tsha-10q_20200930.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, 2020

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: 001-39536

 

Taysha Gene Therapies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3199512

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2280 Inwood Road

Dallas, Texas

75235

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (214) 612-0000

 

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 $0.00001 per share

 

TSHA

 

The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 12, 2020, the registrant had 37,761,435 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

 

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

Signatures

78

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Taysha Gene Therapies, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

278,634

 

 

$

-

 

Prepaid expenses

 

 

604

 

 

 

-

 

Deferred offering costs

 

 

-

 

 

 

15

 

Total current assets

 

 

279,238

 

 

 

15

 

Property and equipment, net

 

 

28

 

 

 

-

 

Total assets

 

$

279,266

 

 

$

15

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,837

 

 

$

-

 

Accrued expenses

 

 

2,727

 

 

 

150

 

Due to related party

 

 

60

 

 

 

-

 

Total current liabilities

 

 

11,624

 

 

 

150

 

Total liabilities

 

 

11,624

 

 

 

150

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies - Note 10

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value per share; 10,000,000 shares authorized and no shares issued and outstanding as of September 30, 2020; no shares authorized, issued and outstanding as of December 31, 2019

 

 

-

 

 

 

-

 

Common stock, $0.00001 par value per share; 200,000,000 shares authorized and 37,761,435 issued and outstanding as of September 30, 2020; 10,895,000 shares authorized, 10,894,999 issued and outstanding as of December 31, 2019

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

310,450

 

 

 

980

 

Accumulated deficit

 

 

(42,808

)

 

 

(1,115

)

Total stockholders’ equity (deficit)

 

 

267,642

 

 

 

(135

)

Total liabilities and stockholders' equity (deficit)

 

$

279,266

 

 

$

15

 

 

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

 

1


Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

 

 

 

For the

Three Months

Ended

September 30,

2020

 

 

For the

Nine Months

Ended

September 30,

2020

 

 

For the

Period from

September 20,

2019 (date of

inception) to

September 30,

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,057

 

 

$

19,633

 

 

$

-

 

General and administrative

 

 

3,984

 

 

 

5,002

 

 

 

31

 

Total operating expenses

 

 

15,041

 

 

 

24,635

 

 

 

31

 

Loss from operations

 

 

(15,041

)

 

 

(24,635

)

 

 

(31

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of preferred stock tranche liability

 

 

-

 

 

 

(17,030

)

 

 

-

 

Interest expense

 

 

(1

)

 

 

(28

)

 

 

-

 

Total other expense

 

 

(1

)

 

 

(17,058

)

 

 

-

 

Net loss

 

$

(15,042

)

 

$

(41,693

)

 

$

(31

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(1.28

)

 

$

(3.73

)

 

$

(0.00

)

Weighted average common shares outstanding, basic and diluted

 

 

11,733,170

 

 

 

11,176,429

 

 

 

8,715,999

 

 

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

 

 

 

2


Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(Unaudited)

 

For the Three Months Ended September 30, 2020

 

 

 

Series A

Convertible

Preferred Stock

 

 

Series B

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of June 30, 2020

 

 

6,200,000

 

 

$

18,014

 

 

 

-

 

 

$

-

 

 

 

10,894,999

 

 

$

-

 

 

$

980

 

 

$

(27,766

)

 

$

(26,786

)

Issuance of Series A convertible preferred stock, net of offering costs of $165

 

 

3,800,000

 

 

 

11,235

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Series B convertible preferred stock, net of offering costs of $185

 

 

-

 

 

 

-

 

 

 

5,647,048

 

 

 

95,815

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reclassification of preferred stock tranche liability upon issuance of Series A milestone shares

 

 

-

 

 

 

17,176

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of Series A and Series B convertible preferred stock to common stock

 

 

(10,000,000

)

 

 

(46,425

)

 

 

(5,647,048

)

 

 

(95,815

)

 

 

17,047,378

 

 

 

-

 

 

 

142,240

 

 

 

 

 

 

 

142,240

 

Issuance of shares of common stock in initial public offering, net of offering costs and underwriting discounts and commissions of $15,111

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,050,000

 

 

 

-

 

 

 

165,889

 

 

 

-

 

 

 

165,889

 

Issuance of restricted stock award

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

769,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,341

 

 

 

-

 

 

 

1,341

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,042

)

 

 

(15,042

)

Balance as of September 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

37,761,435

 

 

$

-

 

 

$

310,450

 

 

$

(42,808

)

 

$

267,642

 

 

3


Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(Unaudited)

 

For the Nine Months Ended September 30, 2020

 

 

 

Series A

Convertible

Preferred Stock

 

 

Series B

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of December 31, 2019

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

10,894,999

 

 

$

-

 

 

$

980

 

 

$

(1,115

)

 

$

(135

)

Issuance of Series A convertible preferred stock, net of offering costs of $605 and issuance of preferred stock tranche liability of $1,050

 

 

10,000,000

 

 

 

28,345

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Series B convertible preferred stock, net of offering costs of $185

 

 

 

 

 

 

 

 

 

 

5,647,048

 

 

 

95,815

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reclassification of preferred stock tranche liability upon issuance of Series A milestone shares

 

 

-

 

 

 

18,080

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of Series A and Series B convertible preferred stock to common stock

 

 

(10,000,000

)

 

 

(46,425

)

 

 

(5,647,048

)

 

 

(95,815

)

 

 

17,047,378

 

 

 

-

 

 

 

142,240

 

 

 

-

 

 

 

142,240

 

Issuance of shares of common stock in initial public offering, net of offering costs and underwriting discounts and commissions of $15,111

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,050,000

 

 

 

-

 

 

 

165,889

 

 

 

-

 

 

 

165,889

 

Issuance of restricted stock award

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

769,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,341

 

 

 

-

 

 

 

1,341

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(41,693

)

 

 

(41,693

)

Balance as of September 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

37,761,435

 

 

$

-

 

 

$

310,450

 

 

$

(42,808

)

 

$

267,642

 

 

For the Period from September 20, 2019 (date of inception) to September 30, 2019

 

 

 

Series A

Convertible

Preferred Stock

 

 

Series B

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of September 20, 2019 (date of inception)

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Issuance of Founders Shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,715,999

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31

)

 

 

(31

)

Balance as of September 30, 2019

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

8,715,999

 

 

$

-

 

 

$

-

 

 

$

(31

)

 

$

(31

)

 

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

 

 

4


Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

For the

Nine Months

Ended

September 30,

2020

 

 

For the

Period from

September 20,

2019 (date of

inception) to

September 30,

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(41,693

)

 

$

(31

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

3

 

 

 

-

 

Change in fair value of preferred stock tranche liability

 

 

17,030

 

 

 

-

 

Research and development license expense

 

 

6,000

 

 

 

-

 

Stock-based compensation

 

 

1,341

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(604

)

 

 

-

 

Accounts payable

 

 

5,403

 

 

 

-

 

Accrued expenses

 

 

1,579

 

 

 

31

 

Due to related party

 

 

60

 

 

 

-

 

Net cash used in operating activities

 

 

(10,881

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of research and development license

 

 

(3,000

)

 

 

-

 

Purchase of property and equipment

 

 

(31

)

 

 

-

 

Net cash used in investing activities

 

 

(3,031

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commission and other offering costs

 

 

167,162

 

 

 

-

 

Proceeds from issuances of Series A convertible preferred stock, net of issuance costs

 

 

29,569

 

 

 

-

 

Proceeds from issuance of Series B convertible preferred stock, net of issuance costs

 

 

95,815

 

 

 

-

 

Proceeds from notes payable to related party

 

 

1,673

 

 

 

-

 

Repayment of notes payable to related party

 

 

(1,673

)

 

 

-

 

Net cash provided by financing activities

 

 

292,546

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

278,634

 

 

 

-

 

Cash at the beginning of the period

 

 

-

 

 

 

-

 

Cash at the end of the period

 

$

278,634

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

28

 

 

$

-

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Reclassification of preferred stock tranche liability upon share issuance

 

$

18,080

 

 

$

-

 

Allocation of preferred stock tranche liability

 

$

1,050

 

 

$

-

 

Conversion of Series A and Series B convertible preferred stock to common stock

 

$

142,240

 

 

$

-

 

Purchase of research and development license not yet paid

 

$

3,000

 

 

$

-

 

Issuance costs for issuances of common stock in initial public offering not yet paid

 

$

1,273

 

 

$

-

 

Issuance costs for issuance of Series A convertible preferred stock not yet paid

 

$

174

 

 

$

-

 

 

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

 

 

5


 

Note 1—Organization and Description of Business Operations

Taysha Gene Therapies, Inc. (the “Company” or “Taysha”) was originally formed under the laws of the State of Texas on September 20, 2019 (“Inception”). Taysha converted to a Delaware corporation on February 13, 2020, which had no impact to the Company’s par value or issued and authorized capital structure.

Taysha is a patient-centric gene therapy company focused on developing and commercializing AAV-based gene therapies for the treatment of monogenic diseases of the central nervous system in both rare and large patient populations.

Stock Split

On September 16, 2020, the Company effected a 1.0895-for-one stock split of its authorized, issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock as discussed in Note 5. Accordingly, all share and per share amounts for the periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the convertible preferred stock conversion ratios. On September 16, 2020, the Company also increased the number of shares of common stock authorized for issuance under the 2020 Equity Incentive Plan (the “Existing Plan”) to 3,845,294.

