10-Q
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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 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: 001-36591

 

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 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 May 3, 2022 was 56,921,605.

 

 


 

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

6

 

 

Notes to Condensed Financial Statements

7

 

 

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

14

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

23

 

 

Item 4. Controls and Procedures

23

 

 

PART II. OTHER INFORMATION

25

 

 

Item 1. Legal Proceedings

25

 

 

Item 1A. Risk Factors

25

 

 

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

60

 

 

Item 3. Default Upon Senior Securities

60

 

 

Item 4. Mine Safety Disclosures

60

 

 

Item 5. Other Information

60

 

 

Item 6. Exhibits

61

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Otonomy, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

62,874

 

 

$

77,412

 

Prepaid and other current assets

 

3,504

 

 

 

3,056

 

Total current assets

 

66,378

 

 

 

80,468

 

Restricted cash

 

702

 

 

 

702

 

Property and equipment, net

 

1,850

 

 

 

1,771

 

Right-of-use assets

 

12,302

 

 

 

12,696

 

Total assets

$

81,232

 

 

$

95,637

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

1,447

 

 

$

1,090

 

Accrued expenses

 

3,274

 

 

 

4,338

 

Accrued compensation

 

1,837

 

 

 

3,450

 

Leases, current

 

3,480

 

 

 

3,455

 

Total current liabilities

 

10,038

 

 

 

12,333

 

Long-term debt, net

 

16,040

 

 

 

15,997

 

Leases, net of current

 

11,905

 

 

 

12,400

 

Total liabilities

 

37,983

 

 

 

40,730

 

Commitments and Contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2022
   and December 31, 2021;
no shares issued or outstanding at March 31, 2022 and
   December 31, 2021

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2022
   and December 31, 2021;
56,921,605 and 56,732,474 shares issued and outstanding
   at March 31, 2022 and December 31, 2021, respectively

 

57

 

 

 

57

 

Additional paid-in capital

 

612,549

 

 

 

610,655

 

Accumulated deficit

 

(569,357

)

 

 

(555,805

)

Total stockholders’ equity

 

43,249

 

 

 

54,907

 

Total liabilities and stockholders’ equity

$

81,232

 

 

$

95,637

 

 

See accompanying notes.

 

-2-


 

Otonomy, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Product sales, net

 

$

 

 

$

90

 

Costs and operating expenses:

 

 

 

 

 

 

Cost of product sales

 

 

 

 

 

230

 

Research and development

 

 

9,406

 

 

 

7,660

 

Selling, general and administrative

 

 

3,748

 

 

 

4,043

 

Total costs and operating expenses

 

 

13,154

 

 

 

11,933

 

Loss from operations

 

 

(13,154

)

 

 

(11,843

)

Other income (expense)

 

 

 

 

 

 

Interest income

 

 

11

 

 

 

15

 

Interest expense

 

 

(409

)

 

 

(382

)

Net loss

 

$

(13,552

)

 

$

(12,210

)

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.20

)

 

$

(0.23

)

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

 

 

67,845,685

 

 

 

52,319,101

 

 

See accompanying notes.

-3-


 

Otonomy, Inc.

Condensed Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Net loss

 

$

(13,552

)

 

$

(12,210

)

Other comprehensive income:

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

4

 

Comprehensive loss

 

$

(13,552

)

 

$

(12,206

)

 

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 December 31, 2021

 

 

56,732,474

 

 

$

57

 

 

$

610,655

 

 

$

 

 

$

(555,805

)

 

$

54,907

 

Issuance of common stock upon
   vesting of restricted stock units (unaudited)

 

 

189,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

1,894

 

 

 

 

 

 

 

 

 

1,894

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,552

)

 

 

(13,552

)

Balance at March 31, 2022
   (unaudited)

 

 

56,921,605

 

 

$

57

 

 

$

612,549

 

 

$

 

 

$

(569,357

)

 

$

43,249

 

 

 

 

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
   upon exercise of stock
   options (unaudited)

 

 

232

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation
   expense (unaudited)

 

 

 

 

 

 

 

 

1,963

 

 

 

 

 

 

 

 

 

1,963

 

Net loss (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,210

)

 

 

(12,210

)

Unrealized gain on available-
   for-sale securities (unaudited)

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Balance at March 31, 2021
   (unaudited)

 

 

48,319,202

 

 

$

48

 

 

$

572,805

 

 

$

5

 

 

$

(516,834

)

 

$

56,024

 

 

See accompanying notes.

