0001564590-21-008416 | 10-K | XBRL Viewer

Print Document View Excel Document

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2020	Feb. 15, 2021	Jun. 30, 2020
Cover [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
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	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		27,018,734
Entity Shell Company	false
Document Annual Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, $0.0001 Par Value
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Public Float			$ 2,231.0
ICFR Auditor Attestation Flag	true
Documents Incorporated by Reference	Portions of the registrant’s Proxy Statement for its 2021 Annual Meeting of Stockholders, which the registrant intends to file with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 53,048	$ 208,929
Investment securities, available-for-sale	269,282	180,468
Prepaid expenses and other current assets	21,864	3,309
Deferred offering costs	405
Total current assets	344,599	392,706
Restricted cash	157	123
Property and equipment, net	449	195
Right-of-use lease assets - operating, net	2,420
Total assets	347,625	393,024
Current liabilities:
Accounts payable (includes $0 and $51 at December 31, 2020 and 2019, respectively, due to related parties)	865	547
Accrued expenses	5,144	2,353
Current portion of deferred lease obligation		58
Current portion of operating lease liability	844
Total current liabilities	6,853	2,958
Deferred lease obligation, net of current portion		150
Operating lease liability, net of current portion	1,841
Total liabilities	8,694	3,108
Commitments and Contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized and 0 shares outstanding at December 31, 2020 and 2019
Common stock, $0.0001 par value; 150,000,000 shares authorized at December 31, 2020 and 2019; 26,988,458 and 26,012,754 shares issued and outstanding at December 31, 2020 and 2019, respectively	3	3
Additional paid-in capital	482,955	465,420
Accumulated deficit	(144,066)	(75,512)
Accumulated other comprehensive income	39	5
Total stockholders’ equity	338,931	389,916
Total liabilities and stockholders’ equity	$ 347,625	$ 393,024

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Accounts payable to related party	$ 0	$ 51
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	26,988,458	26,012,754
Common stock, shares outstanding	26,988,458	26,012,754

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Operating expenses:
Research and development	$ 43,408	$ 24,536	$ 11,536
General and administrative	28,408	20,869	2,974
Total operating expenses	71,816	45,405	14,510
Loss from operations	(71,816)	(45,405)	(14,510)
Other income (expense), net:
Interest income	3,305	2,517	25
Interest income (expense), net (Note 5)		11	(407)
Accretion of debt discount (Note 5)		(945)	(2,176)
Change in fair value of derivative (Note 5)		(135)	(444)
Total other income (expense), net	3,305	1,448	(3,002)
Net loss before income taxes	(68,511)	(43,957)	(17,512)
Income tax provision	(43)	0	0
Net loss attributable to common stockholders	$ (68,554)	$ (43,957)	$ (17,512)
Net loss per share, basic and diluted (Note 8)	$ (2.59)	$ (3.68)	$ (4,378,000)
Weighted average common shares outstanding used in computing net loss per share, basic and diluted	26,446,006	11,958,152	4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (68,554)	$ (43,957)	$ (17,512)
Other comprehensive income:
Unrealized gains on available-for-sale investments	34	5
Comprehensive loss	$ (68,520)	$ (43,952)	$ (17,512)

- Definition

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

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1A
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121641772&loc=SL7669619-108580

Reference 2: http://www.xbrl.org/2003/role/exampleRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 11
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22694-107794

Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.9-04(22))
-URI http://asc.fasb.org/extlink&oid=120399700&loc=SL114874048-224260

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 11
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22694-107794

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 7
-URI http://asc.fasb.org/extlink&oid=109222650&loc=SL51721683-107760

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22595-107794

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1B
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121641772&loc=SL7669625-108580

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 11: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.7-04(18))
-URI http://asc.fasb.org/extlink&oid=120400993&loc=SL114874131-224263

Reference 12: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SX 210.5-03(20))
-URI http://asc.fasb.org/extlink&oid=120395209&loc=SL114868664-224227

Reference 13: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 230
-SubTopic 10
-Section 45
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=121586364&loc=d3e3602-108585

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (b)(2)
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22499-107794

Reference 15: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22663-107794

Reference 16: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=75031198&loc=d3e14064-108612

Reference 17: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 30
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8906-108599