Initial Public Offering

On September 23, 2020, the Company’s registration statement on Form S-1 (File No. 333-248559) related to the initial public offering (“IPO”) of its common stock became effective and on September 28, 2020, the IPO closed. Pursuant to the IPO, the Company issued and sold 9,050,000 shares of common stock at a public offering price of $20.00 per share, which included 1,180,434 shares of common stock issued upon the exercise in full of the underwriters’ option to purchase additional shares. The Company received net proceeds of $165.9 million after deducting underwriting discounts and commissions and other offering costs of $2.4 million. The shares began trading on the Nasdaq Global Select Market on September 24, 2020.

On September 28, 2020, in connection with the closing of the IPO, 10,000,000 shares of Series A and 5,647,048 shares of Series B convertible preferred stock automatically converted into an aggregate of 17,047,378 shares of common stock with a conversion ratio of 1.0895 shares of common stock for each share of Series A and Series B convertible preferred stock.

As a result of the IPO, including the underwriters’ exercise in full of their option to purchase additional shares, and the conversions of the Series A and B convertible preferred stock, the Company’s total number of outstanding shares increased by 26,097,378 immediately following the closing of the IPO.

Upon the effectiveness of the Company’s registration statement related to the IPO, the Company’s 2020 Stock Incentive Plan (the “New Plan”) and 2020 Employee Stock Purchase Plan became effective. At that time, all shares reserved for issuance under the Existing Plan ceased to be available for issuance under such plan and became available for issuance under the New Plan.

Liquidity and Capital Resources

The Company has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, the Company had an accumulated deficit of $42.8 million.

Prior to the closing of the Company’s IPO, between March and July 2020, the Company closed on the sale of an aggregate of 10,000,000 shares of Series A convertible preferred stock for gross proceeds of $30.0 million. Between July and August 2020, the Company closed on the sale of an aggregate of 5,647,048 shares of Series B convertible preferred stock for gross proceeds of $96.0 million.

Due to the proceeds received from the IPO and the sale of its Series A and Series B convertible preferred stock, management believes that its existing financial resources are sufficient to continue operating activities at least one year past the issuance date of these interim condensed consolidated financial statements. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and the market acceptance of the Company’s products. The Company will need to obtain additional financing in order to complete clinical studies and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be on terms acceptable to the Company.

6


 

In December 2019, the novel coronavirus (“COVID-19”) emerged and has subsequently spread worldwide. The World Health Organization has declared COVID-19 a global pandemic, resulting in federal, state and local governments and private entities implementing various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders, and advisories and quarantining people who may have been exposed to the virus. The Company has been actively monitoring COVID-19 and its impact globally. Management believes the financial results for the nine months ended September 30, 2020 were not significantly impacted by COVID-19. In addition, management believes the remote working arrangements and travel restrictions imposed by various governmental jurisdictions have had limited impact on the Company’s ability to maintain internal operations during the nine months ended September 30, 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19.

 

Note 2—Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the period from September 20, 2019 (date of inception) through December 31, 2019 included in the Company’s final prospectus dated September 23, 2020 and filed with the Securities and Exchange Commission on September 25, 2020, pursuant to Rule 424(b)(4).

Principles of Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Taysha and its inactive wholly owned U.S. subsidiaries that were incorporated during 2020. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies as disclosed in the audited financial statements as of December 31, 2019, except as noted below.

Cash and Cash Equivalents

Cash and cash equivalents consist of funds held in a standard checking account. The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of September 30, 2020, the Company does not have any cash equivalents.

7


 

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on these deposits.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are accounted for in accordance with ASC 820, Fair Value Measurements and Disclosures which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

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

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.

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

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

The carrying values reported in the Company’s condensed consolidated balance sheet for cash and cash equivalents, accounts payable, and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting, and filing fees directly relating to the IPO and the Company’s Series A and Series B preferred stock financings, were capitalized and offset against the related proceeds upon the completion of the offerings. Upon completion of the IPO, approximately $2.4 million of deferred offering costs were offset against the IPO proceeds in additional paid-in capital.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and consist solely of computer equipment. Depreciation expense is recognized using the straight-line method over its estimated useful life of 3 years.

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, which consist of property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairment losses recognized during the nine months ended September 30, 2020.

8


 

Preferred Stock Tranche Liability

The Company determined that its obligation to issue, and the Company’s investors’ right to purchase, additional shares of Series A convertible preferred stock pursuant to the milestone closings (see Note 5) represented a freestanding financial instrument (the “tranche liability”). The tranche liability was initially recorded at fair value. The proceeds from the sale of the convertible preferred stock were first allocated to the fair value of the tranche liability with the remaining proceeds from the sale of the convertible preferred stock allocated to the Series A convertible preferred stock. The tranche liability was remeasured at each reporting period and upon the exercise or expiration of the obligation, with gains and losses arising from subsequent changes in its fair value recognized in other expense in the condensed consolidated statement of operations. At the time of the exercise or expiration of the tranche liability, any remaining value of the tranche liability was reclassified to convertible preferred stock on the condensed consolidated balance sheet.

Stock-Based Compensation

The Company accounts for all stock-based payments to employees and non-employees, including grants of stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) based on their respective grant date fair values. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, which is affected principally by the estimated fair value of shares of the Company’s common stock and requires management to make a number of other assumptions, including the expected life of the option, the volatility of the underlying shares, the risk-free interest rate and expected dividends. Expected volatility is based on the historical share volatility of a set of comparable publicly traded companies over a period of time equal to the expected term of the options. Due to the lack of historical exercise history, the expected term of the Company’s stock options is determined using the “simplified” method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Prior to September 23, 2020, the fair value of common stock underlying the Company’s stock options, RSAs and RSUs was estimated by the Company’s board of directors considering, among other things, contemporaneous valuations of the Company’s common stock prepared by unrelated third-party valuation firms. After the IPO, the fair value of common stock is based on the closing price of the Company’s common stock on the Nasdaq Global Select Market as reported on the date of the grant.

The RSAs and RSUs are valued based on the fair value of the Company’s common stock on the date of grant. The Company expenses stock-based compensation related to stock options RSAs and RSUs over the requisite service period using the straight-line method. All stock-based compensation costs are recorded in research and development expense or general and administrative expense in the condensed consolidated statements of operations based upon the respective employee’s roles within the Company. Forfeitures are recorded as they occur. 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. This update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance will become effective for the Company for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this standard on its interim condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its interim condensed consolidated financial statements.

 

9


 

Note 3—Supplemental Financial Information

Accrued expenses consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Accrued research and development

 

$

767

 

 

$

7

 

Accrued issuance costs

 

 

752

 

 

 

-

 

Accrued compensation

 

 

544

 

 

 

-

 

Accrued professional fees

 

 

462

 

 

 

122

 

Other

 

 

202

 

 

 

21

 

Total accrued expenses

 

$

2,727

 

 

$

150

 

 

Note 4—Research, Collaboration and License Agreements

UT Southwestern Agreement

On November 19, 2019, the Company entered into a research, collaboration and license agreement (“UT Southwestern Agreement”) with the Board of Regents of the University of Texas System on behalf of The University of Texas Southwestern Medical Center (“UT Southwestern”). Under the UT Southwestern Agreement, UT Southwestern is primarily responsible for preclinical development activities with respect to licensed products for use in certain specified indications (up to investigational new drug application-enabling studies), and the Company is responsible for all subsequent clinical development and commercialization activities with respect to the licensed products. UT Southwestern will conduct such preclinical activities for a two-year period under mutually agreed upon sponsored research agreements that were entered into beginning in April 2020. During the initial research phase, the Company has the right to expand the scope of specified indications under the UT Southwestern Agreement.

In connection with the UT Southwestern Agreement, the Company obtained an exclusive, worldwide, royalty-free license under certain patent rights of UT Southwestern and a non-exclusive, worldwide, royalty-free license under certain know-how of UT Southwestern, in each case to make, have made, use, sell, offer for sale and import licensed products for use in certain specified indications. Additionally, the Company obtained a non-exclusive, worldwide, royalty-free license under certain patents and know-how of UT Southwestern for use in all human uses, with a right of first refusal to obtain an exclusive license under certain of such patent rights and an option to negotiate an exclusive license under other of such patent rights. The Company is required to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one licensed product.

On April 2, 2020, the Company amended the UT Southwestern Agreement to include the addition of another licensed product and certain indications, and a right of first refusal to the Company over certain patient dosing patents. No additional consideration was transferred in connection with this amendment.

The UT Southwestern Agreement expires on a country-by-country and licensed product-by-licensed product basis upon the expiration of the last valid claim of a licensed patent in such country for such licensed product. After the initial research term, the Company may terminate the agreement, on an indication-by-indication and licensed product-by-licensed product basis, at any time upon specified written notice to UT Southwestern. Either party may terminate the agreement upon an uncured material breach of the agreement or insolvency of the other party.

In November 2019, as partial consideration for the license rights granted under the UT Southwestern Agreement, the Company issued 2,179,000 shares of its common stock, or 20% of its then outstanding fully-diluted common stock, to UT Southwestern. As additional consideration, UT Southwestern was entitled to receive additional shares if their holdings fell below 10% on a fully-diluted basis before or as a result of the completion of a qualified financing. In March 2020, following the initial closing of the Series A convertible preferred stock agreement, which met the definition of such qualified financing, the anti-dilution feature expired and no additional shares were issued. The Company does not have any future milestone or royalty obligations to UT Southwestern under the UT Southwestern Agreement other than costs related to maintenance of patents.

The Company also had a right of first refusal for any shares that UT Southwestern wished to sell that expired upon the closing of the IPO.

 

Queen’s Agreement

In late December 2019, the Company entered into a research grant agreement (“RGA”) with Queen’s University at Kingston (“Queen’s”), for certain research and development activities related to the generation of AAV9 vector. The Company committed to

10


 

fund $3.8 million under the RGA with Queen’s. The Company issued Queen’s a promise-to-pay note whereby any amounts paid directly by Queen’s for the manufacture of the vector for use in the funded research activities, to the extent such amounts had not already been funded by the Company to Queen’s, would become a loan obligation for the Company (the “Note”), subject to an interest rate of 6%. For the nine months ended September 30, 2020, the Company paid all expenses associated with the Queen’s RGA, thus no amounts were due or outstanding under the Note as of September 30, 2020, and the promise-to-pay has therefore expired.

On February 21, 2020, the Company entered into a license agreement with Queen’s (the “Queen’s Agreement”) to obtain the exclusive perpetual, royalty-bearing license, with the right to sublicense through multiple tiers, under certain patent rights and know-how of Queen’s, including certain improvements to such patent rights and know-how, to develop products in any field which use one or more valid claims of the patents licensed under the Queen’s Agreement (the “Licensed Patents”), or the technology, information and intellectual property related to the patents licensed under the Queen’s Agreement (together with the Licensed Patents, the “Licensed Products”), and to make, have made, use, sell, offer for sale, import and export Licensed Products and otherwise exploit such patents and know-how for use in certain specified indications. In exchange for the rights granted to the Company, the Company made a cash payment of $3.0 million in April 2020 which is recorded in research and development expenses in the condensed consolidated statement of operations and included as an investing outflow in the statement of cash flows since the acquired license does not have an alternative future use. The Company is obligated to make aggregate cash payments of up to $10.0 million upon the completion of a combination of regulatory milestones and up to $10.0 million upon the completion of a combination of commercial milestones. In further consideration of the rights granted, beginning with the Company’s first commercial sale of the Licensed Products, the Company will also pay an annual earned royalty in the low single digits on net sales of Licensed Products, subject to certain customary reductions, and a percentage of non-royalty sublicensing revenue ranging in the low double digits. Royalties are payable, on a Licensed Products-by-Licensed Products and a country-by-country basis, until expiration of the last valid claim of a Licensed Patent covering such Licensed Products in such country and the expiration of any regulatory exclusivity for such Licensed Products in such country.

 

Abeona CLN1 Agreements

In August 2020, the Company entered into license and inventory purchase agreements with Abeona Therapeutics Inc. (“Abeona”) for worldwide exclusive rights to certain intellectual property rights and know-how relating to the research, development and manufacture of ABO-202, an AAV-based gene therapy for CLN1 disease (also known as infantile Batten disease). Under the terms of the agreements, the Company made initial cash payments to Abeona of $3.0 million for the license fee and $4.0 million for purchase of clinical materials and reimbursement for previously incurred development costs in October 2020. In exchange for the license rights, the Company recorded an aggregate of $7.0 million within research and development expenses in the condensed consolidated statement of operations since the acquired license or acquired inventory do not have an alternative future use, all of which was recorded in accounts payable as of September 30, 2020. The Company is obligated to make up to $26.0 million in regulatory-related milestones and up to $30.0 million in sales-related milestones per licensed CLN1 product. The Company will also pay an annual earned royalty in the high single digits on net sales of any licensed CLN1 products. The license agreement expires on a country-by-country and licensed product-by-licensed product basis upon the expiration of the last royalty term of a licensed product. Either party may terminate the agreement upon an uncured material breach of the agreement or insolvency of the other party. The Company may terminate the license agreement for convenience upon specified prior written notice to Abeona.

Note 5—Stockholders’ Equity (Deficit), Convertible Preferred Stock and Tranche Liability

On September 28, 2020, the Company issued an aggregate of 7,869,566 shares of common stock in the IPO, and on September 29, 2020, the Company issued an aggregate of 1,180,434 shares of common stock upon the underwriters’ exercise in full of their option to purchase additional shares, each at the public offering price of $20.00 per share less underwriting discounts and commissions. In connection with the IPO, the Company received gross proceeds of $181.0 million, which was offset by issuance costs, including underwriters’ discounts and commissions, of approximately $15.1 million.

In connection with the closing of the IPO, 10,000,000 shares of Series A convertible preferred stock and 5,647,048 shares of Series B convertible preferred stock automatically converted into an aggregate of 17,047,378 shares of common stock with a conversion ratio of 1.0895 shares of common stock for each share of Series A and Series B convertible preferred stock then outstanding.

As a result of the IPO, the underwriters’ exercise of their option, and the conversions of the Series A and B convertible preferred stock, the Company’s total number of outstanding shares increased by 26,097,378 immediately following the closing of the IPO.

11


 

Authorized shares

The Company amended its certificate of incorporation on March 4, 2020, July 2, 2020 and again on July 28, 2020 such that the total number of shares of common stock authorized to be issued was increased to 32,685,000, and the total number of shares of preferred stock authorized to be issued was increased to 15,647,052, of which 10,000,000 preferred shares were designated Series A convertible preferred stock and 5,647,052 were designated Series B convertible preferred stock. On September 28, 2020, the Company amended its certificate of incorporation such that the total number of shares of common stock authorized to be issued was increased to 200,000,000, and the total number of shares of new preferred stock authorized to be issued was 10,000,000. As of September 30, 2020, no shares of preferred stock were issued or outstanding.

Series A and B convertible preferred stock

On March 4, 2020, the Company entered into a purchase agreement (the “Series A Purchase Agreement”) providing for a private placement of up to 10,000,000 shares of Series A convertible preferred stock at an original issuance price of $3.00 per share, subject to separate closings, including: (1) 6,000,000 shares at the initial closing on March 4, 2020, and (2) 2,000,000 shares at each of two subsequent closings triggered by the achievement of specific clinical milestones. The Series A Purchase Agreement obligated the Company to issue and sell and the Series A investors to purchase up to a total of 4,000,000 additional shares of Series A convertible preferred stock (the “Milestone Shares”) at the same price per share upon the achievement of certain defined clinical milestones (the “tranche liability”). The determination as to whether the milestone events had been met was subject to certification by the Board of Directors. Each Series A investor had the right, but not the obligation, to purchase all or any portion of the Milestone Shares at any time in its sole option and in its sole and absolute discretion, whether or not the Company had achieved the applicable clinical milestone.

On June 30, 2020, several affiliated Series A investors elected to exercise in full their options to purchase 200,000 shares, representing all of their remaining pro-rata portion of the Milestone Shares, prior to the Company’s achievement of the clinical milestones for gross proceeds of $0.6 million. The remainder of the Series A investors exercised in full their options to purchase 3,800,000 shares, representing all of their remaining pro-rata portion of the Milestone Shares, prior to the Company’s achievement of the clinical milestones, for gross proceeds of $11.4 million between July 1, 2020 and July 2, 2020. As part of this issuance, the Company issued and sold 3,266,667 shares to PBM TGT Holdings, LLC and 400,000 shares to Nolan Capital, LLC, which stockholders are controlled by certain members of the Company’s board of directors.

On July 2, 2020, the Company entered into a purchase agreement (the “Series B Purchase Agreement”), as later amended on July 28, 2020, providing for a private placement of up to 5,647,052 shares of Series B convertible preferred stock. The Company sold 5,647,048 of Series B convertible preferred stock at a price of $17.00 per share in multiple closings in July and August 2020 for gross proceeds of $96.0 million. The majority of investors that participated in the Series B Purchase Agreement were new investors.

As described above, in connection with the closing of the IPO, all shares of Series A and Series B convertible preferred stock were automatically converted into an aggregate of 17,047,378 shares of common stock with a conversion ratio, which was adjusted for the stock split, of 1.0895 shares of common stock for each share of Series A and Series B convertible preferred stock then outstanding.

Series A convertible preferred stock tranche liability

The Company concluded that the tranche liability met the definition of a freestanding financial instrument, as it was legally detachable and separately exercisable from the initial closing of the Series A convertible preferred stock.

The estimated fair value of the tranche liability was determined using a Monte Carlo simulation at the initial issuance date. As of March 4, 2020, the simulations occurred based on the implied aggregate equity value of the Company derived from the Series A convertible preferred stock offering price of $3.00 per share, along with, in part, the following subjective assumptions: risk-free rate of 0.59%, an expected volatility of 80%, the expected term to a liquidity event of 1 year, and a 60% probability of achieving the clinical milestones and timing thereof. Subsequently, the estimated fair value of the tranche liability was determined using a backsolve approach at June 30, 2020, immediately prior to the issuance of the Milestone Shares, which was calculated based on the aggregate equity value of the Company derived from the Series B convertible preferred stock offering price of $17.00 per share. The subsequent remeasurement also considered, in part, a risk-free rate of 0.17%, an expected volatility of 80%, and the expected term to a liquidity event of 0.5 years.

Based on the analysis, the Company recorded a preferred stock tranche liability of $1.1 million at the issue date to account for the obligation to issue the Milestone Shares at a predetermined fixed price at a future settlement date.

12


 

At June 30, 2020, ahead of the anticipated closing of the Series B Purchase Agreement for $17.00 per share that occurred on July 2, 2020, certain investors elected to exercise in full their options to their pro-rata portion of the Milestone Shares prior to the Company’s achievement of the clinical milestones and purchased 200,000 shares of Series A convertible preferred stock. The Company remeasured the fair value of the entire tranche liability at June 30, 2020, and recognized a non-cash expense of $17.0 million in the condensed consolidated statement of operations. Between June 30, 2020 and July 2, 2020, all of the 4,000,000 Milestone Shares were issued and the related tranche liability was extinguished in its entirety, and the Company reclassified $18.1 million to convertible preferred stock on the condensed consolidated balance sheet. The Company concluded that no beneficial conversion feature (“BCF”) existed as the effective conversion price of the Series A convertible preferred stock exceeded the fair value of the Company’s common stock at each of the commitment dates. Specifically, at the commitment date of June 30, 2020, when 200,000 Milestone Shares were issued, the deemed proceeds were equal to the cash proceeds received for the shares of Series A convertible preferred stock and the fair value of the tranche liability that related to the Milestone Shares, or $7.52 per share. As the effective conversion price exceeded the fair value of the Company’s common stock at the commitment date, no BCF existed.

The following table provides a reconciliation of the preferred stock tranche liability measured at fair value using Level 3 significant unobservable inputs (in thousands):

 

Balance at January 1, 2020

 

$

-

 

Fair value at issuance of Series A convertible preferred stock

 

 

1,050

 

Change in fair value

 

 

17,030

 

Settlement of preferred stock tranche liability due to issuance of Milestone Shares

 

 

(18,080

)

Balance at September 30, 2020

 

$

-

 

 

Note 6—Stock-Based Compensation

On July 1, 2020, the Company’s board of directors approved the Existing Plan which permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, RSAs, RSUs and other stock-based awards to employees, directors, officers and consultants. On July 1, 2020, 3,529,412 shares of common stock were authorized for issuance under the Existing Plan. On September 16, 2020, the Company increased the number of shares of common stock authorized for issuance under the Existing Plan to 3,845,294.

On September 16, 2020, the Company’s stockholders approved the New Plan, which became effective upon the execution of the underwriting agreement in connection with the IPO. The number of shares available for future issuance under the New Plan is the sum of (1) 3,390,168 new shares of common stock,  (2) 209,841 remaining shares of common stock reserved under the Existing Plan that became available for issuance upon the effectiveness of the New Plan and (3) the number of shares of common stock subject to outstanding awards under the Existing Plan when the New Plan became effective that thereafter expire or are forfeited, canceled, withheld to satisfy tax withholding or to purchase or exercise an award, repurchased by the Company or are otherwise terminated. The number of shares of common stock reserved for issuance under the New Plan will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2021 continuing through January 1, 2030, by 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. No future issuances were made under the Existing Plan upon the effectiveness of the New Plan.

Stock Options

On July 1, 2020, options to purchase 2,896,782 shares of common stock under the Existing Plan were awarded to certain employees and consultants of the Company with an exercise price per share of $0.80, which were expected to vest over a four-year period, all of which were subsequently cancelled (the “Cancelled Options”). The grant date fair value of the Cancelled Options was $13.8 million at the original grant date. In exchange, the Company awarded 2,518,932 RSUs on September 2, 2020, which are expected to vest over a four-year term. The Company accounted for the changes in award terms as a modification in accordance with ASC 718 Compensation – Stock Compensation. The modification is accounted for as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus any incremental value measured on the modification date. The Company determined that there was no incremental value as the fair value of the original award immediately before the modification was greater than the fair value of the new award immediately after the modification. Accordingly, the Company will recognize the remaining compensation cost of $13.2 million over the vesting period of the RSUs.

The estimated fair value of the Company’s common stock at July 1, 2020 was $5.28 per share, as determined using information derived from the issuance price of the Company’s Series B convertible preferred stock of $17.00 per share on July 2, 2020. The valuation of the common stock was determined using an option-pricing model under which shares are valued by creating a

13


 

series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class, adjusted for a discount for the lack of marketability to account for a lack of access to an active public market.

The following assumptions were used to estimate the fair value of the Cancelled Options that were granted on July 1, 2020:

 

Risk-free interest rate

0.31%

 

Expected dividend yield

 

 

-

 

Expected term in years

6.3

 

Expected volatility

 

 

80

%

 

During the three months ended September 30, 2020, options to purchase 185,342 shares of common stock were granted with a weighted-average exercise price per share of $19.55. On September 2, 2020, options to purchase 16,342 shares of common stock under the Existing Plan were awarded to certain directors of the Company with an exercise price per share of $14.90, and on September 23, 2020, 169,000 shares of common stock under the New Plan were awarded with an exercise price per share of $20.00. The stock options generally vest over three or four years and have a ten-year contractual term.

The following weighted-average assumptions were used to estimate the fair value of stock options, excluding the Cancelled Options, for the nine months ended September 30, 2020:

 

Risk-free interest rate

0.46%

 

Expected dividend yield

 

 

 

 

 

 

 

 

-

 

Expected term in years

6.7

 

Expected volatility

 

 

 

 

 

 

 

 

80

%

 

The following table summarizes stock option activity, excluding the Cancelled Options, during the nine months ended September 30, 2020:

 

 

 

 

 

Stock

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life (in

years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at January 1, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

Options granted

 

 

185,342

 

 

 

19.55

 

 

 

10.0

 

 

 

528

 

Outstanding at September 30, 2020

 

 

185,342

 

 

$

19.55

 

 

 

10.0

 

 

$

528

 

Vested and expected to vest at September 30, 2020

 

 

185,342

 

 

$

19.55

 

 

 

10.0

 

 

$

528

 

Options exercisable at September 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

The aggregate intrinsic value in the above table is calculated as the difference between the fair value of the Company’s common stock as of September 30, 2020 and the exercise price of the stock options. The weighted-average grant date fair value per share for the stock option awards, excluding the Cancelled Options, granted during the nine months ended September 30, 2020 was $13.73. As of September 30, 2020, the total unrecognized compensation related to unvested stock option awards granted was $2.5 million, which the Company expects to recognize over a weighted-average period of approximately 3.6 years.

14


 

Restricted Stock Units

On September 2, 2020, the Company issued 331,121 RSUs to an employee under the Existing Plan; 25% of the shares of common stock underlying the RSUs vest at each anniversary over a four-year period. The RSUs are subject to a service-based vesting condition. The RSUs were also subject to a liquidity-based performance vesting condition that was met upon the closing of the IPO. The Company at any time may accelerate the vesting of the RSUs. Such shares are not accounted for as outstanding until they vest. As of September 30, 2020, the total unrecognized compensation related to unvested RSUs granted, including the remaining compensation cost associated with the RSUs granted on September 2, 2020 in exchange for the Cancelled Options, was $17.8 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 2.2 years. The Company’s RSU activity for the nine months ended September 30, 2020 was as follows:

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant Date

Fair Value

per Share

 

Nonvested at January 1, 2020

 

 

-

 

 

$

-

 

Replacement restricted units granted

 

 

2,518,932

 

 

 

5.25

 

Restricted units granted

 

 

331,121

 

 

 

14.90

 

Vested

 

 

-

 

 

 

-

 

Nonvested at September 30, 2020

 

 

2,850,053

 

 

$

6.37

 

 

Restricted Stock Awards

RA Session II, the Company’s President and Chief Executive Officer, was awarded 769,058 RSAs under the Existing Plan on July 1, 2020, which are expected to vest over a three-year term, subject to continuous employment. As of September 30, 2020, the total unrecognized compensation related to unvested RSAs granted was $3.7 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 1.4 years. The fair value of these RSAs at the grant date of July 1, 2020 was $5.28 per share.

The Company’s RSA activity for the nine months ended September 30, 2020 was as follows:

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant Date

Fair Value

per Share

 

Nonvested at January 1, 2020

 

 

-

 

 

$

-

 

Restricted stock granted

 

 

769,058

 

 

 

5.28

 

Vested

 

 

-

 

 

 

-

 

Nonvested at September 30, 2020

 

 

769,058

 

 

$

5.28

 

 

The following table summarizes the total stock-based compensation expense for the stock options, RSAs and RSUs recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 (in thousands):

 

 

 

For the

Three Months

Ended

September 30,

2020

 

 

For the

Nine Months

Ended

September 30,

2020

 

 

Research and development expense

 

$

399

 

 

$

399

 

 

General and administrative expense

 

 

942

 

 

 

942

 

 

Total

 

$

1,341

 

 

$

1,341

 

 

 

Note 7—Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Since the Company had a net loss in the period presented, basic and diluted net loss per common share are the same.

15


 

The following common stock equivalents outstanding as of September 30, 2020 were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been anti‑dilutive: