Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common
stock began trading on the Nasdaq Global Select Market on February 5, 2021 and trades under the symbol BOLT. Prior to February 5, 2021, there was no public market for our common stock.
Holders of Common Stock
On
March 26, 2021, there were approximately 66 holders of record of our common stock. Certain shares are held in street name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing
number.
Dividend Policy
We have
never declared or paid any dividends on our common stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in
the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements,
contractual restrictions, business prospects and other factors our board of directors may deem relevant.
Stock Price Performance Graph
As a smaller reporting company as defined by Item 10 of Regulation S-K, we are not required to provide this information.
Securities Authorized for Issuance under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.
Recent Repurchases of Equity Securities.
None.
Recent Sales of Unregistered Securities.
During the year ended December 31, 2020, we issued and sold the following unregistered securities:
(1)
From January 1, 2020 to February 5, 2021 (the date of filing our registration statement on Form S-8, File No. 333-252815), we granted stock options under our 2015 Equity Incentive Plan to purchase up to an aggregate of 2,033,153 shares of our common stock to its
employees and directors, at exercise prices per share ranging from $2.80 to $4.41 Options to purchase a total of 52,950 of these shares were exercised through March 26, 2021.
(2)
In June 2020, pursuant to a Series C stock purchase agreement, we issued an aggregate of 5,162,173 shares of
our Series C-1 convertible preferred stock at a purchase price of approximately $8.05 per share, for aggregate consideration of $41.3 million. As a result of our initial public offering, these Series C-1 convertible preferred shares were converted into 5,162,173 shares of our common stock.
The offers, sales and issuances of the securities described in paragraph (1) above were deemed to be exempt from registration under
the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or
bona fide consultants and received the securities under our 2011
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Equity Incentive Plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through
employment, business or other relationships, to information about our company.
The offers, sales and issuances of the securities
described in paragraph (2) above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506 promulgated under Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act
and had adequate access, through employment, business or other relationships, to information about our company. No underwriters were involved in these transactions.
Use of Proceeds
On February 9,
2021, we completed our initial public offering pursuant to a registration statement on Form S-1 (File No. 333-252136) that was declared effective by the SEC on
February 4, 2021 and sold an aggregate of 13,225,000 shares of our common stock, including the exercise in full by the underwriters of their option to purchase 1,725,000 additional shares of our common stock, at a price of $20.00 per share.
Morgan Stanley & Co. LLC, SVB Leerink LLC, Stifel, Nicolaus & Company, Incorporated and Guggenheim Securities, LLC acted as joint book-running managers of our initial public offering, which has now terminated. After deducting
underwriting discounts, commissions and offering costs paid by us of approximately $22.8 million, the net proceeds from the offering were approximately $241.7 million. No offering expenses were paid or are payable, directly or indirectly,
to our directors or officers, to persons owning 10% or more of any class of our equity securities, or to any of our affiliates.
The net
proceeds from the offering have been invested according to our approved investment policy in a mix of money market funds and high-quality, fixed income securities with a weighted average maturity of less than 13 months. Our investment policy
emphasizes preservation of principal, availability of cash to meet cash flow requirements, and maximizing total net returns after satisfying the first two conditions. There has been no material change in the expected use of the net proceeds from our
initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).
Item 6.
Selected Financial Data.
As a smaller reporting company as defined by Item 10 of Regulation S-K, we are not required to
provide this information.
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Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be
read in conjunction with our audited financial statements and related notes thereto included elsewhere in this Annual Report on Form-10K for the period ended December 31, 2020. Except as otherwise
indicated herein or as the context otherwise requires, references in this Annual Report on Form 10-K to Bolt the Company, we, us and our refer to
Bolt Biotherapeutics, Inc.
