What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-09 compared with 2020-03-12 · 318 added, 198 removed, 410 unchanged (56% of the section changed)

8 unchanged sentences

In addition, we maintain significant amounts of cash and cash equivalents at one financial institution that is in excess of federally insured limits.

We have entered into the RIPA.

Our primary exposure to market risk is that the interest rate on the liability may vary during the term of the agreement primarily due to the level of forecasted net sales.

A significant increase or decrease in net sales will materially impact the revenue interest liability, interest expense and the time period for repayment.

We do not believe a change in interest rate has had a material effect on our results of operations during the year ended December 31, 2020.

Foreign Currency Rate Risk

2 unchanged sentences

While our operating results are exposed to changes in foreign currency exchange rates between the U.S.

dollar and various foreign currencies, the most significant of which is the Swiss Franc, we do not currently believe that foreign currency could have a significant impact.

dollar and various foreign currencies, the most significant of which are the Swiss Franc and the Euro, we do not currently believe that foreign currency could have a significant impact.

Effects of Inflation

10 unchanged sentences

Notes to Consolidated Financial Statements

Report of Independent Regist ered Public Accounting Firm

To the Board of Directors and Stockholders of Mirum Pharmaceuticals, Inc.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Mirum Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mirum Pharmaceuticals, Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock, redeemable common stock and stockholders’ equity (deficit) and cash flows for the year ended December 31, 2019 and the period from May 2, 2018 to December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for the year ended December 31, 2019 and the period from May 2, 2018 to December 31, 2018, in conformity with U.S.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock, redeemable common stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

28 unchanged sentences

Operating lease right-of-use assets

Liabilities, Redeemable Convertible Preferred Stock, Redeemable Common Stock

and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

Current liabilities:

2 unchanged sentences

Operating lease liabilities

Derivative liability

Total current liabilities

Revenue interest liability, net

Operating lease liabilities, noncurrent

2 unchanged sentences

Commitments and contingencies

Series A redeemable convertible preferred stock, $0.0001 par value;

120,000,000 shares authorized as of December 31, 2019 and 2018, respectively;

zero and 59,908,284 shares issued and outstanding as of December 31, 2019

and 2018, respectively;

and liquidation value of $0 and $60,064 as of

December 31, 2019 and 2018, respectively

Redeemable common stock, $0.0001 par value;

zero and 1,859,151 shares issued and

outstanding as of December 31, 2019 and 2018, respectively

Stockholders’ equity (deficit):

Stockholders’ equity:

Preferred stock, $0.0001 par value;

10,000,000 and zero shares authorized

10,000,000 shares authorized

as of December 31, 2020 and 2019, respectively;

3 unchanged sentences

Common stock, $0.0001 par value;

200,000,000 and 180,000,000 shares

authorized as of December 31, 2019 and 2018, respectively;

shares issued and 22,600,338 shares outstanding, excluding 389,649 shares

subject to repurchase as of December 31, 2019;

and 1,187,500 shares

issued and 636,719 shares outstanding, excluding 550,781 shares subject

200,000,000 shares authorized as of

December 31, 2020 and 2019, respectively;

30,032,600 shares issued and

29,776,544 shares outstanding, excluding 256,056 shares subject

to repurchase as of December 31, 2020;

and 22,989,987 shares issued

and 22,600,338 shares outstanding, excluding 389,649 shares

subject to repurchase as of December 31, 2019

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive income

Total stockholders’ equity (deficit)

Total liabilities, redeemable convertible preferred stock, redeemable common

stock and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands, except share and per share data)

to December 31,

Year Ended December 31,

Operating expenses:

Research and development

In process research and development

General and administrative

3 unchanged sentences

Interest income

Other income (expense), net

Interest expense

Other expense, net

Net loss before provision for income taxes

6 unchanged sentences

(In thousands)

to December 31,

Year Ended December 31,

Other comprehensive gain (loss):

Unrealized gain on available-for-sale investments

Unrealized (loss) gain on available-for-sale investments

Cumulative translation adjustments

10 unchanged sentences

Stockholders’ Equity

Balance as of May 2, 2018

Issuance of common stock at $0.0001 per share

Restricted common stock vested in the period

Issuance of Series A redeemable convertible

preferred stock at $1.00259507 per share,

net of issuance costs of $215

Shares issued in connection with asset

Conversion of convertible notes and accrued

interest to preferred stock

Stock-based compensation

Balance as of December 31, 2018

Issuance of Series A redeemable

convertible preferred stock at

$1.00259507 per share, net of

issuance costs of $23

Issuance of common stock in initial

public offering, net of issuance

costs of $7,800

Conversion of Series A redeemable

convertible preferred stock into

common stock on initial public offering

Reclassification of redeemable common

stock into common stock on initial

Issuance of Series A redeemable convertible

preferred stock at $1.00259507 per share, net

of issuance costs of $23

Issuance of common stock in initial public

offering, net of issuance costs of $7,800

Conversion of Series A redeemable convertible

preferred stock into common stock on initial

public offering

Restricted common stock vested in the

Reclassification of redeemable common stock

into common stock on initial public offering

Restricted common stock vested in the period

Stock-based compensation

1 unchanged sentence

Balance as of December 31, 2019

Issuance of common stock in underwritten

public offerings, net of issuance costs

Issuance of common stock in connection with

Revenue Interest Purchase Agreement

Issuance of common stock in at-the-market

offerings, net of issuance costs of $314

Issuance of common stock in connection with

common stock option exercises

Issuance of common stock in connection with

Employee Stock Purchase Plan

Restricted common stock vested in the period

Stock-based compensation

Other comprehensive loss

Balance as of December 31, 2020

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

( In thousands)

May 2, 2018 to

Year Ended December 31,

Operating activities

1 unchanged sentence

Stock-based compensation

Interest expense on convertible note

In process research and development

Depreciation and amortization

Amortization of operating lease right-of-use assets

Net accretion of discounts on investments

Non-cash interest expense related to the revenue interest liability

Net amortization (accretion) on investments

Change in operating assets and liabilities:

