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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

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: 001-36591

 

Otonomy, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-2590070

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

4796 Executive Drive

San Diego, California 92121

(619) 323-2200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

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 $0.001 per share

 

OTIC

 

The NASDAQ Stock Market LLC

(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, a 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  

The number of shares of the registrant’s common stock, par value $0.001, outstanding as of July 30, 2021 was 56,681,315.

 


 

TABLE OF CONTENTS

 

 

Page

 

 

PART I. FINANCIAL INFORMATION

2

 

 

Item 1. Financial Statements

2

 

 

Condensed Balance Sheets

2

 

 

Condensed Statements of Operations

3

 

 

Condensed Statements of Comprehensive Loss

4

 

 

Condensed Statements of Stockholders’ Equity

5

 

 

Condensed Statements of Cash Flows

7

 

 

Notes to Condensed Financial Statements

8

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

 

 

Item 4. Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

28

 

 

Item 1. Legal Proceedings

28

 

 

Item 1A. Risk Factors

28

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

Item 3. Default Upon Senior Securities

63

 

 

Item 4. Mine Safety Disclosures

63

 

 

Item 5. Other Information

63

 

 

Item 6. Exhibits

64

 

 

 


 

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Otonomy, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

2021

 

 

2020

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

85,096

 

 

$

30,767

 

Short-term investments

 

12,782

 

 

 

55,576

 

Prepaid and other current assets

 

1,474

 

 

 

2,372

 

Total current assets

 

99,352

 

 

 

88,715

 

Restricted cash

 

702

 

 

 

702

 

Property and equipment, net

 

1,786

 

 

 

2,766

 

Right-of-use assets

 

13,367

 

 

 

14,082

 

Other long-term assets

 

212

 

 

 

Total assets

$

115,419

 

 

$

106,265

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,259

 

 

$

849

 

Accrued expenses

 

1,947

 

 

 

2,953

 

Accrued compensation

 

2,340

 

 

 

3,927

 

Leases, current

 

3,284

 

 

 

3,265

 

Total current liabilities

 

8,830

 

 

 

10,994

 

Long-term debt, net

 

15,913

 

 

 

15,158

 

Leases, net of current

 

13,023

 

 

 

13,847

 

Total liabilities

 

37,766

 

 

 

39,999

 

Commitments and Contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2021

   and December 31, 2020; no shares issued or outstanding at June 30, 2021 and

   December 31, 2020

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2021

   and December 31, 2020; 56,681,315 and 48,318,970 shares issued and outstanding

   at June 30, 2021 and December 31, 2020, respectively

 

57

 

 

 

48

 

Additional paid-in capital

 

606,941

 

 

 

570,841

 

Accumulated other comprehensive income

 

1

 

 

 

1

 

Accumulated deficit

 

(529,346

)

 

 

(504,624

)

Total stockholders’ equity

 

77,653

 

 

 

66,266

 

Total liabilities and stockholders’ equity

$

115,419

 

 

$

106,265

 

 

See accompanying notes.

 

-2-


 

 

Otonomy, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

Product sales, net

 

$

35

 

 

$

10

 

 

$

125

 

 

$

170

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

140

 

 

 

511

 

 

 

370

 

 

 

725

 

Research and development

 

 

8,357

 

 

 

6,935

 

 

 

16,017

 

 

 

14,607

 

Selling, general and administrative

 

 

3,669

 

 

 

3,684

 

 

 

7,712

 

 

 

7,520

 

Total costs and operating expenses

 

 

12,166

 

 

 

11,130

 

 

 

24,099

 

 

 

22,852

 

Loss from operations

 

 

(12,131

)

 

 

(11,120

)

 

 

(23,974

)

 

 

(22,682

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

11

 

 

 

61

 

 

 

26

 

 

 

254

 

Interest expense

 

 

(392

)

 

 

(395

)

 

 

(774

)

 

 

(789

)

Net loss

 

$

(12,512

)

 

$

(11,454

)

 

$

(24,722

)

 

$

(23,217

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.19

)

 

$

(0.37

)

 

$

(0.42

)

 

$

(0.75

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

65,627,778

 

 

 

30,873,488

 

 

 

59,010,204

 

 

 

30,843,850

 

 

See accompanying notes.

-3-


 

Otonomy, Inc.

Condensed Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

Net loss

 

$

(12,512

)

 

$

(11,454

)

 

$

(24,722

)

 

$

(23,217

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available for sale securities

 

 

(4

)

 

 

(47

)

 

 

 

 

 

6

 

Comprehensive loss

 

$

(12,516

)

 

$

(11,501

)

 

$

(24,722

)

 

$

(23,211

)

 

See accompanying notes.


