aptx_Current_Folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

 

 

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

 

For the transition period from                      to                    

Commission File No. 001‑38535

 

 

Aptinyx Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

47‑4626057

(State or other jurisdiction of
incorporation or organization)

 

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

 

909 Davis Street, Suite 600

Evanston, IL 60201

(847) 871‑0377

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

APTX

The Nasdaq Global Select Market

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 8, 2019, the registrant had 33,679,965 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

Table of Contents

Table of Contents

 

 

 

 

 

Page

PART I. 

FINANCIAL INFORMATION

5

Item 1. 

Condensed Financial Statements (unaudited) 

5

 

Balance Sheets

5

 

Statements of Operations

6

 

Statements of Cash Flows

7

 

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

8

 

Notes to Financial Statements

9

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

30

Item 1. 

Legal Proceedings

30

Item 1A. 

Risk Factors

30

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3. 

Defaults Upon Senior Securities

30

Item 4. 

Mine Safety Disclosures

30

Item 5. 

Other Information

30

Item 6. 

Exhibits

31

Signatures 

32

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10‑Q contains forward-looking statements that involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10‑Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

·

the timing, progress, and results of preclinical studies and clinical trials for NYX‑2925, NYX‑783, NYX-458, and any future product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the studies will become available, and our research and development programs;

·

the existence or absence of side effects or other properties relating to our product candidates which could delay or prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences following any potential marketing approval;

·

the potential for our identified research priorities to advance our technologies;

·

the potential timelines for our clinical studies or our ability to demonstrate safety and efficacy of our product candidates to the satisfaction of applicable regulatory authorities;

·

our ability to obtain and maintain regulatory approval of our product candidates, NYX-2925, NYX-783, NYX-458, and any other future product candidates, and any statements regarding the label of an approved product candidate, including any restrictions, limitations and/or warnings therein;

·

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering NYX-2925, NYX-783, NYX-458, and any additional product candidates we may develop, and any statements as to whether we do or do not infringe, misappropriate, or otherwise violate any third-party intellectual property rights;

·

our ability and the potential to successfully manufacture our product candidates for clinical studies and for commercial use, if approved;

·

our ability to commercialize our products in light of the intellectual property rights of others;

·

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

·

our plans to research, develop, and commercialize our product candidates;

·

our ability to retain and attract collaborators with research, development, regulatory, and commercialization expertise;

·

the size and growth potential of the markets for our product candidates and our ability to serve those markets;

·

the rate and degree of market acceptance and clinical utility of NYX‑2925, NYX-783, NYX‑458, and any future product candidates we may develop, if approved;

·

the pricing and reimbursement of NYX‑2925, NYX‑783, NYX‑458, and any future product candidates we may develop, if approved;

·

regulatory developments in the United States and foreign countries;

·

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

·

the success of competing therapies that are or may become available;

·

our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;

·

the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

·

our financial performance;

·

our expectations related to the use of our cash reserves;

3

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·

the impact of laws and regulations, including, without limitation, recently enacted tax reform legislation;

·

the use of proceeds from our initial public offering;

·

our expectations regarding the time during which we will be an “emerging growth company” under the Jumpstart Our Business Startups Act; and

·

other risks and uncertainties, including those listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, or Annual Report.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and our Annual Report filed with the Securities and Exchange Commission, or the SEC, on March 21, 2019, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or into which we may enter.

You should read this Quarterly Report on Form 10‑Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

Aptinyx Inc.

Condensed Balance Sheets

(unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

Assets

 

 

 

  

 

  

Current assets:

 

 

 

  

 

  

Cash and cash equivalents

 

$

114,214

 

$

150,637

Restricted cash

 

 

179

 

 

252

Accounts receivable

 

 

461

  

 

578

Prepaid expenses and other current assets

 

 

3,980

  

 

1,784

Total current assets

 

 

118,834

  

 

153,251

Other assets

 

 

166

 

 

673

Property and equipment, net

 

 

1,330

  

 

1,690

Total assets

 

$

120,330

 

$

155,614

Liabilities and stockholders’ equity

 

 

  

  

 

  

Current liabilities:

 

 

  

  

 

  

Accounts payable

 

$

1,750

 

$

1,889

Accrued expenses and other current liabilities

 

 

5,344

  

 

3,996

Total current liabilities

 

 

7,094

  

 

5,885

Other long-term liabilities

 

 

309

  

 

418

Total liabilities

 

$

7,403

  

$

6,303

Commitments and contingencies (see Note 10)

 

 

  

  

 

  

Stockholders’ equity:

 

 

  

  

 

  

Preferred stock, $0.01 par value, 10,000 shares authorized and no shares issued and outstanding as of September 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.01 par value, 150,000 shares authorized as of September 30, 2019 and December 31, 2018, 33,676 and 33,341 issued and outstanding as of September 30, 2019 and December 31, 2018

 

 

337

  

 

333

Additional paid-in capital

 

 

261,760

  

 

254,516

Accumulated deficit

 

 

(149,170)

  

 

(105,538)

Total stockholders’ equity

 

$

112,927

  

$

149,311

Total liabilities and stockholders’ equity

 

$

120,330

 

$

155,614

 

See accompanying notes to these unaudited condensed financial statements.

 

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Aptinyx Inc.

Condensed Statements of Operations

(unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2019

    

2018

    

2019

    

2018

     

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

 

936

 

 

943

 

$

2,751

 

$

3,893

 

Grant revenue

 

 

 —

 

 

 —

 

 

 —

 

 

1,642

 

Total revenues

 

$

936

 

$

943

 

 

2,751

 

 

5,535

 

Operating expenses:

 

 

 

  

 

  

 

 

 

  

 

  

 

Research and development

 

 

11,761

  

 

11,950

 

 

33,732

  

 

37,860

 

General and administrative

 

 

4,523

  

 

3,782

 

 

14,419

  

 

7,853

 

Total operating expenses

 

 

16,284

  

 

15,732

 

 

48,151

  

 

45,713

 

Loss from operations

 

 

(15,348)

  

 

(14,789)

 

 

(45,400)

  

 

(40,178)

 

Other income

 

 

558

  

 

608

 

 

1,768

  

 

990

 

Net loss and comprehensive loss

 

$

(14,790)

 

$

(14,181)

 

$

(43,632)

 

$

(39,188)

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.44)

 

$

(0.43)

 

$

(1.30)

 

$

(2.48)

 

Weighted-average number of common shares outstanding, basic and diluted

 

 

33,646

  

 

33,191

 

 

33,510

  

 

15,789

 

 

See accompanying notes to these unaudited condensed financial statements.

 

 

 

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Aptinyx Inc.

Condensed Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

  

 

 

Net loss

 

$

(43,632)

 

$

(39,188)

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

 

 

 

  

 

 

Depreciation and amortization expense

 

 

345

  

 

336

Stock-based compensation expense

 

 

6,966

  

 

1,984

Changes in operating assets and liabilities:

 

 

 

  

 

 

Prepaid expenses and other assets

 

 

(1,563)

  

 

356

Accounts receivable

 

 

117

  

 

344

Accounts payable

 

 

(139)

  

 

(263)

Accrued expenses and other liabilities

 

 

1,279

  

 

3,966

Net cash used in operating activities

 

 

(36,627)

  

 

(32,465)

Cash flows from investing activities:

 

 

 

  

 

  

Purchases of property and equipment

 

 

(43)

  

 

(391)

Net cash used in investing activities

 

 

(43)

  

 

(391)

Cash flows from financing activities:

 

 

 

  

 

  

Payment of deferred issuance costs associated with Series B convertible preferred stock financing

 

 

 —

 

 

(232)

Proceeds from initial public offering, net of underwriters' discounts

 

 

 —

 

 

109,517

Proceeds from stock options exercised

 

 

282

 

 

 2

Payment of deferred offering costs

 

 

(181)

  

 

(2,971)

Net cash provided by financing activities

 

 

101

  

 

106,316

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(36,569)

  

 

73,460

Cash, cash equivalents and restricted cash, at beginning of period

 

 

151,128

  

 

92,609

Cash, cash equivalents and restricted cash, at end of period

 

$

114,559

 

$

166,069

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

  

 

 

Deferred offering costs not yet paid

 

$

17

 

$

41

 

See accompanying notes to these unaudited condensed financial statements.

 

 

7

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Aptinyx Inc.

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

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A‑1

 

Series A‑2

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

convertible

 

convertible

 

convertible

 

 

 

 

 

 

 

Additional

 

 

 

 

stockholders’

 

 

preferred stock

 

preferred stock

 

preferred stock

 

 

Common stock

 

paid-in

 

Accumulated

 

equity

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

capital

    

deficit

    

(deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

 

33,608

 

$

336

 

$

259,090

 

$

(134,380)

 

$

125,046

Issuance of common stock upon vesting of restricted stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

54

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

2,641

 

 

 —

 

 

2,641

Issuance of common stock upon exercise of stock options

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

14

 

 

 —

 

 

30

 

 

 —

 

 

30

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

 —

 

 

(14,790)

 

 

(14,790)

Balance at September 30, 2019

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

  

33,676

 

$

337

 

$

261,760

 

$

(149,170)

 

$

112,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

 

33,155

 

$

332

 

$

252,473

 

$

(77,264)

 

$

175,541

Issuance of common stock upon vesting of restricted stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

73

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

720

 

 

 —

 

 

720

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 —

 

 

 2

 

 

 —

 

 

 2

Issuance of common stock upon IPO, net of underwriters’ discount and other offering costs of $2,902

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(111)

 

 

 —

 

 

(111)

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(14,181)

 

 

(14,181)

Balance at September 30, 2018

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

  

33,229

 

$

332

 

$

253,084

 

$

(91,445)

 

$

161,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A‑1

 

Series A‑2

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

convertible

 

convertible

 

convertible

 

 

 

 

 

 

 

Additional

 

 

 

 

stockholders’

 

 

preferred stock

 

preferred stock

 

preferred stock

 

 

Common stock

 

paid-in

 

Accumulated

 

equity

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

capital

    

deficit

    

(deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

 

33,341

 

$

333

 

$

254,516

 

$

(105,538)

 

$

149,311

Issuance of common stock upon vesting of restricted stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

193

 

 

 2

 

 

(2)

 

 

 —

 

 

 —

Stock‑based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

6,966

 

 

 —

 

 

6,966

Issuance of common stock upon exercise of stock options

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

142

 

 

 2

 

 

280

 

 

 —

 

 

282

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

 —

 

 

(43,632)

 

 

(43,632)

Balance at September 30, 2019

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

  

33,676

 

$

337

 

$

261,760

 

$

(149,170)

 

$

112,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

151,773

 

$

22,650

 

173,453

 

$

39,979

 

234,955

 

$

69,757

 

 

5,342

 

$

53

 

$

12,486

 

$

(52,257)

 

$

(39,718)

Issuance of common stock upon vesting of restricted stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

220

 

 

 2

 

 

(2)

 

 

 —

 

 

 —

Stock‑based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

1,984

 

 

 —

 

 

1,984

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 —

 

 

 2

 

 

 —

 

 

 2

Conversion of preferred stock upon IPO

 

(151,773)

 

 

(22,650)

 

(173,453)

 

 

(39,979)

 

(234,955)

 

 

(69,757)

 

  

20,306

 

 

203

 

 

132,183

 

 

 —

 

 

132,386

Issuance of common stock upon IPO, net of underwriters’ discount and other offering costs of $2,902

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

7,360

 

 

74

 

 

106,431

 

 

 —

 

 

106,505

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

  

 —

 

 

 —

 

 

 —

 

 

(39,188)

 

 

(39,188)

Balance at September 30, 2018

 

 —

 

$

 —

 

 —

 

$

 —

 

 —

 

$

 —

 

  

33,229

 

$

332

 

$

253,084

 

$

(91,445)

 

$

161,971

 

See accompanying notes to the unaudited condensed financial statements

 

 

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Aptinyx Inc.

Notes to Condensed Financial Statements

(Unaudited)

1.           Organization

Description of business

Aptinyx Inc. (the “Company” or “Aptinyx”) was incorporated in Delaware on June 24, 2015 and maintains its headquarters in Evanston, Illinois.

Aptinyx is a clinical‑stage biopharmaceutical company focused on the discovery, development, and commercialization of novel, proprietary, synthetic small molecules for the treatment of brain and nervous system disorders. Aptinyx has a platform for discovering proprietary compounds that work through a novel mechanism: modulation of N‑methyl‑D‑aspartate receptors (“NMDAr”), which are vital to normal and effective brain and nervous system functions. This mechanism has applicability across numerous brain and nervous system disorders.

Initial public offering

On June 20, 2018, the Company’s registration statement on Form S1 (File No. 333‑225150) relating to the initial public offering (“IPO”) of its common stock became effective and on June 25, 2018, the IPO closed. Pursuant to the IPO, the Company issued and sold 7,359,998 shares of common stock at a public offering price of $16.00 per share, which included 959,999 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received net proceeds of $106.5 million after deducting underwriting discounts and commissions and other offering costs of $3.0 million. The shares began trading on the Nasdaq Global Select Market on June 21, 2018. Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock automatically converted into 20,306,497 shares of common stock at the applicable conversion ratio.

At the market offering program

On July 1, 2019, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50.0 million through Cowen as sales agent. Cowen may sell common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Global Select Market or any other existing trade market for the common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Cowen will be entitled to receive 3.0% of the gross sales price per share of common stock sold under the Sales Agreement. As of the date of these financial statements, no shares of common stock have been issued and sold pursuant to the Sales Agreement.

Liquidity and capital resources

As of September 30, 2019, the Company had cash and cash equivalents of $114.2 million, which the Company believes will be sufficient to funds its planned operations for a period of at least twelve months from the date of issuance of these condensed financial statements.

2.Summary of significant accounting policies

Basis of presentation

The condensed financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from this report, as is permitted by such rules and

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regulations. The accompanying condensed financial statements reflect all adjustments consisting of normal, recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. Accordingly, these condensed financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”) filed with the SEC on March 21, 2019. 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company, and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.

Reverse stock split

On June 7, 2018, the Company effected a one-for‑27.58621 reverse stock split of the Company’s issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for the Company’s convertible preferred stock. The par value per share and authorized shares of common and convertible preferred stock were not adjusted as a result of the reverse stock split. All common stock and common stock per share amounts within the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

Use of estimates

The condensed financial statements are prepared in conformity with GAAP. This process requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Significant accounting policies

The Company’s significant accounting policies are described in Note 3, “Summary of significant accounting policies,” in the Annual Report. There have been no material changes to the significant accounting policies during the nine months ended September 30, 2019 with the exception of the following:

Revenue Recognition

Revenue is recognized in accordance with revenue recognition accounting guidance, which utilizes five steps to determine whether revenue can be recognized and to what extent: (i) identify the contract with a customer; (ii) identify the performance obligation(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) determine the recognition period. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, Revenue from Contracts with Customers, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Significant judgments exercised by management include the identification of performance obligations, and whether such promised goods or services are considered distinct. The Company evaluates promised goods or services on a contract by contract basis to determine whether each promise represents a good or service that is distinct or has the same pattern of

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transfer as other promises. A promised good or service is considered distinct if the customer can benefit from the good or service independently of other goods/services either in the contract or that can be obtained elsewhere, without regard to contract exclusivity, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contact. If the good or service is not considered distinct, the Company combines such promises and accounts for them as a single combined performance obligation.

Recently adopted accounting pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, (“ASC 605”), and creates a new topic, ASC 606, Revenue from Contracts with Customers. Through subsequent targeted amendments, the FASB issued additional ASUs that delayed the effective date of ASC 606 and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, licensing, and other improvements and practical expedients. The Company adopted this new standard on January 1, 2019 using the modified retrospective transition method. The Company presents revenue from contracts with customers as collaboration revenue in the Company’s condensed statements of operations. The Company applied this new standard to all contracts with customers that were not complete as of the adoption date and has determined that no cumulative catch-up adjustment to accumulated deficit was required. See Note 4, “Research collaboration agreement with Allergan” for additional information regarding the Company’s single contract that falls within the scope of ASC 606.

The Company has determined that the accounting for the Company’s various grant agreements is outside the scope of ASC 606, as the government agencies granting the Company funds are not receiving reciprocal value for their contributions. There are currently no grants outstanding in 2019. Since the accounting for government grants falls outside the scope of ASC 606, the Company has classified the grant income earned in 2018 separate and apart from revenue earned from contracts with customers in the Company’s condensed statements of operations.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718, Compensation—Stock Compensation to include share-based payments issued to nonemployees for goods or services. Under the new guidance, the existing employee guidance will apply to nonemployee share based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. The new accounting guidance will be effective for the Company on January 1, 2020. The Company has early adopted this new standard on January 1, 2019. The adoption did not have a material impact on the Company’s condensed financial statements.

Recently issued accounting pronouncement

In February 2016, the FASB issued ASU No. 2016‑02, Leases (“ASU 2016‑02”), which requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The new standard includes a short‑term lease exception for leases with a term of 12 months or less, as part of which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. The new standard will be effective for the Company beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the potential impact ASU 2016‑02 may have on its condensed financial statements.

3.           Supplemental financial information

Cash, cash equivalents and restricted cash

Cash and cash equivalents consist of cash and, if applicable, highly liquid investments with an original maturity of three months or less when purchased. The following table provides a reconciliation of cash, cash equivalents, and

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restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows (amounts in thousands).

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30, 

 

December 31, 

 

 

    

2019

    

2018

    

Cash and cash equivalents

 

$

114,214

 

$

150,637

 

Short-term and long-term restricted cash

 

 

345

 

 

491

 

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows

 

$

114,559

 

$

151,128

 

 

Prepaid expenses and other current assets

 

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

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30, 

 

December 31, 

 

 

    

2019

    

2018

    

Prepaid clinical

 

$

1,970

 

$

728

 

Prepaid insurance

 

 

1,220

 

 

673

 

Prepaid manufacturing costs

 

 

435

 

 

 —

 

Other prepaid expenses and current assets

 

 

355

 

 

383

 

Total prepaid expenses and other current assets

 

$

3,980

 

$

1,784

 

 

Accrued expenses and other current liabilities

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30, 

 

December 31, 

 

 

    

2019

    

2018

    

Employee-related expenses

 

$

1,954

 

$

2,043

 

Development costs and sponsored research

 

 

1,746

 

 

915

 

Clinical trials

 

 

1,176

 

 

607

 

Professional services

 

 

125

 

 

211

 

Other

 

 

343

 

 

220

 

Total accrued expenses and other current liabilities

 

$

5,344

 

$

3,996

 

 

 

 

4.           Research collaboration agreement with Allergan

On July 24, 2015, the Company entered into a Research Collaboration Agreement (“RCA”) with Naurex Inc., a subsidiary of Allergan plc (“Allergan”), focused on the research and discovery of small molecules that modulate NMDArs. The collaboration is supervised by a Joint Steering Committee (“JSC”) comprising an equal number of representatives from both the Company and Allergan. Under the terms of the agreement, the RCA will terminate upon the earlier of a predetermined anniversary of the RCA or on the date on which Allergan exercises three options to acquire molecules from a pool of eligible compounds. Under the terms of the agreement, Allergan will pay the Company $1.0 million for each option exercised by Allergan. On May 16, 2018, Allergan exercised its option to acquire exclusive rights to develop and commercialize AGN-241751 within a predefined set of indications.

The Company concluded that Allergan meets the definition of a customer, and therefore concluded that the RCA represents a contract with a customer that falls within the scope of ASC 606.

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Performance obligations

The Company identified the following promised goods or services within the RCA:

 

·

Research Licenses – the Company provides access to exclusive licenses under all of the Company’s NMDAr technologies, during the research term for the sole purpose of conducting research and development activities. Historically, the Company’s licenses have held no value to the customer on a standalone basis, as the research compounds were in the early discovery phase and required the Company’s expertise for further development. Accordingly, the Research Licenses are not considered distinct.

·

Research and Development Services – the Company provides research and development services that are  performed on behalf of, or with, Allergan. As discussed within Research Licenses above, the Company’s licenses have historically held no value without the specialized research and development services. As the Company generally only provides research and development services for internally generated small molecules that modulate NMDArs which require a license to be utilized by a third party, the Research and Development Services are not considered distinct.

·

Joint Steering Committee – the Company actively participates in a joint steering committee, which allows the Company and its collaboration partner to direct the progression and prioritization of the joint discovery programs. As the steering committee would not occur or benefit the customer without the use of the Research Licenses and the related Research and Development Services, and given the Company’s proprietary knowledge of the Research Licenses and the NMDAr technologies, this is not considered distinct.

 

The Company also evaluated whether the option granted to the customer to acquire additional goods or services represented a material right at contract inception. Upon Allergan’s exercise of one of its options, the Company is obligated to transfer control of all intellectual property relating to the optioned compound to Allergan, after which the Company has no further interest in, or continuing involvement with, such optioned compound. The Company evaluated the customer options for material rights, that is, whether the option was to acquire additional goods or services for free or at a discount, and concluded that the options are priced, at contract inception, at standalone selling price. Consequently, the customer options do not represent a performance obligation at the outset of the arrangement since they are contingent upon the option exercise which is outside of the Company’s control.

The Company has concluded that there is a single combined performance obligation (comprising the Research Licenses, Research and Development Services and participation on the Joint Steering Committee) which is satisfied over time, as the research and development services are performed. The exercise of the option to acquire exclusive rights to develop and commercialize AGN-241751 or any future options exercised are not considered a performance obligation until the time of option exercise.

Transaction Price

 

The RCA includes both fixed and variable consideration. Fixed payments, such as contractually defined fees per full-time employee (“FTE”), are included in the transaction price at contract inception, while variable consideration, such as reimbursement for Research and Development Services, are estimated and then evaluated for constraints upon inception of the contract and evaluated on a quarterly basis thereafter. Research and Development Services are updated for actual invoices. There were no capitalized costs associated with obtaining the contract.

The Company concluded that it will use an input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. The Company uses fixed FTE efforts and variable out-of-pocket costs as actual costs incurred relative to the annual budget research plan to measure progress towards fulfillment of the performance obligation. An input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. The Company does not anticipate significant changes as the research plan is reviewed and adjusted annually and approved by the JSC. There are no significant financing components in the contract.

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The Company has determined that the option fee is representative of standalone selling price and concluded that it will recognize revenue for the option fee at a point in time, on the date of exercise, due to the significant uncertainty of whether or not Allergan would exercise the option. The Company recognizes the option fee at a point in time because control of the underlying intellectual property transfers to the customer, and the customer is able to use and benefit from the license. The Company has no further rights, interests or remaining performance obligations associated with any optioned compound, once exercised.

During each of the three months ended September 30, 2019 and 2018, the Company recorded expenses of $1.9 million for certain development activities in accordance with the terms of the RCA, of which 50% was reimbursed by Allergan. The Company received reimbursements of $0.9 million during each of the three months ended September 30, 2019 and 2018. During the nine months ended September 30, 2019 and 2018, the Company recorded expenses of $5.5 million and $5.8 million, respectively, for certain development activities in accordance with the terms of the RCA, of which 50% was reimbursed by Allergan. The Company received reimbursements of $2.8 million and $2.9 million during the nine months ended September 30, 2019 and 2018, respectively. Such reimbursements were reported within collaboration revenue in the condensed statements of operations. All of the Company’s accounts receivables as of both September 30, 2019 and December 31, 2018 relate to amounts owed by Allergan under the RCA. On May 16, 2018, Allergan exercised its option to acquire exclusive rights to develop and commercialize AGN-241751 within a specific set of indications. For the three and nine months ended September 30, 2018, the Company recognized the $1.0 million non-refundable milestone payment within collaboration revenue in the condensed statements of operations as there were no remaining performance obligations associated with the optioned compound.

5.           Fair value measurements

ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). ASC 820 identifies fair value as the exchange price, or 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 a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

·

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

·

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

·

Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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

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

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Assets measured at fair value as of September 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

    

2019

    

Level 1

    

Level 2

    

Level 3

Assets

 

 

 

 

 

 

 

 

 

 

 

Money market funds, included in cash and cash equivalents

 

$

114,059

 

$

114,059

 

$

 —

 

$

 —

Money market funds, included in restricted cash

 

 

179

 

 

179

 

 

 —

 

 

 —

Money market funds, included in other assets

 

 

166

 

 

166

 

 

 —

 

 

 —

 

 

$

114,404

 

$

114,404

 

$

 —

 

$

 —

 

Assets measured at fair value as of December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,