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 JUNE 30, 2023

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 August 3, 2023, the registrant had 58,968,902 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 (unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

 

 

 

PART II - OTHER INFORMATION

30

 

 

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

 

 

 

Signatures

33

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Oncternal Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

June 30,
2023

 

 

December 31,
2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,832

 

 

$

37,142

 

Short-term investments

 

 

29,671

 

 

 

26,582

 

Prepaid and other

 

 

4,572

 

 

 

3,566

 

Total current assets

 

 

50,075

 

 

 

67,290

 

Right-of-use asset

 

 

366

 

 

 

87

 

Other assets

 

 

332

 

 

 

1,274

 

Total assets

 

$

50,773

 

 

$

68,651

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,224

 

 

$

2,917

 

Accrued liabilities

 

 

2,462

 

 

 

4,678

 

Lease liability

 

 

145

 

 

 

87

 

Total current liabilities

 

 

4,831

 

 

 

7,682

 

Deferred compensation

 

 

537

 

 

 

 

Lease liability, net of current

 

 

221

 

 

 

 

Total liabilities

 

 

5,589

 

 

 

7,682

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

Preferred stock, $0.001 par value, authorized shares – 5,000 at
   June 30, 2023 and December 31, 2022; issued and outstanding
   shares –
none

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares – 120,000; issued and outstanding
   shares –
58,728 and 57,464 at June 30, 2023 and December 31, 2022, respectively

 

 

59

 

 

 

57

 

Additional paid-in capital

 

 

223,884

 

 

 

219,203

 

Accumulated comprehensive income

 

 

(6

)

 

 

9

 

Accumulated deficit

 

 

(178,753

)

 

 

(158,300

)

Total stockholders’ equity

 

 

45,184

 

 

 

60,969

 

Total liabilities and stockholders’ equity

 

$

50,773

 

 

$

68,651

 

 

See accompanying notes.

3


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited; in thousands, except per share data)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Grant revenue

 

$

106

 

 

$

191

 

 

$

309

 

 

$

937

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,577

 

 

 

8,761

 

 

 

15,608

 

 

 

15,740

 

General and administrative

 

 

3,074

 

 

 

3,225

 

 

 

6,389

 

 

 

6,904

 

Total operating expenses

 

 

9,651

 

 

 

11,986

 

 

 

21,997

 

 

 

22,644

 

Loss from operations

 

 

(9,545

)

 

 

(11,795

)

 

 

(21,688

)

 

 

(21,707

)

Interest income

 

 

579

 

 

 

54

 

 

 

1,235

 

 

 

62

 

Net loss

 

$

(8,966

)

 

$

(11,741

)

 

$

(20,453

)

 

$

(21,645

)

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities, net

 

 

(17

)

 

 

 

 

 

(15

)

 

 

 

Comprehensive loss

 

$

(8,983

)

 

$

(11,741

)

 

$

(20,468

)

 

$

(21,645

)

Net loss per share, basic and diluted

 

$

(0.15

)

 

$

(0.23

)

 

$

(0.35

)

 

$

(0.44

)

Weighted-average shares outstanding, basic and diluted

 

 

58,722

 

 

 

50,064

 

 

 

58,623

 

 

 

49,748

 

 

See accompanying notes.

4


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(20,453

)

 

$

(21,645

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

3,565

 

 

 

3,655

 

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

 

 

(908

)

 

 

 

Non-cash lease expense

 

 

74

 

 

 

109

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other

 

 

(64

)

 

 

276

 

Accounts payable

 

 

(693

)

 

 

560

 

Accrued liabilities

 

 

(2,216

)

 

 

1,207

 

Deferred grant revenue

 

 

 

 

 

211

 

Deferred compensation

 

 

537

 

 

 

 

Change in lease liability

 

 

(74

)

 

 

(109

)

Net cash used in operating activities

 

 

(20,232

)

 

 

(15,736

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(37,196

)

 

 

 

Maturities of available-for-sale securities

 

 

35,000

 

 

 

 

Net cash used in investing activities

 

 

(2,196

)

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock in public offerings, net

 

 

1,224

 

 

 

3,871

 

Repurchases of common stock for tax withholding obligations

 

 

(106

)

 

 

 

Net cash provided by financing activities

 

 

1,118

 

 

 

3,871

 

Net decrease in cash and cash equivalents

 

 

(21,310

)

 

 

(11,865

)

Cash and cash equivalents at beginning of period

 

 

37,142

 

 

 

90,765

 

Cash and cash equivalents at end of period

 

$

15,832

 

 

$

78,900

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

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

 

$

353

 

 

$

191

 

 

See accompanying notes.

5


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Three Months Ended June 30, 2023

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2023

 

58,711

 

 

$

59

 

 

$

222,205

 

 

$

11

 

 

$

(169,787

)

 

$

52,488

 

Issuance of common stock upon vesting of restricted stock units

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased for settlement of minimum statutory tax withholdings

 

(5

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Stock-based compensation

 

 

 

 

 

 

 

1,680

 

 

 

 

 

 

 

 

 

1,680

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,966

)

 

 

(8,966

)

Balance at June 30, 2023

 

58,728

 

 

$

59

 

 

$

223,884

 

 

$

(6

)

 

$

(178,753

)

 

$

45,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2022

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

Deficit

 

 

Equity

 

Balance at March 31, 2022

 

49,429

 

 

$

49

 

 

$

204,179

 

 

$

 

 

$

(124,034

)

 

$

80,194

 

Issuance of common stock, net of issuance cost of $146

 

2,721

 

 

 

3

 

 

 

3,868

 

 

 

 

 

 

 

 

 

3,871

 

Stock-based compensation

 

 

 

 

 

 

 

1,677

 

 

 

 

 

 

 

 

 

1,677

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,741

)

 

 

(11,741

)

Balance at June 30, 2022

 

52,150

 

 

$

52

 

 

$

209,724

 

 

$

 

 

$

(135,775

)

 

$

74,001

 

 

 

See accompanying notes.

 

6


 

Oncternal Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited; in thousands)

 

 

Six Months Ended June 30, 2023

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

57,464

 

 

$

57

 

 

$

219,203

 

 

$

9

 

 

$

(158,300

)

 

$

60,969

 

Issuance of common stock upon vesting of restricted stock units

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased for settlement of minimum statutory tax withholdings

 

(91

)

 

 

 

 

 

(106

)

 

 

 

 

 

 

 

 

(106

)

Issuance of common stock, net of issuance cost of $38

 

1,115

 

 

 

2

 

 

 

1,222

 

 

 

 

 

 

 

 

 

1,224

 

Stock-based compensation

 

 

 

 

 

 

 

3,565

 

 

 

 

 

 

 

 

 

3,565

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,453

)

 

 

(20,453

)

Balance at June 30, 2023

 

58,728

 

 

$

59

 

 

$

223,884

 

 

$

(6

)

 

$

(178,753

)

 

$

45,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2022

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated

 

 

Total
Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

49,429

 

 

$

49

 

 

$

202,201

 

 

$

 

 

$

(114,130

)

 

$

88,120

 

Issuance of common stock, net of issuance cost of $146

 

2,721

 

 

 

3

 

 

 

3,868

 

 

 

 

 

 

 

 

 

3,871

 

Stock-based compensation

 

 

 

 

 

 

 

3,655

 

 

 

 

 

 

 

 

 

3,655

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,645

)

 

 

(21,645

)

Balance at June 30, 2022

 

52,150

 

 

$

52

 

 

$

209,724

 

 

$

 

 

$

(135,775

)

 

$

74,001

 

 

 

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 product candidate pipeline includes ONCT-808, an autologous ROR1 (Receptor-tyrosine kinase-like Orphan Receptor 1) targeting CAR T (chimeric antigen receptor T cells), ONCT-534, a dual-action androgen receptor inhibitor (“DAARI”) for the treatment of castrate-resistant prostate and other androgen receptor-driven cancers, and zilovertamab, a humanized monoclonal antibody that binds to ROR1.

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 a result of the strategic reprioritization announced in April 2023, the Company expects research and development expenses will decrease in future quarters after the closure of the Phase 3 ZILO-301 Study for the treatment of patients with relapsed or refractory MCL and the Phase 1/2 CIRM-0001 Study for the treatment of mantle cell lymphoma (“MCL”), chronic lymphocytic leukemia ( “CLL”) and marginal zone lymphoma (“MZL”), and the implementation of other cost reductions. The Company will continue to invest in: (i) advancing existing product candidates into later stages of clinical development, and (ii) further investigation and the development of other preclinical programs. Based on the reprioritization and other cost reductions, 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. As of June 30, 2023, the Company had $45.5 million in cash, cash equivalents and short-term investments and no debt. However, the Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $178.8 million as of June 30, 2023. 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.

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.

Notice of Delisting

On April 4, 2023, the Company received a letter from the Nasdaq staff indicating that, for the last thirty consecutive business days, the bid price for Oncternal’s common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market. In accordance with Nasdaq listing rules, the Company has been provided an initial period of 180 calendar days, or until October 2, 2023, to regain compliance. The letter states that the Nasdaq staff will provide written notification that Oncternal has achieved compliance with its rules if at any time before October 2, 2023, the bid price of Oncternal’s common stock

8


 

closes at $1.00 per share or more for a minimum of ten consecutive business days. The Nasdaq letter had no immediate effect on the listing or trading of Oncternal’s common stock and the common stock has continued to trade on The Nasdaq Capital Market.

The Company has not regained compliance with Nasdaq listing rules as of the date these financial statements were issued. The Company intends to monitor the bid price of its common stock and consider available options if its common stock does not trade at a level likely to result in the Company regaining compliance with Nasdaq’s minimum bid price rule by October 2, 2023, including potentially implementing a reverse stock split of our outstanding common stock to attempt to regain compliance. During the Company’s annual meeting of shareholders held on June 28, 2023, the Company’s board of directors received authority to effect a reverse stock split of outstanding common stock within one year of the date of the annual meeting and within a range of not less than one-for-five and not more than one-for-thirty common shares.

If the Company does not regain compliance with Nasdaq listing rules by October 2, 2023, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Nasdaq staff would notify the Company that its securities would be subject to delisting. In the event of such a notification, the Company may appeal the Nasdaq staff’s determination to delist its securities, but there can be no assurance the Nasdaq staff would grant the Company’s request for continued listing.

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, 2022, filed with the SEC on its Annual Report on Form 10-K on March 9, 2023. 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.

9


 

Short-term Investments

The Company carries short-term investments classified as available-for-sale marketable securities at fair value as determined by prices for identical or similar securities at the balance sheet date. Short-term investments consist of Level 1 and Level 2 financial instruments in the fair value hierarchy (see Note 6). Realized gains or losses on available-for-sale securities are determined using the specific identification method and net realized gains and losses are included in interest income. The Company periodically reviews available-for-sale securities for other-than-temporary declines in fair value below the cost basis, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company records unrealized gains and losses on available-for-sale marketable securities as a component of other accumulated comprehensive income within the statements of operations and comprehensive loss and as a separate component of stockholders’ equity on the balance sheets. In accordance with policy, the Company does not invest in or hold equity securities in its investment portfolio.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. 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.

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.

Fair Value Measurements

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

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

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

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

The Company’s financial instruments include cash, cash equivalents, short-term investments, prepaid expenses and other assets, accounts payable, accrued expenses, and accrued compensation. 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 short-term investments that are measured at fair value on a recurring basis. No transfers between levels have occurred during the periods presented (see Note 6).
 

10


 

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. 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):

 

 

 

June 30,

 

 

 

2023

 

 

2022

 

Warrants to purchase common stock

 

 

3,411

 

 

 

4,235

 

Common stock options

 

 

10,642

 

 

 

8,204

 

Restricted stock unit awards

 

 

743