-4-


 

 

Otonomy, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2021

   (unaudited)

 

 

48,319,202

 

 

$

48

 

 

$

572,805

 

 

$

5

 

 

$

(516,834

)

 

$

56,024

 

Issuance of common stock and pre-

   funded warrants, net of issuance

   costs (unaudited)

 

 

8,298,890

 

 

 

9

 

 

 

32,198

 

 

 

 

 

 

 

 

 

32,207

 

Issuance of common stock upon

   exercise of stock options (unaudited)

 

 

2,604

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Issuance of common stock

   under employee stock

   purchase plan (unaudited)

 

 

60,619

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Stock-based compensation

   expense (unaudited)

 

 

 

 

 

 

 

 

1,811

 

 

 

 

 

 

 

 

 

1,811

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,512

)

 

 

(12,512

)

Unrealized loss on available-

   for-sale securities (unaudited)

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Balance at June 30, 2021

   (unaudited)

 

 

56,681,315

 

 

$

57

 

 

$

606,941

 

 

$

1

 

 

$

(529,346

)

 

$

77,653

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2020

   (unaudited)

 

 

30,814,211

 

 

$

31

 

 

$

501,498

 

 

$

64

 

 

$

(471,656

)

 

$

29,937

 

Issuance of common stock

   upon exercise of stock

   options (unaudited)

 

 

71,713

 

 

 

 

 

 

149

 

 

 

 

 

 

 

 

 

149

 

Issuance of common stock

   under employee stock

   purchase plan (unaudited)

 

 

65,497

 

 

 

 

 

 

127

 

 

 

 

 

 

 

 

 

127

 

Stock-based compensation

   expense (unaudited)

 

 

 

 

 

 

 

 

1,537

 

 

 

 

 

 

 

 

 

1,537

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,454

)

 

 

(11,454

)

Unrealized loss on available-

   for-sale securities (unaudited)

 

 

 

 

 

 

 

 

 

 

 

(47

)

 

 

 

 

 

(47

)

Balance at June 30, 2020

   (unaudited)

 

 

30,951,421

 

 

$

31

 

 

$

503,311

 

 

$

17

 

 

$

(483,110

)

 

$

20,249

 

 

See accompanying notes.

-5-


 

Otonomy, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

48,318,970

 

 

$

48

 

 

$

570,841

 

 

$

1

 

 

$

(504,624

)

 

$

66,266

 

Issuance of common stock and pre-

   funded warrants, net of issuance

   costs (unaudited)

 

 

8,298,890

 

 

 

9

 

 

 

32,198

 

 

 

 

 

 

 

 

 

32,207

 

Issuance of common stock upon

   exercise of stock options (unaudited)

 

 

2,836

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Issuance of common stock

   under employee stock

   purchase plan (unaudited)

 

 

60,619

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Stock-based compensation

   expense (unaudited)

 

 

 

 

 

 

 

 

3,774

 

 

 

 

 

 

 

 

 

3,774

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,722

)

 

 

(24,722

)

Balance at June 30, 2021

   (unaudited)

 

 

56,681,315

 

 

$

57

 

 

$

606,941

 

 

$

1

 

 

$

(529,346

)

 

$

77,653

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

30,814,211

 

 

$

31

 

 

$

500,084

 

 

$

11

 

 

$

(459,893

)

 

$

40,233

 

Issuance of common stock

   upon exercise of stock

   options (unaudited)

 

 

71,713

 

 

 

 

 

 

149

 

 

 

 

 

 

 

 

 

149

 

Issuance of common stock

   under employee stock

   purchase plan (unaudited)

 

 

65,497

 

 

 

 

 

 

127

 

 

 

 

 

 

 

 

 

127

 

Stock-based compensation

   expense (unaudited)

 

 

 

 

 

 

 

 

2,951

 

 

 

 

 

 

 

 

 

2,951

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,217

)

 

 

(23,217

)

Unrealized gain on available-

   for-sale securities (unaudited)

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Balance at June 30, 2020

   (unaudited)

 

 

30,951,421

 

 

$

31

 

 

$

503,311

 

 

$

17

 

 

$

(483,110

)

 

$

20,249

 

 

See accompanying notes.

-6-


 

Otonomy, Inc.

Condensed Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,722

)

 

$

(23,217

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

436

 

 

 

569

 

Stock-based compensation

 

 

3,774

 

 

 

2,951

 

Amortization of premiums (accretion of discounts) on short-term investments

 

 

49

 

 

 

(35

)

Amortization of debt discount

 

 

88

 

 

 

102

 

Impairment of property, plant and equipment

 

 

727

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other assets

 

 

(194

)

 

 

949

 

Accounts payable

 

 

448

 

 

 

(491

)

Accrued expenses

 

 

(879

)

 

 

(267

)

Accrued compensation

 

 

(1,587

)

 

 

(383

)

Right-of-use assets and lease liabilities, net

 

 

(90

)

 

 

(58

)

Net cash used in operating activities

 

 

(21,950

)

 

 

(19,880

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

 

 

 

(3,004

)

Maturities of short-term investments

 

 

42,745

 

 

 

29,500

 

Purchases of property and equipment

 

 

(243

)

 

 

(40

)

Proceeds from disposition of business

 

 

768

 

 

 

 

Net cash provided by investing activities

 

 

43,270

 

 

 

26,456

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs

 

 

32,207

 

 

 

 

Proceeds from issuance of long-term debt, net of issuance costs

 

 

674

 

 

 

 

Proceeds from short-term debt

 

 

 

 

 

1,126

 

Principal payments on short-term debt

 

 

 

 

 

(1,126

)

Proceeds from exercise of stock options

 

 

6

 

 

 

149

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

122

 

 

 

127

 

Net cash provided by financing activities

 

 

33,009

 

 

 

276

 

Net change in cash, cash equivalents and restricted cash

 

 

54,329

 

 

 

6,852

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

31,469

 

 

 

25,895

 

Cash, cash equivalents and restricted cash at end of period

 

$

85,798

 

 

$

32,747

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

85,096

 

 

$

32,045

 

Restricted cash at end of period

 

 

702

 

 

 

702

 

Cash, cash equivalents and restricted cash at end of period

 

$

85,798

 

 

$

32,747

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

686

 

 

$

683

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

29

 

 

$

44

 

 

See accompanying notes.

-7-


 

Otonomy, Inc.

Notes to Condensed Financial Statements

(unaudited)

 

1. Description of Business and Basis of Presentation

Description of Business

Otonomy, Inc. (Otonomy or the Company) was incorporated in the state of Delaware on May 6, 2008. Otonomy is a biopharmaceutical company dedicated to the development of innovative therapeutics for neurotology. The Company pioneered the application of drug delivery technology to the ear and is utilizing that expertise and proprietary position to develop products that achieve sustained drug exposure from a single local administration. The Company’s primary focus is currently on the advancement of three programs in its broad pipeline: OTO-313 in a Phase 2 trial for tinnitus; OTO-413 in a Phase 1/2 expansion trial for hearing loss; and OTO-825, a gene therapy for congenital hearing loss, in IND-enabling activities. Additionally, the Company is conducting preclinical development for OTO-510 in otoprotection and OTO-6XX for severe hearing loss.

OTO-313 is a sustained-exposure formulation of the potent and selective N-Methyl-D-Aspartate (NMDA) receptor antagonist gacyclidine that demonstrated positive top-line results in a Phase 1/2 clinical trial in tinnitus patients. The Company has initiated a Phase 2 clinical trial for OTO-313 with top-line results expected in mid-2022. OTO-413 is a sustained-exposure formulation of brain-derived neurotrophic factor (BDNF) that demonstrated positive top-line results in a Phase 1/2 clinical trial in hearing loss patients. The Company has recently initiated an expansion of the Phase 1/2 clinical trial for OTO-413 with top-line results expected in mid-2022. OTO-825 is a gene therapy targeting mutations in the gap junction beta-2 (GJB2) gene, which is the most common cause of congenital hearing loss. Otonomy is conducting investigational new drug (IND)-enabling activities for OTO-825 in conjunction with Applied Genetic Technologies Corporation (AGTC), the Company’s strategic collaborator for the program. In addition, Otonomy is conducting preclinical development for OTO-510, a novel molecule in development for the prevention of cisplatin-induced hearing loss, and OTO-6XX, a hair cell repair and regeneration program for severe hearing loss that includes a novel compound exclusively licensed to Otonomy from Kyorin Pharmaceutical Co., Ltd. (Kyorin).

Liquidity and Financial Condition

The Company follows Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires that management evaluate whether there are relevant conditions and events that in aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

The condensed financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative cash flows from operating activities since inception. In April 2021, the Company sold in a public offering 8,298,890 shares of its common stock, which includes the underwriters’ full exercise of their option to purchase additional shares, and the Company sold pre-funded warrants to purchase 7,111,110 shares of its common stock for $32.2 million in total net proceeds after deducting underwriting discounts and commissions and offering expenses. As of June 30, 2021, the Company had cash, cash equivalents and short-term investments of $97.9 million, outstanding debt of $15.9 million and an accumulated deficit of $529.3 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it: (i) develops and seeks regulatory approvals for its product candidates; and (ii) works to develop additional product candidates through research and development programs. When additional financing is required, the Company anticipates that it will seek additional funding through future debt and/or equity financings or other sources, such as potential collaboration agreements. Additional capital may not be available in sufficient amounts or on reasonable terms, if at all.  If the Company is not able to secure adequate additional funding, if or when necessary, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects.  The Company believes that its existing cash, cash equivalents and short-term investments will be sufficient to fund its operations for a period of at least twelve months from the date of this report.

