Viking Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our management’s evaluation (with the participation of the individuals serving as our principal executive officer and principal financial officer) of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act, each of the individuals serving as our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021, the end of the period covered by this report. Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). 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 66 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 nor a large accelerated filer. Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 67 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item will be contained in our definitive proxy statement on Schedule 14A to be filed with the SEC in connection with our 2022 annual meeting of stockholders, or the Proxy Statement, which we expect to file not later than 120 days after the end of our year ended December 31, 2021, and is incorporated in this report by reference. Item 11. Executive Compensation. The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our year ended December 31, 2021, and is incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our year ended December 31, 2021, and is incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our year ended December 31, 2021, and is incorporated in this report by reference. Item 14. Principal Accounting Fees and Services. The information required by this item will be contained in the Proxy Statement, which we expect to file not later than 120 days after the end of our year ended December 31, 2021, and is incorporated in this report by reference. 68 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) The Financial Statements required to be filed by Items 8 and 15(c) of this Annual Report on Form 10-K, and filed herewith, are as follows: Page Number in this Annual Report on Form 10-K Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statement of Operations and Comprehensive Loss F-5 Consolidated Statements of Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 (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. (a)(3) Exhibits. The following exhibits are filed herewith or incorporated herein by reference: Exhibit Number Description Registrant’s Form Date Filed with the SEC Exhibit Number 3.1 Amended and Restated Certificate of Incorporation. S-1 7/1/2014 3.3 3.2 Amended and Restated Bylaws. S-1 7/1/2014 3.4 4.1 Form of Common Stock Certificate. S-1 7/1/2014 4.1 4.2 Form of Common Stock Warrant issued by Viking Therapeutics, Inc. to purchasers in the June 2017 offering. 8-K 6/19/2017 4.1 4.5 Description of Registrant’s Securities 10.1# Form of Indemnification Agreement between Viking Therapeutics, Inc. and its directors and executive officers. S-1 7/1/2014 10.1 10.2# 2014 Equity Incentive Plan. S-1/A 3/2/2015 10.2 10.3# Form of Stock Option Award Agreement (2014 Equity Incentive Plan). S-1 7/1/2014 10.3 10.4# Form of Restricted Stock Unit Award Agreement (2014 Equity Incentive Plan). S-1 7/1/2014 10.4 10.5# Form of Restricted Stock Award Agreement (2014 Equity Incentive Plan). S-1/A 9/2/2014 10.23 10.6# Form of Stock Appreciation Rights Award Agreement (2014 Equity Incentive Plan). S-1 7/1/2014 10.5 10.7# 2014 Employee Stock Purchase Plan. S-1/A 3/2/2015 10.22 10.8# Amendment No. 1 to 2014 Employee Stock Purchase Plan. S-1 11/24/2015 10.8 10.9# Employment Agreement, effective as of June 2, 2014, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. S-1/A 9/2/2014 10.6 10.10# First Amendment to Employment Agreement, effective as of March 14, 2016, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. 8-K 3/15/2016 10.1 69 Exhibit Number Description Registrant’s Form Date Filed with the SEC Exhibit Number 10.11# Non-Employee Director Compensation Policy. 10-K 3/13/2019 10.15 10.12† Master License Agreement, dated May 21, 2014, by and among Viking Therapeutics, Inc., Ligand Pharmaceuticals Incorporated and Metabasis Therapeutics, Inc. S-1 7/1/2014 10.12 10.13† First Amendment to Master License Agreement, dated September 6, 2014, by and among Viking Therapeutics, Inc., Ligand Pharmaceuticals Incorporated and Metabasis Therapeutics, Inc. S-1/A 9/8/2014 10.24 10.14† Second Amendment to Master License Agreement, dated April 8, 2015, by and among Viking Therapeutics, Inc., Ligand Pharmaceuticals Incorporated and Metabasis Therapeutics, Inc. S-1/A 4/10/2015 10.30 10.15 Letter Agreement regarding board composition and management rights, dated May 21, 2014, by and between Viking Therapeutics, Inc. and Ligand Pharmaceuticals Incorporated. S-1 7/1/2014 10.15 10.16 Registration Rights Agreement, dated May 21, 2014, by and among Viking Therapeutics, Inc., Metabasis Therapeutics, Inc. and Ligand Pharmaceuticals Incorporated. S-1 7/1/2014 10.16 10.17 First Amendment to Registration Rights Agreement, dated January 22, 2016, by and between Viking Therapeutics, Inc. and Ligand Pharmaceuticals Incorporated. 8-K 1/25/2016 10.2 10.18 Voting Agreement, dated May 21, 2014, by and among Viking Therapeutics, Inc., Ligand Pharmaceuticals Incorporated, Metabasis Therapeutics, Inc., Brian Lian, Ph.D. and Michael Dinerman, M.D. S-1 7/1/2014 10.17 10.19# Founder Common Stock Purchase Agreement, dated September 26, 2012, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. S-1 7/1/2014 10.18 10.20# Amendment No. 1 to Founder Common Stock Purchase Agreement, dated May 4, 2015, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. 10-Q 6/12/2015 10.2 10.21#† Common Stock Purchase Agreement, dated February 20, 2014, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. S-1 7/1/2014 10.21 10.22# Amendment No. 1 to Common Stock Purchase Agreement, dated May 4, 2015, by and between Viking Therapeutics, Inc. and Brian Lian, Ph.D. 10-Q 6/12/2015 10.5 10.24 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. and H.C. Wainwright & Co., LLC. S-3 7/28/2021 1.2 21.1 List of Subsidiaries of Viking Therapeutics, Inc. 23.1 Consent of Marcum LLP, Independent Registered Public Accounting Firm. 24.1 Power of Attorney (included on the signature page to this Annual Report on Form 10-K). 