What changed in this filing

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Item 1. Financial Statements

2021-05-03 compared with 2020-11-02 · 185 added, 149 removed, 192 unchanged (63% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share data)

September 30,

(in thousands, except share and per share data)

Current assets:

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Right-of-use asset

Intangible assets, net

Restricted cash

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Long-term liabilities:

Deferred tax liability

Lease liability

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 5)

Stockholders’ equity:

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10,000,000 shares authorized;

no shares issued and outstanding at September 30, 2020 and December 31, 2019

no shares issued and outstanding at March 31, 2021 and December 31, 2020

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

44,204,745 and 43,996,753 shares issued and outstanding at September 30, 2020 and December 31, 2019 , respectively

50,201,758 and 44,235,903 shares issued and outstanding March 31, 2021 and December 31, 2020 , respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Accumulated deficit

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Total liabilities and stockholders’ equity

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

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

Rhythm Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Operating expenses:

Three months ended March 31,

Product revenue, net

Costs and expenses:

Cost of sales

Research and development

Selling, general, and administrative

Total operating expenses

Total costs and expenses

Loss from operations

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Total other income, net

Net loss per share, basic and diluted

Weighted-average common shares outstanding, basic and diluted

Other comprehensive loss:

Income (loss) before taxes

Provision for income taxes

Net income (loss)

Net income (loss) per share

Weighted-average common shares outstanding

Other comprehensive income (loss):

Net income (loss)

Unrealized (loss) gain on marketable securities

Comprehensive loss

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

Comprehensive income (loss)

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

Rhythm Pharmaceuticals, Inc.

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Stockholders’

Income (Loss)

Balance at December 31, 2020

1 unchanged sentence

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at March 31, 2020

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at June 30, 2020

Stock compensation expense

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units

Issuance of common stock upon completion of public offering, net of offering costs

Unrealized loss on marketable securities

Balance at September 30, 2020

Balance at March 31, 2021

Balance at December 31, 2019

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Balance at March 31, 2020

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Balance at June 30, 2019

Stock compensation expense

Issuance of common stock in connection with ESPP

Issuance of common stock in connection with exercise of stock options

Unrealized loss on marketable securities

Balance at September 30, 2019

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

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

Rhythm Pharmaceuticals, Inc.

1 unchanged sentence

(in thousands)

Nine months ended September 30,

Three months ended March 31,

Operating activities

Adjustments to reconcile net loss to cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to cash used in operating activities:

Stock-based compensation expense

Gain on sale of priority review voucher

Deferred tax provision

Depreciation and amortization

Deferred rent expense

Non-cash rent expense

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Tenant improvement allowance

Accounts payable, accrued expenses and other current liabilities

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Maturities of short-term investments

Proceeds from sale of priority review voucher

Purchases of property and equipment

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Financing activities

Net proceeds from issuance of common stock

Proceeds from the exercise of stock options

1 unchanged sentence

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

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

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

Rhythm Pharmaceuticals, Inc.

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Nature of Business

Rhythm Pharmaceuticals, Inc., or the Company, is a late-stage biopharmaceutical company focused on the development and commercialization of therapeutics for the treatment of rare genetic disorders which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia.

The Company’s lead product candidate is setmelanotide, a potent melanocortin-4 receptor, or MC4R, agonist for the treatment of rare genetic disorders of obesity.

The Company believes setmelanotide, for which it has exclusive worldwide rights, has the potential to restore dysfunctional MC4R signaling due to impaired MC4R pathway function.

Rhythm Pharmaceuticals, Inc.

(the “Company” or “we”) is a commercial-stage biopharmaceutical company focused on changing the paradigm for the treatment of rare genetic diseases of obesity, which are characterized by early-onset, severe obesity and an insatiable hunger or hyperphagia.

Our lead product candidate is IMCIVREE (setmelanotide), a potent melanocortin-4 receptor, or MC4R, agonist for the treatment of rare genetic diseases of obesity.

We believe IMCIVREE, for which we have exclusive worldwide rights, has the potential to restore dysfunctional MC4R signaling due to impaired MC4R pathway function.

MC4R pathway deficiencies result in the disruption of satiety signals and energy homeostasis in the body, which, in turn, leads to intense feelings of hunger and to obesity.

The Company’s development efforts are initially focused on obesity related to several single gene-related, or monogenic, MC4R pathway deficiencies:

pro-opiomelanocortin, or POMC, deficiency obesity;

leptin receptor, or LEPR, deficiency obesity;

IMCIVREE has been approved by the U.S.

Food and Drug Administration, or FDA, for chronic weight management in adult and pediatric patients six years of age and older with obesity due to proopiomelanocortin, or POMC, proprotein convertase subtilisin/kexin type 1, or PCSK1, or leptin receptor, or LEPR, deficiency confirmed by genetic testing.

IMCIVREE is now commercially available.

The Company is a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc.

The Company’s continued development efforts are focused on obesity related to several single gene-related, or monogenic, MC4R pathway deficiencies:

Bardet-Biedl syndrome, or BBS;

Alström syndrome;

POMC or LEPR heterozygous deficiency obesity;

steroid receptor coactivator 1, or SRC1, deficiency obesity;

SH2B adapter protein 1, or SH2B1, deficiency obesity;

MC4R deficiency obesity and Smith-Magenis syndrome, as well as additional disorders as part of investigator-initiated protocols.

Currently, there are no effective or approved treatments for these MC4R pathway-related disorders.

The Company believes that the MC4R pathway is a compelling target for treating these genetic disorders because of its critical role in regulating appetite and weight by promoting satiety and weight control, and that peptide therapeutics are uniquely suited for activating this target.

The Company has also acquired exclusive, worldwide rights from Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize T-3525770, now RM-853.

RM-853 is a potent, orally available ghrelin o-acyltransferase inhibitor currently in preclinical development.

The Company is subject to risks and uncertainties common to late-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations.

HET obesity due to a genetic variant in one of the two alleles of the POMC, PCSK1 or LEPR gene, or HETs;

obesity due to steroid receptor coactivator 1, or SRC1, deficiency;

and obesity due to SH2B adapter protein 1, or SH2B1, deficiency;

MC4R deficiency obesity and Smith-Magenis syndrome, as well as additional diseases as part of investigator-initiated protocols.

Currently, there are no effective or approved treatments for these MC4R pathway-related diseases.

The Company believes that the MC4R pathway is a compelling target for treating these genetic diseases because of its critical role in regulating appetite and weight by promoting satiety and weight control, and that peptide therapeutics are uniquely suited for activating this target.

The Company is subject to risks and uncertainties common to commercial-stage companies in the biotechnology industry, including but not limited to risks associated with the commercialization of approved products, completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations.

Commercialization of approved products will require significant resources and in order to market IMCIVREE, the Company must continue to build its sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services.

Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization.

These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Corporate Reorganization

The Company is a Delaware corporation organized in February 2013 under the name Rhythm Metabolic, Inc., and as of October 2015, under the name Rhythm Pharmaceuticals, Inc.

Prior to its organization and a corporate reorganization, the Company was part of Rhythm Pharmaceuticals, Inc., a Delaware corporation which was organized in November 2008 and which commenced active operations in 2010.

The Company has incurred operating losses and negative cash flows from operations since inception.

As of September 30, 2020, the Company had an accumulated deficit of $ 424,430 .

The Company has primarily funded these losses through the proceeds from the sales of common and preferred stock as well as capital contributions received from the former parent company, Rhythm Holdings LLC.

To date, the Company has no product revenue and management

expects operating losses to continue for the foreseeable future.

The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, pre-commercialization activities and general and administrative functions relating to these operations.

As of March 31, 2021, the Company had an accumulated deficit of $ 415,577 .

The Company has primarily funded these losses through the proceeds from the sales of common and preferred stock, asset sales as well as capital contributions received from the former parent company, Rhythm Holdings LLC.

To date, the Company has minimal product revenue and management expects operating losses to continue for the foreseeable future.

administrative functions relating to these operations.

The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations.

At September 30, 2020, the Company had $ 201,784 of cash and cash equivalents and short-term investments on hand.

In the future, the Company will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, and funded research and development programs, to maintain the Company's operations and meet the Company's obligations.

In February 2021, the Company completed the sale of a Rare Pediatric Disease Priority Review Voucher, or PRV, that it received in connection with the approval of IMCIVREE for $ 100,000 .

As the PRV did not have a carrying value, the gain recognized within Other income (loss) was equal to the gross proceeds received, with costs related to the sale of the voucher recorded within selling, general and administrative expenses.

At March 31, 2021, the Company had $ 404,750 of cash and cash equivalents and short-term investments on hand.

In the future, the Company will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, product sales and funded research and development programs to maintain the Company's operations and meet the Company's obligations.

There is no guarantee that additional equity or other financings will be available to the Company on acceptable terms, or at all.

If the Company fails to obtain additional funding when needed, the Company would be forced to scale back, terminate its operations or seek to merge with or be acquired by another company.

Management believes that the Company's existing cash resources will be sufficient to fund the Company's operations through at least the end of 2021.

Management believes that the Company's existing cash resources will be sufficient to fund the Company's operations into at least the second half of 2023.

Summary of Significant Accounting Policies

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As permitted under these rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted.

The accompanying interim balance sheet as of September 30, 2020, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the statement of stockholders equity and the statement of cash flows for the nine months ended September 30, 2020 and 2019 and the related footnote disclosures are unaudited.

The accompanying interim balance sheet as of March 31, 2021, the statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020, the statements of stockholders equity and the statements of cash flows for the three months ended March 31, 2021 and 2020 and the related footnote disclosures are unaudited.

In management's opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements as of and for the year ended December 31, 2020 and include all adjustments, which are all normal recurring adjustments, necessary for the fair presentation of the interim financial statements.

The results for the nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements.

As of September 30, 2020, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2021, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Certain amounts totaling $ 63 in the consolidated statement of stockholders’ equity for the three months ended March 31, 2020, related to unrealized gains on marketable securities, have been reclassified from additional paid-in capital to accumulated other comprehensive income to conform to the current period presentation.

This reclassification had no impact on the previously reported results of operations or cash flows for the three months ended March 31, 2020.

Risks and Uncertainties

There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will impact its patients, employees, suppliers, vendors, business partners and distribution channels.

While the pandemic did not materially affect the

Company's financial results and business operations for the three months ended March 31, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

Use of Estimates

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This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.

estimates relied upon in preparing these financial statements include accruals related to research and development expenses, assumptions used to record stock-based compensation expense, and the valuation allowance on the Company's deferred tax assets.

Significant estimates relied upon in preparing these financial statements include accruals related to research and development expenses, assumptions used to record stock-based compensation expense and the valuation allowance on the Company's deferred tax assets.

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

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Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company considers its chief executive officer, or CEO, as its chief operating decision maker.

The Company and the CEO view the Company’s operations and manages its business in one operating segment operating exclusively in the United States.

The Company currently operates in one business segment, which is the development and commercialization of therapies for patients with rare diseases.

A single management team that reports to the Chief Executive Officer comprehensively manages the entire business.

The Company does not operate separate lines of business with respect to its product or product candidates.

Accordingly, the Company has one reportable segment.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Product Revenue, Net

Subsequent to its regulatory approval in the U.S.

on November 27, 2020, the Company began to sell IMCIVREE in the U.S.

in March, 2021.

The product is distributed through an exclusive third-party logistics, or 3PL, distribution agent that does not take title to the product.

Once the product is delivered to the Company’s exclusive specialty pharmacy

provider, our sole customer in the U.S., the customer (or “wholesaler”) takes title to the product.

The wholesaler then distributes the product to health care providers and patients.

In our exclusive distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product.

The Company generally does not offer returns of product sold to the customer.

Revenue from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, upon transfer of title to the customer because at that point in time we have no ongoing obligations to the customer.

There are no other performance obligations besides the sale of product.

The Company records shipping and handling costs within cost of goods sold on our consolidated statements of operations.

We classify payments to our customer or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our consolidated statements of operations.

Otherwise, payments to a customer or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below.

Taxes collected from the customer relating to product sales and remitted to governmental authorities are excluded from revenue.

Because our payment terms are generally forty-five days , we conclude there is not a significant financing component because the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less.

The Company expenses incremental costs of obtaining a contract as and when incurred since the expected amortization period of the asset that we would have recognized is one year or less.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price, or the transaction price, which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between us and our customer, health care providers and other indirect customers relating to the sale of IMCIVREE.

These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.

The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Actual amounts of consideration ultimately received may differ from our estimates.

If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following are the components of variable consideration related to product revenue:

The Company estimates obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers and patients at prices lower than the list prices charged to our customer.

The government and other entities charge us for the difference between what they pay for the product and the selling price to our customer.

The Company records reserves for these chargebacks related to product sold to our customer during the reporting period, as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers and patients in future periods.

Government rebates:

The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the United States.

We estimate Medicaid, Medicare and Tricare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix.

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses on our consolidated balance sheet.

For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.

On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Trade discounts and allowances:

The Company provides customary invoice discounts on IMCIVREE sales to our U.S.

customer for prompt payment that are recorded as a reduction of revenue in the period the related product revenue is recognized.

In addition, we receive and pay for various distribution services from our customer in the distribution channel.

For services that are either not distinct from the sale of our product or for which we cannot reasonably estimate the fair value, such fees are classified as a reduction of product revenue.

Product Returns:

Our customer has limited return rights related to the product’s expiration date or instances of damage or defect.

The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized.

Based on the distribution model for IMCIVREE and the price of IMCIVREE, we believe there will be minimal returns.

Other incentives:

Other incentives include co-payment assistance the Company provides to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue.

The estimate is recorded as a reduction of revenue in the same period the related revenue is recognized.

During the quarter ended March 31, 2021, we recorded product revenue, net, of $35.

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the quarter ended March 31, 2020 due to the immateriality of the revenue recognized during the period.

Cost of Product Sales

Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates.

Subsequent to receiving FDA approval in November 2020, the Company has not capitalized any inventory related costs during the three month period ended March 31, 2021.

Cost of product sales will consist of manufacturing costs, transportation and freight, amortization of capitalized intangibles, royalty payments and indirect overhead costs associated with the manufacturing and distribution of IMCIVREE.

Cost of product sales may also include period costs related to certain manufacturing services and inventory adjustment charges.

The Company is currently evaluating the impact of this previously expensed inventory on the future cost of product sales.

Accounts Receivable, Net

In general, accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts, product returns, and chargebacks.

The Company's contracts with customers have standard payment terms that generally require payment within 45 days .

The Company analyzes accounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers.

As of March 31, 2021, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.

Intangible Assets, Net

Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis over their remaining useful lives, which are estimated to be the remaining patent life.

If our estimate of the product’s useful life is shorter than the remaining patent life, then a shorter period is used.

Amortization expense is recorded as a component of cost of sales on the consolidated statements of operations and comprehensive income (loss).

Intangible assets are evaluated for impairment at least annually in the fourth quarter or more frequently if impairment indicators exist.

Events that could result in an impairment, or trigger an interim impairment assessment, include the decision to discontinue the development of a drug, the receipt of additional clinical or nonclinical data regarding our drug candidate or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug.

In connection with any impairment assessment, the fair value of the intangible assets as of the date of assessment is compared to the carrying value of the intangible asset.

Impairment losses are recognized if the carrying value of an intangible asset is both not recoverable and exceeds its fair value.

Fair Value Measurements

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Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities at September 30, 2020 and December 31, 2019 were carried at fair value, determined according to the fair value hierarchy.

The Company’s cash equivalents and marketable securities at March 31, 2021 and December 31, 2020 were carried at fair value, determined according to the fair value hierarchy.

See Note 4 for further discussion.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses approximate their fair values due to their short-term maturities at September 30, 2020 and December 31, 2019, respectively.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities.

Diluted net loss per common share is

computed by adjusting the weighted average shares outstanding for the potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method.

For purposes of the diluted net loss per share calculation, stock options and restricted stock units are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Therefore, basic and diluted net loss per share were the same for all periods presented.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses approximate their fair values due to their short-term maturities at March 31, 2021 and December 31, 2020, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration of potential dilutive securities.

Diluted net income (loss) per common share is computed by adjusting the weighted-average shares outstanding for the potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method.

For purposes of the diluted net income (loss) per share calculation, 781,404 stock options and 82,591 restricted stock units were considered to be common stock equivalents for the three months ended March 31, 2021.

For the three months ended March 31, 2020, the common stock equivalents have been excluded from the calculation of diluted net income (loss) per share, as their effect would be anti-dilutive for the period presented.

The following table includes the potential common shares, presented based on amounts outstanding at each period end, that were excluded from the computation of diluted net loss per share due to their anti-dilutive effect, for the periods indicated:

September 30,

Stock options

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Subsequent events have been evaluated as required.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

The Company may take advantage of these exemptions until the Company ceases to be an emerging growth company.

The Company would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, at the end of its fiscal year when it had more than $700.0 million in market value of its stock held by non-affiliates as of the last business day of the its most recently completed second fiscal quarter (and it has been a public company for at least 12 months, and has filed one Annual Report on Form 10-K), or it issues more than $1.0 billion of non-convertible debt securities over a three-year period.

Even after the Company no longer qualifies as an emerging growth company, the Company may still qualify as a “smaller reporting company” if the market value of its common stock held by non-affiliates is below $250 million (or below $700 million if its annual revenue is less than $100 million) as of the last business day of its second fiscal quarter in any given year, which would allow the Company to continue to take advantage of certain scaled disclosure requirements.

Because the market value of the Company’s common stock held by non-affiliates exceeded $700.0 million as of June 30, 2020, the Company will have been public for more than one year and it has filed at least one Annual Report, the Company will cease to be an emerging growth company and would no longer qualify as a smaller reporting company as of December 31, 2020.

As a result, beginning with the Company’s Annual Report on Form 10-K for the year ending December 31, 2020, the Company will be subject to certain requirements that apply to other public companies but did not previously apply to the Company due to its status as an emerging growth company, including the provisions of Section 404(b) of the Sarbanes-Oxley Act, which require that the Company’s independent registered public accounting firm provides an attestation report on the effectiveness of the Company’s internal control over financial reporting.

Section 107 of the Jump-Start Our Business Startups Act, the JOBS Act, provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.

The Company elected to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Application of New or Revised Accounting Standards

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The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

As a smaller reporting company, ASU 2016-13 was effective for the Company January 1, 2023.

Since the Company will cease to be an emerging growth company and a smaller reporting company as of December 31, 2020, the Company is required to adopt the standard during the fourth quarter of 2020.

The Company does not expect the adoption of ASU 2016-13 to have a material impact on the Company’s financial position, results of operations and cash flows.

Effective January 1, 2019 the Company adopted FASB ASU 2016-02, Leases (Topic 842) , or ASU 2016-02.

ASU 2016-02 requires lessees to recognize a right-of-use, or ROU, asset and lease liability for most lease arrangements.

The new standard is effective for annual reporting periods beginning after December 15, 2018.

The original guidance required application on a modified retrospective basis with the earliest period presented.

In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, as the date of initial application of transition, which the Company has elected.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed it to carry forward the historical lease classification.

As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both an operating lease right-of-use asset of $ 3,265 and a lease liability of $ 3,636 .

Additional information and disclosures required by this new standard are contained in Note 5, Right Of Use Asset and Lease Liability.

Since the Company ceased to be an emerging growth company as of December 31, 2020, the Company adopted the standard during the fourth quarter of 2020 and applied the modified retrospective method of adoption to the Company’s financial statements as of January 1, 2020.

Based on the composition of the investment portfolio as of the adoption date, the adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows for the year ended December 31 2020 and no adjustment was required to be recorded to the opening retained earnings balance as of January 1, 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes , or ASU 2019-12.

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Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively.

The Company does not expect the adoption of ASU 2019-12 to have a material impact on the Company’s financial position, results of operations and cash flows.

We have adopted ASU 2019-12 as of January 1, 2021 and the adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Accrued Expenses

Accrued expenses consisted of the following:

September 30,

Research and development costs

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Accrued expenses

Fair Value of Financial Assets and Liabilities

As of September 30, 2020 and December 31, 2019, the carrying amount of cash and cash equivalents and short-term investments was $ 201,784 and $ 292,459 , respectively, which approximates fair value.

Fair Value of Financial Assets

As of March 31, 2021 and December 31, 2020, the carrying amount of cash and cash equivalents and short-term investments was $ 404,750 and $ 172,792 , respectively, which approximates fair value.

Cash and cash equivalents and short-term investments includes investments in U.S.

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Fair value Measurements as of

September 30, 2020 using:

March 31, 2021 using:

Cash Equivalents:

Corporate Debt Securities and Commercial Paper

Treasury Securities and Money Market Funds

Commercial Paper

Money Market Funds

Marketable Securities:

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The following tables summarize the Company's marketable securities:

September 30, 2020

March 31, 2021

Corporate debt securities and commercial paper (due within 1 year)

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The Company estimated the incremental borrowing rate for the leased asset based on a range of comparable interest rates the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

As of September 30, 2020, the Company has not entered into any lease arrangements classified as a finance lease.

Under ASC 842, the Company determines, at the inception of the contract, whether the contract is or contains a lease based on whether the contract provides the Company the right to control the use of a physically distinct asset or substantially all of the capacity of an asset.

Leases with an initial noncancelable term of twelve months or less that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise are classified as short-term leases.

The Company has elected as an accounting policy to exclude from the consolidated balance sheets a right of use asset and lease liability for short-term leases.

Upon adoption of ASC 842, the Company elected the transition relief package, permitted within the standard, pursuant to which the Company did not reassess the classification of existing leases, whether any expired or existing contracts contain a lease, and whether existing leases have any initial direct costs.

The Company also elected the practical expedient of not separating lease components from non-lease components for all leases.

There was no cumulative-effective adjustment to the opening balance of retained earnings.

The Company reviews all material contracts for embedded leases to determine if they have a right-of-use asset.

The Company recognizes rent expense on a straight-line basis over the lease period.

The depreciable life of assets and leasehold improvement are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both an operating lease right-of-use asset of $ 3,265 and a lease liability of $ 3,636 .

The standard did not materially impact the consolidated statement of cash flows and had no impact on the consolidated statement of operations.

The Company’s office lease includes both lease and non-lease components.

Non-lease components relate to real estate taxes, insurance, operating expenses and common area maintenance, which are usually billed at actual amounts incurred proportionate to the Company’s rented square feet of the building.

These non-lease components are expensed by the Company as they are incurred and are not included in the measurement of the lease liability.

As of March 31, 2021, the Company has not entered into any lease arrangements classified as a finance lease.

The Company’s corporate headquarters is located in Boston, Massachusetts.

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The Company’s lease agreement commenced May 2019 and has a term of six years with a five-year renewal option to extend the lease.

As of January 1, 2019, the Company has not included the five-year renewal option to extend the lease in its measurement of the ROU asset or lease liability.

Rent expense, or operating lease costs, for the three and nine months ended September 30, 2020 and 2019, was $ 138 , $ 138 , $ 414 and $ 491 , respectively.

Supplemental cash flow information related to the Company’s lease for the nine months ended September 30, 2020, includes cash payments of $ 587 used in the measurement of its operating lease liability.

The following table presents the maturities of the Company’s operating lease liability related to office space as of September 30, 2020, all of which is under a non-cancellable operating lease:

The Company has not included the five-year renewal option to extend the lease in its measurement of the ROU asset or lease liability.

The following table presents the maturities of the Company’s operating lease liability related to office space as of March 31, 2021, all of which is under a non-cancellable operating lease:

Operating Lease

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Total operating lease liability

On October 18, 2019 the Company completed a public offering of 9,324,324 shares of common stock at an offering price of $ 18.50 per share, which included the exercise in full by the underwriters of their option to purchase up to 1,216,216 additional shares of common stock.

The Company received net proceeds of $ 161,352 after deducting underwriting discounts, commissions and offering expenses.

On January 6, 2020, the Company announced that Keith Gottesdiener, M.D., the Company’s Chief Executive Officer and President, would step down from his roles with the Company.

Gottesdiener stepped down from his roles as CEO, President and member of the Board of Directors following the submission of the Company’s NDA filing on March 27, 2020.

In connection with the above announcement, the Company and Dr.

Gottesdiener entered into a separation agreement which entitles Dr.

Gottesdiener to certain severance payments and benefits as set forth therein.

Intangible Assets, Net

As of March 31, 2021, the Company’s finite-lived intangible assets, which totaled $ 5.0 million, resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

in March 2021.

The Company began amortizing its finite-lived intangible assets in March 2021 over IMCIVREE’s initial regulatory exclusivity period.

Amortization expense was not material for the three months ended March 31, 2021.

Amortization expense will be included in cost of sales on the consolidated statements of operations and comprehensive loss.

The Company recorded a tax provision of $ 22,006 for the period ended March 31, 2021, primarily related to the sale of the PRV, offset by a tax benefit from the Company's ordinary losses.

The Company expects to have sufficient tax losses in the current year to offset the income from the sale and thus no current year liability is expected.

The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.

On February 9, 2021 the Company completed a public offering of 5,750,000 shares of common stock at an offering price of $ 30.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 750,000 additional shares of common stock.

The Company received $ 161,731 in net proceeds after deducting underwriting discounts, commissions and offering expenses.

During the three months ended March 31, 2020, the Company entered into a separation agreement with its former Chief Executive Officer, Keith Gottesdiener, M.D.

The Company modified certain equity awards held by Dr.

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In connection with this modification, the Company recorded an incremental compensation charge of $ 2,811 during the three months ended March 31, 2020.

On July 20, 2020, the Board of Directors of the Company appointed David P.

as the President and Chief Executive Officer of the Company.

The Board granted Dr.

Meeker a stock option grant under the Company’s 2017 Equity Incentive Plan to purchase 900,000 shares of the Company’s common stock, which will vest as to 25 % of the underlying shares on the first anniversary of Dr.

Meeker commencing employment with the Company and as to the remaining 75 % of the underlying shares in 12 substantially equal installments upon Dr.

Meeker’s completion of each three full months of service to the Company thereafter.

As of September 30, 2020, an aggregate of 8,516,687 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options and restricted stock units to purchase 7,515,694 shares of common stock and 1,000,993 shares available for future grant under the Company’s 2017 Employee Stock Purchase Plan.

As of March 31, 2021, an aggregate of 10,039,110 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options and restricted stock units that have been issued of 6,365,832 shares of common stock and 983,993 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 808 , $ 651 , $ 2,584 and $ 1,739 for the three and nine months ended September 30, 2020 and 2019, respectively.

Outstanding payments due to these related parties as of September 30, 2020 and December 31, 2019 were $ 107 and $ 264 , respectively, and were included within accounts payable on the balance sheet.

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 636 and $ 860 for the three months ended March 31, 2021 and 2020, respectively.

Outstanding payments due to these related parties as of March 31, 2021 and December 31, 2020 were $ 42 and $ 187 , respectively, and were included within accounts payable on the balance sheet.

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-Q

Item 1. Financial Statements