SEC Filing | Forty Seven, Inc.

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ftsv-10q_20190930.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 September 30, 2019

☐	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.

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 November 5, 2019, the registrant had 42,276,130 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 Convertible Preferred Stock and 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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
Signatures		67

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.

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements.

Forty Seven Inc.

Condensed Balance Sheets

(In thousands)

	September 30, 2019			December 31, 2018
	(Unaudited)			(1)
Assets
Current assets:
Cash and cash equivalents	$	31,783		$	10,837
Short-term investments		134,959			128,186
Prepaid expenses and other current assets		10,583			6,835
Total current assets		177,325			145,858
Property and equipment, net		1,315			1,360
Operating lease right-of-use assets		2,282			—
Other assets		2,661			2,219
Total assets	$	183,583		$	149,437
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,164		$	4,621
Accrued liabilities		16,519			9,044
Lease liabilities, current		1,434			—
Deferred grant funding, current		2,585			1,744
Total current liabilities		23,702			15,409
Lease liabilities, noncurrent		1,228			—
Deferred rent, noncurrent		—			331
Other long-term liabilities		323			476
Total liabilities		25,253			16,216
Commitments and Contingencies
Stockholders’ equity:
Common stock		4			3
Additional paid-in capital		359,390			273,069
Accumulated other comprehensive income (loss)		90			(82	)
Accumulated deficit		(201,154	)		(139,769	)
Total stockholders’ equity		158,330			133,221
Total liabilities and stockholders’ equity	$	183,583		$	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.

Forty Seven Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
License revenue	$	15,678		$	—		$	15,678		$	—
Operating expenses:
Research and development		27,074			17,984			65,029			42,733
General and administrative		4,977			4,383			14,618			11,588
Total operating expenses		32,051			22,367			79,647			54,321
Loss from operations		(16,373	)		(22,367	)		(63,969	)		(54,321	)
Interest and other income, net		1,210			708			2,584			1,165
Net loss		(15,163	)		(21,659	)		(61,385	)		(53,156	)
Unrealized gains (losses) on available-for-sale securities		31			(4	)		172			12
Comprehensive loss	$	(15,132	)	$	(21,663	)	$	(61,213	)	$	(53,144	)
Net loss per share, basic and diluted	$	(0.38	)	$	(0.71	)	$	(1.80	)	$	(3.63	)
Shares used in computing net loss per share, basic and diluted		39,772,452			30,430,898			34,129,449			14,643,348

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

Forty Seven Inc.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

(In thousands, except share data)

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		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
Issuance of common stock in public offering, net of issuance costs		—		—		10,781,250		1		80,460		—			—			80,461
Issuance of common stock for exercise of stock options		—		—		7,568		—		24		—			—			24
Issuance of common stock pursuant to the ESPP		—		—		49,912		—		272		—			—			272
Vesting of early exercised stock options		—		—		—		—		13		—			—			13
Stock-based compensation		—		—		—		—		1,208		—			—			1,208
Net loss		—		—		—		—		—		—			(15,163	)		(15,163	)
Other comprehensive income		—		—		—		—		—		31			—			31
Balance at September 30, 2019		—	$	—		42,271,052	$	4	$	359,390	$	90		$	(201,154	)	$	158,330

	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
Issuance of common stock upon initial public offering, net of issuance costs		—			-			8,090,250			1		116,335		—			—			116,336
Preferred stock conversion to common stock		(16,215,896	)		(149,397	)		16,215,896			1		149,396		—			—			—
Issuance of common stock for exercise of options		—			—			4,106			—		11		—			—			11
Vesting of early exercised stock options		—			—			—			—		13		—			—			13
Stock-based compensation		—			—			—			—		1,271		—			—			1,271
Net loss		—			—			—			—		—		—			(21,659	)		(21,659	)
Other comprehensive loss		—			—			—			—		—		(4	)		—			(4	)
Balance at September 30, 2018		—		$	—			31,048,089		$	3	$	271,819	$	(32	)	$	(122,555	)	$	149,235

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

Forty Seven, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(61,385	)	$	(53,156	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		3,437			2,318
Depreciation and amortization		386			289
Amortization of right-of-use assets		759			—
Accretion of discounts on marketable securities		(977	)		(293	)
Realized gain on sale of available-for-sale securities		(6	)		—
Change in fair value of embedded derivative		(13	)		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(3,748	)		(2,172	)
Other assets		(445	)		69
Accounts payable		(1,469	)		185
Accrued liabilities		7,631			554
Deferred grant funding		841			1,375
Lease related liabilities		(866	)		(86	)
Other long-term liabilities		—			(1	)
Net cash used in operating activities		(55,855	)		(50,918	)
Cash flows from investing activities:
Purchases of property and equipment		(328	)		(106	)
Purchases of available-for-sale securities		(166,040	)		(138,071	)
Proceeds from sales of available-for-sale securities		3,996			—
Proceeds from maturities of available-for-sale securities		156,427			71,478
Net cash used in investing activities		(5,945	)		(66,699	)
Cash flows from financing activities:
Proceeds from issuance of common stock upon ESPP purchase		859			—
Proceeds from issuance of common stock upon exercise of stock options		1,426			166
Proceeds from public offering of common stock, net of issuance costs		80,461			116,460
Net cash provided by financing activities		82,746			116,626
Net increase (decrease) in cash and cash equivalents		20,946			(991	)
Cash and cash equivalents — beginning of period		10,837			24,417
Cash and cash equivalents — end of period	$	31,783		$	23,426
Supplemental disclosures of cash flow information:
Operating cash flows paid for operating leases	$	1,015		$	—
Noncash investing and financing activities:
Purchases of property and equipment included in accounts payable	$	13		$	—
Lease liability obtained in exchange for right-of-use asset	$	712		$	—
Conversion of convertible preferred stock to common stock at close of initial public offering	$	—		$	149,397
Deferred offering costs included in accounts payable and accrued liabilities	$	—		$	124

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

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, magrolimab (formerly known as 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 $166.7 million as of September 30, 2019. Since inception through September 30, 2019, the Company has incurred cumulative net losses of $201.2 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”).

In July 2019, the Company filed a Registration Statement on Form S-3, as amended (File No. 333-232498), declared effective by the SEC on July 12, 2019 (the “Shelf Registration Statement”), related to the offering of up to $250.0 million of common stock, preferred stock, debt securities and warrants. The Company may seek to use the Shelf Registration Statement at any time or from time to time to offer, in one or more offerings, common stock, preferred stock, debt securities and/or warrants. The Shelf Registration Statement also included a prospectus covering the offering, issuance and sale of up to $60.0 million of shares of the Company’s common stock, from time to time, in “at-the-market offerings” pursuant to a Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) entered into with Cantor Fitzgerald & Co. (the “Sales Agent”) on July 1, 2019. As of September 30, 2019, the Company had not sold any securities pursuant to the Sales Agreement.

In July 2019, pursuant to the Shelf Registration Statement, the Company completed an underwritten public offering of 10,781,250 shares of the Company’s common stock, including 1,406,250 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares at a public offering price of $8.00 per share. The net proceeds from the offering to the Company were $80.5 million.

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 nine months ended September 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 revenue and expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to revenue recognition, 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.

Revenue Recognition

License and Collaboration Arrangements

The Company accounts for revenue recognition under Accounting Standards Codification (“ASC”), Revenue from Contracts with Customers (Topic 606) (“ASC 606”). Under ASC 606, 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 in exchange for those goods or services.

The Company enters into collaborative arrangements with partners that fall under the scope of ASC, Collaborative Arrangements (Topic 808) (“ASC 808”). The Company analyzes it collaboration arrangements to assess whether they are within the scope of ASC 808 to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of