Reference 18: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22583-107794

Reference 19: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(g)(1)(ii))
-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 20: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 260
-SubTopic 10
-Section 45
-Paragraph 60B
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121326447&loc=SL5780133-109256

Reference 21: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 323
-SubTopic 10
-Section 50
-Paragraph 3
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=114001798&loc=d3e33918-111571

Reference 22: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 23: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=109234566&loc=d3e22658-107794

+ Details

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) $ in Thousands	Total	Initial Public Offering	Secondary Public Offering	Common Stock	Common Stock Initial Public Offering	Common Stock Secondary Public Offering	Additional Paid In Capital	Additional Paid In Capital Initial Public Offering	Additional Paid In Capital Secondary Public Offering	Accumulated Deficit	Accumulated Other Comprehensive Income	Series Seed, A and B 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)
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	958						958
Exercise of common warrants, shares				12
Net loss	(17,512)									(17,512)
Temporary Equity, ending balance at Dec. 31, 2018												$ 41,965
Temporary Equity, ending balance, shares at Dec. 31, 2018												7,539,200
Ending balance at Dec. 31, 2018	(29,922)						1,633			(31,555)
Ending 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
Issuance of common stock		$ 93,044	$ 234,224		$ 1			$ 93,043	$ 234,224
Issuance of common stock, shares					6,414,842	2,600,000
Temporary Equity, Automatic conversion of preferred stock												$ (123,892)
Temporary Equity, Automatic conversion of preferred stock, shares												(12,962,045)
Automatic conversion of preferred stock	123,892			$ 2			123,890
Automatic conversion of preferred stock, shares				16,833,790
Secondary public offering costs		$ (2,409)	(400)
Stock-based compensation expense	12,568						12,568
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	5										$ 5
Net loss	(43,957)									(43,957)
Temporary Equity, ending balance, shares at Dec. 31, 2019												0
Ending balance at Dec. 31, 2019	389,916			$ 3			465,420			(75,512)	5
Ending balance, shares at Dec. 31, 2019				26,012,754
Secondary public offering costs			$ (34)						$ (34)
Stock-based compensation expense	13,471						13,471
Exercise of common options	$ 4,098						4,098
Exercise of common options, shares	975,704			975,704
Other comprehensive income	$ 34										34
Net loss	(68,554)									(68,554)
Temporary Equity, ending balance, shares at Dec. 31, 2020												0
Ending balance at Dec. 31, 2020	$ 338,931			$ 3			$ 482,955			$ (144,066)	$ 39
Ending balance, shares at Dec. 31, 2020				26,988,458

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Initial Public Offering
Underwriting discounts and commissions	$ 7,285
Offering cost	2,409
Secondary Public Offering
Underwriting discounts and commissions	14,976
Offering cost	400
Series A Redeemable Convertible Preferred Stock
Issuance of redeemable convertible preferred stock, net of issuance costs		$ 120
Series B Redeemable Convertible Preferred Stock
Issuance of redeemable convertible preferred stock, net of issuance costs	$ 175

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities
Net loss	$ (68,554)	$ (43,957)	$ (17,512)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	13,471	12,568	958
Amortization of premiums and accretion of discounts on investment securities	642	(824)
Depreciation and amortization expense	145	58	6
Loss on disposal of assets	20
Accretion of debt discount (Note 5)		945	2,176
Change in fair value of derivative liability (Note 5)		135	444
Non-cash interest (income) expense, net (Note 5)		(11)	407
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(18,555)	(1,600)	(1,534)
Change in accrued interest on investment securities	(191)	(436)
Accrued expenses	2,791	1,815	105
Accounts payable	318	278	(529)
Right-of-use assets	631
Operating lease liability	(574)
Deferred lease obligation		106	102
Net cash used in operating activities	(69,856)	(30,923)	(15,377)
Cash flows from investing activities
Purchases of investment securities	(344,213)	(231,718)	(4,983)
Maturities of investment securities	254,982	50,000
Sales of investment securities		7,498
Acquisition of property and equipment	(419)	(115)	(132)
Net cash used in investing activities	(89,650)	(174,335)	(5,115)
Cash flows from financing activities
Proceeds from exercise of stock options	4,098	4
Payment of offering costs	(405)
Proceeds from secondary public offering, net of underwriting discounts and commissions		234,624
Proceeds from initial public offering, net of underwriting discounts and commissions		95,453
Proceeds from issuance of convertible notes		3,128	11,700
Proceeds from exercise of warrant		58
Net cash provided by financing activities	3,659	405,283	27,577
Net (decrease) increase in cash, cash equivalents and restricted cash	(155,847)	200,025	7,085
Cash, cash equivalents and restricted cash at beginning of period	209,052	9,027	1,942
Cash, cash equivalents and restricted cash at end of period	53,205	209,052	9,027
Supplemental disclosures of cash flows information
Lease liabilities arising from obtaining right-of-use assets	3,259
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
Secondary Public Offering
Cash flows from financing activities
Payment of offering costs	$ (34)	(400)
Initial Public Offering
Cash flows from financing activities
Payment of offering costs		(2,409)
Series B Redeemable Convertible Preferred Stock
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs		$ 74,825
Series A Redeemable Convertible Preferred Stock
Cash flows from financing activities
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs			$ 15,877

Nature of the Business

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of the Business

Note 1. Nature of the Business

Description 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 an innovative clinical-stage biopharmaceutical company driven to create and deliver transformative medicines for people living with psychiatric and neurological conditions.

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, the impact of the COVID-19 coronavirus pandemic, 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 6). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated 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.

Secondary Public Offering

On November 20, 2019, the Company’s registration statement on Form S-1 relating to its secondary public offering of its common stock was declared effective by the SEC. In this offering, which closed on November 25, 2019, the Company issued and sold 2,600,000 shares of common stock at a public offering price of $96.00 per share. The aggregate net proceeds were approximately $234.2 million after deducting underwriting discounts and commissions of $15.0 million and offering expenses of $0.4 million.

Registration Statement and ATM Program

On July 2, 2020, the Company filed an automatically effective registration statement on Form S-3 (the “Registration Statement”) with the SEC which registers the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof.

The Company simultaneously entered into an equity distribution agreement with Goldman Sachs & Co. LLC, as sales agent, to provide for the issuance and sale by the Company of up to $150.0 million of common stock from time to time in “at-the-market” offerings under the Registration Statement and related prospectus filed with the Registration Statement (the “ATM Program”). As of December 31, 2020, no sales had been made pursuant to the ATM Program.

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 $69.9 million for the year ended December 31, 2020 and had an accumulated deficit of $144.1 million as of December 31, 2020. The Company expects to continue to generate operating losses for the foreseeable future.

The Company expects that its cash, cash equivalents and available-for-sale investments of $322.3 million as of December 31, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the date of issuance of these consolidated 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

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 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 expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuation of common stock and the associated stock-based awards prior to the Company’s IPO, and the valuation of liabilities associated with financial instruments and derivatives. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

The consolidated financial statements include the accounts of Karuna Therapeutics, Inc. and its wholly owned subsidiary, Karuna Securities Corporation. All inter-company transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

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

Investment Securities

The Company’s investment securities 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. The cost of investment securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses are included as a component of other income (expense), net based on the specific identification method.

When the fair value of an available-for-sale debt security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to earnings with a corresponding allowance for credit losses, limited to the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale debt security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in earnings with no corresponding allowance for credit losses.

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 the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statement of operations. Deferred offering costs were approximately $0.4 million as of December 31, 2020. As of December 31, 2019 and 2018, there were no deferred offering costs outstanding. All deferred offering costs accumulated during 2019 and associated with the Company’s IPO and secondary public offering were recorded as a reduction of additional paid-in capital upon the close of the Company’s public offerings on July 2, 2019 and November 25, 2019, respectively.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash equivalents, investment securities, accounts payable, accrued expenses, convertible notes and derivatives embedded within the convertible notes. The carrying amount of accounts payable, accrued expenses and convertible notes are considered a reasonable estimate of their fair value, due to the short-term maturity of these instruments. The Company’s cash equivalents, investment securities 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.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease by use of the straight-line method. Maintenance and repair costs are expensed as incurred. When assets are retired or sold, the assets and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized.

Convertible Notes and Derivative Liabilities

In connection with the issuance of the Wellcome Trust Convertible Notes and the Convertible Notes (see Note 5), the Company had identified embedded derivatives, which were recorded as liabilities on the Company’s balance sheet and were remeasured to fair value at each reporting date until the derivative was settled. Changes in the fair value of the derivative liabilities were 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 was 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.

In 2019, all notes were converted into redeemable convertible preferred stock and the associated derivative liabilities were settled in connection with the Company’s issuance of Series B redeemable convertible preferred stock. There were no convertible notes or derivative liabilities outstanding as of December 31, 2020 and 2019.

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

Effective January 1, 2020, the Company adopted ASU 2016-02, Leases (Topic 842), (“ASU 2016-02” or “ASC 842”), using the modified retrospective transition approach and utilizing the effective date as the date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Operating leases are recognized on the balance sheet as right-of-use (“ROU”) lease assets, current portion of operating lease liability, and operating lease liability, net of current portion. We do not have financing leases.

Operating lease liabilities and their corresponding ROU lease assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the ROU lease asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate our incremental borrowing rate, a credit rating applicable to us is estimated using a synthetic credit rating analysis since we do not currently have a rating agency-based credit rating. Prospectively, we will adjust the ROU lease assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

We have elected not to recognize leases with an original term of one year or less on the balance sheet. We typically only include an initial lease term in our assessment of a lease arrangement. Options to renew a lease are not included in our assessment unless there is reasonable certainty that we will renew.

Assumptions that we made at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. Lease modifications are accounted for as a separate contract or are treated as a change in accounting for the existing lease. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs include salaries and bonuses, stock-based 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 and Development 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 discovery and preclinical studies, 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 to employees, directors and non-employees based on the fair value 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 had historically been a private company and lacks company-specific historical and implied volatility information. Therefore, expected stock volatility has been calculated based on the historical volatility of a publicly traded set of peer companies. The Company expects to continue to use such methodology 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 had 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.

The Company reported a net loss attributable to common stockholders for the years ended December 31, 2020, 2019 and 2018.

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 years ended December 31, 2020 and 2019, the Company’s only element of other comprehensive income (loss) was unrealized gains on available-for-sale investments.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaces the existing guidance in ASC 840, “Leases”. Topic 842 was subsequently amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements, and ASU 2019-01, Leases (Topic 842): Codification Improvements. The new leasing standard generally requires lessees to recognize operating and financing lease liabilities and corresponding ROU assets on the consolidated balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new standard effective January 1, 2020 and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance and as such, the adoption of this ASU did not change the classification of any of our existing leases. The Company elected to combine lease and non-lease components, elected not to record leases with an initial term of 12 months or less on the balance sheet and recognized the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. As of January 1, 2020, the Company recognized $1.5 million as total lease liabilities and $1.2 million as total ROU lease assets on its consolidated balance sheet as a result of the adoption. The deferred lease obligation of $0.2 million outstanding as of December 31, 2019 was recorded as a reduction of the ROU lease asset.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). 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 2018-13 is permitted. Effective January 1, 2020, the Company adopted the standard. The adoption did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard simplifies the accounting for income taxes by removing certain exceptions within the guidance and making various other amendments. ASU 2019-12 is effective for financial statements issued for annual and interim periods beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. In addition, an entity that early adopts must adopt all amendments of ASU 2019-12 in the same period and apply each amendment on either a retrospective or modified-retrospective basis as applicable. Effective January 1, 2020, the Company elected to early adopt the standard. The adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The new standard adjusts the accounting for assets held at amortized cost basis, including marketable securities accounted for as available for sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. Under this ASU, the standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As of January 1, 2021, the Company no longer qualified as a smaller reporting company for filing purposes, and therefore adopted ASU 2016-13 effective January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The amendments in this update clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers when the counter party is a customer in the context of a unit of account. This update also precludes companies from presenting transactions with collaborative partners that are outside the scope of Topic 606 together with revenue within the scope of Topic 606. For public business entities, ASU 2018-18 is effective for fiscal years beginning after December 31, 2019, and interim periods within those fiscal years. Effective January 1, 2020, the Company adopted the standard. The adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. For public business entities, ASU 2018-15 is effective for fiscal years beginning after December 31, 2019, and interim periods within those fiscal years. The adoption did not have a material impact on the Company’s consolidated financial statements.

