aTYR PHARMA INC 10-Q

Item 1. Financial Statements aTyr Pharma, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share data) June 30, December 31, 2020 2019 (unaudited) Assets Current assets: Cash and cash equivalents $ 21,632 $ 9,210 Available-for-sale investments 19,802 21,934 Other receivables 831 100 Prepaid expenses 1,575 681 Total current assets 43,840 31,925 Property and equipment, net 1,136 1,270 Right-of-use assets 2,461 2,821 Other assets 125 172 Total assets $ 47,562 $ 36,188 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 603 $ 847 Accrued expenses 2,809 2,376 Contract liability 201 208 Current portion of operating lease liability 807 755 Term loans, net of issuance costs and discount (Note 4) 4,976 8,737 Grant fund liability 403 — Total current liabilities 9,799 12,923 Long-term operating lease liability, net of current portion 1,825 2,239 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $0.001 par value per share; 5,000,000 undesignated authorized shares; Class X Convertible Preferred Stock issued and outstanding shares – 0 and 1,643,961 as of June 30, 2020 (unaudited) and December 31, 2019, respectively — 2 Common stock, $0.001 par value per share; 21,425,000 and 10,714,286 authorized shares as of June 30, 2020 and December 31, 2019, respectively; issued and outstanding shares – 9,383,425 and 3,891,787 as of June 30, 2020 (unaudited) and December 31, 2019, respectively 9 4 Additional paid-in capital 363,132 343,524 Accumulated other comprehensive loss (44 ) (40 ) Accumulated deficit (326,997 ) (322,304 ) Total aTyr Pharma stockholders’ equity 36,100 21,186 Noncontrolling interest in Pangu BioPharma Limited (162 ) (160 ) Total stockholders' equity 35,938 21,026 Total liabilities and stockholders’ equity $ 47,562 $ 36,188 See accompanying notes. 3 aTyr Pharma, Inc. Condensed Consolidated Statements of Operations (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (unaudited) Revenues: License revenues $ 189 $ 94 $ 8,254 $ 94 Total revenues 189 94 8,254 94 Operating expenses: Research and development 4,361 3,314 7,977 6,659 General and administrative 2,146 2,421 4,736 4,953 Total operating expenses 6,507 5,735 12,713 11,612 Loss from operations (6,318 ) (5,641 ) (4,459 ) (11,518 ) Total other expense, net (129 ) (207 ) (236 ) (467 ) Consolidated net loss $ (6,447 ) $ (5,848 ) $ (4,695 ) $ (11,985 ) Net loss attributable to noncontrolling interest in Pangu BioPharma Limited 1 — 2 — Net loss attributable to aTyr Pharma, Inc. $ (6,446 ) $ (5,848 ) $ (4,693 ) $ (11,985 ) Net loss per share, basic and diluted $ (0.69 ) $ (1.80 ) $ (0.58 ) $ (4.23 ) Shares used in computing net loss per share, basic and diluted 9,357,432 3,244,920 8,119,612 2,834,079 See accompanying notes. 4 aTyr Pharma, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (unaudited) Consolidated net loss $ (6,447 ) $ (5,848 ) $ (4,695 ) $ (11,985 ) Other comprehensive gain (loss): Change in unrealized gain (loss) on available-for-sale investments, net of tax 9 8 (4 ) 28 Comprehensive loss $ (6,438 ) $ (5,840 ) $ (4,699 ) $ (11,957 ) Comprehensive loss attributable to noncontrolling interest Pangu BioPharma Limited 1 — 2 — Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders $ (6,437 ) $ (5,840 ) $ (4,697 ) $ (11,957 ) See accompanying notes. 5 aTyr Pharma, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share data) Three and Six Months Ended June 30, 2020 (unaudited) Convertible Preferred Stock Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2019 1,643,961 $ 2 3,891,787 $ 4 $ 343,524 $ (40 ) $ (322,304 ) $ (160 ) $ 21,026 Conversion of preferred stock to common stock (1,643,961 ) (2 ) 587,444 1 1 — — — — Issuance of common stock upon release of restricted stock units — — 2,679 — — — — — — Issuance of common stock from underwritten follow-on offering, net of offering costs — — 4,870,588 4 18,775 — — — 18,779 Stock-based compensation — — — — 423 — — — 423 Net unrealized loss on investments, net of tax — — — — — (13 ) — — (13 ) Net income (loss) — — — — — — 1,753 (1 ) 1,752 Balance as of March 31, 2020 — $ — 9,352,498 $ 9 $ 362,723 $ (53 ) $ (320,551 ) $ (161 ) $ 41,967 Issuance of common stock upon release of restricted stock units — — 5,999 — — — — — — Issuance of common stock pursuant to employee stock purchase plan — — 1,780 — 6 — — — 6 Issuance of common stock from at the market offerings, net of offering costs — — 23,148 — 25 — — — 25 Stock-based compensation — — — — 378 — — — 378 Net unrealized gain on investments, net of tax — — — — — 9 — — 9 Net loss — — — — — — (6,446 ) (1 ) (6,447 ) Balance as of June 30, 2020 — $ — 9,383,425 $ 9 $ 363,132 $ (44 ) $ (326,997 ) $ (162 ) $ 35,938 Three and Six Months Ended June 30, 2019 (unaudited) Convertible Preferred Stock Common Stock Additional Paid-In Other Comprehensive Accumulated Noncontrolling Total Stockholders’ Shares Amount Shares Amount Capital Gain/(Loss) Deficit Interest Equity Balance as of December 31, 2018 2,285,952 $ 2 2,186,389 $ 2 $ 332,407 $ (60 ) $ (298,701 ) $ — $ 33,650 Conversion of preferred stock to common stock (641,991 ) — 229,283 — — — — — — Issuance of common stock from at the market offerings, net of offering costs — — 193,670 — 1,381 — — — 1,381 Stock-based compensation — — — — 571 — — — 571 Net unrealized gain on investments, net of tax — — — — — 20 — — 20 Net loss — — — — — — (6,137 ) — (6,137 ) Balance as of March 31, 2019 1,643,961 $ 2 2,609,342 $ 2 $ 334,359 $ (40 ) $ (304,838 ) $ — $ 29,485 Issuance of common stock upon release of restricted stock units — — 7,487 — — — — — — Issuance of common stock pursuant to employee stock purchase plan — — 1,515 — 8 — — — 8 Issuance of common stock from at the market offerings, net of offering costs — — 252,872 — 1,146 — — — 1,146 Issuance of common stock from registered direct offering, net of offering costs — — 660,154 1 4,917 — — — 4,918 Stock-based compensation — — — — 509 — — — 509 Net unrealized gain on investments, net of tax — — — — — 8 — — 8 Net loss — — — — — — (5,848 ) — (5,848 ) Balance as of June 30, 2019 1,643,961 $ 2 3,531,370 $ 3 $ 340,939 $ (32 ) $ (310,686 ) $ — $ 30,226 See accompanying notes. 6 aTyr Pharma, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2020 2019 Cash flows from operating activities: (unaudited) Consolidated net loss $ (4,695 ) $ (11,985 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 313 324 Stock-based compensation 801 1,080 Debt discount accretion and non-cash interest expense 239 387 Accretion of discount of available-for-sale investment securities (11 ) (200 ) Amortization of right-of-use assets 407 349 Loss (gain) on disposal of property and equipment 6 (3 ) Changes in operating assets and liabilities Other receivables (731 ) 63 Prepaid expenses and other assets (894 ) (424 ) Accounts payable and accrued expenses 186 (816 ) Contract liability (7 ) 536 Operating lease liability (362 ) (155 ) Grant funding liability 403 — Net cash used in operating activities (4,345 ) (10,844 ) Cash flows from investing activities: Purchases of property and equipment (185 ) (10 ) Purchases of available-for-sale investment securities (18,011 ) (30,080 ) Maturities of available-for-sale investment securities 20,150 29,000 Proceeds from sale of property and equipment 3 26 Net cash provided by (used in) investing activities 1,957 (1,064 ) Cash flows from financing activities: Proceeds from issuance of common stock through employee stock purchase plan 6 8 Proceeds from issuance of common stock through at the market offerings, net of offering costs 25 2,527 Proceeds from issuance of common stock through registered direct offering, net of offering costs — 4,918 Proceeds from issuance of common stock through underwritten follow-on offering, net of offering costs 18,779 — Repayments on borrowings (4,000 ) (4,000 ) Net cash provided by financing activities 14,810 3,453 Net change in cash and cash equivalents 12,422 (8,455 ) Cash and cash equivalents at beginning of period 9,210 22,962 Cash and cash equivalents at the end of period $ 21,632 $ 14,507 See accompanying notes. 7 aTyr Pharma, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization, Business, Basis of Presentation and Summary of Significant Accounting Policies Organization and Business aTyr Pharma, Inc. (we, us, and our) was incorporated in the state of Delaware on September 8, 2005. We are focused on the discovery and development of innovative medicines based on novel immunological pathways. Principles of Consolidation Our condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited (Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation. Unaudited Interim Financial Information The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) and follow the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2019, contained in our Annual Report on Form 10-K filed with the SEC on March 26, 2020. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period. Risks and Uncertainties The global pandemic resulting from the disease known as COVID-19, caused by a novel strain of coronavirus, SARS-CoV-2, has caused national and global economic and financial market disruptions. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will continue to cause significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our business have included the delay in enrollment of our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our employee's ability to travel and delays in certain research and development activities. Other potential impacts to our business include, but are not limited to, disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration or other regulatory authorities, and our ability to raise capital and conduct business development activities. Liquidity and Financial Condition Other than the net income generated in the three months ended March 31, 2020, we have incurred losses and negative cash flows from operations since our inception. As of June 30, 2020, we had an accumulated deficit of $327.0 million and we expect to continue to incur net losses for the foreseeable future. We believe that our existing cash, cash equivalents and available-for-sale investments, of $41.4 million as of June 30, 2020, will be sufficient to meet our anticipated cash requirements for a period of one year from the filing date of this Quarterly Report. 8 We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obt ain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital to f und our operations. The amount and timing of our future funding requirements will depend on many factors, including, but not limited to, the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory ap proval process for our product candidates. We anticipate that we will seek to fund our operations through equity offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt financings. However, we may be unable to raise additional capital or enter into such arrangements when needed on favorable terms or at all. As a result of the COVID-19 pandemic and actions taken to slow its s pread, the global credit and financial markets have experienced extreme volatility and disruptions, includ ing diminished liquidity and credit availability, declines in consumer confidence, declines i n economic growth, increases in unemployment rates and un certainty about economic stability. If the equity and credit markets continue to deteriorate, it may make any additional debt or equity financing more difficult, more costly and more dilutive. Our failure to raise capital or enter into applicable arrangeme nts when needed would have a negative impact on our financial condition and ability to develop our product candidates. Use of Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements and accompanying notes. The most significant estimates in our condensed consolidated financial statements relate to the clinical trials and research and development expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates and assumptions. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to us in our critical accounting estimates. Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The reclassifications were not material to the condensed consolidated financial statements. Leases We follow Accounting Standards Codification (ASC) Topic 842, Leases in recording our operating and financing leases. For our long-term operating leases, we recognized a right-of-use asset and a lease liability in our condensed consolidated balance sheets. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. We also made accounting policy elections not to apply the recognition requirements under Topic 842 to any of our short-term leases and to account for each separate lease and associated non-lease components as a single lease component for all of our leases. Under Topic 842 we determine if an arrangement is a lease at inception. Our right-of-use assets consist of an operating lease for our facility headquarters. We have a noncancelable operating lease that included certain tenant improvement allowances and is subject to base lease payments, which escalate over the term of the lease, additional charges for common area maintenance and other costs. We do not separate lease and non-lease components for our long-term leases. Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses in our condensed consolidated statements of operations. Revenue Recognition We evaluate our agreements under ASC Topic 606, Revenue from Contracts with Customers and ASC Topic 808, Collaborative Arrangements . We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified 9 in the contract. We use key assumptions to determine the stand-alone sellin g price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide research and development services. We recognize revenue at a point in time when we transfer control of a distinct performance obligation to our partner. For example, if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted average number of common shares outstanding that are subject to repurchase. Diluted net loss per share is calculated by dividing the net loss by the weighted average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of convertible preferred stock, warrants for common stock, options and restricted stock units outstanding under our stock option plan and estimated shares to be purchased under our employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding, as the assumed exercise or settlement of stock options, restricted stock units, and warrants, or the conversion of preferred stock are anti-dilutive. Potentially dilutive securities not considered for the calculation of diluted net loss per share are as follows (in common stock equivalents): Three and Six Months Ended June 30, 2020 2019 Class X Preferred Stock (if-converted to common stock) — 587,445 Common stock warrants 13,904 477,639 Common stock options and restricted stock units 693,670 409,568 Employee stock purchase plan 1,780 2,067 709,354 1,476,719 Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic 326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for small reporting companies. We are currently evaluating the impact of Topic 326 and do not expect the adoption of this guidance will have a material impact on our condensed consolidated financial position or results of operations. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes to identify, evaluate, and improve areas of GAAP for which costs and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments for Topic 740 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Topic 740 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all the amendments in the same period. We are currently evaluating the impact of Topic 740 and do not expect the adoption of this guidance will have a material impact on our condensed consolidated financial position or results of operations. 2. Fair Value Measurements The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to us for loans with similar terms, which is considered a Level 2 input, we believe that the carrying value of our long-term debt approximates their fair value. Investment securities are recorded at fair value. 10 The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair v alue on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair v alue is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in corporate debt securities and commercial paper. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities is recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. Assets measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of June 30, 2020 Assets: Current: Cash equivalents $ 20,851 $ 20,851 $ — $ — Available-for-sale investments: Asset-backed securities 2,221 — 2,221 — Commercial paper 7,475 — 7,475 — Corporate debt securities 8,107 — 8,107 — United States Treasury 1,999 — 1,999 — Total available-for-sale investments 19,802 — 19,802 — Total assets measured at fair value $ 40,653 $ 20,851 $ 19,802 $ — Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2019 Assets: Current: Cash equivalents $ 8,248 $ 8,248 $ — $ — Available-for-sale investments: Asset-backed securities 6,304 — 6,304 — Commercial paper 7,568 — 7,568 — Corporate debt securities 8,062 — 8,062 — Total available-for-sale investments 21,934 — 21,934 — Total assets measured at fair value $ 30,182 $ 8,248 $ 21,934 $ — 11 As of June 30, 20 20 and December 31, 20 19 , available-for-sale investments are detailed as follows (in thousands): June 30, 2020 Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Asset-backed securities $ 2,219 $ 2 $ — $ 2,221 Commercial paper 7,475 — — 7,475 Corporate debt securities 8,103 5 (1 ) 8,107 United States Treasury 1,999 — — 1,999 $ 19,796 $ 7 $ (1 ) $ 19,802 December 31, 2019 Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Market Value Available-for-sale investments: Asset-backed securities $ 6,299 $ 5 $ — $ 6,304 Commercial paper 7,568 — — 7,568 Corporate debt securities 8,057 5 — 8,062 $ 21,924 $ 10 $ — $ 21,934 As of June 30, 2020, all of our available-for-sale investments have a variety of effective maturity dates of less than one year. As of June 30, 2020, four out of seventeen of the available-for-sale investments are in gross unrealized loss positions. At each reporting date, we perform an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and our intent and ability to hold the investment until recovery of its amortized cost basis. We intend, and have the ability, to hold our investments in unrealized loss positions, if any, until their amortized cost basis has been recovered. 3. License and Other Agreements CSL Behring In March 2019, we entered into a research collaboration and option agreement with CSL Behring (CSL) for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline (CSL Agreement). Under the terms of the CSL Agreement, CSL will fund all research and development activities related to the development of the applicable product candidates for the duration of the collaboration. CSL reimburses us for all research and development activities. The research and development activities will be performed in six phases by both parties. The first phase totaling $0.6 million was funded in May 2019 and future phases will be funded on a quarterly basis. In June 2020, the CSL Agreement was amended to extend the work on the first phase of the research program through September 30, 2020. As a result of the extension, CSL is obligated to provide $0.2 million of additional funding for research and development activities. In June 2020, we recorded a receivable and related contract liability related to the amendment. As of June 30, 2020, $0.2 million receivable is included in other receivables. In addition, CSL will pay a total of up to $4.25 million per synthetase program ($17.0 million if all four synthetase programs advance) in option fees based on achievement of research milestones and CSL’s determination to continue development. As of June 30, 2020, no research milestone has been met. Moreover, aTyr will grant CSL an option to negotiate licenses for worldwide rights to each investigational new drug (IND) candidate that emerges from this research collaboration. Specific license terms will be negotiated during an exclusivity period following the exercise of each program option. CSL has the right to terminate the CSL Agreement in its entirety or with respect to one or more synthetases upon 45 days notice. Either party has the right to terminate the agreement upon material breach of obligation or insolvency. We assessed our research collaboration with CSL in accordance with Topic 606 and concluded that CSL is a customer. We identified the following performance obligations under the CSL Agreement: 1) research services; and 2) participation in the Joint Steering Committee. We concluded that the performance obligations are interrelated and do not have a standalone basis. CSL has the 12 right to terminate the research collaboration upon 45 days notice, which is considered to be the legally enforceable contract term. Therefore, during the first phase of research services, we have a 45 day p erformance obligation and all research services beyond the initial 45 days performance obligation are considered a material right. In addition, each phase of research services represents a separate customer option since CSL must provide written notice of i ts intent to advance to the next phase . Under the CSL Agreement, CSL is obligated to pay us for the costs incurred by us under the research programs. The payment of $0.6 million for the first phase of the research program received in May 2019 as well as the $0.2 million related to the amendment in June 2020 were considered fixed consideration and we will recognize revenue on the payment for the research service performance obligation as the services are performed. We are utilizing a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. We believe this is the best measure of progress because other measures do not reflect how we transfer the performance obligation to our counterparty. In applying the cost-based input methods of revenue recognition, we use actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs consist primarily of third-party contract costs and internal full-time equivalent effort. A cost-based input method of revenue recognition requires us to make estimates of costs to complete the performance obligations. The cumulative effect of revisions to estimated costs to complete the performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. The option fees based on research milestones under the CSL Agreement are variable consideration. Because they are binary in nature, we will use the “most-likely” method to evaluate whether the milestones should be included. However, the milestones are only payable upon CSL’s decision to proceed to the next research phase for any program, and are therefore subject to CSL’s sole discretion. Accordingly, the milestones are fully constrained and we will not recognize revenue related to these amounts until we have received notification from CSL that they would like to proceed with the next phase of a research program. For each of the three months ended June 30, 2020 and 2019, we recognized $0.1 million as license revenue under the CSL Agreement. For the six months ended June 30, 2020 and 2019, we recognized $0.3 million and $0.1 million, respectively, as license revenue under the CSL Agreement. Kyorin Pharmaceutical Co., Ltd. In January 2020, we entered into a license agreement with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and commercialization of ATYR1923 for interstitial lung diseases (ILDs) in Japan. Under the collaboration and license agreement with Kyorin (Kyorin Agreement), Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan fo r all forms of ILDs. We received an $8.0 million upfront payment and we are eligible to receive an additional $167.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan. Under the terms of the Kyorin Agreement, Kyorin will fund all research, development, regulatory, marketing and commercialization activities in Japan. Following the first anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason upon 90 days advance written notice. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement . We assessed our research collaboration with Kyorin in accordance with Topic 606 and concluded that Kyorin is a customer. We identified the following performance obligations under the Kyorin Agreement: 1) the license of ATYR1923 for ILDs in Japan; and 2) free clinical trial material for Kyorin’s Phase 1 clinical trial. The $8.0 million upfront payment received from Kyorin is non-refundable and non-creditable and is considered fixed consideration. We determined that the relative stand-alone selling price was $7.9 million when the license was delivered to Kyorin in January 2020. We determined that the relative standalone selling price was $0.1 million for the free clinical trial material delivered to Kyorin in June 2020, using the “expected cost plus a margin” approach. For the three months and six months ended June 30, 2020, we recognized $0.1 million and $8.0 million as license revenue under the Kyorin Agreement. Both the milestones and royalty payments under the Kyorin Agreement are variable consideration. Since milestone payments are binary in nature, we will use the “most-likely” method to evaluate whether the milestones should be included as revenue. We will apply constraint to these amounts until we have received notification from Kyorin that the milestone has been achieved. The royalties are dependent on future sales by Kyorin which are at the full discretion of Kyorin. Accordingly, we will apply a constraint to these amounts until the future sale sales have occurred. Hong Kong University of Science and Technology In March 2020, our subsidiary, Pangu BioPharma, together with the Hong Kong University of Science and Technology (HKUST) was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific 13 antibodies. The two-year project is being funded by the Hong Kong Government’s Innovation and Technology Commi ssion (ITC) under the Partnership Research Program (PRP). The PRP aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The grant will fund approximately 50% of the total estimated project cost, with aTyr contributing the remaining 50%. The research grant agreement between Pangu BioPharma, HKUST and the Government of the Hong Kong Special Administration Region is effective April 1, 2020. We determined that the grant with ITC falls under the contributions guidance under Subtopic 958-605, Not-for-Profit Entities-Revenue Recognition , which is outside the scope of Topic 606, as ITC is not receiving reciprocal value for its contributions. All contributions received from the grant agreement are recorded as a contra-expense as opposed to revenue on the condensed consolidated statement of operations. Contra-expense for the three and six months ended June 30, 2020 were immaterial. 4. Debt, Commitments and Contingencies Term Loans In November 2016, we entered into a loan and security agreement and subsequently entered amendments (collectively, the Loan Agreement), for term loans with Silicon Valley Bank (SVB) and Solar Capital Ltd. (Solar, and together with SVB, the Lenders), to borrow up to $20.0 million issuable in three separate tranches (the Term Loans), $10.0 million of which was funded in November 2016, $5.0 million of which was funded in June 2017 and $5.0 million of which was funded in December 2017. Under the Loan Agreement, we are obligated to make interest only payments through June 1, 2018, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date of November 18, 2020. Accordingly, we started paying the Term Loans in June 2018. The Term Loans bear interest at the prime rate, as reported in The Wall Street Journal on the last date of the month preceding the month in which interest will accrue, plus 4.10%. A final payment equal to 8.75% of the funded amounts is payable when the Term Loans become due or upon the prepayment of the respective outstanding balance. We have the option to prepay the outstanding balance of the loan in full, subject to a prepayment fee ranging from 1.0% to 3.0% depending upon when the prepayment occurs, including any non-usage fees. The obligations under the Term Loans are secured by liens on our tangible personal property and we agreed to not encumber any of our intellectual property. The Term Loans include a material adverse change clause, which enables the Lenders to require immediate repayment of the outstanding debt. The material adverse change clause covers a material impairment in the perfection or priority of the Lenders’ lien in the underlying collateral or in the value of such collateral, material adverse change in business operations or condition or material impairment of our prospects for repayment of any portion of the remaining debt obligation. As of June 30, 2020, the carrying value of our Term Loans consisted of $3.3 million principal outstanding less the debt issuance costs of $36,000 and the accretion of the final maturity payment of $1.8 million. We intend to pay our Term Loans in full, including the final maturity payment by the fourth quarter of 2020. The debt issuance costs have been recorded as a debt discount which are being accreted to interest expense over the life of the Term Loans. In connection with the first tranche, we issued warrants to the Lenders to purchase an aggregate of 3,415 shares of our common stock with an exercise price of $43.93 per share. In connection with the second tranche, we issued warrants to the Lenders to purchase an aggregate of 1,489 shares of our common stock with an exercise price of $50.37 per share. In connection with the third tranche, we issued warrants to each of SVB and Solar to purchase an aggregate of 1,443 shares of our common stock with an exercise price of $51.98 per share. The warrants are immediately exercisable and have a maximum contractual term of seven years. The aggregate fair value of the warrants was determined to be $0.5 million using the Black-Scholes option pricing model and was recorded as a debt discount which is being accreted to interest expense over the life of Term Loans. Facility Leases Future minimum payments under the non-cancelable facility lease and reconciliation to the operating lease liability as of June 30, 2020 were as follows (in thousands): Operating Lease 2020 $ 507 2021 1,031 2022 1,062 2023 404 Less: Amount representing interest (372 ) Present value of lease payments 2,632 Less: Current portion of operating lease liability (807 ) Long-term operating lease liability $ 1,825 14 For each of the three months ended June 30, 2020 and 2019 , we recorded an operating lease cost of $0.2 million. For each of the six months ended June 30, 2020 and 2019, we recorded an operating lease cost of $0. 5 million. As of June 30, 2020, the weighted-average remaining lease term was 2.9 years and the weighted-aver age discount rate was 9.6%. 5. Stockholders’ Equity At the Market Offering Program In May 2019, we entered into a sales agreement with H.C. Wainwright & Co., LLC (Wainwright) with respect to an at-the-market offering (ATM Offering Program) under which we may offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million. Wainwright is entitled to a commission at a fixed rate equal to 3% of the gross proceeds. During 2019, we sold an aggregate of 611,687 shares of common stock at an average price of $5.43 per share for gross proceeds of $3.3 million under the ATM Offering Program. During the six months ended June 30, 2020, we sold an aggregate of 23,148 shares of common stock at an average price of $4.49 per share for gross proceeds of $0.1 million under the ATM Offering Program. Underwritten Follow-On Public Offering In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share. In March 2020, the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 635,294 shares of common stock. The total gross proceeds from the underwritten follow-on public offering, including the underwriters’ option to purchase additional shares, was approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us. Common Stock Reserved for Future Issuance Common stock reserved for future issuance is as follows: June 30, 2020 Common stock warrants 13,904 Common stock options and restricted stock units 693,670 Shares available under the 2015 equity incentive plan 272,204 Shares available under the employee stock purchase plan 76,917 1,056,695 The following table summarizes our stock option activity under all equity incentive plans for the six months ended June 30, 2020: Number of Outstanding Stock Options Weighted Average Exercise Price Outstanding as of December 31, 2019 351,078 $ 51.34 Granted 408,832 $ 4.19 Canceled/forfeited/expired (73,917 ) $ 69.56 Outstanding as of June 30, 2020 685,993 $ 21.29 The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Expected term (in years) 5.50– 6.07 5.51– 6.07 5.50– 6.07 5.51– 6.07 Risk-free interest rate 0.4 % 1.8% – 2.4 % 0.4% – 1.5 % 1.8% – 2.6 % Expected volatility 103.3% – 109.7 % 97.2% – 101.0 % 102.2% – 109.7 % 97.2% – 101.0 % Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % 15 The following table summarizes our restricted stock unit activity under all equity incentive plans for the six months ended June 30, 2020: Number of Outstanding Restricted Stock Units Weighted Average Grant Date Fair Value Balance as of December 31, 2019 12,475 $ 9.90 Granted 5,000 $ 4.29 Released (8,678 ) $ 10.47 Forfeited (1,120 ) $ 11.90 Balance as of June 30, 2020 7,677 $ 5.32 Stock-based Compensation The allocation of stock-based compensation for all options, including performance options with a market condition, employee stock purchase plan and restricted stock units is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development $ 68 $ 87 $ 130 $ 203 General and administrative 310 422 671 877 Total stock-based compensation expense $ 378 $ 509 $ 801 $ 1,080 6. Subsequent Events Through August 12, 2020, we sold an aggregate of 228,194 shares of common stock at a weighted average price of $4.11 per share through our ATM Offering Program for gross proceeds of $0.9 million.