10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

OR

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

Commission File Number 001-39782

4D Molecular Therapeutics, Inc.

(Exact name of registrant as specified in its Charter)

Delaware

47-3506994

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5858 Horton Street #455

Emeryville, CA

94608

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 505-2680

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

FDMT

 

The Nasdaq Global Select Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 5, 2023, there were 33,260,378 shares of 4D Molecular Therapeutics, Inc.'s common stock outstanding.

 

 

 


 

 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Condensed Unaudited Financial Statements

4

 

Condensed Balance Sheets as of March 31, 2023 and December 31, 2022

4

 

Condensed Statements of Operations for the Three Months Ended March 31, 2023 and 2022

5

 

Condensed Statements of Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022

6

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022

7

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

8

 

Notes to Unaudited Condensed Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

 

 

 

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

101

Item 3.

Default Upon Senior Securities

101

Item 4.

Mine Safety Disclosures

101

Item 5.

Other Information

101

Item 6.

Exhibits

102

Signatures

 

103

 

 

1


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

the success, cost and timing of our development activities, preclinical studies and clinical trials, including our clinical trials for 4D-150, 4D-710, 4D-310, 4D-125 and 4D-110;
the timing of Investigational New Drug Application (“IND”) enabling studies and results from such studies;
the timing and success of lead optimization for our product candidates in lead optimization;
the translation of our preclinical results and data into future clinical trials in humans;
the timing of any manufacturing runs for materials to be used in patient trials;
the number, size and design of our planned clinical trials, and what regulatory authorities may require to obtain marketing approval;
the potential effects of the COVID-19 pandemic on our preclinical and clinical programs and business;
the timing or likelihood of regulatory filings and approvals;
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;
our ability to obtain funding for our operations, including funding necessary to develop and commercialize our product candidates;
the rate and degree of market acceptance of our product candidates, if approved;
the success of competing products or platform technologies that are or may become available;
our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;
future agreements with third parties in connection with the commercialization of our product candidates;
the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;
existing regulations and regulatory developments in the United States and foreign countries;
the expected potential benefits of strategic collaboration agreements, including our relationships with uniQure and Cystic Fibrosis Foundation (“CFF”), and our ability to attract collaborators with development, regulatory and commercialization expertise;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
potential claims relating to our intellectual property and third-party intellectual property;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

2


 

the pricing and reimbursement of our product candidates, if approved;
our ability to attract and retain key managerial, scientific and medical personnel;
the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;
our financial performance; and
our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act.

These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report on Form 10-Q.

 

 

3


 

4D Molecular Therapeutics, Inc.

Condensed Balance Sheets (Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,569

 

 

$

52,351

 

Marketable securities

 

 

121,885

 

 

 

161,203

 

Prepaid expenses and other current assets

 

 

6,586

 

 

 

6,957

 

Total current assets

 

 

207,040

 

 

 

220,511

 

Marketable securities, long-term

 

 

1,405

 

 

 

4,908

 

Property and equipment, net

 

 

21,614

 

 

 

22,262

 

Operating lease right-of-use assets, net

 

 

12,702

 

 

 

13,085

 

Other assets

 

 

1,260

 

 

 

1,080

 

Total assets

 

$

244,021

 

 

$

261,846

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,408

 

 

$

3,322

 

Accrued and other current liabilities

 

 

5,414

 

 

 

8,870

 

Deferred revenue

 

 

778

 

 

 

884

 

Operating lease liabilities, current portion

 

 

2,678

 

 

 

2,655

 

Total current liabilities

 

 

11,278

 

 

 

15,731

 

Deferred revenue, net of current portion

 

 

884

 

 

 

1,076

 

Derivative liability

 

 

219

 

 

 

212

 

Operating lease liabilities, long-term portion

 

 

13,005

 

 

 

13,469

 

Other liabilities

 

 

29

 

 

 

21

 

Total liabilities

 

 

25,415

 

 

 

30,509

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 33,236,768 and 32,626,627 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

3

 

 

 

3

 

Additional paid-in-capital

 

 

562,045

 

 

 

547,020

 

Accumulated other comprehensive loss

 

 

(270

)

 

 

(1,196

)

Accumulated deficit

 

 

(343,172

)

 

 

(314,490

)

Total stockholders’ equity

 

 

218,606

 

 

 

231,337

 

Total liabilities and stockholders’ equity

 

$

244,021

 

 

$

261,846

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

4


 

4D Molecular Therapeutics, Inc.

