ftsv-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2019

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: 001-38554

 

FORTY SEVEN, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-4065674

( State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1490 O’Brien Drive, Suite A

Menlo Park, California 94025

 

94025

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (650) 352-4150

 

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

 

Title of each class

 

Ticker Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

FTSV

 

The Nasdaq Global Select Market

 

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 August 6, 2019, the registrant had 42,215,143 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page no.

PART I: FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

Condensed Statements of Stockholders’ Equity

3

 

Condensed Statements of Cash Flows

4

 

Notes to Condensed Financial Statements

5

Item 2.

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

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

PART II: OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

Signatures

 

61

 

Where You Can Find More Information

 

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.fortyseveninc.com/investor-relations), SEC filings, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with our stockholders and the public about our company, our products, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

 

 

i


PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements.

Forty Seven Inc.

Condensed Balance Sheets

(In thousands)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

 

(1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,849

 

 

$

10,837

 

Short-term investments

 

 

81,158

 

 

 

128,186

 

Prepaid expenses and other current assets

 

 

11,861

 

 

 

6,835

 

Total current assets

 

 

110,868

 

 

 

145,858

 

Property and equipment, net

 

 

1,288

 

 

 

1,360

 

Operating lease right-of-use assets

 

 

2,579

 

 

 

 

Other assets

 

 

1,067

 

 

 

2,219

 

Total assets

 

$

115,802

 

 

$

149,437

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,499

 

 

$

4,621

 

Accrued liabilities

 

 

9,719

 

 

 

9,044

 

Lease liabilities, current

 

 

1,397

 

 

 

 

Deferred grant funding, current

 

 

2,742

 

 

 

1,744

 

Total current liabilities

 

 

22,357

 

 

 

15,409

 

Lease liabilities, noncurrent

 

 

1,600

 

 

 

 

Deferred rent, noncurrent

 

 

 

 

 

331

 

Other long-term liabilities

 

 

361

 

 

 

476

 

Total liabilities

 

 

24,318

 

 

 

16,216

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

277,413

 

 

 

273,069

 

Accumulated other comprehensive income (loss)

 

 

59

 

 

 

(82

)

Accumulated deficit

 

 

(185,991

)

 

 

(139,769

)

Total stockholders’ equity

 

 

91,484

 

 

 

133,221

 

Total liabilities and stockholders’ equity

 

$

115,802

 

 

$

149,437

 

 

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

 

(1)

The balance sheet as of December 31, 2018 is derived from the audited financial statements as of that date.

1


Forty Seven Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

18,829

 

 

$

13,596

 

 

$

37,955

 

 

$

24,749

 

General and administrative

 

 

5,057

 

 

 

3,362

 

 

 

9,641

 

 

 

7,205

 

Total operating expenses

 

 

23,886

 

 

 

16,958

 

 

 

47,596

 

 

 

31,954

 

Loss from operations

 

 

(23,886

)

 

 

(16,958

)

 

 

(47,596

)

 

 

(31,954

)

Interest and other income, net

 

 

680

 

 

 

236

 

 

 

1,374

 

 

 

457

 

Net loss

 

 

(23,206

)

 

 

(16,722

)

 

 

(46,222

)

 

 

(31,497

)

Unrealized gains on available-for-sale securities

 

 

41

 

 

 

43

 

 

 

141

 

 

 

16

 

Comprehensive loss

 

$

(23,165

)

 

$

(16,679

)

 

$

(46,081

)

 

$

(31,481

)

Net loss per share, basic and diluted

 

$

(0.74

)

 

$

(2.52

)

 

$

(1.48

)

 

$

(4.76

)

Shares used in computing net loss per share, basic and diluted

 

 

31,355,135

 

 

 

6,636,862

 

 

 

31,261,182

 

 

 

6,618,736

 

 

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


2


Forty Seven Inc.

