FORTE BIOSCIENCES, INC., 10-Q filed on 11/8/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2021
Nov. 04, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
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 Shell Company 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 Quarterly Report true  
Document Transition Report false  
Entity Common Stock, Shares Outstanding   14,754,557
v3.21.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2021
Dec. 31, 2020
Current assets:    
Cash and cash equivalents $ 45,665 $ 58,765
Prepaid expenses and other current assets 891 1,133
Total current assets 46,556 59,898
Property and equipment, net   97
Other assets 834 1,244
Total assets 47,390 61,239
Current liabilities:    
Accounts payable 2,330 1,240
Accrued liabilities 1,410 1,019
Total current liabilities 3,740 2,259
Commitments and contingencies (Note 5)
Stockholders’ equity:    
Common stock, $0.001 par value: 200,000,000 shares authorized as of September 30, 2021 (unaudited) and December 31, 2020; 14,754,447 and 12,830,598 shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively 15 13
Additional paid-in capital 113,459 110,424
Accumulated deficit (69,824) (51,457)
Stockholders’ equity 43,650 58,980
Total liabilities, convertible preferred stock and stockholders’ equity $ 47,390 $ 61,239
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares
Sep. 30, 2021
Dec. 31, 2020
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 14,754,447 12,830,598
Common stock, shares outstanding 14,754,447 12,830,598
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 0
Convertible preferred stock, shares outstanding 0 0
v3.21.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Operating expenses:        
Research and development $ 5,656 $ 3,688 $ 12,501 $ 6,979
General and administrative 2,043 1,320 5,686 2,753
In-process research and development assets acquired       32,057
Total operating expenses 7,699 5,008 18,187 41,789
Loss from operations (7,699) (5,008) (18,187) (41,789)
Other income (expense), net (52) (92) (180) (122)
Net loss $ (7,751) $ (5,100) $ (18,367) $ (41,911)
Net loss per share - basic and diluted $ (0.54) $ (0.45) $ (1.34) $ (7.36)
Weighted average shares outstanding, basic and diluted 14,241,220 11,209,052 13,702,727 5,691,587
v3.21.2
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (Unaudited) - USD ($)
$ in Thousands
Total
Series A Convertible Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Beginning Balance at Dec. 31, 2019 $ (4,769)   $ 2 $ 199 $ (4,970)
Beginning balance, shares at Dec. 31, 2019   3,177,744      
Beginning balance at Dec. 31, 2019   $ 10,515      
Beginning balance, shares at Dec. 31, 2019     2,108,266    
Exercise of stock options 45     45  
Exercise of stock options, shares     52,706    
Stock-based compensation 2     2  
Net loss (2,050)       (2,050)
Ending Balance at Mar. 31, 2020 (6,772)   $ 2 246 (7,020)
Ending balance, shares at Mar. 31, 2020   3,177,744      
Ending balance at Mar. 31, 2020   $ 10,515      
Ending balance, shares at Mar. 31, 2020     2,160,972    
Beginning Balance at Dec. 31, 2019 (4,769)   $ 2 199 (4,970)
Beginning balance, shares at Dec. 31, 2019   3,177,744      
Beginning balance at Dec. 31, 2019   $ 10,515      
Beginning balance, shares at Dec. 31, 2019     2,108,266    
Net loss (41,911)        
Ending Balance at Sep. 30, 2020 20,319   $ 11 67,189 (46,881)
Ending balance, shares at Sep. 30, 2020     11,216,563    
Beginning Balance at Mar. 31, 2020 (6,772)   $ 2 246 (7,020)
Beginning balance, shares at Mar. 31, 2020   3,177,744      
Beginning balance at Mar. 31, 2020   $ 10,515      
Beginning balance, shares at Mar. 31, 2020     2,160,972    
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 24,016   $ 4 24,012  
Sale of common stock, net of issuance costs, shares     4,215,929    
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    
Issuance of common stock upon vesting of restricted stock units, shares     (16,294)    
Exercise of stock options 47     47  
Exercise of stock options, shares     3,888    
Stock-based compensation 24     24  
Net loss (34,761)       (34,761)
Ending Balance at Jun. 30, 2020 24,878   $ 11 66,648 (41,781)
Ending balance, shares at Jun. 30, 2020     11,198,315    
Exercise of stock options 166     166  
Exercise of stock options, shares     18,248    
Stock-based compensation 375     375  
Net loss (5,100)       (5,100)
Ending Balance at Sep. 30, 2020 20,319   $ 11 67,189 (46,881)
Ending balance, shares at Sep. 30, 2020     11,216,563    
Beginning Balance at Dec. 31, 2020 58,980   $ 13 110,424 (51,457)
Beginning balance, shares at Dec. 31, 2020   0      
Beginning balance, shares at Dec. 31, 2020     12,830,598    
Exercise of stock options 27     27  
Exercise of stock options, shares     7,655    
Stock-based compensation 495     495  
Cashless exercise of warrants, shares     673,463    
Net loss (4,804)       (4,804)
Ending Balance at Mar. 31, 2021 54,698   $ 13 110,946 (56,261)
Ending balance, shares at Mar. 31, 2021     13,511,716    
Beginning Balance at Dec. 31, 2020 $ 58,980   $ 13 110,424 (51,457)
Beginning balance, shares at Dec. 31, 2020   0      
Beginning balance, shares at Dec. 31, 2020     12,830,598    
Exercise of stock options, shares 29,575        
Net loss $ (18,367)        
Ending Balance at Sep. 30, 2021 43,650   $ 15 113,459 (69,824)
Ending balance, shares at Sep. 30, 2021   0      
Ending balance, shares at Sep. 30, 2021     14,754,447    
Beginning Balance at Mar. 31, 2021 54,698   $ 13 110,946 (56,261)
Beginning balance, shares at Mar. 31, 2021     13,511,716    
Issuance of common stock upon vesting of restricted stock units, shares     5,000    
Exercise of stock options 15     15  
Exercise of stock options, shares     1,939    
Stock-based compensation 1,008     1,008  
Cashless exercise of warrants     $ 1 (1)  
Cashless exercise of warrants, shares     560,402    
Net loss (5,812)       (5,812)
Ending Balance at Jun. 30, 2021 49,909   $ 14 111,968 (62,073)
Ending balance, shares at Jun. 30, 2021     14,079,057    
Exercise of stock options 19     19  
Exercise of stock options, shares     19,981    
Stock-based compensation 1,473     1,473  
Cashless exercise of warrants     $ 1 (1)  
Cashless exercise of warrants, shares     655,409    
Net loss (7,751)       (7,751)
Ending Balance at Sep. 30, 2021 $ 43,650   $ 15 $ 113,459 $ (69,824)
Ending balance, shares at Sep. 30, 2021   0      
Ending balance, shares at Sep. 30, 2021     14,754,447    
v3.21.2
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (Parenthetical) (Unaudited)
$ in Thousands
3 Months Ended
Jun. 30, 2020
USD ($)
Statement Of Stockholders Equity [Abstract]  
Issuance costs $ 43
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Cash flows from operating activities:    
Net loss $ (18,367) $ (41,911)
Adjustments to reconcile net loss to net cash used in operating activities:    
In-process research and development acquired   30,885
Depreciation expense 36 40
Impairment of property and equipment 61  
Stock-based compensation expense 2,976 401
Changes in operating assets and liabilities:    
Prepaid expenses and other current assets 718 (322)
Accounts payable 1,090 (394)
Accrued liabilities 391 (3,319)
Net cash used in operating activities (13,095) (14,620)
Cash flows from investing activities:    
Cash and restricted cash acquired in reverse merger   3,582
Net cash provided by investing activities   3,582
Cash flows from financing activities:    
Proceeds from issuance of common stock, net of issuance costs   24,016
Payment of offering costs (66)  
Proceeds from exercise of stock options 61 258
Net cash (used in) provided by financing activities (5) 24,274
Net (decrease) increase in cash and cash equivalents (13,100) 13,236
Cash and cash equivalents — beginning of period 58,765 6,939
Cash and cash equivalents — end of period 45,665 20,175
Non-cash investing and financing activities:    
Conversion of preferred stock to common stock   10,515
Issuance of common stock to Tocagen shareholders   31,809
Unpaid offering costs $ 40 $ 297
v3.21.2
Organization and Description of Business
9 Months Ended
Sep. 30, 2021
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 subsidiaries, referred to herein as the “Company”, is a biopharmaceutical company that had been focused on developing a topical live biotherapeutic for the treatment of inflammatory skin diseases with an initial focus on atopic dermatitis (“AD”). On September 2, 2021, the Company announced that the clinical trial of FB-401 for the treatment of AD failed to achieve statistical significance for its primary endpoint. Following the announcement of the FB-401 trial results, our board of directors continues to evaluate plans for FB-401 and also commenced a process of evaluating strategic alternatives to maximize stockholder value. We have engaged a financial advisory firm to help explore our available strategic alternatives, including a possible merger, business combination, asset acquisitions or sales, collaboration or licensing arrangements.

 

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 connection with the Merger.

 

The Merger was accounted for as a reverse asset acquisition. Forte Subsidiary is deemed to be the accounting 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 Tocagen net assets 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 not of Tocagen, and (iv) for periods prior to the transaction, shareholders’ authorized capital of the combined company is presented using the historical authorized capital of Tocagen.

 

 On February 12, 2021, the Company incorporated Forte Biosciences Emerald Limited in Dublin, Ireland, for the purpose of potentially undertaking clinical trials in the European Union.

 

Liquidity and Risks

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The condensed 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 September 30, 2021, the Company had an accumulated deficit

of $69.8 million. The Company used $13.1 million of cash in operating activities during the nine months ended September 30, 2021. Management expects to continue to incur additional losses in the foreseeable future as the Company explores its available strategic alternatives to maximize shareholder value following the announcement on September 2, 2021 of the unfavorable clinical trial results of FB-401.

 

The Company had cash and cash equivalents of approximately $45.7 million as of September 30, 2021.   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-Q. 

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.

There are numerous risks and uncertainties associated with pharmaceutical development and the Company is unable to predict the timing or amount of increased expenses on the development of future product candidates or when or if it will start to generate revenues. Even if the Company does 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 may 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 the remainder of 2021.

v3.21.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with its audited financial statements and accompanying notes thereto as of and for the year ended December 31, 2020 included in the Company’s Form 10-K as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2021. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity 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.

In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments that are of a normal and recurring nature and that are necessary for the fair presentation of the Company’s financial position, the results of its operations and cash flows for the periods presented. Interim results are not necessarily indicative of results for the full year or any future period.

Principles of Consolidation

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

Cash and Cash Equivalents

Cash and cash equivalents include money market funds and deposits with commercial banks.  Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  There is a three-level hierarchy that prioritizes the inputs used in determining fair value by their reliability and preferred use as follows:

 

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 – Valuations based on quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data.

 

 

Level 3 – Valuations based on inputs that are both significant to the fair value measurements and are unobservable.

To the extent that a 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 within 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.

There have been no significant changes to the valuation methods utilized by the Company during the periods presented.  There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

The carrying amounts of financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

The company had $34.9 million in money market funds as of September 30, 2021 which are classified within Level 1.  Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange.  Money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020.

Use of Estimates

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

 

 

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 condensed consolidated statements of operations upon closing of the Merger on June 15, 2020.

Impairment of Property and Equipment

The Company reviews its property and equipment 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. Impairment losses on property and equipment of $61,000 have been recorded for the three and nine months ended September 30, 2021.

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”) and 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.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the period. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses. Comprehensive loss was equal to net loss for the nine months ended September 30, 2021 and 2020.

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, warrants and restricted stock units, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for all periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Nine Months Ended September 30,

 

 

 

 

2021

 

 

2020

 

 

Options

 

 

1,509,256

 

 

 

1,038,496

 

 

Warrants

 

 

4,434

 

 

 

2,756,980

 

 

Restricted stock units

 

 

15,000

 

 

 

20,000

 

 

Total

 

 

1,528,690

 

 

 

3,815,476

 

 

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (“ASC 740”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 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 Company adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its financial position or results of operations.

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 us 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 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.

v3.21.2
Balance Sheet Components
9 Months Ended
Sep. 30, 2021
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 September 30, 2021 and December 31, 2020 consist of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Prepaid manufacturing and clinical expenses

 

$

243

 

 

$

488

 

Prepaid insurance

 

 

504

 

 

 

395

 

Prepaid license

 

 

25

 

 

 

100

 

Prepaid taxes

 

 

 

 

 

74

 

Other

 

 

119

 

 

 

76

 

Total Prepaid Expenses and Other Current Assets

 

$

891

 

 

$

1,133

 

 

Other Assets

Other assets as of September 30, 2021 and December 31, 2020 consist of the following (in thousands). 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Prepaid insurance

 

$

715

 

 

$

861

 

Deferred offering costs

 

 

106

 

 

 

289

 

Deposits for manufacturing components

 

 

 

 

 

82

 

Other

 

 

13

 

 

 

12

 

Total Other Assets

 

$

834

 

 

$

1,244

 

Accrued Liabilities

Accrued liabilities as of September 30, 2021 and December 31, 2020 consist of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Accrued legal and professional fees

 

$

69

 

 

$

86

 

Accrued manufacturing and clinical expenses

 

 

513

 

 

 

237

 

Accrued compensation

 

 

767

 

 

 

646

 

Other

 

 

61

 

 

 

50

 

Total Accrued Liabilities

 

$

1,410

 

 

$

1,019

 

 

v3.21.2
Merger
9 Months Ended
Sep. 30, 2021
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 because 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 Tocagen net assets 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 using the historical authorized capital of Tocagen.

The following summarizes the estimated fair value of the assets and liabilities acquired on 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 condensed consolidated statements of operations on the Merger date of June 15, 2020 as there was no alternative use to these assets.  

v3.21.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2021
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 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 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 or to meet requirements for public use as specified by federal regulations that the Company is not reasonably satisfying.

Under the DHHS License, as amended in May 2020, the Company was 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 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 September 30, 2021.

The Company incurred $25,000 and $5,000 in minimum royalty expenses for the three months ended September 30, 2021 and 2020, and $75,000 and $25,000 for the nine months ended September 30, 2021 and 2020, respectively.

 Lease Agreements

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.   In June 2021, the Company entered into a lease agreement for additional office space at a separate location for an initial lease of 6 months after which the lease term will be month-to-month. Total rent expense for all locations for the three and nine months ended September 30, 2021 was $9,000 and $0, respectively.  Rent expense for the nine months ended September 30, 2021 included a credit of $9,000 due to a refund for operating expenses from a previous Tocagen facility. Total rent expense for three and nine months ended September 30, 2020 was $5,000 and $19,000, respectively.

Clinical Supply Agreements

The Company has entered into various agreements with CMOs for the manufacture of clinical trial materials and 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. Remaining commitment costs of $493.3 thousand have been recorded in research and developments expenses for the 3 months ended September 30, 2021 and have been included in accrued liabilities in the condensed balance sheet as of September 30, 2021 after termination notices had been sent out to the vendors for these agreements as a result of the FB-401 clinical trial not meeting its primary endpoint.

v3.21.2
Equity
9 Months Ended
Sep. 30, 2021
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 the 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 (the “Concurrent Financing Warrants”) 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 September 30, 2021.

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 had not issued any shares of common stock under the ATM Facility which expired in May 2021. The

Company expensed $0.3 million in offering costs related to this ATM Facility in the second quarter of 2021. The Company subsequently filed a new "shelf" registration statement on Form S-3 that went effective in June 2021 which will allow the Company to raise up to $300 million in additional capital. The Company incurred $106.4 thousand in offering costs related to this shelf registration statement which is recorded in Other Assets in the condensed consolidated balance sheet for the period ended September 30, 2021. The Company has not issued any securities under the new shelf registration statement as of the filing date of this Form 10-Q.

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.

In February 2021, Concurrent Financing Warrants to purchase 978,858 shares of common stock were exercised on a cashless basis resulting in 673,463 shares being issued. In June 2021, Concurrent Financing Warrants to purchase 760,572 shares of common stock were exercised on a cashless basis resulting in 560,402 shares being issued.  In September 2021, Concurrent Financing Warrants to purchase 1,013,116 shares of common stock were exercised on a cashless basis resulting in 655,409 shares being issued. As of September 30, 2021, no Concurrent Financing Warrants were outstanding.

v3.21.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2021
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 the 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 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 remaining 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. upon the closing of 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, was subsequently amended on September 30, 2018 and further amended on February 12, 2019 (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 grants under the 2020 Inducement Plan. As of September 30, 2021, there were 135,000 options available for issuance under the 2020 Inducement Plan.  

In May 2021, the 2017 Plan was terminated and replaced by the 2021 Equity Incentive Plan (the “2021 Plan”). The 2017 Plan will continue to govern outstanding award issued under the 2017 Plan. The 2021 Plan had an initial reserve of 1,000,000 shares available for grant. The 2021 Plan provides for the grant of incentive stock options (“ISOs”), non-statutory 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, and to non-employee directors and consultants of the Company and its affiliates. Subsequent to the Merger, service-based awards generally vested over a four-year period, with the first 25% of such awards vesting following twelve months of continued employment or service with the remaining awards 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 for initial grants and in twelve equal monthly installments over a twelve-month period for subsequent grants. As of September 30, 2021, there were 915,455 options available for issuance under the 2021 Plan.

Stock Options

The risk-free interest rate valuation assumption for 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 computes historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. 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 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 in the three and nine months ended September 30, 2021 was $18.49 and $21.89, and $13.34 and $10.30 in the three and nine months ended September 30, 2020, respectively.

The weighted-average assumptions used to value these stock options using the Black-Scholes option-pricing model were as follows.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Fair value of common stock

 

$

30.63

 

 

$

21.64

 

 

$

35.78

 

 

$

16.79

 

Risk-free interest rate

 

 

0.91

%

 

 

0.36

%

 

 

0.94

%

 

 

0.49

%

Dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Expected term of options (years)

 

 

6.08

 

 

 

6.08

 

 

 

5.95

 

 

 

6.01

 

Expected Volatility

 

 

67.2

%

 

 

70.0

%

 

 

69.0

%

 

 

70.0

%

 

 

As of September 30, 2021, there was unrecognized stock-based compensation expense related to stock options with service conditions of $14.3 million, which is expected to be recognized over a weighted-average period of 3.05 years. Total unrecognized stock-based compensation related to stock options with performance conditions were approximately $233,000 and are not expected to meet performance conditions. The table below summarizes the stock option activity during the nine months ended September 30, 2021:

 

 

 

Number of

Shares

Outstanding

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value (in

thousands)

 

Outstanding at December 31, 2020

 

 

1,123,496

 

 

$

11.72

 

 

8.85

 

 

 

27,800

 

Granted

 

 

566,500

 

 

 

35.78

 

 

 

 

 

 

 

Exercised

 

 

(29,575

)

 

 

2.07

 

 

 

 

 

 

366

 

Forfeited/Cancelled

 

 

(151,165

)

 

 

24.09

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

1,509,256

 

 

$

19.70

 

 

 

8.58

 

 

 

1,036

 

Exercisable at September 30, 2021

 

 

200,181

 

 

$

18.13

 

 

 

8.58

 

 

 

53

 

 

The aggregate intrinsic value of options at September 30, 2021 is based on the Company’s fair value of its stock price on that date of $2.96 per share.

 

There were no restricted stock units granted during the three and nine months ended September 30, 2021. As of September 30, 2021, there were 15,000 unvested restricted stock units outstanding with an unrecognized stock-based compensation expense of approximately $289,000 to be recognized over 2.71 years.

2017 Employee Stock Purchase Plan

In May 2021, the Company’s board of directors reactivated the Company’s 2017 Employee Stock Purchase Plan (“ESPP”) which had previously been suspended. The ESPP allows eligible employees to withhold up to 15% of their earnings to purchase shares of the Company’s common stock at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company’s common stock on the first date of an offering or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of purchase. The Company had 176,694 shares available for future issuance under the ESPP as of September 30, 2021. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each calendar year through January 1, 2027, by the lesser of (a) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (b) 300,000 shares, or (c) a number determined by the Company’s board of directors that is less than (a) and (b). No shares had been issued under the ESPP as of September 30, 2021 as the first six month offering period since the reactivation ends on January 2, 2022. The ESPP is considered a compensatory plan and the Company recorded stock-based compensation expense of $20 thousand for the three and nine months ended September 30, 2021. No stock-based compensation expense related to the ESPP was recorded in 2020.

 

Stock-Based Compensation Expense

Stock-based compensation expenses included in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 were (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Research and development

 

$

522

 

 

$

200

 

 

$

1,191

 

 

$

206

 

General and administrative

 

 

951

 

 

 

175

 

 

 

1,785

 

 

 

195

 

Total

 

$

1,473

 

 

$

375

 

 

$

2,976

 

 

$

401

 

 

 

v3.21.2
Related Party Transactions
9 Months Ended
Sep. 30, 2021
Related Party Transactions [Abstract]  
Related Party Transactions

8. Related Party Transactions

One member of the Company’s board of directors received cash payments of $1,000 for the three and nine months ended September 30, 2021. Two members of the Company’s board of directors received cash payments of $3,000 and $27,000 for scientific consulting services during the three and nine months ended September 30, 2020, respectively.

v3.21.2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with its audited financial statements and accompanying notes thereto as of and for the year ended December 31, 2020 included in the Company’s Form 10-K as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2021. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity 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.

In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments that are of a normal and recurring nature and that are necessary for the fair presentation of the Company’s financial position, the results of its operations and cash flows for the periods presented. Interim results are not necessarily indicative of results for the full year or any future period.

Principles of Consolidation

Principles of Consolidation

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

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include money market funds and deposits with commercial banks.  Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  There is a three-level hierarchy that prioritizes the inputs used in determining fair value by their reliability and preferred use as follows:

 

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 – Valuations based on quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data.

 

 

Level 3 – Valuations based on inputs that are both significant to the fair value measurements and are unobservable.

To the extent that a 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 within 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.

There have been no significant changes to the valuation methods utilized by the Company during the periods presented.  There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

The carrying amounts of financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

The company had $34.9 million in money market funds as of September 30, 2021 which are classified within Level 1.  Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange.  Money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020.

Use of Estimates

Use of Estimates

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

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 condensed consolidated statements of operations upon closing of the Merger on June 15, 2020.

Impairment of Property and Equipment

Impairment of Property and Equipment

The Company reviews its property and equipment 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. Impairment losses on property and equipment of $61,000 have been recorded for the three and nine months ended September 30, 2021.

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”) and 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.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive income (loss) for the period. The Company did not have other comprehensive income (loss) items such as unrealized gains and losses. Comprehensive loss was equal to net loss for the nine months ended September 30, 2021 and 2020.

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, warrants and restricted stock units, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for all periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Nine Months Ended September 30,

 

 

 

 

2021

 

 

2020

 

 

Options

 

 

1,509,256

 

 

 

1,038,496

 

 

Warrants

 

 

4,434

 

 

 

2,756,980

 

 

Restricted stock units

 

 

15,000

 

 

 

20,000

 

 

Total

 

 

1,528,690

 

 

 

3,815,476

 

 

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (“ASC 740”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 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 Company adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its financial position or results of operations.

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 us 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 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.

v3.21.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Schedule of Common Stock Equivalents Excluded from Diluted Net Loss Calculation The following number of unexercised stock options, warrants and restricted stock units, which are common stock equivalents, have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for all periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Nine Months Ended September 30,

 

 

 

 

2021

 

 

2020

 

 

Options

 

 

1,509,256

 

 

 

1,038,496

 

 

Warrants

 

 

4,434

 

 

 

2,756,980

 

 

Restricted stock units

 

 

15,000

 

 

 

20,000

 

 

Total

 

 

1,528,690

 

 

 

3,815,476

 

 

v3.21.2
Balance Sheet Components (Tables)
9 Months Ended
Sep. 30, 2021
Balance Sheet Related Disclosures [Abstract]  
Schedule of Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of September 30, 2021 and December 31, 2020 consist of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Prepaid manufacturing and clinical expenses

 

$

243

 

 

$

488

 

Prepaid insurance

 

 

504

 

 

 

395

 

Prepaid license

 

 

25

 

 

 

100

 

Prepaid taxes

 

 

 

 

 

74

 

Other

 

 

119

 

 

 

76

 

Total Prepaid Expenses and Other Current Assets

 

$

891

 

 

$

1,133

 

Schedule of Other Assets

Other assets as of September 30, 2021 and December 31, 2020 consist of the following (in thousands). 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Prepaid insurance

 

$

715

 

 

$

861

 

Deferred offering costs

 

 

106

 

 

 

289

 

Deposits for manufacturing components

 

 

 

 

 

82

 

Other

 

 

13

 

 

 

12

 

Total Other Assets

 

$

834

 

 

$

1,244

 

Components of Accrued Liabilities

Accrued liabilities as of September 30, 2021 and December 31, 2020 consist of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Accrued legal and professional fees

 

$

69

 

 

$

86

 

Accrued manufacturing and clinical expenses

 

 

513

 

 

 

237

 

Accrued compensation

 

 

767

 

 

 

646

 

Other

 

 

61

 

 

 

50

 

Total Accrued Liabilities

 

$

1,410

 

 

$

1,019

 

 

v3.21.2
Merger (Tables)
9 Months Ended
Sep. 30, 2021
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 on 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

 

v3.21.2
Stock-Based Compensation (Tables)
9 Months Ended
Sep. 30, 2021
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 model were as follows.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Fair value of common stock

 

$

30.63

 

 

$

21.64

 

 

$

35.78

 

 

$

16.79

 

Risk-free interest rate

 

 

0.91

%

 

 

0.36

%

 

 

0.94

%

 

 

0.49

%

Dividend yield

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Expected term of options (years)

 

 

6.08

 

 

 

6.08

 

 

 

5.95

 

 

 

6.01

 

Expected Volatility

 

 

67.2

%

 

 

70.0

%

 

 

69.0

%

 

 

70.0

%

Summary of Stock Option Activity The table below summarizes the stock option activity during the nine months ended September 30, 2021:

 

 

Number of

Shares

Outstanding

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value (in

thousands)

 

Outstanding at December 31, 2020

 

 

1,123,496

 

 

$

11.72

 

 

8.85

 

 

 

27,800

 

Granted

 

 

566,500

 

 

 

35.78

 

 

 

 

 

 

 

Exercised

 

 

(29,575

)

 

 

2.07

 

 

 

 

 

 

366

 

Forfeited/Cancelled

 

 

(151,165

)

 

 

24.09

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

1,509,256

 

 

$

19.70

 

 

 

8.58

 

 

 

1,036

 

Exercisable at September 30, 2021

 

 

200,181

 

 

$

18.13

 

 

 

8.58

 

 

 

53

 

 

Summary of Stock-Based Compensation Expenses

Stock-based compensation expenses included in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 were (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Research and development

 

$

522

 

 

$

200

 

 

$

1,191

 

 

$

206

 

General and administrative

 

 

951

 

 

 

175

 

 

 

1,785

 

 

 

195

 

Total

 

$

1,473

 

 

$

375

 

 

$

2,976

 

 

$

401

 

v3.21.2
Organization and Description of Business - Additional Information (Details)
$ in Thousands
9 Months Ended
Sep. 30, 2021
USD ($)
shares
Sep. 30, 2020
USD ($)
Dec. 31, 2020
USD ($)
Organization Consolidation And Presentation Of Financial Statements [Line Items]      
Accumulated deficit $ 69,824   $ 51,457
Cash used in operating activities (13,095) $ (14,620)  
Cash and cash equivalents $ 45,665   $ 58,765
Tocagen, Inc.      
Organization Consolidation And Presentation Of Financial Statements [Line Items]      
Right to receive shares for each common stock outstanding | shares 3.1624    
Reverse stock split, description 1‑for‑15    
Reverse split ratio 0.06667    
Common stock ownership percentage 15.30%    
Forte Subsidiary, Inc.    </