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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File Number: 001-40794

 

DICE THERAPEUTICS, INC.

 

 

Delaware

 

47-2286244

( State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

400 East Jamie Court, Suite 300

South San Francisco, California

 

94080

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 566-1420

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

DICE

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 6, 2022, the registrant had 38,229,275 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page no.

PART I: FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Convertible Preferred Units and Stockholders’ Equity/Members’ Deficit

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

 

 

PART II: OTHER INFORMATION

21

Item 1.

Legal Proceedings

21

Item 1A.

Risk Factors

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

84

Item 4.

Mine Safety Disclosures

84

Item 5.

Other Information

84

Item 6.

Exhibits

84

Signatures

 

86

 

 


i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” “predict,” “potential” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors” and elsewhere in this filing. Moreover, we operate in a competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. The forward-looking statements in this Quarterly Report include, among other things, statements about:

 

our ability to obtain funding for our operations, including funding necessary to complete the development and commercialization of our therapeutic candidates;

 

the timing of and our ability to obtain and maintain regulatory approvals for our therapeutic candidates;

 

future agreements with third parties in connection with the commercialization of our therapeutic candidates;

 

the success, cost and timing of our therapeutic candidate development activities and planned clinical trials;

 

our expectations regarding the impact of the COVID-19 pandemic and its potentially material adverse impact on our business, the macroeconomy, and the execution of our preclinical studies and clinical trials;

 

the rate and degree of market acceptance and clinical utility of our therapeutic candidates;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

the success of competing therapies that are or may become available;

 

our ability to attract and retain key management and technical personnel;

 

our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our therapeutic candidates;

 

our use of our existing cash, cash equivalents, and marketable securities; and

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

The forward-looking statements made in this filing relate only to events or information as of the date on which the statements are made in this Quarterly Report. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations, except as required by law. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

 

 

ii


 

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

DICE THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

March 31,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,668

 

 

$

115,826

 

Marketable securities

 

 

249,563

 

 

 

203,495

 

Unbilled receivable

 

 

2,000

 

 

 

2,000

 

Restricted cash, current

 

 

150

 

 

 

150

 

Prepaid expenses and other current assets

 

 

1,615

 

 

 

2,440

 

Total current assets

 

 

306,996

 

 

 

323,911

 

Property and equipment, net

 

 

3,088

 

 

 

1,645

 

Restricted cash

 

 

198

 

 

 

198

 

Operating lease right-of-use assets

 

 

14,327

 

 

 

 

TOTAL ASSETS

 

$

324,609

 

 

$

325,754

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,753

 

 

$

1,710

 

Accrued expenses and other current liabilities

 

 

8,154

 

 

 

8,691

 

Operating lease liabilities, current portion

 

 

1,173

 

 

 

 

Term loan, current portion

 

 

714

 

 

 

480

 

Total current liabilities

 

 

14,794

 

 

 

10,881

 

Operating lease liabilities, noncurrent

 

 

12,936

 

 

 

 

Other noncurrent liabilities

 

 

 

 

 

8

 

Term loan, noncurrent

 

 

1,710

 

 

 

1,916

 

TOTAL LIABILITIES

 

 

29,440

 

 

 

12,805

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized, and no shares

   issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized, 38,229,275

   and 38,224,299 shares issued and outstanding as of March 31, 2022 and

   December 31, 2021, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

418,603

 

 

 

416,710

 

Accumulated deficit

 

 

(122,298

)

 

 

(103,707

)

Accumulated other comprehensive loss

 

 

(1,140

)

 

 

(58

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

295,169

 

 

 

312,949

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

324,609

 

 

$

325,754

 

See accompanying notes.