Overview
We are a clinical-stage immuno-oncology company developing tumor-targeted therapies that leverage the power of the innate and adaptive immune
systems. Our proprietary Boltbody ISAC approach uses immunostimulants to engage and activate myeloid cells, including macrophages and dendritic cells, that directly kill tumor cells via phagocytosis and expose tumor neoantigens to the adaptive
immune system. This leads to recruitment of cytotoxic T cells and additional tumor-killing myeloid cells thereby converting immunologically cold tumors to hot tumors. We believe that this process leads to the development of
systemic immunological memory with epitope spreading to neoantigens that is critical to achieving a long-term anti-tumor response. Our lead product candidate BDC-1001 is a HER2 Boltbody ISAC comprised of a
HER2-targeting biosimilar of trastuzumab conjugated to one of our proprietary TLR7/8 agonists, for the treatment of patients with HER2-expressing solid tumors, including those with HER2-low tumors. We have
demonstrated robust single agent anti-tumor activity in multiple preclinical models, including elimination of large tumors (~500 mm 3 ), as well as tumors that are refractory to trastuzumab or ado-trastuzumab emtansine. In our preclinical safety studies, BDC-1001 was well tolerated and no adverse safety signals were observed. We believe these findings are
encouraging for the therapeutic potential of BDC-1001. We initiated a Phase 1/2 trial of BDC-1001 in the first quarter of 2020 for the treatment of patients with
HER2-expressing solid tumors. We are currently in the dose escalation portion of the trial and expect to move into Phase 2 dose expansions in key solid tumor indications with unmet medical need in 2021. We believe that our preliminary Phase 1/2
data provide us with clinical proof of concept for our HER2 Boltbody ISAC approach. We are also advancing additional Boltbody ISAC product candidates targeting CEA and PD-L1, both of which are currently in
preclinical development. We anticipate advancing our CEA Boltbody ISAC BDC-2034 into the clinic in 2022. We expect to designate our next clinical candidate in 2021.
Since our inception in January 2015, we have focused primarily on organizing and staffing our company, business planning, licensing and
developing intellectual property, raising capital, developing our product candidates and conducting preclinical studies and early clinical trials. We have not recorded any revenue from product sales. Our only revenue has been derived from our
collaboration with Toray. In March 2019, we entered into the Toray Development Agreement, to jointly develop and commercialize a Boltbody ISAC utilizing Torays proprietary antibody. Prior to the completion of our initial public offering in
February 2021, we funded our operations primarily through private placements of our convertible preferred stock for gross proceeds of $173.7 million, including Torays purchase of 717,514 shares of Series T convertible preferred stock for
gross proceeds of $10.0 million and the January 2021 issuance and sale of 5,611,059 shares of Series C-2 preferred stock for net proceeds of $51.9 million. In February 2021, we completed our initial public offering of 13,225,000 shares of our
common stock at a price to the public of $20.00 per share, including the exercise in full by the underwriters of their option to purchase 1,725,000 additional shares of our common stock. Including the option exercise, the aggregate net proceeds to
us from the offering was approximately $241.7 million, net of underwriting discounts, commissions and other offering expenses, for aggregate expenses of approximately $22.8 million.
We have incurred operating losses since our inception. Our net losses were $60.7 million and $30.5 million in 2020 and 2019. As of
December 31, 2020, we had an accumulated deficit of $108.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs
associated with our operations. We expect to continue to incur
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significant expenses and increasing operating losses for the foreseeable future, and we further expect our expenses will increase substantially as we:
conduct our ongoing and planned clinical trials;
continue our research and development programs;
expand our clinical, regulatory, quality and manufacturing capabilities;
seek regulatory approvals for our product candidates; and
operate as a public company.
Our net losses may fluctuate significantly from
quarter-to-quarter and year-to-year, depending in particular on the timing of our planned
clinical trials and preclinical studies, and our expenditures on other research and development activities.
Components of Results of Operations
Revenue
To date our only revenue has been collaboration revenue derived from our collaboration with Toray. We are collaborating with Toray to develop a
Boltbody ISAC that incorporates a proprietary Toray antibody against a novel tumor antigen target. We are jointly responsible for early stage development and for providing technical and regulatory support, and Toray will pay for all of the program
expenses through the end of Phase 1 development. In conjunction with the collaboration, Toray purchased 717,514 shares of our Series T convertible preferred stock for $10.0 million. We evaluated the collaboration together with Torays
purchase of Series T convertible preferred stock, and allocated $1.5 million from the stock purchase proceeds to deferred revenue, which we recognize, together with payments received from Toray for reimbursement based on agreed-upon
full-time equivalent rates and out of pocket costs, as collaboration revenue over time as we fulfill our performance obligation to Toray.
We expect that any collaboration revenue we generate from our current collaboration, and from any future collaboration partners, will
fluctuate in the future as a result of the timing and results of development activities and the timing and amount of payments, including upfront and milestone payments, and other factors.
We have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales unless and until we
obtain regulatory approval of and commercialize one of our product candidates.
Operating Expenses
Research and Development
Research and development expenses have related primarily to early research and discovery activities and to preclinical and clinical development
of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
external research and development expenses, including lab materials and supplies and payments to contract
research organizations, investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies;
salaries, payroll taxes, employee benefits and stock-based compensation charges for those individuals involved in
research and development efforts;
costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees
paid to third-party manufacturers; and
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facilities and other allocated expenses which include direct and allocated expenses for rent, insurance and other
supplies.
Our direct research and development expenses consist principally of external costs, such as fees paid to
contract research organizations and consultants in connection with our preclinical and toxicology studies and costs related to manufacturing materials for our preclinical studies. Since our inception and through December 31, 2020, the vast
majority of our third-party expenses related to the research and development of BDC-1001. With the exception of our collaboration with Toray, we do not allocate employee costs and costs associated with
our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal
resources primarily to conduct our research as well as for managing our preclinical development, process development, manufacturing and clinical development activities. We deploy our personnel across all of our research and development activities
and, as our employees work across multiple programs, we do not currently track our costs by product candidate.
We plan to substantially
increase our research and development expenses for the foreseeable future as we continue the development of our product candidates, particularly as product candidates in later stages of development generally have higher development costs than those
in earlier stages of development. We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of our product candidates due to the inherently unpredictable
nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.
We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to
direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidates
commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to
what degree such arrangements would affect our development plans and capital requirements.
Our future clinical development costs may vary
significantly based on factors such as:
the number and scope of preclinical and IND-enabling studies;
per-patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of patients who participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and through all
follow-up;
the cost and timing of manufacturing our product candidates;
the phase of development of our product candidates; and
the safety and efficacy profile of our product candidates.
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General and Administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel
in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs.
We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development
activities and increased costs of operating as a public company. These increased costs will likely include higher expenses related to audit, legal, regulatory and tax-related services associated with
maintaining compliance with Nasdaq and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Other Income (Expense), Net
Interest Income, Net
Interest income consists of interest on our cash, cash equivalents and short-term investments.
Change in Fair Value of Preferred Stock Purchase Right Liability
In connection with the issuance of our Series B convertible preferred stock in July 2018 and our Series
C-1 convertible preferred stock in June 2020, the investors agreed to buy, and we agreed to sell, additional shares of such preferred convertible stock at the original issue price upon the achievement of pre-defined milestones. These contractual obligations were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component
of other income (expense). In July 2019, we issued such additional shares of Series B convertible preferred stock, respectively, and accordingly, this contractual obligation was settled and the preferred stock purchase right liability was remeasured
to fair value on the purchase date and reclassified to permanent equity. In January 2021, with the completion of the Series C-2 convertible preferred stock, this contractual obligation was settled and the
preferred stock purchase right liability was remeasured to fair value on the purchase date and reclassified to permanent equity.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
Years Ended December 31,
2020
2019
Change
(In thousands)
Collaboration revenue
$
231
$
215
$
16
Operating expenses:
Research and development
40,357
26,002
14,355
General and administrative
9,056
5,182
3,874
Total operating expenses
49,413
31,184
18,229
Loss from operations
(49,182
)
(30,969
)
(18,213
)
Other income (expense), net:
Interest income, net
199
524
(325
)
Change in fair value of preferred stock purchase right liability
(11,745
)
(42
)
(11,703
)
Other income (expense), net
(11,546
)
482
(12,028
)
Net loss and comprehensive loss
$
(60,728
)
$
(30,487
)
$
(30,241
)
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Collaboration Revenue
Revenue increased from $215,000 in 2019 to $231,000 in 2020. Revenue was generated from the execution of the Toray Development Agreement in
March 2019 and the recognition of revenue over time as we fulfill our performance obligations to Toray. We did not perform any services towards satisfying the performance obligation as defined in the Toray Development Agreement during the second
half of the year 2020. We expect to perform services to further the collaboration in the year 2021.
Research and Development Expenses
Research and development expenses increased by $14.4 million from $26.0 million in 2019 to $40.4 million in 2020. The
increase was primarily due to $5.9 million in higher personnel-related expenses due to an increase in headcount from 29 to 53 employees as of the end of the respective period, $3.2 million of higher expenses related to the ongoing BDC-1001 clinical trial, increase of $3.2 million in manufacturing expenses related to the timing of batch production of our product candidates, and $2.3 million in higher facility-related expenses.
General and Administrative Expenses
General and administrative expenses increased by $3.9 million from $5.2 million in 2019 to $9.1 million in 2020. The increase
was primarily due to $1.7 million of higher personnel-related expenses due to an increase in headcount from four to 12 employees as of the end of the respective period, $1.5 million in higher professional services expenses related to
accounting services, legal fees and other professional services, and $0.8 million in higher facility and marketing-related expenses.
Other Income (Expense), Net
Other Income (Expense), Net
Interest income was $0.5 million and $0.2 million in 2019 and 2020, respectively. The decrease of $0.3 million is primarily due
to lower yields on cash, cash equivalents and short-term investment balances.
Change in Fair Value of Convertible Preferred Stock
Purchase Right Liability
The change in fair value of convertible preferred stock purchase right liability increased $11.7 million
from a charge of $42,000 in 2019 to $11.7 million in 2020, primarily due to the increase in the fair value of the outstanding Series C-2 preferred stock purchase right liability as a result of closer time
proximity to achieving different outcome scenarios and higher probabilities of occurrence. We issued the shares associated with the Series B convertible preferred stock purchase right liability in July 2019, accordingly, this obligation no longer
exists. Upon the exercise of the preferred stock purchase right with the completion of the Series C-2 Closing in January 2021, we remeasured the Series C-2 preferred stock purchase right liability to fair value and reclassified to permanent equity
on the balance sheets.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for
the foreseeable future. As of December 31, 2020, we had an accumulated deficit of $108.4 million. Our net loss was $60.7 million and $30.5 million in 2020 and 2019, respectively, and we expect to incur additional losses in the
future. We evaluated our current cash position, historical results, forecasted cash flows and plans in regards to liquidity.
Prior to the
completion of our initial public offering in February 2021, we funded our operations primarily through the private placement of our convertible preferred stock and raised gross proceeds of $173.7 million from such sales including the sale of
5,611,059 shares of Series C-2 convertible preferred stock at $9.2575 per
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share. issuance for aggregate gross proceeds of $51.9 million in January 2021. As of December 31, 2020, we had cash, cash equivalents and short-term investments of $22.8 million.
In February 2021, we completed our initial public offering of 13,225,000 shares of our common stock, including the exercise in full by the underwriters of their option to purchase 1,725,000 additional shares of our common stock, at a price of $20.00
per share for net proceeds to us from the offering was approximately $241.7 million, net of underwriting discounts, commissions and other offering expenses, for aggregate expenses of approximately $22.8 million.
The following table sets forth a summary of our cash flows for each of the periods indicated:
Years Ended
December 31,
2020
2019
(In thousands)
Net cash provided by (used in)
Operating activities
$
(47,308
)
$
(26,343
)
Investing activities
(20,592
)
(508
)
Financing activities
39,597
48,627
Net increase (decrease) in cash, cash equivalents and restricted cash
$
(28,303
)
$
21,776
Operating Activities
Net cash used in operating activities was $47.3 million and $26.3 million for 2020 and 2019, respectively. Net cash used in operating
activities for 2020 was primarily due to our net loss of $60.7 million, adjusted for $15.7 million of non-cash charges and a $2.3 million change in operating assets and liabilities. The non-cash charges were primarily comprised of $11.7 million related to the change in fair value of Series C convertible preferred stock purchase right liabilities, $1.9 million of non-cash lease related expense, $1.4 million for stock-based compensation and $0.6 million for depreciation and amortization expense. The change in net operating assets was primarily due to increases
in our accounts payable and accrued expenses related to an increase in research and development expenses and the timing of vendor payments and increases in our operating lease liabilities. Net cash used in operating activities for 2019 was primarily
due to our net loss of $30.5 million, adjusted for $1.9 million of non-cash charges and a $2.3 million change in operating assets and liabilities. The change in net operating assets was
primarily due to increases in our accounts payable and accrued expenses related to an increase in research and development expenses and the timing of vendor payments, as well as an increase in our deferred revenue related to the unsatisfied
performance obligation under the Toray Development Agreement entered into in March 2019, partially offset by a decrease in our operating lease liabilities.
Investing Activities
Net cash used in investing activities in the year ended December 31, 2020 was due to purchases of property and equipment and net purchases
of short-term investments. Net cash used in investing activities in the year ended December 31, 2019 was due to purchases of other assets and property and equipment.
Financing Activities
Net cash provided by financing activities was $39.6 million for 2020 was due to net proceeds of $41.3 million for the issuance of
5,162,173 shares of our convertible preferred stock in July 2020, partially offset by payments of $1.9 million for deferred offering costs incurred in connection with our initial public offering that was completed in February 2021. Net cash
provided by financing activities was $48.6 million for 2019 was due to net proceeds of $48.6 million from the issuance of 5,701,946 shares of our convertible preferred stock.
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Funding Requirements
Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term investments and net proceeds of
$51.9 million from the sale of shares of Series C-2 convertible preferred stock in January 2021 and net proceeds of $241.7 million from our initial public offering that was completed in February
2021, will be sufficient to fund our operations for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing
product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital
requirements will depend on many factors, including:
the type, number, scope, progress, expansions, results, costs and timing of our clinical trials;
preclinical studies for our product candidates or other potential product candidates or indications which we are
pursuing or may choose to pursue in the future;
the outcome, timing and costs of regulatory review of our product candidates;
the costs and timing of manufacturing for our product candidates, including commercial manufacturing;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public
company, including enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities
increase;
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is
approved;
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third party payors
and adequate market share and revenue for any approved products;
patients willingness to pay
out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
the costs of obtaining, maintaining, defending and enforcing our patent and other intellectual property rights;
and
costs associated with any product candidates, products or technologies that we may
in-license or acquire.
Until such time as we can generate significant revenue
from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we
may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest
of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar
arrangements with third parties, we may have to relinquish valuable
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rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common
stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and
market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Contractual Obligations and
Commitments
Contract Supply Agreement
In March 2019, we entered into a supply agreement with EirGenix, Inc., pursuant to which EirGenix agreed to supply us, on a non-exclusive basis, bulk drug substance of EG12014, its monoclonal antibody being developed as a biosimilar of trastuzumab, which we use in the manufacture of our BDC-1001
HER2 Boltbody ISAC. Under this agreement, we are required to make milestone payments to EirGenix up to an aggregate of $2.0 million based on achievement of certain regulatory milestones by our HER2 Boltbody ISAC. For more information regarding
our supply agreement with EirGenix, please see BusinessManufacturing.
License and Collaboration Agreements
In May 2015 and June 2018, we entered into license agreements with Stanford, pursuant to which Stanford granted us worldwide
exclusive licenses under certain patents related to our proprietary Boltbody ISAC technology and myeloid modulation for cancer immunotherapy, respectively. Under these agreements, we are obligated to pay annual license maintenance fees, which are
nominal and will be creditable against any royalties payable to Stanford under such agreement in the applicable year. We are required in each agreement to make milestone payments up to an aggregate of $0.4 million for the first licensed product
under such agreement that meets certain patent issuance, clinical and regulatory milestones, and an additional milestone payment of $0.2 million for each additional regulatory approval. We also agreed in each agreement to pay Stanford tiered
royalties on our and our sublicensees net sales of licensed products, at low single-digit percentage rates, subject to certain customary reductions. Our royalty obligations continue for the term of each agreement and we are required to pay
royalties on any licensed products made, used, imported or offered for sale during the term of such agreement but sold after the term of the agreement. In addition, we are obligated in each agreement to pay Stanford a
sub-teen double digit to low teen double-digit percentage, based on the date of sublicensing, of certain consideration we receive as a result of granting sublicenses to the licensed patents. Pursuant to each
agreement, we will reimburse Stanfords patent expenses, including reasonable costs incurred in assisting us with prosecuting and maintaining licensed patents. For more information regarding our license agreement with Stanford, please see
BusinessLicense and Collaboration Agreements.
Off-Balance Sheet Arrangements
During 2020 and 2019, we did not have any off-balance sheet arrangements as defined under the rules and
regulations of the SEC.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of December 31, 2020, our cash, cash equivalents and short-term investments consist of cash in readily available checking accounts,
money market accounts and corporate debt securities with strong credit ratings. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. Due to the
short-term maturities of our cash equivalents and short-term investments, and the low risk profile of our short-term investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our
cash equivalents and short-term investments.
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Foreign Currency Risk
We are exposed to market risk related to changes in foreign currency exchange rates. We contract with vendors that are located outside the
United States and certain invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with the arrangements. We do not currently hedge our foreign currency exchange risk. As of
December 31, 2020, we had liabilities of $0.7 million denominated in foreign currencies. Due to the nature of our cash and cash equivalents, an immediate hypothetical 10% change in interest rates would not have a material effect on the
fair value of our cash and cash equivalents.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations are based on our financial statements, which
have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and
expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe the
following accounting policies and estimates to be most critical to the preparation of our financial statements.
Revenue Recognition
For all periods presented, we recognized revenue in accordance with the provisions of ASC 606 . In accordance with ASC 606,
we perform the following five steps in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of these agreements:
identification of the promised goods and services in the contract;
determination of whether the promised goods or services are performance obligations including whether they are
distinct in the context of the contract;
measurement of the transaction price, including any constraint on variable consideration;
allocation of the transaction price to the performance obligations; and
recognition of revenue when, or as, we satisfy each performance obligation.
If an agreement includes a license to our intellectual property and that license is determined to be distinct from the other performance
obligations identified in the arrangement, we recognize revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other
promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring
progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the
measure of performance and related revenue recognition.
With respect to our assessment of the Toray Development Agreement, we identified
multiple promises to deliver goods and services, which include at inception of the agreement: (i) a license to technology and patents, information and know-how; and (ii) development services,
including research services, technical and regulatory support provided by us. We have identified one performance obligation for all the deliverables under the agreement since the delivered elements are either not capable of being distinct or are not
distinct within the context of the contract. Accordingly, we will recognize revenue for the fixed or determinable collaboration in an
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amount proportional to the hours incurred and the total estimated hours to be incurred over the period over which we expect to deliver our performance obligations. We periodically review and
update the estimated hours, when appropriate, which adjusts the percentage of revenue that is recognized for the period. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in the period
could be materially impacted.
Amounts received prior to satisfying the above revenue recognition criteria were recognized as deferred
revenue until all applicable revenue recognition criteria were met. Deferred revenue represented the portion of payments received that have not been earned.
Accrued Research and Development Expenses
We are required to estimate our expenses resulting from our obligations under contracts with vendors, consultants and CROs, in connection with
conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.
We reflect research and development expenses in our financial statements by matching those expenses with the period in which services and efforts are expended.
We account for these expenses according to the progress of the preclinical study as measured by the timing of various aspects of the study or
related activities. We determine accrual estimates through review of the underlying contracts along with discussions with our third-party services providers and our personnel as to the progress of studies, or other services being conducted. During
the course of a study, we adjust our rate of expense recognition if actual results differ from our estimates.
Although we do not expect
our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are
too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Preferred Stock Purchase Right Liabilities
We have entered into convertible preferred stock financings where, in addition to the initial closing, investors agreed to buy, and we agreed
to sell, additional shares of that convertible preferred stock at a fixed price in the event that certain agreed-upon milestones are achieved. We evaluated this purchase right and assessed whether it meets the definition of a freestanding instrument
and, if it did, we determined the fair value of the purchase right liability and recorded it on the balance sheet with the remainder of the proceeds raised being allocated to convertible preferred stock. The preferred stock purchase right liability
was revalued at each reporting period with changes in the fair value of the liability recorded as a component of other income (expense), net, in the statements of operations and comprehensive loss. The preferred stock purchase right liability was
revalued at settlement and the resultant fair value was reclassified to convertible preferred stock at that time. The estimated fair value of the preferred stock purchase right liability was determined using valuation models that consider the
probability of achieving the requisite milestones, our cost of capital, the estimated time period the preferred stock right would be outstanding, consideration received for the convertible preferred stock, the number of shares to be issued to
satisfy the preferred stock purchase right and at what price, and the probability of the consummation of an initial public offering, as applicable. The completion of our initial public offering resulted in the conversion of all of our convertible
preferred stock into common stock.
There are significant judgments and estimates inherent in the determination of the fair value of our
preferred stock purchase right liability. If we had made different assumptions, the carrying value of our preferred stock, net loss and net loss per common share could have been significantly different.
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Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period
of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of stock option awards using the Black-Scholes option pricing model and recognize forfeitures as they occur.
For restricted stock awards, the fair value of the award is the estimated fair value of our common stock on the grant date, as determined by
our board of directors.
The Black-Scholes option pricing model requires the use of subjective assumptions, including the risk-free
interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair
value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 10 to our financial statements included elsewhere in this Annual
Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted
in 2020 and 2019.
In 2020 and 2019, stock-based compensation expense related to stock options was $1.4 million and
$0.5 million, respectively. As of December 31, 2020, the unrecognized stock-based compensation expense related to stock options was $7.2 million and is expected to be recognized as expense over a weighted-average period of
approximately 3.2 years.
Determination of the fair value of common stock
We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. The fair
value of the common stock underlying our equity awards was determined on each grant date by our board of directors, taking into account input from management and independent third-party valuation analyses. All options to purchase shares of our
common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the
absence of a public trading market for our common stock, on each grant date we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants. Our determinations of the fair value of our
common stock were made using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as
Compensation, or the Practice Aid.
Our board of directors considered various objective and subjective factors, along with input from
management, to determine the fair value of our common stock, including:
our stage of development and business strategy, including the status of research and development efforts of our
product candidates and the material risks related to our business and industry;
our results of operations and financial position, including our levels of available capital resources;
the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently
completed mergers and acquisitions of peer companies;
the lack of marketability of our common stock as a private company;
the prices of our convertible preferred stock sold to investors in arms length transactions and the rights,
preferences and privileges of our convertible preferred stock relative to those of our common stock;
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the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public
offering or a sale of our company, given prevailing market conditions;
trends and developments in our industry; and
external market conditions affecting the life sciences and biotechnology industry sectors.
The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market
approaches and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional
or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an
appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was
considered in our valuations.
Through December 31, 2019, we estimated the enterprise value of our business and underlying stock option
grants using the income approach and the Option Pricing Method, or OPM, to allocate enterprise value to the various share classes. The present value of future cash flows was utilized to estimate our current equity value. Under the OPM, shares are
valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. We believed the
OPM was the most appropriate method at that time given the uncertainty of various potential liquidity outcomes and the difficulty of selecting and supporting specific outcomes given our early stage of development. In 2020, we changed to a hybrid of
the OPM and Probability-Weighted Expected Return Method, or PWERM, because of a near-term potential IPO scenario that also factored in the inherent uncertainty associated with being able to complete an IPO. The PWERM is a scenario-based analysis
that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.
Under this hybrid method, we considered the expected initial public offering liquidity scenario, but also used the OPM to capture all other scenarios in the event a near-term initial public offering does not occur. The IPO liquidity scenario equity
value was estimated based on recent IPO valuations in the life sciences and biotechnology sectors, discounted to present value based on anticipated IPO timing. The OPM scenario equity value was determined based on the terms of a recent
arms-length convertible preferred stock financing, which implies an equity value by taking into account our capital structure and the rights and preferences of each class of our stock.
We further adjusted the fair value of our common stock to recognize the lack of liquidity associated with shares of our common stock due to
the fact that our stockholders do not have access to public trading markets similar to those enjoyed by stockholders of public companies. Accordingly, we applied discounts to reflect this lack of marketability of our common stock based on the
weighted-average expected time to liquidity.
There are significant judgments and estimates inherent in the determination of the fair
value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to complete an initial public offering or other liquidity event and the determination of the appropriate valuation
methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been significantly different.
Following the closing of our initial public offering, our board of directors determines the fair value of our common stock based on the
closing price as reported on the date of grant by the Nasdaq Global Select Market.
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Emerging Growth Company and Smaller Reporting Company Status
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company may take
advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised
accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act.
We are also a smaller reporting company, meaning that the
market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of our initial public offering, is less than $700 million and our annual revenue was less
than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than
$250 million as of the last business day of the second fiscal quarter or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to
rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in
our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information
As of December 31, 2020, we had federal and state NOL carryforwards of $94.2 million and $46.5 million, respectively. The
federal NOLs include $4.4 million that may be used to offset up to 100% of future taxable income and will begin to expire in 2035 unless previously utilized and $89.8 million that are not subject to expiration. The net operating loss
carryforwards subject to expiration could expire unused and be unavailable to offset future income tax liabilities. The federal NOLs not subject to expiration are available to offset up to 80% of taxable income each year indefinitely. The state NOL
carryforwards will begin to expire in 2035, unless previously utilized. As of December 31, 2020, we also had federal and state research credit carryforwards of $2.7 million and $2.3 million, respectively. The federal research and
development tax credit carryforwards expire beginning in 2038 unless previously utilized, and the state research and development tax credit carryforwards do not expire. We have established valuation allowances against our NOLs and research and
development credits due to the uncertainty surrounding the realization of these assets.
We have not completed a Section 382 study to
assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in
the future. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our NOL and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a
three-year period.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value
Measurement. The primary focus of the standard is to improve the effectiveness of the disclosure requirements for fair value measurements. We adopted the standard on January 1, 2020, and the adoption did not have a material impact on our financial
statements and related disclosures.
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In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.
ASU 2019-12 is effective for us beginning January 1, 2022. Early adoption is permitted. We adopted the standard during the year ended December 31, 2020, and the adoption did not have a material impact on our financial statements and related
disclosures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not
required to provide the information required under this item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.