31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 32.1 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 70 Exhibit Number Description Registrant’s Form Date Filed with the SEC Exhibit Number 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (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. † Confidential treatment has been granted with respect to certain portions of this exhibit, which portions have been omitted and filed separately with the Securities and Exchange Commission. Item 16. Form 10-K Summary. None. 71 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Viking Therapeutics, Inc. Date: February 9, 2022 By: /s/ Brian Lian, Ph.D. Brian Lian, Ph. D. President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Brian Lian, Ph.D. and Greg Zante, and each of them acting individually, as his attorney-in-fact, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Brian Lian, Ph.D. President, Chief Executive Officer and Director (Principal Executive Officer) February 9, 2022 Brian Lian, Ph.D. /s/ Greg Zante Chief Financial Officer (Principal Accounting and Financial Officer) February 9, 2022 Greg Zante /s/ Lawson Macartney, DVM, Ph.D. Director February 9, 2022 Lawson Macartney, DVM, Ph.D. /s/ Matthew W. Foehr Director February 9, 2022 Matthew W. Foehr /s/ Sarah Kathryn Rouan Director February 9, 2022 Sarah Kathryn Rouan /s/ Charles A. Rowland Jr. Director February 9, 2022 Charles A. Rowland Jr. /s/ J. Matthew Singleton Director February 9, 2022 J. Matthew Singleton 72 INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2021 and 2020 F-6 Consolidated Statements of Cash Flows for the Years ended December 31, 2021 and 2020 F-7 Notes to Consolidated Financial Statements F-8 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Viking Therapeutics, Inc. Opinion on the Financial Statements 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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 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. As part of our audit s, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit s included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit s also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit s provide a reasonable basis for our opinion. Critical Audit Matters 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) 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 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. The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events. The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs. The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows. The principal consideration for our determination that performing procedures related to the preclinical study and clinical trial expenses, specifically related to the year-end accrual for preclinical study and clinical trial costs, is a critical audit matter is that there F-2 was judgment by management in determining the achievement of milestones, patient enrollments and occurrence of other events that creates a present obligation for the Company to pay the research institutions and CROs for their services. 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 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; (iii) testing management’s determination of the accrual for preclinical study and clinical trial costs for a sample of such milestones, patient enrollments and other events; and (iv) testing the mathematical accuracy of the schedule of accrual for preclinical study and clinical trial costs prepared by management. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2014 . Costa Mesa, California February 9, 2022 F-3 Viking Therapeutics, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 26,371 $ 29,117 Short-term investments – available for sale 175,732 219,269 Prepaid clinical trial and preclinical study costs 7,806 7,276 Prepaid expenses and other current assets 619 442 Total current assets 210,528 256,104 Right-of-use assets 25 321 Deferred public offering and other financing costs 76 48 Deposits 33 29 Total assets $ 210,662 $ 256,502 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 1,444 $ 3,988 Other accrued liabilities 7,305 7,811 Lease liability, current 29 330 Total current liabilities 8,778 12,129 Lease liability, net of current portion — 29 Total long-term liabilities — 29 Total liabilities 8,778 12,158 Commitments and contingencies ( Note 11 ) Stockholders’ equity: Preferred stock, $ 0.00001 par value: 10,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.00001 par value: 300,000,000 shares authorized at December 31, 2021 and 2020; 78,248,401 shares issued and outstanding at December 31, 2021 and 73,215,940 shares issued and outstanding at December 31, 2020 1 1 Additional paid-in capital 425,614 412,589 Accumulated deficit ( 223,182 ) ( 168,192 ) Accumulated other comprehensive loss ( 549 ) ( 54 ) Total stockholders’ equity 201,884 244,344 Total liabilities and stockholders’ equity $ 210,662 $ 256,502 The accompanying notes are an integral part of these consolidated financial statements. F-4 Viking Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share amounts) Year Ended December 31, 2021 2020 Revenues $ — $ — Operating expenses: Research and development 44,981 31,931 General and administrative 10,701 10,731 Total operating expenses 55,682 42,662 Loss from operations ( 55,682 ) ( 42,662 ) Other income (expense): Amortization of financing costs ( 18 ) ( 106 ) Interest income, net 703 3,233 Realized gain on investments — 40 Foreign exchange gain 7 — Total other income, net 692 3,167 Net loss ( 54,990 ) ( 39,495 ) Other comprehensive gain (loss), net of tax: Unrealized loss on securities ( 495 ) ( 66 ) Comprehensive loss $ ( 55,485 ) $ ( 39,561 ) Basic and diluted net loss per share $ ( 0.71 ) $ ( 0.54 ) Weighted-average shares used to compute basic and diluted net loss per share 77,198 72,597 The accompanying notes are an integral part of these consolidated financial statements. F-5 Viking Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Shares Amount Capital Deficit Income (Loss) Total Balance at December 31, 2019 72,413,602 $ 1 $ 405,803 $ ( 128,697 ) $ 12 $ 277,119 Employee stock-based compensation, net — — 5,818 — — 5,818 Shares withheld related to employee tax withholding ( 44,042 ) — ( 296 ) — — ( 296 ) Issuance of common stock under employee stock plans 249,579 — 418 — — 418 Issuance of common stock from warrant exercises 596,801 — 846 — — 846 Unrealized gain (loss) on investments — — — — ( 66 ) ( 66 ) Net loss — — — ( 39,495 ) — ( 39,495 ) Balance at December 31, 2020 73,215,940 1 412,589 ( 168,192 ) ( 54 ) 244,344 Employee stock-based compensation, net — — 6,100 — — 6,100 Shares withheld related to employee tax withholding ( 117,025 ) — ( 707 ) — — ( 707 ) Issuance of common stock under employee stock plans 421,174 — 570 — — 570 Issuance of common stock from warrant exercises 4,728,312 — 7,062 — — 7,062 Unrealized gain (loss) on investments — — — — ( 495 ) ( 495 ) Net loss — — — ( 54,990 ) — ( 54,990 ) Balance at December 31, 2021 78,248,401 $ 1 $ 425,614 $ ( 223,182 ) $ ( 549 ) $ 201,884 The accompanying notes are an integral part of these consolidated financial statements. F-6 Viking Therapeutics, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities Net loss $ ( 54,990 ) $ ( 39,495 ) Adjustments to reconcile net loss to net cash used in operating activities Amortization of investment premiums 3,906 3,808 Amortization of financing costs 18 106 Amortization of non-cash clinical trial costs — — Stock-based compensation 6,100 5,818 Amortization of right-of-use assets 296 277 Interest expense related to operating lease liability 11 32 Realized gain on investments - ( 40 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 711 ) 137 Accrued interest, net of interest received on maturity of investments 1,176 2,590 Accounts payable ( 2,544 ) 1,555 Accrued expenses ( 506 ) 3,768 Lease liability ( 342 ) ( 333 ) Net cash used in operating activities ( 47,586 ) ( 21,777 ) Cash flows from investing activities Purchases of investments ( 168,015 ) ( 280,636 ) Proceeds from sales and maturities of investments 205,975 322,203 Net cash provided by investing activities 37,960 41,567 Cash flows from financing activities Public offering and financing costs ( 46 ) ( 26 ) Value of shares withheld related to employee tax withholding ( 707 ) ( 296 ) Proceeds from stock issuance under employee stock purchase plan and warrant exercises 7,633 1,272 Net cash provided by financing activities 6,880 950 Net increase (decrease) in cash and cash equivalents ( 2,746 ) 20,740 Cash and cash equivalents beginning of period 29,117 8,377 Cash and cash equivalents end of period $ 26,371 $ 29,117 Supplemental disclosure of non-cash investing and financing transactions Unpaid deferred public offering and other financing costs $ 50 $ 50 Receivable from exercise of warrants $ — $ 1 The accompanying notes are an integral part of these consolidated financial statements. F-7 Viking Therapeutics, Inc. Notes to Consolidated Financial Statements 1. Organization, Liquidity and Management’s Plan, and Summary of Significant Accounting Policies The Company 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 The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Risks and Uncertainties The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain. 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 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. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations is uncertain. Use of Estimates 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 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 F-8 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 The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. Investments Available-for-Sale 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 amortization of premiums and accretion of discounts is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured depository institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity. Prepaid Clinical Trial and Preclinical Study Costs Prepaid clinical trial and preclinical study costs represent advance payments by the Company for future clinical trial and preclinical study services to be performed by the clinical research organization and other research organizations. Such amounts are recognized as research and development expense as the related clinical trial and preclinical study services are performed. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 5 for additional information. Deferred Financing Costs Deferred financing costs represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public or private sale of the Company’s common stock. Costs related to the public sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are reclassified to additional paid-in-capital as a reduction of the proceeds. Costs related to the private sale of the Company’s common stock are deferred until the completion of the applicable offering, at which time such costs are amortized over the term of the applicable purchase agreement. Revenue Recognition The Company has not recorded any revenues since its inception. 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 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 F-9 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. To achieve this core principle, ASC 606 provides that an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The revenue standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, and costs to obtain or fulfill contracts. The Company will apply ASC 606 prospectively to all contracts. Research and Development Expenses All costs of research and development are expensed in the period incurred. 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. 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. The Company accrues service fees based on work performed, which relies on estimates of total costs incurred based on milestones achieved, patient enrollment and other events. The majority of the Company’s service providers invoice the Company in arrears, and to the extent that amounts invoiced differ from its estimates of expenses incurred, the Company accrues for additional costs. The financial terms of these agreements vary from contract to contract and may result in uneven expenses and payment flows. Preclinical study and clinical trial expenses include: • fees paid to CROs, consultants and laboratories in connection with preclinical studies; • fees paid to CROs, clinical trial sites, investigators and consultants in connection with clinical trials; and • fees paid to contract manufacturers and service providers in connection with the production, testing and packaging of active pharmaceutical ingredients and drug materials for preclinical studies and clinical trials. Payments under some of these agreements depend on factors such as the milestones accomplished, including enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. To date, the Company has not experienced any events requiring it to make material adjustments to its accruals for service fees. If the Company does not identify costs that it has begun to incur or if it underestimates or overestimates the level of services performed or the costs of these services, its actual expenses could differ from its estimates which could materially affect its results of operations. Adjustments to the Company’s accruals are recorded as changes in estimates become evident. Furthermore, based on amounts invoiced to the Company by its service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered. In May 2014, the Company entered into a master license agreement, pursuant to which it acquired certain rights to a number of research and development programs from Ligand Pharmaceuticals Incorporated (“ Ligand”). In doing so, the Company updated its policy on research and development to include the purchase of rights to intangible assets. 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. The Company notes that intangible assets acquired that are in the preclinical or clinical stages of development when acquired, and not approved by the U.S. Food and Drug Administration, are deemed to have not satisfied the definition of having an alternative future use, as defined. Accordingly, assets acquired in the preclinical and clinical stages of development are expensed as incurred in the Company’s statement of operations. Patent Costs Costs related to filing and pursuing patent applications are expensed as incurred to general and administrative expense, as recoverability of such expenditures is uncertain. F-10 Stock-Based Compensation The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes option-valuation model (the “Black-Scholes model”). The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. 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. 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. As the ESPP also allows for up to one increase in contributions during each purchase period, as an employee elects to increase his or her contributions, the Company treats this as an accounting modification. The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods. Income Taxes The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations. ASC Topic 740-10, Income Taxes , clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with GAAP. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. 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 . F-11 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 Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, the Company currently does not have any deemed common share equivalents; therefore, its basic and diluted net loss per share calculations are the same. The following table presents the computation of basic and diluted net loss per common share (in thousands, except share and per share data): Year Ended December 31, 2021 2020 Historical net loss per share Numerator Net loss $ ( 54,990 ) $ ( 39,495 ) Denominator Weighted-average common shares outstanding 77,380,775 72,779,742 Less: Weighted-average shares subject to repurchase ( 183,095 ) ( 183,095 ) Denominator for basic and diluted net loss per share 77,197,680 72,596,647 Basic and diluted net loss per share $ ( 0.71 ) $ ( 0.54 ) Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares): Year Ended December 31, 2021 2020 Common stock warrants 487,087 5,244,500 Restricted stock units 962,299 679,363 Common stock subject to repurchase 183,095 183,095 Common stock options 4,088,084 3,371,323 5,720,565 9,478,281 Segments The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or decision making purposes. 2. Investments in Marketable Securities The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of December 31, 2021 and 2020, the Company’s investments were in money market funds, commercial paper and corporate debt securities. There were no sales of available-for-sale securities during the years ended December 31, 2021 and 2020. F-12 Investments classified as available-for-sale as of December 31, 2021 consisted of the following (in thousands): As of December 31, 2021 Amortized Cost Gross Unrealized Gains (1) Gross Unrealized Losses (1) Aggregate Estimated Fair Value Certificates of deposit (2) $ 504 $ — $ — $ 504 Commercial paper (2) $ 32,032 $ — $ — $ 32,032 Corporate debt securities (2) $ 143,741 $ 1 $ ( 546 ) $ 143,196 $ 176,277 $ 1 $ ( 546 ) $ 175,732 (1) Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive loss. 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. 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. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. (2) At December 31, 2021, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $ 56.7 million of the corporate debt securities were scheduled to mature outside of one year at the time of purchase. Investments classified as available-for-sale as of December 31, 2020 consisted of the following (in thousands): Amortized Cost Gross Unrealized Gains (1) Gross Unrealized Losses (1) Aggregate Estimated Fair Value Commercial paper (2) $ 27,973 $ — $ — $ 27,973 Corporate debt securities (2) 191,350 94 ( 148 ) 191,296 $ 219,323 $ 94 $ ( 148 ) $ 219,269 (1) 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. 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. Four 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. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. (2) At December 31, 2020, none of these securities were classified as cash and cash equivalents on the Company’s balance sheet and $ 53.4 million of the corporate debt securities were scheduled to mature outside of one year at the time of purchase. 3. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, investments and accounts payable. 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: Level 1 —Quoted prices in active markets for identical assets or liabilities. Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. F-13 As of December 31, 20 2 1 and 20 20 , all of the Company’s financial assets that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consist of money market funds and certificates of deposit. The Company’s financial assets valued based on Level 2 inputs consist of corporate debt securities, which consist of investments in highly-rated investment-grade corporations. The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. As of December 31, 2021, the Company’s investments were in government money market funds, commercial paper and corporate debt securities. The fair values of the Company’s financial instruments are presented below (in thousands): Fair Value Measurements at December 31, 2021 Total Level 1 Level 2 Level 3 Financial assets carried at fair value: Cash equivalents: $ 24,612 10,498 14,114 0 Short-term investments Certificates of deposit 504 — 504 — Commercial paper, available for sale 32,032 — 32,032 — Corporate debt securities, available-for-sale 143,196 — 143,196 — Total financial assets $ 200,344 $ 10,498 $ 189,846 $ — Fair Value Measurements at December 31, 2020 Total Level 1 Level 2 Level 3 Financial assets carried at fair value: Cash equivalents: Government money market funds $ 26,868 $ 26,868 $ — $ — Short-term investments Commercial paper, available for sale 27,973 — 27,973 — Corporate debt securities, available-for-sale 191,296 — 191,296 — Total financial assets $ 246,137 $ 26,868 $ 219,269 $ — 4. Agreements with Ligand Pharmaceuticals Incorporated In May 2014 , the Company entered into a master license agreement with Ligand, as amended (the “Master License Agreement”), pursuant to which, among other things, the Company acquired the rights to a number of research and development programs under patents related to the Company’s VK2809, VK0214, VK5211, VK0612, erythropoietin receptor (“EPOR”) and diacylglycerol acyltransferase-1 (“DGAT-1”) programs, related know-how controlled by Ligand and physical quantities of VK2809, VK0214, VK5211, VK0612, EPOR and DGAT-1 compounds. Pursuant to the terms of the Master License Agreement, the Company has the exclusive right and sole responsibility and decision-making authority for researching and developing any pharmaceutical products that contain or comprise one or any combination of the technology and compounds licensed from Ligand pursuant to the Master License Agreement (the “Licensed Products”). The Company also has the exclusive right and sole responsibility and decision-making authority to conduct all clinical trials and preclinical studies that the Company believes are appropriate to obtain the regulatory approvals necessary for commercialization of the Licensed Products, and the Company will own and maintain all regulatory filings and all regulatory approvals for the Licensed Products. Additionally, pursuant to the terms of the Master License Agreement, the Company has the sole decision-making authority and responsibility and the exclusive right to commercialize any of the Licensed Products, either by itself or, in certain circumstances, through sublicensees selected by the Company. The Company also has the exclusive right to manufacture or have manufactured any Licensed Product itself or, in certain circumstances, through sublicensees or third parties selected by the Company. The Company will own any intellectual property that it develops in connection with the license granted under the Master License Agreement. 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 F-14 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. The term of the Master License Agreement will continue unless the agreement is terminated by the Company or Ligand, and each of the Company and Ligand have the right to terminate the Master License Agreement in certain circumstances, including, without limitation, if the other party defaults on certain of its obligations under the Master License Agreement. Ligand has the right to terminate the Master License Agreement under certain circumstances, including, but not limited to: (1) in the event of the Company’s insolvency or bankruptcy, (2) if the Company does not pay an undisputed amount owing under the Master License Agreement when due and fails to cure such default within a specified period of time, or (3) if the Company defaults on certain of its material and substantial obligations and fails to cure the default within a specified period of time. The Company has the right to terminate the Master License Agreement under certain circumstances, including, but not limited to: (i) if Ligand does not pay an undisputed amount owing under the Master License Agreement when due and fails to cure such default within a specified period of time, or (ii) if Ligand defaults on certain of its material and substantial obligations and fails to cure the default within a specified period of time. In addition, provisions of the Master License Agreement can be terminated on a licensed program-by-program basis under certain circumstances. In the event that the Master License Agreement is terminated in its entirety or with respect to a specific licensed program for any reason: (A) all licenses granted to the Company under the Master License Agreement (or with respect to the specific licensed program) will terminate and the Company will, upon Ligand’s request (subject to Ligand assuming legal responsibility for any clinical trials of the Licensed Products then ongoing), assign and transfer to Ligand (or to such transferee as Ligand may direct), at no cost to Ligand, all regulatory documentation and all regulatory approvals prepared or obtained by the Company or on its behalf related to the Licensed Products (or those related to the specific licensed program), or, if Ligand does not make such a request, the Company will wind down any ongoing clinical trials with respect to the Licensed Products (or those related to the specific licensed program) at no cost to Ligand; (B) the Company will, upon Ligand’s request, sell and transfer to Ligand (or to such transferee as Ligand may direct), at a price equal to 125 % of the Company’s costs of goods, any and all chemical, biological or physical materials relating to or comprising the Licensed Products (or those related to the specific licensed program); (C) the Company will have, for a period of six months following termination, the right to sell on the normal business terms in existence before such termination any finished commercial inventory of Licensed Products (or those related to the specific licensed program) which remains on hand, so long as the Company pays to Ligand the applicable royalties and sales milestones; (D) Ligand has the right to require the Company to assign to Ligand the trademarks owned by the Company relating to the Licensed Products (or those related to the specific licensed program); and (E) the Company will grant to Ligand a non-exclusive, worldwide, royalty-bearing sublicensable license under any patent rights and know-how controlled by the Company to the extent necessary to make, have made, import, use, offer to sell and sell the Licensed Products (or those related to the specific licensed program) anywhere in the world at a royalty rate in the low single digits. Under the Master License Agreement, the Company has agreed to indemnify Ligand for claims relating to the performance of the Company’s obligations under the Master License Agreement, any breach of the representations and warranties made by the Company under the Master License Agreement, clinical trials conducted by the Company and the research, development and commercialization of the Licensed Products by the Company and its affiliates, sublicensees, distributors and agents. In addition, Ligand has agreed to indemnify the Company for claims relating to the performance of its obligations under the Master License Agreement, its breach of representations and warranties under the agreement and its research and development of the licensed compounds before the effective date of the Master License Agreement. 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 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. 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 May 21, 2024 . 5. Operating Leases – Right-of-Use Assets and Lease Liability Obligations F-15 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 %): December 31, 2021 December 31, 2020 Right of use assets $ 25 $ 321 Lease liability obligations, current $ 29 $ 330 Lease liability obligations, less current portion - 29 Total lease liability obligations $ 29 $ 359 Weighted-average remaining lease term .08 years 1.08 years Weighted-average discount rate 6.00 % 6.00 % During the years ended December 31, 2021 and 2020, the Company recognized $ 308,000 and $ 319,000 , respectively, in operating lease expenses, which are included in operating expenses in the Company’s statement of operations. Approximate future minimum lease payments for the Company’s right-of-use assets over the remaining lease period as of December 31, 2021 are as follows (in thousands): 2022 29 Total minimum lease payments $ 29 Less: amount representing interest $ — Total lease liability obligations $ 29 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 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. 6. Stockholders’ Equity Preferred Stock 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 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. Common Stock The Company is authorized to issue up to 300,000,000 shares of common stock, $ 0.00001 par value per share. In February 2014, the Company entered into a stock purchase agreement with one of its founders. The agreement provided for the purchase of 1,000,000 shares of the Company’s common stock at a price per share of $ 0.01 in exchange for future services to be rendered to the Company as measured by certain performance criteria. The shares were subject to a repurchase option and were to vest in two tranches of 500,000 shares each, upon achievement of the performance target or upon a triggering event as defined. F-16 The Company determined that the fair value of the unrecognized expense was $ 168,000 at February 20, 2014, the grant date. In May 2015, the Company repurchased 633,810 of these shares at a purchase price of $ 0.00001 per share. In connection with the repurchase, the Company entered into an amendment to the stock purchase agreement to provide that the remaining 366,190 shares will continue to vest in two tranches of 183,095 shares each, upon achievement of the performance target or upon a triggering event as defined. The pro rata grant date fair value of the unrecognized expense is $ 62,000 . In October 2015, a triggering event became probable of occurrence and was deemed achieved in October 2016; therefore, the Company recorded $ 31,000 of stock-based compensation expense through December 31, 2016. No similar expense was recognized during the years ended December 31, 2021 and 2020. 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 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. The purchase price of shares of common stock that the Company elects to sell to LPC pursuant to the Commitment Purchase Agreement will be based on the market prices of the common stock at the time of such purchases as set forth in the Commitment Purchase Agreement. 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 Company’s 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. 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. and H.C. 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. On March 17, 2020, the Company’s Board of Directors authorized a stock repurchase program, whereby the Company may purchase up to $ 50.0 million in shares of its common stock and outstanding warrants to purchase its common stock, over a period of up to two years (the “Repurchase Program”). The Repurchase Program may be carried out at the discretion of a committee of the Company’s Board of Directors through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions. Through December 31, 2021, no shares of the Company’s common stock or warrants to purchase its common stock were repurchased by the Company under the Repurchase Program. 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, 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. F-17 7. Stock-Based Compensation In connection with the IPO, the Company’s 2014 Equity Incentive Plan (the “2014 Plan”) and the ESPP became effective on April 28, 2015, the date of the execution and delivery of the underwriting agreement for the IPO. A total of 1,527,770 shares of the Company’s common stock were initially reserved for issuance under the 2014 Plan, and 458,331 shares of the Company’s common stock were initially reserved for issuance under the ESPP. From January 1, 2016 and through December 31, 2021, in accordance with the terms of the 2014 Plan, an additional 9,929,367 shares of the Company’s common stock were added to the number of shares reserved for issuance under the 2014 Plan, respectively, and, in accordance with the terms of the ESPP, an additional 2,836,961 shares of the Company’s common stock were added to the number of shares reserved for issuance under the ESPP, respectively. The Company generally uses the straight-line method to allocate compensation cost to reporting periods over each optionee’s requisite service period, which is generally the vesting period, and estimates the fair value of stock-based awards or restricted stock units to employees and directors using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including volatility, the expected term and the fair value of the underlying common stock on the date of grant, among other inputs. For restricted stock and restricted stock unit awards, the Company generally uses the straight-line method to allocate compensation cost to reporting periods over the holder’s requisite service period, which is generally the vesting period, and uses the fair value at grant date to value the awards. For restricted stock that vests upon the satisfaction of certain performance conditions, the Company recognizes stock-based compensation expense when it becomes probable that the performance conditions will be met. 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 its 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. For 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. As the ESPP also allows for up to one increase in contributions during each purchase period, then as an employee elects to increase their contributions, the Company treats this as an accounting modification. The pre- and post-modification values are calculated on the date of the modification, and the incremental expense is then amortized over the remaining purchase periods. 2014 Plan. The 2014 Plan provides that the compensation committee of the Company’s Board of Directors (the “Compensation Committee”) may grant or issue stock options, stock appreciation rights, restricted shares, restricted stock units and unrestricted shares, deferred share units, performance and cash-settled awards and dividend equivalent rights to participants under the 2014 Plan. Initially, a total of 1,527,770 shares of the Company’s common stock were reserved for issuance pursuant to the 2014 Plan. The number of shares available for issuance under the 2014 Plan will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 3.5 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year. 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. 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. ESPP. Initially, a total of 458,331 shares of the Company’s common stock were reserved for issuance pursuant to the ESPP. The number of shares available for issuance under the ESPP will, unless otherwise determined by the Company’s Board of Directors or the Compensation Committee, be automatically increased on January 1st of each year commencing on January 1, 2016 and ending on (and including) January 1, 2024, in an amount equal to 1 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year. The shares of common stock available for purchase pursuant to the ESPP are authorized but unissued shares of the Company’s common stock, shares of the Company’s common stock that the Company otherwise holds in treasury or shares of the Company’s common stock that were purchased on the open market in arms’ length transactions in accordance with applicable securities laws. Shares of the Company’s common stock will be offered for purchase under the ESPP as determined by the Compensation Committee through a series of successive offerings that each have a term of 24 months and consist of four consecutive purchase periods of six months each. Prior to the commencement of any future offering under the ESPP, the Compensation Committee may determine that the current offering shall end, may commence a new offering on the first day after the end of such terminal purchase period (or any desired later date), and may decide that future offerings will consist of one or more consecutive purchase periods, each to be of such duration as determined by the Compensation Committee; 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 F-18 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: (1) 85 % of the fair market value per share of the Company’s common stock on the first day of the offering, or (2) 85 % of the fair market value per share of the Company’s common stock on the date the purchase right is exercised, which will be the last day of the applicable purchase period. During the years ended December 31, 2021 and 2020, the Company recognized the following stock-based compensation expense (in thousands): Year Ended December 31, 2021 2020 Stock-based compensation expense by type of award: Stock options $ 3,276 $ 3,096 Restricted stock and restricted stock units 2,597 2,529 Employee stock purchase plan 227 193 Total stock-based compensation expense included in expenses $ 6,100 $ 5,818 Stock-based compensation expense by line item: Research and development expenses $ 1,623 $ 1,359 General and administrative expenses 4,477 4,459 Total stock-based compensation expense included in expenses $ 6,100 $ 5,818 The following table sets forth the Company’s unrecognized stock-based compensation expense, net of estimated forfeitures, by type of award and the weighted-average period over which that expense is expected to be recognized (in thousands, except for years): As of December 31, 2021 Unrecognized Expense Weighted- average Recognition Period (in years) Type of award: Stock options $ 5,141 2.34 Restricted stock and restricted stock units $ 3,146 1.46 The following table is a summary of restricted shares granted during the years ended December 31, 2021 and 2020: Shares Weighted- Average Grant Date Fair Value Unvested at December 31, 2019 183,095 $ 0.17 Granted — $ — Vested — $ — Forfeited — $ — Repurchased — $ — Unvested at December 31, 2020 183,095 $ 0.17 Granted — $ — Vested — $ — Forfeited — $ — Repurchased — $ — Unvested at December 31, 2021 183,095 $ 0.17 F-19 The following table summarizes restricted stock unit activity during the years ended December 31, 2021 and 2020: Shares Weighted- Average Grant Date Value Unvested at December 31, 2019 352,726 $ 7.35 Granted 493,996 $ 7.77 Vested ( 128,859 ) $ 7.12 Forfeited ( 38,500 ) $ 8.16 Unvested at December 31, 2020 679,363 $ 7.65 Granted 588,820 $ 5.80 Vested ( 270,063 ) $ 7.47 Forfeited ( 35,821 ) $ 6.14 Unvested December 31, 2021 962,299 $ 6.63 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. 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, 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. F-20 The following table summarizes stock option activity during the years ended December 31, 2021 and 2020: Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Options outstanding at December 31, 2019 2,580,476 $ 4.90 Granted 960,472 $ 7.26 Exercised ( 86,125 ) $ 2.47 $ 430,000 Forfeited ( 77,250 ) $ 7.26 Cancelled ( 6,250 ) $ 8.52 Options outstanding at December 31, 2020 3,371,323 $ 5.57 7.32 $ 4,577,000 Granted 1,081,520 $ 5.87 Exercised ( 107,703 ) $ 3.26 $ 389,000 Forfeited ( 132,745 ) $ 6.25 Cancelled ( 124,311 ) $ 7.48 Options outstanding at December 31, 2021 4,088,084 $ 5.63 7.02 $ 2,885,000 Options exercisable at December 31, 2021 2,251,653 $ 4.95 5.81 $ 2,885,000 The Company received $ 351,000 and $ 213,000 in cash proceeds from exercises of stock options during the years ended December 31, 2021 and 2020, respectively. The total fair value of stock options that vested during the years ended December 31, 2021 and 2020 was $ 2.9 million and $ 2.6 million, respectively. Compensation expense for stock options granted to employees is based on the estimated grant date fair value and is recognized ratably over the vesting period of the applicable option. The estimated per share weighted average fair value of stock options granted to employees during the years ended December 31, 2021 and 2020 was $ 4.16 and $ 4.89 , respectively. As stock-based compensation expense recognized is based on options ultimately expected to vest, the fair value of each employee option grant during the years ended December 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: Year ended December 31, 2021 2020 Expected volatility 84.7 % 77.3 % Expected term (in years) 6.10 6.09 Risk-free interest rate 0.67 % 1.39 % Expected dividend yield 0 % 0 % Expected Volatility. The expected volatility rate used to value stock option grants is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical and biotechnology industry in a similar stage of development to the Company. Expected Term . The Company elected to utilize the “simplified” method for “plain vanilla” options to value stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. Risk-free Interest Rate . The risk-free interest rate assumption was based on zero-coupon U.S. Treasury instruments that had terms consistent with the expected term of the Company’s stock option grants. Expected Dividend Yield . The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Forfeitures are accounted for as actual forfeitures occur. F-21 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 Common stock reserved for future issuance as of December 31, 2021 is as follows: Common stock warrants 487,087 Restricted stock units 962,299 Common stock options 4,088,084 Available for grant under the 2014 Plan 5,383,372 Available for issuance under Employee Stock Purchase Plan 2,978,312 13,899,154 8. Warrants 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”); provided, however, that upon 61 days’ prior notice to the Company, the holder may increase the Beneficial Ownership Limitation; however, in no event shall the Beneficial Ownership Limitation exceed 9.99 %. The exercise price and number of shares of common stock issuable upon the exercise of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. On January 16, 2018, the resale Registration Statement on Form S-1 (File No. 333-222202) that the Company filed related to the 1,987,337 shares subject to unexercised Warrants was declared effective by the SEC. As of December 31, 2021, Warrants to purchase an aggregate of 487,087 shares were outstanding and 150,000 and 248,308 Warrants were exercised during the years ended December 31, 2021 and 2020, respectively. 9. Income Taxes Income tax expense (benefit) from continuing operations consists of the following for the years ended December 31, 2021 and 2020 (in thousands): F-22 December 31, 2021 2020 Current: Federal $ — $ — State 2 — $ 2 $ — Deferred: Federal $ ( 13,281 ) $ ( 9,368 ) State ( 4,182 ) ( 3,356 ) $ ( 17,463 ) $ ( 12,724 ) Change in valuation allowance 17,463 12,724 Total income tax expense (benefit) $ 2 $ — The reconciliations of the U.S. federal statutory tax rate to the effective income tax rate for the years ended December 31, 2021 and 2020 are as follows: December 31, 2021 2020 Tax provision at U.S. Federal statutory rates 21 % 21 % State income taxes net of federal benefit 7 % 7 % Non-deductible permanent items ( 1 )% ( 1 )% Stock options 1 % — Research and development credits 4 % 5 % Change in valuation allowance ( 32 )% ( 32 )% Effective income tax rate — — Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2021 and 2020 are as follows (in thousands): December 31, 2021 2020 Deferred tax assets: Accrued liabilities $ 80 $ 180 Intangible assets 43,829 32,435 Net operating loss carryforwards 11,049 8,649 Share-based compensation 3,747 2,604 Credits 8,919 6,518 Other 161 20 Total deferred tax assets 67,785 50,406 Valuation Allowance ( 67,778 ) ( 50,316 ) Total deferred tax assets, net of allowance $ 7 $ 90 Deferred tax liabilities: Right of use assets $ ( 7 ) $ ( 90 ) Other — — Total deferred tax liabilities: $ ( 7 ) $ ( 90 ) Net deferred tax assets (liabilities): $ — $ — A valuation allowance of $ 67.8 million and $ 50.3 million at December 31, 2021 and December 31, 2020, respectively, has been recorded to offset net deferred tax assets, as the Company is unable to conclude that it is more likely than not that such deferred tax assets will be realized. F-23 At December 31, 2021, the Company had approximately $ 39.6 million of federal net operating loss carryforwards, of which $ 17.8 million will begin to expire in 2032 and the remaining $ 21.8 million of which can be carried forward indefinitely. The Company has $ 39.2 million of state net operating loss carryforwards that will begin to expire in 2034 . The Company’s ability to utilize its federal net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Specifically, this limitation may arise in the event of an “ownership change,” which is defined by Section 382 of the Code as a cumulative change in ownership of the Company of more than 50 % within a three-year period. If the Company undergoes one or more ownership changes in connection with any future transactions in its stock, the Company’s ability to utilize net operating loss carryforwards to offset federal taxable income, if any, could potentially result in increased future tax liability to the Company. An ownership change under Section 382 of the Code occurred during the year ended December 31, 2018. 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. federal income tax as well as income tax in various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and various state agencies for the years ended December 31, 2017 through December 31, 2021. The differences between the Company’s effective income tax rate and the statutory federal rate for the year ended December 31, 2021 and the year ended December 31, 2020 relate primarily to losses incurred for which no tax benefit was recognized, due to the uncertainty of realization. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. At each of December 31, 2021 and December 31, 2020, the Company provided a full valuation allowance against its deferred tax assets due to uncertainty surrounding the realization of those assets as a result of historical taxable net losses. At December 31, 2021, the Company has federal and state research and development tax credit carry-forwards of approximately $ 6.2 million and $ 2.7 million, respectively. The federal credits begin to expire in 2036 . The state credits do not expire. 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. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020, which provided additional COVID-19 relief provisions for businesses. The Company has evaluated the impact of the both Acts and has determined that any impact is not material to its financial statements. The Company has reviewed its operations and has not identified any material uncertain tax positions. As a result, there is no liability for uncertain tax positions in the income tax provision as of December 31, 2021 or December 31, 2020. 10. Related-Party Transactions In May 2014, the Company entered into the Master License Agreement with Ligand, pursuant to which, among other things, Ligand granted the Company an exclusive worldwide license to certain clinical and preclinical programs. See Note 4 for more information related to this agreement. 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 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. 11. Commitments and Contingencies On May 25, 2018, the Company entered into an Office Lease (the “Lease”) with Kilroy Realty, L.P. 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.. F-24 On November 15, 2021, the Company entered into an Office Lease (the “Office Lease”) with One Pacific Heights. LLC. 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. 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 Office Lease. Rent expense was $ 320,000 and $ 319,000 for the years ended December 31, 2021 and 2020, respectively. Future minimum payments pursuant to the Lease are as follows (in thousands): Year Ending December 31: 2022 $ 198 2023 348 2024 358 2025 369 2026 and beyond 576 Total minimum lease payments $ 1,849 12. Subsequent Events The Company evaluated subsequent events through the date of the filing of this Annual Report on Form 10-K with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2021, and events which occurred subsequent to December 31, 2021 but were not recognized in the financial statements. The Company has determined that there were no subsequent events which required recognition, adjustment to or disclosure in the financial statements. F-25