FORTE BIOSCIENCES, INC., 10-Q filed on 5/11/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 07, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Trading Symbol TOCA  
Entity Registrant Name Tocagen Inc  
Entity Central Index Key 0001419041  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   19,912,983
v3.8.0.1
Condensed Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 17,793 $ 35,933
Marketable securities 56,205 52,792
Prepaid expenses and other current assets 3,120 1,904
Total current assets 77,118 90,629
Property and equipment, net 1,387 1,217
Other assets 234 227
Total assets 78,739 92,073
Current liabilities:    
Accounts payable 1,784 1,951
Accrued liabilities 7,860 8,120
Notes payable, current portion 7,200 7,200
Deferred license revenue 36 36
Deferred grant funding 22 23
Total current liabilities 16,902 17,330
Notes payable, net of current portion 1,972 3,625
Deferred license revenue, net of current portion 27 36
Deferred rent, net of current portion 160  
Total liabilities 19,061 20,991
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2018 and December 31, 2017; no shares issued or outstanding at March 31, 2018 and December 31, 2017
Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2018 and December 31, 2017; 19,912,143 and 19,882,551 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively 20 20
Additional paid-in capital 239,575 238,025
Accumulated deficit (179,809) (166,929)
Accumulated other comprehensive loss (108) (34)
Total stockholders’ equity 59,678 71,082
Total liabilities and stockholders’ equity $ 78,739 $ 92,073
v3.8.0.1
Condensed Balance Sheets (Parenthetical) (Unaudited) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 19,912,143 19,882,551
Common stock, shares outstanding 19,912,143 19,882,551
v3.8.0.1
Condensed Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
License revenue $ 9 $ 11
Operating expenses:    
Research and development 10,436 6,624
General and administrative 2,419 1,940
Total operating expenses 12,855 8,564
Loss from operations (12,846) (8,553)
Other income (expense), net:    
Interest income 315 37
Interest expense (349) (616)
Change in fair value of preferred stock warrants   59
Total other income (expense), net (34) (520)
Net loss (12,880) (9,073)
Other comprehensive loss:    
Net unrealized loss on investments (74) (1)
Comprehensive loss $ (12,954) $ (9,074)
Net loss per common share, basic and diluted $ (0.65) $ (4.11)
Weighted-average number of common shares outstanding, basic and diluted 19,905,871 2,207,747
v3.8.0.1
Condensed Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
OPERATING ACTIVITIES    
Net loss $ (12,880) $ (9,073)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation 1,521 529
Depreciation 95 65
Noncash interest expense 147 147
Change in fair value of preferred stock warrants   (59)
Amortization of (discount) premium on investments, net (46) 1
Changes in operating assets and liabilities:    
Prepaid expenses and other assets (1,223) 19
Accounts payable (179) (1,077)
Accrued liabilities (293) 1,895
Deferred license revenue (9) (11)
Deferred rent 160  
Deferred grant funding (1) (3)
Net cash used in operating activities (12,708) (7,567)
INVESTING ACTIVITIES    
Proceeds from the sale/maturity of marketable securities 9,087 13,553
Purchases of marketable securities (12,528) (9,749)
Purchases of property and equipment (220) (53)
Proceeds from sale of property and equipment   20
Net cash (used in) provided by investing activities (3,661) 3,771
FINANCING ACTIVITIES    
Proceeds from issuance of convertible promissory notes, net of issuance costs   7,338
Principal payments on notes payable (1,800) (1,800)
Proceeds from issuance of common stock 29 41
Cash paid for deferred equity issuance costs   (338)
Net cash (used in) provided by financing activities (1,771) 5,241
Net (decrease) increase in cash and cash equivalents (18,140) 1,445
Cash and cash equivalents, beginning of period 35,933 5,510
Cash and cash equivalents, end of period 17,793 6,955
NONCASH INVESTING AND FINANCING ACTIVITIES    
Deferred equity issuance costs in accounts payable and accrued liabilities   1,013
Property and equipment purchases included in accounts payable and accrued liabilities $ 45 $ 27
v3.8.0.1
Organization and Basis of Presentation
3 Months Ended
Mar. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Basis of Presentation

1.

Organization and Basis of Presentation

Tocagen Inc. (Tocagen or the Company) is a clinical-stage, cancer-selective gene therapy company focused on developing first-in-class, broadly-applicable product candidates designed to activate a patient’s immune system against their own cancer from within. The Company’s cancer-selective gene therapy platform is built on retroviral replicating vectors which are designed to selectively deliver therapeutic genes into the DNA of cancer cells. Tocagen’s gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies.

From inception through March 31, 2018, the Company has devoted substantially all of its efforts to developing its gene therapy platform and its lead product candidate, Toca 511 & Toca FC, as well as raising capital and building its infrastructure. The Company has not generated revenues from its principal operations.

Initial Public Offering

On April 19, 2017, the Company completed its initial public offering (IPO), whereby the Company sold an aggregate of 9,775,000 shares of its common stock, at $10.00 per share, resulting in net proceeds of $86.9 million after underwriting discounts, commissions and offering costs of $10.8 million.

In addition, in connection with the IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock, warrants to purchase up to 68,572 shares of the Company’s Series H convertible preferred stock were converted into warrants to purchase up to 9,936 shares of the Company’s common stock, each at an exercise price of $36.23 per share, and $11.1 million of aggregate principal and accrued interest underlying convertible promissory notes were automatically converted into an aggregate of 1,109,176 shares of the Company’s common stock at the IPO price of $10.00 per share.

Liquidity

The Company has a limited operating history and the sales and income potential of the Company’s business and patient markets are unproven. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of March 31, 2018, the Company had an accumulated deficit of $179.8 million and working capital of $60.2 million available to fund future operations. As the Company continues to incur net losses, its transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. The Company plans to continue to fund its losses from operations and capital funding needs through debt and equity financing, or through collaborations or partnerships with other entities. Debt or equity financing, or collaborations and partnerships with other entities may not be available on a timely basis on terms acceptable to the Company, or at all.  

In performing the first step of the assessment under Accounting Standards Codification Topic 205-40, Presentation of Financial Statements - Going Concern, the Company concluded that, based on its cash resources available as of March 31, 2018 and the receipt of the initial $1.0 million upfront payment from a license agreement in April 2018, it will have sufficient resources to fund its business for at least the next 12 months from the date of this filing.

Use of Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and expenses and related disclosures during the reporting period. Significant estimates in the Company’s financial statements relate to clinical trial accruals, the valuation of equity awards, and the development period used for license revenue recognition. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions.

Interim Financial Reporting

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with GAAP have been omitted. The accompanying unaudited condensed financial statements include all known adjustments necessary for a fair presentation of the results of interim periods as required by GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may materially differ from these estimates. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2018.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business in one operating segment. No product revenue has been generated since inception and all assets are held in the United States.

v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies  

Clinical Trial Accruals

Expenses related to clinical studies are based on estimates of the services received and efforts expended pursuant to the Company’s contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s service providers will temporarily exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients, site initiation and the completion of clinical milestones. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense balance accordingly. Historically, our estimated accrued liabilities have materially approximated actual expense incurred.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contract with Customers (Topic 606), using the modified retrospective transition method. There was no impact to opening retained earnings or revenue as of January 1, 2018 related to the adoption of Topic 606. Revenue is comprised of license revenue from the upfront payment that the Company received under its license and collaboration arrangement with Siemens Healthcare Diagnostics Inc. (Siemens).

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those goods and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

At contract inception, the Company assesses the goods and services promised within each contract and assesses whether each promised good or service is distinct and determines that those are performance obligations. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when the Company determines there are no uncertainties regarding payment terms or transfer of control.

Collaborative Arrangements

The Company enters into collaborative arrangements with partners that may include payment to the Company of one or more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; and (iii) royalties on net sales of licensed products.  Where a portion of non‑refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.  

As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The stand-alone selling price may include items such as forecasted revenues, development timelines, discount rates, and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

License Fees

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Milestone Payments

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from its collaborative arrangement with Siemens.

Contract liabilities, which consists of deferred revenue, as of March 31, 2018 and December 31, 2017 were $63,000 and $72,000, respectively, of which the short-term portions of $36,000 for both periods were classified as deferred license revenue and the remaining long-term portions were classified as deferred license revenue, net of current portion. There were no contract assets recorded as of March 31, 2018 and December 31, 2017.

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of stock awards, including stock options, and stock purchase rights granted to employees and members of the Company’s board of directors. For awards with time-based vesting provisions, the Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognizes the expense over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis. For awards with performance-based vesting provisions, the Company estimates the fair value of stock option grants on the date of grant, or the date when all of the terms of the grant have been agreed to, if later, and recognizes the expense based on the probability of the occurrence of the individual milestones at each reporting period. The expense is recognized over the implicit service period that commences once management believes the performance criteria are probable of being met.  For purchase rights, the Company estimates the fair value of the purchase as of the plan enrollment date and recognizes expense on a straight-line basis over the applicable offering period.  The Company accounts for forfeitures when they occur, and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.

The Company accounts for stock options and stock warrants granted to non-employees using the fair value approach. These option and warrant grants are subject to periodic revaluation over their vesting terms.

Net Loss Per Share

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents as they are anti-dilutive. Common stock equivalents that could potentially dilute earnings in the future are comprised of shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes payable, shares issuable upon the conversion of convertible preferred stock, options to purchase shares of common stock outstanding under the Company’s equity incentive plan and warrants for the purchase of shares of common and preferred stock. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Common stock equivalents from potentially dilutive securities, excluding shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes, that are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

 

2018

 

 

2017

 

 

Common stock options

 

 

3,417,925

 

 

 

1,464,177

 

 

Common stock warrants

 

 

10,660

 

 

 

724

 

 

Convertible preferred stock (as-converted)

 

 

 

 

 

6,690,066

 

 

Convertible preferred stock warrants

   (as-converted)

 

 

 

 

 

9,936

 

 

Total

 

 

3,428,585

 

 

 

8,164,903

 

 

 

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842). The new standard amends the existing accounting standards for leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is still in the process of evaluating the effect of adoption on its financial statements and expects to adopt the standard on January 1, 2019. The adoption will lead to an increase in the assets and liabilities recorded on the balance sheets primarily due to the lease agreement attributable to leased laboratory and office space.

v3.8.0.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3.

Fair Value of Financial Instruments

Fair Values of Assets and Liabilities Measured on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

2,197

 

 

$

 

 

$

2,197

 

 

$

 

Asset-backed securities

 

 

1,099

 

 

 

 

 

 

1,099

 

 

 

 

 

 

$

3,296

 

 

$

 

 

$

3,296

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

28,482

 

 

$

 

 

$

28,482

 

 

$

 

Commercial paper

 

 

13,801

 

 

 

 

 

 

13,801

 

 

 

 

Certificates of deposit

 

 

9,134

 

 

 

 

 

 

9,134

 

 

 

 

Asset-backed securities

 

 

4,788

 

 

 

 

 

 

4,788

 

 

 

 

 

 

$

56,205

 

 

$

 

 

$

56,205

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

8,274

 

 

$

 

 

$

8,274

 

 

$

 

Repurchase agreements

 

 

5,000

 

 

 

 

 

 

5,000

 

 

 

 

 

 

$

13,274

 

 

$

 

 

$

13,274

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

24,713

 

 

$

 

 

$

24,713

 

 

$

 

Certificates of deposit

 

 

13,651

 

 

 

 

 

 

13,651

 

 

 

 

Commercial paper

 

 

12,329

 

 

 

 

 

 

12,329

 

 

 

 

Asset-backed securities

 

 

2,099

 

 

 

 

 

 

2,099

 

 

 

 

 

 

$

52,792

 

 

$

 

 

$

52,792

 

 

$

 

 

Cash Equivalents and Marketable Securities. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Investments in corporate debt securities, certificates of deposit, commercial paper, repurchase agreements and asset-backed securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.

There were no transfers in or out of Level 1 or Level 2 investments during the three months ended March 31, 2018 or 2017.

At March 31, 2018 and December 31, 2017, the Company had investments in money market funds of $12.6 million and $20.2 million, respectively, that were measured at fair value using the net asset value per share (or its equivalent) that have not been classified in the fair value hierarchy. The funds invest primarily in U.S. government securities.

Fair Values of Other Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable, approximate their respective fair values due to their short-term nature. The carrying amount of the Company’s notes payable of $9.2 million at March 31, 2018 approximated their fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles of one of the lenders as of those dates (Level 2 inputs).

v3.8.0.1
Certain Financial Statement Caption Information
3 Months Ended
Mar. 31, 2018
Balance Sheet Related Disclosures [Abstract]  
Certain Financial Statement Caption Information

4.

Certain Financial Statement Caption Information

Marketable Securities

The following is a summary of the Company’s marketable securities (in thousands):

 

 

 

Maturity

(in years)

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

1 or less

 

$

23,687

 

 

$

 

 

$

(61

)

 

$

23,626

 

Corporate debt securities

 

>1 and <5

 

 

4,882

 

 

 

 

 

 

(26

)

 

 

4,856

 

Commercial paper

 

1 or less

 

 

13,809

 

 

 

 

 

 

(8

)

 

 

13,801

 

Certificates of deposit

 

1 or less

 

 

9,137

 

 

 

 

 

 

(3

)

 

 

9,134

 

Asset-backed securities

 

1 or less

 

 

4,797

 

 

 

 

 

 

(9

)

 

 

4,788

 

 

 

 

 

$

56,312

 

 

$

 

 

$

(107

)

 

$

56,205

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

1 or less

 

$

21,097

 

 

$

 

 

$

(16

)

 

$

21,081

 

Corporate debt securities

 

>1 and <5

 

 

3,636

 

 

 

 

 

 

(4

)

 

 

3,632

 

Certificates of deposit

 

1 or less

 

 

13,658

 

 

 

 

 

 

(7

)

 

 

13,651

 

Commercial paper

 

1 or less

 

 

12,333

 

 

 

 

 

 

(4

)

 

 

12,329

 

Asset-backed securities

 

1 or less

 

 

2,099

 

 

 

 

 

 

 

 

 

2,099

 

 

 

 

 

$

52,823

 

 

$

-

 

 

$

(31

)

 

$

52,792

 

 

The Company has classified all of its available-for-sale investment securities, including those with maturity greater than one year, as current assets on the balance sheet based on the highly liquid nature of these investment securities and because these investment securities are considered available for use in current operations.

There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. Gross realized gains and losses on sales of marketable securities were immaterial for all periods presented.

Accrued Liabilities

Accrued liabilities are comprised of (in thousands):

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Clinical trial expenses

 

$

3,955

 

 

$

2,809

 

Payroll and other employee-related expenses

 

 

1,346

 

 

 

2,489

 

Contract manufacturing services

 

 

1,310

 

 

 

1,536

 

Professional fees

 

 

246

 

 

 

276

 

Contract research services

 

 

136

 

 

 

104

 

Interest payable

 

 

65

 

 

 

77

 

Other

 

 

802

 

 

 

829

 

Total accrued liabilities

 

$

7,860

 

 

$

8,120

 

 

v3.8.0.1
Notes Payable
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Notes Payable

5.

Notes Payable

Loan Agreement

On October 30, 2015, the Company entered into a Loan and Security Agreement (the Loan Agreement) with two lenders whereby it borrowed $18.0 million (the Loans). Balances under the Loan Agreement bear a floating rate of interest equal to the greater of 7.75% or the monthly prime rate plus 4.50% (9.00% and 8.75% at March 31, 2018 and December 31, 2017, respectively), and are due in monthly principal and interest payments, with final maturity of the Loans in May 2019. Each Loan bears a final payment fee of 7.95% of the original principal amount due upon maturity.

The costs incurred to issue the Loans of $0.6 million were deferred and are included in the discount to the carrying value of the Loans in the accompanying balance sheets. The Loans also include a final payment fee of $1.4 million due at the earlier of prepayment or the maturity date of the Loans. The deferred costs and the final payment fee are amortized to interest expense over the expected term of the Loans using the effective interest method.

The aggregate carrying amounts of the Loans are comprised of the following (in thousands):

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Principal

 

$

8,400

 

 

$

10,200

 

Add: accreted liability for final payment fee

 

 

971

 

 

 

869

 

Less: unamortized discount

 

 

(199

)

 

 

(244

)

 

 

$

9,172

 

 

$

10,825

 

 

The Loans are secured by substantially all of the Company’s assets other than its intellectual property, except rights to payment from the sale, licensing or disposition of such intellectual property. The Company is also required to maintain its primary operating accounts at all times with one of the lenders. The Loan Agreement contains customary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. Should an event of default occur, including the occurrence of a material adverse change, the Company could be liable for immediate repayment of all obligations under the Loan Agreement. At March 31, 2018, the Company was in compliance with the covenants contained in the Loan Agreement.

Future maturities of the Loans, including the final payment fee, as of March 31, 2018 are as follows (in thousands):

 

 

 

March 31,

2018

 

Year ending December 31, 2018

 

$

5,400

 

Year ending December 31, 2019

 

 

4,431

 

 

 

 

9,831

 

Unaccreted balance for final payment fee on Loans

 

 

(460

)

Unamortized discounts

 

 

(199

)

 

 

 

9,172

 

Less current portion

 

 

(7,200

)

Noncurrent portion

 

$

1,972

 

 

 

 

 

 

 

v3.8.0.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders' Equity

6.

Stockholders’ Equity

Upon completion of the Company’s IPO, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 6,690,066 shares of the Company’s common stock.  As of March 31, 2018, the Company’s authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

The Company had 19,912,143 and 19,882,551 shares of common stock outstanding as of March 31, 2018 and December 31, 2017, respectively.

Changes in the number of shares of the Company’s common stock outstanding and total stockholders’ equity during the three months ended March 31, 2018 were as follows (in thousands, except share amounts):

 

 

 

Shares of

Common

Stock

 

 

Total

Stockholders’ Equity

 

Balance, December 31, 2017

 

 

19,882,551

 

 

$

71,082

 

Stock-based compensation

 

 

 

 

 

1,521

 

Exercise of stock options

 

 

29,592

 

 

 

29

 

Other comprehensive loss

 

 

 

 

 

(74

)

Net loss

 

 

 

 

 

(12,880

)

Balance, March 31, 2018

 

 

19,912,143

 

 

$

59,678

 

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance at March 31, 2018 is as follows:

 

Issued and Outstanding:

 

 

 

 

Stock options

 

 

3,417,925

 

Warrants for common stock

 

 

10,660

 

Shares reserved for issuance under the ESPP

 

 

398,705

 

Shares reserved for future award grants

 

 

450,466

 

Total

 

 

4,277,756

 

 

v3.8.0.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

7.

Stock-Based Compensation

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants with both time-based and performance-based vesting provisions were as follows:

 

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 31, 2017

 

 

 

Time-Based

Vesting Provisions

 

 

Time-Based

Vesting Provisions

 

 

Performance-Based

Vesting Provisions

 

Risk-free interest rate

 

2.62% - 2.73%

 

 

 

2.17

%

 

1.98% - 2.17%

 

Expected volatility

 

86.2% - 86.7%

 

 

 

76.0

%

 

75.2% - 76.3%

 

Weighted-average volatility

 

 

86.6

%

 

 

76.0

%

 

 

75.9

%

Dividend yield

 

 

0

%

 

 

0

%

 

 

0

%

Weighted-average expected term

   (in years)

 

 

6.1

 

 

 

6.1

 

 

 

6.3

 

Weighted-average grant date fair

   value per share

 

$

8.29

 

 

$

6.79

 

 

$

6.73

 

 

The Company calculates the estimated fair value of each non-employee stock option award at the date of grant using Black-Scholes option pricing model with the assumptions generally consistent with those used for employee stock options, with the exception of expected term, which is over the contractual life.

The Company has not recognized non-cash stock-based compensation expense for outstanding options to purchase 188,651 shares of common stock with performance-based vesting provisions after its evaluation that the occurrence of the individual milestones is not probable as of March 31, 2018.

Total non-cash stock-based compensation expense for all stock awards and purchase rights, net of forfeitures recognized as they occur, that was recognized in the statements of operations is as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Research and development

 

$

747

 

 

$

142

 

General and administrative

 

 

774

 

 

 

387

 

Total

 

$

1,521

 

 

$

529

 

 

v3.8.0.1
Subsequent Event
3 Months Ended
Mar. 31, 2018
Subsequent Events [Abstract]  
Subsequent Event

8.

Subsequent Event

On April 18, 2018, the Company, Beijing Apollo Venus Biomedical Technology Limited and ApolloBio Corp. (collectively, ApolloBio) entered into a license agreement (the Agreement) pursuant to which the Company granted to ApolloBio an exclusive license to develop and commercialize Toca 511 & Toca FC within the greater China region, including mainland China, Hong Kong, Macao and Taiwan (the Licensed Territory).

Pursuant to the Agreement, ApolloBio will make an upfront payment of $16.0 million to the Company as a condition to the effectiveness of the license and other rights granted under the Agreement. The Company will be also be eligible for additional future payments totaling up to $111.0 million upon meeting certain development and commercial milestones, the most near-term of which is the completion of enrollment in the Toca 5 study.  The Company is also eligible for low double-digit tiered royalty payments based on annual net sales of licensed products in the Licensed Territory, subject to reduction under specified circumstances. ApolloBio will be responsible for all development and commercialization costs in the Licensed Territory.

ApolloBio must register the Agreement with People’s Republic of China (PRC) authorities and obtain currency conversion approval from PRC authorities to make the upfront payment, other than an initial $1.0 million installment payment that was paid in April 2018. In the event that the remainder of the upfront payment is not paid within 90 days after execution of the Agreement, the Company has the right to terminate the Agreement upon written notice to ApolloBio. Other payments to be made under the Agreement are also subject to PRC currency exchange approval and may be subject to other approvals by PRC authorities. The license and other rights granted to ApolloBio under the Agreement will become effective upon the receipt by the Company of the remaining $15.0 million of the upfront payment from ApolloBio.

Unless earlier terminated, the Agreement will expire upon the expiration of the last-to-expire royalty term for any and all licensed products, which royalty term is, with respect to a licensed product in a particular region (i.e., mainland China, Hong Kong, Macao and Taiwan) of the Licensed Territory (each, a Region), the latest of (i) 10 years after the first commercial sale of such licensed product in such Region, (ii) the expiration of all regulatory exclusivity as to such licensed product in such Region and (iii) the date of expiration of the last valid patent claim covering such licensed product in such Region. Either party may terminate the Agreement upon a material breach by the other party that remains uncured following 60 days (or, with respect to any payment breach, 10 days) after the date of written notice of such breach. ApolloBio may terminate the Agreement at any time by providing 90 days’ prior written notice to the Company. In addition, the Company may terminate the Agreement upon written notice to ApolloBio under specified circumstances if ApolloBio challenges the licensed patent rights.

 

v3.8.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Use of Estimates

Use of Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and expenses and related disclosures during the reporting period. Significant estimates in the Company’s financial statements relate to clinical trial accruals, the valuation of equity awards, and the development period used for license revenue recognition. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions.

Clinical Trial Accruals

Clinical Trial Accruals

Expenses related to clinical studies are based on estimates of the services received and efforts expended pursuant to the Company’s contract arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company’s service providers will temporarily exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients, site initiation and the completion of clinical milestones. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or prepaid expense balance accordingly. Historically, our estimated accrued liabilities have materially approximated actual expense incurred.

Revenue Recognition

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contract with Customers (Topic 606), using the modified retrospective transition method. There was no impact to opening retained earnings or revenue as of January 1, 2018 related to the adoption of Topic 606. Revenue is comprised of license revenue from the upfront payment that the Company received under its license and collaboration arrangement with Siemens Healthcare Diagnostics Inc. (Siemens).

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those goods and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

At contract inception, the Company assesses the goods and services promised within each contract and assesses whether each promised good or service is distinct and determines that those are performance obligations. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company considers a performance obligation satisfied once the Company has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when the Company determines there are no uncertainties regarding payment terms or transfer of control.

Collaborative Arrangements

The Company enters into collaborative arrangements with partners that may include payment to the Company of one or more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; and (iii) royalties on net sales of licensed products.  Where a portion of non‑refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.  

As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The stand-alone selling price may include items such as forecasted revenues, development timelines, discount rates, and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

License Fees

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Milestone Payments

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from its collaborative arrangement with Siemens.

Contract liabilities, which consists of deferred revenue, as of March 31, 2018 and December 31, 2017 were $63,000 and $72,000, respectively, of which the short-term portions of $36,000 for both periods were classified as deferred license revenue and the remaining long-term portions were classified as deferred license revenue, net of current portion. There were no contract assets recorded as of March 31, 2018 and December 31, 2017.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of stock awards, including stock options, and stock purchase rights granted to employees and members of the Company’s board of directors. For awards with time-based vesting provisions, the Company estimates the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognizes the expense over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis. For awards with performance-based vesting provisions, the Company estimates the fair value of stock option grants on the date of grant, or the date when all of the terms of the grant have been agreed to, if later, and recognizes the expense based on the probability of the occurrence of the individual milestones at each reporting period. The expense is recognized over the implicit service period that commences once management believes the performance criteria are probable of being met.  For purchase rights, the Company estimates the fair value of the purchase as of the plan enrollment date and recognizes expense on a straight-line basis over the applicable offering period.  The Company accounts for forfeitures when they occur, and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.

The Company accounts for stock options and stock warrants granted to non-employees using the fair value approach. These option and warrant grants are subject to periodic revaluation over their vesting terms.

Net Loss Per Share

Net Loss Per Share

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents as they are anti-dilutive. Common stock equivalents that could potentially dilute earnings in the future are comprised of shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes payable, shares issuable upon the conversion of convertible preferred stock, options to purchase shares of common stock outstanding under the Company’s equity incentive plan and warrants for the purchase of shares of common and preferred stock. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Common stock equivalents from potentially dilutive securities, excluding shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes, that are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

 

2018

 

 

2017

 

 

Common stock options

 

 

3,417,925

 

 

 

1,464,177

 

 

Common stock warrants

 

 

10,660

 

 

 

724

 

 

Convertible preferred stock (as-converted)

 

 

 

 

 

6,690,066

 

 

Convertible preferred stock warrants

   (as-converted)

 

 

 

 

 

9,936

 

 

Total

 

 

3,428,585

 

 

 

8,164,903

 

 

 

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842). The new standard amends the existing accounting standards for leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is still in the process of evaluating the effect of adoption on its financial statements and expects to adopt the standard on January 1, 2019. The adoption will lead to an increase in the assets and liabilities recorded on the balance sheets primarily due to the lease agreement attributable to leased laboratory and office space.

v3.8.0.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Schedule of Common Stock Equivalents from Potentially Dilutive Securities Not Included in Calculation of Diluted Net Loss Per Share

Common stock equivalents from potentially dilutive securities, excluding shares issuable upon the conversion of all outstanding principal and accrued interest related to convertible promissory notes, that are not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

 

2018

 

 

2017

 

 

Common stock options

 

 

3,417,925

 

 

 

1,464,177

 

 

Common stock warrants

 

 

10,660

 

 

 

724

 

 

Convertible preferred stock (as-converted)

 

 

 

 

 

6,690,066

 

 

Convertible preferred stock warrants

   (as-converted)

 

 

 

 

 

9,936

 

 

Total

 

 

3,428,585

 

 

 

8,164,903

 

 

 

v3.8.0.1
Fair Value of Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Summary of Fair Values of Assets and Liabilities Measured on a Recurring Basis

The following tables summarize the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

2,197

 

 

$

 

 

$

2,197

 

 

$

 

Asset-backed securities

 

 

1,099

 

 

 

 

 

 

1,099

 

 

 

 

 

 

$

3,296

 

 

$

 

 

$

3,296

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

28,482

 

 

$

 

 

$

28,482

 

 

$

 

Commercial paper

 

 

13,801

 

 

 

 

 

 

13,801

 

 

 

 

Certificates of deposit

 

 

9,134

 

 

 

 

 

 

9,134

 

 

 

 

Asset-backed securities

 

 

4,788

 

 

 

 

 

 

4,788

 

 

 

 

 

 

$

56,205

 

 

$

 

 

$

56,205

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at End of Period Using:

 

 

 

Total

 

 

Quoted Market

Prices for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

8,274

 

 

$

 

 

$

8,274

 

 

$

 

Repurchase agreements

 

 

5,000

 

 

 

 

 

 

5,000

 

 

 

 

 

 

$

13,274

 

 

$

 

 

$

13,274

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

24,713

 

 

$

 

 

$

24,713

 

 

$

 

Certificates of deposit

 

 

13,651

 

 

 

 

 

 

13,651

 

 

 

 

Commercial paper

 

 

12,329

 

 

 

 

 

 

12,329

 

 

 

 

Asset-backed securities

 

 

2,099