 

1


 

 

DICE THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

13,410

 

 

$

6,621

 

General and administrative

 

 

5,448

 

 

 

1,465

 

Total operating expenses

 

 

18,858

 

 

 

8,086

 

Loss from operations

 

 

(18,858

)

 

 

(8,086

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest and other income, net

 

 

327

 

 

 

14

 

Interest expense

 

 

(60

)

 

 

(2

)

Change in fair value of warrant liability

 

 

 

 

 

8

 

Net loss

 

 

(18,591

)

 

 

(8,066

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(1,082

)

 

 

(7

)

Comprehensive loss

 

$

(19,673

)

 

$

(8,073

)

Net loss per share, basic and diluted

 

$

(0.50

)

 

$

(3.59

)

Weighted-average shares used in computing net loss per share,

   basic and diluted

 

 

37,261,685

 

 

 

2,248,687

 

 

See accompanying notes.

 

 

2


 

 

DICE THERAPEUTICS, INC.

Condensed Consolidated Statements of Convertible Preferred Units and Stockholders’ Equity/Members’ Deficit

(Unaudited)

(In thousands, except member unit data and share amounts)

 

 

 

Convertible

Preferred Units

 

 

 

Common Units

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Units

 

 

Cost

 

 

 

Units

 

 

Cost

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances as of December 31, 2021

 

 

 

 

$

 

 

 

 

 

 

$

 

 

 

38,224,299

 

 

$

4

 

 

$

416,710

 

 

$

(103,707

)

 

$

(58

)

 

$

312,949

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,976

 

 

 

 

 

 

84

 

 

 

 

 

 

 

 

 

84

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,809

 

 

 

 

 

 

 

 

 

1,809

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,082

)

 

 

(1,082

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,591

)

 

 

 

 

 

(18,591

)

Balances as of March 31, 2022

 

 

 

 

$

 

 

 

 

 

 

$

 

 

 

38,229,275

 

 

$

4

 

 

$

418,603

 

 

$

(122,298

)

 

$

(1,140

)

 

$

295,169

 

 

 

 

Convertible

Preferred Units

 

 

 

Common Units

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Members’

 

 

 

Units

 

 

Cost

 

 

 

Units

 

 

Cost

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Deficit

 

Balances as of December 31, 2020

 

 

12,690,540

 

 

$

107,374

 

 

 

 

2,248,687

 

 

$

 

 

 

 

 

$

 

 

$

1,603

 

 

$

(54,748

)

 

$

 

 

$

(53,145

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

347

 

 

 

 

 

 

 

 

 

347

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,066

)

 

 

 

 

 

(8,066

)

Balances as of March 31, 2021

 

 

12,690,540

 

 

$

107,374

 

 

 

 

2,248,687

 

 

$

 

 

 

 

 

$

 

 

$

1,950

 

 

$

(62,814

)

 

$

(7

)

 

$

(60,871

)

 

See accompanying notes.

 

 

3


 

 

DICE THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,591

)

 

$

(8,066

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

151

 

 

 

180

 

Stock-based compensation

 

 

1,809

 

 

 

347

 

Change in fair value of warrant liability

 

 

 

 

 

(8

)

Gain on asset disposal

 

 

(22

)

 

 

 

Amortization of operating lease right-of-use assets

 

 

368

 

 

 

 

Net accretion and amortization in marketable securities

 

 

351

 

 

 

 

Amortization of debt issuance costs

 

 

29

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

607

 

 

 

70

 

Accounts payable

 

 

3,054

 

 

 

(294

)

Accrued expenses and other liabilities

 

 

(1,552

)

 

 

(227

)

Operating lease liabilities

 

 

(368

)

 

 

 

Net cash used in operating activities

 

 

(14,164

)

 

 

(7,998

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(385

)

 

 

(365

)

Purchases of marketable securities

 

 

(65,506

)

 

 

(24,082

)

Proceeds from maturities of marketable securities

 

 

18,005

 

 

 

 

Net cash used in investing activities

 

 

(47,886

)

 

 

(24,447

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments on Series C issuance costs

 

 

(192

)

 

 

(2,491

)

