10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

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 230
San Diego, CA 92130
(
858) 434-1113

(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

Securities registered pursuant to Section 12(g) of the Act: None

 

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 October 28, 2022, the registrant had 56,337,022 shares of common stock outstanding.

 

 

 

 


 

Oncternal Therapeutics, Inc.

FORM 10-Q

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

3

 

 

 

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 Stockholders’ Equity

6

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II - OTHER INFORMATION

29

 

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

 

 

Signatures

32

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Oncternal Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

September 30,
2022

 

 

December 31,
2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

70,628

 

 

$

90,765

 

Prepaid and other

 

 

4,162

 

 

 

2,088

 

Total current assets

 

 

74,790

 

 

 

92,853

 

Right-of-use asset

 

 

122

 

 

 

75

 

Other assets

 

 

1,258

 

 

 

657

 

Total assets

 

$

76,170

 

 

$

93,585

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,456

 

 

$

1,959

 

Accrued liabilities

 

 

4,930

 

 

 

3,431

 

Deferred grant revenue

 

 

118

 

 

 

 

Lease liability

 

 

122

 

 

 

75

 

Total current liabilities

 

 

7,626

 

 

 

5,465

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized shares – 5,000 at
   September 30, 2022 and December 31, 2021; issued and outstanding
   shares –
none

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares – 120,000; issued and outstanding
   shares –
55,517 and 49,429 at September 30, 2022 and December 31, 2021, respectively

 

 

56

 

 

 

49

 

Additional paid-in capital

 

 

215,388

 

 

 

202,201

 

Accumulated deficit

 

 

(146,900

)

 

 

(114,130

)

Total stockholders’ equity

 

 

68,544

 

 

 

88,120

 

Total liabilities and stockholders’ equity

 

$

76,170

 

 

$

93,585

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Grant revenue

 

$

382

 

 

$

2,128

 

 

$

1,319

 

 

$

3,759

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,442

 

 

 

8,963

 

 

 

24,182

 

 

 

18,068

 

General and administrative

 

 

3,265

 

 

 

2,802

 

 

 

10,169

 

 

 

8,977

 

Total operating expenses

 

 

11,707

 

 

 

11,765

 

 

 

34,351

 

 

 

27,045

 

Loss from operations

 

 

(11,325

)

 

 

(9,637

)

 

 

(33,032

)

 

 

(23,286

)

Interest income

 

 

200

 

 

 

7

 

 

 

262

 

 

 

26

 

Net loss

 

$

(11,125

)

 

$

(9,630

)

 

$

(32,770

)

 

$

(23,260

)

Net loss per share, basic and diluted

 

$

(0.21

)

 

$

(0.19

)

 

$

(0.64

)

 

$

(0.47

)

Weighted-average shares outstanding, basic and diluted

 

 

54,212

 

 

 

49,393

 

 

 

51,252

 

 

 

49,285

 

 

See accompanying notes.

4


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(32,770

)

 

$

(23,260

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

5,629

 

 

 

4,162

 

Non-cash lease expense

 

 

144

 

 

 

125

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other

 

 

(2,675

)

 

 

(765

)

Accounts payable

 

 

497

 

 

 

1,603

 

Accrued liabilities

 

 

1,499

 

 

 

(238

)

Change in lease liability

 

 

(144

)

 

 

(125

)

Deferred grant revenue

 

 

118

 

 

 

(1,475

)

Net cash used in operating activities

 

 

(27,702

)

 

 

(19,973

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock in public offerings, net

 

 

7,568

 

 

 

 

Repurchases of common stock for tax withholding obligations

 

 

(3

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

414

 

Proceeds from exercise of common stock warrants

 

 

 

 

 

202

 

Net cash provided by financing activities

 

 

7,565

 

 

 

616

 

Net decrease in cash and cash equivalents

 

 

(20,137

)

 

 

(19,357

)

Cash and cash equivalents at beginning of period

 

 

90,765

 

 

 

116,737

 

Cash and cash equivalents at end of period

 

$

70,628

 

 

$

97,380

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Cashless exercise of warrants

 

$

 

 

$

1,836

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

191

 

 

$

 

 

See accompanying notes.

5


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Three Months Ended September 30, 2022

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2022

 

52,150

 

 

$

52

 

 

$

209,724

 

 

$

(135,775

)

 

$

74,001

 

Issuance of common stock upon vesting of restricted stock units

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased for settlement of minimum statutory tax withholdings

 

(2

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Issuance of common stock, net of issuance cost of $141

 

3,363

 

 

 

4

 

 

 

3,693

 

 

 

 

 

 

3,697

 

Stock-based compensation

 

 

 

 

 

 

 

1,974

 

 

 

 

 

 

1,974

 

Net loss

 

 

 

 

 

 

 

 

 

 

(11,125

)

 

 

(11,125

)

Balance at September 30, 2022

 

55,517

 

 

$

56

 

 

$

215,388

 

 

$

(146,900

)

 

$

68,544

 

 

 

Three Months Ended September 30, 2021

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2021

 

49,385

 

 

$

49

 

 

$

198,897

 

 

$

(96,427

)

 

$

102,519

 

Exercise of warrants for cash

 

42

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

1,488

 

 

 

 

 

 

1,488

 

Net loss

 

 

 

 

 

 

 

 

 

 

(9,630

)

 

 

(9,630

)

Balance at September 30, 2021

 

49,427

 

 

$

49

 

 

$

200,484

 

 

$

(106,057

)

 

$

94,476

 

 

See accompanying notes.

6


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Nine Months Ended September 30, 2022

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

49,429

 

 

$

49

 

 

$

202,201

 

 

$

(114,130

)

 

$

88,120

 

Issuance of common stock upon vesting of restricted stock units

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased for settlement of minimum statutory tax withholdings

 

(2

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Issuance of common stock, net of issuance cost of $287

 

6,084

 

 

 

7

 

 

 

7,561

 

 

 

 

 

 

7,568

 

Stock-based compensation

 

 

 

 

 

 

 

5,629

 

 

 

 

 

 

5,629

 

Net loss

 

 

 

 

 

 

 

 

 

 

(32,770

)

 

 

(32,770

)

Balance at September 30, 2022

 

55,517

 

 

$

56

 

 

$

215,388

 

 

$

(146,900

)

 

$

68,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2021

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2020

 

48,802

 

 

$

49

 

 

$

195,699

 

 

$

(82,797

)

 

$

112,951

 

Exercise of stock options for cash

 

106

 

 

 

 

 

 

414

 

 

 

 

 

 

414

 

Exercise of warrants for cash

 

60

 

 

 

 

 

 

202

 

 

 

 

 

 

202

 

Cashless exercise of warrants

 

459

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting related to unvested share liability

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Stock-based compensation

 

 

 

 

 

 

 

4,162

 

 

 

 

 

 

4,162

 

Net loss

 

 

 

 

 

 

 

 

 

 

(23,260

)

 

 

(23,260

)

Balance at September 30, 2021

 

49,427

 

 

$

49

 

 

$

200,484

 

 

$

(106,057

)

 

$

94,476

 

 

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” or “Oncternal”), 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 lead clinical program is zilovertamab, a humanized monoclonal antibody that binds to ROR1 (Receptor-tyrosine kinase-like Orphan Receptor 1). The Company is also developing ONCT-808, a CAR T (chimeric antigen receptor T cells) product candidate that targets ROR1, and ONCT-534, a dual-action androgen receptor inhibitor (“DAARI”) product candidate for the treatment of castration-resistant prostate cancer, including those with clinically important resistance to approved androgen receptor inhibitors.

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

From inception, the Company has devoted substantially all of its efforts to drug discovery and development and conducting preclinical studies and clinical trials. The Company has a limited operating history and the sales and income potential of the Company’s business and market are unproven. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.

As of September 30, 2022, the Company had $70.6 million in cash and cash equivalents and no debt. The Company believes it has sufficient cash to fund its projected operating requirements for at least twelve months from the date of issuance of the condensed consolidated financial statements. However, the Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $146.9 million as of September 30, 2022. The Company expects to continue to incur net losses for the foreseeable future and believes it will need to raise substantial additional capital to accomplish its business plan over the next several years. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of public or private equity or debt offerings or other sources, including potential collaborations, strategic alliances and other similar licensing arrangements. If the Company is unable to secure adequate additional funding, the Company may be forced to make reductions in spending, including potentially delaying, scaling back or eliminating certain of its pipeline development programs, extend payment terms with suppliers, or liquidate assets where possible. Any of these actions could materially affect the Company’s business, results of operations and future prospects.

As of September 30, 2022, the Company had capacity to issue up to an additional $42.1 million of shares of common stock under its at-the-market (“ATM”) equity offering program. Through September 30, 2022, the Company has sold 6,084,321 shares of common stock for net proceeds of $7.6 million under the ATM program. There can be no assurance that the Company will be able to sell any additional shares of its common stock under the ATM program and no assurance regarding the price at which it will be able to sell any such shares, and any sales of shares of its common stock under the ATM program may be at prices that result in additional dilution to existing stockholders of the Company.

The Company's ability to obtain additional financing (including through collaboration and/or licensing arrangements) will depend on a number of factors, including, among others, its ability to generate positive data from its clinical trials and preclinical studies, the condition of the capital markets and other risks, many of which are dependent on factors outside of its control. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future.

8


 

Basis of Presentation

The accompanying interim condensed financial statements are unaudited. The unaudited condensed consolidated financial statements 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. 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, 2021, filed with the SEC on its Annual Report on Form 10-K on March 10, 2022. 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 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 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.

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 expenses and other assets or accrued liabilities. The Company records accruals for estimated costs incurred for ongoing research and development activities and all clinical trial expenses are included in research and development expenses. 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. At September 30, 2022, the Company’s clinical trial accrual balance of $1.0 million is included in accrued liabilities.

9


 

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.

Revenue Recognition

The Company generates revenue from certain grant awards or a research subaward (the “Grant Awards”) (see Note 4), which provide the Company with payments in return for certain research and development activities over a contractually defined period. Revenue from such Grant Awards is recognized in the period the related qualifying services are rendered and costs are incurred, provided that the applicable conditions under the Grant Awards have been met.

The Grant Awards are on a best-effort basis and do not require scientific achievement as a performance obligation. The Grant Awards are non-refundable. The costs associated with the Grant Awards 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 Grant Awards are recorded as revenue as the Company is the principal participant in the arrangement because the activities under the Grant Awards 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, 2022, the Company had deferred grant revenue of $0.1 million.

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 remaining service period after the point when the achievement of the milestone is deemed probable. The Company recognizes forfeitures for all awards as such forfeitures occur.

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 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.

10


 

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 common shares outstanding that are subject to repurchase. The Company has excluded weighted-average shares subject to repurchase of zero shares and 5,000 shares from the weighted-average number of common shares outstanding for the three months ended September 30, 2022 and 2021, respectively. The Company has excluded weighted-average shares subject to repurchase of zero shares and 9,000 shares from the weighted-average number of common shares outstanding for the nine months ended September 30, 2022 and 2021, 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.

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,

 

 

 

2022

 

 

2021

 

Warrants to purchase common stock

 

 

3,478

 

 

 

4,235

 

Common stock options

 

 

8,401

 

 

 

6,019

 

Restricted stock unit awards

 

 

1,009

 

 

 

 

Common stock subject to repurchase

 

 

 

 

 

4

 

Total

 

 

12,888

 

 

 

10,258

 

 

Recently Adopted Accounting Pronouncements

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which intends to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance requires transition disclosures of the nature of and reasons for the accounting change, the transition method, and a qualitative description of the financial statement line items affected. The Company adopted this guidance effective January 1, 2022 and determined there were no modifications or exchanges of freestanding equity-classified written call options subject to ASU 2021-04 during the periods presented.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Statements (Topic 362), which intends to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. In November 2019, the FASB issued an amendment making this ASU effective for fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company was a smaller reporting company at the determination date, and therefore the new standard will be effective for the Company on January 1, 2023. An entity must apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach), except in certain circumstances. The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 may have on its condensed consolidated financial statements and related disclosures.

11


 

2.
Balance Sheet Details

Prepaid and other consist of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Research and development

 

$

215

 

 

$

294

 

Clinical trials

 

 

2,471

 

 

 

 

Insurance

 

 

1,077

 

 

 

765

 

Other prepaid expenses

 

 

173

 

 

 

85

 

Related party receivable (see Note 3)

 

 

114

 

 

 

359

 

Other receivable

 

 

112

 

 

 

585

 

 

 

$

4,162

 

 

$

2,088

 

 

Accrued liabilities consist of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Research and development

 

$

1,682

 

 

$

779

 

Clinical trials

 

 

979

 

 

 

518

 

Legal fees

 

 

211

 

 

 

154

 

Compensation

 

 

1,986

 

 

 

1,955

 

Other

 

 

72

 

 

 

25

 

 

 

$

4,930

 

 

$

3,431

 

 

 

3.
Commitments, Contingencies and Related Party Transactions

Lease and Sublease

Rent expense was $39,000 and $46,000 for the three months ended September 30, 2022 and 2021, respectively. Rent expense was $133,000 for each of the nine months ended September 30, 2022 and 2021.

From May 2019 through April 30, 2022, the Company leased 4,677 square feet of office space in San Diego, California. On April 18, 2022, the Company entered into a sublease agreement for office space of 3,748 square feet in San Diego, California which expires on July 31, 2023 (the “San Diego Lease”). Base rent under the San Diego Lease is approximately $157,000 annually and the monthly rent expense is being recognized on a straight-line basis over the term of the lease.

The San Diego Lease is included in the accompanying condensed consolidated balance sheet at the present value of the lease payments. As the San Diego Lease does not have an implicit interest rate, the present value reflects a 10.0% discount rate which is the estimated rate of interest that the Company would have to pay in order to borrow an amount equal to the lease payments on a collateralized basis over a similar term and in a similar economic environment. The Company recognized a net operating lease right-of-use asset and an aggregate lease liability of $122,000 as of September 30, 2022. The weighted average remaining lease term was 0.8 years.

Maturities of the lease liability due under this lease agreement as of September 30, 2022, are as follows (in thousands):