-5-


 

Otonomy, Inc.

Condensed Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(13,552

)

 

$

(12,210

)

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

 

 

 

 

 

 

Depreciation

 

 

195

 

 

 

221

 

Stock-based compensation

 

 

1,894

 

 

 

1,963

 

Amortization of premiums on short-term investments

 

 

 

 

 

22

 

Amortization of debt discount

 

 

43

 

 

 

45

 

Impairment of property, plant and equipment

 

 

 

 

 

727

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other assets

 

 

(448

)

 

 

(898

)

Accounts payable

 

 

336

 

 

 

(209

)

Accrued expenses

 

 

(1,123

)

 

 

152

 

Accrued compensation

 

 

(1,613

)

 

 

(2,126

)

Right-of-use assets and lease liabilities, net

 

 

(76

)

 

 

(54

)

Net cash used in operating activities

 

 

(14,344

)

 

 

(12,367

)

Cash flows from investing activities:

 

 

 

 

 

 

Maturities of short-term investments

 

 

 

 

 

32,745

 

Purchases of property and equipment

 

 

(194

)

 

 

(130

)

Net cash (used in) provided by investing activities

 

 

(194

)

 

 

32,615

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

1

 

Net cash provided by financing activities

 

 

 

 

 

1

 

Net change in cash, cash equivalents and restricted cash

 

 

(14,538

)

 

 

20,249

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

78,114

 

 

 

31,469

 

Cash, cash equivalents and restricted cash at end of period

 

$

63,576

 

 

$

51,718

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

62,874

 

 

$

51,016

 

Restricted cash at end of period

 

 

702

 

 

 

702

 

Cash, cash equivalents and restricted cash at end of period

 

$

63,576

 

 

$

51,718

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

Cash paid for interest

 

$

360

 

 

$

338

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

165

 

 

$

 

 

See accompanying notes.

-6-


 

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 Phase 2 for tinnitus; OTO-413 in Phase 2a for hearing loss; and OTO-825, a gene therapy for congenital hearing loss, in investigational new drug (IND)-enabling activities. Additionally, the Company is conducting preclinical development for OTO-510 in otoprotection and OTO-6XX for severe hearing loss.

Liquidity and Financial Condition

The Company follows Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires that management perform a two-step analysis over its ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’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 (step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (step 2).

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. As of March 31, 2022, the Company had cash, cash equivalents and short-term investments of $62.9 million, outstanding debt of $16.0 million and an accumulated deficit of $569.4 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, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2022. 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.

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Short-term Investments

From time to time, 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 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’ ability to enroll patients, among other activities. 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.

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.

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 $55.5 million and $71.5 million as of March 31, 2022 and December 31, 2021, respectively. The Company held no available-for-sale debt securities with maturities of more than three months from the date of purchase as of March 31, 2022 and December 31, 2021.

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As of March 31, 2022, the Company had no securities in a gross unrealized loss position. At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are other-than-temporary. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, and the Company’s intent and ability to hold the investment until recovery of its amortized cost basis. The Company intends, and has the ability, to hold any investments in unrealized loss positions until their amortized cost basis has been recovered. The Company determined there were no other-than-temporary declines in the value of any available-for-sale securities as of March 31, 2022. The Company obtains the fair value of its available-for-sale debt securities from a professional pricing service.

 

4. Balance Sheet Details

Property and Equipment, Net

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements are stated at cost and are depreciated over the lesser of the remaining term of the related lease or the estimated useful lives of the assets. The Company periodically assesses the value of its long-lived assets for impairment. During the three months ended March 31, 2021, the Company recorded an impairment to property and equipment, net of $0.7 million. No impairment was recorded during the three months ended March 31, 2022.

Property and equipment, net is comprised of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Laboratory equipment

 

$

4,481

 

 

$

4,252

 

Manufacturing equipment

 

 

82

 

 

 

82

 

Computer equipment and software

 

 

1,497

 

 

 

1,488

 

Leasehold improvements

 

 

851

 

 

 

822

 

Office furniture

 

 

1,507

 

 

 

1,507

 

 

 

 

8,418

 

 

 

8,151

 

Less: accumulated depreciation

 

 

(6,568

)

 

 

(6,380

)

Total

 

$

1,850

 

 

$

1,771

 

 

Accrued Expenses

Accrued expenses are comprised of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued clinical trial costs

 

$

1,226

 

 

$

1,279

 

Accrued other

 

 

2,048

 

 

 

3,059

 

Total

 

$

3,274

 

 

$

4,338

 

 

5. Commitments and Contingencies

Intellectual Property Licenses

The Company has acquired exclusive rights to develop patented rights, information rights and related know-how for OTO-313 and OTO-413 and potential future product candidates under licensing agreements with third parties. The licensing rights obligate the Company to make payments to the licensors for license fees, milestones and royalties. The Company is also responsible for patent prosecution costs, in the event such costs are incurred.

The Company may be obligated to make additional milestone payments under the Company’s intellectual property license agreements covering OTO-313 and OTO-413 as follows (in thousands):

 

Development

$

1,250

 

Regulatory

 

7,675

 

Commercialization

 

1,000

 

Total

$

9,925

 

 

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Other Royalty Arrangements

In October 2014, the Company entered into an exclusive license agreement with Ipsen that enables the Company to use clinical and nonclinical gacyclidine data generated by Ipsen to support worldwide development and regulatory filings for OTO-313. Under this license agreement, the Company is obligated to pay Ipsen low single-digit royalties on annual net sales of OTO-313 by the Company or its affiliates or sublicensees, up to a maximum cumulative royalty totaling $10.0 million.

6. Fair Value

The accounting guidance defines fair value, establishes a consistency framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance establishes a three-tier fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These tiers are based on the source of the inputs and are as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of March 31, 2022 and December 31, 2021 the Company held no assets or liabilities measured at fair value on a nonrecurring basis and no liabilities measured at fair value on a recurring basis. The following fair value hierarchy table presents the Company’s assets measured at fair value on a recurring basis (in thousands):

 

 

Fair Value Measurement at Reporting Date Using

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

55,500

 

 

$

55,500

 

 

$

 

 

$

 

 

$

55,500

 

 

$

55,500

 

 

$

 

 

$

 

December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

71,493

 

 

$

71,493

 

 

$

 

 

$

 

 

$

71,493

 

 

$

71,493

 

 

$

 

 

$

 

 

7. Leases

 

Operating Leases

The Company has existing operating leases for certain office equipment and its facility with initial terms ranging from 36 months to 130 months. The facility lease has an option for the Company to extend the lease term for an additional five years; however, it is not reasonably certain the Company will exercise the option to renew when the lease term ends in 2027, and thus, the incremental term was excluded from the calculation of the lease liability. The Company has the right to terminate the lease at the end of the 94th month of the lease term if it is acquired by a third party and pays an early termination fee. The Company’s restricted cash consists of cash maintained in separate deposit accounts to secure a letter of credit issued by a bank to the landlord under the facility lease.

Finance Leases

In November 2021, the Company entered into a lease for certain computer equipment with an initial term of 48 months, which includes an option to purchase the equipment at the end of the lease term that is not reasonably certain to be exercised. The lease payment includes customary principal and interest as well as costs related to the installation and setup of the equipment. The associated right-of-use asset is recognized within property and equipment, net on the condensed balance sheets and is being amortized over four years in accordance with the Company’s standard depreciation and amortization policies.

 

 

 

Three Months Ended March 31,

 

Lease expenses:

 

2022

 

 

2021

 

Operating lease expenses

 

$

779

 

 

$

785

 

Variable lease expenses

 

 

218

 

 

 

244

 

Total lease expenses

 

$

997

 

 

$

1,029

 

 

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Lease Maturities:

 

Operating Leases

 

 

Finance Leases

 

 

Total

 

Remaining in 2022

 

$

2,526

 

 

$

68

 

 

$

2,594

 

2023

 

 

3,464

 

 

 

91

 

 

 

3,555

 

2024

 

 

3,554

 

 

 

91

 

 

 

3,645

 

2025

 

 

3,642

 

 

 

83

 

 

 

3,725

 

2026

 

 

3,751

 

 

 

 

 

3,751

 

2027

 

 

2,891

 

 

 

 

 

2,891

 

Total minimum lease payments

 

 

19,828

 

 

 

333

 

 

 

20,161

 

Imputed interest

 

 

(4,726

)

 

 

(50

)

 

 

(4,776

)

Total

 

 

15,102

 

 

 

283

 

 

 

15,385

 

Less: leases, current

 

 

(3,389

)

 

 

(91

)

 

 

(3,480

)

Leases, net of current

 

$

11,713

 

 

$

192

 

 

$

11,905

 

 

8. Debt

On December 31, 2018 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement), among the Company, Oxford Finance LLC, as collateral agent, and the lenders party thereto from time to time. On June 2, 2021 (the New Closing Date), the Company entered into the Third Amendment to the Loan Agreement (the Third Amendment and together with the Loan Agreement, the Loan Agreements), which amends the Loan Agreement. The Third Amendment was accounted for as a modification.

The Loan Agreement provides for a $15.0 million secured term loan credit facility (the Original Term Loan) and the Third Amendment provides for an additional $1.0 million term loan (the New Term Loan and together with the Original Term Loan, the Term Loans). The proceeds of the Term Loans may be used for working capital and general corporate purposes. The Company had the right to prepay the Original Term Loan in whole or in part at any time, subject to a prepayment fee of 1.00%. Under the Third Amendment, the Company has the right to prepay the Term Loans in whole or in part at any time, subject to a prepayment fee of 3.00% if prepaid on or prior to the first anniversary of the New Closing Date, 2.00% if prepaid after the first anniversary of the New Closing Date and on or prior to the second anniversary of the New Closing Date, and 1.00% thereafter. Amounts prepaid or repaid under the Term Loans may not be reborrowed. The Original Term Loan was fully funded on the Closing Date and the New Term Loan was fully funded on the New Closing Date. The Original Term Loan’s maturity was extended under the Third Amendment from December 1, 2023 to April 1, 2026 (the Maturity Date), and the New Term Loan matures on the Maturity Date. The Company paid a facility fee of 0.75% of the Original Term Loan and customary closing fees on the Closing Date and customary closing fees in respect of the Third Amendment on the New Closing Date.

The Term Loans bear interest at a floating rate equal to the greater of 5.25% and the prime rate as reported in the Wall Street Journal from time to time, plus 3.75% (9.0% as of March 31, 2022, the minimum interest rate). Interest on the Term Loans is payable monthly in arrears. The Company was permitted to make interest-only payments on the Original Term Loan until February 1, 2022, followed by consecutive equal monthly payments of principal and interest in arrears through original maturity on December 1, 2023. Under the Third Amendment, the Company is permitted to make interest-only payments on the Term Loans until June 1, 2023, followed by consecutive equal monthly payments of principal and interest in arrears through the Maturity Date. The Third Amendment also permits the interest-only period to be extended by an additional twelve months subject to the achievement of certain milestones. The outstanding principal amount of the Term Loans, together with accrued and unpaid interest, is due on the Maturity Date.

Upon repayment or acceleration of the Term Loans, a final payment fee equal to 4.00% of the aggregate original principal amount of the Term Loans is payable (the Final Payment Fee). The Final Payment Fee of $0.6 million, as well as the initial facility fee and all other direct fees and costs associated with the Loan Agreements, was recognized as a debt discount. The debt discount is being amortized to interest expense over the term of the Loan Agreements using the effective interest method.

The Company’s obligations under the Loan Agreements are secured by substantially all its assets, excluding intellectual property and subject to certain other exceptions and limitations.

The Loan Agreements contain customary affirmative covenants, including covenants regarding compliance with applicable laws and regulations, reporting requirements, payment of taxes and other obligations, and maintenance of insurance. Further, subject to certain exceptions, the Loan Agreements contain customary negative covenants limiting the ability of the Company to, among other things, sell assets, allow a change of control to occur (if the Term Loans are not repaid), make acquisitions, incur debt, grant liens, make investments, pay dividends or repurchase stock. The Company has maintained compliance with all such covenants to date. Upon the occurrence and during the continuance of an event of default, the lenders may declare all outstanding principal and accrued and unpaid interest under the Loan Agreements immediately due and payable, increase the applicable rate of interest by 5.00%, and

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exercise the other rights and remedies provided for under the Loan Agreements and related loan documents. The events of default under the Loan Agreements include payment defaults, breaches of covenants or representations and warranties, material adverse changes, certain bankruptcy events, cross defaults with certain other indebtedness, and judgment defaults.

Interest expense, including amortization of the debt discount, related to the Loan Agreements totaled $0.4 million for the three months ended March 31, 2022 and 2021. Accrued interest, included in accounts payable, was $0.1 million as of March 31, 2022 and December 31, 2021. The outstanding balance of the Term Loans was $16.0 million as of March 31, 2022 and December 31, 2021, inclusive of accretion of the final payment and net unamortized debt discount.

9. Stockholders’ Equity

Common Stock Reserved for Future Issuance

Shares of common stock reserved for future issuance are as follows:

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

Common stock options issued and outstanding

 

12,665,032

 

 

 

11,707,568

 

Pre-funded warrants to purchase common stock

 

11,111,110

 

 

 

11,111,110

 

Common stock reserved and available for future grant under the 2014 Equity Incentive Plan

 

2,842,598

 

 

 

1,500,062

 

Common stock reserved for issuance under ESPP

 

3,714,710

 

 

 

2,914,710

 

Unvested restricted stock units

 

1,803,369

 

 

 

1,650,250

 

Total common stock reserved for future issuance

 

32,136,819

 

 

 

28,883,700

 

 

Net Loss Per Share

As of March 31, 2022, potentially dilutive securities excluded from the calculation of diluted net loss per share consist of outstanding options to purchase 12,665,032 shares of the Company’s common stock and 1,803,369 unvested restricted stock units. As of March 31, 2021, potentially dilutive securities excluded from the calculation of diluted net loss per share consist of outstanding options to purchase 11,893,024 shares of the Company’s common stock.

July 2020 Pre-funded Warrants

In July 2020, the Company sold pre-funded warrants to purchase 4,000,000 shares of its common stock with an exercise price of $0.001 per pre-funded warrant, that do not contain an expiration date. During the three months ended March 31, 2022, none of the July 2020 pre-funded warrants were exercised; as of March 31, 2022, all of the July 2020 pre-funded warrants remained issued and outstanding.

April 2021 Pre-funded Warrants

In April 2021, the Company sold pre-funded warrants to purchase 7,111,110 shares of its common stock with an exercise price of $0.001 per pre-funded warrant, that do not contain an expiration date. During the three months ended March 31, 2022, none of the April 2021 pre-funded warrants were exercised; as of March 31, 2022, all of the April 2021 pre-funded warrants remained issued and outstanding.

10. Stock-Based Compensation

The 2014 Equity Incentive Plan (the 2014 Plan) permits the grant of incentive stock options to the Company’s employees and the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants. Options granted under the 2014 Plan are generally scheduled to vest over four years, subject to continued service, and subject to certain acceleration of vesting provisions, expire no later than 10 years from the date of grant. Options granted under the 2014 Plan must have a per share exercise price equal to at least 100% of the fair market value of a share of the common stock as of the date of grant. Restricted stock units granted under the 2014 Plan are generally scheduled to vest over two to three years. The Company accounts for stock-based compensation expense related to stock options and employee stock purchase plan (ESPP) rights by estimating the fair value on the date of grant using the Black-Scholes-Merton option pricing model, while market price of the Company’s common stock at the date of grant is used for restricted stock unit awards. Forfeitures are recognized as incurred. For awards subject to time-based vesting conditions, stock-based compensation expense is recognized using the straight-line method.

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The following table summarizes stock option activity for the three months ended March 31, 2022 (share amounts in thousands):