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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 SEPTEMBER 30, 2020

or

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

Commission File Number 000-50549

 

Oncternal Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

62-1715807

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

12230 El Camino Real, Suite 300
San Diego, CA 92130
(858434-1113

(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, $0.001 par value

ONCT

The Nasdaq Capital 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 

As of November 2, 2020, the registrant had 22,346,766 shares of common stock outstanding.

 

 

 

 


 

Oncternal Therapeutics, Inc.

FORM 10-Q

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Cash Flows

5

 

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

6

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

 

 

 

Signatures

37

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Oncternal Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,259

 

 

$

20,051

 

Prepaid and other

 

 

1,448

 

 

 

736

 

Total current assets

 

 

22,707

 

 

 

20,787

 

Right-of-use

 

 

79

 

 

 

190

 

Other

 

 

766

 

 

 

767

 

Total assets

 

$

23,552

 

 

$

21,744

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

977

 

 

$

871

 

Accrued liabilities

 

 

3,273

 

 

 

2,731

 

Deferred grant revenue

 

 

3,222

 

 

 

3,640

 

Lease, current

 

 

79

 

 

 

99

 

Total current liabilities

 

 

7,551

 

 

 

7,341

 

Payroll protection program loan payable

 

 

301

 

 

 

 

Lease, net of current

 

 

 

 

 

91

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized shares – 5,000; issued and outstanding shares – none

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares – 60,000; issued and outstanding shares – 22,347 and 15,387 at September 30, 2020 and December 31, 2019, respectively

 

 

22

 

 

 

15

 

Additional paid-in capital

 

 

95,918

 

 

 

79,869

 

Accumulated deficit

 

 

(80,240

)

 

 

(65,572

)

Total stockholders’ equity

 

 

15,700

 

 

 

14,312

 

Total liabilities and stockholders’ equity

 

$

23,552

 

 

$

21,744

 

 

See accompanying notes.

3


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited; in thousands, except per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Grant revenue

 

$

 

585

 

 

$

 

544

 

 

$

 

1,787

 

 

$

 

1,689

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

3,047

 

 

 

 

3,108

 

 

 

 

9,558

 

 

 

 

7,591

 

In-process research and development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,088

 

General and administrative

 

 

 

1,933

 

 

 

 

2,385

 

 

 

 

6,910

 

 

 

 

4,937

 

Total operating expenses

 

 

 

4,980

 

 

 

 

5,493

 

 

 

 

16,468

 

 

 

 

30,616

 

Loss from operations

 

 

 

(4,395

)

 

 

 

(4,949

)

 

 

 

(14,681

)

 

 

 

(28,927

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,268

)

Interest income

 

 

 

 

 

 

 

57

 

 

 

 

13

 

 

 

 

163

 

Total other income (expense)

 

 

 

 

 

 

 

57

 

 

 

 

13

 

 

 

 

(1,105

)

Net loss

 

$

 

(4,395

)

 

$

 

(4,892

)

 

$

 

(14,668

)

 

$

 

(30,032

)

Net loss per share, basic and diluted

 

$

 

(0.22

)

 

$

 

(0.32

)

 

$

 

(0.85

)

 

$

 

(3.48

)

Weighted-average shares outstanding, basic and diluted

 

 

 

20,126

 

 

 

 

15,340

 

 

 

 

17,251

 

 

 

 

8,636

 

 

See accompanying notes.

 

4


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(14,668

)

 

$

(30,032

)

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

 

 

 

 

 

 

 

 

In-process research and development

 

 

 

 

 

 

18,088

 

Stock-based compensation

 

 

1,149

 

 

 

192

 

Noncash compensation expense

 

 

 

 

 

56

 

Change in fair value of preferred stock warrants liability

 

 

 

 

 

1,268

 

Noncash lease expense

 

 

111

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other

 

 

(711

)

 

 

(268

)

Accounts payable

 

 

106

 

 

 

(4,402

)

Accrued liabilities

 

 

958

 

 

 

(1,555

)

Change in lease liability

 

 

(111

)

 

 

(56

)

Deferred grant revenue

 

 

(418

)

 

 

3,008

 

Net cash used in operating activities

 

 

(13,584

)

 

 

(13,701

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Cash acquired in connection with the Merger

 

 

 

 

 

18,292

 

Acquisition related costs paid

 

 

 

 

 

(2,155

)

Net cash provided by investing activities

 

 

 

 

 

16,137

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from payroll protection program loan payable

 

301

 

 

 

 

Proceeds from exercise of stock options

 

 

4

 

 

 

14

 

Proceeds from exercise of common stock warrants

 

 

 

 

 

1

 

Proceeds from issuance of common stock and common stock warrants, net

 

 

14,487

 

 

 

 

Net cash provided by financing activities

 

 

14,792

 

 

 

15

 

Net increase (decrease) in cash and cash equivalents

 

 

1,208

 

 

 

2,451

 

Cash and cash equivalents at beginning of period

 

 

20,051

 

 

 

20,645

 

Cash and cash equivalents at end of period

 

$

21,259

 

 

$

23,096

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Payment of 2019 bonus awards with stock options in lieu of cash

 

$

415

 

 

$

 

Fair value of warrants issued to placement agent

 

$

729

 

 

$

 

Conversion of convertible preferred stock into common stock

 

$

 

 

$

46,588

 

Issuance of common stock to GTx stockholders

 

$

 

 

$

29,049

 

Reclassification of preferred stock warrants liability to additional paid-in capital

 

$

 

 

$

1,942

 

Net liabilities assumed in Merger

 

$

 

 

$

5,176

 

Deferred financing costs included in accrued liabilities

 

$

8

 

 

$

 

 

See accompanying notes.

 

 

5


 

Oncternal Therapeutics, Inc.

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

(Unaudited; in thousands)

 

 

Three Months Ended September 30, 2020

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2020

 

17,336

 

 

$

17

 

 

$

85,426

 

 

$

(75,845

)

 

$

9,598

 

Issuance of common stock and common stock warrants, net of issuance costs of $1,165

 

5,011

 

 

 

5

 

 

 

10,082

 

 

 

 

 

 

10,087

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

 

 

 

 

 

407

 

 

 

 

 

 

407

 

Net loss

 

 

 

 

 

 

 

 

 

 

(4,395

)

 

 

(4,395

)

Balance at September 30, 2020

 

22,347

 

 

$

22

 

 

$

95,918

 

 

$

(80,240

)

 

$

15,700

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2019

 

 

15,370

 

 

$

15

 

 

$

79,445

 

 

$

(56,524

)

 

$

22,936

 

Exercise of stock options for cash

 

 

17

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Exercise of warrants for cash

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Stock-based compensation

 

 

 

 

 

 

 

 

90

 

 

 

 

 

 

90

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,892

)

 

 

(4,892

)

Balance at September 30, 2019

 

 

15,387

 

 

$

15

 

 

$

79,551

 

 

$

(61,416

)

 

$

18,150

 

 

See accompanying notes.

6


 

Oncternal Therapeutics, Inc.

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

(Unaudited; in thousands)

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

 

 

 

 

15,387

 

 

$

15

 

 

$

79,869

 

 

$

(65,572

)

 

$

14,312

 

Exercise of stock options for cash

 

 

 

 

 

 

5

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Issuance of common stock and common stock warrants, net of issuance costs of $1,767

 

 

 

 

 

 

6,955

 

 

 

7

 

 

 

14,472

 

 

 

 

 

 

14,479

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1,149

 

 

 

 

 

 

1,149

 

Payment of 2019 bonus awards with stock options in lieu of cash

 

 

 

 

 

 

 

 

 

 

 

 

415

 

 

 

 

 

 

 

415

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,668

)

 

 

(14,668

)

Balance at September 30, 2020

 

 

 

 

 

 

22,347

 

 

$

22

 

 

$

95,918

 

 

$

(80,240

)

 

$

15,700

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2018

 

 

8,148

 

 

$

46,588

 

 

 

3,762

 

 

$

5

 

 

$

1,748

 

 

$

(31,384

)

 

$

(29,631

)

Exercise of stock options for cash

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Exercise of warrants for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Issuance of common stock to former stockholders of GTx upon Merger

 

 

 

 

 

 

 

 

3,458

 

 

 

2

 

 

 

29,047

 

 

 

 

 

 

29,049

 

Conversion of convertible preferred stock into common stock upon Merger

 

 

(8,148

)

 

 

(46,588

)

 

 

8,148

 

 

 

8

 

 

 

46,580

 

 

 

 

 

 

46,588

 

Reclassification of preferred stock warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,942

 

 

 

 

 

 

1,942

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

192

 

 

 

 

 

 

192

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,032

)

 

 

(30,032

)

Balance at September 30, 2019

 

 

 

 

$

 

 

 

15,387

 

 

$

15

 

 

$

79,551

 

 

$

(61,416

)

 

$

18,150

 

 

See accompanying notes.

 

 

7


 

Oncternal Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Description of Business, Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Oncternal Therapeutics, Inc. (the “Company,” “Oncternal,” or the “combined company”), formerly known as GTx, Inc., was incorporated in Tennessee in September 1997 and reincorporated in Delaware in 2003 and is based in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on the development of novel oncology therapies for the treatment of cancers with critical unmet medical need. The Company’s clinical pipeline includes, cirmtuzumab, a humanized monoclonal antibody that binds to ROR1 (Receptor-tyrosine kinase-like Orphan Receptor 1), and TK216, a small molecule inhibiting the biological activity of ETS-family transcription factor oncoproteins. The Company is also developing a CAR-T (chimeric antigen receptor T-cells) product candidate that targets ROR1.

Merger

On June 7, 2019, the Company, then operating as GTx, Inc. (“GTx”), completed the merger contemplated by the Agreement and Plan of Merger and Reorganization, dated March 6, 2019, as amended (the “Merger Agreement”), with privately-held Oncternal Therapeutics, Inc. (“Private Oncternal”) and Grizzly Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Private Oncternal, with Private Oncternal surviving as a wholly-owned subsidiary of the Company (the “Merger”). GTx changed its name to Oncternal Therapeutics, Inc., and Private Oncternal, which remains as a wholly-owned subsidiary of the Company, changed its name to Oncternal Oncology, Inc. On June 10, 2019, the combined company’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “ONCT.”

Except as otherwise indicated, references herein to “Oncternal,” “the Company,” and the “combined company,” refer to Oncternal Therapeutics, Inc. on a post-Merger basis, and the term “Private Oncternal” refers to the business of privately-held Oncternal Therapeutics, Inc., prior to completion of the Merger.  References to GTx refer to GTx, Inc. prior to completion of the Merger.  

Pursuant to the terms of the Merger Agreement, each outstanding share of Private Oncternal common stock outstanding immediately prior to the closing of the Merger was converted into approximately 0.073386 shares of Company common stock (the “Exchange Ratio”). Immediately prior to the closing of the Merger, all shares of Private Oncternal preferred stock then outstanding were exchanged into shares of common stock of Private Oncternal. In addition, all outstanding options exercisable for common stock of Private Oncternal and warrants exercisable for convertible preferred stock of Private Oncternal became options and warrants exercisable for the same number of shares of common stock of the Company multiplied by the Exchange Ratio. Immediately following the Merger, stockholders of Private Oncternal owned approximately 77.5% of the outstanding common stock of the combined company.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Oncternal Oncology, Inc. and Oncternal, Inc. All intercompany accounts and transactions have been eliminated in the preparation of the condensed consolidated financial statements.

Liquidity and Going Concern

From its inception through September 30, 2020, the Company has devoted substantially all of its efforts to organizational activities including raising capital, building infrastructure, acquiring assets, developing intellectual property, and conducting preclinical studies, clinical trials and product development activities. The Company has a limited operating history and the sales and income potential of the Company’s business and market are unproven. Since inception, the Company has experienced recurring net losses and negative cash flows from operating activities and expects to continue to incur losses into the foreseeable future. At September 30, 2020, the Company had an accumulated deficit of $80.2 million and had cash and cash equivalents of $21.3 million. The Company will need to continue to raise a substantial amount of funds until it is able to generate revenues to fund its development activities and operations. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. However, based on the Company’s current working capital, anticipated operating expenses and net losses and the uncertainties surrounding its ability to raise additional capital as needed, as discussed below, the Company believes that there is substantial doubt about its ability to continue as a going concern for one year after the date these condensed consolidated financial statements are issued.

8


 

On May 21, 2020, the Company completed a registered direct offering pursuant to which it sold 1,943,636 shares of its common stock at a price of $2.5725 per share. The net proceeds to the Company from this offering were $4.4 million, after deducting placement agent fees and commissions and other offering expenses.  Concurrently with the sale of shares of the Company’s common stock pursuant to the offering, the Company also sold warrants to purchase up to an aggregate of 971,818 shares of common stock (see Note 7).

On July 21, 2020, the Company completed a registered direct offering pursuant to which it sold 2,581,867 shares of its common stock at a price of $2.3825 per share. The net proceeds to the Company from this offering were $5.7 million, after deducting the placement agent fees and commissions and other offering expenses. Concurrently with the sale of shares of the Company’s common stock pursuant to the offering, the Company also sold warrants to purchase up to an aggregate of 1,290,933 shares of common stock (see Note 7).

On September 1, 2020, the Company completed an underwritten offering pursuant to which it sold 2,428,886 shares of its common stock at a price of $2.10 per share. The net proceeds to the Company from this offering were $4.4 million, after deducting the underwriter discounts and commissions and other offering expenses (see Note 7).

The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings, government funding, or other sources, including, potentially, collaborations, licenses and other similar arrangements. There can be no assurance that the Company will be able to obtain any sources of financing on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct its business.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements at September 30, 2020, and for the nine months ended September 30, 2020 and 2019, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and with generally accepted accounting principles in the United States of America (“GAAP”). These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, filed with the SEC on its Annual Report on Form 10-K on March 16, 2020. The results presented in these unaudited condensed consolidated 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.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of the Company’s condensed consolidated financial statements and accompanying notes requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates consist of those used to determine the fair value of the Company’s preferred stock, preferred stock warrant liability and stock-based awards, and those used to determine grant revenue and accruals for research and development costs. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market accounts.

9


 

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institution in which those deposits are held. Additionally, the Company established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Research and Development Expenses and Accruals

Research and development expenses consist of costs incurred for the Company’s own and for sponsored and collaborative research and development activities. Research and development costs are expensed as incurred and include manufacturing process development costs, manufacturing costs, costs associated with preclinical studies and clinical trials, regulatory and medical affairs activities, quality assurance activities, salaries and benefits, including stock-based compensation, fees paid to third-party consultants, license fees and overhead.

The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying condensed consolidated balance sheets as prepaid and other assets or accrued liabilities. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Preferred Stock Warrant Liability

Prior to the Merger, Private Oncternal had outstanding freestanding warrants to purchase shares of its Series B-2 convertible preferred stock (the “Series B-2 warrants”). Because the underlying Series B-2 convertible preferred stock was classified as temporary equity, the Series B-2 warrants were classified as a liability in the accompanying condensed consolidated balance sheets. Private Oncternal adjusted the carrying value of such Series B-2 warrants to their estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as an increase or decrease to other income (expense) in the condensed consolidated statements of operations. Upon the completion of the Merger, the Series B-2 warrants were amended such that they were converted into warrants to purchase the Company’s common stock. As amended, warrant liability accounting is no longer required and the fair value of the warrant liability has been reclassified into stockholders’ equity.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the 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.

The carrying amounts of the Company’s current financial assets and liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. The Company has no current financial assets or liabilities measured at fair value on a recurring basis and no transfers between levels have occurred during the periods presented.

10


 

Revenue Recognition

The Company currently generates revenue from the California Institute for Regenerative Medicine pursuant to a research subaward agreement (see Note 4), which provides the Company with payments in return for certain research and development activities over a contractually defined period. Revenue from such subaward is recognized in the period during which the related qualifying services are rendered and costs are incurred, provided that the applicable conditions under the subaward agreement have been met.

The subaward agreement is on a best-effort basis and does not require scientific achievement as a performance obligation. All fees received under the agreement are non-refundable. The costs associated with the agreement are expensed as incurred and reflected as a component of research and development expense in the accompanying condensed consolidated statements of operations.

Funds received from the subaward agreement are recorded as revenue as the Company is the principal participant in the arrangement because the activities under the subaward are part of the Company’s development programs. In those instances where the Company first receives consideration in advance of providing underlying services, the Company classifies such consideration as deferred revenue until (or as) the Company provides the underlying services. In those instances where the Company first provides the underlying services prior to its receipt of consideration, the Company records a grant receivable. At September 30, 2020 and December 31, 2019, the Company had deferred grant revenue of $3.2 million and $3.6 million, respectively.

Stock-Based Compensation

Stock-based compensation expense represents the fair value of equity awards, on the grant date, recognized in the period using the Black- Scholes option pricing model. The Company recognizes expense for awards with graded vesting schedules over the requisite service period of the awards (usually the vesting period) on a straight-line basis. For equity awards for which vesting is subject to performance-based milestones, the expense is recorded over the service period when the achievement of the milestone is probable.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment in the United States.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities and adjusted for the weighted-average number of restricted common shares outstanding that are unvested and subject to repurchase (see Note 7). The Company has excluded weighted-average shares subject to repurchase of 23,000 shares and 27,000 shares from the weighted-average number of common shares outstanding for the three and nine months ended September 30, 2020, respectively. The Company has excluded weighted-average shares subject to repurchase of 42,000 shares and 63,000 shares from the weighted-average number of common shares outstanding for the three and nine months ended September 30, 2019, respectively. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.

11


 

Potentially dilutive securities not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows (in common stock equivalent shares; in thousands):

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Warrants to purchase common stock

 

 

3,521

 

 

 

841

 

Common stock options

 

 

2,341

 

 

 

1,928

 

Common stock subject to repurchase

 

 

20

 

 

 

40

 

 

 

 

5,882

 

 

 

2,809

 

 

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The amendments relate to disclosures regarding unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty and are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The Company adopted this standard effective January 1, 2020, the adoption had no material impact on the condensed consolidated financial statements.

2.

Balance Sheet Details

Accrued liabilities consist of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

1,705

 

 

$

1,206

 

Legal fees

 

 

203

 

 

 

424

 

Unvested share liability

 

 

14

 

 

 

24

 

Compensation

 

 

1,262

 

 

 

825

 

Other

 

 

89