What changed in this filing

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Item 9A. Controls and Procedures

2022-02-09 compared with 2021-02-17 · 147 added, 136 removed, 650 unchanged (30% of the section changed)

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Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including the individuals serving as our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework).

Based on this assessment, our management concluded that, as of December 31, 20 2 1 , our internal control over financial reporting was effective based on those criteria.

Attestation Report on Internal Control over Financial Reporting.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed given we are neither an accelerated or large accelerated filer.

Changes in Internal Control over Financial Reporting.

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Other Information.

Effective February 15, 2021, Greg Zante, our Chief Financial Officer and principal financial officer, was appointed our principal accounting officer until s uch time as his successor is appointed, or until his earlier resignation or removal.

There are no reportable family relationships or related party transactions (as defined in Item 404(a) of Regulation S-K) involving us and Mr.

Zante has served as our Chief Financial Officer since January 2021.

Zante’s appointment as our Chief Financial Officer, Mr.

Zante served as our Senior Vice President of Finance since August 2019 and as Vice President, Finance & Operations from December 2016 to July 2019.

Zante possesses nearly 25 years of financial management experience at public and private companies in the biotechnology and accounting industries.

Prior to joining us, Mr.

Zante was Chief Financial Officer at Dance Biopharm, Inc., a diabetes-focused biopharmaceutical company, from 2013 to 2016, where he managed the company’s private financing strategy and positioned it for initial public offering activities.

Zante has also previously held senior positions at several biopharmaceutical companies including Sangamo Therapeutics, Inc.

from 2003 to 2013, Calyx Therapeutics Inc.

from 2001 to 2003 and Matrix Pharmaceuticals, Inc.

from 2000 to 2001.

He is a certified public accountant in the State of California and previously served as a senior staff accountant at Ernst & Young.

He holds a BA in Business-Economics from the University of California, Los Angeles.

Zante’s annualized salary is currently $400,000 and he is currently eligible to receive an annual performance bonus of up to 40% of his base salary for fiscal year 2021.

His salary and performance bonus percentage may be adjusted in the future at the discretion of the Compensation Committee of our Board of Directors.

Zante’s employment is on an “at will” basis.

Zante was not awarded any equity in connection with his appointment as our principal accounting officer.

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance.

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Report of Independent Registered Public Accounting Firm

Balance Sheets

Statement of Operations

Statements of Stockholders’ Equity (Deficit)

Statement of Cash Flows

Notes to Financial Statements

Consolidated Balance Sheets

Consolidated Statement of Operations and Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in the financial statements or notes thereto listed in (a)(1) above.

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Form of Common Stock Certificate.

Form of Warrant Agreement, by and between Viking Therapeutics, Inc.

and American Stock Transfer & Trust Company, LLC, including the Form of Warrant Certificate issued by Viking Therapeutics, Inc.

Warrant to Purchase Common Stock, dated April 13, 2016, issued by Viking Therapeutics, Inc.

to Ligand Pharmaceuticals Incorporated.

Form of Common Stock Warrant issued by Viking Therapeutics, Inc.

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and Brian Lian, Ph.D.

Office Lease, dated May 25, 2018, by and between Viking Therapeutics, Inc.

and Kilroy Realty, L.P.

At-The-Market Equity Offering Sales Agreement, dated as of August 1, 2019, by and among Viking Therapeutics, Inc., Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co.

At-The-Market Equity Offering Sales Agreement, dated as of July 28, 2021, by and among Viking Therapeutics, Inc., Stifel, Nicolaus & Company, Incorporated Truist Securities, Inc.

Wainwright & Co., LLC.

List of Subsidiaries of Viking Therapeutics, Inc.

Consent of Marcum LLP, Independent Registered Public Accounting Firm.

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Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):

(i) Balance Sheets as of December 31, 2020 and December 31, 2019, (ii) Statements of Operations for the years ended December 31, 2020 and 2019, (iii) Statements of Stockholders’ Equity (Deficit) for the period from December 31, 2018 to December 31, 2020, (iv) Statements of Cash Flows for the years ended December 31, 2020 and 2019, and (v) Notes to Financial Statements.

(i) Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020, (iii) Consolidated Statements of Stockholders’ Equity for the period from December 31, 2019 to December 31, 2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020, and (v) Notes to Consolidated Financial Statements.

Indicates compensatory plan or arrangement.

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years ended December 31, 2020 and 2019

Statements of Stockholders’ Equity for the Years ended December 31, 2020 and 2019

Statements of Cash Flows for the Years ended December 31, 2020 and 2019

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the Years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying balance sheets of Viking Therapeutics, Inc.

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

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Viking Therapeutics, Inc.

and subsidiary (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021, and the results of its consolidated operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrual for preclinical study and clinical trial costs

As described in Note 1 to the financial statements, the Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and contract research organizations (“CROs”) that conduct and manage preclinical studies and clinical trials on the Company’s behalf.

As described in Note 1 to the consolidated financial statements, the Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and contract research organizations (“CROs”) that conduct and manage preclinical studies and clinical trials on the Company’s behalf.

Clinical trial-related contracts vary significantly in length, and may be for a fixed amount based on milestones or deliverables, a variable amount based on actual costs incurred, capped at a certain limit, or a combination of these elements.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) obtaining an understanding the Company’s estimation process relating to accrual for preclinical study and clinical trial costs;

These procedures included, among others, (i) obtaining an understanding of the Company’s estimation process relating to accrual for preclinical study and clinical trial costs;

(ii) testing management’s identification of milestones, patient enrollment requirements and other events in its contracts with the research institutions and CROs;

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Viking Therapeutics, Inc.

Balance Sheets

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

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Accumulated deficit

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

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

Viking Therapeutics, Inc.

Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

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Realized gain on investments

Foreign exchange gain

Total other income, net

Other comprehensive gain (loss), net of tax:

Unrealized gain (loss) on securities

Unrealized loss on securities

Comprehensive loss

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and diluted net loss per share

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

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

Viking Therapeutics, Inc.

Statements of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

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Employee stock-based compensation, net

Shares withheld related to employee tax withholding

Issuance of common stock under employee stock plans

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Employee stock-based compensation, net

Shares withheld related to employee tax withholding

Issuance of common stock under employee stock plans

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Balance at December 31, 2021

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

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

Viking Therapeutics, Inc.

Statements of Cash Flows

Consolidated Statements of Cash Flows

(In thousands)

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Receivable from exercise of warrants

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

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

Viking Therapeutics, Inc.

Notes to Financial Statements

Notes to Consolidated Financial Statements

Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies

Viking Therapeutics, Inc., a Delaware corporation (the “Company”), is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are located in San Diego, CA.

Viking Therapeutics, Inc., a Delaware corporation, together with its subsidiary (the “Company”), is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders.

In June of 2021, the company formed an Australian subsidiary, Viking Therapeutics, PTY LTD, so as to be able to take advantage of certain research and development reimbursements available to local Australian based research and development companies that choose to do research in Australia.

The Company was incorporated under the laws of the State of Delaware on September 24, 2012 and its principal executive offices are located in San Diego, CA, with a subsidiary located in Adelaide, Australia.

Basis of Presentation

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In addition, the Company’s clinical trials have been affected by, and may continue to be affected by, the COVID-19 pandemic.

Clinical site initiation and patient enrollment have been and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Some patients have not been and others may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Clinical site initiation and patient enrollment have been, and may continue to be, delayed due to the prioritization of hospital resources toward the COVID-19 pandemic.

Some patients have not been able to, and others may not be able to, comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, any inability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the Company’s clinical trial operations.

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements.

Significant estimates made in preparing these financial statements relate to accounting for operating lease and certain commitments.

Significant estimates made in preparing these financial statements relate to accounting for accruals for our clinical and preclinical efforts and stock-based compensation.

Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Viking Therapeutics, PTY LTD, incorporated in Australia.

To date, the aggregate operations of this subsidiary have not been significant and all intercompany transactions and balances have been eliminated in consolidation.

Reclassification

Certain amounts reported in prior years in the Statements of Cash Flows have been reclassified to conform to the current year’s presentation.

Certain amounts reported in prior years in the Consolidated Statements of Cash Flows have been reclassified to conform to the current year’s presentation.

Cash and Cash Equivalents

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Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of

discounts to maturity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

The amortization of premiums and accretion of discounts is included in interest income.

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However, in the future, the Company may enter into collaborative research and licensing agreements, under which the Company could be eligible for payments made in the form of upfront license fees, research funding, cost reimbursement, contingent event-based payments and/or royalties.

On January 1, 2018, the Company adopted ASU No.

On January 1, 2018, the Company adopted Accounting Standards Update No.

2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “the revenue standard”).

ASC 606 is a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-s pecific guidance.

ASC 606 is a single comprehensive model for entities to use in

accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-s pecific guidance.

The revenue standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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All costs of research and development are expensed in the period incurred.

