krtx-10q_20190930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from __________ to ____________

Commission File Number: 001-38958

 

Karuna Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0605902

(State or other jurisdiction of

incorporation or organization)

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

33 Arch Street, Suite 3110

Boston, Massachusetts

02110

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (857) 449-2244

 

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, $0.0001 par value per share

 

KRTX

 

Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

As of October 31, 2019, the registrant had 23,412,754 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Balance Sheets

1

 

Statements of Operations

2

 

Statements of Comprehensive Loss

3

 

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

4

 

Statements of Cash Flows

5

 

Notes to Financial Statements (Unaudited)

6

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KARUNA THERAPEUTICS, INC.

BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,144

 

 

$

8,904

 

Short-term investments

 

 

107,461

 

 

 

4,983

 

Prepaid expenses and other current assets

 

 

2,323

 

 

 

1,709

 

Total current assets

 

 

163,928

 

 

 

15,596

 

Restricted cash

 

 

123

 

 

 

123

 

Property and equipment, net

 

 

176

 

 

 

138

 

Total assets

 

$

164,227

 

 

$

15,857

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable (includes $10 and $112 at September 30, 2019 and December 31,

   2018, respectively, due to related parties)

 

158

 

 

$

269

 

Accrued expenses

 

 

1,319

 

 

 

538

 

Deferred lease obligation, short term portion

 

 

56

 

 

 

 

Derivative liability

 

 

 

 

 

389

 

Total current liabilities

 

 

1,533

 

 

 

1,196

 

Non-current convertible notes, net of discount

 

 

 

 

 

2,516

 

Deferred lease obligation, long term portion

 

 

164

 

 

 

102

 

Total liabilities

 

 

1,697

 

 

 

3,814

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock, Series Seed, $0.0001 par value; 0 and

   4,412,500 shares authorized and outstanding at September 30, 2019 and

   December 31, 2018, respectively

 

 

 

 

 

1

 

Redeemable convertible preferred stock, Series A, $0.0001 par value; 0 and 3,126,700

   shares authorized and outstanding at September 30, 2019 and December 31, 2018,

   respectively

 

 

 

 

 

41,964

 

Redeemable convertible preferred stock, Series B, $0.0001 par value; 0 shares

   authorized and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 and 0 shares authorized as of

   September 30, 2019 and December 31, 2018, respectively; 0 shares outstanding at

   September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 and 12,337,650 shares authorized at

   September 30, 2019 and December 31, 2018, respectively; 23,412,754 and 12

   shares issued and outstanding at September 30, 2019

   and December 31, 2018, respectively

 

 

2

 

 

 

 

Additional paid-in capital

 

 

230,216

 

 

 

1,633

 

Accumulated deficit

 

 

(67,738

)

 

 

(31,555

)

Accumulated other comprehensive income

 

 

50

 

 

 

 

Total stockholders’ equity (deficit)

 

 

162,530

 

 

 

(29,922

)

Total liabilities, redeemable convertible preferred stock and

   stockholders’ equity (deficit)

 

$

164,227

 

 

$

15,857

 

 

The accompanying notes are an integral part of these financial statements

1


 

Karuna Therapeutics, Inc.

Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,793

 

 

$

1,417

 

 

$

19,544

 

 

$

4,816

 

General and administrative

 

 

4,103

 

 

 

1,056

 

 

 

16,995

 

 

 

1,548

 

Total operating expenses

 

 

9,896

 

 

 

2,473

 

 

 

36,539

 

 

 

6,364

 

Loss from operations

 

 

(9,896

)

 

 

(2,473

)

 

 

(36,539

)

 

 

(6,364

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense) (Note 4)

 

 

 

 

 

192

 

 

 

11

 

 

 

(396

)

Interest income

 

 

858

 

 

 

 

 

 

1,425

 

 

 

 

Accretion of debt discount

 

 

 

 

 

(1,324

)

 

 

(945

)

 

 

(1,996

)

Change in fair value of derivative

 

 

 

 

 

(2,633

)

 

 

(135

)

 

 

(429

)

Total other income (expense), net

 

 

858

 

 

 

(3,765

)

 

 

356

 

 

 

(2,821

)

Net loss before income taxes

 

 

(9,038

)

 

 

(6,238

)

 

 

(36,183

)

 

 

(9,185

)

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(9,038

)

 

$

(6,238

)

 

$

(36,183

)

 

$

(9,185

)

Net loss per share, basic and diluted (Note 8)

 

$

(0.39

)

 

$

(1,247,600

)

 

$

(4.67

)

 

$

(4,592,500

)

Weighted average common shares outstanding used in

   computing net loss per share, basic and diluted

 

 

22,907,349

 

 

 

5

 

 

 

7,755,137

 

 

 

2

 

 

The accompanying notes are an integral part of these financial statements

2


 

Karuna Therapeutics, Inc.

STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(9,038

)

 

$

(6,238

)

 

$

(36,183

)

 

$

(9,185

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on short-term investments

 

 

(21

)

 

 

 

 

 

50

 

 

 

 

Comprehensive loss

 

$

(9,059

)

 

$

(6,238

)

 

$

(36,133

)

 

$

(9,185

)

 

The accompanying notes are an integral part of these financial statements

 

3


 

Karuna Therapeutics, Inc.

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

(In thousands, except share data)

(Unaudited)

 

 

 

Series Seed Redeemable

Convertible Preferred

Stock

 

 

Series A Redeemable

Convertible Preferred

Stock

 

 

Series B Redeemable

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Income

 

 

(Deficit)

 

Balance, December 31, 2018

 

 

4,412,500

 

 

$

1

 

 

 

3,126,700

 

 

$

41,964

 

 

 

 

 

$

 

 

 

 

12

 

 

$

 

 

$

1,633

 

 

$

(31,555

)

 

$

 

 

$

(29,922

)

Issuance of Series B

   redeemable convertible

   preferred stock, net of

   issuance costs of $175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,422,845

 

 

 

81,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,945

 

 

 

 

 

 

 

 

 

9,945

 

Exercise of common warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,986

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

58

 

Exercise of common options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,961

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Vesting of restricted stock

   units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,145

)

 

 

 

 

 

(27,145

)

Balance, June 30, 2019

 

 

4,412,500

 

 

$

1

 

 

 

3,126,700

 

 

$

41,964

 

 

 

5,422,845

 

 

$

81,927

 

 

 

 

164,122

 

 

$

 

 

$

11,640

 

 

$

(58,700

)

 

$

71

 

 

$

(46,989

)

Issuance of common stock

   upon initial public offering,

   net of $7.2 million in under-

   writing discounts and

   commissions and $2.4

   million in offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,414,842

 

 

 

1

 

 

 

93,043

 

 

 

 

 

 

 

 

 

93,044

 

Automatic conversion of

   preferred stock

 

 

(4,412,500

)

 

 

(1

)

 

 

(3,126,700

)

 

 

(41,964

)

 

 

(5,422,845

)

 

 

(81,927

)

 

 

 

16,833,790

 

 

 

1

 

 

 

123,891

 

 

 

 

 

 

 

 

 

123,892

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,642

 

 

 

 

 

 

 

 

 

1,642

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

(21

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,038

)

 

 

 

 

 

(9,038

)

Balance, September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,412,754

 

 

 

2

 

 

 

230,216

 

 

 

(67,738

)

 

 

50

 

 

 

162,530

 

 

 

 

Series Seed Redeemable

Convertible Preferred

Stock

 

 

Series A Redeemable

Convertible Preferred

Stock

 

 

Series B Redeemable

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Income

 

 

(Deficit)

 

Balance, December 31, 2017

 

 

4,412,500

 

 

$

1

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

$

 

 

$

675

 

 

$

(14,043

)

 

$

 

 

$

(13,368

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

128

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,947

)

 

 

 

 

 

(2,947

)

Balance, June 30, 2018

 

 

4,412,500

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

803

 

 

 

(16,990

)

 

 

 

 

 

(16,187

)

Issuance of Series A

   redeemable convertible

   preferred stock, net of

   issuance costs of $121

 

 

 

 

 

 

 

 

3,126,700

 

 

 

41,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

415

 

 

 

 

 

 

 

 

 

415

 

Exercise of common warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,238

)

 

 

 

 

 

(6,238

)

Balance, September 30, 2018

 

 

4,412,500

 

 

$

1

 

 

 

3,126,700

 

 

$

41,964

 

 

 

 

 

$

 

 

 

 

12

 

 

$

 

 

$

1,218

 

 

$

(23,228

)

 

$

 

 

$

(22,010

)

 

The accompanying notes are an integral part of these financial statements

 

4


 

Karuna Therapeutics, Inc.

Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(36,183

)

 

$

(9,185

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

11,587

 

 

 

517

 

Accretion of debt discount

 

 

945

 

 

 

1,996

 

Non-cash interest income

 

 

(787

)

 

 

 

Change in fair value of derivative liability

 

 

135

 

 

 

429

 

Depreciation and amortization expense

 

 

37

 

 

 

2

 

Non-cash interest (income) expense

 

 

(11

)

 

 

396

 

Warrant expense

 

 

 

 

 

26

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued expenses

 

 

781

 

 

 

(16

)

Prepaid expenses and other current assets

 

 

(614

)

 

 

(2,076

)

Deferred lease obligation

 

 

118

 

 

 

 

Accounts payable

 

 

(111

)

 

 

(602

)

Net cash used in operating activities

 

 

(24,103

)

 

 

(8,513

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(131,641

)

 

 

 

Maturities of short-term investments

 

 

30,000

 

 

 

 

Acquisition of property and equipment

 

 

(75

)

 

 

 

Net cash used in investing activities

 

 

(101,716

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of $7.2 million in underwriting

   discounts and commissions

 

 

95,453

 

 

 

 

Payment of initial public offering costs

 

 

(2,409

)

 

 

 

Proceeds from issuance of Series B redeemable convertible preferred stock,

   net of issuance costs

 

 

74,825

 

 

 

 

Proceeds from issuance of Series A redeemable convertible preferred stock,

   net of issuance costs

 

 

 

 

 

15,877

 

Proceeds from issuance of convertible notes

 

 

3,128

 

 

 

9,000

 

Proceeds from exercise of warrant

 

 

58

 

 

 

 

Proceeds from exercise of stock options

 

 

4

 

 

 

 

Net cash provided by financing activities

 

 

171,059

 

 

 

24,877

 

Net increase in cash, cash equivalents and restricted cash

 

 

45,240

 

 

 

16,364

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

9,027

 

 

 

1,942

 

Cash, cash equivalents and restricted cash at end of period

 

$

54,267

 

 

$

18,306

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flows information

 

 

 

 

 

 

 

 

Conversion of redeemable convertible preferred stock into common stock

 

$

123,892

 

 

$

-

 

Conversion of convertible notes, accrued interest and discount upon

   conversion to preferred stock

 

$

7,102

 

 

$

26,087

 

 

The accompanying notes are an integral part of these financial statements

5


 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of the Business

Karuna Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in July 2009 as Karuna Pharmaceuticals, Inc. and is headquartered in Boston, Massachusetts. In March 2019, the Company changed its name to Karuna Therapeutics, Inc. The Company is focused on the development of novel therapies to address disabling neuropsychiatric conditions characterized by significant unmet medical need.

Since the Company’s inception, it has focused substantially all of its efforts and financial resources on organizing and staffing the Company, acquiring and developing its technology, raising capital, building its intellectual property portfolio, undertaking preclinical studies and clinical trials and providing general and administrative support for these activities. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals, regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability and the need to obtain adequate additional financing to fund the development of its product candidates.

Forward Stock Split

On June 14, 2019, the Company effected a one-for-1.2987 stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock (see Note 5). Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the redeemable convertible preferred stock conversion ratios.

Initial Public Offering

On June 27, 2019, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). In the IPO, which closed on July 2, 2019, the Company issued and sold 6,414,842 shares of common stock, including full exercise of the underwriters’ over-allotment option to purchase an additional 836,718 shares, at a public offering price of $16.00 per share. The aggregate net proceeds to the Comp