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Investing activities

Research and development asset acquisition

Purchase of investments

Proceeds from maturities of investments

Proceeds from paydown of investments

Purchase of investments

Purchase of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing activities

Proceeds from convertible note, related party

Proceeds from the sale of common stock

Proceeds from the issuance of Series A redeemable convertible preferred stock, net

of issuance costs

Proceeds from issuance of common stock in initial public offering, net of issuance

Proceeds from issuance of common stock in public offerings, net of issuance costs

Proceeds from issuance of common stock in private placement, net of issuance costs

Proceeds from issuance of common stock pursuant to equity award plans

Proceeds from revenue interest liability, net of issuance costs

Payment of deferred offering costs in connection with the shelf registration and sales agreement

Net cash provided by financing activities

Effect of exchange rate on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Operating cash flows paid for operating lease

Noncash investing and financing activities:

Revenue interest liability issuance costs included in accrued liabilities

Deferred offering costs included in accrued liabilities

Compound derivative liability related to revenue interest liability

Operating lease right-of-use asset obtained in exchange for operating lease liability

Landlord paid tenant improvements

Deferred public offering costs included in accrued liabilities

Conversion of Series A redeemable convertible preferred stock into common stock

1 unchanged sentence

Reclassification of redeemable common stock into common stock on initial public

Common stock issued in connection with asset acquisition

Conversion of convertible note to preferred stock

The accompanying notes are an integral part of these consolidated financial statements.

11 unchanged sentences

Reverse Stock Split

On July 3, 2019, the Company effected a 1-for-8 reverse stock split of its common stock.

In July 2019, the Company effected a 1-for-8 reverse stock split of its common stock.

The par value and the authorized number of shares of common stock were not adjusted as a result of the reverse stock split.

1 unchanged sentence

The accompanying consolidated financial statements and notes to the consolidated financial statements give retroactive effect to the reverse stock split for all periods presented.

Initial Public Offering

On July 22, 2019, the Company completed its initial public offering (“IPO”) of its common stock.

In connection with its IPO, the Company issued and sold 5,000,000 shares of its common stock at a price of $15.00 per share.

As a result of the IPO, the Company received $67.2 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses.

At the closing of the IPO, 119,752,983 shares of outstanding Series A Preferred Stock were automatically converted into 14,969,118 shares of common stock , and 1,859,151 shares of redeemable common stock were reclassified into permanent equity due to the expiration of the deemed redemption feature .

Following the IPO, there were no shares of Series A Preferred Stock or shares of redeemable common stock outstanding.

In connection with the completion of its IPO, the Company amended and restated its certificate of incorporation to provide for 200,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.0001 per share.

The Company has a limited operating history, has incurred significant operating losses since its inception, and the revenue and income potential of the Company’s business and market are unproven.

As of December 31, 2019, the Company had an accumulated deficit of $69.9 million and cash, cash equivalents and investments of $140.0 million, which is available to fund future operations.

As of December 31, 2020, the Company had an accumulated deficit of $173.2 million and cash, cash equivalents and investments of $231.8 million, which are available to fund future operations.

The Company believes that its cash, cash equivalents and investments as of December 31, 2020 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of the accompanying consolidated financial statements.

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The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes.

The most significant estimates in the Company’s consolidated financial statements relate to accrued research and development expenses, the valuation of common stock, equity awards and the valuation allowance of deferred tax assets resulting from net operating losses.

These estimates and assumptions are based upon historical experience, knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

The most significant estimates in the Company’s consolidated financial statements relate to the revenue interest liability, accrued research and development expenses, the valuation of derivative liabilities and the valuation allowance of deferred tax assets resulting from net operating losses.

These estimates and assumptions are based upon historical experience,

knowledge of current events and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Actual results could differ materially from those estimates.

In December 2019, a novel strain of coronavirus, which causes COVID-19, was identified.

Due to the rapid and global spread of the virus, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which include the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements.

There were no significant estimates contained in the preparation of the Company’s consolidated financial statements or impacts to the Company’s consolidated financial statements for the year ended December 31, 2020 that were directly a result of the COVID-19 pandemic.

The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing.

Cash and Cash Equivalents

3 unchanged sentences

treasury bills and repurchase agreements.

The Company invests in certain reverse repurchase agreements, which are collateralized by deposits in the form of U.S.

Treasury Securities for an amount no less than 102% of their value.

The Company does not record an asset or liability for the collateral as the Company does not intend to sell or re-pledge the collateral.

The collateral has the prevailing credit rating of at least the U.S.

Government Treasuries and Agencies.

The Company utilizes a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

Concentrations of Credit Risk and Off-Balance Sheet Risk

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Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in

pricing an asset or liability.

As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

3 unchanged sentences

The carrying amounts of all cash equivalents, accounts payable and accrued liabilities are reasonable estimates of their fair value.

There were no transfers between Levels 1, 2 or 3 for the periods presented.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation, ranging from three to five years.

Property and equipment are recorded at cost less accumulated depreciation.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, ranging from three to five years.

Leasehold improvements are amortized over the shorter of their useful lives or the related lease term.

As of December 31, 2020, property and equipment consisted primarily of leasehold improvements of $1.3 million and furniture and equipment of $0.3 million.

As of December 31, 2018, there was no property and equipment.

Accumulated depreciation as of December 31, 2019 and 2018 was $0.1 million and zero, respectively.

As of December 31, 2019, property and equipment consisted primarily of leasehold improvements of $1.3 million and furniture and equipment of $0.2 million.

Accumulated depreciation as of December 31, 2020 and 2019 was $0.3 million and $0.1 million, respectively.

Impairment of Long-Lived Assets

Long -lived assets are reviewed for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparison of the carrying amounts to the future undiscounted cash flows attributable to these assets.

An impairment loss is recognized to the extent an asset group is not recoverable, and the carrying amount exceeds the projected discounted future cash flows arising from these assets.