Research and development costs primarily consist of fees paid to contract research organizations (“CROs”) and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

Research and development costs primarily consist of fees paid to CROs and clinical trial sites, employee and consultant related expenses, which include salaries, benefits and stock-based compensation for research and development personnel, external research and development expenses incurred pursuant to agreements with third-party manufacturing organizations, facilities costs, travel costs, dues and subscriptions, depreciation and materials used in preclinical studies, clinical trials and research and development.

The Company estimates its preclinical study and clinical trial expenses based on the services it received pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on the Company’s behalf.

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In doing so, the Company updated its policy on research and development to include the purchase of rights to intangible assets.

In accordance with ASC Topic 730, Research and Development, intangible assets that are acquired and have an alternative future use, as defined, should be capitalized and reported as an intangible asset;

In accordance with Accounting Standards Codification (“ASC”) Topic 730, Research and Development, intangible assets that are acquired and have an alternative future use, as defined, should be capitalized and reported as an intangible asset;

however, the cost of acquired intangible assets that do not have alternative future uses should be reported as research and development expense as incurred.

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At the grant date, the Company determines the grant date fair value, as a publicly traded company, using the intrinsic value, or the closing price of the Company’s common stock on the date of grant.

At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first

recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

At the point where the criteria are deemed probable of being met, the Company records stock-based compensation with a cumulative catch-up expense in the period first recognized and then on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

For the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), the Company generally recognizes compensation expense for the fair value of the purchase options, as measured on the grant date, and uses the graded vesting method to allocate this compensation cost to each purchase period within the related two-year offering period.

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The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Foreign Currency

The financial statements of the Company’s foreign subsidiary whose functional currency is the local currency is translated into U.S.

dollars for consolidation as follows:

assets and liabilities at the exchange rate as of the balance sheet date, stockholders’ equity at the historical rates of exchange, and income and expense amounts at the average exchange rate for the period.

Translation adjustments resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income” as equity in the consolidated balance sheet.

Transactions denominated in currencies other than the applicable functional currency are converted to the functional currency at the exchange rate on the transaction date.

At period end, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date.

Non-monetary assets and liabilities are remeasured at historical exchange rates.

Gains and losses resulting from foreign currency transactions are included within “Other income (expense), net” in the consolidated statement of operations.

For the years ended December 31, 2021 and 2020, foreign currency transaction gain amounted to $ 7,000 and $ 0 , respectively .

Comprehensive Loss

The Company’s comprehensive loss consists of net loss and foreign currency translation adjustments arising from the consolidation of the Company’s foreign subsidiary.

Net Loss per Common Share

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Investments classified as available-for-sale as of December 31, 2021 consisted of the following (in thousands):

As of December 31, 2021

Certificates of deposit (2)

Commercial paper (2)

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Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss.

At December 31, 2020, there were 38 securities in an unrealized gain position and 80 securities in an unrealized loss position.

At December 31, 2021, there were three securities in an unrealized gain position and 75 securities in an unrealized loss position.

The unrealized gains were less than $ 1,000 individually and $ 2,000 in the aggregate.

The unrealized losses were less than $ 73,000 individually and $ 550,000 in the aggregate.

Four of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

Twenty-nine of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity.

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At December 31, 2020, there were 38 securities in an unrealized gain position and 80 securities in an unrealized loss position.

These unrealized gains were less than $ 22,000 individually and $ 190,000 in the aggregate.

The unrealized gains were less than $ 35,000 individually and $ 94,000 in the aggregate.

The unrealized losses were less than $ 21,000 individually and $ 148,000 in the aggregate.

Nine of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

Four of these securities have been in a continuous unrealized loss or unrealized gain position for more than 12 months.

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The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable.

The carrying amounts reported in the accompanying balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the short-term maturity of those instruments.

The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the short-term maturity of those instruments.

Fair value measurements are classified and disclosed in one of the following three categories:

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Cash equivalents:

Government money market funds

Short-term investments

Certificates of deposit

Commercial paper, available for sale

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Government money market funds

Corporate debt securities, available-for-sale

Short-term investments

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As partial consideration for the grant of the rights and licenses to the Company under the Master License Agreement, the Company issued to Ligand at the closing of the Company’s initial public offering (“IPO”) 3,655,964 shares of its common stock having an estimated aggregate value of $ 29.2 million.

As further partial consideration for the grant of the rights and licenses to the Company by Ligand under the Master License Agreement, the Company has agreed to pay to Ligand certain one-time, non-refundable milestone payments in connection with the Licensed Products of up to $ 1.54 billion in the aggregate upon the achievement of certain development, regulatory and sales milestones.

Licensed Products of up to $ 1.54 billion in the aggregate upon the achievement of certain development, regulatory and sales milestones.

The Company will also pay to Ligand royalties on aggregate annual worldwide net sales of Licensed Products by the Company, its affiliates and its sublicensees at tiered percentage rates from the low-to-upper single digits based upon net sales.

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Each party’s indemnification obligations will not apply to the extent the claims result from the negligence or willful misconduct of the indemnified party or any of its employees, agents, officers or directors or from the indemnified party’s breach of its representations or warranties set forth in the Master License Agreement.

In May 2014, the Company also entered into a Management Rights Letter (the “Management Rights Letter”) with Ligand that requires the Company to expand the size of the Company’s board of directors to create an additional directorship on the Company’s board of directors and to allow Ligand to appoint an individual to fill the new directorship.

The Management Rights Letter will terminate upon the earliest to occur of the liquidation or indefinite cessation of the Company’s business operations, the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the Company’s property and assets, an acquisition of the Company by means of any transaction (including, without limitation, any reorganization, merger or consolidation) if the Company’s stockholders of record as constituted immediately prior to the transaction hold less than 50 % of the voting power of the surviving or acquiring entity, or following the issuance of the Company’s securities pursuant to the Master License Agreement, the date that Ligand ceases to beneficially own at least 7.5 % of the Company’s outstanding voting stock, or the date of May 21, 2024 .

In May 2014, the Company also entered into a Management Rights Letter (the “Management Rights Letter”) with Ligand that required the Company to expand the size of the Company’s Board of Directors to create an additional directorship on the Company’s Board of Directors and to allow Ligand to appoint an individual to fill the new directorship.

Operating Leases – Right-of-Use Assets and Lease Liability Obligations

The Company has only one operating lease which is for office space that expires in January 2022 .

As of December 31, 2021, the Company has only one operating lease which is for office space that expired in January 2022 .

Below is a summary of the Company’s right-of-use assets and lease liabilities as of December 31, 2021 and 2020 (in thousands, except for years and %):

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Total lease liability obligations

The operating lease provides the Company with an option to extend the term of the lease for a period of three years beyond the expiration date of January 2022.

The Company signed a new 65 -month operating lease in November 2021, which begins in March 2022 , for 7,940 square feet of office space in San Diego, CA.

The operating lease provides the Company with an option to extend the term of the lease for a period of five years beyond the expiration date in July 2027.

If the option is exercised, the renewal term will be upon the same terms and conditions as the original agreement, except that the base rent will be equal to the prevailing market rate as determined pursuant to the terms of the lease.

The option to extend the operating lease was not recognized as part of the Company’s lease liability and right-of-use assets.

The Company will add the new operating lease into its lease liability and right-of-use assets during the first quarter of 2022, once the landlord completes the tenant improvements and provides the Company with access to the office space.

The option to extend the operating lease will not be recognized as part of the Company’s lease liability and right-of-use assets until such option is exercised, if exercised.

Stockholders’ Equity

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The Company is authorized to issue up to 10,000,000 shares of $ 0.00001 par value preferred stock, with no shares of preferred stock outstanding as of December 31, 2021 and 2020.

The Board of Directors is authorized to designate the terms and conditions of any preferred stock the company issues without further action by the common stockholders.

The Company’s Board of Directors is authorized to designate the terms and conditions of any preferred stock the company issues without further action by the common stockholders.

The Company is authorized to issue up to 300,000,000 shares of common stock, $ 0.00001 par value per share.

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The Company will continue to reassess at each reporting period whether it is probable that the performance target will be achieved, and if and when it is deemed probable, the Company will begin to record compensation expense using the fair value to determine stock-based compensation expense in its financial statements over the period the Company estimates the performance target will actually be achieved.

On February 8, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”), with PoC Capital, LLC (“PoC”) pursuant to which, among other things, the Company issued to PoC 1,286,173 shares of its common stock.

Under the terms of the SPA, PoC has agreed to fund $ 1,800,000 in study costs associated with certain clinical studies.

Any study costs in excess of that amount will be the Company’s sole responsibility.

The Company has accounted for the $ 1,800,000 as a prepaid expense on the balance sheet, which was fully amortized as of December 31, 2020.

The Company recorded amortization expense of $ 140,000 in clinical study costs related to the SPA with PoC during the year ended December 31, 2019.

No similar expense was recognized during the year ended December 31, 2020.

On September 28, 2017, the Company entered into the Registered Offering Purchase Agreement, pursuant to which, on September 29, 2017, the Company sold to Lincoln Park Capital Fund, LLC (“LPC”), 701,282 shares of common stock, at a price of approximately $ 1.78 per share for an aggregate purchase price of $ 1.3 million, pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No.

333-212134), filed with the SEC on June 20, 2016 , as amended by Amendment No.

1 thereto filed with the SEC on July 26, 2016, and declared effective on July 26, 2016, and the prospectus supplement thereto dated September 28, 2017.

On September 28, 2017, the Company also entered into the Commitment Purchase Agreement and the LPC Registration Rights Agreement with LPC, pursuant to which the Company has the right to sell to LPC up to $ 15,000,000 in shares of common stock, subject to certain limitations and conditions set forth in the Commitment Purchase Agreement.

Upon the Commencement, the Company will have the right, from time to time at its sole discretion over the 30 -month period from and after the Commencement, to direct LPC to purchase up to 75,000 shares of common stock on any business day (subject to certain limitations contained in the Commitment Purchase Agreement), with such amounts increasing based on certain threshold prices set forth in the Commitment Purchase Agreement;

On September 28, 2017, the Company entered into a purchase agreement (the “Commitment Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $ 15,000,000 in shares of common stock, subject to certain limitations and conditions set forth in the Commitment Purchase Agreement.

The Company has the right, from time to time at its sole discretion until May 1, 2023, to direct LPC to purchase up to 75,000 shares of common stock on any business day (subject to certain limitations contained in the Commitment Purchase Agreement), with such amounts increasing based on certain threshold prices set forth in the Commitment Purchase Agreement;

however, not to exceed $ 1.0 million in total purchase proceeds per purchase date.

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In addition to regular purchases, as described above, the Company may also direct LPC to purchase additional amounts as accelerated purchases or as additional purchases if the closing sale price of the common stock is not below certain threshold prices, as set forth in the Commitment Purchase Agreement.

In all instances, the Company may not sell shares of its common stock to LPC under the Commitment Purchase Agreement if it would result in LPC beneficially owning more than 4.99 % of the Common Stock.

As consideration for LPC’s commitment to purchase shares of common stock pursuant to the Commitment Purchase Agreement, the Company issued to LPC 100,000 shares of common stock .

From inception of the Commitment Purchase Agreement through December 31, 2017, 343,051 shares were issued pursuant to the Commitment Purchase Agreement resulting in aggregate gross proceeds of $ 802,000 in addition to the Initial Shares and the Commitment Shares.

In May 2020, the Company extended the

termination date of the Commitment Purchase Agreement to May 1, 2023.

No additional shares were issued for the period of January 1, 2018 through December 31, 20 20 .

On August 1, 2019, the Company entered into an At-The-Market Equity Offering Sales Agreement (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co.

(each, an “Agent” and, together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, through or to the Agents, as sales agent or principal (the “ATM Offering”), shares of its common stock having an aggregate offering price of up to $ 75.0 million (the “Shares”).

Any Shares offered and sold in the ATM Offering will be issued pursuant to the 2018 Shelf Registration Statement and the 424(b) prospectus supplement relating to the ATM Offering dated August 1, 2019.

No additional shares were issued under the Commitment Purchase Agreement during the period of January 1, 2018 through December 31, 2021.

On July 28, 2021, the Company filed with the SEC a universal Shelf Registration Statement on Form S-3 (File No.

333-258231) (the “Shelf Registration Statement”).

The Shelf Registration Statement initially provides the Company with the ability to offer up to $ 600.0 million of securities, including equity, debt and other securities as described in the Shelf Registration Statement.

The Shelf Registration Statement was declared effective by the SEC on August 11, 2021 and will expire on August 11, 2024.

Pursuant to the Shelf Registration Statement, the Company may offer additional securities from time to time and through one or more methods of distribution, subject to market conditions and the Company’s capital needs.

On July 28, 2021, the Company entered into an At-The-Market Equity Offering Sales Agreement (the “ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated, Truist Securities, Inc.

Wainwright & Co.

LLC (each, an “Agent” and, together, the “Agents”), pursuant to which the Company may offer and sell, from time to time, through or to the Agents, as sales agent or principal (the “ATM Offering”), shares of the Company’s common stock having an aggregate offering price of up to $ 125.0 million (the “ATM Shares”).

Any ATM Shares offered and sold in the ATM Offering are to be issued pursuant to the Shelf Registration Statement and the 424(b) prospectus supplement relating to the ATM Offering dated July 28, 2021.

The Shelf Registration Statement will expire on August 11, 2024 .

No shares of the Company’s common stock were sold under the ATM Agreement from its inception through December 31, 2021.

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Shares repurchased by the Company under the Repurchase Program, if any, are expected to be held in treasury until such time as they are reissued or retired by the Company.

During the years ended December 31, 2020 and 2019, and in accordance with the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), the Company issued an aggregate of 34,595 and 20,114 shares of its common stock to certain employees, respectively.

During the years ended December 31, 2021 and 2020, and in accordance with the ESPP, the Company issued an aggregate of 43,408 and 34,595 shares of its common stock to certain employees, respectively.

Stock-Based Compensation

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The shares of common stock deliverable pursuant to awards under the 2014 Plan are authorized but unissued shares of the Company’s common stock, or shares of the Company’s common stock that the Company otherwise holds in treasury or in trust.

Any shares of the Company’s common stock underlying awards that are settled in

cash or otherwise expire, or are forfeited, terminated or cancelled (including pursuant to an exchange program established by the Compensation Committee) prior to the issuance of stock will again be available for issuance under the 2014 Plan.

Any shares of the Company’s common stock underlying awards that are settled in cash or otherwise expire, or are forfeited, terminated or cancelled (including pursuant to an exchange program established by the Compensation Committee) prior to the issuance of stock will again be available for issuance under the 2014 Plan.

In addition, shares of the Company’s common stock that are withheld (or not issued) in payment of the exercise price or taxes relating to an award, and shares of the Company’s common stock equal to the number surrendered in payment of any exercise price or withholding taxes relating to an award, will again be available for issuance under the 2014 Plan.

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however, no offering will exceed 27 months and no purchase period will exceed one year .

Each employee of the Company who (1) is an employee on the first date of any offering under the ESPP, (2) is customarily scheduled to work for more than 20 hours per week and more than five months per calendar year, and (3) meets such other criteria as may be determined by the Compensation Committee (consistent with Section 423 of the Internal Revenue Code of 1986, as amended), is eligible to participate in the ESPP for each purchase period within such offering.

Section 423 of the Internal Revenue Code of 1986, as amended), is eligible to participate in the ESPP for each purchase period within such offering.

The purchase price per share of the Company’s common stock under the ESPP may not be less than, and will initially be equal to, the lesser of:

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Unvested December 31, 2021

In January 2019, the Company issued 221,600 performance based restricted stock units (“PRSU awards”) to several of its employees, which are reflected in the above summary of restricted stock unit activity.

The shares subject to the PRSU awards shall vest upon the Company achieving certain milestones, with 100 % of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.

As of December 31, 2020, 40,000 PRSU awards were forfeited and three of the milestones were deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $ 383,000 and $ 734,000 during the year ended December 31, 2020 and 2019, respectively.

In January 2019, the Company issued 221,600 performance-based restricted stock units (“PRSU awards”) to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.

The shares subject to these PRSU awards shall vest upon the Company achieving certain milestones, with 100 % of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.

As of December 31, 2021, 40,000 PRSU awards were forfeited, one of the three milestones had been met and the remaining two were deemed probable of achievement, resulting in the Company recording stock-based compensation expense of $ 1.2 million through December 31,2021 and $ 86,000 during the year ended December 31, 2021.

In January 2020, the Company issued 244,000 PRSU awards to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.

As of December 31, 2020, 10,500 PRSU awards were forfeited, and one of the three milestones has been met and the remaining two were deemed probable of achievement, resulting in the Company recording a stock-based compensation expense of $ 1.2 million during the year ended December 31, 2020.

As of December 31, 2021, 10,500 PRSU awards were forfeited, two of the three milestones had been met and the remaining one was deemed as probable of achievement, resulting in the Company recording stock-based compensation expense of $ 1.7 million through December 31, 2021 and $ 485,000 during the year ended December 31,2021.

In January 2021, the Company issued 205,500 PRSU awards to several of its employees, which are reflected in the above table summarizing restricted stock unit activity.

The shares subject to these PRSU awards shall vest upon the Company achieving certain milestones, with 100 % of the PRSU awards vesting upon the achievement of three of the milestones over a four-year period and 133.3 % of the PRSU vesting upon the achievement of all four milestones over a four-year period, with any then-unvested portion of the PRSU awards to be cancelled on the four-year anniversary of the grant dates.

As of December 31, 2021, 7,500 PRSU awards were forfeited, none of the four milestones had been met and three of the four milestones were deemed probable of achievement, resulting in the Company recording stock-based compensation expense of $ 535,000 during the year ended December 31, 2021.

The following table summarizes stock option activity during the years ended December 31, 2021 and 2020:

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Forfeitures are accounted for as actual forfeitures occur.

Since the Company had a net operating loss carryforward as of December 31, 2020, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the Statements of Operations.

Since the Company had a net operating loss carryforward as of December 31, 2021, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the Consolidated Statements of Operations.

Common Stock Reserved for Future Issuance

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Available for issuance under Employee Stock Purchase Plan

On April 13, 2016, pursuant to the Offering, the Company sold 7,500,000 shares of its common stock and warrants to purchase up to 7,500,000 shares of its common stock at a public offering price of $ 1.25 per share of common stock and related warrant.

The warrants have an exercise price of $ 1.50 per share of common stock, were immediately exercisable upon issuance and will expire on April 13, 2021 .

Additionally, on April 13, 2016, the underwriters for the Offering partially exercised the over-allotment option for warrants to purchase an additional 1,125,000 shares of the Company’s common stock at a public offering price of $ 0.01 per warrant to purchase a share of common stock.

As of December 31, 2020, 3,647,413 warrants were outstanding and 348,493 and 528,695 warrants were exercised during the years ended December 31, 2020 and 2019, respectively.

On April 13, 2016, the Company issued to Ligand the Ligand Warrant to purchase up to 960,000 shares of the Company’s common stock.

The Ligand Warrant has an exercise price of $ 1.50 per share of Company common stock, was immediately exercisable upon issuance (subject to a limitation on exercise to the extent that any exercise thereof would increase Ligand’s beneficial ownership of the Company’s common stock to greater than 49.9 %) and expires on April 13, 2021 .

The Ligand Warrant was issued to Ligand as a part of the repayment of $ 1,200,000 of the Company’s obligation under a Secured Convertible Promissory Note previously issued by the Company to Ligand .

On June 14, 2017, pursuant to the terms of the Securities Purchase Agreement, the Company sold the 3,749,783 Shares and the Warrants to purchase up to 2,812,337 shares of its common stock to the Purchasers.

The combined purchase price for one Share and one Warrant to purchase 0.75 shares of common stock in the Offerings, was $ 1.15 .

The closing of the Offerings occurred on June 19, 2017.

The Warrants have an exercise price of $ 1.30 per share, subject to adjustment as provided therein, and were exercisable beginning on December 19, 2017 through December 19, 2022 .

On April 13, 2016, pursuant to an underwritten public offering (the “April 2016 Offering”), the Company sold 7,500,000 shares of its common stock and warrants to purchase up to 7,500,000 shares of its common stock at a public offering price of $ 1.25 per share of common stock and related warrant.

The warrants had an exercise price of $ 1.50 per share of common stock, were immediately exercisable upon issuance and expired on April 13, 2021 .

Additionally, on April 13, 2016, the underwriters for the April 2016 Offering partially exercised the over-allotment option for warrants to purchase an additional 1,125,000 shares of the Company’s common stock at a public offering price of $ 0.01 per warrant to purchase a share of common stock.

Warrants to purchase an aggregate of 3,618,312 and 348,493 warrants were exercised during the years ended December 31, 2021 and 2020, respectively, and 29,101 warrants expired unexercised on April 13, 2021.

On April 13, 2016, pursuant to the terms of the loan and security agreement with Ligand, the Company issued to Ligand a warrant to purchase up to 960,000 shares of the Company’s common stock (the “Ligand Warrant”).

The Ligand Warrant had an exercise price of $ 1.50 per share of Company common stock, was immediately exercisable upon issuance (subject to a limitation on exercise to the extent that any exercise thereof would increase Ligand’s beneficial ownership of the Company’s common stock to greater than 49.9 %) and was set to expire on April 13, 2021 .

The Ligand Warrant was issued to Ligand as a part of the repayment of $ 1.2 million of the Company’s obligation under the secured convertible promissory note issued by the Company to Ligand pursuant to that certain loan and security agreement with Ligand.

The Ligand Warrant was exercised in full during the year ended December 31, 2021 .

On June 14, 2017, the Company entered into a securities purchase agreement, with certain accredited investors (the “Purchasers”), pursuant to which the Company sold an aggregate of 3,749,783 shares (the “Shares”) of its common stock, and the warrants to purchase up to an aggregate 2,812,337 shares of its common stock to the Purchasers (the “Warrants”).

The combined purchase price for one Share and one Warrant to purchase 0.75 shares of common stock was $ 1.15 .

The closing of the issuance of the Shares and the Warrants occurred on June 19, 2017.

The Warrants have an exercise price of $ 1.30 per share, subject to adjustment as provided therein, and became exercisable beginning on December 19, 2017 through December 19, 2022 .

Each holder of a Warrant does not have the right to exercise any portion of its Warrant if the holder, together with its affiliates, would beneficially own in excess of 4.99 % of the number of shares of common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”);

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An ownership change under Section 382 of the Code occurred during the year ended December 31, 2018.

Of the Company’s $ 31.0 million and $ 30.6 million of federal and state net operating loss carryforwards, $ 18.3 million and $ 17.9 million are limited based on the Company’s ownership change.

The annual limitation is $ 5.7 million.

However, as of December 31, 2021, there is no limitation on the federal and state net operating losses.

The Company is subject to U.S.

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The state credits do not expire.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted March 27, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020.

Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property.

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In connection with entering into the Master License Agreement, the Company also entered into a Management Rights Letter (see Note 4) and a Registration Rights Agreement (see Note 4).

As Ligand beneficially owns 9.8 % of the Company’s outstanding shares as of December 31, 2020, and has a member of its management team on our Board of Directors, the Company considers Ligand to be a related party.

As Ligand beneficially owns 8.6 % of the Company’s outstanding shares as of December 31, 2021 and has a member of its management team on the Company’s Board of Directors, the Company considers Ligand to be a related party.

Commitments and Contingencies

On May 25, 2018, the Company entered into an Office Lease (the “Lease”) with Kilroy Realty, L.P.

The Lease is for approximately 7,149 rentable square feet of space located at 12340 El Camino Real, Suite 250, San Diego, California 92130 (the “Premises”).

The Premises will continue to be the Company’s corporate headquarters.

The Lease commenced on November 1, 2018 and will expire on January 31, 2022 , unless terminated earlier in accordance with the terms of the Lease (the “Term”).

Monthly base rent payments due under the Lease for the Premises will be $ 27,000 , subject to annual increases of 3.0 % during the Term.

Under the Lease, the Company is responsible for certain charges for common area maintenance and other costs, including electricity and utility expenses and the Lease provides for abatement of rent during certain periods and escalating rent payments throughout the Term.

Rent expense is being recorded on a straight-line basis over the life of the Lease and the difference between the rent expense and rent paid is being recorded as deferred rent.

The Lease provides the Company with an option to extend the term of the lease for a period of three years beyond the Term.

If the option is exercised, the renewal term will be upon the same terms and conditions as the original Term, except that the base rent will be equal to the prevailing market rate as determined pursuant to the terms of the Lease .

The Lease was for approximately 7,149 rentable square feet of space located at 12340 El Camino Real, Suite 250, San Diego, California 92130 (the “2018 Premises”).

The 2018 Premises was the Company’s corporate headquarters.

The Lease commenced on November 1, 2018 and expired on January 31, 2022 .

Monthly base rent payments due under the Lease for the 2018 Premises were $ 27,000 , subject to annual increases of 3.0 % during the Lease term.

Under the Lease, the Company was responsible for certain charges for common area maintenance and other costs, including electricity and utility expenses and the Lease provided for abatement of rent during certain periods and escalating rent payments throughout the Lease term.

Rent expense was recorded on a straight-line basis over the life of the Lease and the difference between the rent expense and rent paid was recorded as deferred rent.

The Lease provided the Company with an option to extend the term of the lease for a period of three years beyond the Lease term, which was not exercised..

On November 15, 2021, the Company entered into an Office Lease (the “Office Lease”) with One Pacific Heights.

The Office Lease is for approximately 7,940 rentable square feet of space located at 9920 Pacific Heights Blvd, Suite 350, San Diego, California 92121 (the “Premises”).

The Premises will be the Company’s new corporate headquarters.

The Office Lease will commence on March 1, 2022 and will expire on July 31, 2027 (the “Term”).

Monthly base rent payments due under the Office Lease for the Premises will be $ 28,187 , subject to annual increases of 3.0 % during the Term.

Under the Office Lease, the Company will be responsible for certain charges for common area maintenance and other costs, including utility expenses and the Office Lease provides for abatement of rent during certain periods and escalating rent payments throughout the Term.

Rent expense will be recorded on a straight-line basis over the life of the Office Lease and the difference between the rent expense and rent paid will be recorded as deferred rent.

The Office Lease provides the Company with an option to extend the term of the Office Lease for a period of five years beyond the Term.

Rent expense was $ 320,000 and $ 319,000 for the years ended December 31, 2021 and 2020, respectively.

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Year Ending December 31:

2026 and beyond

Total minimum lease payments

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures