1 unchanged sentence
Market Information
−Removed: Our common stock commenced trading under the symbol “ZFGN” on the NASDAQ Global Market on June 19, 2014.
−Removed: Prior to that time, there was no public market for our common stock.
−Removed: Our common stock in our initial public offering priced at $16.00 per share on June 18, 2014.
−Removed: On March 1, 2020, the last reported sales price of our common stock on the NASDAQ Global Market was $1.11 and as of March 1, 2020, there were approximately 19 holders of record of our common stock.
−Removed: However, because many of our outstanding shares are held in accounts with brokers and other institutions, we believe we have more beneficial owners.
−Removed: Dividend Policy
−Removed: We have never declared or paid dividends on our common stock and do not expect to pay dividends on our common stock for the foreseeable future.
−Removed: Instead, we anticipate that all of our earnings in the foreseeable future will be used for the operation and growth of our business.
−Removed: Any future determination to declare dividends will be subject to the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects, and any other factors deemed relevant by our board of directors.
−Removed: In addition, the terms of our outstanding indebtedness restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends.
−Removed: Equity Compensation Plan Information
−Removed: For information regarding securities authorized for issuance under equity compensation plans, see Part III “Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
−Removed: Issuer Purchases of Equity Securities by the Issuer and Affiliated Purchasers
−Removed: Unregistered Sales of Equity Securities
−Removed: On December 17, 2019, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Chondrial Therapeutics, Inc., or Chondrial, pursuant to which a wholly owned subsidiary of the company will merge with and into Chondrial, with Chondrial continuing as the surviving corporation and a wholly owned subsidiary of the company.
−Removed: Under the exchange ratio formula in the Merger Agreement, as of immediately after the merger, the former Chondrial securityholders are expected to own approximately 60% of the outstanding shares of our common stock on a fully-diluted basis and our stockholders as of immediately prior to the merger are expected to own approximately 40% of our outstanding shares of common stock on a fully-diluted basis.
−Removed: Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the level of our net cash at the closing of the merger and certain other adjustments.
−Removed: The shares to be issued by us in the merger will be issued in a private placement exempt from registration under Section 4(a)(2) of the Securities Act, because the offer and sale of such securities does not involve a “public offering” as defined in Section 4(a)(2) of the Securities Act, and other applicable requirements were met.
−Removed: SELECTED FINANCIAL DATA
−Removed: The selected financial data set forth below has been derived from our audited consolidated financial statements.
−Removed: The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements, and the notes thereto, and other financial information included herein.
−Removed: Our historical results are not necessarily indicative of our future results.
−Removed: Year Ended December 31,
−Removed: (in thousands, except per share data)
−Removed: Statement of Operations Data:
−Removed: Operating expenses:
−Removed: Research and development
−Removed: General and administrative
−Removed: Restructuring charges
−Removed: Total operating expenses
−Removed: Loss from operations
−Removed: Other income (expense):
−Removed: Interest income
−Removed: Interest expense
−Removed: Foreign currency transaction gains (losses), net
−Removed: Total other income (expense), net
−Removed: Net loss per share - basic and diluted (1)
−Removed: Weighted average common shares outstanding,
−Removed: basic and diluted
−Removed: (in thousands)
−Removed: Balance Sheet Data:
−Removed: Cash, cash equivalents and marketable securities
−Removed: Working capital (2)
−Removed: Notes payable, net of discount, long-term
−Removed: Total stockholders’ equity
−Removed: See Note 9 to our consolidated financial statements for further details on the calculation of basic and diluted net loss per share attributable to common stockholders.
−Removed: We define working capital as current assets less current liabilities.
−Removed: MA NAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
−Removed: The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our “Selected Financial Data” and our consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K, or Annual Report.
−Removed: This discussion contains forward-looking statements that involve risks and uncertainties.
−Removed: Our actual results could differ materially from the results described, in or implied by, these forward-looking statements.
−Removed: Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed above in the section entitled “Risk Factors.”
−Removed: We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.
−Removed: We disclaim any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, or SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
−Removed: We are a biopharmaceutical company that has leveraged our proprietary methionine aminopeptidase 2, or MetAP2, biology platform to pioneer the study of MetAP2 inhibitors in both common and rare metabolic disorders.
−Removed: Our prior lead product candidate, ZGN-1061, is a MetAP2 inhibitor that was in Phase 2 clinical development for the treatment of type 2 diabetes and other related metabolic disorders.
−Removed: In November 2018, we received a letter from the U.S.
−Removed: Food and Drug Administration, or FDA, placing a full clinical hold on the investigational new drug application, or IND.
−Removed: for the first U.S.
−Removed: clinical trial of ZGN-1061.
−Removed: The FDA cited the possibility of cardiovascular, or CV, safety risk based on our prior compound.
−Removed: In July 2019, we reached agreement with the FDA on an in vivo animal study design and protocol to establish relevant safety margins for ZGN-1061.
−Removed: The study was designed to translate the data from our newly developed in vitro assays of human endothelial cells and assessment of tissue factor expression with endothelial cells, along with other supportive assays, as we worked toward resolving the full clinical hold.
−Removed: Based on the preliminary results from the in vivo study, on September 5, 2019, we announced that we believe there is a low probability of resolving the clinical hold in the near-term.
−Removed: Subsequently, all further development activities of MetAP2 inhibitors were halted and we withdrew the IND for ZGN-1061 in September 2019.
−Removed: Therefore, we determined that it is in the best interest of shareholders to evaluate strategic alternatives and implemented a restructuring plan to reduce operating costs and better align our workforce with its needs.
−Removed: Following an extensive process of evaluating strategic alternatives for the company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, on December 17, 2019, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Chondrial Therapeutics, Inc., or Chondrial, pursuant to which a wholly owned subsidiary of the company will merge with and into Chondrial, with Chondrial continuing as the surviving corporation and a wholly owned subsidiary of the company and the combined publicly traded, clinical-stage biopharmaceutical company will operate under a new name, Larimar Therapeutics, Inc .
−Removed: Under the exchange ratio formula in the Merger Agreement, as of immediately after the merger, the former Chondrial securityholders are expected to own approximately 60% of the outstanding shares of our common stock on a fully-diluted basis and our stockhol ders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of our common stock on a fully-diluted basis.
−Removed: Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the level of our net cash at the closing of the merger and certain other adjustments.
−Removed: We expect to devote significant time and resources to completion of this proposed transaction, which we refer to as the Merger.
−Removed: However, there can be no assurance that such activities will result in the completion of the Merger.
−Removed: Further, the completion of the Merger ultimately may not deliver the anticipated benefits or enhance shareholder value.
−Removed: The Merger Agreement provides each of us and Chondrial with specified termination rights, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $3,375,000.
−Removed: In addition, in connection with certain terminations of the Merger Agreement, either party may be required to pay the other party’s third party expenses up to $350,000.
−Removed: In connection with the merger, we will seek to amend our certificate of incorporation to:
−Removed: (i) effect a reverse split of our common stock at a ratio to be determined by us and Chondrial, which is intended to ensure that the listing requirements of the Nasdaq Global Market are satisfied and (ii) change the name of Zafgen to “Larimar Therapeutics, Inc.”
−Removed: Our and Chondrial’s obligations to consummate the merger are subject to the satisfaction or waiver of customary closing conditions, including, among others, obtaining the requisite approvals of our stockholders and satisfaction of minimum net cash thresholds of $30,000,000 by us and not less than zero by Chondrial.
−Removed: The sole stockholder of Chondrial has approved the Merger Agreement.
−Removed: In connection with the execution of the Merger Agreement, we entered into stockholder
−Removed: support agreements with our current directors and c ertain officers and our largest stockholder, which collectively beneficially own or control an aggregate of approximately 9.7% of our outstanding shares of common stock.
−Removed: Each of the stockholders party to such stockholder support agreements has agreed to vo te or cause to be voted, all of the shares of our common stock beneficially owned by such stockholder in favor of the stockholder proposals submitted at our stockholders meeting to be held in connection with the m erger.
−Removed: We have incurred losses and negative cash flows from operations since our inception.
−Removed: As of December 31, 2019, we had an accumulated deficit of $396.4 million.
−Removed: From its inception through December 31, 2019, we have received net proceeds of $397.9 million from the sales of redeemable convertible preferred stock, the issuance of convertible promissory notes, the proceeds from our initial public offering, or IPO, in June 2014 and our follow-on offerings in January 2015 and July 2018.
−Removed: On July 2, 2018, we completed a public offering of its common stock, which resulted in the sale of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs.
−Removed: We have a term loan with an aggregate principal balance of $14.5 million as of December 31, 2019.
−Removed: The loan agreement requires that us to maintain certain minimum liquidity at all times, which as of December 31, 2019, was approximately $15.3 million.
−Removed: If the minimum liquidity covenant is not met, we may be required to repay the loan prior to scheduled maturity dates.
−Removed: The Term Loan also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against the Company and the collateral securing the amounts due under the Term Loan.
−Removed: These events of default include, among other things, failure to pay any amounts due under the Term Loan, insolvency, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness and a final judgment against us in an amount greater than $0.3 million.
−Removed: We have estimated that the risk of subjective acceleration under the material adverse events clause is reasonably possible, however not probable and therefore have classified the outstanding principal in current and long-term liabilities based on contractually scheduled principal payments.
−Removed: However, the assessment of such probability of the debt holder calling the debt is subjective and their actions and/or our related assessment could change in the future, which in turn would impact the classification of the debt balances.
−Removed: Based on our current operating plans, the Company believes its cash, cash equivalents and marketable securities of $70.3 million as of December 31, 2019 will be sufficient to fund its anticipated level of operations, capital expenditures and satisfy debt repayments for a period of at least 12 months from the issuance date of this Annual Report.
−Removed: Until such time, if ever, we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other sources of funding.
−Removed: We expect to generate operating losses for the foreseeable future.
−Removed: If we are unable to raise additional funds through equity or debt financings, we may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market itself.
−Removed: We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2019 will enable us to fund our operating expenses, capital expenditure requirements and minimum liquidity requirements associated with our debt facility for a period of at least one year from the issuance date of this Annual Report.
−Removed: See “—Liquidity and Capital Resources.”
−Removed: Financial Operations Overview
−Removed: We have not generated any revenue from product sales since our inception, and do not expect to generate any revenue from the sale of products in the near future as we have discontinued development of our product candidates.
−Removed: Operating Expenses
−Removed: The majority of our operating expenses since inception have consisted primarily of research and development activities, and general and administrative costs.
−Removed: Research and Development Expenses.
−Removed: Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred.
−Removed: Research and development expenses consist primarily of:
−Removed: personnel costs, including salaries, related benefits and stock-based compensation for employees engaged in scientific research and development functions;
−Removed: third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clin ical trial activities;
−Removed: external costs of outside consultants;
−Removed: payments made under our third-party licensing agreements;
−Removed: sponsored research agreements;
−Removed: laboratory consumables;
−Removed: allocated facility-related costs.
−Removed: Based on the preliminary results from the ZGN-1061 in vivo study, we announced that we believe there is a low probability of resolving the clinical hold on ZGN-1061 in the near-term.
−Removed: Subsequently, all further development activities of MetAP2 inhibitors were halted and we withdrew the IND for ZGN-1061 in September 2019.
−Removed: General and Administrative Expenses.
−Removed: General and administrative expenses have consisted primarily of personnel costs, consisting of salaries, related benefits and stock-based compensation, of our executive, finance, information technology, business and corporate development and other administrative functions.
−Removed: General and administrative expenses also include travel expenses, allocated facility-related costs not otherwise included in research and development expenses, insurance expenses, and professional fees for auditing, tax and legal services, including legal expenses to pursue patent protection of our intellectual property.
−Removed: Other Income (Expense)
−Removed: Interest income.
−Removed: Interest income consists of interest earned on our cash equivalents and marketable securities.
−Removed: Our interest income has not been significant due to low interest earned on invested balances.
−Removed: We anticipate that our interest income will decrease as we continue to incur operating losses.
−Removed: Interest expense.
−Removed: Interest expense during the year ended December 31, 2019 and December 31, 2018 relates to the loan and security agreement with Silicon Valley Bank, or the Term Loan, which closed on December 29, 2017.
−Removed: It bears a variable interest at an annual rate of 1.25% above the prime rate, as well as a final payment equal to 8.0% of the Term Loan, which is being recorded as interest expense over the term through the maturity date using the effective-interest method.
−Removed: Foreign currency transaction gains (losses), net.
−Removed: Foreign currency transaction gains (losses), net consists of the realized and unrealized gains and losses from foreign currency-denominated cash balances, vendor payables and tax-related receivables from the Australian government.
−Removed: We currently do not engage in hedging activities related to our foreign currency-denominated receivables and payables;
−Removed: as such, we cannot predict the impact of future foreign currency transaction gains and losses on our operating results.
−Removed: See “—Quantitative and Qualitative Disclosures about Market Risk.”
−Removed: Since our inception in 2005, we have not recorded any U.S.
−Removed: federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from those items.
−Removed: As of December 31, 2019, we had net operating loss carryforwards that expire for federal and state income tax purposes of $55.7 million and $57.0 million, respectively, which begin to expire in 2026 and 2030, respectively.
−Removed: As of December 31, 2019, we had net operating loss carryforwards that were generated after December 31, 2017, of $21.2 million that do not expire.
−Removed: As of December 31, 2019, we also had available tax credit carryforwards for federal and state income tax purposes of $17.9 million and $4.2 million, respectively, which begin to expire in 2026 and 2022, respectively.
−Removed: Critical Accounting Policies and Significant Judgments and Estimates
−Removed: Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America.
−Removed: The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures.
−Removed: We believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies.
−Removed: We evaluate our estimates and assumptions on an ongoing basis.
−Removed: Our actual results may differ from these estimates under different assumptions and conditions.
−Removed: See also Note 2 of our consolidated financial statements included elsewhere in
−Removed: this Annual Report for information about these critical accounting policies as well as a description of our other significant accounting policies.
−Removed: Research and Development Expenses
−Removed: As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.
−Removed: This process involves reviewing open contracts and purchase orders, communicating with our personnel and outside vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.
−Removed: The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met;
−Removed: however, some require advance payments.
−Removed: We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time.
−Removed: Examples of estimated accrued research and development expenses have included fees paid to:
−Removed: contract research organizations, or CROs, in connection with clinical trials;
−Removed: investigative sites or other providers in connection with clinical trials;
−Removed: vendors in connection with nonclinical development activities;
−Removed: vendors related to product candidate manufacturing, development and distribution of clinical supplies.
−Removed: We have based our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf.
−Removed: The financial terms of these agreements have been subject to negotiation, vary from contract to contract and have resulted in uneven payment flows.
−Removed: There have been instances in which payments made to our vendors have exceeded the level of services provided and resulted in a prepayment of the clinical expense, nonclinical expense, or manufacturing activities.
−Removed: Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
−Removed: In accruing service fees, we have estimated the time period over which services were performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period.
−Removed: If the actual timing of the performance of services or the level of effort varied from our estimate, we adjusted the accrual or prepaid accordingly.
−Removed: Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may have varied and have resulted in us reporting amounts that are too high or too low in any particular period.
−Removed: To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
−Removed: Stock-Based Compensation
−Removed: We have historically issued equity awards to employees, directors and consultants, generally in the form of options to purchase shares of our common stock and, to a lesser extent, shares of restricted common stock.
−Removed: We measure stock-based awards granted to employees and directors at fair value on the date of grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.
−Removed: Generally, we issue stock options and restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.
−Removed: We measure stock-based awards granted to consultants and nonemployees at the fair value of the award on the date at which the related service is complete.
−Removed: Compensation expense is recognized over the period during which services are rendered by such consultants and nonemployees until completed.
−Removed: At the end of each financial reporting period prior to completion of the service, the fair value of these awards is re-measured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.
−Removed: The fair value of each service-based stock option grant to employees and directors is estimated on the date of grant using the Black-Scholes option-pricing model.
−Removed: The Company estimates its expected volatility using a weighted average of the historical volatility of publicly-traded peer companies and its own common stock since its IPO in June 2014, and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price for the duration of the expected term.
−Removed: The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.
−Removed: The risk-free interest rate is determined by reference to the U.S.
−Removed: Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
−Removed: Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
−Removed: In October 2017, we granted market-based stock option awards which are valued using Monte Carlo simulation models.
−Removed: The number of options expected to vest, based on achievement of the specified market condition, is factored into the grant date Monte Carlo v aluations.
−Removed: Compensation expense is recognized ratably over the attribution period.
−Removed: The assumptions we used to determine the fair value of service-based stock options granted to employees and directors are as follows, presented on a weighted average basis:
−Removed: Risk-free interest rate
−Removed: Expected term (in years)
−Removed: Expected volatility
−Removed: Expected dividend yield
−Removed: The assumptions that we used to determine the fair value of the market-based stock options granted to employees in 2017 are as follows, presented on a weighted average basis:
−Removed: Risk-free interest rate
−Removed: Expected term (in years)
−Removed: Expected volatility
−Removed: Expected dividend yield
−Removed: These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment.
−Removed: As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.
−Removed: We recognize compensation expense for only the portion of awards that are expected to vest.
−Removed: The following table summarizes the classification of our stock-based compensation expenses recognized in our consolidated statements of operations and comprehensive loss:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Research and development
−Removed: General and administrative
−Removed: As of December 31, 2019, we had unrecognized stock-based compensation expense related to our unvested service-based stock option awards of $6.1 million, which is expected to be recognized over the remaining weighted average vesting period of 2.6 years.
−Removed: As of December 31, 2019, we had unrecognized stock-based compensation expense related to our unvested market-based stock option awards of $0.7 million, which is expected to be recognized over the remaining weighted average vesting period of 0.8 years.
−Removed: Results of Operations
−Removed: Comparison of Years Ended December 31, 2019 and 2018
−Removed: The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Operating expenses:
−Removed: Research and development
−Removed: General and administrative
−Removed: Restructuring charges
−Removed: Total operating expenses
−Removed: Loss from operations
−Removed: Other income (expense):
−Removed: Interest income
−Removed: Interest expense
−Removed: Foreign currency transaction gains (losses), net
−Removed: Total other income (expense), net
−Removed: Research and development expenses
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Direct research and development expenses by program:
−Removed: MetAP2 inhibitors
−Removed: Unallocated expenses:
−Removed: Personnel related
−Removed: Non-cash stock-based compensation
−Removed: Total research and development expenses
−Removed: Research and development expenses for the year ended December 31, 2019 decreased $24.0 million compared to the year ended December 31, 2018.
−Removed: The decrease was primarily due to decreased costs of $15.7 million associated with our MetAP2 inhibitors and $8.4 million associated with our unallocated expenses.
−Removed: Costs associated with MetAP2 inhibitors decreased as a result of our decision to halt further development activities of MetAP2 inhibitors as a result of our withdrawal of the IND for ZGN-1061 in September 2019.
−Removed: In addition, during 2019 we were not conducting any clinical trials;
−Removed: whereas, in 2018 we were conducting a Phase 2 clinical trial of ZGN-1061 in Australia and New Zealand.
−Removed: Unallocated expenses decreased to $10.5 million for the year ended December 31, 2019 compared to $18.9 million for the same period of 2018 primarily due to a decrease of $4.2 million in non-cash stock-based compensation.
−Removed: Non-cash stock-based compensation has decreased for the year ended December 31, 2019 primarily due to turnover and restructuring activities, which also resulted in the reversal of the expenses incurred on unvested stock options.
−Removed: There was a decrease of $3.3 million in personnel related costs primarily due to the reduction in the number of employees as a result of the restructuring activities in the third quarter of 2019 and turnover during 2019.
−Removed: Additionally, there was a decrease in consultants and other expenses of $0.3 million and $0.7 million, respectively, due to our decision to halt further development activities of MetAP2 inhibitors in September 2019.
−Removed: General and administrative expenses
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Personnel related
−Removed: Non-cash stock-based compensation
−Removed: Professional fees
−Removed: Total general and administrative expenses
−Removed: General and administrative expenses for the year ended December 31, 2019 increased $3.0 million compared to the year ended December 31, 2018.
−Removed: The increase was due to an increase in personnel related costs of $1.0 million, professional fees of $1.5 million, other costs of $0.5 million and non-cash stock-based compensation of less than $0.1 million.
−Removed: Personnel related costs increased by $1.0 million primarily due to the payment of retention bonuses following the signing of the merger agreement and the timing of employee headcount hires made during 2018 and reductions in staff as a result of our restructurings in the third quarter of 2019.
−Removed: Professional fees increased by $1.5 million primarily due to banker and legal fees associated with the strategic alternative process announced in September 2019 and the subsequent signing of the merger agreement with Chondrial.
−Removed: Other general and administrative expenses increased primarily due to higher costs associated with director and officer insurance.
−Removed: Restructuring charges
−Removed: Restructuring charges were approximately $5.6 million for the year ended December 31, 2019.
−Removed: We did not have any restructuring charges during the prior year.
−Removed: During the year ended December 31, 2019, we commenced a restructuring plan that consisted of a workforce reduction of 23 positions and the termination of ongoing research, in order to conserve cash while we evaluated strategic alternatives.
−Removed: Restructuring charges for the year ended December 31, 2019, in connection with the workforce reductions, were comprised principally of severance payments and benefits continuation costs, which totaled approximately $4.1 million of which approximately $1.4 million was paid during the year ended December 31, 2019.
−Removed: Restructuring charges for the year ended December 31, 2019, in connection with contract termination costs, comprised principally of the termination of research and development contracts that no longer provided value to us.
−Removed: These terminations costs were approximately $1.4 million of which approximately $1.4 million was paid during the year ended December 31, 2019.
−Removed: Other income (expense), net
−Removed: Interest expense .
−Removed: Interest expense for the years ended December 31, 2019 and 2018 was $1.8 million and $1.9 million, respectively.
−Removed: Interest expense during the years ended December 31, 2019 and 2018 relates to the Term Loan, which closed on December 29, 2017.
−Removed: It bears variable interest at an annual rate of 1.25% above the prime rate, as well as a final payment equal to 8.0% of the Term Loan, which is being recorded as interest expense over the term through the maturity date using the effective-interest method.
−Removed: Interest income.
−Removed: Interest income of $2.0 million and $1.9 million for the years ended December 31, 2019 and 2018, respectively, was related to interest earned on our marketable securities balances.
−Removed: Foreign currency transaction gains (losses), net.
−Removed: We had foreign currency transaction gains of less than $0.1 million for the year ended December 31, 2019.
−Removed: We had foreign currency transaction losses of $0.2 million for the year ended December 31, 2018.
−Removed: Foreign currency transaction gains and losses consisted of the realized and unrealized gains and losses from foreign currency-denominated cash balances, vendor payables and tax-related receivables from the Australian government, generally reflecting the fluctuation of the Australian dollar relative to the U.S.
−Removed: Comparison of Years Ended December 31, 2018 and 2017
−Removed: The following table summarizes our results of operations for the years ended December 31, 2018 and 2017:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Operating expenses:
−Removed: Research and development
−Removed: General and administrative
−Removed: Total operating expenses
−Removed: Loss from operations
−Removed: Other income (expense):
−Removed: Interest income
−Removed: Interest expense
−Removed: Foreign currency transaction gains (losses), net
−Removed: Total other income (expense), net
−Removed: Research and development expenses
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Direct research and development expenses by program:
−Removed: MetAP2 inhibitors
−Removed: Unallocated expenses:
−Removed: Personnel related
−Removed: Non-cash stock-based compensation
−Removed: Total research and development expenses
−Removed: Research and development expenses for the year ended December 31, 2018 increased $7.1 million compared to the year ended December 31, 2017.
−Removed: The increase was primarily due to an increase of $11.5 million related to our ZGN-1258 program, as well as an increase in our unallocated expenses of $3.1 million and discovery and screening of $0.5 million, partially offset by decreased costs of $7.3 million associated with our ZGN-1061 program and $0.7 million associated with our beloranib program.
−Removed: Costs associated with our ZGN-1258 program for the year ended December 31, 2018 are associated with our advancement of the ZGN-1258 program in January 2018, and our nonclinical efforts for evaluation of ZGN-1258 initially in the treatment of people affected by PWS in the first quarter of 2018.
−Removed: Our research and development costs also increased for the year ended December 31, 2018 due to our research and development efforts in identifying ZGN-1345, an orally dosed MetAP2 inhibitor specifically targeting the liver.
−Removed: Our discovery and screening costs have increased slightly by $0.5 million from the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily due to the timing of expenses.
−Removed: Unallocated expenses increased period over period primarily due to an increase of $1.3 million in non-cash stock-based compensation, as well as an increase in personnel related costs of $1.1 million.
−Removed: Non-cash stock-based compensation has increased primarily due to personnel transfers between functional areas and new employees.
−Removed: Personnel related expenses increased primarily due to the hiring of new employees and personnel transfers between functional areas.
−Removed: Costs associated with our ZGN-1061 program decreased period over period by $7.3 million, primarily due to a decrease in nonclinical and manufacturing costs of $7.6 million.
−Removed: During the year ended December 31, 2017, costs increased primarily as a result of additional nonclinical studies and drug product and drug substance activities, as we were planning for our ZGN-1061 Ph ase 2 clinical trial which commenced in the third quarter of 2017 in both Australia and New Zealand, for which we enrolled 137 patients in a 12-week clinical trial.
−Removed: Partially offsetting the decrease in nonclinical and manufacturing costs of our ZGN-1061 pr ogram was an increase in costs associated with our clinical trials for our ZGN-1061 program of $0.3 million.
−Removed: The expenses during the 2017 period were for final costs for a Phase 1 clinical trial of ZGN-1061 in the Netherlands, which was comprised of 39 pat ients in a single ascending dose, or SAD, portion and 29 patients in a multiple ascending dose, or MAD, portion, while the expenses during the 2018 period are for the larger Phase 2 clinical trial.
−Removed: General and administrative expenses
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Personnel related
−Removed: Non-cash stock-based compensation
−Removed: Professional fees
−Removed: Total general and administrative expenses
−Removed: General and administrative expenses for the year ended December 31, 2018 increased $1.0 million compared to the year ended December 31, 2017.
−Removed: The increase was due to an increase in personnel related costs of $0.7 million, professional fees of less than $0.1 million and other costs of $0.3 million.
−Removed: Personnel related costs increased as a result of hiring new employees.
−Removed: Professional fees increased primarily due to recruiting expenses for new key employees and legal expenses associated with the filing of multi-country patents.
−Removed: Other general and administrative expenses increased primarily due to fees associated with our SEC filings and software costs.
−Removed: These increases were offset by a decrease in non-cash stock-based compensation of less than $0.1 million.
−Removed: Non-cash stock-based compensation expense decreased due mainly to personnel transfers between functional areas.
−Removed: Other income (expense), net
−Removed: Interest expense .
−Removed: Interest expense for the year ended December 31, 2018 and 2017 was $1.9 million and $0.2 million, respectively.
−Removed: Interest expense during the year ended December 31, 2018 relates to the Term Loan of $20.0 million, which closed on December 29, 2017.
−Removed: It bears a variable interest at an annual rate of 1.25% above the prime rate, as well as a final payment equal to 8.0% of the Term Loan, which is being recorded as interest expense over the term through the maturity date using the effective-interest method.
−Removed: Interest expense during the year ended December 31, 2017 was related to interest expense on our outstanding borrowings under the 2014 Credit Facility, which was fully repaid in December 2017.
−Removed: Interest expense consists primarily of the stated interest of 8.1% per year due on outstanding borrowings.
−Removed: It also includes expense related to the final payment of 6% of amounts drawn down that was recorded over the term through the maturity date using the effective-interest method and the amortization of deferred financing costs and debt discounts relating to the 2014 Credit Facility.
−Removed: Interest income.
−Removed: Interest income of $1.9 million and $1.0 million for the years ended December 31, 2018 and 2017, respectively, was related to interest earned on our marketable securities balances.
−Removed: Foreign currency transaction (losses) gains, net.
−Removed: We had foreign currency transaction losses of $0.2 million and gains of $0.1 million for the years ended December 31, 2018 and 2017, respectively.
−Removed: Foreign currency transaction gains and losses consisted of the realized and unrealized gains and losses from foreign currency-denominated cash balances, vendor payables and tax-related receivables from the Australian government, generally reflecting the fluctuation of the Australian dollar relative to the U.S.
−Removed: Liquidity and Capital Resources
−Removed: As of December 31, 2019, we had cash, cash equivalents and marketable securities totaling $70.3 million.
−Removed: We invest our cash in money market funds, commercial paper, certificates of deposits, U.S.
−Removed: government securities and corporate bonds,
−Removed: with the primary objectives to preserve princi pal, provide liquidity and maximize income without significantly increasing risk.
−Removed: Since our inception in November 2005, we have not generated any revenue and have incurred recurring net losses.
−Removed: As of December 31, 2019, we had an accumulated deficit of $396.4 million.
−Removed: Prior to our IPO in June 2014, we funded our operations primarily through sales of redeemable convertible preferred stock and, to a lesser extent, through the issuances of convertible promissory notes and a loan security agreement.
−Removed: From our inception through our IPO in June 2014, we received gross proceeds of $104.0 million from such transactions.
−Removed: In June 2014, we completed our IPO with net proceeds of $102.7 million after deducting underwriting discounts and commissions paid by us.
−Removed: We also incurred offering costs of $2.5 million related to the IPO.
−Removed: In January 2015, we completed a follow-on offering of our common stock, which resulted in the sale of 3,942,200 shares at a price of $35.00 per share.
−Removed: We received net proceeds from the follow-on offering of $130.0 million based upon the price of $35.00 per share and after deducting underwriting discounts and commissions paid by us.
−Removed: We also incurred offering costs of $0.5 million related to the follow-on offering.
−Removed: On July 2, 2018, we completed a public offering of our common stock, which resulted in the sale of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs paid by us.
−Removed: On November 9, 2018, we entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, to sell shares of our common stock, with aggregate gross sales proceeds of up to $50.0 million, from time to time, through an at-the-market equity offering program under which Cowen will act as its sales agent.
−Removed: Through December 31, 2019 we have not sold any shares under the Sales Agreement.
−Removed: On December 29, 2017, we entered into a loan and security agreement with Silicon Valley Bank, or the Term Loan.
−Removed: The Term Loan provided for borrowings of $20.0 million.
−Removed: On December 29, 2017, we received proceeds of $20.0 million from the issuance of a promissory note.
−Removed: The promissory note issued under the Term Loan is collateralized by substantially all of our personal property, other than our intellectual property.
−Removed: As of December 31, 2019 we had an outstanding principle balance on the Term Loan of $14.5 million.
−Removed: Upon entering into this Term Loan, we are obligated to make monthly, interest-only payments until March 29, 2019 and, thereafter, to pay 33 consecutive, equal monthly installments of principal and interest from April 1, 2019 through December 1, 2021.
−Removed: The outstanding Term Loan bears a variable interest at an annual rate of 1.25% above the prime rate, which was 4.75% at December 31, 2019.
−Removed: In addition, a final payment equal to 8.0% of the Term Loan is due upon the earlier of the maturity date, acceleration of the Term Loan or prepayment of all or part of the Term Loan.
−Removed: We accrue the final payment amount of $1.6 million, to outstanding debt by charges to interest expense using the effective-interest method from the date of issuance through the maturity date.
−Removed: Additionally, we, as the borrower, are required to maintain a minimum cash, cash equivalents and marketable securities balance at Silicon Valley Bank of no less than 105% of the total outstanding principal balance of the Term Loan, which as of December 31, 2019 was $15.3 million and as of December 31, 2018 was $21.0 million.
−Removed: Further, as of 45 days after the Term Loan was entered in, we must maintain a balance of unrestricted cash, cash equivalents and marketable securities at Silicon Valley Bank in an amount not less than the greater of (i) $55.0 million and (ii) sixty-five percent (65%) of all of our cash, cash equivalents and marketable securities.
−Removed: If we do not meet this requirement it will not be considered an event of default provided we immediately secure 87.5% of the principal balance in a restricted cash account.
−Removed: There are negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions;
−Removed: encumbering or granting a security interest in our intellectual property;
−Removed: incurring indebtedness or liens;
−Removed: paying dividends;
−Removed: making certain investments;
−Removed: permit the aggregate value of cash maintained by our Australian subsidiary not to exceed $4.0 million and certain other business transactions.
−Removed: The Term Loan also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against us and the collateral securing the loans under the Term Loan, including cash in the amount of the outstanding balance.
−Removed: These events of default include, among other things, failure to pay any amounts due under the Term Loan, insolvency, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness and a final judgment against us in an amount greater than $0.3 million.
−Removed: We have estimated that the risk of subjective acceleration under the material adverse events clause is reasonably possible, however not probable and therefore have classified the outstanding principal in current and long-term liabilities based on contractually scheduled principal payments.
−Removed: However, the assessment of such probability of the debt holder calling the debt is subjective and their actions and/or our related assessment could change in the future, which in turn would impact the classification of the debt balances.
−Removed: The following table summarizes our sources and uses of cash for each of the periods presented below:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Net cash used in operating activities
−Removed: Net cash provided by (used in) investing activities
−Removed: Net cash (used in) provided by financing activities
−Removed: Net (decrease) increase in cash, cash equivalents and restricted cash
−Removed: Net cash used in operating activities
−Removed: During the year ended December 31, 2019, operating activities used $40.8 million of cash, resulting from our net loss of $45.4 million, partially offset by non-cash charges of $5.0 million.
−Removed: Our net loss was primarily attributed to research and development activities related to our MetAP2 programs, restructuring charges and our general and administrative expenses.
−Removed: Our net non-cash charges during the year ended December 31, 2019, consisted primarily of stock-based compensation expense of $5.5 million.
−Removed: Net cash used in changes in our operating assets and liabilities during the year ended December 31, 2019, consisted primarily of a $5.1 million decrease in accounts payable and accrued expenses, a $1.3 million decrease in tax incentive receivable, partially offset by a $2.7 million increase in accrued restructuring and a $0.7 million decrease in prepaid expenses and other current assets.
−Removed: During the year ended December 31, 2018, operating activities used $51.5 million of cash, resulting from our net loss of $61.4 million, partially offset by non-cash charges of $9.9 million.
−Removed: Our net loss was primarily attributed to research and development activities related to our ZGN-1061 program, our ZGN-1258 program, discovery and screening and our general and administrative expenses.
−Removed: Our net non-cash charges during the year ended December 31, 2018, consisted primarily of stock-based compensation expense of $9.6 million.
−Removed: Net cash used in changes in our operating assets and liabilities during the year ended December 31, 2018, consisted primarily of a $1.1 million increase in accounts payable and accrued expenses, $0.2 million decrease in prepaid expenses and other current assets, partially offset by a $0.7 million increase in tax incentive receivable.
−Removed: During the year ended December 31, 2017, operating activities used $43.8 million of cash, resulting from our net loss of $52.0 million, partially offset by non-cash charges of $8.3 million.
−Removed: Our net loss was primarily attributed to research and development activities related to our ZGN-1061 program, discovery and screening and our general and administrative expenses, as we had no revenue in the period.
−Removed: Our net non-cash charges during the year ended December 31, 2017, consisted primarily of stock-based compensation expense of $8.3 million.
−Removed: Net cash used in changes in our operating assets and liabilities during the year ended December 31, 2017, consisted primarily of a $1.0 million increase in accounts payable and accrued expenses, partially offset by a $0.6 million increase in prepaid expenses and other current assets and a $0.6 million increase in tax incentive receivable.
−Removed: Net cash provided by (used in) investing activities
−Removed: During the year ended December 31, 2019, investing activities provided $25.3 million of cash resulting from the maturities of marketable securities of $109.5 million, which was partially offset by the purchases of marketable securities of $82.9 million, purchases of equipment of $0.8 million and purchases of right-of-use assets of $0.6 million associated with our build out of our offices at 3 Center Plaza.
−Removed: During the year ended December 31, 2018, investing activities used $6.9 million of cash resulting from purchases of marketable securities of $117.1 million and purchases of equipment of $0.1 million.
−Removed: These uses were partially offset by proceeds from maturities of marketable securities of $110.4 million.
−Removed: During the year ended December 31, 2017, investing activities provided $35.6 million of cash resulting from proceeds from sales and maturities of marketable securities of $150.2 million, offset by the use of cash for purchases of marketable securities of $114.5 million and purchases of property and equipment of $0.1 million.
−Removed: Net cash (used in) provided by financing activities
−Removed: During the year ended December 31, 2019, net cash used in financing activities of $5.3 million was the result of $5.5 million in financing activities for payments related to our notes payable, partially offset by $0.2 million received from
−Removed: proceeds from the exercise of common stock options and common stock purchased under our 2014 Employee Stock Purchase Plan.
−Removed: During the year ended December 31, 2018, net cash provided by financing activities of $66.9 million was the result of net proceeds of $64.6 million from our July 2, 2018 public offering of common stock and $2.4 million relating to the exercise of common stock options and common stock purchased under our 2014 Employee Stock Purchase Plan.
−Removed: During the year ended December 31, 2017, net cash provided by financing activities of $16.6 million was the result of proceeds of $20.0 million from our notes payable, as well as $0.2 million received from proceeds relating to the exercise of common stock options and common stock purchased under our 2014 Employee Stock Purchase Plan, partially offset by payments of $3.6 million related to our notes payable.
−Removed: Operating Capital Requirements
−Removed: We have not generated product revenue or achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future.
−Removed: We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2019, will enable us to fund our operating expenses and capital expenditure requirements for a period of at least one year from the issuance date of this Annual Report.
−Removed: We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.
−Removed: Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.
−Removed: 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 diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
−Removed: Debt 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 and may require the issuance of warrants, which could potentially dilute their ownership interest.
−Removed: If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or grant licenses on terms that may not be favorable to us.
−Removed: 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 future product development or future commercialization efforts or grant rights to develop and market our future product candidates, if any, that we would otherwise prefer to develop and market ourselves.
−Removed: Our future capital requirements will depend on many factors, including:
−Removed: our plans and expectations regarding the merger with Chondrial, including the expected completion of the merger;
−Removed: our strategies, goals, prospects, plans, expectations, forecasts or objectives with Chondrial or the combined company;
−Removed: the number and characteristics of any future product candidates we develop or may acquire;
−Removed: the scope, progress, results and costs of researching and developing any future product candidates, and conducting nonclinical studies and clinical trials;
−Removed: the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidate;
−Removed: the cost of manufacturing any future product candidates and any products that may achieve regulatory approval;
−Removed: the cost of commercialization activities if any future product candidates are approved for sale, including marketing, sales and distribution costs;
−Removed: our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
−Removed: any product liability or other lawsuits related to our products;
−Removed: the expenses needed to attract and retain skilled personnel;
−Removed: the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation.
−Removed: Since our inception in 2005, we have not recorded any U.S.
−Removed: federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from tho se items.
−Removed: As of December 31, 2019, we had net operating loss carryforwards for federal and state income tax purposes of $ 55.7 million and $ 5 7.0 million, respectively, which begin to expire in 2026 and 2030, respectively.
−Removed: As of December 31, 2019 , we had net operating loss carryforwards that were generated after December 31, 2017, of $ 2 1 .2 million that do not expire.
−Removed: As of December 31, 2019, we also had available tax credit carryforwards for federal and state income tax purposes of $ 1 7.9 million and $ 4.2 million, respectively, which begin to expire in 2026 and 2022, respectively We have not completed a study to assess whether an ownership change, generally defined as a greater than 50% change (by value) in the equity ownership of our corporate entity over a three-year period, has occurred or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such studies.
−Removed: Accordingly, our ability to utilize our tax carryforwards may be limit ed.
−Removed: Additionally, U.S.
−Removed: tax laws limit the time during which these carryforwards may be utilized against future taxes.
−Removed: As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes.
−Removed: Contractual Obligations and Commitments
−Removed: The following table summarizes our contractual obligations as of December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:
−Removed: Payments Due by Period
−Removed: (in thousands)
−Removed: Operating lease commitments (1)
−Removed: Debt commitments (2)
−Removed: We have leased approximately 17,705 square feet of office space at 3 Center Plaza, Boston, Massachusetts on February 12, 2019 with a term expiring on October 30, 2030.
−Removed: We have leased approximately 2,976 square feet of office space at 175 Portland Street, 2nd Floor, Boston, Massachusetts April 15, 2015 to July 31, 2020, which, with the landlord’s consent, we have subleased to an unrelated third party beginning on January 1, 2017 and expiring on July 31, 2020.
−Removed: We have also leased 3,079 square feet of office space in San Diego, California, from October 1, 2015 to September 30, 2019.
−Removed: In January 2019, we extended this lease with a new term expiring on December 31, 2024.
−Removed: Debt commitments include principal, interest, and an 8% final payment of the amounts drawn under the Term Loan.
−Removed: Off-Balance Sheet Arrangements
−Removed: During the periods presented we did not have and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.
−Removed: Recently Issued Accounting Pronouncements
−Removed: Please read Note 2 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report for a description of recent accounting pronouncements applicable to our business.
−Removed: QUANTITATIVE AND QUALITAT IVE DISCLOSURE ABOUT MARKET RIS K
−Removed: Interest Rate Fluctuation Risk
−Removed: Our cash, cash equivalents, and marketable securities as of December 31, 2019 consisted of cash, corporate bonds, commercial paper, certificates of deposits and money market accounts.
−Removed: The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk.
−Removed: Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S.
−Removed: interest rates.
−Removed: If market interest rates were to increase immediately and uniformly by 50 basis points, or one-half of a percentage point, from levels as of December 31, 2019, the net fair value of our interest-sensitive financial instruments would result in a hypothetical decline of $0.1 million.
−Removed: Foreign Currency Exchange Risk
−Removed: Foreign currency transaction exposure results primarily from transactions with our contract research organizations, or CROs, and other providers related to our clinical trials that are denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded by us, primarily the Australian dollar.
−Removed: Any transaction gains or losses resulting from currency fluctuations is recorded on a separate line in our consolidated statement of operations.
−Removed: Net foreign currency transaction gains (losses) of less than $0.1 million, $(0.2) million and $0.1 million were recorded for the years ended December 31, 2019, 2018 and 2017, respectively.
−Removed: Currently, our largest foreign currency exposures are those with respect to the Australian dollar.
−Removed: Relative to foreign currency exposures existing as of December 31, 2019, a 10% unfavorable movement in foreign currency exchange rates would expose us to an increased net loss.
−Removed: For the year ended December 31, 2019, we estimated that a 10% unfavorable movement in foreign currency exchange rates would have increased our net loss by $0.2 million.
−Removed: This amount is based on a sensitivity analysis performed on our financial position as of December 31, 2019.
−Removed: We have experienced and will continue to experience fluctuations in our net loss as a result of revaluing our assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability.
−Removed: At this time, we do not hedge our foreign currency risk.
−Removed: FINANCIAL STATEMEN TS AND SUPPLEMENTAL DATA
−Removed: INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Report of Independent Registered Public Accounting Firm
−Removed: Consolidated Balance Sheets as of December 31, 2019 and 201 8
−Removed: Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017
−Removed: Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
−Removed: Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
−Removed: Notes to Consolidated Financial Statements
−Removed: Report of Independent Regist ered Public Accounting Firm
−Removed: To the Board of Directors and Shareholders of
−Removed: Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheets of Zafgen Inc., and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).
−Removed: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
−Removed: Change in Accounting Principle
−Removed: As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
−Removed: Basis for Opinion
−Removed: These consolidated financial statements are the responsibility of the Company’s management.
−Removed: Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.
−Removed: 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.
−Removed: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.
−Removed: Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
−Removed: The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
−Removed: 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.
−Removed: Accordingly, we express no such opinion.
−Removed: Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
−Removed: Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
−Removed: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
−Removed: We believe that our audits provide a reasonable basis for our opinion.
−Removed: /s/ PricewaterhouseCoopers LLP
−Removed: Boston, Massachusetts
−Removed: March 5, 2020
−Removed: We have served as the Company's auditor since 2013.
−Removed: PART I—FINANCIAL INFORMATION
−Removed: Financial Statements
−Removed: CONSOLIDATED BALANCE SHEETS
−Removed: (In thousands, except share and per share data)
−Removed: Current assets:
−Removed: Cash and cash equivalents
−Removed: Marketable securities
−Removed: Tax incentive receivable
−Removed: Prepaid expenses and other current assets
−Removed: Total current assets
−Removed: Property and equipment, net
−Removed: Operating lease right-of-use assets
−Removed: Restricted cash
−Removed: Liabilities and Stockholders' Equity
−Removed: Current liabilities:
−Removed: Accounts payable
−Removed: Accrued expenses
−Removed: Accrued restructuring costs
−Removed: Operating lease liabilities, current
−Removed: Notes payable, current
−Removed: Total current liabilities
−Removed: Notes payable, long-term
−Removed: Operating lease liabilities
−Removed: Total liabilities
−Removed: Commitments and contingencies (Note 10)
−Removed: Stockholders' equity:
−Removed: Preferred stock;
−Removed: $0.001 par value per share;
−Removed: 5,000,000 shares authorized as
−Removed: of December 31, 2019 and 2018;
−Removed: no shares issued and outstanding as of
−Removed: and December 31, 2019 and 2018
−Removed: Common stock, $0.001 par value per share;
−Removed: 115,000,000 shares authorized as
−Removed: of December 31, 2019 and 2018;
−Removed: 37,446,498 and 37,287,221 shares issued
−Removed: and outstanding as of December 31, 2019 and 2018, respectively
−Removed: Additional paid-in capital
−Removed: Accumulated deficit
−Removed: Accumulated other comprehensive income (loss)
−Removed: Total stockholders' equity
−Removed: Total liabilities and stockholders' equity
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
−Removed: (In thousands, except share and per share data)
−Removed: Year Ended December 31,
−Removed: Operating expenses:
−Removed: Research and development
−Removed: General and administrative
−Removed: Restructuring charges
−Removed: Total operating expenses
−Removed: Loss from operations
−Removed: Other income (expense):
−Removed: Interest income
−Removed: Interest expense
−Removed: Foreign currency transaction gains (losses), net
−Removed: Total other income (expense), net
−Removed: Net loss per share, basic and diluted
−Removed: Weighted average common shares outstanding, basic and diluted
−Removed: Comprehensive loss:
−Removed: Other comprehensive income:
−Removed: Unrealized gain on marketable securities
−Removed: Total other comprehensive income
−Removed: Total comprehensive loss
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
−Removed: (In thousands, except share data)
−Removed: Comprehensive
−Removed: Stockholders'
−Removed: Income (Loss)
−Removed: Balances at December 31, 2016
−Removed: Issuance of common stock upon exercise of stock
−Removed: options and employee stock purchase plan
−Removed: Issuance of common stock
−Removed: Issuance of restricted stock units
−Removed: Stock-based compensation expense
−Removed: Unrealized gain on marketable securities
−Removed: Balances at December 31, 2017
−Removed: Issuance of common stock, net of issuance costs
−Removed: Issuance of common stock upon exercise of stock
−Removed: options and employee stock purchase plan
−Removed: Issuance of restricted stock units
−Removed: Stock-based compensation expense
−Removed: Unrealized gain on marketable securities
−Removed: Balances at December 31, 2018
−Removed: Issuance of common stock upon exercise of stock
−Removed: options and employee stock purchase plan
−Removed: Issuance of restricted stock units
−Removed: Stock-based compensation expense
−Removed: Unrealized gain on marketable securities
−Removed: Balances at December 31, 2019
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: CONSOLIDATED STATEMENTS OF CASH FLOWS
−Removed: (In thousands)
−Removed: Year Ended December 31,
−Removed: Cash flows from operating activities:
−Removed: Adjustments to reconcile net loss to net cash used in operating activities:
−Removed: Stock-based compensation expense
−Removed: Non-cash interest expense
−Removed: Depreciation expense
−Removed: Impairment of assets
−Removed: Loss on disposal of fixed assets
−Removed: Unrealized foreign currency transaction losses (gains)
−Removed: Premium on marketable securities, net
−Removed: Amortization of (discount) premium on marketable securities
−Removed: Changes in operating assets and liabilities:
−Removed: Prepaid expenses and other current assets
−Removed: Tax incentive receivable
−Removed: Accounts payable
−Removed: Accrued restructuring costs
−Removed: Accrued expenses and other
−Removed: Net cash used in operating activities
−Removed: Cash flows from investing activities:
−Removed: Proceeds from sales and maturities of marketable securities
−Removed: Purchases of marketable securities
−Removed: Purchases of property and equipment
−Removed: Proceeds from sales of property and equipment
−Removed: Payments for leasehold improvements on right-of-use assets
−Removed: Net cash provided by (used in) investing activities
−Removed: Cash flows from financing activities:
−Removed: Proceeds from issuance of notes payable
−Removed: Repayments of notes payable
−Removed: Proceeds from exercise of common stock options and employee stock
−Removed: purchase plan
−Removed: Proceeds from public offerings, net of commissions and underwriting
−Removed: Payments of public offering costs
−Removed: Net cash (used in) provided by financing activities
−Removed: Net (decrease) increase in cash, cash equivalents and restricted cash
−Removed: Cash, cash equivalents and restricted cash at beginning of period
−Removed: Cash, cash equivalents and restricted cash at end of period
−Removed: Supplemental disclosure of non-cash investing and financing activities:
−Removed: Public offering costs included in accounts payable
−Removed: Right-of-use asset obtained in exchange for operating lease obligation
−Removed: Supplemental disclosure of cash flow information:
−Removed: Cash paid for interest
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Nature of the Business and Basis of Presentation
−Removed: Zafgen, Inc., or the Company, was incorporated on November 22, 2005 under the laws of the State of Delaware.
−Removed: The Company is a biopharmaceutical company that has leveraged its proprietary knowledge of the methionine aminopeptidase 2 (“MetAP2”) pathway to pioneer the study of MetAP2 inhibitors in both common and rare metabolic disorders.
−Removed: The Company’s prior lead product candidate, ZGN-1061, is a MetAP2 inhibitor that was in Phase 2 clinical development for the treatment of type 2 diabetes and other related metabolic disorders.
−Removed: In November 2018, the Company received a letter from the U.S.
−Removed: Food and Drug Administration (“FDA”) placing a full clinical hold on the investigational new drug application (“IND”) for the first U.S.
−Removed: clinical trial of ZGN-1061.
−Removed: The FDA cited the possibility of cardiovascular (“CV”) safety risk based on the Company’s prior compound.
−Removed: In July 2019, the Company reached agreement with the FDA on an in vivo animal study design and protocol to establish relevant safety margins for ZGN-1061.
−Removed: The study was designed to translate the data from the Company’s newly developed in vitro assays of human endothelial cells and assessment of tissue factor expression with endothelial cells, along with other supportive assays, as it worked toward resolving the full clinical hold.
−Removed: Based on the preliminary results from the in vivo study, on September 5, 2019, the Company announced that it believes there is a low probability of resolving the clinical hold in the near-term.
−Removed: Subsequently, all further development activities of MetAP2 inhibitors were halted and the Company withdrew the IND for ZGN-1061 in September 2019.
−Removed: Therefore, the Company determined that it is in the best interest of shareholders to evaluate strategic alternatives and implemented a restructuring plan to reduce operating costs and better align the Company’s workforce with its needs, which in combination with the July restructuring actions and other attrition in 2019 , resulted in a 70% reduction in workforce and closure of its San Diego facility (See Note 14).
−Removed: Following an extensive process of evaluating strategic alternatives for the Company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, on December 17, 2019, the Company entered into an Agreement and Plan of Merger, or the Merger Agreement, with Chondrial Therapeutics, Inc.
−Removed: (“Chondrial”), pursuant to which a wholly owned subsidiary of the Company will merge with and into Chondrial, with Chondrial continuing as the surviving corporation and a wholly owned subsidiary of the Company and the combined publicly traded, clinical-stage biopharmaceutical company will operate under a new name, Larimar Therapeutics, Inc.
−Removed: Under the exchange ratio formula in the Merger Agreement, as of immediately after the merger, the former Chondrial securityholders are expected to own approximately 60% of the outstanding shares of Zafgen common stock on a fully-diluted basis and the Company’s stockholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of our common stock on a fully-diluted basis.
−Removed: Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the level of our net cash at the closing of the merger and certain other adjustments.
−Removed: The Company expects to devote significant time and resources to completion of this proposed transaction, which the Company refers to as the Merger.
−Removed: However, there can be no assurance that such activities will result in the completion of the Merger.
−Removed: Further, the completion of the Merger ultimately may not deliver the anticipated benefits or enhance shareholder value.
−Removed: The Merger Agreement provides each of the Company and Chondrial with specified termination rights, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $3,375,000.
−Removed: In addition, in connection with certain terminations of the Merger Agreement, either party may be required to pay the other party’s third party expenses up to $350,000.
−Removed: In connection with the merger, the Company will seek to amend our certificate of incorporation to:
−Removed: (i) effect a reverse split of our common stock at a ratio to be determined by us and Chondrial, which is intended to ensure that the listing requirements of the Nasdaq Global Market are satisfied and (ii) change the name of Zafgen to “Larimar Therapeutics, Inc.”
−Removed: The Company’s and Chondrial’s obligations to consummate the merger are subject to the satisfaction or waiver of customary closing conditions, including, among others, obtaining the requisite approvals of our stockholders and satisfaction of minimum net cash thresholds of $30,000,000 by the Company and not less than zero by Chondrial.
−Removed: The sole stockholder of Chondrial has approved the Merger Agreement.
−Removed: In connection with the execution of the Merger Agreement, the Company entered into stockholder support agreements with the Company’s current directors and certain officers and the Company’s largest stockholder, which collectively beneficially own or control an aggregate of approximately 9.7% of the Company’s outstanding shares of common stock.
−Removed: Each of the stockholders party to such stockholder support agreements has agreed to vote or cause to be voted, all of the shares of the Company’s common stock beneficially owned by such stockholder in favor of the stockholder proposals submitted at our stockholders meeting to be held in connection with the merger.
−Removed: The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government
−Removed: regulations and th e need to obtain additional financing.
−Removed: Future p roduct candidates , if any, will require significant additional research and development efforts, including extensive nonclinical and clinical testing and regulatory approval, prior to commercialization.
−Removed: These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.
−Removed: As a result of our potential strategic alternative, there can be no assurance that the Company’s future product candidates’ research and development, if any, will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any product candidates developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.
−Removed: Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales.
−Removed: The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.
−Removed: In addition, the Company is dependent upon the services of its employees and consultants.
−Removed: The Company has incurred losses and negative cash flows from operations since its inception.
−Removed: As of December 31, 2019, the Company had an accumulated deficit of $396.4 million.
−Removed: From its inception through December 31, 2019, the Company received net proceeds of $397.9 million from the sales of redeemable convertible preferred stock, the issuance of convertible promissory notes, the proceeds from its initial public offering (“IPO”) in June 2014 and its follow-on offerings in January 2015 and July 2018.
−Removed: On July 2, 2018, the Company completed a public offering of its common stock, which resulted in the sale of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs.
−Removed: As disclosed in Note 6 to the consolidated financial statements, the Company has a term loan with an aggregate principal balance of $14.5 million as of December 31, 2019.
−Removed: The loan agreement with Silicon Valley Bank (the “Term Loan”) requires that the Company maintain certain minimum liquidity at all times, which as of December 31, 2019, was approximately $15.3 million.
−Removed: If the minimum liquidity covenant is not met, the Company may be required to repay the loan prior to scheduled maturity dates.
−Removed: The Term Loan also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against the Company and the collateral securing the amounts due under the Term Loan.
−Removed: These events of default include, among other things, failure to pay any amounts due under the Term Loan, insolvency, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness and a final judgment against the Company in an amount greater than $0.3 million.
−Removed: During the years ended December 31, 2019 and 2018 the Company was in compliance with all covenants under the Term Loan.
−Removed: The Company has estimated that the risk of subjective acceleration under the material adverse events clause is reasonably possible, however not probable and therefore have classified the outstanding principal in current and long-term liabilities based on contractually scheduled principal payments.
−Removed: However, the assessment of such probability of the debt holder calling the debt is subjective and their actions and/or the Company’s related assessment could change in the future, which in turn would impact the classification of the debt balances.
−Removed: Based on its current operating plans, the Company believes its cash, cash equivalents and marketable securities of $70.3 million as of December 31, 2019 will be sufficient to fund its anticipated level of operations, capital expenditures and satisfy debt repayments for a period of at least 12 months from the issuance date of this Annual Report.
−Removed: Until such time, if ever, as the Company can generate substantial product revenue, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other sources of funding.
−Removed: The Company expects to generate operating losses for the foreseeable future.
−Removed: If the Company is unable to raise additional funds through equity or debt financings, the Company may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and market products or product candidates that the Company would otherwise prefer to develop and market itself.
−Removed: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Zafgen Securities Corporation, Zafgen Australia Pty Limited, Zafgen Animal Health, LLC.
−Removed: and Zordich Merger Sub, Inc.
−Removed: All intercompany balances and transactions have been eliminated.
−Removed: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
−Removed: Summary of Significant Accounting Policies
−Removed: Use of Estimates
−Removed: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of expenses during the reporting periods.
−Removed: Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the valuation of stock-based awards.
−Removed: Estimates are periodically reviewed in light of changes in circumstances, facts and experience.
−Removed: Actual results could differ from the Company’s estimates.
−Removed: Cash Equivalents
−Removed: The Company considers all short-term, highly liquid investments with original maturities of ninety days or less at acquisition date to be cash equivalents.
−Removed: Cash equivalents, which consist of money market funds, U.S.
−Removed: government securities, corporate bonds, and commercial paper, are stated at fair value.
−Removed: Concentration of Credit Risk and of Significant Suppliers
−Removed: Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities.
−Removed: The Company has all cash, cash equivalents and marketable securities balances at accredited financial institutions in amounts that exceed federally insured limits.
−Removed: The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
−Removed: The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs, if and when development programs are active.
−Removed: In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs.
−Removed: These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.
−Removed: Marketable Securities
−Removed: Marketable securities consist of investments with original maturities greater than ninety days.
−Removed: The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.
−Removed: The Company classifies its marketable securities as available-for-sale.
−Removed: Accordingly, these investments are recorded at fair value, which is based on quoted market prices.
−Removed: Unrealized gains and losses are reported as a component of accumulated other comprehensive loss in stockholders’ equity.
−Removed: Realized gains and losses and declines in value judged to be other than temporary are included as a component of other income (expense), net, based on the specific identification method.
−Removed: When determining whether a decline in value is other than temporary, the Company considers various factors, including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis.
−Removed: Fair value is determined based on quoted market prices.
−Removed: Deferred Offering Costs
−Removed: The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as other assets until such financings are consummated.
−Removed: After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering or as a reduction to the carrying value of preferred stock issued.
−Removed: Property and Equipment
−Removed: Property and equipment are stated at cost less accumulated depreciation.
−Removed: Depreciation expense is recognized using the straight-line method over a three or five-year estimated useful life for equipment, furniture and fixtures and office equipment.
−Removed: Leasehold improvements are amortized over the shorter of the asset life or the term of the lease agreement.
−Removed: Expenditures for repairs and maintenance of assets are charged to expense as incurred.
−Removed: Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.
−Removed: Impairment of Long-Lived Assets
−Removed: Long-lived assets consist of property and equipment, net¸and the net operating lease asset.
−Removed: Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
−Removed: Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets.
−Removed: If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value.
−Removed: Any impairment loss, if indicated, is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
−Removed: To date, the Company has recorded $0.1 million impairment losses on long-lived assets associated with the restructuring announced in September 2019.
−Removed: Research and Development Costs
−Removed: Research and development costs are expensed as incurred.
−Removed: Included in research and development expenses are wages, stock-based compensation and benefits of employees, third-party license fees and milestones and other operational costs related to the Company’s research and development activities, including facility-related expenses and external costs of outside vendors engaged to conduct nonclinical studies, manufacturing activities, and clinical trials.
−Removed: The Company records research and development expenses net of any research and development tax incentives the Company is entitled to receive from government authorities.
−Removed: Research Contract Costs and Accruals
−Removed: The Company has, from time to time, entered into various research and development contracts with research institutions and other companies both inside and outside of the United States.
−Removed: These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred.
−Removed: The Company records accruals for estimated ongoing research costs.
−Removed: When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs.
−Removed: Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.
−Removed: Actual results could differ from the Company’s estimates.
−Removed: The Company’s historical accrual estimates have not been materially different from the actual costs.
−Removed: All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as general and administrative expenses as incurred, as recoverability of such expenditures is uncertain.
−Removed: Accounting for Stock-Based Compensation
−Removed: The Company measures all stock-based awards granted to employees, non-employee consultants and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model.
−Removed: Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award.
−Removed: Typically, the Company issues awards with only service-based and market-based vesting conditions and records the expense for these awards using the straight-line method.
−Removed: The Company accounts for forfeitures as they occur.
−Removed: The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
−Removed: The Company accounts for income taxes using 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 recognized in the consolidated financial statements or in the Company’s tax returns.
−Removed: Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
−Removed: Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
−Removed: The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.
−Removed: Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
−Removed: The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.
−Removed: First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.
−Removed: If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements.
−Removed: The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.
−Removed: The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
−Removed: The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.
−Removed: The Company is a biopharmaceutical company that has leveraged its proprietary knowledge of the MetAP2 pathway to pioneer the study of MetAP2 inhibitors in both common and rare metabolic disorders.
−Removed: No revenue has been generated since inception, and all tangible assets are held in the United States.
−Removed: Comprehensive Loss
−Removed: Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.
−Removed: For the years ended December 31, 2019, 2018 and 2017, the Company’s only element of other comprehensive income was unrealized gain on marketable securities.
−Removed: Net Loss Per Share
−Removed: Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.
−Removed: Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted common shares, as determined using the treasury stock method.
−Removed: For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is antidilutive.
−Removed: Recently Issued and Adopted Accounting Pronouncements
−Removed: In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No.
−Removed: 2016-02, Leases and in July 2018, the FASB issued ASU No.
−Removed: 2018-11, Leases (Topic 842):
−Removed: Targeted Improvements .
−Removed: The new leasing standards generally require lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the consolidated balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.
−Removed: We adopted the new leasing standards using the modified retrospective transition approach, as of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings.
−Removed: Upon adoption, we elected the package of transition practical expedients, which allowed us to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases.
−Removed: In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases.
−Removed: The Company elected not to record leases with an initial term of 12 months or less on the balance sheet and recognize the
−Removed: associated lease payment s in the consolidated statements of operations on a straight-line basis over the lease term.
−Removed: Upon adoption of the new leasing standards we recognized an operating lease asset of approximately $1.0 million and a corresponding operating lease liability of ap proximately $1.0 million, which are included in our consolidated balance sheet.
−Removed: The adoption of the new leasing standards did not have an impact on our consolidated statements of income or cash flows.
−Removed: We determine if an arrangement is a lease at contract inception.
−Removed: Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease.
−Removed: Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term.
−Removed: When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
−Removed: We use the implicit rate when readily determinable and use our incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments.
−Removed: Our incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.
−Removed: The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in our operating lease assets in our consolidated balance sheets.
−Removed: Our operating leases are reflected in operating lease right-of-use assets, short-term operating lease liabilities and in long-term operating lease liabilities in our consolidated balance sheets.
−Removed: Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
−Removed: For additional information on the adoption of the new leasing standards, please read Note 10, Commitments and Contingencies , to these consolidated financial statements.
−Removed: In June 2018, the FASB issued ASU No.
−Removed: 2018-07, Compensation—Stock Compensation (Topic 718):
−Removed: Improvements to Nonemployee Share-Based Payment Accounting .
−Removed: This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent accounting for employee share-based compensation.
−Removed: This standard was effective for the Company in 2019.
−Removed: The adoption of this guidance had an immaterial impact on the Company’s consolidated financial statements as of and for the year ended December 31, 2019.
−Removed: In August 2018 the FASB issued ASU No.
−Removed: 2018-13 , Fair Value Measurement (Topic 820):
−Removed: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement .
−Removed: This standard modifies certain disclosure requirements on fair value measurements.
−Removed: This standard became effective for the Company on January 1, 2020.
−Removed: The adoption of this standard will not have a material impact on the Company’s disclosures.
−Removed: Fair Value Measurements and Marketable Securities
−Removed: Fair Value Measurements
−Removed: The following tables present information about the Company’s financial assets that have been measured at fair value as of December 31, 2019 and 2018 and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value.
−Removed: In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
−Removed: Fair value determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
−Removed: Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
−Removed: During the years ended December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 financial assets.
−Removed: The following tables summarize the Company’s cash equivalents and marketable securities as of December 31, 2019 and 2018:
−Removed: December 31, 2019
−Removed: (in thousands)
−Removed: Cash equivalents:
−Removed: Money market funds
−Removed: Government securities
−Removed: Commercial paper
−Removed: Total cash equivalents
−Removed: Marketable securities:
−Removed: Government securities
−Removed: Corporate bonds
−Removed: Commercial paper
−Removed: Total marketable securities
−Removed: Total cash equivalents and marketable securities
−Removed: December 31, 2018
−Removed: (in thousands)
−Removed: Cash equivalents:
−Removed: Money market funds
−Removed: Commercial paper
−Removed: Total cash equivalents
−Removed: Marketable securities:
−Removed: Commercial paper
−Removed: Corporate bonds
−Removed: Government securities
−Removed: Total marketable securities
−Removed: Total cash equivalents and marketable securities
−Removed: The carrying amounts reflected in the consolidated balance sheets for tax incentive receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturities.
−Removed: The carrying value of the Company’s outstanding notes payable approximates fair value (a Level 2 fair value measurement), reflecting interest rates currently available to the Company.
−Removed: Marketable Securities
−Removed: The following tables summarize the Company’s marketable securities as of December 31, 2019 and 2018:
−Removed: December 31, 2019
−Removed: (in thousands)
−Removed: Government securities (due within 1 year)
−Removed: Corporate bonds (due within 1 year)
−Removed: Commercial paper (due within 1 year)
−Removed: December 31, 2018
−Removed: (in thousands)
−Removed: Commercial paper (due within 1 year)
−Removed: Corporate bonds (due within 1 year)
−Removed: Government securities (due within 1 year)
−Removed: Property and Equipment, net
−Removed: Property and equipment, net consisted of the following as of December 31, 2019 and 2018:
−Removed: (in thousands)
−Removed: Office equipment
−Removed: Furniture and fixtures
−Removed: Leasehold improvements
−Removed: Accumulated depreciation
−Removed: *shorter of asset life or lease term
−Removed: Depreciation expense was $0.3 million, $0.3 million and $0.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
−Removed: Accrued Expenses
−Removed: Accrued expenses consisted of the following as of December 31, 2019 and 2018:
−Removed: (in thousands)
−Removed: Accrued payroll and related expenses
−Removed: Accrued research and development expenses
−Removed: Accrued professional fees
−Removed: Accrued other
−Removed: Notes Payable
−Removed: On December 29, 2017, the Company entered into a loan and security agreement with Silicon Valley Bank (the “Term Loan”).
−Removed: The Term Loan provided for borrowings of $20.0 million.
−Removed: On December 29, 2017, the Company received proceeds of $20.0 million from the issuance of a promissory note.
−Removed: The promissory note issued under the Term Loan is collateralized by substantially all of the Company’s personal property, other than its intellectual property.
−Removed: Upon entering into this Term Loan, the Company is obligated to make monthly, interest-only payments until March 29, 2019 and, thereafter, to pay 33 consecutive, equal monthly installments of principal and interest from April 1, 2019 through December 1, 2021.
−Removed: The outstanding Term Loan bears a variable annual interest rate of 1.25% above the prime rate, which as of December 31, 2019 was 4.75%.
−Removed: In addition, a final payment equal to 8.0% of the Term Loan is due upon the earlier of the maturity date, acceleration of the Term Loan or prepayment of all or part of the Term Loan.
−Removed: The Company accrues the final payment amount of $1.6 million, to outstanding debt by charges to interest expense using the effective-interest method from the date of issuance through the maturity date.
−Removed: The effective annual interest rate of the outstanding debt under the Term Loan is approximately 9.2% as of December 31, 2019.
−Removed: Additionally, the Company, as the borrower, is required to maintain a minimum cash, cash equivalents and marketable securities balance at Silicon Valley Bank of no less than 105% of the total outstanding principal balance of the Term Loan, which as of December 31, 2019 was $15.3 million and as of December 31, 2018 was $21.0 million.
−Removed: Further, as of 45 days after the Term Loan was entered in, the Company must maintain a balance of unrestricted cash, cash equivalents and marketable securities at Silicon Valley Bank in an amount not less than the greater of (i) $55.0 million and (ii) sixty-five percent (65%) of all the Company’s cash, cash equivalents and marketable securities.
−Removed: If the Company does not meet this requirement it will not be considered an event of default provided it immediately secures 87.5% of the principal balance in a restricted cash account.
−Removed: There are negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions;
−Removed: encumbering or granting a security interest in its intellectual property;
−Removed: incurring indebtedness or liens;
−Removed: paying dividends;
−Removed: making certain investments;
−Removed: permitting the aggregate value of cash maintained by its Australian subsidiary not to exceed $4.0 million and certain other business transactions.
−Removed: The Term Loan also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against the Company and the collateral securing the amounts due under the Term Loan, including cash in the amount of the outstanding balance.
−Removed: These events of default include, among other things, failure to pay any amounts due under the Term Loan, insolvency, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness and a final judgment against the Company in an amount greater than $0.3 million.
−Removed: During the years ended December 31, 2019 and 2018 the Company was in compliance with all covenants under the Term Loan.
−Removed: The Company has estimated that the risk of subjective acceleration under the material adverse events clause is reasonably possible, however not probable and therefore have classified the outstanding principal in current and long-term liabilities based on contractually scheduled principal payments.
−Removed: However, the assessment of such probability of the debt holder calling the debt is subjective and their actions and/or the Company’s related assessment could change in the future, which in turn would impact the classification of the debt balances.
−Removed: As of December 31, 2019 and 2018 , notes payable consist of the following:
−Removed: (in thousands)
−Removed: Notes payable
−Removed: current portion
−Removed: Notes payable, net of current portion
−Removed: Accretion related to final payment
−Removed: Notes payable, long term
−Removed: As of December 31, 2019, the estimated future principal payments due are as follows:
−Removed: Year Ending December 31,
−Removed: (in thousands)
−Removed: During the years ended December 31, 2019, 2018 and 2017, the Company recognized $1.8 million, $1.9 million and less than $0.1 million, respectively, of interest expense related to the Term Loan.
−Removed: During the year ended December 31, 2017, the Company recognized $0.2 million of interest expense related to the 2014 Credit Facility.
−Removed: Stockholders’ Equity
−Removed: On July 2, 2018, the Company completed a public offering of its common stock, which resulted in the sa le of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs.
−Removed: On November 9, 2018, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), to sell shares of the Company’s common stock, with aggregate gross sales proceeds of up to $50.0 million, from time to time, through an at-the-market equity offering program under which Cowen will act as its sales agent (the “ATM Offering Program”).
−Removed: Cowen is entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Cowen under the Sales Agreement.
−Removed: The Company has no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitation and offers under the Sales Agreement.
−Removed: The shares will be issued pursuant to the Company’s Registration Statement on Form S-3 filed on August 9, 2017 with the Securities and Exchange Commission (“SEC”).
−Removed: The Company filed a prospectus supplement, dated November 9, 2018, with the SEC in connection with the offer and sale of the shares pursuant to the Sales Agreement.
−Removed: As of December 31, 2019, the Company has not sold shares under the Sales Agreement.
−Removed: As of December 31, 2019 and 2018 , the Company’s Certificate of Incorporation, as amended and restated, authorizes the Company to issue 5,000,000 shares of $0.001 par value preferred stock.
−Removed: The rights, preferences, restrictions, qualifications and limitations of such stock are to be deter mined by the Company’s board of directors.
−Removed: As of December 31, 2019 and 2018, the Company’s Certificate of Incorporation, as amended and restated, authorizes the Company to issue 115,000,000 shares of $0.001 par value common stock.
−Removed: Stock-Based Awards
−Removed: Stock Option Plan
−Removed: The Company’s 2014 Stock Option and Incentive Plan (the “2014 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance-share awards, cash-based awards and dividend equivalent rights to employees, members of the board of directors and consultants of the Company.
−Removed: The number of shares initially reserved for issuance under the 2014 Plan was 2,168,221 shares of common stock.
−Removed: The number of shares reserved for issuance may be increased by the number of shares under the previously authorized 2006 Stock Option Plan that are not needed to fulfill the Company’s obligations for awards issued under the 2006 Stock Option Plan as a result of forfeiture, expiration, cancellation, termination or net issuances of awards thereunder.
−Removed: The number of shares of common stock that may be issued under the 2014 Plan is also subject to increase on the first day of each fiscal year by the lesser of (i) 4% of the Company’s outstanding shares of common stock as of that date, or (ii) an amount determined by the board of directors.
−Removed: As of December 31, 2019, 5,278,653 shares are available for grant under the 2014 Plan, including 1,491,488 shares automatically added to the 2014 Plan on January 1, 2019, and 69,522 shares are available for issuance to participating employees under the ESPP.
−Removed: Stock Option Grants
−Removed: Option Grants with time-based vesting conditions
−Removed: During the years ended December 31, 2019, 2018 and 2017, the Company granted 1,901,197, 1,823,386 and 1,214,874 stock options, respectively, under the 2014 Plan.
−Removed: The vesting of these awards is time-based and the restrictions typically lapse over periods of three to four years.
−Removed: Stock options were granted with exercise prices equal to the fair value of the Company’s common stock on the date of grant.
−Removed: The Company bases fair value of common stock on the quoted market price of the Company’s common stock.
−Removed: During the years ended December 31, 2019, 2018 and 2017 the Company granted 375,000, 225,000, and 550,000 options, respectively, with time-based vesting as inducement grants outside of the 2014 Plan in accordance with NASDAQ Listing Rule 5635(c)(4).
−Removed: These stock options have a ten-year term and an exercise price equal to the closing price of the Company’s common stock on the grant date.
−Removed: The options vest as to 25% of the shares on the first anniversary of the grant date and the remainder in equal monthly installments thereafter over a 3-year period.
−Removed: The fair value of each service-based stock option grant to employees and directors is estimated on the date of grant using the Black-Scholes option-pricing model.
−Removed: The Company estimates its expected volatility using a weighted average of the historical volatility of publicly-traded peer companies and its own common stock since its IPO in June 2014, and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price for the duration of the expected term.
−Removed: The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.
−Removed: The risk-free interest rate is determined by reference to the U.S.
−Removed: Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
−Removed: Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
−Removed: The assumptions that the Company used to determine the fair value of the stock options granted to employees and directors are as follows, presented on a weighted average basis:
−Removed: Risk-free interest rate
−Removed: Expected term (in years)
−Removed: Expected volatility
−Removed: Expected dividend yield
−Removed: The following table summarizes the Company’s stock option activity described above, since December 31, 2018:
−Removed: Outstanding as of December 31, 2018
−Removed: Outstanding as of December 31, 2019
−Removed: Options exercisable as of December 31, 2019
−Removed: The aggregate intrinsic value was calculated based on the positive differences between the market value of the Company’s common stock and the exercise prices of the options.
−Removed: The aggregate intrinsic value of service-based stock options exercised was less than $0.1 million, $1.6 million and $0.3 million during the years ended December 31, 2019, 2018 and 2017, respectively.
−Removed: The Company received cash proceeds from the exercise of stock options of $0.1 million, $2.2 million, and $0.1 million during the years ended December 31, 2019, 2018 and 2017, respectively.
−Removed: The weighted average grant-date fair value of service-based stock options granted to employees and directors during the years ended December 31, 2019, 2018 and 2017 was $3.14, $6.08 and $2.91, per share, respectively.
−Removed: As of December 31, 2019 and 2018, there were outstanding unvested service-based stock options held by nonemployees for the purchase of 25,834 and 45,209 shares of common stock, respectively.
−Removed: Option Grants with market-based vesting conditions
−Removed: In October 2017, the Company granted 687,500 common stock options that vest on the third anniversary of the grant date upon achievement by the Company of minimum common stock prices for 20 consecutive days during the Earning Period, the (“Price Target Options”).
−Removed: The Earning Period is defined as the period between the first anniversary of the grant date and the third anniversary of the grant date.
−Removed: Of the 687,500 Price Target Options granted in 2017, 137,500 were granted under the 2014 Stock Plan and 550,000 were granted to the newly-hired Chief Executive Officer as an inducement grant outside of the 2014 Plan in accordance with NASDAQ Listing Rule 5635(c)(4).
−Removed: These stock options have a ten-year term and an exercise price equal to the closing price of the Company’s common stock on the grant date.
−Removed: In August 2018, the 137,500 shares granted under the 2014 Stock Plan were forfeited.
−Removed: The number of Price Target Options that will vest upon achievement of the target will vary based on the level of achievement from a maximum of 200% of the target shares to a threshold of 50% of the target shares, with no vesting, absent certain circumstances, if the threshold requirement is not achieved or the employee is no longer with the Company at the end of the three-year period.
−Removed: The Price Target Options are valued using Monte Carlo simulation models.
−Removed: The number of options expected to vest, based on achievement of the specified market condition, is factored into the grant date Monte Carlo valuations for the Price Target Options.
−Removed: Compensation expense is recognized ratably over the attribution period .
−Removed: The assumptions that the Company used to determine the fair value of the Price Target Options granted to employees were as follows, presented on a weighted average basis:
−Removed: Risk-free interest rate
−Removed: Expected term (in years)
−Removed: Expected volatility
−Removed: Expected dividend yield
−Removed: The Price Target Options had a grant date total fair value of $3.1 million and a weighted average fair value of $4.56 per share.
−Removed: As of December 31, 2019, the 550,000 Price Target Options had an aggregate intrinsic value of $0 and a remaining contractual term of 7.77 years.
−Removed: Restricted Stock Units
−Removed: Restricted stock units awarded to employees generally vest one-half on the anniversary of the date of grant and the remaining one-half on the 18-month anniversary of the date of grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan.
−Removed: Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes.
−Removed: Restricted stock units are awarded to directors in lieu of cash fees for service on our Board of Directors and vest quarterly over a one year period, provided in each case that the director continues to serve on our Board of Directors through the vesting date.
−Removed: Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes.
−Removed: Unvested at December 31, 2018
−Removed: Unvested at December 31, 2019
−Removed: During the years ended December 31, 2018 and 2017, the Company granted 17,856 and 22,128 restricted stock units, respectively, all of which vested during 2018 and 2017, respectively, at a weighted average grant-date fair value of $5.18 and $4.18, respectively.
−Removed: The aggregate intrinsic value of restricted stock units that vested during the years ended December 31, 2018 and 2017 was $0.2 million and $0.1 million, respectively, calculated as the fair value of the Company’s common stock on the date it vests.
−Removed: 2014 Employee Stock Purchase Plan
−Removed: The Company has a 2014 Employee Stock Purchase Plan (the “ESPP”) under which a total of 265,000 shares of common stock were reserved for issuance.
−Removed: During both 2019 and 2018 there were two offering periods, January 1 through June 30 and July 1 through December 31.
−Removed: The per share purchase price for offerings is equal to the lesser of 85% of the closing market price of the Company’s common stock on the first day or last day of the offering period.
−Removed: The Company issued 60,313 and 46,181 shares during the years ended December 31, 2019 and 2018, respectively.
−Removed: As of December 31, 2019 and 2018, there are 69,522 and 129,835 shares, respectively, of common stock available for issuance to participating employees under the ESPP.
−Removed: Stock-based Compensation
−Removed: The Company recorded stock-based compensation expense related to stock options and restricted common stock in the following expense categories within its consolidated statements of operations:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Research and development
−Removed: General and administrative
−Removed: As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to its unvested service-based stock option awards of $6.1 million, which is expected to be recognized over the remaining weighted average vesting period of 2.6 years.
−Removed: As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to its unvested market-based stock option awards of $0.7 million, which is expected to be recognized over the remaining weighted average vesting period of 0.8 years.
−Removed: Net Loss Per Share
−Removed: Basic and diluted net loss per share was calculated as follows:
−Removed: Year Ended December 31,
−Removed: (in thousands, except per share data)
−Removed: Basic and diluted net loss per share:
−Removed: Weighted average common shares outstanding, basic and
−Removed: Net loss per share, basic and diluted
−Removed: The Company excluded the following common stock equivalents outstanding as of December 31, 2019, 2018 and 2017 from the computation of diluted net loss per share for the years ended December 31, 2019, 2018 and 2017 because they had an anti-dilutive impact due to the net loss incurred for the periods:
−Removed: As of December 31,
−Removed: Options to purchase common stock
−Removed: Restricted stock units
−Removed: Commitments and Contingencies
−Removed: On February 12, 2019, the Company entered into a lease with Shigo Center Plaza Owners, LLC, for approximately 17,705 square feet of office space for a new headquarters located at 3 Center Plaza, Boston, Massachusetts.
−Removed: The lease has a term of 124 months with an option to extend the lease for 60 additional months.
−Removed: As part of the agreement the Company is required to maintain a letter of credit, which upon signing was $1.3 million and is classified as restricted cash within the consolidated financial statements.
−Removed: Under the lease agreement, the Company began paying monthly rent beginning four months after the lease commencement, which was June 21, 2019, with total lease payments over the initial term of $10.7 million.
−Removed: During the fourth quarter of 2019 and in conjunction with entering into a merger agreement with Chondrial, the Company performed an impairment review of the Company’s headquarters lease and related assets and determined that an impairment had not occurred as the estimated fair value of the asset exceeded the carrying value.
−Removed: The Company’s prior headquarters lease was terminated, effective as of June 30, 2019.
−Removed: In March 2015, the Company entered into an operating lease for office space in Boston, Massachusetts, effective as of April 15, 2015, with a term expiring on July 31, 2020, and an option to extend this lease for three additional years.
−Removed: In addition, with the landlord’s consent, the Company has subleased 2,976 square feet of office space in Boston, Massachusetts to an unrelated third party beginning on January 1, 2017 and expiring on July 31, 2020, and the Company expects to receive approximately $0.1 million in sublease rental income from January 1, 2020 through the end of the sublease term.
−Removed: In October 2015, the Company entered into an operating lease for office space in San Diego, California, effective as of October 1, 2015, with a term extended to expire on December 31, 2024.
−Removed: Following the restructuring announced in September 2019, the Company recorded a $0.1 million impairment loss on Operating lease right-of-use asset.
−Removed: Future minimum lease payments for its operating leases for the next five years and thereafter as of December 31, 2019 are as follows:
−Removed: Year Ending December 31,
−Removed: (in thousands)
−Removed: Total lease payments
−Removed: imputed interest
−Removed: Present value of lease liabilities
−Removed: Under the prior lease guidance minimum rental commitments under non-cancelable leases for each of the next five years and thereafter as of December 31, 2018, were as follows:
−Removed: Year Ending December 31,
−Removed: (in thousands)
−Removed: Total lease payments
−Removed: During the year ended December 31, 2019 we incurred $0.6 million of lease expense associated with research and development and $0.4 million of lease expense associated with general and administrative activities.
−Removed: The components of lease expense are as follows:
−Removed: (in thousands)
−Removed: Operating lease cost
−Removed: Short-term lease cost
−Removed: Sublease income
−Removed: Total lease cost
−Removed: During the years ended December 31, 2018, and 2017 the Company recognized $0.4 million and $0.3 million, respectively, of rental expense related to office space.
−Removed: The weighted average remaining lease term and weighted average discount rate of our operating leases are as follows:
−Removed: As of December 31,
−Removed: Weighted average remaining lease term in years
−Removed: Weighted average discount rate
−Removed: Supplemental cash flow information related to leases was as follow:
−Removed: (in thousands)
−Removed: Cash paid for amounts included in the measurement of lease liabilities:
−Removed: Operating cash flows from operating leases
−Removed: Investing cash flows from operating leases
−Removed: Right-of-use assets obtained in exchange for lease obligations:
−Removed: Operating leases
−Removed: Intellectual Property Licenses
−Removed: The Company has acquired exclusive rights to develop patented compounds and related know-how for beloranib under two licensing agreements with two third parties in the course of its research and development activities.
−Removed: The licensing rights obligate the Company to make payments to the licensors for license fees, milestones, license maintenance fees and royalties.
−Removed: The Company is also responsible for patent prosecution costs.
−Removed: As of December 31, 2019, the Company is obligated to make additional milestone payments of up to $12.3 million upon reaching certain pre-commercialization milestones, such as clinical trials and government approvals (including the U.S.
−Removed: Food and Drug Administration, or “FDA”, approval of a New Drug application, or “NDA”), and up to $12.5 million upon reaching certain product commercialization milestones related to the development of beloranib.
−Removed: Under one of the license agreements, the Company is also obligated to pay up to $1.3 million with respect to each subsequent licensed product, if any, that is a new chemical entity.
−Removed: In addition, the Company will owe single-digit royalties on sales of commercial products developed using these licensed technologies, if any.
−Removed: There were no milestones achieved during the years ended December 31, 2019, 2018 or 2017.
−Removed: The Company is also obligated to pay to the licensors a percentage of fees received if and when the Company sublicenses the technology.
−Removed: As of December 31, 2019, the Company has not yet developed a commercial product using the licensed technologies and it has not entered into any sublicense agreements for the technologies.
−Removed: During the fourth quarter of 2019 the Company terminated the license agreement with Chong Kun Dang Pharmaceutical Corp.
−Removed: of South Korea (“CKD”) and provided written notice to Children’s Medical Center Corporation (“Children’s”), indicating that the agreement will be terminated by the end of the first quarter of 2020.
−Removed: Indemnification Agreements
−Removed: In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties.
−Removed: In addition, the Company has entered into indemnification agreements with members of management team and the board of directors of the Company that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
−Removed: The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited.
−Removed: To date, the Company has not incurred any material costs as a result of such indemnifications.
−Removed: The Company is not aware of any material claims as of December 31, 2019.
−Removed: Legal Proceedings
−Removed: The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that the Company can reasonably estimate the amount of the loss.
−Removed: The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information.
−Removed: To the extent new information is obtained and the views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made.
−Removed: In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably possible, the Company will provide disclosure of the possible loss or range of loss.
−Removed: If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect.
−Removed: The Company expenses legal costs as they are incurred.
−Removed: The Company may periodically become subject to other legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which the Company is focused.
−Removed: The Company is not aware of any material claims as of December 31, 2019.
−Removed: During the years ended December 31, 2019, 2018 and 2017, the Company recorded no income tax benefits for the net operating losses incurred in each year due to its uncertainty of realizing a benefit from those items.
−Removed: The domestic and foreign components of loss before income taxes are as follows:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Loss before income taxes
−Removed: A reconciliation of the U.S.
−Removed: federal statutory income tax rate to the Company’s effective income tax rate is as follows:
−Removed: Year Ended December 31,
−Removed: Federal statutory income tax rate
−Removed: Federal and state research and development tax credit
−Removed: State taxes, net of federal benefit
−Removed: Stock compensation expense
−Removed: Nondeductible Australia research and development expenses
−Removed: Impact of federal rate change related to tax reform
−Removed: Change in deferred tax asset valuation allowance
−Removed: Effective income tax rate
−Removed: Net deferred tax assets as of December 31, 2019 and 2018 consisted of the following:
−Removed: (in thousands)
−Removed: Noncurrent deferred tax assets:
−Removed: Capitalized research and development expenses
−Removed: Net operating loss carryforwards
−Removed: Tax credit carryforwards
−Removed: Capitalized legal expenses
−Removed: Stock-based compensation
−Removed: Accrued expenses
−Removed: Other temporary differences
−Removed: Operating lease liability
−Removed: Total noncurrent deferred tax assets
−Removed: Total gross deferred tax assets
−Removed: Noncurrent deferred tax liability:
−Removed: Operating lease right-of-use assets
−Removed: Valuation allowance
−Removed: Net deferred tax assets
−Removed: Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019, 2018 and 2017 related primarily to changes in net operating loss carryforwards, capitalized research and development expenses and tax credit carryforwards and were as follows:
−Removed: Year Ended December 31,
−Removed: (in thousands)
−Removed: Valuation allowance as of beginning of year
−Removed: Decreases recorded as benefit to income tax provision
−Removed: Increases recorded to income tax provision
−Removed: Valuation allowance as of end of year
−Removed: As of December 31, 2019, the Company had net operating loss carryforwards that expire for federal and state income tax purposes of $55.7 million and $57.0 million, respectively, which begin to expire in 2026 and 2030, respectively.
−Removed: As of December 31, 2019, the Company had net operating loss carryforwards that were generated after December 31, 2017 of $21.2 million that do not expire, but the carryforwards are limited to 80% of the taxable income in any one tax period.
−Removed: As of December 31, 2019, the Company also had available tax credit carryforwards for federal and state income tax purposes of $17.9 million and $4.2 million, respectively, which begin to expire in 2026 and 2022, respectively.
−Removed: Utilization of the net operating loss carryforwards and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.
−Removed: These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.
−Removed: In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.
−Removed: The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.
−Removed: If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.
−Removed: Any limitation may result in expiration of a portion of the net operating loss carryforwards or tax credit carryforwards before utilization.
−Removed: Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.
−Removed: For fiscal years through December 31, 2019, the Company generated research credits but has not conducted a study to document the qualified activities.
−Removed: This study may result in an adjustment to the Company’s research and development tax credit carry forwards;
−Removed: however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position as of December 31, 2019 or 2018.
−Removed: A full valuation allowance has been provided against the Company’s research and development tax credit carryforwards and, if an adjustment were to be required, this adjustment would be offset by a corresponding reduction to the valuation allowance.
−Removed: As of December 31, 2019 and 2018, the Company’s net deferred tax asset balance before the valuation allowance was $112.6 million and $101.7 million, respectively, and was comprised principally of net operating loss carryforwards, capitalized research and development expenses and tax credit carryforwards.
−Removed: During the years ended December 31, 2019, 2018 and 2017, gross deferred tax assets increased due to additional net operating loss carryforwards, research and development tax credits generated and additional research and development expenses capitalized for tax purposes and the effects of tax reform.
−Removed: The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.
−Removed: Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets.
−Removed: Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2019 and 2018.
−Removed: Management reevaluates the positive and negative evidence at each reporting period.
−Removed: The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2019 and 2018.
−Removed: The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.
−Removed: In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable.
−Removed: There are currentl y no pending income tax examinations.
−Removed: The Company’s tax years are still open under statute from 201 5 to the present.
−Removed: Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods.
−Removed: The Company’s p olicy is to record interest and penalties related to income taxes as part of its income tax provision.
−Removed: Retirement Plan
−Removed: Effective January 1, 2018, the Company adopted a 401(k) plan for its employees.
−Removed: Under the terms of the plan, the Company contributes 3% of an employee’s annual base salary, up to a maximum of the annual Internal Revenue Service compensation limits, for all employees.
−Removed: The Company terminated its Savings Incentive Match Plan, or SIMPLE IRA as of December 31, 2017.
−Removed: For the years ended December 31, 2019 and 2018, the Company recognized $0.2 million and $0.3 million, respectively, of expense related to its contributions to the 401(k) plan.
−Removed: During the year ended December 31, 2017 the Company recognized $0.1 million of expense related to its contributions to the SIMPLE IRA.
−Removed: Australia Research and Development Tax Incentive
−Removed: The Company’s wholly owned subsidiary, Zafgen Australia Pty Limited, which conducts core research and development activities on behalf of the Company, is eligible to receive a 43.5% refundable tax incentive for qualified research and development activities.
−Removed: For the years ended December 31, 2019, 2018 and 2017, $0.2 million, $1.6 million and $0.9 million, respectively, were recorded as a reduction to research and development expenses in the consolidated statements of operations.
−Removed: These amounts represented 43.5% for 2019, 2018 and 2017, of the Company’s qualified research and development spending in Australia.
−Removed: The refund is denominated in Australian dollars and, therefore, the related receivable is re-measured into U.S.
−Removed: dollars as of each reporting date.
−Removed: For the years ended December 31, 2019, 2018 and 2017, the Company recorded in its consolidated statements of operations unrealized foreign currency exchange gains (losses) of less than $0.1 million, $(0.2) million, and $0.1 million, respectively, related to this tax incentive receivable.
−Removed: As of December 31, 2019 and 2018, the Company’s tax incentive receivable from the Australian government was $0.2 million and $1.5 million, respectively.
−Removed: Restructuring
−Removed: In September 2019, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the Company’s September 5, 2019 announcement regarding the low probability of resolving the clinical hold of ZGN-1061 in the near-term and that the Company will be seeking strategic alternatives.
−Removed: Under the restructuring plan and a previously announced July 2019 restructuring, the Company reduced its workforce by 20 employees and closed its office in San Diego, California.
−Removed: Affected employees are eligible to receive severance payments and outplacement services in connection with the reduction.
−Removed: In the year ended December 31, 2019, the Company recorded aggregate restructuring charges of approximately $5.6 million related to contract termination, closing of its office in San Diego, severance payments and other employee-related costs.
−Removed: The Company does not expect to incur any additional significant costs associated with these restructurings.
−Removed: During the year ended December 31, 2019, $2.8 million of the estimated restructuring charges were paid.
−Removed: The Company expects the remaining accrued restructuring costs of $2.7 million will be paid in the next 12 months.
−Removed: The following table shows the total amount expected to be incurred and the liability related to the 2019 restructuring a s of December 31, 2019:
−Removed: Year Ended December 31, 2019
−Removed: (in thousands)
−Removed: Accrued restructuring costs beginning balance
−Removed: Restructuring charges incurred during the period
−Removed: Amounts paid during the period
−Removed: Accrued restructuring costs as of December 31, 2019
−Removed: The following table summarizes the restructuring charges by category for the period ending December 31, 2019:
−Removed: Year Ended December 31, 2019
−Removed: (in thousands)
−Removed: Research and development
−Removed: General and administrative
−Removed: Quarterly Financial Data (Unaudited)
−Removed: The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information.
−Removed: Three Months Ended
−Removed: September 30,
−Removed: (in thousands, except per share data)
−Removed: Operating expenses
−Removed: Net loss per share, basic and diluted
−Removed: Weighted average common shares outstanding,
−Removed: basic and diluted
−Removed: Three Months Ended
−Removed: September 30,
−Removed: (in thousands, except per share data)
−Removed: Operating expenses
−Removed: Net loss per share, basic and diluted
−Removed: Weighted average common shares outstanding,
−Removed: basic and diluted
−Removed: CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
+Added: Our common stock is publicly traded on the Nasdaq Global Market under the symbol “LRMR.”
+Added: As of March 1, 2021, the Company had approximately 29 record holders of its common stock.
+Added: The Company has not declared or paid any dividends since its inception nor does it expect to pay dividends in the foreseeable future.
+Added: Securities Authorized for Issuance Under Equity Compensation Plans
+Added: The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” will be filed in the Company’s definitive proxy statement for the 2021 annual meeting of stockholders and is incorporated herein by reference.
+Added: Recent Sales of Unregistered Securities
+Added: There have been no sales of unregistered securities other than as previously disclosed by the Company in our Current Reports on Form 8-K as filed with the SEC.
+Added: Issuer Purchases of Equity Securities
+Added: SELECTED CONSOLIDATED FINANCIAL DATA
+Added: 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.
+Added: Additionally, the Company has applied the amendment to Regulation S-K Item 301 which became effective on February 10, 2021 and therefore, will not be required to provide this information in future periods if the Company no longer qualifies as a smaller reporting company under Rule 12b-2.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.