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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2019	Oct. 31, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Trading Symbol	KRTX
Entity Registrant Name	Karuna Therapeutics, Inc.
Entity Central Index Key	0001771917
Current Fiscal Year End Date	--12-31
Entity File Number	001-38958
Entity Tax Identification Number	27-0605902
Entity Address, Address Line One	33 Arch Street
Entity Address, Address Line Two	Suite 3110
Entity Address, City or Town	Boston
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02110
City Area Code	857
Local Phone Number	449-2244
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		23,412,754
Entity Shell Company	false
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, $0.0001 par value per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE

BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 54,144,000	$ 8,904,000
Short-term investments	107,461,000	4,983,000
Prepaid expenses and other current assets	2,323,000	1,709,000
Total current assets	163,928,000	15,596,000
Restricted cash	123,000	123,000
Property and equipment, net	176,000	138,000
Total assets	164,227,000	15,857,000
Current liabilities:
Accounts payable (includes $10 and $112 at September 30, 2019 and December 31, 2018, respectively, due to related parties)	158,000	269,000
Accrued expenses	1,319,000	538,000
Deferred lease obligation, short term portion	56,000
Derivative liability	0	389,000
Total current liabilities	1,533,000	1,196,000
Non-current convertible notes, net of discount		2,516,000
Deferred lease obligation, long term portion	164,000	102,000
Total liabilities	1,697,000	3,814,000
Commitments and Contingencies (Note 11)
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	2,000
Additional paid-in capital	230,216,000	1,633,000
Accumulated deficit	(67,738,000)	(31,555,000)
Accumulated other comprehensive income	50,000
Total stockholders’ equity (deficit)	162,530,000	(29,922,000)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$ 164,227,000	15,857,000
Series Seed Redeemable Convertible Preferred Stock
Current liabilities:
Redeemable convertible preferred stock		1,000
Series A Redeemable Convertible Preferred Stock
Current liabilities:
Redeemable convertible preferred stock		$ 41,964,000

BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Accounts payable to related party	$ 10	$ 112
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	150,000,000	12,337,650
Common stock, shares issued	23,412,754	12
Common stock, shares outstanding	23,412,754	12
Series Seed Redeemable Convertible Preferred Stock
Temporary Equity, par value	$ 0.0001	$ 0.0001
Temporary Equity, shares authorized	0	4,412,500
Temporary Equity, shares outstanding	0	4,412,500
Series A Redeemable Convertible Preferred Stock
Temporary Equity, par value	$ 0.0001	$ 0.0001
Temporary Equity, shares authorized	0	3,126,700
Temporary Equity, shares outstanding	0	3,126,700
Series B Redeemable Convertible Preferred Stock
Temporary Equity, par value	$ 0.0001	$ 0.0001
Temporary Equity, shares authorized	0	0
Temporary Equity, shares outstanding	0	0

STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
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)
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

STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]
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)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Series Seed Redeemable Convertible Preferred Stock	Series A Redeemable Convertible Preferred Stock	Series B Redeemable Convertible Preferred Stock
Temporary Equity, beginning balance at Dec. 31, 2017						$ 1
Temporary Equity, beginning balance, shares at Dec. 31, 2017						4,412,500
Beginning balance at Dec. 31, 2017	$ (13,368)		$ 675	$ (14,043)
Stock-based compensation expense	128		128
Net loss	(2,947)			(2,947)
Temporary Equity, ending balance at Jun. 30, 2018						$ 1
Temporary Equity, ending balance, shares at Jun. 30, 2018						4,412,500
Ending balance at Jun. 30, 2018	(16,187)		803	(16,990)
Temporary Equity, beginning balance at Dec. 31, 2017						$ 1
Temporary Equity, beginning balance, shares at Dec. 31, 2017						4,412,500
Beginning balance at Dec. 31, 2017	(13,368)		675	(14,043)
Net loss	(9,185)
Temporary Equity, ending balance at Sep. 30, 2018						$ 1	$ 41,964
Temporary Equity, ending balance, shares at Sep. 30, 2018						4,412,500	3,126,700
Ending balance at Sep. 30, 2018	(22,010)		1,218	(23,228)
Ending balance, shares at Sep. 30, 2018		12
Temporary Equity, beginning balance at Jun. 30, 2018						$ 1
Temporary Equity, beginning balance, shares at Jun. 30, 2018						4,412,500
Beginning balance at Jun. 30, 2018	(16,187)		803	(16,990)
Temporary Equity, Issuance of redeemable convertible preferred stock, net of issuance costs							$ 41,964
Temporary Equity, Issuance of redeemable convertible preferred stock, net of issuance costs, shares							3,126,700
Stock-based compensation expense	415		415
Exercise of common options, shares		12
Net loss	(6,238)			(6,238)
Temporary Equity, ending balance at Sep. 30, 2018						$ 1	$ 41,964
Temporary Equity, ending balance, shares at Sep. 30, 2018						4,412,500	3,126,700
Ending balance at Sep. 30, 2018	(22,010)		1,218	(23,228)
Ending balance, shares at Sep. 30, 2018		12
Temporary Equity, beginning balance at Dec. 31, 2018						$ 1	$ 41,964
Temporary Equity, beginning balance, shares at Dec. 31, 2018						4,412,500	3,126,700	0
Beginning balance at Dec. 31, 2018	(29,922)		1,633	(31,555)
Beginning balance, shares at Dec. 31, 2018		12
Temporary Equity, Issuance of redeemable convertible preferred stock, net of issuance costs								$ 81,927
Temporary Equity, Issuance of redeemable convertible preferred stock, net of issuance costs, shares								5,422,845
Stock-based compensation expense	9,945		9,945
Exercise of common warrants	58		58
Exercise of common warrants, shares		19,986
Exercise of common options	4		4
Exercise of common options, shares		38,961
Vesting of restricted stock units, shares		105,163
Other comprehensive income	71				$ 71
Net loss	(27,145)			(27,145)
Temporary Equity, ending balance at Jun. 30, 2019						$ 1	$ 41,964	$ 81,927
Temporary Equity, ending balance, shares at Jun. 30, 2019						4,412,500	3,126,700	5,422,845
Ending balance at Jun. 30, 2019	(46,989)		11,640	(58,700)	71
Ending balance, shares at Jun. 30, 2019		164,122
Temporary Equity, beginning balance at Dec. 31, 2018						$ 1	$ 41,964
Temporary Equity, beginning balance, shares at Dec. 31, 2018						4,412,500	3,126,700	0
Beginning balance at Dec. 31, 2018	$ (29,922)		1,633	(31,555)
Beginning balance, shares at Dec. 31, 2018		12
Exercise of common options, shares	38,961
Net loss	$ (36,183)
Temporary Equity, ending balance, shares at Sep. 30, 2019						0	0	0
Ending balance at Sep. 30, 2019	162,530	$ 2	230,216	(67,738)	50
Ending balance, shares at Sep. 30, 2019		23,412,754
Temporary Equity, beginning balance at Jun. 30, 2019						$ 1	$ 41,964	$ 81,927
Temporary Equity, beginning balance, shares at Jun. 30, 2019						4,412,500	3,126,700	5,422,845
Beginning balance at Jun. 30, 2019	(46,989)		11,640	(58,700)	71
Beginning balance, shares at Jun. 30, 2019		164,122
Temporary Equity, beginning balance at Jun. 30, 2019						$ 1	$ 41,964	$ 81,927
Temporary Equity, beginning balance, shares at Jun. 30, 2019						4,412,500	3,126,700	5,422,845
Beginning balance at Jun. 30, 2019	(46,989)		11,640	(58,700)	71
Beginning balance, shares at Jun. 30, 2019		164,122
Issuance of common stock upon initial public offering	93,044	$ 1	93,043
Issuance of common stock upon initial public offering, shares		6,414,842
Temporary Equity, Automatic conversion of preferred stock						$ (1)	$ (41,964)	$ (81,927)
Temporary Equity, Automatic conversion of preferred stock, shares						(4,412,500)	(3,126,700)	(5,422,845)
Automatic conversion of preferred stock	123,892	$ 1	123,891
Automatic conversion of preferred stock, shares		16,833,790
Stock-based compensation expense	1,642		1,642
Other comprehensive income	(21)				(21)
Net loss	(9,038)			(9,038)
Temporary Equity, ending balance, shares at Sep. 30, 2019						0	0	0
Ending balance at Sep. 30, 2019	$ 162,530	$ 2	$ 230,216	$ (67,738)	$ 50
Ending balance, shares at Sep. 30, 2019		23,412,754

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019
Underwriting discounts and commissions	$ 7,200
Offering cost	$ 2,400
Series B Redeemable Convertible Preferred Stock
Issuance of redeemable convertible preferred stock, net of issuance costs			$ 175,000
Series A Redeemable Convertible Preferred Stock
Issuance of redeemable convertible preferred stock, net of issuance costs		$ 121,000

STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 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	$ 1,324	945	1,996
Non-cash interest income		(787)
Change in fair value of derivative liability	2,633	135	429
Depreciation and amortization expense		37	2
Non-cash interest (income) expense	(192)	(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 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	18,306	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	$ 15,784	7,102	26,087
Series B Redeemable Convertible Preferred Stock
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance cost		$ 74,825
Series A Redeemable Convertible Preferred Stock
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance cost			$ 15,877

STATEMENTS OF CASH FLOWS (Unaudited) (Parenthetical) $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Statement Of Cash Flows [Abstract]
Initial public offering, underwriting discounts and commissions	$ 7.2

Nature of the Business

9 Months Ended

Sep. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of the Business

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 Company from the IPO, inclusive of proceeds from the over-allotment exercise, were approximately $93.0 million after deducting underwriting discounts and commissions of $7.2 million and offering expenses of $2.4 million. Upon closing of the IPO, all 12,962,045 shares of the Company’s redeemable convertible preferred stock then outstanding converted into an aggregate of 16,833,790 shares of common stock.

Liquidity

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company experienced negative operating cash flows of $24.1 million for the nine months ended September 30, 2019 and had an accumulated deficit of $67.7 million as of September 30, 2019. The Company expects to continue to generate operating losses for the foreseeable future.

The Company expects that its cash and cash equivalents and short-term investments of $161.6 million as of September 30, 2019 will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the date of issuance of these financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to fund its operations.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

The preparation of financial statements in conformity with U.S. GAAP 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 the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual for research and development expenses, the valuation of stock-based awards and prior to the IPO, the valuation of common stock, and derivative liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Unaudited Interim Financial Information

The accompanying balance sheet as of September 30, 2019, the statements of operations, comprehensive loss, and cash flows for the three and nine months ended September 30, 2019 and 2018, and the statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and 2018. Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim financial statements should be read in conjunction with the Company’s financial statements as of and for the year ended December 31, 2018, which are included in the Company’s prospectus related to the Company’s IPO, filed June 28, 2019 (File No. 333-231863) with the SEC, pursuant to Rule 424(b) under the Securities Act of 1933, as amended. The results for the three and nine months ended September 30, 2019, are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Short-term Investments

The Company’s short-term investments are classified as available-for-sale and are carried at fair value with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of other income (expense), net based on the specific identification method.

Concentration of Manufacturing Risk

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations. As of September 30, 2019 and December 31, 2018, there were no deferred offering costs outstanding. All deferred offering costs accumulated during 2019 and associated with the Company’s IPO were recorded as a reduction of additional paid-in capital upon the close of the Company’s IPO on July 2, 2019.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash equivalents, short-term investments, prepaid expenses, interest receivable, accounts payable, accrued expenses, convertible notes and derivatives embedded within the convertible notes. The carrying amount of prepaid expenses, interest receivable, accounts payable and accrued expenses are considered a reasonable estimate of their fair value, due to the short-term maturity of these instruments. The Company’s cash equivalents, short-term investments, convertible notes, and derivative liabilities are carried at fair value, determined according to the fair value hierarchy described below (see Note 10).

The Company follows the guidance in FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1:

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2:

Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3:

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or Level 2 to Level 3.

Convertible Notes and Derivative Liabilities

In connection with the issuance of the Wellcome Trust Convertible Notes and the Convertible Notes (see Note 4), the Company had identified embedded derivatives, which were recorded as liabilities on the Company’s balance sheets and were remeasured to fair value at each reporting date until the derivative was settled. Changes in the fair value of the derivative liabilities are recognized as change in fair value of derivative in the statements of operations. The fair value of the derivative liabilities were determined at each period end using a with and without method, which assesses the likelihood and timing of events that would result in either a conversion or change-of-control feature being triggered, as well as changes in the market conditions.

Upon issuance of the notes, each note was recorded at cost, net of the derivative liability. The discount on each note was amortized as interest expense to the date such note was expected to convert using the effective interest rate method and is reflected in the statements of operations as accretion of debt discount.

The Company classified its derivative liabilities in the balance sheet as current or non-current based on its expectation of when the derivative will be settled, consistent with the assumptions used when determining the fair value of the derivative liabilities.

Redeemable Convertible Preferred Stock

Prior to the IPO, the Company recorded all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock was recorded outside of permanent equity because upon the occurrence of certain deemed liquidation events, the majority of the holders could opt to redeem the shares at the liquidation preference and these events, including a merger, acquisition or sale of substantially all of the assets, was considered not solely within the Company’s control. Prior to the IPO, the Company had not adjusted the carrying values of the redeemable convertible preferred stock to its redemption value because it was uncertain whether or when a deemed liquidation event would occur. Upon closing of the IPO, all 12,962,045 shares of the Company’s redeemable convertible preferred stock then outstanding converted into an aggregate of 16,833,790 shares of common stock.

Leases

Leases are classified at their inception as either operating or capital leases based on the economic substance of the agreement. The Company recognizes rent expense for its operating leases, inclusive of rent escalation provisions and rent holidays, on a straight-line basis over the respective lease term. Additionally, the Company recognizes tenant improvement allowances under the operating leases as a deferred lease obligation and amortizes the tenant improvement allowances as a reduction to rent expense on a straight-line basis over the respective lease term. At September 30, 2019 and December 31, 2018, no capital leases were recorded in the balance sheets.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs include salaries and bonuses, stock compensation, employee benefits, consulting costs and external contract research and development and manufacturing expenses.

Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Research Contract Costs and Accruals

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the research studies or clinical trials and manufacturing activities, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Stock-Based Compensation

The Company measures all stock options and other stock-based awards based on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has mainly issued stock options with service-based vesting conditions and records the expense for these awards using the straight-line method. The Company has also issued stock options with performance-based vesting conditions and records the expense for these awards at the time that the achievement of the performance becomes highly probable or complete. The Company recognizes adjustments to stock-based compensation expense for forfeitures as they occur. The Company classifies stock-based compensation expense in its statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacked company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to do so until such time as it has adequate historical data regarding the volatility of its own publicly traded stock price.

The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The fair value for each restricted common stock award is estimated on the date of grant based on the fair value of the Company’s common stock on that same date.

Net Loss Per Share

In July 2019, upon closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted to common stock. Prior to this conversion, the Company followed the two-class method when computing net income (loss) per share, as the Company has issued shares that met the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options.

Prior to the IPO, the Company’s outstanding redeemable convertible preferred stock contractually entitled the holders of such shares to participate in distributions but contractually did not require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the three and nine months ended September 30, 2019, the Company’s only element of other comprehensive income (loss) was unrealized gains and losses on short-term investments.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), and further updated through ASU 2016-12, which amends the existing accounting standards for revenue recognition. For public business entities, this standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. Effective January 1, 2017, the Company adopted ASC 606, using the full retrospective method. The adoption did not have an impact on the Company’s financial statements as the Company has historically not had contracts with customers or recorded revenue to date.

In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The transition method provided by ASU 2018-07 is a modified retrospective basis which recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2017, the Company adopted ASU 2018-07, using the modified retrospective method. Management deems that non-employees who provide services to the Company have similar traits as employees with regard to their continued involvement in the Company, and therefore concluded that the adoption of ASU 2018-07 more fairly represented the results of the Company’s operations. The cumulative effect of the change on the accumulated deficit for awards granted to non-employees as of January 1, 2017 was less than $0.1 million.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance addresses specific cash flow issues with the objective of reducing the diversity in practice for the treatment of these issues. The areas identified include: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and application of the predominance principle with respect to separately identifiable cash flows. The Company adopted this new guidance beginning January 1, 2017, on a retrospective basis, which did not result in a material impact on its financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The new standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company has early adopted this new standard effective on January 1, 2018. The impact of the adoption was to reduce operating activities by the movement in restricted cash for each annual period presented, and to include cash, cash equivalents and restricted cash in a newly titled “Cash, cash equivalents, and restricted cash at beginning of year” and “Cash, cash equivalents, and restricted cash at the end of year” in the statements of cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). This new guidance amends the scope of modification accounting for share-based payment awards. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Effective January 1, 2017, the Company adopted ASU No. 2017-09, using the full retrospective method and will be applied prospectively to an award modified on or after the adoption date. The cumulative effect of the changes as of January 1, 2017 for the adoption of ASU 2017-09 was immaterial. Hence, the Company did not recognize the cumulative effect adjustment in its financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For non-public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 modifies fair value disclosure requirements, specifically around level transfers and valuation of Level 3 assets and liabilities. ASU 2018-13 is effective for financial statements issued for annual and interim periods beginning after December 15, 2019 for all entities. Early adoption of all or part of ASU No. 2018-13 is permitted. The Company does not expect that the adoption of this new standard will have a material impact on its disclosures.

Prepaid Expenses and Other Current Assets and Accrued Expenses

9 Months Ended

Sep. 30, 2019

Prepaid Expenses And Other Current Assets And Accrued Expenses [Abstract]

Prepaid Expenses and Other Current Assets and Accrued Expenses

Note 3. Prepaid Expenses and Other Current Assets and Accrued Expenses

Prepaid expenses and other current assets consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Prepaid insurance	$	1,741	$	23
Prepaid research and development expenses		359		1,686
Other		223		—
Total prepaid expenses and other current assets	$	2,323	$	1,709

Accrued expenses consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Accrued payroll and related expenses	$	839	$	311
Accrued research and development expenses		198		100
Professional fees		229		75
Other		53		52
Total accrued expenses	$	1,319	$	538

Convertible Notes Payable

9 Months Ended

Sep. 30, 2019

Convertible Debt Disclosure [Abstract]

Convertible Notes Payable

Note 4. Convertible Notes Payable

Wellcome Trust Convertible Notes

In June 2018, the Company entered into a second Company Funding Agreement with The Wellcome Trust, LLC (“Wellcome Trust”) to receive up to $8.0 million in gross proceeds from the issuance of a convertible note (the “2018 Convertible Note”). The Company received $2.0 million of proceeds in July 2018, $2.7 million in November 2018, $1.6 million in March 2019, and $1.6 million in April 2019. The Company is eligible to receive up to an aggregate of approximately $0.1 million in future funding under the terms of the 2018 Wellcome Funding Agreement, which would be payable by Wellcome Trust at the Company’s option upon the achievement of a specified clinical milestone.

The 2018 Convertible Note has a stated interest rate of 2% per annum above the three-month Dollar LIBOR rate, which is not payable until settlement of the principal. The note is subject to redemption upon written demand by Wellcome Trust any time after the fifth anniversary of the effective date, resulting in their classification as long-term liabilities as of December 31, 2018. The principal due under the 2018 Convertible Note converts into the class of the Company’s stock issued in the Company’s next qualified financing or upon event of default at a discounted conversion price between 0% and 25% of the purchase price per share of such securities issued. The accrued interest in such a circumstance would be forgiven.

At inception, the Company concluded that the 2018 Convertible Note contained a conversion option at a significant discount that was deemed to be an embedded derivative, which is required to be bifurcated and accounted for separately from the debt host. There were no debt issuance costs associated with the 2018 Convertible Note.

The Company recognized the following changes in the debt related to the 2018 Convertible Note during the year ended December 31, 2018 as well as the three and nine months ended September 30, 2019 and 2018 (in thousands):

				Financial statement impacted
Balance, December 31, 2017	$	3,985
Accretion to settlement value		28		Statement of operations
Accrued interest		83		Statement of operations
Balance, June 30, 2018		4,096
Issuance of 2018 Convertible Note		2,000		Balance sheet
Accretion to settlement value		23		Statement of operations
Accrued interest		19		Statement of operations
Interest forgiven upon conversion		(289	)	Statement of operations
Conversion of Wellcome Trust Convertible Notes to redeemable convertible preferred stock		(5,849	)	Balance sheet
Balance, September 30, 2018		—
Issuance of 2018 Convertible Note		2,700		Balance sheet
Allocation of proceeds to derivative liability		(375	)	Balance sheet
Accretion to settlement value		180		Statement of operations
Accrued interest		11		Statement of operations
Balance, December 31, 2018		2,516
Issuance of 2018 Convertible Note		3,128		Balance sheet
Allocation of proceeds to derivative liability		(750	)	Balance sheet
Accretion to settlement value		945		Statement of operations
Accrued interest		29		Statement of operations
Interest forgiven upon conversion		(40	)	Statement of operations
Conversion of Wellcome Trust Convertible Notes to redeemable convertible preferred stock		(5,828	)	Balance sheet
Balance, June 30, 2019	$	—

There was no balance outstanding related to the 2018 Convertible Note as of September 30, 2019.

Convertible Notes

Since inception, the Company has issued $14.0 million of convertible notes (the “Convertible Notes”), of which $13.5 million was issued to PureTech Health LLC (“PureTech Health”), a related party (see Note 12). There were no debt issuance costs associated with the Convertible Notes.

The Company concluded that the Convertible Notes contained a conversion option at a significant premium that was deemed to be an embedded derivative, which is required to be bifurcated and accounted for separately from the debt host.

In August 2018, the then outstanding Convertible Notes were converted to Series A Preferred Stock.

The Company recognized the following changes in the debt related to the Convertible Notes during the three and nine months ended September 30, 2018 (in thousands):

				Financial statement impacted
Balance, December 31, 2017	$	7,674
Issuance of new notes		7,000		Balance sheet
Allocation of proceeds to derivative liability		(1,418	)	Balance sheet
Accretion to settlement value		644		Statement of operations
Accrued interest		505		Statement of operations
Balance, June 30, 2018		14,405
Accretion to settlement value		1,301		Statement of operations
Accrued interest		125		Statement of operations
Interest forgiven upon conversion		(47	)	Statement of operations
Conversion of Convertible Notes to redeemable convertible preferred stock		(15,784	)	Balance sheet
Balance, September 30, 2018		—

There were no Convertible Notes outstanding as of December 31, 2018 or issued during the nine months ended September 30, 2019.

Redeemable Convertible Preferred Stock

9 Months Ended

Sep. 30, 2019

Temporary Equity Disclosure [Abstract]

Redeemable Convertible Preferred Stock

Note 5. Redeemable Convertible Preferred Stock

Series Seed Redeemable Convertible Preferred Stock

Between 2009 and 2011, the Company authorized and issued 4,412,500 shares of Series Seed Preferred Stock at an issuance price of $0.0001 per share, for total proceeds of less than $0.1 million.

There were no issuance costs in connection with the Series Seed Preferred Stock issuance.

Series A Redeemable Convertible Preferred Stock

In August 2018, the Company authorized 3,126,700 shares of Series A Preferred Stock. The Company then issued 1,188,707 shares of Series A Preferred Stock at an issuance price of $13.46 per share resulting in gross proceeds of approximately $16.0 million. There were $0.1 million of issuance costs associated with the Series A Preferred Stock.

In conjunction with the August 2018 issuance of Series A Preferred Stock, all outstanding principal and accrued interest under the Wellcome Trust Notes and Convertible Notes converted to 1,937,993 shares of Series A Preferred Stock.

Series B Redeemable Convertible Preferred Stock

In March 2019, the Company authorized 5,422,845 shares of Series B Preferred Stock. The Company then issued 4,953,758 shares of Series B Preferred Stock at an issuance price of $15.14 per share resulting in gross proceeds of approximately $75.0 million. There were $0.2 million of issuance costs associated with the Series B Preferred Stock.