Property and Equipment, Net

12 Months Ended

Dec. 31, 2020

Property Plant And Equipment [Abstract]

Property and Equipment, Net

Note 3. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

	December 31,
	2020			2019
Computer equipment	$	229		$	87
Leasehold improvements		154			115
Software		154			38
Furniture and fixtures		85			10
Office equipment		29			2
Total property and equipment		651			252
Less: accumulated depreciation		(202	)		(57	)
Property and equipment, net	$	449		$	195

Depreciation expense was $0.1 million for the year ended December 31, 2020 and less than $0.1 million for the years ended December 31, 2019 and 2018.

Prepaid Expenses and Other Current Assets and Accrued Expenses

12 Months Ended

Dec. 31, 2020

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

Prepaid Expenses and Other Current Assets and Accrued Expenses

Note 4. Prepaid Expenses and Other Current Assets and Accrued Expenses

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

	December 31,
	2020		2019
Prepaid research and development expenses	$	18,660	$	694
Prepaid insurance		2,116		2,130
Other		1,088		485
Total prepaid expenses and other current assets	$	21,864	$	3,309

Accrued expenses consisted of the following (in thousands):

	December 31,
	2020		2019
Accrued payroll and related expenses	$	2,654	$	1,823
Accrued research and development expenses		1,829		344
Professional fees		458		142
Other		203		44
Total accrued expenses	$	5,144	$	2,353

Convertible Notes Payable

12 Months Ended

Dec. 31, 2020

Convertible Debt Disclosure [Abstract]

Convertible Notes Payable

Note 5. Convertible Notes Payable

Wellcome Trust Convertible Notes

In July 2015, the Company entered into a Company Funding Agreement with The Wellcome Trust, Limited (“Wellcome Trust”), pursuant to which the Company was eligible to receive $3.8 million in gross proceeds upon the achievement of specified milestones (the “2015 Convertible Note”). As of December 31, 2017, the Company had received the full amount of gross proceeds under the 2015 Convertible Note.

In June 2018, the Company entered into a second Company Funding Agreement with Wellcome Trust to receive up to $8.0 million in gross proceeds from the issuance of a convertible note (the “2018 Convertible Note,” and together with the 2015 Convertible Note, the “Wellcome Trust Notes”). 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 Wellcome Trust Notes have a stated interest rate of 2% per annum above the three-month Dollar LIBOR rate, which was not payable until settlement of the principal. The notes were subject to redemption upon written demand by Wellcome Trust any time after the fifth anniversary of the effective date. The principal due under the Wellcome Trust Notes was convertible 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 of each the 2015 Convertible Note and 2018 Convertible Note, the Company concluded that the each contained a conversion option at a significant discount that was deemed to be an embedded derivative, which was 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 Wellcome Trust Notes during the years ended December 31, 2019 and 2018 (in thousands):

				Financial statement impacted
Balance, December 31, 2017	$	3,985
Issuance of 2018 Convertible Note		2,000		Balance sheet
Accretion to settlement value		51		Statement of operations
Accrued interest		102		Statement of operations
Interest forgiven upon conversion		(289	)	Statement of operations
Conversion of Wellcome Trust Notes to redeemable convertible preferred stock		(5,849	)	Balance sheet
Balance, August 1, 2018 (date of conversion)		—
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 Notes to redeemable convertible preferred stock		(5,828	)	Balance sheet
Balance, December 31, 2019	$	—

There were no debt issuances outstanding under the Wellcome Trust Notes as of December 31, 2019 or issued during the year ended December 31, 2020.

Convertible Notes

Since inception, and excluding the Wellcome Trust Notes, the Company has issued $14.0 million of convertible notes (the “Convertible Notes”), of which $13.5 million were issued to PureTech Health LLC (“PureTech Health”), a related party (see Note 13). During the year ended December 31, 2018, the Company issued Convertible Notes to PureTech Health with principal totaling $7.0 million. There were no debt issuance costs associated with the Convertible Notes.

The Convertible Notes had a stated interest rate of 10% per annum which is not payable until the settlement of the principal. The notes matured upon written demand by the majority note holders. In the event of a default, the interest rate was 15% per annum. Principal and unpaid interest due under the notes convert on demand of a majority of note holders into the class of the Company’s stock issued in the Company’s next qualified financing at a conversion price between 0% to 25% discount off of the purchase price per share of such securities issued.

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 outstanding Convertible Notes were converted into Series A Preferred Stock.

The Company recognized the following changes in the debt related to the Convertible Notes during the year ended December 31, 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		1,945		Statement of operations
Accrued interest		630		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, December 31, 2018	$	—

There were no debt issuances outstanding under the Convertible Notes as of December 31, 2018 or issued during the years ended December 31, 2020 and 2019.

Redeemable Convertible Preferred Stock

12 Months Ended

Dec. 31, 2020

Temporary Equity Disclosure [Abstract]

Redeemable Convertible Preferred Stock

Note 6. 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 into 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 into 331,344 shares of Series B Preferred Stock. In April 2019, the Company received an additional $1.6 million pursuant to the 2018 Convertible Note which was subsequently converted into 137,743 shares of Series B 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 converted into common stock. As of December 31, 2020 and 2019, there were no shares of redeemable convertible preferred stock authorized, issued or outstanding.

Stockholders' Equity

12 Months Ended

Dec. 31, 2020

Equity [Abstract]

Stockholders' Equity

Note 7. Stockholders’ Equity

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 were no shares of preferred stock outstanding as of December 31, 2020 or 2019.

Common Stock

As of December 31, 2020, 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 December 31, 2020, 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 December 31, 2020, there were 26,988,458 shares of common stock outstanding.

Net Loss per Share

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

Net Loss per Share

Note 8. Net Loss per Share

Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock for the years ended December 31, 2020, 2019 and 2018 (in thousands, except share and per share data):

	Year Ended December 31,
	2020			2019			2018
Net Loss	$	(68,554	)	$	(43,957	)	$	(17,512	)
Weighted-average shares used in computing net loss per share		26,446,006			11,958,152			4
Net loss per share, basic and diluted	$	(2.59	)	$	(3.68	)	$	(4,378,000	)

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:

	December 31,
	2020		2019		2018
Redeemable convertible preferred stock (as converted to common stock)		—		—		9,791,151
Stock options to purchase common stock		4,612,790		4,614,544		2,310,369
Warrants to purchase common stock		—		—		19,986
		4,612,790		4,614,544		12,121,506

Stock-based Compensation

12 Months Ended

Dec. 31, 2020

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 December 31, 2020, there were 2,660,816 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. The number of shares of common stock underlying awards that expire, or are terminated, surrendered, canceled or forfeited without having been fully exercised under the 2009 Plan will be added to the shares of common stock available for issuance under the 2019 Plan. In addition, the number of shares available for issuance automatically increases on January 1 of each calendar year, commencing on January 1, 2020, by 4% of the number of shares of common stock outstanding on the immediately preceding December 31 or such lesser amount determined by the Company’s board of directors or the compensation committee of the board of directors. As of December 31, 2020, there were 934,730 common shares available for issuance and 1,951,974 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, 2019		4,614,544		$	8.94		8.3	$	306,395
Granted		1,029,950			93.33
Exercised		(975,704	)		4.20
Forfeited		(56,000	)		21.77
Outstanding as of December 31, 2020		4,612,790		$	28.63		8.3	$	336,740
Options vested and expected to vest as of December 31, 2020		4,612,790		$	28.63		8.3	$	336,740
Options exercisable as of December 31, 2020		2,858,905		$	10.48		7.9	$	260,485

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 publicly traded stock price of the Company’s common stock as of December 31, 2020.

As of December 31, 2020, there was $46.1 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.04 years.

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

	Year Ended December 31,
	2020		2019		2018
Fair value of options	$	35.17 - 59.72	$	3.84 - 8.05	$	4.49 - 5.49
Fair value of common stock	$	62.14 - 106.46	$	9.20 - 20.02	$	9.14 - 9.44
Expected term (in years)		5.50 - 7.00		5.02 - 6.16		5.65 - 9.34
Expected volatility		55.73% - 61.28%		43.54% - 48.22%		45.57% - 48.84%
Risk-free interest rate		0.35% - 1.49%		1.59% - 2.44%		2.69% - 3.04%
Expected dividend yield		0.00%		0.00%		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 December 31, 2020 and 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 warrant 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 year ended December 31, 2018 for the warrant was less than $0.1 million, and no expense was recognized in the years ended December 31, 2020 and 2019, as the warrant was fully vested as of October 2018. There was no unrecognized compensation cost related to the warrants as of December 31, 2020, 2019 and 2018.

In August 2018, PureTech Health partially exercised the warrant to purchase 12 shares of the Company’s common stock, resulting in a nominal amount of proceeds to the Company. In March 2019, PureTech Health

exercised the remaining portion of the warrant to purchase 19,986 shares of the Company’s common stock, resulting in proceeds to the Company of $0.1 million. There were no outstanding warrants as of December 31, 2020 or 2019.

Stock-based Compensation Expense

Stock-based compensation expense is classified in the statements of operations for the years ended December 31, 2020, 2019 and 2018 as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
Research and development	$	3,767	$	580	$	107
General and administrative		9,704		11,988		851
Total stock-based compensation expense	$	13,471	$	12,568	$	958

Fair Value of Financial Assets and Liabilities

12 Months Ended

Dec. 31, 2020

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 table presents information about the Company’s assets as of December 31, 2020 and 2019 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 December 31, 2020 Using
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market fund	$	50,141	$	—	$	—	$	50,141
Investment securities:
US Treasuries		172,295		—		—		172,295
Corporate debt securities		—		36,817		—		36,817
Commercial paper		—		60,170		—		60,170
Total	$	222,436	$	96,987	$	—	$	319,423

	Fair Value Measurement
	at December 31, 2019 Using
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market fund	$	197,303	$	—	$	—	$	197,303
Investment securities:
US Treasuries		180,468		—		—		180,468
Total	$	377,771	$	—	$	—	$	377,771

The fair values of the Company’s commercial paper and corporate debt securities are based on prices obtained from independent pricing sources. Securities with validated quotes from pricing services are reflected within Level 2, as they are primarily based on observable pricing for similar assets or other market observable inputs. Typical inputs used by these pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers or estimates of cash flow, prepayment spreads and default rates.

The Company does not hold any securities classified as Level 3, which are securities valued using unobservable inputs. The Company has not transferred any investment securities between the classification levels.

The estimated fair value and amortized cost of the Company’s available-for-sale investments, by contractual maturity and security type, are summarized as follows (in thousands):

	December 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
US Treasuries (due within one year)	$	172,265	$	37	$	(7	)	$	172,295
Corporate debt securities (due within one year)		36,823		3		(9	)		36,817
Commercial paper (due within one year)		60,155		16		(1	)		60,170
Total	$	269,243	$	56	$	(17	)	$	269,282

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
US Treasuries (due within one year)	$	180,463	$	5	$	—		$	180,468
Total	$	180,463	$	5	$	—		$	180,468

The Company classifies all of its available-for-sale investment securities, including those with maturities beyond one year, as current assets on its consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations.

As described under Recently Adopted Accounting Pronouncements (see Note 2) the Company adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) as of January 1, 2020. The new standard requires the Company to determine whether a decline in the fair value below the amortized cost basis of available-for-sale securities is due to credit-related factors. At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are the result of credit losses. Impairment is assessed at the individual security level. Factors considered in determining whether a loss resulted from a credit loss or other factors include the Company’s intent and ability to hold the investment until the recovery of its amortized cost basis, the extent to which the fair value is less than the amortized cost basis, the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, any adverse legal or regulatory events affecting the issuer or issuer’s industry, and any significant deterioration in economic conditions.

Unrealized losses on available-for-sale securities presented in the previous table have not been recognized in the consolidated statements of operations because the securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is attributable to factors other than credit losses. Based on its evaluation, the Company determined its year-to-date credit losses related to its available-for-sale securities were immaterial at December 31, 2020.

The derivative liability was considered a Level 3 liability because its fair value measurement was based, in part, on significant inputs not observed in the market. The Company recognized the following changes in the fair value of derivative liabilities during the years ended December 31, 2019 and 2018 (in thousands):

Balance, December 31, 2017	$	2,606
Allocation of note issuance proceeds to derivative		1,418
Change in fair value of derivative		430
Conversion of convertible debt to Series A preferred stock		(4,454	)
Balance, August 1, 2018 (date of conversion)		—
Allocation of note issuance proceeds to derivative		375
Change in fair value of derivative		14
Balance, December 31, 2018