Basis of Presentation

The accompanying interim condensed financial statements are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and following the requirements of the United States Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In the Company’s opinion, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These condensed financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s audited financial statements and accompanying notes for the year ended December 31, 2020 included in the Company’s Annual Report on

-8-


 

Form 10-K, as filed with the SEC on February 11, 2021. The results presented in these unaudited condensed financial statements are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

 

 

2. Summary of Significant Accounting Policies

Use of Estimates

The condensed financial statements have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company 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 financial statements and the reported amounts of product sales and expense during the reporting period. Although these estimates are based on the Company’s knowledge of current events and anticipated actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Short-term Investments

The Company carries short-term investments classified as available-for-sale debt securities at fair value as determined by prices for identical or similar securities at the balance sheet date. Short-term investments consist of both Level 1 and Level 2 financial instruments in the fair value hierarchy (see Note 6 – Fair Value).

Realized gains or losses of available-for-sale securities are determined using the specific identification method and net realized gains and losses are included in interest income. The Company periodically reviews available-for-sale securities for other-than-temporary declines in fair value below the cost basis, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company records unrealized gains and losses on available-for-sale debt securities as a component of other comprehensive loss within the condensed statements of comprehensive loss and as a separate component of stockholders’ equity on the condensed balance sheets. The Company does not hold equity securities in its investment portfolio.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, cash equivalents, short-term investments, prepaid expenses and other assets, accounts payable, accrued expenses, accrued compensation and long-term debt. The carrying value of the Company’s cash and cash equivalents, short-term investments, prepaid expenses and other current assets, other long-term assets, accounts payable, accrued expenses, and accrued compensation approximate fair value due to the short-term nature of these items. Based on Level 3 inputs and the borrowing rates currently available for loans with similar terms, the Company believes the fair value of long-term debt approximates its carrying value.

Risks and Uncertainties Related to COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic could pose significant risks to the Company’s business; however, the ultimate impact of the pandemic is highly uncertain.

Given the unprecedented and evolving nature of the COVID-19 pandemic, including the rise of new variants, there continues to be significant uncertainty about the progression and ultimate impact of the pandemic on the Company’s operations. The Company has taken steps to mitigate the impact of the COVID-19 pandemic on its clinical trials, including developing processes to ensure the integrity of data collection from enrolled patients and supporting sites able to enroll patients, among other activity. Nonetheless the Company does not know the full extent of potential future delays or impacts on its business operations, its preclinical programs and clinical trials, healthcare systems, its financial condition, or the global economy as a whole resulting from the COVID-19 pandemic.

In addition, as a result of the COVID-19 pandemic, the Company has taken steps to protect the health and safety of its employees and community by following directives from the State of California and the applicable local governments, and guidance from the U.S. Centers for Disease Control and Prevention (CDC). Various safety protocols have been implemented and the Company is currently allowing employees who can remotely perform their essential functions to work from home.

-9-


 

Recent Accounting Pronouncements

Not Yet Adopted

In June 2016, Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) was issued, as amended. ASU 2016-13 introduces the current expected credit loss model, which will require an entity to measure credit losses for certain financial instruments and financial assets. ASU 2016-13 will also apply to receivables arising from revenue transactions such as accounts receivable. ASU 2016-13 is effective for the Company beginning January 1, 2023. The Company does not expect the adoption of ASU 2016-13 to have a material effect on its financial position, results of operations or cash flows.

Recently Adopted

Effective January 1, 2021, the Company early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2020-06). ASU 2020-06 simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

ASU 2020-06 is effective for a “smaller reporting company” for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt ASU 2020-06. By early adopting, ASU 2020-06 is effective for the Company beginning January 1, 2021. There was no cumulative effect to be recognized in connection with the early adoption of ASU 2020-06 and the adoption did not have a material impact on the Company’s financial statements or disclosures.

 

3. Available-for-Sale Securities

The Company invests in available-for-sale debt securities consisting of money market funds, certificates of deposit, U.S. Treasury securities and U.S. government sponsored enterprise securities. Available-for-sale debt securities are classified as part of either cash and cash equivalents or short-term investments in the condensed balance sheets. Available-for-sale debt securities with maturities of three months or less from the date of purchase have been classified as cash equivalents and were $78.7 million and $23.3 million as of June 30, 2021 and December 31, 2020, respectively. Available-for-sale debt securities with maturities of more than three months from the date of purchase have been classified as short-term investments, and were as follows (in thousands):

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Market Value

 

June 30, 2021: