FORTE BIOSCIENCES, INC., 10-K filed on 3/16/2021
Annual Report
v3.20.4
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Mar. 11, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Interactive Data Current Yes    
Trading Symbol FBRX    
Entity Current Reporting Status Yes    
Entity Registrant Name FORTE BIOSCIENCES, INC.    
Entity Central Index Key 0001419041    
Current Fiscal Year End Date --12-31    
Entity Filer Category Non-accelerated Filer    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Shell Company false    
ICFR Auditor Attestation Flag false    
Entity Small Business true    
Entity Emerging Growth Company true    
Entity Ex Transition Period true    
Title of 12(b) Security Common Stock    
Security Exchange Name NASDAQ    
Entity File Number 001-38052    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 26-1243872    
Entity Address, Address Line One 1124 W Carson Street    
Entity Address, Address Line Two MRL Building 3-320    
Entity Address, City or Town Torrance    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 90502    
City Area Code 310    
Local Phone Number 618-6994    
Document Annual Report true    
Document Transition Report false    
Entity Public Float     $ 71.5
Entity Common Stock, Shares Outstanding   13,508,862  
v3.20.4
Consolidated Balance Sheets - USD ($)
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 58,765,000 $ 6,939,000
Prepaid expenses and other current assets 1,133,000 567,000
Total current assets 59,898,000 7,506,000
Property and equipment, net 97,000 152,000
Other assets 1,244,000 0
Total assets 61,239,000 7,658,000
Current liabilities:    
Accounts payable 1,240,000 1,569,000
Accrued liabilities 1,019,000 343,000
Total current liabilities 2,259,000 1,912,000
Commitments and contingencies (Note 5)
Series A Convertible Preferred Stock, $0.001 par value; 10,000,000 shares authorized and 0 and 3,177,744 shares issued and outstanding as of December 31, 2020 and 2019, respectively; aggregate liquidation preference of $0 and $10,821 at December 31, 2020 and December 31, 2019, respectively   10,515,000
Stockholders’ equity (deficit):    
Common stock, $0.001 par value: 200,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 12,830,598 and 2,108,266 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 13,000 2,000
Additional paid-in capital 110,424,000 199,000
Accumulated deficit (51,457,000) (4,970,000)
Total stockholders’ equity (deficit): 58,980,000 (4,769,000)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 61,239,000 $ 7,658,000
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 12,830,598 2,108,266
Common stock, shares outstanding 12,830,598 2,108,266
Series A Convertible Preferred Stock    
Convertible preferred stock, par value $ 0.001 $ 0.001
Convertible preferred stock, shares authorized 10,000,000 10,000,000
Convertible preferred stock, shares issued 0 3,177,744
Convertible preferred stock, shares outstanding 0 3,177,744
Convertible preferred stock, aggregate liquidation preference $ 0 $ 10,821
v3.20.4
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Operating expenses:    
Research and development $ 10,004 $ 2,684
General and administrative 4,221 1,380
In-process research and development assets acquired 32,057  
Total operating expenses 46,282 4,064
Loss from operations (46,282) (4,064)
Other expenses, net (205) (5)
Net loss $ (46,487) $ (4,069)
Net loss per share - basic and diluted $ (6.32) $ (1.93)
Weighted average shares outstanding, basic and diluted 7,358,931 2,108,266
v3.20.4
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) - USD ($)
$ in Thousands
Total
Series A Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Beginning balance at Dec. 31, 2018 $ (736)   $ 2 $ 163 $ (901)
Beginning balance, shares at Dec. 31, 2018   1,738,759      
Beginning balance at Dec. 31, 2018   $ 5,659      
Beginning balance, shares at Dec. 31, 2018     2,108,266    
Issuance of preferred stock, net of issuance cost   $ 4,856      
Issuance of preferred stock, net of issuance cost, shares   1,438,985      
Stock based compensation 36     36  
Net loss (4,069)       (4,069)
Ending Balance at Dec. 31, 2019 (4,769)   $ 2 199 (4,970)
Ending balance, shares at Dec. 31, 2019   3,177,744      
Ending Balance at Dec. 31, 2019 10,515 $ 10,515      
Ending balance, shares at Dec. 31, 2019     2,108,266    
Exercise of employee stock options $ 257     257  
Exercise of employee stock options, shares 74,842   74,842    
Stock based compensation $ 956     956  
Conversion of preferred stocks into common stock 10,515   $ 3 10,512  
Conversion of preferred stocks into common stock, shares   (3,177,744)      
Conversion of preferred stocks into common stock   $ (10,515)      
Conversion of preferred stocks into common stock, shares     3,177,744    
Sale of common stock, net of issuance costs 66,699   $ 6 66,693  
Sale of common stock, net of issuance costs, shares     5,829,964    
Issuance of common stock in connection with reverse merger 31,809   $ 2 31,807  
Issuance of common stock in connection with reverse merger, shares     1,656,076    
Restricted stock awards withholdings for taxes , Shares     (16,294)    
Net loss (46,487)       (46,487)
Ending Balance at Dec. 31, 2020 $ 58,980   $ 13 $ 110,424 $ (51,457)
Ending balance, shares at Dec. 31, 2020   0      
Ending balance, shares at Dec. 31, 2020     12,830,598    
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Cash flows from operating activities:    
Net loss $ (46,487) $ (4,069)
Adjustments to reconcile net loss to net cash used in operating activities:    
In process research and development acquired 30,885  
Depreciation expense 54 11
Stock based compensation expense 956 36
Changes in operating assets and liabilities:    
Prepaid expenses and other assets (263) 3
Accounts payable (369) 976
Accrued liabilities (3,199) 272
Net cash used in operating activities (18,423) (2,771)
Cash flows from investing activities:    
Cash and restricted cash acquired in reverse merger 3,582  
Purchase of property and equipment   (162)
Net cash provided by (used in) investing activities 3,582 (162)
Cash flows from financing activities:    
Proceeds from issuance of common stock, net of issuance costs 66,699  
Proceeds from issuance of convertible preferred stock, net of issuance costs   4,856
Proceeds from exercise of employee stock options 257  
Prepaid financing costs (289)  
Net cash provided by financing activities 66,667 4,856
Net increase in cash 51,826 1,923
Cash and cash equivalents — beginning of period 6,939 5,016
Cash and cash equivalents — end of period 58,765 $ 6,939
Supplemental disclosure of non-cash investing and financing activities:    
Conversion of preferred stock to common stock 10,515  
Issuance of common stock to Tocagen shareholders $ 31,809  
v3.20.4
Organization and Description of Business
12 Months Ended
Dec. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Description of Business

1. Organization and Description of Business

Forte Biosciences, Inc. (www.fortebiorx.com), together with its subsidiary referred to herein as the “Company”, is a clinical-stage biopharmaceutical company focused on advancing its clinical program and developing a live biotherapeutic for the treatment of inflammatory skin diseases, particularly for pediatric atopic dermatitis patients for which there is currently a significant unmet need for safe and effective therapies. The Company entered into a business combination (“Merger”) between Forte Subsidiary, Inc. (“Forte Subsidiary”) a private entity, and Tocagen, Inc. (“Tocagen”), a publicly traded biotechnology company. The Merger closed on June 15, 2020, in which Telluride Merger Sub, Inc., a wholly-owned subsidiary of Tocagen, merged with and into Forte Subsidiary, with Forte Subsidiary surviving the Merger as a wholly-owned subsidiary of Tocagen. Immediately prior to the closing of the Merger, the shares of Tocagen common stock were adjusted with a reverse split ratio of 1‑for‑15. At the closing of the Merger, each share of Forte Subsidiary common stock outstanding immediately prior to the Merger was converted into the right to receive approximately 3.1624 shares of Tocagen common stock (before giving effect to the reverse split). All share and per share amounts have been retrospectively adjusted to give effect to the exchange of Forte Subsidiary common stock and the reverse split of Tocagen common stock. The par value per share of our capital stock was not adjusted as a result of the stock split. Immediately prior to the closing of the Merger, Tocagen changed its name to Forte Biosciences, Inc. The Company’s common stock is traded on the Nasdaq stock exchange under the ticker symbol “FBRX.” Immediately following the Merger, the former Forte Subsidiary and Tocagen security holders owned approximately 84.7% and 15.3% of the number of shares of the Company’s common stock, respectively.

Prior to the Merger, Forte Subsidiary was incorporated as Forte Biosciences, Inc. under the laws of the State of Delaware on May 3, 2017 as a privately-held company. Forte Biosciences, Inc. was renamed Forte Subsidiary, Inc. in anticipation of the Merger.

The Merger was accounted for as a reverse asset acquisition. Forte Subsidiary is deemed to be the acquirer for accounting purposes and Tocagen the accounting acquiree (Note 4). Accordingly, for accounting purposes: (i) the merger was treated as the equivalent of Forte Subsidiary issuing stock to acquire the net assets of Tocagen, (ii) the transaction price was allocated over the acquired net assets of Tocagen based upon their relative fair value at the time of closing, (iii) the reported historical operating results of the combined company prior to the merger will be those of Forte Subsidiary and not of Tocagen, and (iv) for periods prior to the transaction, shareholders’ authorized capital of the combined company is presented based on the historical authorized capital of Tocagen.

Liquidity and Risks

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. Since inception, the Company has incurred losses and negative cash flows from operations. As of December 31, 2020, the Company had an accumulated deficit of $51.5 million, which includes a charge of $32.1 million for acquired in-process research and development assets in connection with the Merger. The Company used $18.4 million of cash in operating activities during the year ended December 31, 2020. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities.

The Company had cash and cash equivalents of approximately $58.8 million as of December 31, 2020.  The Company’s cash and cash equivalents are held at financial institutions and exceed federally insured limits. The Company believes that its existing cash and cash equivalents will be sufficient to allow the Company to fund its operations for at least 12 months from the filing date of this Form 10-K. 

The Company will continue to need to raise additional capital or obtain financing from other sources. Management may fund future operations through the sale of equity and debt financings and may also seek additional capital through arrangements with strategic partners or other sources. There can be no assurance that additional funding will be available on terms acceptable to the Company, if at all. If the Company is unable to raise additional funding to meet its working capital needs in the future, it may be forced to delay or reduce the scope of its research and development programs and/or limit or cease its operations.

Because of the numerous risks and uncertainties associated with pharmaceutical development, the Company is unable to predict the timing or amount of increased expenses or when or if it will start to generate revenues. Even if the Company is able to generate revenues, it may not be able to achieve or maintain profitability. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and may be forced to reduce its operations.

The pandemic caused by outbreaks of new strains of coronaviruses, or COVID-19 and its variants, has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect the Company’s operations. The Company is actively monitoring the impact of COVID-19 and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce. However, the full extent, consequences, and duration of the COVID-19 pandemic and the resulting impact on the Company cannot currently be predicted. The Company will continue to evaluate the impact that these events could have on its operations, financial position, results of operations and cash flows during 2021.

v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”), and the rules and regulations of the US Securities and Exchange Commission (“SEC”). 

The Merger was accounted for as a reverse asset acquisition, as more fully described in Notes 1 and 4. Forte Subsidiary is deemed to be the acquirer for accounting purposes and Tocagen is the accounting acquiree.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Forte Subsidiary, Inc. All intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. Significant management estimates that affect the reported amounts of assets, liabilities and expenses include useful lives of property and equipment, stock-based compensation expense, accruals for clinical trials and drug manufacturing, and deferred tax assets. 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.

Segment Information

The Company operates as a single operating segment. The Company’s chief operating decision maker, its President and Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating financial performance.

Cash and cash equivalents

Cash and cash equivalents includes money market funds and deposits with commercial banks.  

Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including certain prepaid and accrued expenses, approximates fair value due to their short-term maturities.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful life using the straight-line method. Depreciation and amortization begin at the time the asset is placed in service. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, retirement, or sale of an asset, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Estimated useful life for property and equipment is as follows:

 

 

  

Estimated Useful Life

 

Manufacturing equipment

  

 

3 years

 

 

 

Acquired In-Process Research and Development Expense

The Company acquired in-process research and development assets in connection with its Merger with Tocagen. As the acquired in-process research and development assets were deemed to have no current or alternative future use, an expense of $32.1 million was recognized in the consolidated statements of operations for year ended December 31, 2020.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits of research and development personnel, costs related to research activities, preclinical studies, clinical trials and drug manufacturing. Non-refundable advance payments for goods or services that will be used in future research and development activities are deferred and capitalized and are only expensed when the goods have been received or when the service has been performed rather than when the payment is made.

Drug manufacturing and clinical trial costs are a component of research and development expenses. The Company expenses costs for its drug manufacturing activities performed by Contract Manufacturing Organizations (“CMOs”), preclinical and clinical trial costs performed by Contract Research Organizations (“CROs”) and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the percentage of completion and therefore the expense to be incurred.

Patent Costs

Costs to secure, defend and maintain patents are expensed as incurred, and are classified as general and administrative expenses due to the uncertainty of future benefits.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock and common stock equivalents outstanding during the period in accordance with the treasury stock method. The following number of unexercised stock options, convertible preferred stock and warrants, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for the periods presented:

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

Options

 

 

 

1,123,496

 

 

 

516,521

 

Convertible preferred stock

 

 

 

 

 

 

3,177,744

 

Warrants

 

 

 

2,756,980

 

 

 

 

Total

 

 

 

3,880,476

 

 

 

3,694,265

 

 

Stock-Based Compensation

The Company issues stock-based awards to employees and non-employees, generally in the form of stock options and restricted stock units. The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation.

The Company measures compensation cost for all equity awards for employees, directors and non-employees at their grant-date fair value and recognizes compensation expense over the requisite service period, which is generally the vesting period, on a straight-line basis. The grant date fair value of stock options is estimated using the Black-Scholes option pricing model. The grant date fair value of restricted stock units is determined using the Company’s closing stock price on the date of grant. Forfeitures are recognized as they occur.

Stock-based compensation expense for an award with a performance condition is recognized when the achievement of the performance condition has been determined to be probable. If the outcome of such performance condition has not been determined to be probable, or has not been met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

The Company classifies stock-based compensation expense in its statement of operations in the same manner in which the award recipient’s salary and related costs are classified in the case of employees, or in which the award recipient’s service payments are classified in the case of director and non-employees.

Series A Convertible Preferred Stock

The Company records all convertible preferred stock at their respective transaction prices on the dates of issuance, less issuance costs. Series A convertible preferred stock, prior to its conversion into common stock (Note 6), was classified as temporary equity and excluded from stockholders’ equity as the potential redemption, in the event of a deemed liquidation event, was not solely within the Company’s control.

Foreign Currency Transactions

The Company is subject to foreign currency risk with respect to contracts denominated in currencies other than the U.S. dollar. Payments on contracts denominated in foreign currencies are made at the spot rate on the day of payment. Changes in the exchange rate between billing dates and payment dates are recorded to other expenses, net on the consolidated statements of operations.

Income Taxes

The Company uses an asset and liability approach to account for income taxes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse.

Valuation allowances are provided when the expected realization of deferred tax assets does not meet a “more likely than not” criterion. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans and estimates. Should the actual amounts differ from those estimates, the amount of the valuation allowance could be materially impacted. Changes in these estimates may result in significant increases or decreases to the Company’s tax provision in a period in which such estimates are changed, which in turn would affect net income or loss.

The Company recognizes tax benefits from uncertain tax positions if it believes the position is more likely than not to be sustained on examination by the taxing authorities based on the technical merits of the position. The Company makes adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of any reserves for tax positions that are not more likely than not to be sustained, as well as the related net interest and penalties.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to future net undiscounted cash flows that the assets or the asset groups are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the estimated discounted future net cash flows arising from the assets or asset groups. No impairment losses on long-lived assets have been recorded through December 31, 2020.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the periods presented. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the years ended December 31, 2020 and 2019, comprehensive loss was equal to the net loss.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The Company adopted this ASU on January 1, 2020. The adoption of this amended guidance did not have a material effect on the Company’s consolidated financial statements.  

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement. The new guidance removes, modifies and adds certain disclosure requirements on fair value measurements. The Company adopted this ASU on January 1, 2020. The adoption of this amended guidance did not have a material effect on the Company’s consolidated financial statements.  

Recently Issued Accounting Standards Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of a specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for calendar-year public business entities in 2021 and interim periods within that year. Early adoption is permitted. The Company does not expect adoption of this amended guidance will have a material impact on its financial position or results of operations.

In August 2020, the FASB issued ​ASU 2020-06​, ​Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40)​ (“ASU 2020-06”). ​ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but not earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and does not expect the adoption of this amended guidance to have a material impact on the Company’s consolidated financial statements.

v3.20.4
Balance Sheet Components
12 Months Ended
Dec. 31, 2020
Balance Sheet Related Disclosures [Abstract]  
Balance Sheet Components

3. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of December 31, 2020 and 2019 consist of the following (in thousands):

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Prepaid manufacturing and clinical expenses

 

$

488

 

 

$

514

 

Prepaid insurance

 

 

395

 

 

 

30

 

Prepaid license

 

 

100

 

 

 

20

 

Prepaid taxes

 

 

74

 

 

 

 

Other

 

 

76

 

 

 

3

 

Total Prepaid Expenses and Other Current Assets

 

$

1,133

 

 

$

567

 

 

 

 

Other Assets

Other assets as of December 31, 2020 consist of the following (in thousands). There were no other assets as of December 31, 2019.

 

 

 

December 31, 2020

 

Prepaid insurance

 

$

861

 

Deposits for manufacturing components

 

 

82

 

Prepaid offering costs

 

 

289

 

Other

 

 

12

 

Total Other Assets

 

$

1,244

 

 

Accrued Liabilities

Accrued liabilities as of December 31, 2020 and 2019 consist of the following (in thousands):

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Accrued legal and professional fees

 

$

86

 

 

$

140

 

Accrued compensation

 

 

646

 

 

 

175

 

Accrued manufacturing and clinical expenses

 

 

237

 

 

 

26

 

Accrued other expenses

 

 

50

 

 

 

2

 

Total Accrued Liabilities

 

$

1,019

 

 

$

343

 

 

v3.20.4
Merger
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Merger

4. Merger

On June 15, 2020, the Company completed the Merger (see Note 1). The Merger was accounted for as a reverse asset acquisition as Tocagen did not meet the definition of a business pursuant to Topic 805, Business Combinations, as Tocagen did not have the ability to create output, and substantially all of its fair value was concentrated in cash and in-process research and development (“IPR&D”) assets. Forte Subsidiary is deemed to be the acquirer for accounting purposes as immediately following the merger: (i) Forte Subsidiary stockholders owned a substantial majority of the voting rights of the combined company; (ii) Forte Subsidiary designated a majority of the initial members of the board of directors of the combined company; and (iii) Forte Subsidiary’s senior management held all key positions of the combined company and no employees were retained from Tocagen. Accordingly, for accounting purposes: (i) the merger has been treated as the equivalent of Forte Subsidiary issuing stock to acquire the net assets of Tocagen, (ii) the transaction price has been allocated over the acquired net assets of Tocagen based upon their relative fair value at the time of closing, (iii) the reported historical operating results of the combined company prior to the merger are those of Forte Subsidiary, and (iv) for periods prior to the transaction, shareholders’ authorized capital of the combined company is presented based on the historical authorized capital of Tocagen.

The following summarizes the estimated fair value of the assets and liabilities acquired at June 15, 2020, the date of the Merger (in thousands):

 

Cash

 

$

2,997

 

Restricted cash

 

 

586

 

Prepaid and other assets

 

 

1,257

 

In-process research and development

 

 

32,057

 

Accounts payable and accrued expenses assumed

 

 

(3,916

)

Purchase price

 

$

32,981

 

 

The estimated fair value of total consideration given was $33.0 million based on 1,594,670 shares of Tocagen common stock, 61,406 vested restricted stock awards and in-the-money options to purchase 26,968 shares of common stock of Tocagen outstanding immediately prior to the merger date, multiplied by the Tocagen closing stock price of $18.90 on the date of the merger, and transaction costs of approximately $1.2 million. The fair value of the IPR&D assets is expensed as a charge in the consolidated statements of operations for the year ended December 31, 2020 as there is no alternative use to these assets.  

v3.20.4
Commitments and Contingencies
12 Months Ended
Dec. 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5. Commitments and Contingencies

Concentrations of Credit Risk

Bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company’s primary operating cash accounts significantly exceed FDIC limits.

Indemnifications

As permitted under Delaware law, the Company indemnifies its officers, directors, and employees for certain events and occurrences while the officer, or director or employee is, or was, serving at the Company’s request in such capacity.

License to Patented Technology

In December 2017, the Company entered into an exclusive license agreement with the Department of Health and Human Services (“DHHS”). Under the agreement, the DHHS granted the Company an exclusive, sublicensable, worldwide license to certain patent rights under which the Company may develop and commercialize pharmaceutical and biological compositions comprising Gram-negative bacteria for the topical treatment of dermatological diseases and conditions (the “DHHS License”). Under the DHHS License, the Company is obligated to meet certain development benchmarks within certain time periods. If the Company is unable to meet any of these development benchmarks, the DHHS could terminate the license. In addition, the DHHS may terminate or modify the DHHS License in the event of a material breach or upon certain insolvency events that remain uncured following a 90 day written notice of such material breach or insolvency event. The DHHS also has the right to require the Company to grant mandatory sublicenses to patent rights licensed from the DHHS to product candidates covered by other DHHS licenses under certain specified circumstances, including if it is necessary to meet health and safety needs that the Company is not reasonably satisfying or if necessary to meet requirements for public use specified by federal regulations which the Company is not reasonably satisfying.

Under the DHHS License, as amended in May 2020, the Company is obligated to pay the DHHS a minimum annual payment of $20,000 for 2020, which increased to $100,000 beginning January 1, 2021. The Company is required to reimburse the DHHS for certain patent-related expenses and may also be obligated to make milestone payments to the DHHS based upon achieving specified development and regulatory milestones for the first licensed product. Such development milestone payments are the completion of patient enrollment in a phase 3 clinical trial and the completion of a phase 3 clinical trial demonstrating a statistically significant efficacy benefit. The regulatory milestones are the receipt of the first FDA approval and the first non-USA regulatory agency approval. In addition, to the extent licensed products are approved for commercial sale, the Company is also obligated to pay the DHHS royalties based on net sales of licensed products sold by the Company and if applicable, its sublicensees. No milestones have been met as of December 31, 2020.

The Company incurred $30,000 and $20,000 in minimum royalty expenses for the years ended December 31, 2020 and 2019, respectively.

Lease Agreement

In April 2019, the Company entered into a lease agreement for certain office and laboratory space in Torrance, California. The lease agreement is cancellable by the Company at any time with a 30-day notice.  The Company recorded total rent expenses of $52,000 and $18,000 for the years ended December 31, 2020 and 2019, respectively.

Clinical Supply Agreements

The Company has entered into various agreements with Contract Manufacturing Organizations (“CMOs”) for the manufacture of clinical trial materials and Contract Research Organizations (“CROs”) for clinical trial services. These agreements provide the terms and conditions under which the CMOs and CROs will formulate, fill, inspect, package, label and test the Company’s drug product candidate, FB-401. The estimated remaining commitment as of December 31, 2020 under these agreements was approximately $82,000.

v3.20.4
Equity
12 Months Ended
Dec. 31, 2020
Equity [Abstract]  
Equity

6. Equity

Series A Convertible Preferred Stock

On November 27, 2018, the Company entered into a preferred stock purchase agreement with certain investors and issued 1,738,759 shares of Series A convertible preferred stock for net proceeds of $5.7 million, including $0.7 million from the conversion of convertible notes and accrued interest. In addition, on January 2, 2019, the Company completed a second round of Series A preferred stock financing and issued 1,438,985 shares at $3.41 per share for net proceeds of $4.9 million. All outstanding shares of Series A convertible preferred stock were converted into shares of common stock on a one for one ratio in connection with the closing of the Merger on June 15, 2020.  

Common Stock

In connection with the Merger, the Company issued 3,804,817 shares of its common stock, and warrants to purchase 2,752,546 shares of the Company’s common stock at an exercise price of $10.56 per share, for net proceeds of $19.4 million. In addition, on June 16, 2020, the Company issued an additional 411,112 shares of common stock for net proceeds of $4.6 million.  

Warrants to purchase 4,434 shares of the Company’s common stock at an exercise price of $140.25 per share which were previously issued by Tocagen, survived the Merger and remained outstanding as of December 31, 2020.

On September 4, 2020, the Company entered into an “at-the-market” equity offering program (“ATM Facility”), as amended on October 28, 2020, whereby the Company may from time to time offer and sell shares of its common stock up to an aggregate offering price of $10.0 million during the term of the ATM Facility. The Company is not obligated to sell any shares under the ATM Facility. The ATM Facility may be terminated at any time upon ten days’ prior notice, or at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. The Company has agreed to pay the sales agent a commission equal to 3.0% of the gross proceeds from the sales of shares under the ATM Facility and has agreed to provide the sales agent with customary indemnification and contribution rights. The Company had not issued any common stock under the ATM Facility as of December 31, 2020.

On November 2, 2020, the Company completed a public offering of 1,614,035 shares of its common stock at $28.50 per share, which includes the over-allotment option exercised by the underwriters to purchase an additional 210,526 shares. Total net proceeds were $42.7 million after deducting underwriting discounts and other offering expenses of approximately $3.3 million.

v3.20.4
Stock-Based Compensation
12 Months Ended
Dec. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

7. Stock-Based Compensation

Equity Plans

In December 2018, Forte Subsidiary adopted the 2018 Equity Incentive Plan (the “2018 Incentive Plan”). The terms and conditions of stock-based awards were defined at the sole discretion of Forte Subsidiary’s Board of Directors. Service-based awards, vesting over a defined period of service, and performance-based awards that vest upon the achievement of defined conditions have been issued under the 2018 Incentive Plan. Service-based awards to employees generally vest over a four-year period, with the first 25% of such awards vesting following twelve months of continued employment or service with the remainder of the awards vesting monthly in equal installments over the following thirty-six months. Stock options granted under the 2018 Incentive Plan expire ten years from the date of grant and the exercise price must be at least equal to the fair market value of common stock on the grant date. In connection with the Merger, all outstanding options under the 2018 Incentive Plan were exchanged into options to purchase common stock of Tocagen, which changed its name to Forte Biosciences Inc. after the Merger.  Subsequent to the Merger, the 2018 Incentive Plan was frozen and no more stock-based awards will be granted from that plan.

In connection with the Merger, the Company assumed Tocagen’s 2017 Equity Incentive Plan, which was effective on April 12, 2017 and was subsequently amended on September 30, 2018 and further amended on February 12, 2019 (the “2017 Plan”). The 2017 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, non-employee directors and consultants of the Company and its affiliates. Subsequent to the Merger, service-based awards generally vest over a four-year period, with the first 25% of such awards vesting following twelve months of continued employment or service with the remainder of the awards generally vesting monthly in equal installments over the following thirty-six months. For certain service-based awards to the board of directors, vesting occurs in thirty-six equal monthly installments over a three-year period. As of December 31, 2020, there were 28,862 shares available for issuance under the 2017 Plan.

Immediately upon closing of the Merger, 61,406 restricted stock awards and stock options to purchase 26,968 shares of common stock granted under the 2017 Plan prior to the Merger became fully vested in consideration for pre-merger services provided to Tocagen.

On July 26, 2020, the Company adopted the 2020 Inducement Equity Incentive Plan (the “2020 Inducement Plan”) and reserved 500,000 shares for future grant under the 2020 Inducement Plan.  As of December 31, 2020, there were 180,000 shares available for issuance under the 2020 Inducement Plan.

Stock Options

The risk-free interest rate assumption for stock options is based on the U.S. Treasury yield curve rate at the date of grant with a maturity approximating the expected term of the option.

The expected term assumption for options granted to employees is determined using the simplified method that represents the average of the contractual term of the option and the weighted average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term.

Due to the Company’s limited trading of its common stock and lack of company-specific historical or implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies in the life sciences industry whose shares are publicly traded. The Company selects the peer group based on comparable characteristics, including development stage, product pipeline, and enterprise value. The Company will continue to apply this process until sufficient amount of historical information regarding the volatility of its own stock price become available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption.

The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. Prior to the Merger, the fair value per share was determined by the Company’s Board of Directors, as of the date of each grant based on independent third-party valuations, taking into consideration various objective and subjective factors. Subsequent to the Merger, the fair value per share is the closing stock price on the option grant date.

The weighted average grant-date fair value of stock options granted to employees and non-employees for the year ended December 31, 2020 was $11.94. The weighted-average assumptions used to value these stock options using the Black-Scholes option-pricing were as follows.

 

 

 

Year ended

December 31, 2020

 

Fair value of common stock and exercise price

 

$

19.43

 

Risk-free interest rate

 

 

0.49

%

Dividend yield

 

 

0.00

%

Expected term of options (years)

 

 

6.02

 

Volatility

 

 

70.00

%

 

           There were no stock options granted during 2019.

 

The table below summarizes the stock option activity during the year ended December 31, 2020:

 

 

Number of

Shares

Outstanding

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value (in thousands)

 

Balances at December 31, 2019

 

 

516,521

 

 

$

0.85

 

 

 

9.00

 

 

 

 

 

Granted

 

 

655,015

 

 

$

19.43

 

 

 

 

 

 

 

 

 

Assumed from reverse merger

 

 

26,968

 

 

$

9.59

 

 

 

 

 

 

 

 

 

Exercised

 

 

(74,842

)

 

$

3.44

 

 

 

 

 

 

$

254

 

Cancelled/Forfeited

 

 

(166

)

 

$

9.59

 

 

 

 

 

 

 

 

 

Balances at December 31, 2020

 

 

1,123,496

 

 

$

11.72

 

 

8.85

 

 

$

27,800

 

Vested and expected to vest at December 31, 2020

 

 

1,043,496

 

 

$

10.92

 

 

8.78

 

 

$

26,663

 

Exercisable at December 31, 2020

 

 

45,743

 

 

$

9.58

 

 

 

7.79

 

 

$

1,227

 

 

 

The aggregate intrinsic value of options at December 31, 2020 is based on the Company’s closing stock price of $36.41 per share.  

Restricted Stock Unit Awards

Restricted stock unit award transactions during the year ended December 31, 2020 are as follows:

 

 

 

 

 

 

 

Weighted Avg

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Outstanding at December 31, 2019

 

 

 

 

$

 

 

Granted

 

 

20,000

 

 

 

 

21.36

 

Forfeited/Cancelled

 

 

 

 

 

 

 

Issued as Common Stock

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

20,000

 

 

$

 

21.36

 

 

Stock-Based Compensation Expense

Stock-based compensation expenses included in the Company’s consolidated statements of operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

 

 

 

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

585

 

 

$

7

 

General and administrative

 

 

371

 

 

 

29

 

Total

 

$

956

 

 

$

36

 

 

As of December 31, 2020, there was unrecognized stock-based compensation expense of $6.9 million related to stock options with service conditions, which is expected to be recognized over a weighted-average period of 3.37 years. Total unrecognized stock-based compensation was approximately $233,000 related to stock options with performance conditions, which is expected to be recognized if and when performance conditions become probable.

As of December 31, 2020, there was $375,000 of total unrecognized compensation expense related to unvested restricted stock unit awards, which the Company expects to fully recognize over a period of 3.45 years.

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

8. Income Taxes  

 

For the years ended December 31, 2020 and 2019, we did not record a current or deferred income tax expense or benefit due to our valuation allowance position.

The (benefit) provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences (in thousands):

 

 

 

Year Ended December 31,

 

 

 

 

 

 

2020

 

 

2019

 

Income tax expense (benefit) at federal statutory rate

 

$

(9,765

)

 

21.0

%

 

$

(854

)

 

21.0

%

Increase/(decrease) in tax resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State income taxes

 

 

(3,248

)

 

7.0

%

 

 

(284

)

 

7.0

%

Change in valuation allowance

 

 

4,390

 

 

-9.4

%

 

 

1,145

 

 

-28.2

%

Deferred adjustments

 

 

38

 

 

-0.1

%

 

 

 

 

 

 

Transaction adjustments

 

 

(392

)

 

0.9

%

 

 

 

 

 

 

Permanent items

 

 

340

 

 

-0.7

%

 

 

 

 

 

 

Nondeductible transaction costs

 

 

8,643

 

 

-18.6

%

 

 

 

 

 

 

Other

 

 

(6

)

 

0.0

%

 

 

(7

)

 

0.2

%

Total

 

$

 

 

0.0

%

 

$

 

 

0.0

%

 

 

The primary components of temporary differences which give rise to the Company’s net deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

 

 

Year Ended December 31,

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

Accrual to cash adjustment

$

256

 

 

$

402

 

Start-up costs

 

1,730

 

 

 

479

 

Patent costs

 

57

 

 

 

 

Stock option expense

 

275

 

 

 

 

Depreciation

 

 

 

 

3

 

Net operating loss

 

3,429

 

 

 

597

 

Tocagen acquisition

 

418

 

 

 

 

Total noncurrent deferred tax assets

 

6,165

 

 

 

1,481

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Depreciation

 

(3

)

 

 

 

State taxes

 

(383

)

 

 

(92

)

Total noncurrent deferred tax liabilities

 

(386

)

 

 

(92

)

 

 

 

 

 

 

 

 

Valuation Allowance

 

(5,779

)

 

 

(1,389

)

Net deferred tax assets after valuation allowance

$

 

 

$

 

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based upon the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2020 and 2019. During 2020 and 2019, the valuation allowance increased by $4.4 million and increased by $1.1 million, respectively.   

 

The Company has federal and California net operating loss carryforwards which may be available to offset future income tax liabilities.  As of December 31, 2020, the Company has federal net operating losses of $256.5 million, of which, $136.5 million begin expiring in 2028 unless utilized and $120.0 million that do not expire but are limited to 80% of taxable income in a given year.  The Company has state net operating carryforwards of $269.1 million that begin to expire in 2027 unless previously utilized.

 

As of December 31, 2020, the Company has federal and California research and development tax credit carryforwards of approximately $29.2 million and $7.1 million, respectively.  The federal research and development tax credits begin to expire in 2028 unless previously utilized.  The California credits do not expire.

 

The Company is subject to taxation in the U.S. and California.  As of December 31, 2020, Tocagen’s tax years beginning 2007 to date are subject to examination by federal and California taxing authorities due to the carry forward of unutilized net operating losses and research and development tax credits.  To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.

 

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of a company’s net operating loss and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% (by value) within a three-year period.  The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change.  Subsequent ownership changes may further affect the limitation in future years.  The Company has completed several equity offerings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the IRC, or could result in a change in control in the future.  The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards.  Until such an analysis has been completed, the Company has removed the deferred tax assets for net operating losses of $74.2 million and federal and California research and development credits of approximately $36.3 million from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance.  When this analysis is finalized, the Company plans to update its unrecognized tax benefits accordingly.  The Company does not expect this analysis to be completed within the next 12 months and, as a result, the Company does not expect that the unrecognized tax benefits will change within 12 months of this reporting date.  Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

 

The Company’s policy is to record interest and penalties relating to uncertain tax positions as a component of income tax expense.  As of December 31, 2020, and 2019, there was no accrued interest or penalties for uncertain positions.

v3.20.4
Related Party Transactions
12 Months Ended
Dec. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

9. Related Party Transactions

Two members of the Company’s board of directors received cash payments of $4,000 and $25,000 for scientific consulting services during the year ended December 31, 2020. As of December 31, 2020, the Company had no outstanding accounts payable to either of these directors.

v3.20.4
Subsequent Event
12 Months Ended
Dec. 31, 2020
Subsequent Events [Abstract]  
Subsequent Event

10. Subsequent Event

In February 2021, the Company issued 673,463 shares of its common stock pursuant to cashless exercises by certain warrant holders.

v3.20.4
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”), and the rules and regulations of the US Securities and Exchange Commission (“SEC”). 

The Merger was accounted for as a reverse asset acquisition, as more fully described in Notes 1 and 4. Forte Subsidiary is deemed to be the acquirer for accounting purposes and Tocagen is the accounting acquiree.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Forte Subsidiary, Inc. All intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. Significant management estimates that affect the reported amounts of assets, liabilities and expenses include useful lives of property and equipment, stock-based compensation expense, accruals for clinical trials and drug manufacturing, and deferred tax assets. 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.

Segment Information

Segment Information

The Company operates as a single operating segment. The Company’s chief operating decision maker, its President and Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating financial performance.

Cash and Cash Equivalents

Cash and cash equivalents

Cash and cash equivalents includes money market funds and deposits with commercial banks.  

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including certain prepaid and accrued expenses, approximates fair value due to their short-term maturities.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful life using the straight-line method. Depreciation and amortization begin at the time the asset is placed in service. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, retirement, or sale of an asset, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Estimated useful life for property and equipment is as follows:

 

 

  

Estimated Useful Life

 

Manufacturing equipment

  

 

3 years

 

 

 

Acquired In-Process Research and Development Expense

Acquired In-Process Research and Development Expense

The Company acquired in-process research and development assets in connection with its Merger with Tocagen. As the acquired in-process research and development assets were deemed to have no current or alternative future use, an expense of $32.1 million was recognized in the consolidated statements of operations for year ended December 31, 2020.

Research and Development Costs

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits of research and development personnel, costs related to research activities, preclinical studies, clinical trials and drug manufacturing. Non-refundable advance payments for goods or services that will be used in future research and development activities are deferred and capitalized and are only expensed when the goods have been received or when the service has been performed rather than when the payment is made.

Drug manufacturing and clinical trial costs are a component of research and development expenses. The Company expenses costs for its drug manufacturing activities performed by Contract Manufacturing Organizations (“CMOs”), preclinical and clinical trial costs performed by Contract Research Organizations (“CROs”) and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the percentage of completion and therefore the expense to be incurred.

Patent Costs

Patent Costs

Costs to secure, defend and maintain patents are expensed as incurred, and are classified as general and administrative expenses due to the uncertainty of future benefits.

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock and common stock equivalents outstanding during the period in accordance with the treasury stock method. The following number of unexercised stock options, convertible preferred stock and warrants, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for the periods presented:

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

Options

 

 

 

1,123,496

 

 

 

516,521

 

Convertible preferred stock

 

 

 

 

 

 

3,177,744

 

Warrants

 

 

 

2,756,980

 

 

 

 

Total

 

 

 

3,880,476

 

 

 

3,694,265

 

 

Stock-Based Compensation

Stock-Based Compensation

The Company issues stock-based awards to employees and non-employees, generally in the form of stock options and restricted stock units. The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation.

The Company measures compensation cost for all equity awards for employees, directors and non-employees at their grant-date fair value and recognizes compensation expense over the requisite service period, which is generally the vesting period, on a straight-line basis. The grant date fair value of stock options is estimated using the Black-Scholes option pricing model. The grant date fair value of restricted stock units is determined using the Company’s closing stock price on the date of grant. Forfeitures are recognized as they occur.

Stock-based compensation expense for an award with a performance condition is recognized when the achievement of the performance condition has been determined to be probable. If the outcome of such performance condition has not been determined to be probable, or has not been met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

The Company classifies stock-based compensation expense in its statement of operations in the same manner in which the award recipient’s salary and related costs are classified in the case of employees, or in which the award recipient’s service payments are classified in the case of director and non-employees.

Stock Options

The risk-free interest rate assumption for stock options is based on the U.S. Treasury yield curve rate at the date of grant with a maturity approximating the expected term of the option.

The expected term assumption for options granted to employees is determined using the simplified method that represents the average of the contractual term of the option and the weighted average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term.

Due to the Company’s limited trading of its common stock and lack of company-specific historical or implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies in the life sciences industry whose shares are publicly traded. The Company selects the peer group based on comparable characteristics, including development stage, product pipeline, and enterprise value. The Company will continue to apply this process until sufficient amount of historical information regarding the volatility of its own stock price become available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption.

The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. Prior to the Merger, the fair value per share was determined by the Company’s Board of Directors, as of the date of each grant based on independent third-party valuations, taking into consideration various objective and subjective factors. Subsequent to the Merger, the fair value per share is the closing stock price on the option grant date.

Series A Convertible Preferred Stock

Series A Convertible Preferred Stock

The Company records all convertible preferred stock at their respective transaction prices on the dates of issuance, less issuance costs. Series A convertible preferred stock, prior to its conversion into common stock (Note 6), was classified as temporary equity and excluded from stockholders’ equity as the potential redemption, in the event of a deemed liquidation event, was not solely within the Company’s control.

Foreign Currency Transactions

Foreign Currency Transactions

The Company is subject to foreign currency risk with respect to contracts denominated in currencies other than the U.S. dollar. Payments on contracts denominated in foreign currencies are made at the spot rate on the day of payment. Changes in the exchange rate between billing dates and payment dates are recorded to other expenses, net on the consolidated statements of operations.

Income Taxes

Income Taxes

The Company uses an asset and liability approach to account for income taxes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse.

Valuation allowances are provided when the expected realization of deferred tax assets does not meet a “more likely than not” criterion. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans and estimates. Should the actual amounts differ from those estimates, the amount of the valuation allowance could be materially impacted. Changes in these estimates may result in significant increases or decreases to the Company’s tax provision in a period in which such estimates are changed, which in turn would affect net income or loss.

The Company recognizes tax benefits from uncertain tax positions if it believes the position is more likely than not to be sustained on examination by the taxing authorities based on the technical merits of the position. The Company makes adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of any reserves for tax positions that are not more likely than not to be sustained, as well as the related net interest and penalties.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to future net undiscounted cash flows that the assets or the asset groups are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the estimated discounted future net cash flows arising from the assets or asset groups. No impairment losses on long-lived assets have been recorded through December 31, 2020.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the periods presented. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses and so for the years ended December 31, 2020 and 2019, comprehensive loss was equal to the net loss.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The Company adopted this ASU on January 1, 2020. The adoption of this amended guidance did not have a material effect on the Company’s consolidated financial statements.  

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement. The new guidance removes, modifies and adds certain disclosure requirements on fair value measurements. The Company adopted this ASU on January 1, 2020. The adoption of this amended guidance did not have a material effect on the Company’s consolidated financial statements.  

Recently Issued Accounting Standards Not Yet Adopted

Recently Issued Accounting Standards Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of a specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for calendar-year public business entities in 2021 and interim periods within that year. Early adoption is permitted. The Company does not expect adoption of this amended guidance will have a material impact on its financial position or results of operations.

In August 2020, the FASB issued ​ASU 2020-06​, ​Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40)​ (“ASU 2020-06”). ​ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but not earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and does not expect the adoption of this amended guidance to have a material impact on the Company’s consolidated financial statements.

v3.20.4
Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Estimated Useful Life for Property and Equipment Estimated useful life for property and equipment is as follows:

 

  

Estimated Useful Life

 

Manufacturing equipment

  

 

3 years

 

 

 

Schedule of Common Stock Equivalents Excluded from Diluted Net Loss Calculation The following number of unexercised stock options, convertible preferred stock and warrants, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for the periods presented:

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

Options

 

 

 

1,123,496

 

 

 

516,521

 

Convertible preferred stock

 

 

 

 

 

 

3,177,744

 

Warrants

 

 

 

2,756,980

 

 

 

 

Total

 

 

 

3,880,476

 

 

 

3,694,265

 

 

v3.20.4
Balance Sheet Components (Tables)
12 Months Ended
Dec. 31, 2020
Balance Sheet Related Disclosures [Abstract]  
Schedule of Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of December 31, 2020 and 2019 consist of the following (in thousands):

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Prepaid manufacturing and clinical expenses

 

$

488

 

 

$

514

 

Prepaid insurance

 

 

395

 

 

 

30

 

Prepaid license

 

 

100

 

 

 

20

 

Prepaid taxes

 

 

74

 

 

 

 

Other

 

 

76

 

 

 

3

 

Total Prepaid Expenses and Other Current Assets

 

$

1,133

 

 

$

567

 

Schedule of Other Assets Other assets as of December 31, 2020 consist of the following (in thousands).

 

 

December 31, 2020

 

Prepaid insurance

 

$

861

 

Deposits for manufacturing components

 

 

82

 

Prepaid offering costs

 

 

289

 

Other

 

 

12

 

Total Other Assets

 

$

1,244

 

 

Components of Accrued Liabilities

Accrued liabilities as of December 31, 2020 and 2019 consist of the following (in thousands):

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Accrued legal and professional fees

 

$

86

 

 

$

140

 

Accrued compensation

 

 

646

 

 

 

175

 

Accrued manufacturing and clinical expenses

 

 

237

 

 

 

26

 

Accrued other expenses

 

 

50

 

 

 

2

 

Total Accrued Liabilities

 

$

1,019

 

 

$

343

 

v3.20.4
Merger (Tables)
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Summary of Estimated Fair Value of Assets and Liabilities Acquired

The following summarizes the estimated fair value of the assets and liabilities acquired at June 15, 2020, the date of the Merger (in thousands):

 

Cash

 

$

2,997

 

Restricted cash

 

 

586

 

Prepaid and other assets

 

 

1,257

 

In-process research and development

 

 

32,057

 

Accounts payable and accrued expenses assumed

 

 

(3,916

)

Purchase price

 

$

32,981

 

 

v3.20.4
Stock-Based Compensation (Tables)
12 Months Ended
Dec. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Summary of Weighted-Average Assumptions Used to Value Stock Options The weighted-average assumptions used to value these stock options using the Black-Scholes option-pricing were as follows.

 

 

Year ended

December 31, 2020

 

Fair value of common stock and exercise price

 

$

19.43

 

Risk-free interest rate

 

 

0.49

%

Dividend yield

 

 

0.00

%

Expected term of options (years)

 

 

6.02

 

Volatility

 

 

70.00

%

 

           There were no stock options granted during 2019.

 

Summary of Stock Option Activity

The table below summarizes the stock option activity during the year ended December 31, 2020:

 

 

Number of

Shares

Outstanding

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value (in thousands)

 

Balances at December 31, 2019

 

 

516,521

 

 

$

0.85

 

 

 

9.00

 

 

 

 

 

Granted

 

 

655,015

 

 

$

19.43

 

 

 

 

 

 

 

 

 

Assumed from reverse merger

 

 

26,968

 

 

$

9.59

 

 

 

 

 

 

 

 

 

Exercised

 

 

(74,842

)

 

$

3.44

 

 

 

 

 

 

$

254

 

Cancelled/Forfeited

 

 

(166

)

 

$