30, 2020 and December 31, 2019:
September 30,
2020
December 31,
2019
Operating Lease:
Weighted-average remaining lease term (years)
6.36
7.10
Weighted-average discount rate
9.35
%
9.34
%
Finance Lease:
Weighted-average remaining lease term (years)
2.92
3.66
Weighted-average discount rate
3.16
%
3.18
%
7.
Derivative liabilities and redeemable convertible preferred stock liability
Warrants
In
connection with the issuance of certain notes, lenders were issued Warrants to purchase 134,112 shares of Series A. The Warrants have a coverage percentage of 25% of the principal amount of the notes and have a
ten-year expiration date from the applicable closing date of April 20, 2018 or June 6, 2018.
The underlying shares issuable upon the exercise of the Warrants were eligible to be exercised into the next round of equity financing. The
Warrants became exercisable into shares of Series A for an exercise price of $9.32 per share. There were warrants to purchase 83,149 and 120,701 shares of Series A outstanding as of September 30, 2020 and December 31, 2019, respectively.
The Company recorded the Warrants initially at fair value (Note 10) as derivative liabilities on the condensed consolidated balance sheet
with the value being allocated to the notes as a debt discount. The fair value of the Warrants was $620 and $461 as of September 30, 2020 and December 31, 2019, respectively.
During the nine months ended September 30, 2020, 37,552 Warrants were exercised. No Warrants were exercised during the three months ended
September 30, 2020, or during the nine months ended September 30, 2019. As Series A contains a conditional obligation for the Company to repurchase the shares for cash consideration, the Warrants remain outstanding as derivative
liabilities with changes in fair value being recorded on the condensed consolidated statements of operations and comprehensive loss. The Company recorded a change in fair value of derivative liabilities of $240 and $296 for the three and nine months
ended September 30, 2020, respectively, and $154 and $294 for the three and nine months ended September 30, 2019, respectively.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
7.
Derivative liabilities and redeemable convertible preferred stock liability , continued
Redeemable convertible preferred stock liability
In connection with the issuance of shares of Series B-1 (Note 8), the Series B-1 preferred stockholders committed to purchase and the Company committed to sell 3,569,630 shares of Series B-2 at a price of $11.20563 per share in a subsequent closing,
contingent upon the achievement of certain developmental milestones or a receipt of a waiver of achievement of the milestones. The Redeemable Convertible Preferred Stock Liability is considered a freestanding instrument that qualifies as a liability
under ASC Topic 480, Distinguishing Liabilities from Equity as the Company is committed to issue an instrument that ultimately may require a transfer of assets. The liability is accounted for at fair value and
re-measured at each reporting date (Note 10). On the date of the initial closing, the Company recorded the Redeemable Convertible Preferred Stock Liability at a fair value of $3,174. As of September 30,
2020, none of the Series B-2 shares were issued and the fair value of the liability related to this freestanding instrument increased by $11,750 and $11,387 during the three and nine months ended
September 30, 2020.
8.
Capital stock
Common stock
On
December 23, 2019, pursuant to the Second Amended and Restated Certificate of Incorporation, the total shares of common stock authorized were set to 278,000,000 and the total shares of redeemable convertible preferred stock were set to
212,994,964 with a par value of $0.0001 per share. The total shares of redeemable convertible preferred stock authorized comprised of 101,962,864 shares of Series A, 77,764,055 shares of Series B-1, and
33,268,045 shares of Series B-2.
The holders of shares of Common Stock are entitled to one vote
for each share of Common Stock at all meetings of stockholders.
Redeemable convertible preferred stock
On August 16, 2018, the Company entered into the Series A Preferred Stock Purchase Agreement for the purchase and sale of Series A for
$9.32 per share. The Company received $75,000 in cash proceeds from the initial purchasers. On September 19, 2018, the Company received an additional $20,000 in cash proceeds from subsequent purchasers. Additionally, on the initial closing
date, $5,600 in convertible notes plus accrued interest converted into shares of Series A and the notes were subsequently cancelled. The Warrants associated with the convertible notes became exercisable into shares of Series A. Each share of Series
A is convertible into Common Stock on a one-for-one basis. In connection with the issuance of Series A, the Company incurred $194 in issuance costs which have offset
amounts reported as temporary equity as of September 30, 2020.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
8.
Capital stock, continued
Redeemable convertible preferred stock, continued
On December 23, 2019, the Company entered into the Series
B-1 and Series B-2 Preferred Stock Purchase Agreement (the Series B Purchase Agreement), pursuant to which the investors committed to invest an aggregate
amount of up to $125,000 for the issuance and sale of shares of Series B-1 and Series B-2 (collectively, the Series B), at a price of $10.18690 and $11.20563
per share, respectively. The Company issued 8,344,034 shares of Series B-1 for cash proceeds of $85,000 at the initial closing. The investors also committed to purchase and the Company committed to sell
3,569,630 shares of Series B-2 in a subsequent closing (the Second Closing), contingent upon achievement by the Company of certain development milestones or a receipt of a waiver of achievement of
the milestones. No shares of Series B-2 were issued as of September 30, 2020. In connection with the issuance of Series B-1, the Company incurred $442 in
issuance costs which have offset amounts reported as temporary equity as of September 30, 2020.
The holders of the Companys
Series A and Series B (collectively, the Preferred Stock) had the following rights, preferences, and privileges prior to the completion of the Companys IPO:
(a)
Dividends
The holders of shares of Preferred Stock, in preference to the holders of Common Stock, shall be entitled to receive, on a pari passu
basis, when, as and if declared by the board of directors (Board) out of funds legally available, noncumulative cash dividends at the rate of eight percent (8%) of the original issue price per annum on each outstanding share of Preferred
Stock. So long as any shares of Preferred Stock are outstanding, the Company shall not pay or declare any dividend, or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock
until all dividends on the Preferred Stock shall have been paid or declared and set apart, except for: acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services
to the Company; or acquisitions of Common Stock in exercise of the Companys right of first refusal to repurchase such shares as approved by the Board. After the dividends on the Preferred Stock have been paid, then the Company may declare and
distribute in such year dividends among the holders of Preferred Stock and the holders of Common Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if-converted to Common Stock basis (assuming full conversion of all such Preferred Stock) as of the record date with respect to the declaration of such dividends.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
8.
Capital stock, continued
Redeemable convertible preferred stock, continued
(b)
Liquidation preference and redemption
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders or, in the case of a Deemed Liquidation Event (as defined below), out of the consideration payable to stockholders in such
Deemed Liquidation Event or the Available Proceeds (as defined below), before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to one (1) times the applicable Original
Issue Price of such series of Preferred Stock, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, the assets of the Company available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled, the assets or consideration will be distributed ratably among such holders.
After the payment in full of all liquidation amounts required to be paid to the holders of shares of Preferred Stock the remaining assets of
the Company available for distribution to its stockholders or, in the case of a Deemed Liquidation Event, the consideration not payable to the holders of shares of Preferred Stock or the remaining Available Proceeds, as the case may be, shall be
distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock immediately
prior to such liquidation, dissolution or winding up of the Company; provided, however, that if the aggregate amount which the holders of shares of Preferred Stock are entitled to receive shall exceed one and
one-half (1.5) times the applicable Original Issue Price of such series of Preferred Stock per share, plus any dividends declared, but unpaid thereon (such amount, with respect to a series of Preferred Stock,
the Maximum Participation Amount), each holder of shares of a series of Preferred Stock shall be entitled to receive upon such liquidation, dissolution or winding up of the Company the greater of (i) the Maximum Participation Amount
applicable to such series or (ii) the amount such holder would have received if all shares of such series of Preferred Stock had been converted into Common Stock immediately prior to such liquidation, dissolution or winding up of the Company.
Each of the following events shall be considered a Deemed Liquidation Event unless the holders of at least 67% of the
outstanding shares of Preferred Stock (voting as a single class on an as-converted to Common Stock basis) which must include certain non-strategic holders of Series B-1 or Series B-2 holding at least 33% of outstanding shares of Series B-1 and Series B-2 elect
otherwise by written notice sent to the Company prior to the effective date of any such event:
(a)
a merger or consolidation in which the Company is a constituent party or a subsidiary of the Company is a
constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except (1) any such merger or consolidation involving the Company or a subsidiary in which the shares of capital stock of the Company
outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, a majority, by voting power, of
the capital stock of (a) the surviving or resulting corporation; or (b) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation; or (2) a merger effected exclusively to change the domicile of the Company;
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
8.
Capital stock, continued
Redeemable convertible preferred stock, continued
(b)
the closing of the sale, in a single transaction or series of related transactions, of equity securities of the
Company other than (a) bona fide equity financing, and (b) any transaction in which, the stockholders of the Company prior to such transaction continue to hold at least fifty percent (50%) of the outstanding shares of the surviving
corporation; or
(c)
(1) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of
related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or (2) the sale or disposition (whether by merger, consolidation or otherwise,
and whether in a single transaction or a series of related transactions) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries,
except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Company.
(c)
Conversion
Each share of Preferred Stock is convertible into fully paid and non-assessable shares of Common Stock
at any time at the option of the holder, and is subject to mandatory conversion upon the written consent of certain holders or upon the closing of a firm commitment underwritten public offering (i) approved by a majority of the then-outstanding
shares of Series B-1 or Series B-2 held by certain non-strategic Series B-1 and Series B-2 holders or (ii) after the earlier of (A) September 30, 2021 and (B) the occurrence of a developmental milestone, in the case of clause (ii) which firm commitment underwritten public
offering involves a price per share dependent upon whether it is prior to the Second Closing or on or after the Second Closing, and gross proceeds to the Company of at least $75,000. The conversion ratio at September 30, 2020 and
December 31, 2019, was one-for-one, and is subject to certain anti-dilutive adjustments.
(d)
Voting
The holders of Preferred Stock have voting rights equivalent to the number of shares of Common Stock into which their shares of Preferred
Stock convert. Except as provided by law or by the other provisions of the amended and restated certificate of incorporation, holders of shares of Preferred Stock shall vote together with the holders of shares of Common Stock as a single class and
on an as-converted to Common Stock basis.
The holders of record of shares of Series A,
exclusively and as a separate class, shall be entitled to elect four (4) directors of the Company, the holders of record of shares of Series B-1 and Series B-2,
exclusively and as a separate class on an as-converted basis, shall be entitled to elect one (1) director of the Company and the holders of record of shares of Common Stock, exclusively and as a separate
class, shall be entitled to elect two (2) directors of the Company.
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
9.
Stock-based compensation
2018 Equity incentive plan
The Companys 2018 Equity Incentive Plan, as amended, (the Plan), allows for the Company to issue restricted stock awards and
restricted stock units, and to grant incentive stock options or non-qualified stock options. Incentive stock options may be granted only to the Companys employees including officers and members of the
Board who are also employees. Restricted stock awards, restricted stock units and non-qualified stock options may be granted to employees, members of the Board, outside advisors, and consultants of the Company
(the Participants). As of September 30, 2020, the Company was authorized to issue awards for 4,913,665 shares of Common Stock under the Plan. In addition, the Company had 4,238,874 awards granted as of September 30, 2020 with
674,791 available for future issuances.
Stock options
The exercise price for incentive stock options is at least 100% of the fair market value on the date of grant for stockholders owning less than
10% of the voting power of all classes of stock, or at least 110% of the fair market value for stockholders owning more than 10% of the voting power of all classes of stock. Options generally expire in 10 years. Options may vest over periods
determined by the Board, generally 48 months (Time-Vesting Options), or vest upon the achievement of a certain performance condition (Performance-Vesting Options). Certain stock options referred to as early exercise
stock options permit the holders to exercise the option in whole or in part prior to the full vesting of the option in exchange for unvested shares of Restricted Stock with respect to any unvested portion of the option so exercised.
Of the option awards outstanding as of September 30, 2020, 1,711,065 were Time-Vesting Options, with an unamortized expense balance of
$3,463, to be amortized over a weighted average period of 2.88 years.
Of the option awards outstanding as of September 30, 2020,
434,977 were Performance-Vesting Options. On September 30, 2020, the Company has determined that the vesting condition associated with the Performance-Vesting Options became probable. Therefore, the Company has recognized compensation expense
under the accelerated attribution method measured at the grant date fair value. In September 2020, terms of certain Performance-Vesting Options were modified. The performance condition for these options was removed and they became fully vested. The
Company recognized a total of $203 of incremental compensation expense as a result of the modification. The total unrecognized expense for Performance-Vesting options was $629 as of September 30, 2020, which will be recognized over a
weighted-average period of 3.30 years.
During the three and nine months ended September 30, 2020, the Companys stock option
compensation expense was approximately $926 and $1,403, respectively. During the three and nine months ended September 30, 2019, stock option compensation expense was $60 and $203, respectively. There was no recognized tax benefit in either of
the periods.
27
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
9.
Stock-based compensation, continued
Stock options, continued
Stock option activity during the nine months ended September 30, 2020 is as follows:
Time-Vesting Options
Performance-Vesting Options
Shares subject
to options
Weighted-
average exercise
price
Shares subject
to options
Weighted-
average exercise
price
Weighted-
average
remaining
contractual term
(years)
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2020
346,872
$
1.30
$
9.01
$
744
Granted
1,552,942
3.45
454,994
3.45
Exercised
(156,783
)
2.25
(20,017
)
3.45
1,786
Forfeited
(31,966
)
1.30
Outstanding as of September 30, 2020
1,711,065
$
3.16
434,977
$
3.45
9.30
$
19,888
Options vested and expected to vest as of September 30, 2020
2,137,351
$
2.84
434,977
$
3.45
9.15
$
24,554
Options vested and exercisable as of September 30, 2020
1,337,277
$
3.36
71,670
$
3.45
9.38
$
12,859
The weighted-average grant date fair value of both Time-Vesting Options and Performance-Vesting Options
granted was $2.23 per share during the three and nine months ended September 30, 2020. The Company did not grant any Time-Vesting Options or Performance-Vesting Options during the three months ended September 30, 2020.
28
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
9.
Stock-based compensation, continued
Restricted stock awards
The Company may grant restricted stock purchase awards to the Participants to purchase restricted stock under the Companys Plan, which
are subject to vesting conditions. The purchase prices of the restricted stock are determined by the Board. The Company has a right to repurchase the shares if the Participants service period is not fulfilled or upon termination of service at
the original per share issuance price. The right of repurchase lapses over a service period which is typically four years with 25% vesting on the first anniversary of the vesting commencement date and 1/48 each month thereafter.
Before the adoption of the Companys Plan, the Company granted 502,964 shares of restricted stock to employees and founders. These shares
of restricted stock have similar characteristics to the restricted stock awards granted under the Companys Plan, other than the right of repurchase, which typically lapses over three years with 33% vesting on the first anniversary of the
vesting commencement date and 1/36 each month thereafter.
During the three and nine months ended September 30, 2020, the Company
recorded a total stock-based compensation expense of $90 and $271, respectively, related to the restricted stock awards. During the three and nine months ended September 30, 2019, the Company recorded stock-based compensation expense related to
restricted stock awards of $91 and $401, respectively. As of September 30, 2020 unrecognized stock-based compensation expense related to outstanding unvested shares of restricted stock that are expected to vest were approximately $542, expected
to be recognized over a weighted-average period of 1.36 years.
The following table summarizes the Companys restricted common stock
activity for the nine months ended September 30, 2020:
Number
of Awards
Weighted-
Average Grant
Date Fair Value
Aggregate Fair
Value
Issued and unvested as of January 1, 2020
827,192
$
1.01
$
834
Restricted stock awards vested
(314,093
)
0.86
271
Issued and unvested as of September 30, 2020
513,099
$
1.10
$
563
29
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
9.
Stock-based compensation, continued
Stock-based compensation expense was allocated as follows for the three and nine months ended
September 30, 2020 and 2019:
Three months ended
September 30,
Nine months ended
September 30,
2020
2019
2020
2019
Research and development
$
331
$
97
$
652
$
368
General and administrative
685
54
1,022
236
$
1,016
$
151
$
1,674
$
604
During the nine months ended September 30, 2020, the Company issued 52,062 shares of common stock,
upon exercise of unvested stock options or purchases for unvested restricted stock awards. As of September 30, 2020 and December 31, 2019, there were 441,198 and 577,124 shares of Common Stock held by employees subject to repurchase at an
aggregate price of $650 and $753, respectively. A corresponding liability was recorded and included in accrued expenses on the condensed consolidated balance sheet as of September 30, 2020 and December 31, 2019, respectively.
30
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
10.
Fair value
The following tables present the fair value of the Companys financial instruments that are measured or disclosed at fair value on a
recurring basis:
Fair Value Measurements
as of September 30, 2020
Level 1
Level 2
Level 3
Assets:
Cash equivalents:
Money market funds
$
31,816
$
$
Held-to-maturity
securities:
U.S. Treasury bonds
15,063
Available-for-sale
securities:
U.S. Treasury bonds
23,241
Liabilities:
Derivative liabilities
(620
)
Redeemable convertible preferred stock liability
(14,560
)
$ 70,120
$
$ (15,180)
Fair Value Measurements
as of December 31, 2019
Level 1
Level 2
Level 3
Assets:
Cash equivalents:
Money market funds
$
69,565
$
$
Held-to-maturity
securities:
U.S. Treasury bonds
58,147
Liabilities:
Derivative liabilities
(461
)
Redeemable convertible preferred stock liability
(3,174
)
$
127,712
$
$
(3,635
)
The derivative liability in the table above refers to the fair value of Warrants (Note 7). The fair
values of the Warrants were determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
31
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
10.
Fair value, continued
In order to determine the fair value of the Warrants, the Company utilized a
probability-weighted multi-scenario Black-Scholes option-pricing model to determine the fair value of the Warrants by accounting for the probability of multiple possible outcomes, including deemed liquidation events, as best estimated by the
management. Estimates and assumptions impacting the fair value measurement including the fair value of the underlying shares of Series A, the remaining contractual or expected term of the Warrants, risk-free interest rate, expected dividend
yield and expected volatility of the price of the underlying preferred stock on an as converted basis. The Company considered the probability of a deemed liquidation event in determining the remaining expected term of the Warrants, which was used as
an input to the probability-weighted multi-scenario Black-Scholes option-pricing model adopted in 2019. The Company lacks company-specific historical and implied volatility information of its stock since there is currently no market. Therefore, it
estimated its expected stock volatility based on the historical volatility of publicly traded guideline companies for a term equal to the remaining contractual or expected term of the Warrants. The risk-free interest rate was determined by reference
to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual or expected term of the Warrants. The Company estimated no expected dividend yield based on the fact that the Company has never paid or declared
dividends and does not intend to do so in the foreseeable future.
The Warrants were measured at fair value under the following
assumptions:
September 30,
December 31,
2020
2019
Exercise price
$
9.32
$
9.32
Term (in years)
0.32
2.00 - 3.00
Risk-free interest rate
0.10
%
1.63
%
Dividend yield
Volatility
120.00
%
75.00
%
The significant unobservable inputs used in the fair value measurement of the Warrants are the remaining
expected term, which considers the timing of a liquidation event that would net settle the awards before their contractual term expires, and the equity volatility, which is a statistical measure of the dispersion of returns for a given security.
Significant increases (decreases) in the term would result in significantly higher (lower) fair value measurements. Significant increases (decreases) in the volatility would result in significantly higher (lower) fair value measurements.
The following table sets forth a summary of changes in fair value of the Companys derivative liability and redeemable convertible
preferred stock liability for which fair value was determined by Level 3 inputs:
Derivative
Liabilities
Redeemable Convertible
Preferred Stock Liability
Balance as of December 31, 2019
$
461
$
3,174
Exercise of warrants
(137
)
Change in fair value
296
11,386
Balance as of September 30, 2020
$
620
$
14,560
32
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
10.
Fair value, continued
In order to determine the fair value of the Redeemable Convertible Preferred Stock Liability,
the Company used a probability-weighted multi-scenario Black Scholes hybrid valuation method that accounts for the probability of achieving milestones as estimated by the management. The Redeemable Convertible Preferred Stock Liability was measured
at fair value under the following assumption as of September 30, 2020:
September 30,
December 31,
2020
2019
Exercise price
$
11.21
$
11.21
Term (in years)
0.02-0.75
1.27
Risk-free interest rate
0.08%-0.11
%
1.55
%
Dividend yield
Volatility
%
60.00
%
The significant unobservable inputs used in the fair value measurement of the redeemable convertible preferred
stock liability include the probability of milestone achievement and/or milestone achievement waiver, the Series B-2 current or future value estimate under each scenario, the term, and the equity volatility,
which is a statistical measure of the dispersion of returns for a given security. Significant increases (decreases) in the probability of milestone achievement and/or milestone waiver would result in a significantly higher (lower) fair value
measurement. Significant decreases (increases) in assumed current or future Series B-2 value would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the term
would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the volatility would result in significantly higher (lower) fair value measurements.
11.
License and collaboration agreements
Agreement with Emory University (Emory)
In June 2018, the Company entered into a license agreement with Emory (the Emory License Agreement), pursuant to which Emory
granted the Company a worldwide, sublicensable license under certain of its intellectual property rights to make, have made, develop, use, offer to sell, sell, import and export products containing certain compounds relating to Emorys
hepatitis B virus capsid assembly modulator technology, for all therapeutic and prophylactic uses.
In June 2020, the Company amended the
license agreement with Emory. Pursuant to the amended license agreement, Emory granted the Company additional patent rights to certain compounds targeting the treatment or prevention of HBV. As consideration for the additional rights, the Company
made a one-time, non-refundable payment to Emory in the amount of $150, with an additional obligation to pay up to a maximum of $35. On the same date, the Company
entered into a collaboration agreement with Emory, with the initial research plan pertaining to the synthesis and evaluation of the compounds licensed through the additional patent rights granted in the amended license agreement. The research plan
terminates one year from the effective date, with the Company having an option to extend for a second year. In connection with the research plan, the Company will provide Emory funding up to $270 per year.
33
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
11.
License and collaboration agreements, continued
Agreement with Luxna Biotech Co., Ltd. (Luxna)
On December 19, 2018, the Company entered into a license agreement with Luxna, pursuant to which Luxna granted the Company an exclusive,
worldwide, sublicensable license under certain of Luxnas intellectual property rights to research, develop make, have made and commercialize for all therapeutic and prophylactic uses, (i) products containing oligonucleotides targeting the
hepatitis B virus genome, (ii) products containing certain oligonucleotides targeting up to three genes which contribute to NASH, which the Company may select at any time during the first eight years of the term, to the extent not licensed to a
third party, and (iii) products containing oligonucleotides targeting up to three genes which contribute to hepatocellular carcinoma, which the Company may select at any time during the first three years of the term.
In April 2020, the Company amended the license agreement with Luxna. Pursuant to the amended license agreement, Luxna granted the Company an
exclusive, worldwide license under the licensed patents to research, develop, make, have made and commercialize products containing oligonucleotides targeting three families of viruses: orthomyxoviridae, paramyxoviridae, and coronaviridae (a family
which includes SARS-CoV-2). As consideration for the amended license agreement, the Company paid Luxna a one-time non-refundable fee of $200.
Agreement with Katholieke Universiteit Leuven (KU Leuven)
On June 25, 2020, the Company entered into a Research, Licensing and Commercialization Agreement (KU Leuven
Agreement) with KU Leuven, under which the Company is collaborating with KU Leuvens Rega Institute for Medical Research, as well as its Centre for Drug Design and Discovery, to research and develop potential protease inhibitors for the
treatment, diagnosis or prevention of coronaviruses, including of SARS-CoV-2. Unless terminated earlier by either party in accordance with provisions in the agreement,
the collaboration period will terminate at the earlier of completion of all collaboration activities or 2.5 years. In connection with the KU Leuven Agreement, KU Leuven and the Company granted each other exclusive cross-licenses to use certain know-how and existing patents of the other party as well as certain joint know-how and joint patents to carry out research and development collaboration activities during the
collaboration period. KU Leuven granted to the Company an exclusive (including as to KU Leuven), worldwide license under certain of KU Leuvens know-how and existing patents, and certain joint patents and
joint know-how, to manufacture and commercialize the licensed products for the treatment, diagnosis or detection of viral infections in humans. KU Leuven reserved the right to use all KU Leuven knowhow,
existing KU Leuven patents, joint patents and joint know-how for academic and non-commercial research and teaching purposes. As consideration for this license, the
Company is obligated to make payments to KU Leuven, in aggregate, totaling up to but no more than $30,000 upon the achievement of certain commercial sales milestones. For each licensed product developed through KU Leuven and the Companys
collaborative effort, the Company is obligated to make payments to KU Leuven, in aggregate, totaling up to $32,000 upon the achievement of certain development and regulatory milestones. The Company is also required to pay KU Leuven a low-to-mid-single digit royalty percentage, subject to certain adjustments, on net sales of applicable products, if any. Unless
terminated earlier by either party, the agreement shall continue until the expiration of the last to expire royalty term, which is the later of the expiration or termination of the last valid patent claim covering the manufacture, use, sale or
importation of the licensed product in a particular country or 10 years after the first commercial sale of a licensed product.
34
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
12.
Commitments and contingencies
From time to time, the Company may have certain contingent liabilities, including legal
matters that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company had no
contingent liabilities requiring accrual as of September 30, 2020 and December 31, 2019.
13.
Net loss per share
The following table summarizes the computation of basic and diluted net loss per share of the Company:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net loss
$
(33,297)
$
(14,051)
$
(74,123)
$
(34,080)
Weighted average common stock outstanding, basic and diluted
3,027,825
2,084,719
2,829,160
1,851,811
Net loss per sharebasic and diluted
$
(11.00)
$
(6.74)
$
(26.20)
$
(18.40)
The Companys potentially dilutive securities, which include redeemable convertible preferred
stock, a forward contract to issue preferred stock, options to purchase common stock and unvested restricted stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.
Therefore, the weighted-average number of shares of Common Stock outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential shares of Common Stock, presented based on amounts
outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Redeemable convertible preferred stock
19,201,429
10,806,432
19,201,429
10,806,432
Forward contract to issue redeemable convertible preferred stock
3,569,630
3,569,630
Options to purchase common stock
2,586,195
1,028,327
2,586,195
1,028,327
Unvested restricted stock
513,078
931,893
513,078
931,893
Warrants to purchase preferred stock
83,149
134,112
83,149
134,112
25,953,481
12,900,764
25,953,481
12,900,764
14.
Subsequent events
In preparing the interim financial statements as of September 30, 2020 and for the three and nine months then ended, the Company evaluated
subsequent events for recognition and measurement purposes. The Company concluded that no events or transactions have occurred that require disclosure in the accompanying financial statements, other than the following:
35
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ALIGOS THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect share and per share data)
14.
Subsequent events, continued
Series B-2 redeemable convertible preferred
stock
On October 6, 2020, the Company issued 3,569,630 shares of Series B-2 at a
price of $11.20563 per share for proceeds of $40,000 following the achievement of certain milestones stated in the Series B Purchase Agreement.
Warrants to purchase Series A redeemable convertible preferred stock
Prior to the completion of the Companys IPO, all Warrants to purchase Series A were exercised.
Non-voting common stock election
In October 2020, certain holders of the Companys redeemable convertible preferred stock elected to have such shares convert into
3,092,338 shares of non-voting Common Stock upon the closing of the Companys planned IPO. The shares of non-voting common stock shall have the same rights and
preferences as the voting common stock, but shall be non-voting. Holders of non-voting common stock shall have the right to convert each share of non-voting common stock into one share of common stock at such holders election, provided that as a result of such conversion, such holder, together with its affiliates and any members of a Schedule 13(d)
group with such holder, would not beneficially own in excess of 4.99% of the Companys common stock immediately prior to and following such conversion, unless otherwise expressly provided for in the Companys amended and restated
certificate of incorporation. However, this ownership limitation may be increased to any other percentage designated by such holder of non-voting common stock upon 61 days notice to the Company or
decreased at any time upon notice to the Company.
2020 Incentive Award Plan
The Company adopted the 2020 Incentive Award Plan (the 2020 Plan) effective October 15, 2020. The 2020 Plan provides for a
variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards, dividend equivalents, or other
stock or cash based awards. The Company has initially reserved for issuance 4,426,822 shares of common stock pursuant to the 2020 Plan.
2020 Employee Stock Purchase Plan
The Company adopted the 2020 Employee Stock Purchase Plan (the 2020 ESPP) effective on October 15, 2020. The 2020 ESPP will
enable eligible employees of the Company to purchase shares of common stock at a discount to fair market value. The Company initially reserved for issuance 368,901 shares of common stock pursuant to the 2020 ESPP.
First dosage in Phase 1a/b clinical trial for ALG-000184
On October 30, 2020, the Company dosed its first subject in a
first-in-human Phase 1a/b clinical trial for Small Molecule drug candidate
ALG-000184-201. Upon the first dosage, the Company became liable for a $4,500 milestone payment.
36
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Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our
condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in Risk Factors and Special note
regarding forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company currently focused on developing novel therapeutics to address unmet medical needs in viral and liver
diseases. We utilize our proprietary oligonucleotide and small molecule platforms to develop pharmacologically optimized drug candidates for use in combination regimens designed to achieve improved treatment outcomes. Our lead effort is to develop a
functional cure for Chronic Hepatitis B (CHB), which often results in other life-threatening conditions such as cirrhosis, end-stage liver disease (ESLD) and the most common form of
liver cancer, hepatocellular carcinoma (HCC). The most widely used treatment for CHB, nucleos(t)ide analogs, suppresses viral replication but only achieves low rates of functional cure and often requires long-term administration. To
address this issue, we have developed a portfolio of differentiated drug candidates for CHB, including an S-antigen Transport-inhibiting Oligonucleotide Polymers (STOPS) molecule, a small molecule
Capsid Assembly Modulator (CAM), and oligonucleotides (ASO and siRNA), each of which is designed against clinically validated targets in the Hepatitis B Virus (HBV) life cycle. We believe that combination regimens utilizing
our portfolio of CHB drug candidates may lead to higher rates of functional cure. A Phase 1 proof of concept trial for our STOPS molecule is ongoing and in New Zealand we initiated a Phase 1 clinical trial with our CAM in October 2020. Our
second area of focus is in non-alcoholic steatohepatitis (NASH), a complex, chronic liver disease where combination regimens may prove beneficial. Our most advanced drug candidate for NASH is ALG-055009, a small molecule THR-ß agonist currently in nonclinical studies to enable a first-in-human clinical trial. We believe
ALG-055009 has the potential to become an integral component of future combination regimens for NASH. Our third area of focus is to develop drug candidates with
pan-coronavirus activity, including SARS-CoV-2, the virus responsible for COVID-19.
On October 20, 2020, we closed our IPO and issued 10,000,000 shares of our common stock at a price to the public of $15.00 per share for net proceeds of
$135.4 million, after deducting underwriting discounts and commissions of $10.5 million and estimated expenses of $4.1 million. In connection with the IPO, all shares of Series A, Series B-1 and
Series B-2 redeemable convertible preferred stock converted into 22,854,208 shares of common stock. On November 5, 2020, the underwriters of the IPO partially exercised their overallotment option by
purchasing an additional 1,150,000 shares from the Company, resulting in an additional $16.0 million, after deducting underwriting discounts and commissions of $1.2 million. Prior to our IPO, we had received gross proceeds of approximately
$186.9 million from sales of our preferred stock and our issuance of convertible debt.
We have incurred net losses and negative cash flows from
operations in each year. Our net losses were $74.1 million and $34.1 million for the nine months ended September 30, 2020 and 2019, respectively. We have had no revenue from product sales. As of September 30, 2020, we had an
accumulated deficit of $140.3 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We
expect to continue to incur significant expenses and increasing operating losses over at least the next several years. Our net operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of our clinical
trials and nonclinical studies and our other research and development expenses. We have no internal manufacturing capabilities or salesforce and outsource a substantial portion of our clinical trial work to third parties.
Components of our results of operations
Operating
expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and development expenses
We rely substantially
on third parties to conduct our discovery activities, nonclinical studies, clinical trials and manufacturing. We estimate research and development expenses based on estimates of services performed, and rely on third party contractors and vendors to
provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates. Research and development costs consist primarily of costs incurred for the identification and development of our drug candidates through
our technology platforms, which include:
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salaries, benefits and other employee-related costs, including stock-based compensation expense, for personnel
engaged in research and development functions;
costs of outside consultants, including their fees, and related travel expenses;
costs associated with in-process research and development, including
license fees and milestones paid to third-party collaborators for technologies with no alternative use;
costs related to production of clinical materials, including fees paid to contract manufacturers;
expenses incurred under agreements with collaborators that perform nonclinical activities;
costs related to compliance with regulatory requirements; and
facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and
maintenance of facilities, insurance, and other supplies.
We expense research and development costs as the services are performed or
the goods are received. Non-refundable payments for goods or services that will be used for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as
the goods are delivered or the related services are performed until it is no longer expected that the goods will be delivered or the services will be rendered.
We expect our research and development costs to increase in future periods as we continue to invest in research and development activities and advance our
nonclinical and clinical programs through clinical development. The process of conducting nonclinical studies and, eventually, clinical trials necessary to obtain regulatory approval is costly and time consuming, and the successful development of
our drug candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or clinical trials or if and to what extent we will generate revenue from the
commercialization and sale of any of our drug candidates.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive,
finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services;
insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs not otherwise classified as research and development
costs.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel
headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our drug candidates. We also
expect to incur increased expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with
exchange listing rules and requirements of the Securities and Exchange Commission (the SEC), director and officer insurance costs, and investor and public relations costs.
Interest and other (expense) income, net
Interest
and other (expense) income, net comprises interest (expense) income, net and other income (expense), net. Interest income (expense), net primarily consists of interest earned on our cash, cash equivalents, and short-term investments and interest
expense related to our convertible note instruments. Other (expense) income, net consists primarily of the change in fair value of our derivative liabilities.
We classify our warrants and the commitment to sell redeemable convertible preferred stock as liabilities on our consolidated balance sheets and record
changes in fair value at each balance sheet date with the corresponding change recorded as other income (expense), net. We will continue to record adjustments to the fair value of the warrants and the redeemable convertible preferred stock liability
at each balance sheet date until they are exercised, automatically converted into common stock or expire. Prior to our IPO, all outstanding warrants were exercised for the issuance of shares of common stock and, upon that exercise, such warrants
were no longer outstanding.
We anticipate other (expense) income, net to fluctuate in the future based on subsequent revaluations at each balance sheet
date of the redeemable convertible preferred stock liability through the date on which such shares are converted into shares of common in connection with the closing of the IPO, if not earlier converted.
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Provision for income taxes
Since our inception in 2018, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our
earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2019, we had federal net operating loss (NOL) carryforwards of $57.6 million available to reduce
taxable income and these NOLs can be carried forward indefinitely. We have state NOL carryforwards of $60.5 million as of December 31, 2019, available to reduce future state taxable income, which expire at various dates beginning in 2038.
As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $1.4 million and $1.1 million, respectively. The federal development tax credit carryforwards begin to expire in 2029, while
the state development tax credit carryforwards can be carried forward indefinitely. In addition, we may in the future experience ownership changes, either as a result of the IPO or other changes in our stock ownership (some of which are not in our
control). For these reasons, our ability to utilize our NOL carryforwards and other tax attributes to reduce future tax liabilities may be limited.
Results of Operations
Comparison of the three months
ended September 30, 2020 and 2019
Operating expenses
The following table summarizes our operating expenses for the three months ended September 30, 2020 and 2019:
Three Months Ended
September 30,
Change
2020
2019
($)
%
Operating expenses:
Research and development
$
17,332
$
11,729
$
5,603
48
%
General and administrative
4,225
2,775
1,450
52
%
Total operating expenses
$
21,557
$
14,504
$
7,053
49
%
Research and development expenses
Three Months Ended
September 30,
Change
2020
2019
($)
%
Third party expenses
$
10,797
$
7,353
$
3,444
47
%
Employee related expenses
4,509
2,927
1,582
54
%
Laboratory supplies and other costs
980
746
234
31
%
Facilities and other allocated expenses
520
476
44
9
%
Depreciation and other expenses
526
227
299
132
%
Total research and development expenses
$
17,332
$
11,729
$
5,603
48
%
Research and development expenses were $17.3 million for the three months ended September 30, 2020, compared to
$11.7 million for the three months ended September 30, 2019, an increase of $5.6 million. The increase was primarily due to an increase of $3.5 million in third-party expenses for our preclinical programs and the continued
increase in expenditures related to research and development activities associated with our STOPs molecule and CAM candidates, as well as activities related to our NASH program. The increase also includes $1.6 million of additional
employee-related costs, including a $0.2 million increase in stock-based compensation, $0.2 million of increased laboratory supplies primarily due to higher headcount and $0.3 million in depreciation and other expenses.
General and administrative expenses
General and
administrative expenses were $4.2 million for the three months ended September 30, 2020, compared to $2.8 million for the three months ended September 30, 2019, an increase of $1.4 million. The increase was primarily due to
$0.9 million in increased personnel-related costs, including an increase of $0.7 million of additional stock-based compensation expense, and a $0.5 million increase in third-party expenses primarily due to increased general and
administrative headcount to support the growth of our research and development organization.
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Interest and other (expense) income, net
Three Months Ended
September 30,
Change
2020
2019
($)
%
Interest income, net
$
234
$
345
$
(111
)
(32
)%
Other (loss) income, net
(11,974
)
108
(12,082
)
(11,187
)%
Interest and other (expense) income, net
$
(11,740
)
$
453
$
(12,193
)
(2,692
)%
Interest income, net decreased to $0.2 million for the three months ended September 30, 2020 from $0.3 million
for the three months ended September 30, 2019, a decrease in $0.1 million, primarily due to the change in our portfolio of cash equivalents, short-term investments and long-term investments.
Other (loss) income, net decreased to a loss of $12.0 million for the three months ended September 30, 2020 from income of $0.1 million for the
three months ended September 30, 2019, a decrease of $12.1 million, primarily due to the loss recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities.
Comparison of the nine months ended September 30, 2020 and 2019
Operating expenses
Nine Months Ended
September 30,
Change
2020
2019
($)
%
Operating expenses:
Research and development
$
51,809
$
29,065
$
22,744
78
%
General and administrative
11,739
6,542
5,197
79
%
Total operating expenses
$
63,548
$
35,607
$
27,941
78
%
Research and development expenses
Nine Months Ended
September 30,
Change
2020
2019
($)
%
Third party expenses
$
33,073
$
16,719
$
16,354
98
%
Employee related expenses
13,042
8,203
4,839
59
%
Laboratory supplies and other costs
2,790
1,939
851
44
%
Facilities and other allocated expenses
1,685
1,610
75
5
%
Depreciation and other expenses
1,219
594
625
105
%
Total research and development expenses
$
51,809
$
29,065
$
22,744
78
%
Research and development expenses were $51.8 million for the nine months ended September 30, 2020, compared to
$29.1 million for the nine months ended September 30, 2019, an increase of $22.7 million. The increase was primarily due to an increase of $16.4 million in third-party expenses for our preclinical programs and the continued increase
in expenditures related to research and development activities associated with our STOPs molecule and CAM candidates, as well as activities related to our NASH program. The increase also includes $4.8 million of additional employee-related
costs, including a $0.2 million increase in stock-based compensation, $0.9 million of increased laboratory supplies primarily due to higher headcount, and $0.6 million in depreciation and other expenses.
General and administrative expenses
General and
administrative expenses were $11.7 million for the nine months ended September 30, 2020, compared to $6.5 million for the nine months ended September 30, 2019, an increase of $5.2 million. The increase was primarily due to
$1.9 million in increased personnel-related costs, including an increase of $0.9 million of additional stock-based compensation expense, a $2.6 million increase in third-party expenses primarily due to increased general and
administrative headcount to support the growth of our research and development organization, and a $0.7 million increase in depreciation and other expenses.
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Interest and other (expense) income, net
Nine Months Ended
September 30,
Change
2020
2019
($)
%
Interest income, net
$
985
$
1,308
$
(323
)
(25
)%
Other (loss) income, net
(11,618
)
219
(11,837
)
(5405
)%
Interest and other (expense) income, net
$
(10,633
)
$
1,527
$
(12,160
)
(796
)%
Interest income, net decreased to $1.0 million for the nine months ended September 30, 2020 from $1.3 million
for the nine months ended September 30, 2019, a decrease of $0.3 million, primarily due to the change in our portfolio of cash equivalents, short-term investments and long-term investments.
Other (loss) income, net decreased to a loss of $11.6 million for the nine months ended September 30, 2020 from income of $0.2 million for the
nine months ended September 30, 2019, a decrease of $11.8 million, primarily due to the loss recognized on the net increase in fair value of both our redeemable convertible preferred stock liability and warrant liabilities.
Liquidity and capital resources
Since our inception, we
have not generated any revenue from product sales or any other sources, and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at
least several years, if ever. To date, we have financed our operations through private placements of preferred stock, issuances of common stock and convertible debt. Through September 30, 2020, we had received gross proceeds of
$186.9 million from sales of our preferred stock, issuances of common stock and our issuance of convertible debt. As of September 30, 2020, we had cash, cash equivalents and investments of $70.1 million.
Funding requirements
We have incurred net losses
since inception. Our primary use of cash is to fund operating expenses, which consist primarily of research and development costs related to our drug candidates and our discovery programs, and to a lesser extent, general and administrative
expenditures. We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to our most advanced drug candidates, ALG-010133 and ALG-000184, which are still in the early stages of development, as well as our research and development of our other drug candidates within our CHB, NASH and coronavirus programs.
In addition, we are incurring additional costs associated with operating as a public company following our IPO in October 2020. We expect that our expenses
will increase substantially to the extent we:
conduct our current and future clinical trials, and additional nonclinical studies;
initiate and continue research and nonclinical and clinical development of other drug candidates;
seek to identify additional drug candidates;
pursue marketing approvals for any of our drug candidates that successfully complete clinical trials, if any;
establish a sales, marketing and distribution infrastructure to commercialize any products for which we may
obtain marketing approval;
require the manufacture of larger quantities of our drug candidates for clinical development and potentially
commercialization;
obtain, maintain, expand, protect and enforce our intellectual property portfolio;
acquire or in-license other drug candidates and technologies;
hire and retain additional clinical, quality control and scientific personnel;
achieve milestones triggering payments by us under our current and potential future licensing and/or
collaboration agreements;
build out or expand existing facilities to support our ongoing development activity; and
add operational, financial and management information systems and personnel, including personnel to support our
drug development, any future commercialization efforts and our transition to becoming a public company.
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As of September 30, 2020, we had cash, cash equivalents and investments of $70.1 million. In
October 2020, we issued an aggregate of 3,569,630 shares of our Series B-2 redeemable convertible preferred stock in the second tranche of our Series B convertible preferred stock financing for aggregate
proceeds to us of $40.0 million. In addition, we have received net proceeds of $151.4 million from the sale of an aggregate of 11,150,000 shares of our common stock on October 20, 2020 and on November 5, 2020 as part of our IPO.
We believe that our existing cash, cash equivalents and investments will enable us to fund our planned operating expenses and capital expenditure requirements through at least the next twelve months. We have based this estimate on assumptions that
may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Furthermore, we may elect to raise additional capital on an opportunistic basis to fund operations.
Because of the numerous risks and uncertainties associated with our research and development programs and because the extent to which we may enter into
collaborations with third parties for development of our drug candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our
drug candidates. Our future capital requirements will depend on many factors, including:
the scope, progress, results and costs of researching and developing our drug candidates and programs, and of
conducting nonclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining marketing approvals for drug candidates we develop if
clinical trials are successful;
the cost of commercialization activities for our current drug candidates, and any future drug candidates we
develop, whether alone or in collaboration, including marketing, sales and distribution costs if our current drug candidates or any future drug candidate we develop is approved for sale;
the cost of manufacturing our current and future drug candidates for clinical trials in preparation for marketing
approval and commercialization;
our ability to establish and maintain strategic licenses or other arrangements and the financial terms of such
agreements, including milestone payments to our licensors;
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent
claims, including litigation costs and the outcome of such litigation;
the timing, receipt and amount of sales of, or profit share or royalties on, our future products, if any;
the emergence of competing therapies and other adverse market developments; and
any acquisitions or in-licensing of other programs or technologies.
Developing pharmaceutical products, including conducting nonclinical studies and clinical trials, is a time-consuming, expensive and
uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any drug candidates or generate revenue from the sale of any drug candidate for which we may obtain
marketing approval. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever.
Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us
on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and
the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. Additional debt or preferred equity financing, if available, may involve
agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely constrain our ability to conduct our business, and
may require the issuance of warrants, which could potentially dilute your ownership interest.
If we raise additional funds through collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or drug candidates or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product
development programs or any future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
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Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Nine Months Ended
September 30,
2020
2019
Net cash used in operating activities
$
(54,579
)
$
(31,749
)
Net cash provided by investing activities
17,818
28,601
Net cash (used in) provided by financing activities
(970
)
268
Net decrease in cash, cash equivalents, and restricted cash
$
(37,731
)
$
(2,880
)
Operating activities
During the nine months ended September 30, 2020, operating activities used $54.6 million of cash, primarily resulting from our net loss of
$74.1 million, partially offset by non-cash charges of $15.9 million and cash provided by changes in our operating assets and liabilities of $3.6 million. Net cash provided by changes in our
operating assets and liabilities of $3.6 million consisted of an increase of $5.5 million in accounts payable and accrued liabilities, partially offset by a decrease of $1.0 million in other current assets and a decrease of
$0.9 million in operating lease liability. The increase in accounts payable and accrued liabilities was largely due to an increase in external research and development costs. The decrease in other assets was largely due to an increase in
prepayments for services. The decrease in the operating lease liability was a result of payments made on outstanding lease obligations.
During the nine
months ended September 30, 2019, operating activities used $31.7 million of cash, primarily resulting from our net loss of $34.1 million, partially offset by non-cash charges of
$1.2 million and cash provided by changes in our operating assets and liabilities of $1.2 million. Net cash provided by changes in our operating assets and liabilities of $1.2 million consisted of an increase of $1.4 million in
accounts payable and accrued liabilities, an increase of $0.2 million in operating lease liability, an increase of $0.1 million in right of use assets, and a decrease of $0.5 million in other current assets. The increase in accounts
payable and accrued liabilities was largely due to an increase in external research and development costs. The decrease in other assets was largely due to receipt of tax credits associated with income taxes paid by us on behalf of employees due to
the exercise of restricted stock purchase rights.
Investing activities
During the nine months ended September 30, 2020, investing activities provided $17.8 million of cash, consisting primarily of $65.1 million of
investment maturities, offset by $45.3 million of investment purchases and $2.0 million of purchases of property and equipment.
During the nine
months ended September 30, 2019, investing activities provided $28.6 million of cash, consisting primarily of $76.0 million of investment maturities, offset by $45.3 million of investment purchases and $2.1 million of
purchases of property and equipment.
Financing activities
During the nine months ended September 30, 2020, net cash used in financing activities was $1.0 million, consisting primarily of $1.1 million in
payments for deferred offering costs and $0.4 million in payments for Series B-1 redeemable convertible preferred stock issuance costs, partially offset by $0.3 million from the proceeds from the
exercise of warrants to purchase shares of Series A convertible preferred stock and $0.2 million proceeds from the exercise of stock options.
During
the nine months ended September 30, 2019, net cash provided financing activities was $0.3 million, consisting primarily of proceeds from the exercise of stock options.
Contractual obligations and commitments
We have no
material changes to our contractual obligations and commitments as of December 31, 2019 as disclosed in the contractual obligations and commitment section in our final prospectus filed with the Securities and Exchange Commission pursuant to
Rule 424(b)(4) under the Securities Act of 1933 on October 19, 2020 in connection with our IPO (the Prospectus).
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Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as
defined in the rules and regulations of the SEC.
Indemnification agreements
We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree
to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its
technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable.
We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.
Critical accounting policies and use of estimates
Our
managements discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles
(GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and the disclosure of assets and liabilities at the date of the consolidated financial
statements, as well as the reported 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.
For a discussion of our critical accounting estimates, see Managements discussion and analysis of financial condition and results of
operations in the Prospectus, the notes to our audited financial statements appearing in the Prospectus and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form
10-Q. There have been no material changes to these critical accounting policies and estimates through September 30, 2020 from those discussed in our Prospectus.
Recently issued and adopted accounting pronouncements
For a description of the expected impact of recently adopted accounting pronouncements, see Note 2. Summary of Significant Accounting Policies in the
Notes to Unaudited Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.