Proceeds from stock option exercises

 

 

84

 

 

 

 

Payments on capital lease obligations

 

 

 

 

 

(32

)

Net cash used in financing activities

 

 

(108

)

 

 

(2,523

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(62,158

)

 

 

(34,968

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

116,174

 

 

 

59,836

 

Cash, cash equivalents and restricted cash at end of period

 

$

54,016

 

 

$

24,868

 

SUPPLEMENTAL NON-CASH OPERATING INFORMATION:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease liabilities

 

$

14,477

 

 

$

 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:

 

 

 

 

 

 

 

 

Property and equipment additions included in accounts payable

   and accrued liabilities

 

$

1,396

 

 

$

 

Issuance costs for convertible preferred units included in accounts payable

   and accrued liabilities

 

$

 

 

$

141

 

Accrued tax distributions

 

$

14

 

 

$

1

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash as

shown in the condensed consolidated statement of cash flows

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,668

 

 

$

24,719

 

Restricted cash

 

 

348

 

 

 

149

 

Total cash, cash equivalents and restricted cash

 

$

54,016

 

 

$

24,868

 

 

See accompanying notes.

 

 

4


 

 

DICE THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Organization and Description of Business

DICE Therapeutics, Inc. (“DICE”, or the “Company”), a successor to DiCE Molecules Holdings, LLC (“DiCE LLC”), is a Delaware Corporation headquartered in South San Francisco, California. DICE is a biopharmaceutical company leveraging its proprietary technology platform to build a pipeline of novel oral therapeutic candidates to treat chronic diseases in immunology and other therapeutic areas. The Company’s platform, DELSCAPE, is designed to discover selective oral small molecules with the potential to modulate protein-protein interactions (“PPIs”) as effectively as systemic biologics.

Reverse Stock Split

On September 2, 2021, the DiCE LLC Board approved a reverse split of the Company’s units at a 1-for-4 ratio (the “Reverse Stock Split”). The Reverse Stock Split became effective on September 8, 2021. All issued and outstanding common units, convertible preferred units, profits interest units, common unit warrants, convertible preferred unit warrants, and per share amounts contained in the condensed consolidated financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

Liquidity

The Company has incurred significant operating losses since inception and has relied primarily on public and private equity to fund its operations. As of March 31, 2022, the Company had an accumulated deficit of $122.3 million. The Company expects to continue to incur substantial losses, and its ability to achieve and sustain profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenue to support its cost structure. The Company may never achieve profitability, and until then, the Company will need to continue to raise additional capital. As of March 31, 2022, the Company had cash, cash equivalents, and marketable securities of $303.2 million. Based on the current plan, the Company believes that its cash, cash equivalents, and marketable securities as of March 31, 2022 provide sufficient capital resources to continue its operations for at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.               

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) as defined by the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of DICE Therapeutics, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period. The Company evaluates its estimates, including those related to revenue recognition, the fair value of convertible preferred stock warrants, income taxes uncertainties, stock-based compensation, including the fair value of common stock, lease assets and liabilities, clinical trial accruals, and related assumptions on an ongoing basis using historical experience and other factors, and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

5


 

Unaudited Interim Condensed Consolidated Financial Statements

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all necessary adjustments, which include only normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2022, and its results of operations and comprehensive loss and changes in stockholders’ equity and members’ deficit for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three month period are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, as filed on March 28, 2022. The Company’s significant accounting policies are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021.

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive to in exchange for those goods or services. To determine revenue recognition for customer contracts, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC Topic 606, Revenue from Contracts with Customers, and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company enters into collaboration agreements under which it may obtain upfront license fees, research and development funding, and development, regulatory and commercial milestone payments, and royalty payments. The Company’s performance obligations under these arrangements may include licenses of intellectual property, and research and development services.