Condensed Statements of Operations (Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Collaboration and license revenue

 

$

298

 

 

$

1,219

 

Operating expenses:

 

 

 

 

 

 

Research and development (includes $0 and $134 for the three months ended March 31, 2023 and 2022, respectively, attributable to related parties)

 

 

22,412

 

 

 

19,381

 

General and administrative

 

 

7,992

 

 

 

8,230

 

Total operating expenses

 

 

30,404

 

 

 

27,611

 

Loss from operations

 

 

(30,106

)

 

 

(26,392

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,443

 

 

 

100

 

Other expense, net

 

 

(19

)

 

 

(46

)

Total other income (expense), net

 

 

1,424

 

 

 

54

 

Net loss

 

$

(28,682

)

 

$

(26,338

)

Net loss per share, basic and diluted

 

$

(0.88

)

 

$

(0.82

)

Weighted-average shares outstanding used in computing net loss per share, basic and diluted

 

 

32,723,530

 

 

 

32,232,378

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

5


 

4D Molecular Therapeutics, Inc.

Condensed Statements of Comprehensive Loss (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(28,682

)

 

$

(26,338

)

Other comprehensive loss:

 

 

 

 

 

 

Net unrealized gain (loss) on marketable securities

 

 

926

 

 

 

(998

)

Total comprehensive loss

 

$

(27,756

)

 

$

(27,336

)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

6


 

 

4D Molecular Therapeutics, Inc.

Condensed Statements of Stockholders' Equity (Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

32,626,627

 

 

$

3

 

 

$

547,020

 

 

$

(1,196

)

 

$

(314,490

)

 

$

231,337

 

Issuance of common stock upon exercise of stock options

 

 

122,207

 

 

 

 

 

 

1,135

 

 

 

 

 

 

 

 

 

1,135

 

Issuance of common stock for the ATM offering program, net of issuance costs

 

 

487,934

 

 

 

 

 

 

9,647

 

 

 

 

 

 

 

 

 

9,647

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,221

 

 

 

 

 

 

 

 

 

4,221

 

Vesting of common stock warrants issued for services

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Net unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

926

 

 

 

 

 

 

926

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,682

)

 

 

(28,682

)

Balances at March 31, 2023

 

 

33,236,768

 

 

$

3

 

 

$

562,045

 

 

$

(270

)

 

$

(343,172

)

 

$

218,606

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

32,224,524

 

 

$

3

 

 

$

526,523

 

 

$

(423

)

 

$

(206,996

)

 

$

319,107

 

Issuance of common stock upon exercise of stock options

 

 

39,541

 

 

 

 

 

 

330

 

 

 

 

 

 

 

 

 

330

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,933

 

 

 

 

 

 

 

 

 

3,933

 

Vesting of common stock warrants issued for services

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(998

)

 

 

 

 

 

(998

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,338

)

 

 

(26,338

)

Balances at March 31, 2022

 

 

32,264,065

 

 

$

3

 

 

$

530,808

 

 

 

(1,421

)

 

$

(233,334

)

 

$

296,056

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

7


 

4D Molecular Therapeutics, Inc.

Condensed Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(28,682

)

 

$

(26,338

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

4,221

 

 

 

3,933

 

Vesting of common stock warrants in return for services

 

 

22

 

 

 

22

 

Change in fair value of derivative liability

 

 

7

 

 

 

7

 

Depreciation and amortization

 

 

1,029

 

 

 

406

 

Amortization of right-of-use assets

 

 

383

 

 

 

376

 

Net amortization (accretion) of premium (discount) on marketable securities

 

 

(395

)

 

 

582

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

47

 

Prepaid expenses and other current assets

 

 

90

 

 

 

1,017

 

Other assets

 

 

(110

)

 

 

 

Accounts payable

 

 

(333

)

 

 

(1,680

)

Accrued and other liabilities

 

 

(3,397

)

 

 

(1,074

)

Deferred revenue

 

 

(298

)

 

 

(1,219

)

Operating lease liabilities

 

 

(443

)

 

 

371

 

Net cash used in operating activities

 

 

(27,906

)

 

 

(23,550

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(14,729

)

 

 

(59,694

)

Maturities of marketable securities

 

 

58,871

 

 

 

11,997

 

Acquisition of property and equipment

 

 

(1,012

)

 

 

(6,413

)

Net cash provided by (used in) investing activities

 

 

43,130

 

 

 

(54,110

)

Cash flows from financing activities

 

 

 

 

 

 

Payment of offering costs

 

 

(69

)

 

 

(246

)

Issuance of common stock upon the exercise of stock options

 

 

1,416

 

 

 

875

 

Issuance of common stock for the ATM offering program, net of issuance costs

 

 

9,647

 

 

 

 

Net cash provided by financing activities

 

 

10,994

 

 

 

629

 

Net increase (decrease) in cash and cash equivalents

 

 

26,218

 

 

 

(77,031

)

Cash and cash equivalents, beginning of period

 

 

52,351

 

 

 

153,001

 

Cash and cash equivalents, end of period

 

$

78,569

 

 

$

75,970

 

Supplemental disclosures of noncash investing and financing
   information

 

 

 

 

 

 

Unpaid offering costs

 

$

 

 

$

178

 

Purchases of property and equipment in accounts payable
   and accrued and other liabilities

 

$

357

 

 

$

257

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

8


 

4D Molecular Therapeutics, Inc.

Notes to Unaudited Condensed Financial Statements

1. The Company

4D Molecular Therapeutics, Inc. (the “Company”) was formed as a limited liability company in September 2013 under the name 4D Molecular Therapeutics, LLC. The Company changed its name and converted into a corporation which was incorporated in the state of Delaware in March 2015. The Company is a clinical-stage biotherapeutics company harnessing the power of directed evolution for targeted genetic medicines.

Initial Public Offering

In December 2020, the Company sold and issued 9,660,000 shares of common stock at a price to the public of $23.00 per share, which included shares sold upon the underwriters’ exercise of their overallotment option to purchase 1,260,000 additional shares. The Company received an aggregate of $204.7 million in net proceeds, after deducting underwriting discounts and commissions and offering costs.

Upon the closing of the Company's initial public offering in December 2020 (the "IPO"), all outstanding shares of redeemable convertible preferred stock automatically converted into 11,575,984 shares of common stock. Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred stock outstanding.

 

2021 Follow On Public Offering

In November 2021, the Company completed an underwritten public offering ("2021 Offering") in which 4,750,000 shares of the Company's common stock were sold at an offering price of $25.00 per share pursuant to an effective Registration Statement on Form S-1. The net proceeds from the 2021 Offering were $111.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.

 

2023 Follow On Public Offering

In May 2023, the Company completed its third underwritten public offering (the “2023 Offering”) in which 8,625,000 shares of the Company’s common stock were sold at an offering price of $16.00 per share pursuant to an effective Registration Statement on Form S-3. The net proceeds from the 2023 Offering were $129.1 million, after deducting underwriting discounts and commissions and offering expenses.

Liquidity

The Company has incurred significant losses and negative cash flows from operations and had an accumulated deficit of $343.2 million as of March 31, 2023. The Company believes that its cash and cash equivalents and marketable securities as of March 31, 2023 are sufficient for the Company to fund planned operations for at least one year from the issuance date of these unaudited condensed financial statements. The Company has historically financed its operations primarily through the sale of equity securities, and to a lesser extent, from cash received pursuant to its collaboration and license agreements. To date, none of the Company’s product candidates have been approved for sale, and therefore, the Company has not generated any revenue from product sales. Management expects operating losses and negative cash flows from operations to continue for the foreseeable future. The Company plans to raise additional funding as required based on the status of its clinical trials and projected cash flows. There can be no assurance that, in the event the Company requires additional financing, such financing will be available on terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending should additional capital not become available could have a material adverse effect on the Company’s ability to achieve its business objectives.

9


 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim reporting.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, the unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

The accompanying financial information for the three months ended March 31, 2023 and 2022 are unaudited. The unaudited condensed financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2023 and December 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2023 and 2022. The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other periods.

Use of Estimates and Judgments

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses; and disclosure of contingent assets and liabilities as of the date of the financial statements. Such estimates include the determination of useful lives for property and equipment, the contract term, transaction price and costs of collaboration agreements, as well as estimates of the fair value of common stock (prior to the IPO), stock options and the derivative instrument and income tax uncertainties. Actual results could differ from those estimates.

Due to the coronavirus (“COVID-19”) pandemic, the war in Ukraine, rising interest rates and inflation, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 31, 2023. While there was not a material impact to the Company’s unaudited condensed financial statements as of March 31, 2023, these estimates may change, as new events occur and additional information is obtained, as well as other factors that could result in material impacts to the unaudited condensed financial statements in future reporting periods.

Segment Information

The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on a company-wide basis for purposes of allocating resources and assessing financial performance.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable securities and accounts receivable. The Company’s cash is held at two financial institutions in the United States of America. The Company’s cash equivalents are invested in money market funds. The Company also invests in U.S. Treasuries, U.S. government sponsored agencies, commercial paper and corporate bonds. The Company has not experienced any losses on its deposits of cash and cash equivalents. Such deposits may, at times, exceed federally insured limits.

10


 

The Company’s partners in collaboration and license agreements who represent 10% or more of the Company’s total revenue are as follows:

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

 Customer A

 

99%

 

98%

 Customer B

 

*

 

*

Total

 

99%

 

98%

 

* Less than 10%

The Company did not have accounts receivable from its partners in collaboration and license agreements as of March 31, 2023 and 2022.

 

The Company’s total revenues by geographic region, based on the location of the customer, are as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Netherlands

 

$

295

 

 

$

1,192

 

United States

 

 

3

 

 

 

27

 

Total revenue

 

$

298

 

 

$

1,219

 

Other Risks and Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, suppliers for key raw materials, contract manufacturing organizations (“CMOs”) and contract research organizations (“CROs”), compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance and reporting.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties (including for clinical trials and some aspects of research and preclinical testing).

Recently Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as clarified in subsequent amendments. ASU 2016-13 changes the impairment model for certain financial instruments. The new model is a forward-looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. In October 2019, the FASB voted to delay the effective date of this standard. Topic 326 will be effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU

11


 

2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

3. Fair Value Measurements

The following tables represent the Company’s fair value hierarchy for financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):

 

 

 

Basis for Fair Value Measurements

 

 

Fair Value as of

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

March 31, 2023

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

74,637

 

 

$

 

 

$

 

 

$

74,637

 

Commercial paper

 

 

 

 

 

43,924

 

 

 

 

 

 

43,924

 

Corporate bonds

 

 

 

 

 

28,330

 

 

 

 

 

 

28,330

 

U.S. Treasuries

 

 

 

 

 

37,965

 

 

 

 

 

 

37,965

 

U.S. government sponsored agencies

 

 

 

 

 

13,071

 

 

 

 

 

 

13,071

 

Total

 

$

74,637

 

 

$

123,290

 

 

$

 

 

$

197,927