Condensed Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

(In thousands, except share data)

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

 

$

 

 

 

31,079,150

 

 

$

3

 

 

$

273,069

 

 

$

(82

)

 

$

(139,769

)

 

$

133,221

 

Issuance of common stock for exercise of stock options

 

 

 

 

 

 

 

174,793

 

 

 

 

 

 

789

 

 

 

 

 

 

 

 

 

789

 

Issuance of common stock pursuant to the ESPP

 

 

 

 

 

 

 

44,656

 

 

 

 

 

 

588

 

 

 

 

 

 

 

 

 

588

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

113

 

 

 

 

 

 

 

 

 

113

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

1,104

 

 

 

 

 

 

 

 

 

1,104

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,016

)

 

 

(23,016

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

100

 

Balance at March 31, 2019

 

 

 

 

 

 

 

31,298,599

 

 

 

3

 

 

 

275,663

 

 

 

18

 

 

 

(162,785

)

 

 

112,899

 

Issuance of common stock for exercise of stock options

 

 

 

 

 

 

 

133,723

 

 

 

 

 

$

612

 

 

 

 

 

 

 

 

 

612

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

1,125

 

 

 

 

 

 

 

 

 

1,125

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,206

)

 

 

(23,206

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Balance at June 30, 2019

 

 

 

$

 

 

 

31,432,322

 

 

$

3

 

 

$

277,413

 

 

$

59

 

 

$

(185,991

)

 

$

91,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2017

 

16,215,896

 

 

$

149,397

 

 

 

6,751,157

 

 

$

1

 

 

$

3,507

 

 

$

(44

)

 

$

(69,399

)

 

$

83,462

 

Settlement of fractional shares from reverse stock split

 

 

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

431

 

 

 

 

 

 

 

 

 

431

 

Repurchase of shares

 

 

 

 

 

 

 

(41,935

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,775

)

 

 

(14,775

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

Balance at March 31, 2018

 

16,215,896

 

 

 

149,397

 

 

 

6,709,207

 

 

 

1

 

 

 

3,951

 

 

 

(71

)

 

 

(84,174

)

 

 

69,104

 

Issuance of common stock for exercise of stock options

 

 

 

 

 

 

 

28,630

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

171

 

 

 

 

 

 

 

 

 

171

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

616

 

 

 

 

 

 

 

 

 

616

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,722

)

 

 

(16,722

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Balance at June 30, 2018

 

16,215,896

 

 

$

149,397

 

 

 

6,737,837

 

 

$

1

 

 

$

4,793

 

 

$

(28

)

 

$

(100,896

)

 

$

53,267

 

 

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

 

3


Forty Seven, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(46,222

)

 

$

(31,497

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,229

 

 

 

1,047

 

Depreciation and amortization

 

 

233

 

 

 

193

 

Amortization of right-of-use assets

 

 

461

 

 

 

 

Accretion of discounts on marketable securities

 

 

(730

)

 

 

(180

)

Realized gain on sale of available-for-sale securities

 

 

(4

)

 

 

 

Change in fair value of embedded derivative

 

 

12

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(5,026

)

 

 

853

 

Other assets

 

 

1,620

 

 

 

(1,412

)

Accounts payable

 

 

3,720

 

 

 

(603

)

Accrued liabilities

 

 

571

 

 

 

762

 

Deferred grant funding

 

 

997

 

 

 

2,806

 

Lease related liabilities

 

 

(530

)

 

 

(56

)

Net cash used in operating activities

 

 

(42,669

)

 

 

(28,087

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(70

)

 

 

 

Purchases of available-for-sale securities

 

 

(68,819

)

 

 

(16,368

)

Proceeds from sales of available-for-sale securities

 

 

3,996

 

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

112,727

 

 

 

35,365

 

Net cash provided by investing activities

 

 

47,834

 

 

 

18,997

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments of deferred offering costs

 

 

(143

)

 

 

(2,368

)

Proceeds from issuance of common stock upon ESPP purchase

 

 

588

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

1,402

 

 

 

155

 

Net cash provided by (used in) financing activities

 

 

1,847

 

 

 

(2,213

)

Net increase (decrease) in cash and cash equivalents

 

 

7,012

 

 

 

(11,303

)

Cash and cash equivalents — beginning of period

 

 

10,837

 

 

 

24,417

 

Cash and cash equivalents — end of period

 

$

17,849

 

 

$

13,114

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment through accounts payable and accruals

 

$

91

 

 

$

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

326

 

 

$

1,697

 

Lease liability obtained in exchange for right-of-use asset

 

$

712

 

 

$

 

 

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

 

 

 

 

4


 

Forty Seven Inc.

Notes to Condensed Financial Statements

1.

Description of Business

The Company is a clinical-stage immuno-oncology company focused on developing novel checkpoint therapies to activate macrophages in the fight against cancer. Forty Seven was founded based on the insight that blocking CD47, a key signaling molecule that is over-expressed on cancer cells, renders tumors susceptible to macrophages and the innate immune system. By harnessing macrophages, the Company believes that its lead product candidate, 5F9, dosed as a monotherapy and in combination with marketed cancer therapies, can transform the treatment of cancer.

Liquidity

In the course of its development activities, the Company has sustained operating losses and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities. The Company had cash, cash equivalents and short-term investments of $99.0 million as of June 30, 2019. Since inception through June 30, 2019, the Company has incurred cumulative net losses of $186.0 million. Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.

The Company intends to raise such capital through the issuance of additional equity financing and/or third-party collaboration funding. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its products. The Company expects that its cash, cash equivalents and short-term investments will be sufficient to fund operating expenses and capital expenditure requirements for a period of at least one year from the date these interim condensed financial statements are filed with the Securities and Exchange Commission (“SEC”).         

2.

Summary of Significant Accounting Policies

Basis of Presentation

The interim condensed financial statements are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date. These condensed financial statements should be read in conjunction with the Company's audited financial statements and related notes as set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on March 28, 2019.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value of common stock, the fair value of stock options, the fair value of investments, income tax uncertainties, lease liability, and certain accruals. The Company evaluates its estimates and 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 differ from those estimates.

5


 

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

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.

Leases  

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases on January 1, 2019 using the modified retrospective method. For its operating leases in excess of 12 months, the Company recognizes a right-of-use asset and a lease liability on its balance sheet. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis at the adoption date for the existing lease and at lease commencement date for new leases. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent, and lease incentives, as applicable. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

Rent expense for the operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses on the statements of operations and comprehensive loss. Variable lease payments include lease operating expenses.

The accompanying condensed financial statements as of and for the three and six months ended June 30, 2019 are presented under Topic 842. The prior periods continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carry forward the historical lease classification of the leases in place as of January 1, 2019. As allowed under Topic 842, the Company has elected to not separate lease and nonlease components. The Company has also elected to not apply the recognition requirement of Topic 842 to leases with a term of 12 months or less.

The impact of the adoption of Topic 842 on the accompanying condensed balance sheet as of January 1, 2019 was as follows:

 

 

 

December 31, 2018

 

 

Adjustments due to

the adoption of

Topic 842

 

 

January 1, 2019

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

 

 

$

2,328

 

 

$

2,328

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Deferred rent classified as accrued liabilities

 

$

155

 

 

$

(155

)

 

$

 

Lease liability, current

 

$

 

 

$

968

 

 

$

968

 

Lease liability, noncurrent

 

$

 

 

$

1,847

 

 

$

1,847

 

Deferred rent, noncurrent

 

$

331

 

 

$

(331

)

 

$

 

 

The adjustments due to the adoption of Topic 842 related to the recognition of an operating lease right-of-use asset and lease liability for the Company's existing property operating lease and the derecognition of the deferred rent recognized under Topic 840. There was no impact on the Company’s statement of operations and comprehensive loss from the adoption and no cumulative-effect adjustment to the beginning accumulated deficit.

6


 

3.

Fair Value Measurements

The Company measures and records its cash equivalents and short-term investments at fair value.

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as a Level 1 input. Short-term investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs. There were no transfers between Levels 1, 2 or 3 for any of the periods presented. All of the investments held as of June 30, 2019 and December 31, 2018 had maturities of less than one year. There were no significant realized gains or losses on investments for the three and six months ended June 30, 2019 and 2018. Any identified unrealized losses were deemed to be temporary. The Company does not intend to sell its securities that are in an unrealized loss position, if any, and it is unlikely that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be maturity.

The fair value and amortized cost of cash equivalents and available-for-sale securities by major security type as of June 30, 2019 and December 31, 2018 are presented in the following tables:

 

 

 

As of June 30, 2019

 

 

 

Fair Value

Hierarchy

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Market

Value

 

 

 

(In thousands)

 

Money market funds

 

Level 1

 

$

15,670

 

 

$

 

 

$

 

 

$

15,670

 

Commercial paper

 

Level 2

 

 

24,271

 

 

 

 

 

 

 

 

 

24,271

 

Corporate debt securities

 

Level 2

 

 

20,453

 

 

 

24

 

 

 

 

 

 

20,477

 

Asset-backed securities

 

Level 2

 

 

16,470

 

 

 

11

 

 

 

 

 

 

16,481

 

US government debt securities

 

Level 2

 

 

19,905

 

 

 

24

 

 

 

 

 

 

19,929

 

Total cash equivalents and available-for-sale securities

 

 

 

$

96,769

 

 

$

59

 

 

$

 

 

$

96,828

 

 

 

 

 

As of December 31, 2018

 

 

 

Fair Value

Hierarchy

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Market

Value

 

 

 

(In thousands)

 

Money market funds

 

Level 1

 

$

7,959

 

 

$

 

 

$

 

 

$

7,959

 

Commercial paper

 

Level 2

 

 

43,277

 

 

 

 

 

 

 

 

 

43,277

 

Corporate debt securities

 

Level 2

 

 

46,186

 

 

 

 

 

 

(54

)

 

 

46,132

 

Asset-backed securities

 

Level 2

 

 

22,842

 

 

 

 

 

 

(27

)

 

 

22,815

 

US government debt securities

 

Level 2

 

 

15,963

 

 

 

 

 

 

(1

)

 

 

15,962

 

Total cash equivalents and available-for-sale securities

 

 

 

$

136,227

 

 

$

 

 

$

(82

)

 

$

136,145

 

 

The Company’s contingent milestone payments in its agreement with the Leukemia & Lymphoma Society, Inc. (“LLS”) were concluded to be an embedded derivative. The embedded derivative contains unobservable inputs that are supported by little or no market activity at the measurement date. Accordingly, the Company’s embedded derivative is measured at fair value on a recurring basis using unobservable inputs that are classified as Level 3 inputs. The Company recorded a liability for the derivative of approximately $0.3 million, as part of other long-term liabilities as of June 30, 2019 and December 31, 2018. Refer to Note 5 for the valuation techniques and assumptions used in estimating the fair value of the embedded derivative.

The change in fair value of the embedded derivative is presented in the following table:

 

 

 

Six Months

Ended June 30,

 

 

 

2019

 

 

 

(In thousands)

 

Beginning balance

 

$

331

 

Change in fair value of embedded derivative

 

 

12

 

Ending balance

 

$

343

 

 

7


 

4.

Balance Sheet Components

Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Accrued research and development expenses

 

$

6,338

 

 

$

5,870

 

Accrued bonuses

 

 

1,379

 

 

 

1,602

 

Deferred rent, current

 

 

 

 

 

155

 

Other

 

 

2,002

 

 

 

1,417

 

Total accrued liabilities

 

$

9,719

 

 

$

9,044

 

 

 

 

5.

Research and License Agreements   

California Institute of Regenerative Medicine Grants

In January 2017, the Company was awarded a research grant from the California Institute of Regenerative Medicine (“CIRM”). The CIRM grant stipulates various milestone-based payments to the Company with the total award of $10.2 million over a period of four years. During the three and six months ended June 30, 2019, the Company received $2.0 million  related to this grant. As of June 30, 2019 and December 31, 2018, the Company had received $9.2 million and $7.2 million under the award, respectively.

In November 2017, the Company was awarded a second research grant from CIRM for a separate clinical trial study. The total amount of the research grant awarded was $5.0 million in various milestone-based payments over a period of five years. During 2018, the award was amended to $3.2 million in various-milestone payments over a period of five years, as was provided for under the terms of the original award because the Company opted not to expand the patient population participating in the study. During the three and six months ended June 30, 2019, the Company received $0.7 million   related to this grant. As of June 30, 2019 and December 31, 2018, the Company had received $3.1 million and $2.4 million under the award, respectively. Under the terms of the CIRM grants, the Company is obligated to pay royalties and licensing fees based on