There were no impairments of long-lived assets for any of the periods presented.

Deferred Offering Costs

Deferred offering costs directly related to the Company’s shelf registration and sales agreement primarily consisted of legal, accounting, printing and SEC filing fees.

These costs are reclassified to additional paid-in capital on a pro-rata basis as the Company completes offerings under the shelf registration, with any remaining deferred costs to be charged to results of operations at the end of the three-year life of the shelf registration.

During the year ended December 31, 2020, the deferred offering costs reclassified to additional paid-in capital as a result of the transactions contemplated under a shelf registration were $59,000.

Accrued Research and Development Expenses

3 unchanged sentences

If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

The Company has not experienced any material differences between accrued costs and actual costs incurred for the periods presented.

Nonrefundable advance payments for goods and services are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Revenue Interest Liability , N et

The revenue interest liability, net, associated with the Revenue Interest Purchase Agreement (“RIPA”) that the Company entered into in December 2020 with Mulholland SA LLC, an affiliate of Oberland Capital LLC (“Oberland”), as agent for purchasers party thereto (the “Purchasers”), and the Purchasers, is presented net of issuance costs and a debt discount on the consolidated balance sheets.

The Company imputes interest expense associated with this liability using the effective interest rate method.

The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

The interest rate on the liability may vary during the term of the agreement depending on a number of factors, including the level of forecasted net sales.

The Company evaluates the interest rate quarterly based on its current net sales forecasts utilizing the prospective method.

A significant increase or decrease in net sales will materially impact the revenue interest liability, interest expense and the time period for repayment.

Derivative Liability

The RIPA contains certain features that meet the definition of being embedded derivatives requiring bifurcation as a separate compound financial instrument apart from the RIPA.

The derivative liability is initially measured at fair value on issuance and is subject to remeasurement at each reporting period with changes in fair value recognized as other income (expense) in the consolidated statements of operations as the change in fair value of derivative liability.

Research and Development Expenses

1 unchanged sentence

Research and development expenses are expensed as incurred.

In accordance with Accounting Standards Update (“ASU”) No.

2016-02, as adopted on January 1, 2019, the Company determines if a contractual arrangement is or contains a lease at inception.

The Company determines if a contractual arrangement is or contains a lease at inception.

Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

9 unchanged sentences

The Company recognizes stock-based compensation for all stock-based awards to employees based on the grant-date fair value of the award.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s estimates and involve inherent uncertainties and the application of management’s judgment.

The fair value of equity awards that are expected to vest is amortized on a straight-line basis over the requisite service period.

11 unchanged sentences

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods.

Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase and common stock options because their effect would be anti-dilutive due to the Company’s net loss.

Since the Company had a net loss in each of the periods presented, basic and diluted net loss per share were the same.

Diluted net loss per share excludes the potential impact of the Company’s common stock subject to repurchase, common stock options, contingently issuable employee stock purchase plan shares and contingently issuable overallotment shares because their effect would be anti-dilutive due to the Company’s net loss.

Since the Company incurred a net loss in each of the periods presented, basic and diluted net loss per share were the same.

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

1 unchanged sentence

Common stock subject to repurchase

Employee stock purchase plan contingently issuable

Overallotment shares contingently issuable

Recently Adopted Accounting Pronouncements

On January 1, 2019, the Company adopted ASU No.

2016-02 , Leases (Topic 842) , which amended existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a ROU asset and corresponding lease liability, including leases currently accounted for as operating leases, including qualitative and quantitative disclosures.

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No.

2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) , which eliminated the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements.

The guidance modified disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure.

The guidance added requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

There was no impact on the accompanying consolidated financial statements as of the adoption date, January 1, 2020.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

The guidance eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

This guidance also includes guidance to

reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The Company early adopted this guidance in the fourth quarter of 2020 .

The adoption did not have a material impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not believed by management to, have a material impact on the Company’s consolidated financial position, results of operations or cash flows .

Recent Accounting Pronouncements Not Yet Adopted

10 unchanged sentences

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off.

In March 2020, the FASB issued ASU No.

2020-3, Codification Improvements to Financial Instruments which makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard and clarifies the following areas (i) the contractual term of a net investment in a lease should be the contractual term used to measure expected credit losses;

(ii) when an entity regains control of financial assets sold, an allowance for credit losses should be recorded.

The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies.

Early adoption is permitted.

As a smaller reporting company, the guidance will be effective for the Company during the first quarter of 2023.

For smaller reporting companies, the guidance will be effective during the first quarter of 2023.

The Company is in the process of assessing the impact adoption will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No.

2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) .

The guidance eliminates the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements.

The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure.

The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The guidance will be effective for the Company on January 1, 2020.

The Company does not expect this guidance to have a significant impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

The guidance eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

This guidance also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments.

The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments.

ASU 2020-06 allows for a modified or full retrospective method of transition.

This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption is permitted.

5 unchanged sentences

Money market fund

treasury bills

Corporate debt securities

2 unchanged sentences

Asset-backed securities

As of December 31, 2018, the Company had $51.5 million in Level 1 financial assets consisting of cash equivalents.

Total financial assets

Financial liabilities:

Derivative liability

Total financial liabilities

December 31, 2019

Financial assets:

Money market fund

Corporate debt securities

Commercial paper

government bonds

Asset-backed securities

The carrying amounts of certain financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of December 31, 2020 and December 31, 2019 approximate their related fair values due to the short-term maturities of these instruments.

Certain financial instruments classified within Level 2 of the fair value hierarchy include the types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The carrying amount of the revenue interest liability as of December 31, 2020 approximates its fair value and is based on the Company’s contractual repayment obligation to the Purchasers, based on the current estimates of future revenues, over the life of the RIPA.

The liability is considered a Level 3 input based on the three-level hierarchy.

Refer to Note 6 “Revenue Interest Purchase Agreement” for further information.

Derivative Liability

The debt pursuant to the RIPA contains embedded derivatives requiring bifurcation as a single compound derivative instrument.

The Company estimated the fair value of the derivative liability on issuance and at December 31, 2020 using a “with-and-without” method.

The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative.

The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability on issuance and at December 31, 2020.

The estimated probability and timing of underlying events triggering the exercisability of the put options contained within the RIPA, forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative.

As of the inception date and December 31, 2020, the discount rate used for valuation to the derivative liability is 15.9%.

The following table provides a summary of the change in the estimated fair value of the Company’s derivative liability , classified as Level 3 in the fair value hierarchy :

Balance at January 1, 2020

Initial fair value of derivative liability

Balance at December 31, 2020

Financial Instruments

3 unchanged sentences

Money market fund

treasury bills

Corporate debt securities

1 unchanged sentence

government bonds

Asset back securities

Asset-backed securities

Total cash equivalents and investments

2 unchanged sentences

Short-term investments

Total cash equivalents and investments

December 31, 2019

Cash equivalents and investments:

Money market fund

Corporate debt securities

Commercial paper

government bonds

Asset-backed securities

Total cash equivalents and investments

Classified as:

Cash equivalents

Short-term investments

Long-term investments

Total cash equivalents and investments

The Company did not hold investments as of December 31, 2018.

As of December 31, 2019 , the remaining contractual maturities of available-for-sale debt securities were as follows (in thousands):

Due within one year

One to two years

Three years or more

During the year ended December 31, 2019, there have been no significant realized gains or losses on available-for-sale investments.

During the year ended December 31, 2019, no investments had been in a continuous loss position for more than 12 months and the Company did not recognize any other-than-temporary impairment losses on these securities.

As of December 31, 2020, the remaining contractual maturities of available-for-sale debt securities were less than 12 months.

During the years ended December 31, 2020 and 2019, there have been no significant realized gains or losses on available-for-sale investments.

During the years ended December 31, 2020 and 2019, no investments had been in a continuous unrealized loss position for more than 12 months and the Company did not recognize any other-than-temporary impairment losses on these securities.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Accrued costs for Shire

Accrued clinical trials

3 unchanged sentences

Total accrued expenses

Revenue Interest Purchase Agreement

In December 2020, the Company entered into the RIPA to obtain financing for the commercialization and further development of maralixibat and other working capital needs.

Pursuant to the RIPA, the Company received $50.0 million in December 2020, less certain transaction expenses.

The Company may be entitled to receive up to approximately $150.0 million in subsequent installments as follows :

(i) $65.0 million upon acceptance for review by the U.S.

Food and Drug Administration (“FDA”) of a New Drug Application submitted by the Company for maralixibat as a treatment for pruritus due to Alagille syndrome (“ALGS”) on or prior to a specified date;

(ii) $35.0 million upon FDA approval of maralixibat as a treatment for ALGS on or prior to a specified date;

and (iii) up to $50.0 million at the option of the Purchasers to finance in-licenses or other acquisitions on or prior to December 31, 2022.

As consideration for such payments, the Purchasers have the right to receive certain revenue interests (the “Revenue Interests”) from the Company based on annual net sales of maralixibat , if approved, which will be tiered payments (the “Revenue Interest Payments”) based on whether such annual net sales are (i) less than or equal to $350.0 million (“Tier 1”), (ii) exceeding $350.0 million and less than or equal to $1.1 billion (“Tier 2”), or (iii) exceeding $1.1 billion (“Tier 3”).

The Revenue Interest Payments will initially be 9.75% (at Tier 1) and 2.00% (at Tier 2 and Tier 3) of such annual net sales.

If the Purchasers have received Revenue Interest Payments in an amount equal to or greater than 110.0% of the total payments actually made by the Purchasers to the Company, exclusive of transaction expenses (the “Cumulative Purchaser Payments”), on or prior to December 31, 2026, the Revenue Interests shall be reduced to 2.00% at Tier 1 and 0.00% at Tier 3 for all subsequent calendar years beginning on January 1, 2027.

If the Purchasers have not received Revenue Interest Payments in an amount equal to or greater than 110.0% of the Cumulative Purchaser Payments on or prior to December 31, 2026, the Revenue Interests shall be increased for all subsequent calendar years beginning on January 1, 2027 to a single defined rate (with no separate tiers) that would have provided the Purchasers with an amount equal to 110.0% of the Cumulative Purchaser Payments on or prior to December 31, 2026 had such rate applied to Tier 1 of initial Revenue Interest Payments.

The Purchasers’ rights to receive the Revenue Interest Payments shall terminate on the date on which the Purchasers have received Revenue Interest Payments of 195.0% of the Cumulative Purchaser Payments, unless the RIPA is terminated earlier.

Under the RIPA, the Company has an option (the “Call Option”) to terminate the RIPA and repurchase future Revenue Interests at any time upon advance written notice.

Additionally, the Purchasers have an option (the “Put Option”) to terminate the RIPA and to require the Company to repurchase future Revenue Interests upon enumerated events such as a bankruptcy event, an uncured material breach, a material adverse effect or a change of control, or upon the 12 th anniversary of the first payment made by Purchasers.

If the Put Option is exercised prior to the first anniversary of the closing date by the Purchasers (except pursuant to a change of control), the required repurchase price will be 120.0% of the Cumulative Purchaser Payments (minus all payments Company has made to the Purchasers in connection with the Revenue Interests).

In all other cases, if the Put Option or the Call Option are exercised, the required repurchase price will be 175.0% of the Cumulative Purchaser Payments (minus all payments Company has made to the Purchasers in connection with the Revenue Interests), if such option is exercised prior to

the third anniversary of the closing date, and 195.0 % of the Cumulative Purchaser Payments (minus all payments Company has made to the Purchasers in connection with the Revenue Interests) if such option is exercised thereafter.

In addition, the RIPA contains various representations and warranties, information rights, non-financial covenants, indemnification obligations and other provisions that are customary for a transaction of this nature.

The Purchaser’s obligations to fund the scheduled installments are subject to certain customary conditions as set forth in the RIPA.

Concurrently with the RIPA, the Company entered into a Common Stock Purchase Agreement (“CSPA”) with certain affiliates of Oberland, pursuant to which the Company sold an aggregate of 509,164 shares of its common stock for an aggregate purchase price of $10.0 million.

The $50.0 million received pursuant to the RIPA and $10.0 million received pursuant to the CSPA was allocated between the resulting financial instruments on a relative fair value basis, with $49.2 million allocated to the debt under the RIPA and $10.8 million allocated to the common stock issued under the CSPA.

The Put Options under the RIPA that are exercisable by Purchasers upon certain contingent events were determined to be embedded derivatives requiring bifurcation and separately accounted for as a single compound derivative instrument.

The Company recorded the initial fair value of the derivative liability of $1.3 million as a debt discount, which will be amortized to interest expense over the expected term of the debt using the effective interest method.

In connection with the RIPA, as of December 31, 2020, $47.7 million was recorded as a revenue interest liability on the consolidated balance sheet.

The Company imputes interest expense associated with this liability using the effective interest rate method.

The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

The interest rate on this liability may vary during the term of the agreement depending on a number of factors, including the level of forecasted net sales.

The Company evaluates the interest rate quarterly based on its current net sales forecasts utilizing the prospective method.

A significant increase or decrease in net sales will materially impact the revenue interest liability, interest expense and the time period for repayment.

The Company recorded $0.3 million in interest expense related to this arrangement for the year ended December 31, 2020.

The Company incurred $0.7 million of issuance costs in connection with the RIPA, which will be amortized to interest expense over the estimated term of the debt.

Revenue Interest Payments made as a result of the Company’s net sales will reduce the revenue interest liability.

The following table summarizes the revenue interest liability activity during the year ended December 31, 2020 (in thousands):

Revenue interest liability at inception

Interest expense recognized

Capitalized issuance costs

Debt discount from embedded derivatives

Revenue interest liability at December 31, 2020

Asset Acquisitions

Assignment and License Agreement with Shire International GmbH

On November 5, 2018, the Company entered into an Assignment and License Agreement (the “Shire Agreement”) with Shire International GmbH (“Shire”).

Under the terms of the Shire Agreement, Shire granted the Company an exclusive, royalty bearing worldwide license to develop and commercialize its two product candidates, maralixibat and volixibat.

Assignment and License Agreement with Shire International GmbH (Takeda)

In November 2018, the Company entered into an Assignment and License Agreement (the “Shire Agreement”) with Shire International GmbH (“Shire”), which was subsequently acquired by Takeda Pharmaceutical Company Limited, and made an upfront payment to Shire of $7.5 million and issued Shire 1,859,151 shares of redeemable common stock with an estimated fair value of $7.0 million, or $3.76 per share.

Under the terms of the Shire

Agreement, Shire granted the Company an exclusive, royalty bearing worldwide license to develop and commercialize its two product candidates, maralixibat and volixibat.

As part of the Shire Agreement, the Company was assigned license agreements held by Shire with Satiogen Pharmaceuticals, Inc.

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The Company has the right to sublicense under the Shire Agreement and additionally has the right to sublicense under the Satiogen, Pfizer and Sanofi licenses subject to the terms of those license agreements.

In consideration for the rights granted to the Company under the Shire Agreement, the Company made an upfront payment to Shire on November 5, 2018 of $7.5 million and issued Shire 1,859,151 shares of its redeemable common stock with an estimated fair value of $7.0 million, or $3.76 per share.

The fair value of the shares was determined using an option pricing model with key assumptions as of the date of issuance including the probabilities of liquidity scenarios, enterprise value, time to liquidity, risk-free interest rates, volatility and discount for lack of marketability.

The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets thus satisfying the requirements of the screen test in ASU No.

2017-01, Business Combinations (Topic 805):

Clarifying the Definition of a Business.

The assets acquired in the transaction were measured based on the upfront payment to Shire and the fair value of the common stock shares issued to Shire, as the fair value of the consideration given was more readily determinable than the fair value of the assets received.

Because the assets had not yet received regulatory approval and have no alternative future use, the fair value attributable to these assets were initially recorded as in process research and development expenses.

The Company is also obligated to pay Shire up to an aggregate of $109.5 million upon the achievement of certain clinical development and regulatory milestones for maralixibat in certain indications and an additional $25.0 million upon regulatory approval of maralixibat for each and every other indication.

The Company is obligated to pay Shire up to an aggregate of $109.5 million upon the achievement of certain clinical development and regulatory milestones for maralixibat in certain indications and an additional $25.0 million upon regulatory approval of maralixibat for each and every other indication.

In addition, the Company is required to pay up to an aggregate of $30.0 million upon the achievement of certain clinical development and regulatory milestones for volixibat solely for the first indication sought.

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The Company’s royalty obligations will continue on a licensed product-by-licensed product and country-by-country basis until the later to occur of the expiration of the last valid claim in a licensed patent covering the applicable licensed product in such country, expiration of any regulatory exclusivity for the licensed product in a country and ten years after the first commercial sale of a licensed product in such country.

In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH clinical trial and made a $2.5 million payment to Shire.

As of December 31, 2019, no additional milestones had been accrued as there were no other potential milestones yet considered probable.

Concurrent with the Shire Agreement, the Company also entered into a Transition Services Agreement (“TSA”) with Shire, which covers services provided by Shire to transfer the research and development activities and the related know-how from Shire to the Company, including continuation of work on any existing clinical trials and manufacturing activities until fully transferred.

As of June 30, 2019, all transition services were completed as well as settlement of any pass-through costs.

The Company paid development milestones of $2.5 million in July 2019 related to the initiation of the Phase 3 MARCH clinical trial of maralixibat in PFIC and $10.0 million in December 2020 upon acceptance of an MAA filing to the EMA for maralixibat for the treatment of PFIC2.

Development milestones achieved prior to regulatory approval of the product are expensed by the Company in the period incurred as research and development.

As of December 31, 2020, no additional milestones have been accrued as there were no other potential milestones yet considered probable.

In January 2021, the Company achieved a development milestone pursuant to the Shire License Agreement, which triggered a $2.0 million payment by the Company to Shire associated with the initiation of the VISTAS Phase 2b clinical trial of volixibat in PSC.

In January 2019, the Company also entered into a Transition Services Agreement (“TSA”) with Shire, which covered services provided by Shire to transfer the research and development activities and the related know-how from Shire to the Company, including continuation of work on any existing clinical trials and manufacturing activities until fully transferred.

All transition services were completed and all pass-through costs were settled as of June 30, 2019.

As such, for the year ended December 31, 2020, there were no expenses for Shire provided services or pass-through costs recorded.

The Company recorded $0.4 million for services provided by Shire under the TSA for the year ended December 31, 2019.

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The reduction of estimated expenses for the year ended December 31, 2019 was related to a final reconciliation of expenses and agreement on final amounts due to Shire.

The Company recorded $0.5 million for services provided by Shire under the TSA and $1.6 million for pass-through costs related to continuation of work on existing clinical trials and manufacturing activities for the period from May 2, 2018 to December 31, 2018.

As of December 31, 2019, there was no accrued expenses for these services.

As of December 31, 2018, $2.1 million was recorded in accrued expenses on the consolidated balance sheets for these services.

Satiogen License

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Royalty obligations under the Satiogen license are creditable against the royalty obligations to Shire under the Shire Agreement.

In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH clinical trial and made a $0.5 million payment to Satiogen.

In July 2019, the Company achieved a development milestone related to the initiation of the Phase 3 MARCH clinical trial of maralixibat in PFIC and made a $0.5 million payment to Satiogen, which was expensed by the Company as research and development expense.

As of December 31, 2020, no additional milestones had been accrued as there were no other potential milestones yet considered probable.

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As of December 31, 2020, no milestones had been accrued as there were no potential milestones yet considered probable.

In January 2019, the Company entered into an operating lease agreement for office space which consisted of approximately 5,600 square feet (the “initial lease”).

The lease term is approximately four years with an option to extend the term for one five-year term, which at the time was not reasonably assured of exercise and therefore, not included in the lease term.

The lease contained a tenant improvement allowance of $0.4 million, which has been recorded as leasehold improvements in the accompanying consolidated balance sheets with a corresponding reduction of the ROU asset at inception of the lease.

Rent payments commenced in August 2019.

In November 2019, the Company amended the operating lease agreement (the “amended agreement”) to extend the term of the initial lease through March 2025.

This extension was accounted for as a lease modification and the Company recorded an increase to the ROU asset and lease liability of $0.6 million at the time of the amendment.

Additionally, pursuant to the amended agreement, the Company expanded the office space by 5,555 square feet for a five-year term expiring in March 2025 (the “expanded space”).

The Company accounted for the expanded space as a separate contract as there were material additional rights of use that were not included in the initial lease.

The amended lease contained a tenant improvement allowance of $0.8 million in connection with the expanded space, which has been recorded as leasehold improvements on the accompanying consolidated balance sheet with a corresponding reduction of the ROU asset at inception of the lease for the expanded space.

The ROU and corresponding lease liabilities were estimated using a weighted-average incremental borrowing rate of 8.0%.

As of December 31, 2020, the Company recorded an aggregate ROU asset of $1.9 million and an aggregate lease liability of $3.3 million in the accompanying consolidated balance sheet.

The weighted-average remaining lease term is 4.1 years.

As of December 31, 20 20 , undiscounted future minimum payments under the Company’s operating leases are as follows (in thousands) :

Year Ended December 31,

Rent Payments

Total undiscounted lease payments

imputed interest

Total lease liability

Rent expense was $0.6 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively.

Variable lease payments for lease operating expenses were immaterial for the years ended December 31, 2020 and 2019.

Stockholders’ Equity (Deficit)

In connection with the Company’s IPO, all of the outstanding shares of Series A Preferred Stock automatically converted into 14,969,118 shares of common stock and the 1,859,151 shares of the Company’s redeemable common stock classified in mezzanine equity were reclassified to permanent equity due to the expiration of the deemed redemption feature associated with the stock.

In August and October 2018, the Company issued 1,187,500 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 per share for consideration of approximately $950.

On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, vesting conditions were placed on 562,500 previously issued founder shares.

These shares vest over 4 years and are subject to repurchase by the Company in the event of termination of services.

Shares subject to repurchase are not deemed, for accounting purposes, to be outstanding until those shares vest.

In April 2019, the Company repurchased 25,782 shares of the common stock from a former employee in connection with termination of employment.

As of December 31, 2019 and 2018, 389,649 and 550,781 shares of common stock, respectively, were subject to repurchase by the Company.

The unvested stock liability related to these shares is immaterial to all periods presented.

In July 2019, the Company completed its initial public offering (“IPO”) of its common stock.

In connection with its IPO, the Company issued and sold 5,000,000 shares of its common stock at a price of $15.00 per share.

As a result of the IPO, the Company received $67.2 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses.

Following the IPO, there were no shares of Series A Preferred Stock or shares of redeemable common stock outstanding.

Each share of common stock is entitled to one voting right.

Common stockholders are entitled to dividends when funds are legally available and declared by the Company’s board of directors.

In January 2020, the Company completed a follow-on public offering of its common stock, pursuant to which the Company sold 2,400,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of $44.7 million after deducting underwriting discounts, commissions and offering expenses.

In August 2020, the SEC declared effective a registration statement on Form S-3 (“Shelf Registration”) covering the sale of up to $300.0 million of the Company’s securities.

Also, in August 2020, the Company entered into a sales agreement (“Sales Agreement”) with SVB Leerink LLC (“SVB Leerink”) pursuant to which the Company may elect to issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $75.0 million under the Shelf Registration through SVB Leerink acting as the sales agent and/or principal.

During the year ended December 31, 2020, the Company sold 305,969 shares of common stock in an at-the-market offering pursuant to the Sales Agreement at a weighted-average price of $21.55 per share, resulting in gross proceeds of $6.6 million.

The net proceeds after deducting sales commissions to SVB Leerink and other issuance expenses were approximately $6.3 million.

The remaining capacity under the Sales Agreement is approximately $68.4 million as of December 31, 2020.

In December 2020, the Company completed an underwritten public offering of its common stock pursuant to the Shelf Registration.

The Company sold 3,750,000 shares of common stock at a price of $20.00 per share,

resulting in net proceeds of $ 70.0 million after deducting underwriting discounts, commissions and offering expenses.

In addition, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to 562,500 additional shares of its common stock at the public offering price, less the underwriting discounts and commissions .

I n January 2021, the underwriters partially exercised their option and purchased 375,654 shares of the Company’s common stock at a price of $ 20.00 per share, resulting in net proceeds of $ 7.1 million after deducting underwriting discounts.

As of December 31, 2020 and 2019, 256,056 and 389,649 shares of common stock, respectively, were subject to repurchase by the Company.

The unvested stock liability related to these shares is immaterial to all periods presented.

Common Stock Reserved for Issuance

Common stock reserved for issuance is as follows:

Conversion of Series A Preferred Stock

Stock options issued and outstanding

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Reserved for employee stock purchase plan

Reserved for overallotment shares

Stock-Based Compensation

Equity Incentive Plans

On November 5, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which permits the granting of stock awards and incentive and nonstatutory stock options to employees, directors and consultants of the Company.

In November 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which permits the granting of stock awards and incentive and nonstatutory stock options to employees, directors and consultants of the Company.

In July 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Equity Incentive Plan (the “2019 Plan”).

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As of December 31, 2020, 1,093,210 shares of common stock were available for issuance under the 2019 Plan.

In March 2020, the compensation committee of the Company’s board of directors approved and adopted the 2020 Inducement Plan (the “2020 Inducement Plan”).

Under the 2020 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

At adoption, the 2020 Inducement Plan authorized 750,000 shares of the Company’s common stock for future issuance.

In December 2020, the Company’s board of directors authorized an additional 750,000 shares of the Company’s common stock for future issuance.

As of December 31, 2020, 916,200 shares of common stock were available for issuance under the 2020 Inducement Plan.

Stock Options

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Expected dividend yield is zero 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.

No stock options were granted for the period from May 2, 2018 to December 31, 2018.

The following assumptions were used to estimate the fair value of stock option awards granted during the following period:

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Exercise price

$10.40-$26.59

Expected term (in years)

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77.07%-95.85%

73.88%-84.59%

Risk-free interest rate

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Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that had exercise prices that were lower than the per share fair value of the common stock on the date of exercise.

The weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2020 and 2019 was $12.70 and $8.29 per share, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2020 was $0.5 million.

There were no options exercised during the year ended December 31, 2019.

As of December 31, 2020, the total unrecognized stock-based compensation related to unvested stock option awards granted was $33.3 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

In January 2021, the Company granted stock options to purchase an aggregate of 1,065,200 shares of common stock pursuant to the 2019 Plan at a weighted-average exercise price of $19.19 per share and stock options to purchase an aggregate of 126,400 shares of common stock pursuant to the 2020 Inducement Plan at a weighted-average exercise price of $19.89 per share.

Restricted Stock

On November 5, 2018, in connection with the issuance of the Series A Preferred Stock, the Company’s founders agreed to modify their outstanding shares of common stock to include vesting provisions that require continued service to the Company in order to vest in those shares.

In November 2018, in connection with the issuance of the Series A Preferred Stock, the Company’s founders agreed to modify their outstanding shares of common stock to include vesting provisions that require continued service to the Company in order to vest in those shares.

As such, the 562,500 modified shares of common stock became compensatory upon such modification.

The total compensation cost resulting from the modification was $1.7 million.

The modified shares have a four-year vesting period and a measurement date fair value of $2.936 per share.

For the year ended December 31, 2019, 135,350 shares vested.

For the years ended December 31, 2020 and 2019, 133,593 and 135,350 shares vested, respectively.

The total fair value of shares vested during the years ended December 31, 2020 and 2019 was $0.4 million and $0.4 million, respectively, which was recorded as stock-based compensation in the consolidated statement of operations.

As of December 31, 2020, the total unrecognized compensation expense related to unvested restricted stock was $0.8 million expected to be recognized over a weighted-average period of approximately 1.9 years.

Stock-based compensation is reflected in the consolidated statements of operations as follows (in thousands):

to December 31, 2018

General and administrative

Research and development

2019 Employee Stock Purchase Plan

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In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to the lessor of (i) 1% of the outstanding number of shares of common stock on December 31st of the preceding calendar year, (ii) 1,500,000 shares of common stock or (iii) such lesser amount as determined by the Company’s board of directors.

The Company had 500,000 shares available for future issuance under the 2019 ESPP as of December 31, 2019.

In January 2019, the Company entered into an operating lease agreement for office space which consisted of approximately 5,600 square feet (the “initial lease”).

Rent payments commenced in August 2019.

In November 2019, the Company amended the operating lease agreement (the “amended agreement”) to extend the term of the initial lease through March 2025.

This extension was accounted for as a lease modification and the Company recorded an increase to the ROU asset and lease liability of $0.6 million at the time of the amendment.

Additionally, pursuant to the amended agreement, the Company expanded the office space by 5,555 square feet for a five-year term expiring in March 2025 (the “expanded space”).

The Company accounted for the expanded space as a separate contract as there were material additional rights of use that were not included in the initial lease.

As of December 31, 2019, the Company recorded an aggregate ROU asset of $2.4 million and an aggregate lease liability of $3.6 million in the accompanying consolidated balance sheet.

The weighted-average remaining lease term is 5.14 years and the weighted-average estimated incremental borrowing rate is 8.0%.

As of December 31, 2019, undiscounted future minimum payments under the Company’s operating leases are as follows:

Years Ended December 31,

Rent Payments

Total undiscounted lease payments

imputed interest

Total lease liability

No lease agreements were executed by the Company as of December 31, 2018.

Rent expense was $0.3 million for the year ended December 31, 2019.

Variable lease payments for lease operating expenses were immaterial for the year ended December 31, 2019.

The Company’s losses before income taxes for the year ended December 31, 2019 and for the period from May 2, 2018 to December 31, 2018 are as follows (in thousands):

to December 31,

As of December 31, 2020, 29,876 shares were issued under the ESPP and the Company had 700,023 shares available for future issuance.

Total stock-based compensation is reflected in the consolidated statements of operations as follows (in thousands):

Year Ended December 31,

General and administrative

Research and development

The Company’s losses before income taxes for the years ended December 31, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

loss before taxes

Foreign loss before taxes

Foreign income before taxes

Loss before income taxes

For the year ended December 31, 2019, the Company had a current tax provision of $21,000 related to foreign taxes.

For the period from May 2, 2018 to December 31, 2018 the Company did not record a provision for income taxes.

For the years ended December 31, 2020 and 2019, the Company had a current tax provision of $6,000 and $21,000 related to foreign taxes, respectively.

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

to December 31,

Year Ended December 31,

Federal statutory income tax rate

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Net deferred tax assets

The valuation allowance increased by $13.6 million and $5.2 million for the year ended December 31, 2019 and from May 2, 2018 to December 31, 2018, respectively.

The valuation allowance increased by $27.8 million and $13.6 million for the years ended December 31, 2020 and 2019, respectively.

The tax benefit of deductible temporary differences or carryforwards is recorded as a deferred tax asset to the extent that management assesses the realization is “more likely than not.” Future realization of the tax benefit ultimately depends on the existence of sufficient taxable income within the period available under the tax law.

At December 31, 2020 and 2019, the Company has set up valuation allowances against all federal and state net deferred tax assets because based on all available evidence, these deferred tax assets are not more than likely to be realizable.

The Company had federal and California net operating loss carryforwards of approximately $44.4 million and $2.2 million at December 31, 2019, and $2.2 million and $2.2 million at December 31, 2018, respectively.

The Company had federal and state net operating loss carryforwards of approximately $123.5 million and $2.6 million at December 31, 2020, and $44.4 million and $2.2 million at December 31, 2019, respectively.

Federal losses do not expire, and California net operating losses will begin to expire in 2038.

The Company also has federal general business credit and California research and development credit carryforwards totaling $5.6 million and $0.3 million at December 31, 2019, and $0.5 million and $12,000 at December 31, 2018, respectively.

The Company also has federal general business credit and California research and development credit carryforwards totaling $14.5 million and $0.9 million at December 31, 2020, and $5.6 million and $0.3 million at December 31, 2019, respectively.

The federal research and development credit carryforwards will begin to expire in 2038, unless previously utilized.

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Such limitations may result in expiration of a portion of the NOL carryforwards and research and development credit carryforwards before utilization and may be material.

As of December 31, 2019, the Company has not determined to what extent a potential ownership change will impact the annual limitation that may be placed on the Company’s utilization of its NOL carryovers and research and development credit carryforwards.

As of December 31, 2020, the Company has not determined to what extent a

potential ownership change will impact the annual limitation that may be placed on the Company’s utilization of its NOL carryovers and research and development credit carryforwards.

The Company recognizes the financial statements effects of a tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination.

A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):

to December 31,

Year Ended December 31,

Balance at beginning of year

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The Company has considered the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above.

The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would impact the income tax provision by $1.5 million and $0.1 million in 2019 and from May 2, 2018 to December 31, 2018, respectively.

The Company’s effective income tax rate would not be impacted if the unrecognized tax benefits are recognized in 2019 and from May 2, 2018 to December 31, 2018.

Additional amounts in the summary rollforward could impact the Company’s effective tax rate if it did not maintain a full valuation allowance on its net deferred tax assets.

The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would impact the income tax provision by $3.6 million and $1.5 million in 2020 and 2019, respectively.

The Company’s effective income tax rate would not be impacted if the unrecognized tax benefits are recognized in 2020 and 2019.

As of December 31, 2020, the Company does not believe that it is reasonably possible that its unrecognized tax benefits would significantly change in the following 12 months.

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As of December 31, 2020, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.

Subsequent Event

On January 13, 2020, the Company completed a follow-on public offering of its common stock pursuant to which the Company sold 2,400,000 shares of common stock at a price of $20.00 per share, resulting in net proceeds of approximately $44.7 million after deducting underwriting discounts, commissions and offering expenses payable by the Company.

Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure.

The Company has not provided U.S.

income or foreign withholding taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2020 and 2019, because it intends to permanently reinvest such earnings outside of the U.S.

If these foreign earnings were to be repatriated in the future, the related U.S.

tax liability will be immaterial, due to the participation exemption put in place in the Tax Act.

We have elected to account for Global Intangible Low-taxed Income (GILTI) as a current period expense when incurred.

Contingencies

The Company is subject to potential liabilities under government regulations and various claims and legal actions that are pending or may be asserted from time-to-time.

These matters arise in the ordinary course and conduct of the Company’s business and may include, for example, commercial, intellectual property, and employment matters.

The Company intends to defend itself vigorously in such matters and when warranted, take legal action against others.

Furthermore, the Company regularly assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements.

An estimated loss contingency is accrued in the Company’s financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

The Company does not accrue amounts for liabilities that it does not believe are probable.

Litigation is inherently unpredictable, and unfavorable resolutions could occur.

As a result, assessing contingencies is highly subjective and requires judgment about future events.

During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such government regulations, claims or legal actions, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk