Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been listed on the
Nasdaq Global Market under the symbol SBTX since December 4, 2020. Prior to that date, there was no public market for our common stock.
Holders
of Common Stock
As of February 28, 2021, there were 34,894,423 shares of common stock issued and held by approximately 61 stockholders of
record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of Part III of
this Annual Report on Form 10-K.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to
support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the
discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem
relevant.
Recent Sales of Unregistered Securities
During the year ended December 31, 2020, we issued and sold the following unregistered securities:
(1)
In March 2020, we entered into a Series B Preferred Stock Purchase Agreement with various investors, pursuant to which we
issued and sold to such investors an aggregate of 10,027,666 shares of our Series B redeemable convertible preferred stock at a purchase price of $2.16 per share, and received gross proceeds of $21.5 million and 4,673,388 shares upon conversion
of then outstanding convertible notes.
(2)
In July 2020, pursuant to the March 2020 Series B Preferred Stock Purchase Agreement with various investors, we issued
and sold to such investors an aggregate of 10,669,834 shares of our Series B redeemable convertible preferred stock at a purchase price of $2.16 per share, and received gross proceeds of $23.0 million.
(3)
In September 2020, pursuant to the March 2020 Series B Preferred Stock Purchase Agreement with various investors, we
issued and sold to such investors an aggregate of 11,063,028 shares of our Series B redeemable convertible preferred stock at a purchase price of $2.16 per share, and received gross proceeds of $23.9 million.
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(4)
In September 2020, we entered into a Series C Preferred Stock Purchase Agreement with various investors, pursuant to
which we issued and sold to such investors an aggregate of 24,926,685 shares of our Series C redeemable convertible preferred stock at a purchase price of $3.41 per share, and received gross proceeds of $84.9 million.
(5)
From January 1, 2020 through December 2, 2020, which is the day before we priced our initial public offering,
we granted stock options to purchase an aggregate of 3,213,541 shares of our common stock at a weighted average exercise price of $3.67 per share, to certain of our employees and directors in connection with services provided to us by such persons.
Of these, 131,266 options have been exercised and 5,772 options have been cancelled through December 31, 2020.
The issuance
of securities described above in paragraphs (1) through (4) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) (or Regulation D promulgated thereunder) in that the issuance of securities to
the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D. No underwriters were involved in these
transactions.
The issuance of securities described above in paragraph (5) was deemed to be exempt from registration under the Securities Act
in reliance on either Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or Section 4(a)(2) in that the issuance of securities to the accredited investors
did not involve a public offering. The recipients of such securities were our employees and directors and received the securities under our 2016 Equity Incentive Plan.
Use of Proceeds
On December 3, 2020, we commenced our
initial public offering pursuant to a registration statement on Form S-1 (File No. 333-250009) that was declared effective by the SEC on December 3, 2020,
for 11,500,000 shares of our common stock for sale to the public at a price of $21.00 per share. In addition, in December 2020, the underwriters exercised their over-allotment option to purchase 1,725,000 additional shares of our common stock in the
initial public offering at the public offering price of $21.00 per share, such that the aggregate offering price of our initial public offering was $277.7 million. The net offering proceeds to us, after deducting underwriting discounts and
commissions and offering costs, were $255.3 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10% or more of any class of our equity securities or to any
other affiliates. The underwriters for our initial public offering were Goldman Sachs & Co. LLC, SVB Leerink LLC, Stifel, Nicolaus & Company, Incorporated, and H.C. Wainwright & Co., LLC.
Upon receipt, the net proceeds from our IPO were held in cash and cash equivalents, primarily in treasury money market accounts. Through December 31,
2020, we have not used any of the net proceeds from our IPO. There has been no material change in the use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on
December 4, 2020.
Issuer Purchases of Equity Securities
Not applicable.
Item 6. Selected
Financial Data.
Not applicable.
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Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis together with our financial statements and related notes
included in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and
uncertainties. For a complete discussion of forward-looking statements, see the section above entitled Forward Looking Statements. Our actual results could differ materially from those expressed or implied in any forward-looking
statements as a result of various factors, including those set forth under the caption Item 1A. Risk Factors.
Overview
We are a clinical-stage biopharmaceutical company with one product candidate in a Phase 1/1b clinical trial, and we are focused on leveraging our
proprietary ImmunoTAC technology platform to develop systemically delivered, tissue targeted therapeutics for the treatment of cancer, chronic viral infections, and other serious diseases. Our platform enables us to strategically pair proprietary
linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed to specific disease sites. Initially, we are applying our platform to create a new class of targeted immuno-oncology agents that direct a myeloid cell
activator to the tumor microenvironment in solid tumors to promote cancer cell killing. Our lead product candidate, SBT6050, is comprised of a TLR8 agonist linker-payload conjugated to a HER2-directed monoclonal antibody that targets tumors such as
certain breast, gastric and non-small cell lung cancers. SBT6050 is currently in a Phase 1/1b clinical trial as a monotherapy and in combination with pembrolizumab, in patients with advanced or metastatic
HER2-expressing solid tumors. In this trial, we have observed changes in pharmacodynamic markers in the first dose cohort, and we anticipate providing an update on interim data from the Phase 1 single agent dose-escalation cohorts in the second
half of 2021. SBT6290 is our second product candidate, expanding on the potential of a TLR8 agonist as a payload. SBT6290 is a TLR8 linker-payload conjugated to a monoclonal antibody that targets Nectin4, which is expressed in certain bladder,
triple negative breast, head and neck, and non-small cell lung cancers. We anticipate submitting an investigational new drug application for SBT6290 in the fourth quarter of 2021. Our third TLR8 program,
SBT8230, is comprised of a TLR8 linker-payload conjugated to an ASGR1 monoclonal antibody that is under development for the treatment of cHBV. We are also developing agents that localize therapies to modulate important pathways in additional
oncology and fibrosis indications using TLR8 and other linker-payloads.
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Our ImmunoTAC platform drives our development pipeline of tissue targeted therapeutic candidates as
summarized in the chart below:
We have incurred significant operating losses since our inception. As of December 31, 2020, we had an
accumulated deficit of $96.7 million. Our net losses were $32.9 million and $24.0 million for the years ended December 31, 2020 and 2019, respectively. Our losses have resulted primarily from costs incurred in connection with
raising capital, research and development activities and general and administrative expenses. We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.
We expect our expenses will increase substantially and that we will continue to incur significant losses for the foreseeable future as we continue our
development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products, seek to expand our product pipeline, invest in our organization and technology platform, as well as incur expenses associated
with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors including the timing and scope of our preclinical studies and clinical trials. Accordingly, until such time as we can generate significant revenue from
sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources.
In December 2020, we completed our initial public offering in which we sold 13,225,000 shares of our common stock at $21.00 per share and received net
proceeds, after underwriting discounts and offering costs, of $255.3 million. Further, in March, July, and September 2020, we raised net proceeds of $153.3 million from the sale of our redeemable convertible preferred stock.
Components of Our Results of Operations
Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.
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Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of our ImmunoTAC
technology platform, product candidates, discovery efforts and preclinical studies and clinical trial activities related to our program pipeline, including our lead product candidate, SBT6050.
Our direct costs include:
expenses incurred under agreements with CROs and other vendors that conduct our preclinical and clinical activities;
expenses associated with manufacturing our product candidates including under agreements with CDMOs and other vendors; and
consulting fees.
Our indirect costs include:
personnel-related expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and
recruiting costs for personnel engaged in research and development activities;
facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, and
equipment maintenance; and
other unallocated research and development expenses incurred in connection with our research and development programs,
including laboratory materials and supplies and license fees.
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use
are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific or stage of program basis because these costs are deployed across multiple programs
and, as such, are not separately classified.
We expect that our research and development expenses will substantially increase for the foreseeable
future as we continue the clinical development of SBT6050 and discovery and development of our other development candidates and discovery programs and development, particularly as our product candidates move into later stages of
development which increases costs considerably. We cannot reasonably determine the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of IND and development candidates due to the inherently
unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as
to which development candidates and discovery programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials,
regulatory developments and our ongoing assessments as to each product candidates commercial potential.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and
stock-based compensation, and recruiting costs for
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personnel in executive, finance, and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate
matters, professional fees for accounting, tax and consulting services, insurance costs, travel expenses and facility related expenses.
We expect
that our general and administrative expenses will substantially increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product
candidates receive marketing approval, commercialization activities, as well as to support our operations generally. We also expect to incur increased expenses associated with operating as a public company, including costs related to accounting,
audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public
relations costs.
Interest Income (Expense), Net
Interest income (expense), net includes interest earned on our cash and cash equivalents carried at fair value, and interest expense on our borrowings.
Results of Operations
Comparison of the Years Ended
December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and
2019:
Year Ended
December 31,
Dollar
Change
%
Change
2020
2019
(in thousands)
Operating expenses:
Research and development
$
24,577
$
21,505
$
3,072
14
%
General and administrative
8,341
2,562
5,779
*
Total operating expenses
32,918
24,067
8,851
37
Loss from operations
(32,918
)
(24,067
)
(8,851
)
37
Interest income (expense), net
(29
)
100
(129
)
(129
)
Net loss and comprehensive loss
$
(32,947
)
$
(23,967
)
$
(8,980
)
37
%
*
Not meaningful
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Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31, 2020 and 2019:
Year Ended
December 31,
Dollar
Change
%
Change
2020
2019
(in thousands)
Direct costs:
SBT6050
$
4,710
$
8,723
$
(4,013
)
(46
)%
Preclinical programs
6,108
2,297
3,811
166
Total direct costs
10,818
11,020
(202
)
(2
)
Indirect costs:
Personnel-related expenses, including stock-based compensation
9,657
6,571
3,086
47
Facility and equipment related expenses
2,426
2,250
176
8
Other unallocated research and development expenses
1,676
1,664
12
1
Total research and development expenses
$
24,577
$
21,505
$
3,180
14
%
Research and development expenses were $24.6 million and $21.5 million for the years ended December 31,
2020 and 2019, respectively. The increase of $3.2 million was due primarily to an increase in preclinical programs of $3.8 million as we began advancing certain pipeline programs, including SBT6290 and SBT8230, into preclinical
development. The increase was also due to increases in personnel-related expenses of $3.1 million, and facility and equipment related expenses of $0.2 million. These increases were partially offset by a decrease of $4.0 million in
research and manufacturing expenses related to the development of SBT6050 as the program completed manufacturing activities and initiated a Phase 1/1b clinical trial in the second half of 2020.
General and Administrative Expenses
General
and administrative expenses were $8.3 million and $2.6 million for the years ended December 31, 2020 and 2019, respectively. The increase of $5.8 million was due primarily to an increase of $3.9 million in personnel-related
expenses due to increased headcount in 2020, including new executives, as well as increases in salaries, bonuses, and stock-based compensation. To a lesser extent, the increase in general and administrative expenses was due to an increase in legal
fees of $0.8 million, professional fees of $0.7 million, and $0.4 million in other various general and administrative expenses as we prepared to become a public company.
Interest Income (Expense), Net
Interest
income (expense), net was ($29,000) and $0.1 million for the years ended December 31, 2020 and 2019, respectively. The change of $0.1 million was primarily due to a decrease in interest earned on our cash and cash equivalents due to
changes in interest rates.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the
foreseeable future. Since our inception, we have funded our operations almost exclusively with proceeds from the sale and issuance of shares of our redeemable convertible preferred stock and debt financings. We will need to raise substantial
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additional capital in the future. In 2020, we raised net proceeds, after deducting underwriting discounts and commissions and offering costs, of $255.3 million from our initial public
offering in December 2020 and net proceeds of $153.3 million from the sale of our redeemable convertible preferred stock in March, July, and September 2020.
As of December 31, 2020, we had $386.6 million in cash and cash equivalents. The following table sets forth a summary of the net cash flow
activity for the years ended December 31, 2020 and 2019:
Year Ended
December 31,
2020
2019
(in thousands)
Net cash provided by (used in):
Operating activities
$
(31,196
)
$
(18,898
)
Investing activities
(917
)
(96
)
Financing activities
408,506
8,610
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
376,393
$
(10,384
)
Operating Activities
During the year ended December 31, 2020, net cash used in operating activities was $31.2 million. This consisted primarily of a net loss of
$32.9 million and an increase in our operating assets and liabilities of $2.6 million, partially offset by non-cash charges of $4.4 million. The non-cash
charges primarily consisted of stock-based compensation expense of $2.6 million, non-cash lease expense of $1.1 million, and depreciation expense of $0.6 million. The increase in our operating
assets and liabilities was primarily due to an increase in prepaid expenses and other assets of $3.5 million and a decrease in our lease liability of $0.9 million, partially offset by an increase in accounts payable and accrued expenses of
$1.8 million after adjusting for non-cash items. The increase in prepaid expenses and other assets was primarily due to the purchase of $2.6 million in prepaid insurance.
During the year ended December 31, 2019, net cash used in operating activities was $18.9 million. This consisted primarily of a net loss of
$24.0 million, partially offset by a decrease in our operating assets and liabilities of $3.3 million and non-cash charges of $1.8 million. The non-cash
charges primarily consisted of non-cash lease expense of $1.0 million, depreciation expense of $0.5 million, stock-based compensation expense of $0.2 million, and amortization of debt issuance
costs of $0.1 million. The decrease in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $4.0 million and a decrease in prepaid expenses and other assets of $0.1 million,
partially offset by a decrease in our lease liability of $0.8 million.
Investing Activities
During the year ended December 31, 2020, cash used in investing activities was $0.9 million due to purchases of property and equipment.
During the year ended December 31, 2019, cash used in investing activities was $0.1 million due to purchases of property and equipment.
Financing Activities
During the year ended
December 31, 2020, cash provided by financing activities was $408.5 million. This consisted primarily of net proceeds received from the issuance of our common
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stock in connection with our initial public offering of $255.7 million, net proceeds received from the issuance of shares of our redeemable convertible preferred stock of
$153.4 million, and proceeds from the exercise of common stock options of $0.2 million, which were partially offset by principal payments on term loan payable of $0.7 million.
During the year ended December 31, 2019, cash provided by financing activities was $8.6 million. This consisted primarily of net proceeds
received from the issuance of our convertible notes of $10.0 million, which was partially offset by principal payments on term loan payable of $1.4 million.
Future Funding Requirements
We believe that our cash
and cash equivalents of $386.6 million at December 31, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months. However, our forecast of the period of time through
which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be
wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
the initiation, trial design, progress, timing, costs and results of drug the discovery, preclinical studies and clinical
trials of our product candidates, and in particular the clinical trials for SBT6050;
the number and characteristics of product candidates that we pursue;
the length of our clinical trials;
the outcome, timing and costs of seeking FDA, EMA and any other regulatory approvals;
the costs of manufacturing our product candidates, in particular for clinical trials in preparation for marketing approval
and in preparation for commercialization;
the costs of any third-party products used in our combination clinical trials that are not covered by such third party or
other sources;
the costs associated with hiring additional personnel and consultants as our preclinical, manufacturing and clinical
activities increase;
the receipt of marketing approval and revenue received from any commercial sales of any of our product candidates, if
approved;
the cost of commercialization activities for any of our product candidates, if approved, including marketing, sales
and distribution costs;
the emergence of competing therapies and other adverse market developments;
the ability to establish and maintain strategic collaboration, licensing or other arrangements and the financial terms of
such agreements;
the extent to which we in-license or acquire other products and technologies;
the amount and timing of any payments we may be required to make pursuant to our current or future license agreements;
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims,
including litigation costs and the outcome of such litigation;
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our need and ability to retain key management and hire scientific, technical, business, and medical personnel;
our implementation of additional internal systems and infrastructure, including operational, financial and management
information systems;
or costs associated with expanding our facilities or building out our laboratory space;
the effects of the recent disruptions to and volatility in the credit and financial markets in the United States and
worldwide from the COVID-19 pandemic; and
the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through
public or private equity offerings, debt financings, or other capital sources which may include strategic collaborations, licensing arrangements or other arrangements with third parties. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common
stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring
dividends. If we raise funds through strategic collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or
may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial
markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. Because of the numerous risks and uncertainties associated with product development, we cannot predict the
timing or amount of increased expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Contractual Obligations and Commitments
The following table
summarizes our contractual obligations and commitments at December 31, 2020:
Payments Due by Period
Total
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
(in thousands)
Operating lease obligations (1)
$
3,586
$
1,132
$
2,454
$
$
Term loan payable (1)(2)
848
848
Total
$
4,434
$
1,980
$
2,454
$
$
(1)
Refer to Notes 6 and 7 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
(2)
Payments due for the term loan include both principal and interest portions calculated using the interest rate at
December 31, 2020 of 1.75%.
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Under our license agreements, we have payment obligations that are contingent upon future events such
as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sales of products developed under those agreements. As of December 31, 2020 and 2019, we were
unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above. For additional details regarding these agreements, see Part I, Item 1 of
this Annual Report on Form 10-K under the section titled License Agreement.
In November 2016,
we entered into a loan and security agreement with SVB that allowed borrowings up to $5.0 million in two tranches, the first that was immediately drawn and the second to be drawn before December 31, 2017 if certain financing milestones
were met. We drew $3.5 million in the first tranche, and the second tranche expired undrawn. The outstanding principal amount of the term loan accrues interest at an annual rate of 1.75% per annum. At closing, we incurred de minimis debt
issuance costs and owed a final payment fee of $0.3 million, both of which are amortized to interest expense over the remaining term of the debt under the effective interest method. The effective interest rate of our term loan is 5.14%. In
April 2020, SVB amended our term loan to defer principal payments for six months and extend the maturity date to May 1, 2021, which we determined to be a debt modification.
In October 2019, we entered into a cell line license agreement with WuXi Biologics (Hong Kong) Limited (WuXi Bio), pursuant to which we received a non-exclusive, worldwide, sublicensable license under certain of WuXi Bios intellectual property rights, know-how and biological materials (the WuXi Bio Licensed
Technology) to make, use, sell, offer for sale and import developed through the use of the WuXi Bio Licensed Technology (the WuXi Bio Licensed Product). In consideration for the license, we paid a license fee of $100,000 to WuXi Bio which was
recorded in research and development expense in 2019. In 2020 we incurred an additional license fee of $50,000 to WuXi Bio which was recorded in research and development expense in 2020. Additionally, if we do not engage WuXi Bio to manufacture the
WuXi Bio Licensed Products for our clinical and commercial supplies, we are required to make aggregate milestone payments of up to $10.8 million to WuXi Bio upon the achievement of certain sales milestones. To date, other than the license fee,
no payments have been made under this agreement.
We enter into contracts in the normal course of business with clinical supply manufacturers and
with vendors for preclinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the
table above.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations are based on our financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation, and valuation
allowances for deferred tax assets. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be
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reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described
in more detail in Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following accounting policies and estimates to be most critical to
the preparation of our financial statements.
Research and Development Expenses
All research and development costs are expensed in the period incurred. Advance payments, including nonrefundable amounts, for goods or services that
will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when we do not expect the goods to be delivered or services to be performed.
We estimate the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, we will adjust the amounts recorded
accordingly. We have not experienced any material differences between accrued or prepaid costs and actual costs since our inception.
Stock-Based Compensation
We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for
forfeitures as a reduction of stock-based compensation expense as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These
assumptions include:
Fair Value of Common Stock . For all periods prior to our initial public offering, the fair value of the shares of
common stock underlying our share-based awards was estimated on each grant date by our board of directors. To determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, input from
management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation (the Practice Aid). Following the closing of our initial public offering, the fair market value of our common stock is based on its closing price as reported on the primary stock
exchange on which our common stock is traded.
Expected Term . The expected term represents the period that the options granted are expected to be outstanding. The
expected term of stock options issued is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as we have concluded that our stock option
exercise history does not provide a reasonable basis upon which to estimate expected term.
Expected Volatility . Given our limited historical stock price volatility data, we derived the expected volatility
from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within our peer group that were deemed to be representative of future stock price trends as we have limited
trading history for our common stock. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
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Risk-Free Interest Rate . The risk-free interest rate is based on the U.S. Treasury
zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.
Expected Dividend Yield . We have never paid dividends on our common stock and do not anticipate paying any dividends
in the foreseeable future. Therefore, we used an expected dividend yield of zero.
Income Taxes
We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred
tax assets have been fully offset by a valuation allowance.
As of December 31, 2020, we had net operating loss carryforwards for income tax
purposes of approximately $89.7 million. If not used, $18.2 million of this carryforward will begin to expire in 2036 and $71.5 million has no expiration. We also have research and development tax credits of approximately
$1.5 million which will begin to expire in 2037 if left unused.
Under Sections 382 and 383 of the Code, substantial changes in our ownership
may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit
carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and
credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.
As of December 31, 2020, we did not have any liabilities for unrecognized income tax benefits associated with uncertain tax positions, including
any interest and penalties.
Recent Accounting Pronouncements
See Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K
for additional information.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely
on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of
the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden
parachute payments not previously approved.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards
issued subsequent to the enactment of the JOBS Act until such time as those standards
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apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public
and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial
statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have at least
$1.07 billion in annual revenue; (ii) the last day of the fiscal year in which we are deemed to be a large accelerated filer, as defined in Rule 12b-2 under the Exchange Act;
(iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period; and (iv) December 31, 2025.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to a smaller reporting company as defined under Item 10(f)(1) of Regulation S-K of the
Securities Act.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.