Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of aTyr Pharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of aTyr Pharma, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
67
Accrued clinical studies costs
Description of the Matter
During 2021, the Company incurred $23.3 million for research and development expenses and as of December 31, 2021 recorded an accrual for $1.0 million of clinical studies costs. A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers, including clinical research organizations and contracted development and manufacturing organizations. As described in Note 2 to the consolidated financial statements, external costs for clinical studies to be paid are accrued and expensed based upon work completed in accordance with contractual arrangements.
Auditing management’s accounting for accrued clinical studies costs is especially challenging because it is dependent on data from third parties and involves judgments applied by management to determine the commencement and completion date of vendor tasks as well as the extent of work performed during the reporting period, which may not match the pattern of bills received or payments made to third-party service providers. The testing of accrued clinical studies costs is dependent upon a high-volume of data and input exchanged between clinical personnel and third-party service providers, which includes the total trial management costs, number of sites activated, number of patients enrolled, and number of patient visits, which is tracked in spreadsheets and other end user computing programs.
How We Addressed the Matter in Our Audit
Our substantive testing procedures over the completeness of the Company’s accrued clinical studies costs include obtaining from third-parties confirmation of total costs billed and work completed as of December 31, 2021 for significant clinical trials. We obtained an understanding of the status of significant clinical trial activities from accounting personnel and the clinical project managers to understand the status of significant clinical trial activities. To assess the appropriate measurement of accrued clinical studies costs, we inspected key terms, timelines of completion, activities and costs for a sample of vendor contracts, including amendments, and compared these to management’s analyses used in tracking the progress of service agreements. We also inspected a sample of subsequent payments, obtained invoice support and tested the expense was recorded to the appropriate period.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008.
San Diego, California
March 15, 2022
68
aTyr Pharma, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
December 31,
2021
2020
Assets
Current assets:
Cash and cash equivalents
$
2,336
$
16,952
Available-for-sale investments
105,575
14,737
Other receivables
435
2,039
Prepaid expenses
5,223
1,803
Total current assets
113,569
35,531
Property and equipment, net
543
899
Right-of-use assets
1,267
2,083
Other assets
158
213
Total assets
$
115,537
$
38,726
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
1,031
$
1,431
Accrued expenses
4,002
3,572
Current portion of operating lease liability
980
861
Total current liabilities
6,013
5,864
Long-term operating lease liability, net of current portion
398
1,378
Commitments and contingencies (Note 6)
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 as of December 31, 2021 and 2020, respectively
—
—
Common stock, $ 0.001 par value per share; 42,500,000 and 21,425,000 authorized shares as of December 31, 2021 and 2020, respectively; issued and outstanding shares – 27,793,035 and 11,018,954 as of December 31, 2021 and 2020, respectively
28
11
Additional paid-in capital
481,832
370,210
Accumulated other comprehensive loss
( 263
)
( 43
)
Accumulated deficit
( 372,296
)
( 338,528
)
Total aTyr Pharma stockholders’ equity
109,301
31,650
Noncontrolling interest in Pangu BioPharma Limited
( 175
)
( 166
)
Total stockholders' equity
109,126
31,484
Total liabilities and stockholders’ equity
$
115,537
$
38,726
See accompanying notes.
69
aTyr Pharma, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
2021
2020
2019
Revenues:
License and collaboration agreement revenues
$
—
$
10,455
$
422
Total revenues
—
10,455
422
Operating expenses:
Research and development
23,264
17,291
14,048
General and administrative
10,751
9,075
9,352
Total operating expenses
34,015
26,366
23,400
Loss from operations
( 34,015
)
( 15,911
)
( 22,978
)
Total other income (expense), net
238
( 319
)
( 785
)
Consolidated net loss
( 33,777
)
( 16,230
)
( 23,763
)
Net loss attributable to noncontrolling interest in Pangu BioPharma Limited
9
6
160
Net loss attributable to aTyr Pharma, Inc.
$
( 33,768
)
$
( 16,224
)
$
( 23,603
)
Net loss per share, basic and diluted
$
( 1.77
)
$
( 1.77
)
$
( 7.03
)
Shares used in computing net loss per share, basic and diluted
19,080,878
9,160,269
3,355,600
See accompanying notes.
70
aTyr Pharma, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
Years Ended December 31,
2021
2020
2019
Consolidated net loss
$
( 33,777
)
$
( 16,230
)
$
( 23,763
)
Other comprehensive loss:
Change in unrealized gain (loss) on available-for-sale investments, net of tax
( 220
)
( 3
)
20
Comprehensive loss
( 33,997
)
( 16,233
)
( 23,743
)
Comprehensive loss attributable to noncontrolling interest in Pangu BioPharma Limited
9
6
160
Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders
$
( 33,988
)
$
( 16,227
)
$
( 23,583
)
See accompanying notes.
71
aTyr Pharma, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
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 upon release of restricted stock units
—
—
7,487
—
—
—
—
—
—
Issuance of common stock pursuant to employee stock purchase plan
—
—
3,117
—
13
—
—
—
13
Issuance of common stock from at-the-market offerings, net of offering costs
—
—
805,357
1
4,404
—
—
—
4,405
Issuance of common stock from registered direct offering, net of offering costs
—
—
660,154
1
4,917
—
—
—
4,918
Stock-based compensation
—
—
—
—
1,783
—
—
—
1,783
Net unrealized gain on investments, net of tax
—
—
—
—
—
20
—
—
20
Net loss
—
—
—
—
—
—
( 23,603
)
( 160
)
( 23,763
)
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 from underwritten follow-on offering, net of offering costs
—
—
4,870,588
4
18,775
—
—
—
18,779
Issuance of common stock from at-the-market offerings, net of offering costs
—
—
1,657,075
2
6,435
—
—
—
6,437
Issuance of common stock upon release of restricted stock units
—
—
8,678
—
—
—
—
—
—
Issuance of common stock pursuant to employee stock purchase plan
—
—
3,382
—
10
—
—
—
10
Stock-based compensation
—
—
—
—
1,465
—
—
—
1,465
Net unrealized loss on investments, net of tax
—
—
—
—
—
( 3
)
—
—
( 3
)
Net loss
—
—
—
—
—
—
( 16,224
)
( 6
)
( 16,230
)
Balance as of December 31, 2020
—
—
11,018,954
11
370,210
( 43
)
( 338,528
)
( 166
)
31,484
Issuance of common stock upon release of restricted stock units
—
—
4,177
—
—
—
—
—
—
Issuance of common stock upon exercise of stock options
—
—
10,751
—
62
—
—
—
62
Issuance of common stock pursuant to employee stock purchase plan
—
—
3,382
—
11
—
—
—
11
Issuance of common stock from at-the-market offerings, net of offering costs
—
—
2,974,521
3
14,067
—
—
—
14,070
Issuance of common stock from committed purchase agreement, net of offering costs
—
—
3,000,000
3
15,233
—
—
—
15,236
Issuance of common stock from underwritten follow-on offering, net of offering costs
—
—
10,781,250
11
80,635
—
—
—
80,646
Stock-based compensation
—
—
—
—
1,614
—
—
—
1,614
Net unrealized loss on investments, net of tax
—
—
—
—
—
( 220
)
—
—
( 220
)
Net loss
—
—
—
—
—
—
( 33,768
)
( 9
)
( 33,777
)
Balance as of December 31, 2021
—
$
—
27,793,035
$
28
$
481,832
$
( 263
)
$
( 372,296
)
$
( 175
)
$
109,126
See accompanying notes.
72
aTyr Pharma, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
2021
2020
2019
Cash flows from operating activities:
Consolidated net loss
$
( 33,777
)
$
( 16,230
)
$
( 23,763
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
475
569
635
Stock-based compensation
1,614
1,465
1,783
Debt discount accretion and non-cash interest expense
—
346
707
Amortization (accretion) of premium (discount) of available-for-sale investment securities
366
110
( 284
)
Amortization of right-of-use assets
829
697
731
Loss (gain) on disposal of property and equipment
6
3
( 28
)
Changes in operating assets and liabilities:
Other receivables
1,604
( 1,939
)
58
Prepaid expenses and other assets
( 3,378
)
( 1,122
)
276
Accounts payable and accrued expenses
47
1,763
162
Contract liability
—
( 208
)
208
Operating lease liability
( 861
)
( 755
)
( 498
)
Net cash used in operating activities
( 33,075
)
( 15,301
)
( 20,013
)
Cash flows from investing activities:
Purchases of property and equipment
( 192
)
( 202
)
( 79
)
Purchases of available-for-sale investment securities
( 126,506
)
( 21,066
)
( 40,647
)
Maturities of available-for-sale investment securities
35,082
28,150
45,600
Proceeds from sale of property and equipment
50
18
51
Net cash (used in) provided by investing activities
( 91,566
)
6,900
4,925
Cash flows from financing activities:
Proceeds from issuance of common stock through option exercises
62
—
—
Proceeds from issuance of common stock through employee stock purchase plan
11
10
13
Proceeds from issuance of common stock from at-the-market offerings, net of offering costs
14,070
6,437
4,405
Proceeds from issuance of common stock from committed purchase agreement, net of offering costs
15,236
—
—
Proceeds from issuance of common stock from underwritten follow-on offering, net of offering costs
80,646
18,779
—
Proceeds from issuance of common stock through registered direct offering, net of offering costs
—
—
4,918
Repayments on borrowings
—
( 9,083
)
( 8,000
)
Net cash provided by financing activities
110,025
16,143
1,336
Net change in cash and cash equivalents
( 14,616
)
7,742
( 13,752
)
Cash and cash equivalents at beginning of period
16,952
9,210
22,962
Cash and cash equivalents at the end of period
$
2,336
$
16,952
$
9,210
Supplemental disclosure of cash flow information:
Interest paid
$
—
$
308
$
1,122
Purchase of fixed assets included in accounts payable
$
—
$
17
$
—
See accompanying notes.
73
aTyr Pharma, Inc.
Notes to Consolidated Financial Statements
1. Organization, Business and Basis of Presentation
Organization and Business
We were 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 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.
Liquidity and Financial Condition
We have incurred losses and negative cash flows from operations since our inception. As of December 31, 2021, we had an accumulated deficit of $ 372.3 million and we expect to continue to incur net losses for the foreseeable future. As of December 31, 2021, our cash, cash equivalents and available-for-sale investments were $ 107.9 million. We believe that our current cash, cash equivalents and available-for-sale investments, will be sufficient to meet our anticipated cash requirements for a period of at least one year from the date of this Annual Report.
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 obtain 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 fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval 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. Our failure to raise capital or enter into such arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates.
Use of Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The preparation of our consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure for these items in our consolidated financial statements and accompanying notes. The most significant estimates in our consolidated financial statements relate to the fair value of equity issuances and awards, and clinical trial 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.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. We view our operations and manage our business in one operating segment.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of readily available checking, money market accounts and money market funds. We consider all highly liquid investments that mature in three months or less when purchased to be cash equivalents.
Investment Securities
Investment securities primarily consist of investment grade corporate debt securities, municipal bond securities and commercial paper. We classify all investment securities as available-for-sale. Investment securities are carried at fair value, with the unrealized gains and losses, if any, reported as a component of other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of investment securities, if any, are determined on a specific identification basis. A decline in the market
74
value of any investment security below cost that is determined to be other than temporary will result in an impairment charge to earnings and a new cost basis for the security is established. No such impairment charges were recorded for any period presented. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method and are included in interest income. Interest income is recognized when earned. As of December 31, 2021 , we held an aggregate total of $ 105.6 million of investment securities which consisted of corporate debt securities, municipal bond s , and commercial paper all of which will mature in less than two year s , and there was an unrealized loss of approximately $ 0.2 million between the amortized cost and fair value of these investment securities. As of December 31, 2020 , we held $ 14.7 million of corporate debt securities, asset-backed securities and commercial paper , all of which mature in less than one year , and there was a n unrealized loss of approximately $ 3,000 between the amortized cost and fair value of these investment securities.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents and investment securities. We have established guidelines regarding diversification of investments and their maturities, which are designed to maintain principal and maximize liquidity. We maintain deposits in federally insured financial institutions in excess of federally insured limits. We have not experienced any losses in such accounts and we believe that we are not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three to seven years ). Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining term of the related lease or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred .
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While our current and historical operating losses are indicators of impairment, we believe that future cash flows to be received support the carrying value of our long-lived assets and, accordingly, have not recognized any impairment losses since inception.
Accrued Expenses
Accrued expenses include salaries, wages, benefits costs, consulting fees, legal and research and development costs. Accrued clinical studies costs of $ 1.0 million and $ 1.1 million as of December 31, 2021 and 2020, respectively, included clinical studies and product manufacturing costs. We have entered into contractual arrangements related to our clinical studies with clinical research organizations (CROs) and contracted development and manufacturing organizations (CDMOs) and recognize expense based on work completed and efforts expended pursuant to our contractual arrangements. We make estimates of our accrued CRO costs as of each balance sheet date based on facts and circumstances known at the time and include total trial management costs, sites activated, patients enrolled and number of patient visits. We estimate the time period over which services will be performed and the level of effort to be expended in each period. There may be instances in which payments made to our service providers including CROs and CDMOs, will temporarily exceed the level of services provided and result in a prepayment of the expense. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense balance accordingly. Historically, our estimated accrued liabilities have materially approximated actual expenses incurred.
Leases
We determine if an arrangement is a lease at inception. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. For long-term operating leases with an initial term of greater than 12 months, we recognized an operating right-of-use asset (ROU) and a lease liability based on 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. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. 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 consolidated statements of operations.
If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease. If a lease continues to exist, the lease modification is determined to be a separate contract when the modification grants the lessee an additional ROU that is not included in the original lease and the lease payments increase commensurate with the standalone price for the additional ROU. A lease modification that results in a separate contract will be accounted for in the same manner as a new lease. For a modification that is not a separate contract, we reassess the lease classification using the modified terms and conditions and the facts and circumstances
75
as of the effective date of the modification and recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding operating lease ROU asset.
Our right-of-use assets consist of an operating lease for our facility headquarters. We have a noncancelable operating lease that includes 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 currently do not have any finance leases.
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 our consolidated statement of operations. Variable lease payments, including lease operating expenses, are recorded as incurred.
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 in the contract. We use key assumptions to determine the stand-alone selling 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.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs include: salaries and employee-related expenses, including stock-based compensation and benefits for personnel in research and product development functions; costs associated with conducting our preclinical, development and regulatory activities, including fees paid to third-party professional consultants, service providers and our scientific, therapeutic and clinical advisors; costs to acquire, develop and manufacture preclinical study and clinical trial materials; costs incurred under clinical trial agreements with clinical research organizations and investigative sites; costs for laboratory supplies; payments related to licensed products and technologies; allocated facilities and information technology costs; and depreciation.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.
Stock-Based Compensation
Stock-based compensation expense represents the grant date fair value of employee stock option grants recognized as expense over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate fair value of stock option grants using the Black-Scholes option pricing model. We estimate the fair value using assumptions, including the risk-free interest rate, the expected volatility of a peer group of similar companies, the expected term of the awards and the expected dividend yield. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. We follow ASC Topic 718, Compensation – Stock Compensation as guidance for accounting modification.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets
76
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income in the period that includes the enactment date.
We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize the deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 % likely to be realized upon ultimate settlement with the related tax authority. We recognize interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted 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 common stock and 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 due to our net loss position.
Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common share equivalents):
Years Ended December 31,
2021
2020
2019
Class X preferred stock (if-converted to common stock)
—
—
587,445
Common stock warrants
13,760
13,904
13,904
Common stock options and restricted stock units
1,420,050
584,211
363,553
Employee stock purchase plan
2,045
1,602
1,958
Total
1,435,855
599,717
966,860
The following table summarizes our net loss per share (in thousands, except per share data):
Years Ended December 31,
2021
2020
2019
Numerator:
Net loss attributable to aTyr Pharma, Inc.
$
( 33,768
)
$
( 16,224
)
$
( 23,603
)
Denominator:
Shares used in computing net loss per share, basic and diluted
19,080,878
9,160,269
3,355,600
Net loss per share - basic and diluted
$
( 1.77
)
$
( 1.77
)
$
( 7.03
)
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 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We expect the adoption of the amendments in Topic 326 to have an immaterial effect on our consolidated financial position or the results of its operations when such amendment is adopted.
77
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 which we adopted prospectively on January 1, 2021. The adoption did not have a material effect o n our consolidated financial position or results of operations .
3. 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. Investment securities are recorded at fair value.
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or 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 value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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 asset-backed securities, commercial paper, corporate debt securities and municipal bonds. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial assets and liabilities are 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 December 31, 2021
Assets:
Current:
Cash equivalents
$
2,052
$
2,052
$
—
$
—
Available-for-sale investments:
Commercial paper
36,921
—
36,921
—
Corporate debt securities
55,713
—
55,713
—
Municipal bonds
12,941
—
12,941
—
Total available-for-sale investments
105,575
—
105,575
—
Total assets measured at fair value
$
107,627
$
2,052
$
105,575
$
—
78
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, 2020
Assets:
Current:
Cash equivalents
$
13,708
$
13,708
$
—
$
—
Available-for-sale investments:
Asset-backed securities
2,219
—
2,219
—
Commercial paper
5,494
—
5,494
—
Corporate debt securities
7,024
—
7,024
—
Total available-for-sale investments
14,737
—
14,737
—
Total assets measured at fair value
$
28,445
$
13,708
$
14,737
$
—
As of December 31, 2021 and 2020, available-for-sale investments are detailed as follows (in thousands):
December 31, 2021
Contractual Maturity
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market Value
Available-for-sale investments:
Commercial paper
Within 1 year
$
36,956
$
—
$
( 35
)
$
36,921
Corporate debt securities
1 to 2 years
55,859
—
( 146
)
55,713
Municipal bonds
1 to 2 years
12,973
—
( 32
)
12,941
$
105,788
$
—
$
( 213
)
$
105,575
December 31, 2020
Contractual Maturity
Gross
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market Value
Available-for-sale investments:
Asset-backed securities
Within 1 year
$
2,218
$
1
$
—
$
2,219
Commercial paper
Within 1 year
5,491
3
—
5,494
Corporate debt securities
Within 1 year
7,021
3
—
7,024
$
14,730
$
7
$
—
$
14,737
At each reporting date, we perform an evaluation of impairment to determine if the 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. Based on our evaluation, we determined that the unrealized losses were not other-than-temporary as of December 31, 2021.
As of December 31, 2021, all available-for-sale investments were in a gross unrealized loss position and have been in such position for less than twelve months. As of December 31, 2020, available-for-sale investments were in a gross unrealized gain position.
4. License, Collaboration and Other Agreements
Kyorin Pharmaceutical Co., Ltd.
In January 2020, we entered into a collaboration and license agreement with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and commercialization of efzofitimod (the non-proprietary name for our lead therapeutic candidate ATYR1923) for interstitial lung diseases (ILD) in Japan. Under the agreement (the Kyorin Agreement), Kyorin received an exclusive right to develop and commercialize efzofitimod in Japan for all forms of ILD. Under the terms of the Kyorin Agreement, Kyorin is obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing
79
patients in a Phase 1 clinical trial of efzofitimod (known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was conducted and funded by Kyorin, is a placebo-controlled study to evaluate the safety, pharmacokinetics and immunogenicity of efzofitimod . E fzofitimod was observed to be generally well-tolerated with no drug-related serious adverse events and pharmacokinetics findings were consistent with previous studies of efzofitimod . We received an $ 8.0 million upfront payment in January 2020 and a $ 2.0 milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial in December 2020 , and we are eligible to receive up to an additional $ 165.0 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.
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 license and 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 efzofitimod for ILD 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. In December 2020, Kyorin completed the last subject visit in its Phase 1 trial of efzofitimod . This achievement triggered a $2.0 million milestone payment, which we received in January 2021.
The remaining milestones and royalty payments under the Kyorin Agreement are variable consideration. Since the 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 constrain these amounts until the milestone is probable of being 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 antibodies. The project is being funded by the Hong Kong Government’s Innovation and Technology Commission (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 ITC funded 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 was effective April 1, 2020. The term of the project was initially for two years and in December 2021, due to the ongoing COVID-19 pandemic, was extended for an additional six months with no additional cost.
All the contributions provided by the ITC are paid to HKUST and we record expenses incurred related to this grant award when incurred. Expenses for the years ended December 31, 2021 and 2020 were $ 0.4 million and $ 0.2 million, respectively.
5. Balance Sheet Details
Prepaid expenses consist of the following (in thousands):
December 31,
2021
2020
Prepaid clinical and research expense
$
557
$
583
Prepaid manufacturing expenses (1)
4,188
513
Other prepaid expenses
478
707
$
5,223
$
1,803
80
(1)
Prepaid manufacturing expenses of $ 3.7 million incurred in 2021 included a reservation fee and raw materials for manufacturing of efzofitimod clinical trial materials planned to occur in the second half of 2022 .
Property and equipment consist of the following (in thousands):
December 31,
2021
2020
Computer and office equipment
$
616
$
552
Scientific and laboratory equipment
4,383
5,270
Tenant improvements
1,701
1,701
6,700
7,523
Less accumulated depreciation and amortization
( 6,157
)
( 6,624
)
$
543
$
899
As of December 31, 2021, 2020 and 2019, depreciation expense was $ 0.5 million, $ 0.6 million and $ 0.6 million, respectively.
Accrued expenses consist of the following (in thousands):
December 31,
2021
2020
Accrued salaries, wages and benefits
$
2,326
$
1,809
Accrued clinical studies costs
$
1,004
$
1,089
Other accrued expenses
672
674
$
4,002
$
3,572
6. Commitments and Contingencies
Facility Lease
We have a non-cancelable facility lease that is subject to base lease payments, which escalate over the term of the lease, additional charges for common area maintenance and other costs. In July 2018, we entered into a lease amendment that reduced the space we lease from 24,494 square feet to 20,508 square feet and extended the lease term to May 2023 . With the lease amendment, we do not have an option to extend the lease.
Operating lease expense for each of the years ended December 31, 2021, 2020 and 2019 was $ 1.0 million. A s of December 31, 2021 and 2020, the weighted average remaining lease term was 1.4 years and 2.4 years, respectively, and the weighted average discount rate for each year was 9.6 %.
Future minimum payments under the non-cancelable facility lease and reconciliation to the operating lease liability as of December 31, 2021 were as follows (in thousands):
Operating Lease
2022
$
1,062
2023
404
Less: Amount representing interest
( 88
)
Present value of lease payments
1,378
Less: Current portion of operating lease liability
( 980
)
Long-term operating lease liability, net of current portion
$
398
7. Stockholders’ Equity
Underwritten Follow-On Public Offerings
In September 2021, we completed an underwritten follow-on public offering of 10,781,250 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 8.00 per share. The total net proceeds from the offering were approximately $ 80.6 million, after deducting underwriting discounts, commissions and offering expenses payable by us.
81
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 over-allotment option for the issuance of an additional 635,294 shares of common stock. The total net proceeds from the offering were approximately $ 18.8 million, after deducting underwriting discounts, commissions and offering expenses payable by us.
At-the-Market Offering Program
In March 2021, we entered into a Capital on Demand TM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) for an at-the-market offering (ATM Offering Program), pursuant to which we can sell from time to time, at our option, up to an aggregate of $ 25.0 million of shares of our common stock through JonesTrading, as sales agent or principal. JonesTrading is entitled to a commission at a fixed rate equal of up to 3 % of the gross proceeds. For the year ended December 31, 2021, we sold an aggregate of 986,267 shares of common stock at an average price of $ 4.75 per share for net proceeds of $ 4.4 million under the JonesTrading ATM Offering Program.
In May 2019, we entered into a sales agreement with H.C. Wainwright & Co., LLC (Wainwright) with respect to an ATM Offering Program under which we could offer and sell shares of our common stock having an aggregate offering price of up to $ 10.0 million. Wainwright was entitled to a commission at a fixed rate equal to 3 % of the gross proceeds. In November 2020, we amended our sales agreement with Wainwright to increase the amount of the ATM Offering Program up to $ 20.0 million. In March 2021, the ATM Offering Program with Wainwright automatically terminated upon the issuance and sale of all of the shares of common stock having an aggregate offering price of $ 20.0 million. Under the ATM Offering Program with Wainwright, during 2020, we sold an aggregate of 1,657,075 shares of common stock at an average price of $ 4.07 per share for net proceeds of $ 6.4 million. Prior to the termination of the sales agreement with Wainwright, in 2021, we sold an aggregate of 1,988,254 shares of common stock at an average price of $ 4.99 per share for net proceeds of $ 9.6 million under the Wainwright ATM Offering Program.
Purchase Agreement
In September 2020 , we entered into a common stock purchase agreement (Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $ 20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended, for the resale of the shares of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. For the year ended December 31, 2021, we sold an aggregate of 3,000,000 shares of common stock at an average price of $ 5.09 per share for net proceeds of $ 15.2 million under this Purchase Agreement. We did no t sell any shares of common stock to Aspire Capital under this Purchase Agreement for the year ended December 31, 2020.
2014 Stock Plan
We adopted a stock option plan in 2007 (the 2007 Plan), which was subsequently amended, restated and renamed in July 2014 (the 2014 Plan) to provide for the incentive stock options, nonstatutory stock options, stock and rights to purchase restricted stock to eligible recipients. Recipients of incentive stock options are eligible to purchase shares of our common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options under the 2014 Plan is ten years . Options granted generally vest over four years . Shares underlying any awards under the 2014 Plan that are forfeited, canceled, reacquired by us prior to vesting, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added to shares available for issuance under the 2015 Plan.
2015 Stock Plan
In April 2015, our board of directors adopted, and our stockholders approved, the 2015 Stock Plan (the 2015 Plan). The 2015 Plan became effective on May 6, 2015 and we ceased granting any new awards under our 2014 Plan. Awards granted under the 2014 Plan prior to our IPO that are forfeited, canceled, reacquired by us prior to vesting satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added to shares available for issuance under the 2015 Plan. At our 2020 Annual Meeting of Stockholders and at our 2021 Annual Meeting of Stockholders, our stockholders approved an amendment to increase the number of shares of common stock reserved under the 2015 Plan by 350,000 shares and 750,000 shares, respectively. Total shares available for issuance under the 2015 Plan as of December 31, 2021 were 420,896 . Shares underlying any awards under the 2015 Plan that are forfeited, canceled, reacquired by us prior to vesting, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added to shares available for issuance under the 2015 Plan.
The maximum term of options granted under 2015 Plan is ten years . For an initial grant to an employee, 25 % of the options generally vest on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years. For subsequent grants to an employee, the options generally vest monthly over a four-year term.
82
Inducement Grants
Options under inducement grants vest over a period of four years, with 25 % vesting on the one year anniversary of the grant date and the remaining 75 % vesting on a monthly basis over three years thereafter, subject to continuous employment. These options were inducement grants issued outside of the 2015 Plan in accordance with Nasdaq Listing Rule 5635(c)(4). In addition, from time to time, we may make inducement grants of stock options to new employees.
In October 2021, we granted a non-qualified option to purchase 70,000 shares of our common stock at an exercise price of $ 8.73 per share as an inducement award in connection with the hiring of our Vice President, Regulatory Affairs, and in December 2021, we granted a non-qualified option to purchase 70,000 shares of our common stock at an exercise price of $ 7.77 per share as an inducement award in connection with the hiring of our Vice President, Human Resources.
We intend to file a registration statement on Form S-8 to register the shares of common stock underlying the options granted under the inducement grants prior to the time at which this option becomes exercisable.
Employee Stock Purchase Plan
In April 2015, our board of directors adopted, and our stockholders approved, our 2015 Employee Stock Purchase Plan (the 2015 ESPP). The 2015 ESPP became effective on May 6, 2015 . As of December 31, 2021, total shares reserved for issuance under the 2015 ESPP were 71,933 .
Stock-based Compensation
Stock Options
Stock option activity is summarized as follows:
Number of
Outstanding
Stock Options
Weighted
Average
Exercise Price
Weighted
Remaining Contractual Term
Aggregate
Intrinsic Value
Outstanding as of December 31, 2020
576,534
$
23.33
Granted
892,239
$
5.08
Exercises
( 10,751
)
$
5.78
Canceled/forfeited/expired
( 45,472
)
$
22.38
Outstanding as of December 31, 2021
1,412,550
$
12.01
8.46
$
3,134,377
Options vested and expected to vest as of December 31, 2021
1,412,550
$
12.01
8.46
$
3,134,377
Options exercisable as of December 31, 2021
472,553
$
25.55
7.10
$
763,461
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:
Years Ended December 31,
2021
2020
2019
Expected term (in years)
5.50 – 6.08
5.50 – 6.08
5.51 – 6.07
Risk-free interest rate
0.6% – 1.3%
0.3% – 1.5%
1.4% – 2.6%
Expected volatility
86.3% – 104.8%
102.2% – 109.7%
97.2% – 105.4%
Expected dividend yield
0.0 %
0.0 %
0.0 %
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the ESPP offering were as follows:
Years Ended December 31,
2021
2020
2019
Expected term (in years)
0.50
0.50
0.50
Risk-free interest rate
0.04% – 0.12%
0.1% – 1.6%
1.6% – 2.5%
Expected volatility
89.7% – 108.12%
89.7% – 143.2%
99.7% – 141.7%
Expected dividend yield
0.0 %
0.0 %
0.0 %
83
Expected term . The expected term represents the period of time that options are expected to be outstanding. Because we do not have sufficient history of exercise behavior, we determine the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.
Risk-free interest rate. We base the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.
Expected volatility. The expected volatility assumption is based on our historical volatility as well as the volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.
Expected dividend yield. We base the expected dividend yield assumption on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.
Restricted Stock Units
Occasionally, we grant restricted stock units to employees. The fair value of restricted stock is determined by the closing price of the Company's common stock reported on the Nasdaq Global Select Market on the date of grant. Restricted stock unit activity is summarized as follows:
Number of Outstanding
Restricted Stock Units
Weighted Average
Grant Date
Fair Value
Balance as of December 31, 2020
7,677
$
5.32
Granted
4,000
$
3.89
Released
( 4,177
)
$
6.18
Balance as of December 31, 2021
7,500
$
4.08
The allocation of stock-based compensation for all options, including performance options with market condition and restricted stock units is as follows (in thousands):
Years Ended December 31,
2021
2020
2019
Research and development
$
295
$
254
$
354
General and administrative
1,319
1,211
1,429
Total stock-based compensation expense
$
1,614
$
1,465
$
1,783
The weighted-average grant date fair value per share of stock options granted by us, during the years ended December 31, 2021, 2020 and 2019 was $ 3.82 , $ 3.39 and $ 5.67 , respectively. The total grant date fair value of restricted stock units granted by us during the years ended December 31, 2021, 2020, and 2019 was approximately $ 16,000 , $ 21,000 and $ 39,000 , respectively. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2021 was approximately $ 80,000 . We did no t have any options exercised during the years ended December 31, 2020 and 2019. The aggregate intrinsic value of restricted stock units released during the years ended December 31, 2021, 2020 and 2019 was approximately $ 31,000 , $ 34,000 and $ 31,000 , respectively. As of December 31, 2021, total unrecognized share-based compensation expense related to unvested stock options and restricted stock units was approximately $ 3.5 million and $ 20,000 , respectively. These unrecognized costs for options and restricted stock units are expected to be recognized ratably over a weighted-average period of approximately 3.0 years and 2.6 years, respectively.
Warrants
Warrants outstanding for the purchase of common stock as of December 31, 2021 were as follows:
Number
Exercise Price
Expiration
Outstanding
Per Share
Date
1,066
$
281.50
July 2023
6,830
$
43.93
November 2023
2,978
$
50.37
June 2024
2,886
$
51.98
December 2024
13,760
84
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance was as follows:
December 31, 2021
Common stock warrants
13,760
Common stock options and restricted stock units
1,420,050
Shares available under the 2015 equity incentive plan
420,896
Shares available under the employee stock purchase plan
71,933
1,926,639
8. Income Tax
Pretax losses were generated by both domestic and foreign operations as follows (in thousands):
Years Ended December 31,
2021
2020
2019
United States
$
( 33,316
)
$
( 15,950
)
$
( 23,315
)
Foreign
( 458
)
( 280
)
( 448
)
Worldwide pre-tax loss
$
( 33,774
)
$
( 16,230
)
$
( 23,763
)
For the years ended December 31, 2021, 2020, and 2019, we did not record a provision for income taxes due to a full valuation allowance against our deferred taxes. A reconciliation of the expected statutory federal income tax provision to the actual income tax provision is summarized as follows (in thousands):
Years Ended December 31,
2021
2020
2019
Expected income taxes benefit at federal statutory rate
$
( 7,093
)
$
( 3,408
)
$
( 4,990
)
State income taxes, net of federal benefit
( 2,313
)
( 12
)
( 19
)
Permanent items and other
592
169
49
Stock compensation
90
804
701
Research credits
( 1,253
)
( 835
)
( 817
)
Unrecognized tax benefits
500
334
327
Foreign rate differential
21
13
20
Change in tax rate
52
( 7
)
( 49
)
Change in valuation allowance
9,404
2,942
4,778
Income tax (benefit) expense
$
—
$
—
$
—
Deferred income taxes are provided for temporary differences in recognizing certain income and expense items for financial and tax reporting purposes. The deferred tax assets consisted primarily of the income tax benefits from net operating loss (NOL) carryforwards, research and development credits and capitalized research and development expenses, along with other accruals and reserves. Valuation allowances of $ 84.1 million and $ 74.6 million as of December 31, 2021 and 2020, respectively, have been recorded to offset deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold under ASC 740, Accounting for Income Taxes .
85
Significant components of our deferred tax assets are summarized as follows (in thousands):
December 31,
2021
2020
Deferred tax assets:
Net operating loss carryforwards
$
48,833
$
41,203
Capitalized research and development expenses
18,086
17,007
Research credits and other state credits
13,695
12,954
Intangible assets
1,465
1,655
Reserve and accruals
641
544
Share-based compensation expense
1,369
1,253
Lease liability
290
472
Valuation allowance
( 84,112
)
( 74,646
)
Total deferred tax assets
$
267
$
442
Deferred tax liabilities:
Right of use lease assets
( 267
)
( 442
)
Total deferred tax liabilities
( 267
)
( 442
)
Net deferred tax assets
$
—
$
—
As of December 31, 2021, we had federal NOL carryforwards of approximately $ 204.5 million, with $ 92.0 million of NOLs generated after December 31, 2017 carrying forward indefinitely and $ 112.5 million of NOLs that will begin to expire in 2025 . NOLs generated after January 1, 2018 are subject to an 80% of taxable income limitation when utilized after December 31, 2020 in accordance with the Tax Cuts and Jobs Act of 2017 as modified by the Coronavirus Aid, Relief and Economic Security Act (CARES Act). We had state net operating loss carryforwards of approximately $ 192.0 million, and foreign net operating loss carryforwards of $ 8.7 million. The state net operating losses will begin to expire in 2021 . The foreign net operating losses carry over indefinitely.
As of December 31, 2021, we had federal and state research and development credit carryforwards of approximately $ 6.5 million and $ 4.8 million, respectively, which begin to expire in 2026 for federal purposes and carry over indefinitely for state purposes. We had $ 12.5 million of federal Orphan Drug Credits as of December 31, 2021, which will begin to expire in 2035 .
Utilization of the domestic NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. Since the Company’s formation, we raised capital through the issuance of capital stock on several occasions which on its own or combined with the purchasing stockholders’ subsequent disposition of those shares, has resulted in such an ownership change, and could result in an ownership change in the future.
Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the NOL and research and development credit carryforwards become subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, which could be subject to additional adjustments. Any limitation may result in expiration of a portion of our NOL or research and development credit carryforwards before utilization. Due to the existence of the valuation allowance, any impact to the NOL and research and development tax credit carryforwards from Section 382 analysis will be offset by a corresponding adjustment to valuation allowance, resulting in no tax provision impact.
We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense. We had no accrual for interest and penalties on our balance sheet and had not recognized interest or penalties in the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019.
Due to the existence of the valuation allowance, future changes in unrecognized tax benefits will not impact our effective tax rate.
86
Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, derecognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue.
The activity related to our unrecognized tax benefits is summarized as follows (in thousands):
December 31,
2021
2020
2019
Balance as of beginning of year
$
21,707
$
21,302
$
19,643
Increase (decrease) related to prior year tax positions
( 9
)
3
—
Increase related to current year tax positions
534
402
1,659
Balance as of end of year
$
22,232
$
21,707
$
21,302
We do no t anticipate that the amount of unrecognized tax benefits as of December 31, 2021 will change within the next twelve months.
We are subject to taxation in the United States, Hong Kong and state jurisdictions. Our tax years from inception are subject to examination by the United States, Hong Kong and California authorities due to carry forward of unutilized NOLs and research and development credits.
9. Employee Benefits
401(k) Plan
We maintain a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. In April 2015 , our Board of Directors approved a policy, beginning on June 1, 2015 , to match employee contributions equal to 50 % of the participant’s contribution of up to a maximum of 6 % of the participant’s annual salary. We made discretionary contributions totaling $ 0.2 million during each of the years ended December 31, 2021, 2020 and 2019.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
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