In conjunction with the March 2019 issuance of Series B Preferred Stock, all outstanding principal and accrued interest under the Wellcome Trust Notes converted to 331,344 shares of Series B Preferred Stock. In April 2019, the Company received $1.6 million from the issuance of the Wellcome Trust Notes, which were subsequently converted into 137,743 shares of Series B redeemable convertible preferred stock.

Upon closing of the Company’s IPO, the then-outstanding shares of the Series Seed, Series A and Series B redeemable convertible preferred stock (together as “Preferred Stock”) converted into common stock. As of September 30, 2019, there were no shares of redeemable convertible preferred stock authorized, issued or outstanding.

Preferred Stock

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Preferred Stock

Note 6. Preferred Stock

On July 2, 2019, in connection with the closing of the Company’s IPO, the Company filed its restated Certificate of Incorporation, which authorizes the Company to issue up to 10,000,000 shares of preferred stock, $0.0001 par value per share. There are no shares of preferred stock outstanding as of September 30, 2019.

Common Stock

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Common Stock

Note 7. Common Stock

As of September 30, 2019, the Company’s Certificate of Incorporation authorized the Company to issue 150,000,000 shares of common stock, $0.0001 par value per share.

Holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.

The holders of common stock shall be entitled to receive dividends out of funds legally available, as declared by the board of directors. These dividends are subject to the preferential dividend rights of the holders of the Company’s preferred stock. Through September 30, 2019 and December 31, 2018, no cash dividends have been declared or paid.

Upon completion of the Company’s IPO on July 2, 2019, all outstanding shares of Series Seed, Series A, and Series B Redeemable Convertible Preferred Stock converted to common stock. As of September 30, 2019, there were 23,412,754 shares of common stock outstanding.

Net Loss per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Net Loss per Share

Note 8. Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock for the three and nine months ended September 30, 2019 (in thousands, except share and per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net Loss	$	(9,038	)	$	(6,238	)	$	(36,183	)	$	(9,185	)
Weighted-average shares used in computing net loss per share		22,907,349			5			7,755,137			2
Net loss per share, basic and diluted	$	(0.39	)	$	(1,247,600	)	$	(4.67	)	$	(4,592,500	)

The Company’s potentially dilutive securities, which include stock options and convertible preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

Prior to the IPO, the Company’s outstanding shares of Preferred Stock contractually entitled the holders of such shares to participate in distributions but contractually did not require the holders of such shares to participate in losses of the Company. Accordingly, these shares have not been included in the denominator used to calculate net loss per share.

Common Stock Equivalents

The following common stock equivalents presented based on amounts outstanding at each period end, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact:

	September 30,
	2019		2018
Redeemable convertible preferred stock (as converted to common stock)		—		9,791,151
Stock options to purchase common stock		4,671,906		2,245,981
Warrants to purchase common stock		—		19,986
		4,671,906		12,057,118

Stock-based Compensation

9 Months Ended

Sep. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

Note 9. Stock-based Compensation

Stock Options

In September 2009, the Company’s board of directors approved the 2009 Stock Incentive Plan (the “2009 Plan”) which provided for the grant of incentive stock options to employees and non-statutory stock options to directors, consultants, and non-employees of the Company. The aggregate common shares issuable were 3,911,138 under the 2009 Plan, as amended. The 2009 Plan terminated in July 2019 effective upon the completion of the Company’s IPO. No additional options will be granted under the 2009 Plan. At September 30, 2019, there were 3,839,545 options and restricted stock units (“RSUs”) outstanding under the 2009 Plan.

In May 2019, the board of directors approved the 2019 Stock Option and Incentive Plan (the “2019 Plan”) which became effective on June 26, 2019, the date immediately prior to the date on which the registration statement related to the IPO was declared effective by the SEC. The 2019 Plan will expire in May 2029. Under the 2019 Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards, RSUs and other stock-based awards. There were 1,709,832 shares of the Company’s common stock initially reserved for issuance under the 2019 Plan. In addition, the number of shares of common stock that may be issued under the 2019 Plan will automatically increase on January 1, 2020 and each January 1 thereafter by 4% of the number of shares of common stock outstanding on the immediately preceding December 31, subject to limitation. As of September 30, 2019, there were 772,308 common shares available for issuance and 937,524 options outstanding under the 2019 Plan.

Options under the 2019 Plan generally vest based on the grantee’s continued service with the Company during a specified period following a grant as determined by the board of directors and expire ten years from the grant date. In general, awards typically vest in four years, but vesting conditions can vary based on the discretion of the Company’s board of directors.

A summary of the Company’s stock option activity and related information is as follows:

	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2018		2,310,369		$	4.49		7.1	$	6,420
Granted		2,554,146			11.93
Exercised		(38,961	)		0.11
Forfeited		(153,648	)		5.00
Outstanding as of September 30, 2019		4,671,906			8.58		8.2		36,423
Options vested and expected to vest as of September 30, 2019		4,671,906		$	8.58		8.2	$	36,423
Options exercisable as of September 30, 2019		3,111,295		$	8.00		7.7	$	26,147

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of September 30, 2019.

As of September 30, 2019, there was $6.1 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 2.6 years.

The fair value of all option activity was estimated at the date of grant using the Black-Scholes model with the following assumptions:

	Nine Months Ended September 30,
	2019
Fair value of options	$	3.83 - 8.05
Fair value of common stock	$	9.20 - 20.02
Expected term (in years)		5.02 - 6.16
Expected volatility		43.57% - 44.41%
Risk-free interest rate		1.76% - 2.44%
Expected dividend yield			0.00	%

On May 16, 2019, the Company issued 105,163 fully vested restricted common stock units. The average grant date fair value was $10.97 per share. As of September 30, 2019, there was no unrecognized compensation expense related to unvested RSUs.

Warrants

In October 2016, PureTech Health, a related party, agreed to provide management services to the Company in exchange for a warrant to purchase up to 19,998 shares of the Company’s common stock. The warrants vested monthly as services were performed over a 24-month period and had a purchase price of $2.92 per share. The total expense for the three and nine months ended September 30, 2018 for the warrant was less than $0.1 million. The warrant was fully vested as of October 2018.

In August 2018, PureTech Health exercised the warrant to purchase 12 shares resulting in proceeds to the Company of less than $0.1 million. In March 2019, PureTech Health exercised the warrant to purchase the remaining 19,986 shares resulting in proceeds to the Company of $0.1 million. There are no outstanding warrants as of September 30, 2019.

Stock-based Compensation Expense

Stock-based compensation expense is classified in the statements of operations for the three and nine months ended September 30, 2019 and 2018 as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Research and development	$	147	$	28	$	371	$	71
General and administrative		1,496		378	$	11,217		446
Total stock based compensation expense	$	1,642	$	406	$	11,587	$	517

Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2019

Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Abstract]

Fair Value of Financial Assets and Liabilities

Note 10. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets and liabilities as of September 30, 2019 and December 31, 2018 that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

	Fair Value Measurement
	at September 30, 2019 Using
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (Money Market Fund)	$	22,406	$	—	$	—	$	22,406
Cash equivalents (US Treasuries)		22,519						22,519
Short-term investments (US Treasuries)		107,461		—		—		107,461
Total	$	152,386	$	—	$	—	$	152,386

	Fair Value Measurement
	at December 31, 2018 Using
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents (US Treasuries)	$	5,042	$	—	$	—	$	5,042
Short-term investments (US Treasuries)		4,983		—		—		4,983
Total	$	10,025	$	—	$	—	$	10,025
Liabilities:
Derivative instrument	$	—	$	—	$	389	$	389
Total	$	—	$	—	$	389	$	389

The estimated fair value and amortized cost of the Company’s short-term investments by contractual maturity are summarized as follows (in thousands):

	September 30, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Due in one year or less	$	107,411	$	50	$	—		$	107,461
Total	$	107,411	$	50	$	—		$	107,461

	December 31, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Due in one year or less	$	4,984	$	—	$	(1	)	$	4,983
Total	$	4,984	$	—	$	(1	)	$	4,983

The derivative liability is considered a Level 3 liability because its fair value measurement is based, in part, on significant inputs not observed in the market. Any reasonable changes in the assumptions used in the valuation could materially affect the financial results of the Company. The Company recognized the following changes in the fair value of derivative liabilities during the year ended December 31, 2018 and the three and nine months ended September 30, 2019 (in thousands):

Balance, December 31, 2017	$	2,606
Allocation of note issuance proceeds to derivative		1,418
Change in fair value of derivative		(2,203	)
Balance, June 30, 2018		1,821
Change in fair value of derivative		2,633
Conversion of convertible debt to Series A preferred stock		(4,454	)
Balance, September 30, 2018		—
Allocation of note issuance proceeds to derivative		375
Change in fair value of derivative		14
Balance, December 31, 2018		389
Allocation of note issuance proceeds to derivative		750
Change in fair value of derivative		135
Conversion of convertible debt to Series B preferred stock		(1,274	)
Balance, June 30, 2019	$	—

There was no derivative liability recorded as of September 30, 2019.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11. Commitments and Contingencies

Leases

The Company entered into a 51-month lease for office space in Boston, Massachusetts that began in December 2018 and expires in February 2023. The Company is required to maintain a cash balance of $0.1 million to secure a letter of credit associated with this lease. The amount was classified as restricted cash in the balance sheet at December 31, 2018 and September 30, 2019.

The Company recorded rent expense of $0.3 million during the nine months ended September 30, 2019.

Future minimum lease payments under non-cancelable operating lease agreements as of September 30, 2019, are as follows (in thousands):

As of September 30,	Minimum Lease Payments
Less than 1 year	$	498
1 to 2 years		504
2 to 3 years		512
3 to 4 years		214
4 to 5 years		—
Total	$	1,728

Intellectual Property License with Eli Lilly and Company

In May 2012, the Company entered into an exclusive license agreement, or the Lilly License Agreement, with Eli Lilly, pursuant to which Eli Lilly assigned to us all of its rights to certain patents (now expired), regulatory documentation, data records and materials related to xanomeline. The Company is also entitled to sublicense or otherwise transfer the rights granted in connection with the Lilly License Agreement.

Under the Lilly License Agreement, the Company is obligated to use commercially reasonable efforts to develop, manufacture, commercialize and seek and maintain regulatory approval for xanomeline, in any formulation, for use in humans.

The Company paid Eli Lilly an upfront payment of $0.1 million and has agreed to make milestone payments to Eli Lilly of up to an aggregate of $16 million upon the achievement of specified regulatory milestones and up to an aggregate of $54 million in commercial milestones. In addition, the Company is obligated to pay Eli Lilly tiered royalties, at rates in the low to mid single-digit percentages, on the worldwide net sales of any commercialized product on a country-by-country basis until the expiration of the applicable royalty term, which is the longer of six years from the date of first commercial sale of each licensed product within a country or data exclusivity in such country. During the royalty term, Eli Lilly is prohibited from granting any third party rights to the patents, regulatory documentation, data records and materials that have been licensed to us under the Lilly License Agreement.

The Lilly License Agreement will expire on the later of (i) the expiration of the last-to-expire royalty term on a licensed product-by-licensed product basis or (ii) the date on which the Company has made all milestone payments pursuant to the terms of the Lilly License Agreement, unless terminated earlier by the parties. In no event will the term of the Lilly License Agreement exceed 15 years past the anniversary of the first commercial sale of a xanomeline product. The Company may terminate the Lilly License Agreement for any reason with proper prior notice to Eli Lilly. Either party may terminate the Lilly License Agreement upon an uncured material breach by the other party.

The initial upfront payment of $0.1 million was expensed when incurred in May 2012. As of September 30, 2019, no milestones have been reached, and accordingly, no milestone payments have been made.

Intellectual Property License with PureTech Health

In March 2011, the Company entered into an exclusive license agreement, or the Patent License Agreement, with PureTech Health, pursuant to which PureTech Health granted us an exclusive license to patent rights relating to combinations of a muscarinic activator with a muscarinic inhibitor for the treatment of central nervous system disorders.

In connection with the Patent License Agreement, the Company has agreed to make milestone payments to PureTech Health of up to an aggregate of $10 million upon the achievement of specified development and regulatory milestones. In addition, the Company is obligated to pay PureTech Health low single-digit royalties on the worldwide net sales of any commercialized product covered by the licenses granted under the Patent License Agreement. In the event that the Company sublicenses any of the patent rights granted under the Patent License Agreement, the Company will be obligated to pay PureTech Health royalties within the range of 15% to 25% on any income we receive from the sublicensee, excluding royalties.

The Company may terminate the Patent License Agreement for any reason with proper prior notice to PureTech Health. Either party may terminate the Patent License Agreement upon an uncured material breach by the other party.

The Company incurred no expenses related to the Patent License provided by PureTech Health during the nine months ended September 30, 2019 and 2018. The Company had no outstanding liabilities to PureTech Health related to the Patent License at December 31, 2018 and September 30, 2019.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may incur charges in the future as a result of these indemnification obligations.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

Litigation

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities as of September 30, 2019.

Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions

Note 12. Related Party Transactions

PureTech Health Management Consulting Services and Overhead Agreement

The Company engages PureTech Health, a related party, to provide, among other things, management expertise, strategic advice, administrative support, computer and telecommunications services and office infrastructure. In exchange for providing such services, the Company pays PureTech Health a monthly fee. In addition, PureTech Health periodically invoices the Company for out-of-pocket expenses reasonably incurred in connection with providing such business services.

The Company incurred general and administrative costs for management services provided by PureTech Health totaling less than $0.1 million in the nine months ended September 30, 2019, and totaling $0.2 million in the nine months ended September 30, 2018. The Company had outstanding current liabilities to PureTech Health of less than $0.1 million and $0.1 million at September 30, 2019 and December 31, 2018, respectively, which are recorded as accounts payable in the balance sheet.

401(k) Savings Plan

9 Months Ended

Sep. 30, 2019

Compensation And Retirement Disclosure [Abstract]

401(k) Savings Plan

Note 13. 401(k) Savings Plan

The Company has a 401(k) retirement plan in which substantially all U.S. employees are eligible to participate. Eligible employees may elect to contribute up to the maximum limits, as set by the Internal Revenue Service, of their eligible compensation. The total contribution matching expense for the Company was less than $0.1 million for each of the nine months ended September 30, 2019 and 2018.

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation and Use of Estimates

Unaudited Interim Financial Information

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Short-term Investments

Concentration of Manufacturing Risk

Deferred Offering Costs

Fair Value of Financial Instruments

Level 1:

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2:

Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3:

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Convertible Notes and Derivative Liabilities

Redeemable Convertible Preferred Stock

Leases

Research and Development Costs