In the collaboration agreements, the Company has a performance obligation to perform research and development services to identify compounds as therapeutic candidates against identified targets. The revenue is recognized as the research and development services are being performed and the results of the research and development services are provided to the customer. The customers have options to elect commercial licenses of intellectual property. As the customer options are not considered to be a material right, customer options are accounted for as separate contracts if and when they are exercised by the customer.

The Company is eligible to receive milestone payments under the collaborative arrangements. The Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. If it is probable that a significant revenue reversal would not occur, the associated milestone value would be included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Under the collaborative arrangements, the Company may be eligible to receive sales-based royalties, including milestone payments based on the level of sales, and in which the license is deemed to be the predominant item to which the royalties relate. The Company would recognize revenue when the related sales occur to earn the royalty or sales-based milestone payments.

6


 

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Leases

The Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“ASC 842”) on January 1, 2022 using the modified retrospective method. Under this method, financial statements for periods after the adoption date are presented in accordance with ASC 842 and prior-period financial statements continue to be presented in accordance with ASC 840, the accounting standard originally in effect for such periods. Under ASC 842, the Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and the current and noncurrent operating lease liabilities are included as operating lease liabilities in the Company’s condensed consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the commencement date of the lease and any amounts probable of being owed under a residual value guarantee (if applicable). ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentive received. As the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. 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 for lease payments is recognized on a straight-line basis over the expected lease term.

The Company excludes from its condensed consolidated balance sheet recognition of leases having a term of 12 months or less (short-term leases) and does not separate lease components and non-lease components for its real estate leases. The Company’s non-lease components are primarily related to property maintenance, which varies based on future outcomes, and is recognized in rent expense when incurred.

Recently Adopted Accounting Pronouncements

In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates 2016-02, Leases (“ASU 2016-02”), with amendments issued in 2018 and 2019, which amended existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a right-of-use (“ROU”) asset and corresponding lease liability, including leases previously accounted for as operating leases.

The Company adopted ASC 842 effective January 1, 2022. The Company elected the optional package of practical expedients to not reassess: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) whether initial direct costs qualify for capitalization on any existing leases. Upon adoption of ASC 842, on January 1, 2022, the Company recorded operating lease ROU assets of $0.5 million, operating lease liabilities of $0.5 million and derecognized the deferred rent liability of $8,000.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). This standard requires measurement and recognition of expected credit losses for financial assets. The FASB subsequently issued clarifications to this standard. This standard will become effective for the Company for fiscal years beginning after December 15, 2022. The Company does not expect the adoption of this standard to have a material impact on its condensed consolidated financial statements and related disclosures.

7


 

3.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date.

Fair value is measured based on a three-level hierarchy of inputs, of which the first two are considered observable and the last unobservable. Unobservable inputs reflect the Company’s own assumptions about current market conditions. The use of observable inputs is maximized, where available, and the use of unobservable inputs is minimized when measuring fair value. The three-level hierarchy of inputs is as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

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

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the condensed consolidated balance sheets for cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short-term nature.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

53,239

 

 

$

 

 

$

 

 

$

53,239

 

US treasuries

 

 

67,721

 

 

 

 

 

 

 

 

 

67,721

 

Government treasury and agency securities

 

 

 

 

 

6,020

 

 

 

 

 

 

6,020

 

Corporate securities and commercial paper

 

 

 

 

 

175,822

 

 

 

 

 

 

175,822

 

Total assets measured at fair value

 

$

120,960

 

 

$

181,842

 

 

$

 

 

$

302,802

 

 

 

 

December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

115,410

 

 

$

 

 

$

 

 

$

115,410

 

US treasuries

 

 

24,053

 

 

 

 

 

 

 

 

 

24,053

 

Government treasury and agency securities

 

 

 

 

 

7,600

 

 

 

 

 

 

7,600

 

Corporate securities and commercial paper

 

 

 

 

 

171,842

 

 

 

 

 

 

171,842

 

Total assets measured at fair value

 

$

139,463

 

 

$

179,442

 

 

$

 

 

$

318,905

 

8


 

 

The following table presents the changes in fair values of the Company’s convertible preferred stock warrants and common stock warrants, classified as level 3 financial liabilities (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Beginning balance

 

$

 

 

$

314

 

Change in fair value

 

 

 

 

 

(8

)

Reclassification of fair value of warrants to

   equity upon the net exercise of warrants

 

 

 

 

 

 

Ending balance

 

$

 

 

$

306

 

 

Prior to settlement, the fair value of the warrant liability was estimated using a hybrid approach between a probability-weighted expected return method (PWERM) and an option pricing model (OPM), which estimated the probability weighted value across multiple liquidity scenarios, while using OPM to estimate the allocation of value within one or more of those scenarios. The Company considered various scenarios, including a scenario in which the Company completes an IPO, a scenario in which the Company stays private, and a scenario contemplating a merger or acquisition.

4.

Investments

 

The amortized cost, unrealized gain and loss, and fair value of the Company’s investments in marketable securities by major security type are as follows (in thousands):

 

 

 

March 31, 2022

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair Value

 

Money market funds

 

$

53,239

 

 

$

 

 

$

 

 

$

53,239

 

US treasuries

 

 

67,934

 

 

 

4

 

 

 

(217

)

 

 

67,721

 

Government treasury and agency securities

 

 

6,044

 

 

 

 

 

 

(24

)

 

 

6,020

 

Corporate securities and commercial paper

 

 

176,725

 

 

 

 

 

 

(903

)

 

 

175,822

 

Total financial assets

 

$

303,942

 

 

$

4

 

 

$

(1,144

)

 

$

302,802

 

 

 

 

December 31, 2021

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair Value

 

Money market funds

 

$

115,410

 

 

$

 

 

$

 

 

$

115,410

 

US treasuries

 

 

24,056

 

 

 

1

 

 

 

(4

)

 

 

24,053

 

Government treasury and agency securities

 

 

7,606

 

 

 

 

 

 

(6

)

 

 

7,600

 

Corporate securities and commercial paper

 

 

171,891

 

 

 

3

 

 

 

(52

)

 

 

171,842

 

Total financial assets

 

$

318,963

 

 

$

4

 

 

$

(62

)

 

$

318,905

 

 

As of March 31, 2022, the fair value of the Company’s marketable debt securities, by maturity date, were as follows (in thousands):

 

 

 

Amount

 

Due within one year

 

$

204,757

 

Due in one to five years

 

 

44,806

 

Total marketable securities

 

$

249,563

 

 

9


 

 

5.

Collaboration Revenue

2015 Sanofi Collaboration Agreement

In December 2015, the Company entered into a license and collaboration agreement (the “Sanofi Agreement”) with Aventis, Inc. (“Sanofi”), which was amended and restated in August 2017 (as amended, the “2015 Collaboration Agreement”). Under the Sanofi Agreement, the Company agreed to provide research services on identified targets and to grant Sanofi an exclusive option to license to develop and commercialize (as applicable), certain compounds into products within the time frames specified therein. In particular, the Company agreed to identify, in two or more screening libraries, compounds that bind to seven agreed upon immuno-oncology targets and to generate collaboration compounds for use by Sanofi to develop and commercialize collaboration products.

Under the terms of the Sanofi Agreement, Sanofi has the exclusive rights and is responsible for the development, commercialization and manufacture of collaboration products resulting from the collaboration. Sanofi is obligated to use commercially reasonable efforts to commercialize at least one collaboration product for each target, within certain countries, upon regulatory approval of such product.

Upon signing the Sanofi Agreement in December 2015, Sanofi paid the Company an initial fee of $8.0 million for target exclusivity rights and an additional $1.0 million annual technology access and development fee. In December 2016, Sanofi paid the Company an additional $9.0 million fee for the same services.

At the date of the 2017 amendment to the Sanofi Agreement, the Company had remaining unrecognized revenue of $3.0 million from the Agreement to be recognized over the remaining term (August 2017 through December 2020) when research services were being provided. For the three months ended March 31, 2022 and 2021, no revenue was recognized related to the Sanofi Agreement, as amended, since the research services were completed in December 2020.

The performance obligation under the Sanofi Agreement, as amended, consisted of research services to create libraries with active compounds for assigned collaboration targets that can be developed into a drug for commercial use. In addition to the ongoing research services, the arrangement included several customer options.

Under the Sanofi Agreement, the Company earned Sum of the Evidence (“SOE”) points depending on the milestone achieved and Sanofi’s elections. In connection with this right, the Company recognized $2.0 million in revenue in 2018, when SOE points were earned. The $2.0 million contract asset is recorded as an unbilled receivable in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. The services provided by the Company under the Sanofi Agreement were completed in December 2020. There was no remaining deferred revenue as of March 31, 2022 and December 31, 2021.

In March 2022, Sanofi notified the Company that it no longer intended to develop therapeutic candidates under the Sanofi Agreement and terminated the agreement effective as of July 2022, or such earlier date as agreed by the respective parties. As a result, the Company will regain worldwide rights to the previously partnered oral immuno-oncology program.

2017 Genentech Collaboration Agreement

In November 2017, the Company entered into a collaboration agreement (the “Genentech Agreement”) with Genentech, Inc. (“Genentech”). Under the 2017 Collaboration Agreement, the Company was entitled to receive a one-time target access fee for each of the collaboration targets designated. The research collaboration with respect to each collaboration target has a two-year term that commences upon the Company’s initiation of certain research activities, unless terminated earlier under the terms of the Collaboration Agreement. On a per collaboration target basis, the Company is also eligible to receive preclinical, clinical, regulatory, and commercial milestone payments, as well as tiered low-single-digit royalties.

Upon execution of the Genentech Agreement, Genentech designated certain collaboration targets and paid the Company a $4.5 million target access fee. In 2018, Genentech paid the Company an additional $1.5 million in target access fees. The Company’s performance obligation under the collaboration consists of research services. The revenue related to the performance obligation is recognized when the research services are completed and delivered to Genentech. In addition, the arrangement includes several customer options which will be accounted for as separate contracts if and when elected by Genentech.

10


 

The Company initiated research activities on the active collaboration targets in March 2018 and submitted five milestone packages for Genentech to review in 2019. The Company recognized collaboration revenue upon the completion of the milestone packages and research services. In June 2021, the Genentech Agreement was terminated, and the Company recognized the remaining $1.1 million of deferred revenue as collaboration revenue for the year ended December 31, 2021. No revenue was recognized for the three-month periods ended March 31, 2022 and 2021.

6.

Leases

In June 2021, the Company entered into a lease agreement for a new office space in South San Francisco, California. The lease has an initial term of seven years, beginning on the lease commencement date of March 25, 2022, with an option to extend the lease for an additional period of five years. Under the terms of the lease, the Company is required to maintain a letter of credit for the benefit of the landlord in the amount of $0.2 million, commencing on the effective date of the agreement until the expiration of the lease. The deposit related to the letter of credit is included within restricted cash in the condensed consolidated balance sheets.

The Company leased its former headquarters with its main offices and laboratory facilities in South San Francisco under a sublease agreement that ended in April 2022.

As of March 31, 2022, the Company had recorded an aggregate operating lease ROU asset of $14.3 million and an aggregate operating lease liability of $14.1 million in the accompanying unaudited condensed consolidated balance sheet. As of March 31,2022, the weighted-average remaining lease term was 7.0 years and the weighted-average incremental borrowing rate used to determine the operating lease liability was 10.0%.

As of March 31, 2022, the future minimum payments under operating lease liabilities were as follows (in thousands):

 

 

 

Amount

 

2022 (remaining nine months)

 

$