10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from __________ to ____________

Commission File Number: 001-38958

 

Karuna Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0605902

(State or other jurisdiction of

incorporation or organization)

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

99 High Street, 26th Floor

Boston, Massachusetts

02110

(Address of principal executive offices)

(Zip Code)

 

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

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

KRTX

 

Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

As of April 30, 2022, the registrant had 29,882,727 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Consolidated Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Loss

3

 

Consolidated Statements of Stockholders’ Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements (Unaudited)

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

KARUNA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

176,203

 

 

$

206,953

 

Investment securities, available-for-sale

 

 

266,984

 

 

 

287,038

 

Accounts receivable

 

 

 

 

 

1,750

 

Prepaid expenses and other current assets

 

 

20,972

 

 

 

21,138

 

Deferred offering costs

 

 

480

 

 

 

455

 

Total current assets

 

 

464,639

 

 

 

517,334

 

Restricted cash

 

 

261

 

 

 

261

 

Right-of-use lease assets - operating, net

 

 

6,021

 

 

 

6,453

 

Property and equipment, net

 

 

3,050

 

 

 

3,092

 

Other non-current assets

 

 

503

 

 

 

531

 

Total assets

 

$

474,474

 

 

$

527,671

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,478

 

 

$

1,939

 

Accrued expenses

 

 

12,226

 

 

 

16,099

 

Current portion of operating lease liability

 

 

2,219

 

 

 

2,175

 

Total current liabilities

 

 

15,923

 

 

 

20,213

 

Operating lease liability, net of current portion

 

 

4,759

 

 

 

5,328

 

Other non-current liabilities

 

 

104

 

 

 

104

 

Total liabilities

 

 

20,786

 

 

 

25,645

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized and 0 
   shares outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 shares authorized at
   March 31, 2022 and December 31, 2021;
29,831,258 and 29,770,558 
   shares issued and outstanding at March 31, 2022 and December 31,
   2021, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

802,309

 

 

 

790,391

 

Accumulated deficit

 

 

(346,089

)

 

 

(287,871

)

Accumulated other comprehensive loss

 

 

(2,535

)

 

 

(497

)

Total stockholders’ equity

 

 

453,688

 

 

 

502,026

 

Total liabilities and stockholders’ equity

 

$

474,474

 

 

$

527,671

 

 

The accompanying notes are an integral part of these consolidated financial statements

1


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

License revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

43,806

 

 

 

20,186

 

General and administrative

 

 

14,788

 

 

 

9,777

 

Total operating expenses

 

 

58,594

 

 

 

29,963

 

Loss from operations

 

 

(58,594

)

 

 

(29,963

)

Other income (loss), net:

 

 

 

 

 

 

Impairment loss on right-of-use assets

 

 

 

 

 

(677

)

Interest income

 

 

237

 

 

 

143

 

Sublease income

 

 

139

 

 

 

 

Total other income (loss), net

 

 

376

 

 

 

(534

)

Net loss before income taxes

 

 

(58,218

)

 

 

(30,497

)

Income tax provision

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(58,218

)

 

$

(30,497

)

Net loss per share, basic and diluted (Note 6)

 

$

(1.95

)

 

$

(1.10

)

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

 

 

29,805,961

 

 

 

27,786,538

 

 

The accompanying notes are an integral part of these consolidated financial statements

2


 

Karuna Therapeutics, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(58,218

)

 

$

(30,497

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized losses on available-for-sale
   investments

 

 

(2,038

)

 

 

(30

)

Comprehensive loss

 

$

(60,256

)

 

$

(30,527

)

 

The accompanying notes are an integral part of these consolidated financial statements

3


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, December 31, 2021

 

 

29,770,558

 

 

$

3

 

 

$

790,391

 

 

$

(287,871

)

 

$

(497

)

 

$

502,026

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,636

 

 

 

 

 

 

 

 

 

10,636

 

Exercise of common options

 

 

60,700

 

 

 

 

 

 

1,282

 

 

 

 

 

 

 

 

 

1,282

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,038

)

 

 

(2,038

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(58,218

)

 

 

 

 

 

(58,218

)

Balance, March 31, 2022

 

 

29,831,258

 

 

$

3

 

 

$

802,309

 

 

$

(346,089

)

 

$

(2,535

)

 

$

453,688

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance, December 31, 2020

 

 

26,988,458

 

 

$

3

 

 

$

482,955

 

 

$

(144,066

)

 

$

39

 

 

$

338,931

 

Issuance of common stock upon public
   offering, net of $
17,250 in under-writing
   discounts and commissions and $
233 in
   offering costs

 

 

2,395,834

 

 

 

 

 

 

270,017

 

 

 

 

 

 

 

 

 

270,017

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,822

 

 

 

 

 

 

 

 

 

5,822

 

Exercise of common options

 

 

56,876

 

 

 

 

 

 

671

 

 

 

 

 

 

 

 

 

671

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,497

)

 

 

 

 

 

(30,497

)

Balance, March 31, 2021

 

 

29,441,168

 

 

$

3

 

 

$

759,465

 

 

$

(174,563

)

 

$

9

 

 

$

584,914

 

 

The accompanying notes are an integral part of these consolidated financial statements

4


 

Karuna Therapeutics, Inc.

CONSOLIDATED Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(58,218

)

 

$

(30,497

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

10,636

 

 

 

5,822

 

Impairment loss on right-of-use assets

 

 

 

 

 

677

 

Amortization of premiums and accretion of discounts on
   investment securities

 

 

285

 

 

 

221

 

Depreciation and amortization expense

 

 

248

 

 

 

112

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accrued interest on investment securities

 

 

(65

)

 

 

277

 

Accounts receivable

 

 

1,750

 

 

 

 

Prepaid expenses and other current assets

 

 

166

 

 

 

3,546

 

Right-of-use assets

 

 

432

 

 

 

167

 

Other non-current assets

 

 

28

 

 

 

(1,006

)

Accounts payable

 

 

(481

)

 

 

322

 

Accrued expenses

 

 

(4,059

)

 

 

(754

)

Operating lease liability

 

 

(525

)

 

 

(205

)

Deferred lease obligation

 

 

 

 

 

35

 

Other non-current liabilities

 

 

 

 

 

104

 

Net cash used in operating activities

 

 

(49,803

)

 

 

(21,179

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investment securities

 

 

(48,303

)

 

 

(80,856

)

Maturities of investment securities

 

 

66,099

 

 

 

132,000

 

Acquisition of property and equipment

 

 

 

 

 

(47

)

Net cash provided by investing activities

 

 

17,796

 

 

 

51,097

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from public offering, net of underwriting discounts
   and commissions

 

 

 

 

 

270,250

 

Payment of offering costs

 

 

(25

)

 

 

(98

)

Proceeds from exercise of stock options

 

 

1,282

 

 

 

671

 

Net cash provided by financing activities

 

 

1,257

 

 

 

270,823

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(30,750

)

 

 

300,741

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

207,214

 

 

 

53,205

 

Cash, cash equivalents and restricted cash at end of period

 

$

176,464

 

 

$

353,946

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flows information

 

 

 

 

 

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

135

 

Purchases of property and equipment included in accounts payable
   and accrued expenses

 

$

206

 

 

$

19

 

 

The accompanying notes are an integral part of these consolidated financial statements

5


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of the Business and Basis of Presentation

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 ongoing and evolving COVID-19 coronavirus pandemic, and the need to obtain adequate additional financing to fund the development of its product candidates.

The Company’s consolidated 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 $49.8 million for the three months ended March 31, 2022 and had an accumulated deficit of $346.1 million as of March 31, 2022. 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 $443.2 million as of March 31, 2022 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.

Basis of Presentation

The accompanying consolidated 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 U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

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

The accompanying consolidated balance sheet as of March 31, 2022 and the consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the three months ended March 31, 2022 and 2021 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated 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 March 31, 2022 and the results of its operations and cash flows for the three months ended March 31, 2022 and 2021. 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 consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

Note 2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. During the three months ended March 31, 2022, there were no material changes to the Company’s significant accounting policies.

6


 

Recently Issued Accounting Pronouncements

New pronouncements issued but not effective until after March 31, 2022 are not expected to have a material impact on the Company’s consolidated financial statements.

Note 3. Prepaid Expenses and Other Assets and Accrued Expenses

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

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Prepaid research and development expenses

 

$

17,854

 

 

$

18,066

 

Prepaid insurance

 

 

1,172

 

 

 

2,364

 

Other

 

 

1,946

 

 

 

708

 

Total prepaid expenses and other current assets

 

$

20,972

 

 

$

21,138

 

 

The Company also had other non-current assets of $0.5 million as of March 31, 2022 and December 31, 2021. As of March 31, 2022, other non-current assets consisted of a security deposit of $0.4 million and less than $0.1 million in prepaid research and development and other expenses, as well as less than $0.1 million in deferred rent. As of December 31, 2021, other non-current assets consisted of a security deposit of $0.4 million, $0.1 million in prepaid expenses, and less than $0.1 million in deferred rent.

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Accrued research and development expenses

 

$

8,765

 

 

$

8,316

 

Accrued payroll and related expenses

 

 

1,945

 

 

 

6,989

 

Professional fees

 

 

1,040

 

 

 

543

 

Other

 

 

476

 

 

 

251

 

Total accrued expenses

 

$

12,226

 

 

$

16,099

 

 

Note 4. Stockholders’ Equity

Preferred Stock

On July 2, 2019, in connection with the closing of the Company’s initial public offering of its common stock ("IPO"), the Company filed its amended and 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. Through March 31, 2022, no preferred stock has been issued.

Common Stock

As of March 31, 2022, the Company’s amended and restated 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 are 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 March 31, 2022, no cash dividends have been declared or paid.

As of March 31, 2022, there were 29,831,258 shares of common stock outstanding.

7


 

Note 5. Zai License Agreement

Terms of Agreement

On November 8, 2021, the Company and Zai Lab (Shanghai) Co., Ltd. ("Zai") entered into a license agreement (the "Zai License Agreement"), pursuant to which the Company granted to Zai the right to exclusively develop, manufacture and commercialize KarXT in Greater China, including mainland China, Hong Kong, Macau, and Taiwan (the “Licensed Territory”). Zai will fund substantially all development, regulatory, and commercialization activities in the Licensed Territory.

Under the terms of the Zai License Agreement, the Company received a non-refundable $35 million upfront payment and payment of certain taxes on its behalf. The Company is eligible to receive up to an additional $80 million in development and regulatory milestone payments, up to $72 million in sales milestone payments and low double-digit to high-teens tiered royalties based on annual net sales of KarXT in the Licensed Territory, subject to reduction under specified circumstances. Receipt of sales milestone payments and royalties are not contingent on any further participation by Karuna in the development of KarXT in the Licensed Territory.

The Zai License Agreement will expire upon the latest of the following dates with respect to the last licensed product in any region in the Licensed Territory: (i) the date of expiration of the last valid claim covering such licensed product in such region, (ii) the date that is a specific period after the date of the first commercial sale of such licensed product in such region and (iii) the expiration date of any regulatory exclusivity for such licensed product in such region. Zai may terminate the Zai License Agreement for convenience, subject to the terms thereto, by providing written notice to Karuna, which termination will be effective following a prescribed notice period. In addition, the Company may terminate the Zai License Agreement under specified circumstances if Zai or certain other parties challenge the Company’s patent rights or if Zai or its affiliates fail to complete certain development activities with respect to the licensed product for a specified period of time, subject to specified exceptions. Either party may terminate the Zai License Agreement for the other party’s uncured material breach, with a customary notice and cure period, or insolvency.

After termination or expiration, the Company is entitled to retain a worldwide, exclusive, and perpetual license from Zai to exploit the licensed product, which license would be non-exclusive after expiration (but not termination), subject to a reasonable royalty to be agreed by the parties if terminated for the Company’s uncured material breach.

Revenue Recognition

The Company concluded that the distinct units of account within the agreement are reflective of a vendor-customer relationship and therefore within the scope of ASC 606.

Under the provisions of ASC 606, the Company identified one performance obligation. The Company provided an exclusive license to intellectual property, bundled with the associated know-how and certain professional services that are not substantive.

Under the terms of the Zai License Agreement, Zai has the sole right to manufacture, or have manufactured, KarXT for use in development and commercialization in the Licensed Territory. At the election of Zai, the Company may supply KarXT to Zai at the fully burdened manufacturing cost plus a specified margin, as defined within the agreement. This provision was determined to be an option to acquire additional goods or services at a price that approximates the stand-alone selling price for that good or service, and therefore does not represent a material right, or separate performance obligation, within the context of the Zai License Agreement.

The Company determined the transaction price was equal to $37.0 million, which includes the upfront fee of $35 million and payments to taxing authorities on the Company’s behalf. In estimating the stand-alone selling price, the Company determined that there were no significant financing components, noncash consideration or amounts that may be refunded to the customer, and as such the total unconstrained consideration of $37.0 million was included in the total transaction price.

8


 

License of Intellectual Property. The license to the Company's intellectual property, bundled with the associated know-how, represents a distinct performance obligation. The license and associated know-how was transferred to Zai in the fourth quarter of 2021 to satisfy this performance obligation. The Company allocated the full transaction price to the license of the Company's intellectual property, bundled with the associated know-how, and accordingly recognized revenue of $37.0 million as license revenue in its Consolidated Statement of Operations for the year ended December 31, 2021.

Milestone Payments. The potential development and regulatory milestone payments, as well as sales milestone payments, are paid upon achievement of certain milestones as defined in the Zai License Agreement. The Company evaluated whether or not the milestones are considered probable of being reached and determined that their achievement is highly dependent on factors outside of the Company's control. These payments have been fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint and, if necessary, adjust its estimate of the overall transaction price.

Royalties. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Zai and, therefore, have also been excluded from the transaction price.

The Company assessed the Zai License Agreement to determine whether a significant financing component exists and concluded that a significant financing component does not exist. The upfront payment received by the Company was subject to foreign tax withholdings of $3.7 million. The Company recorded this tax expense to general and administrative expense in the Consolidated Statement of Operations for the year ended December 31, 2021.

There was no revenue recorded for the three months ended March 31, 2022 and 2021, and no deferred revenue as of March 31, 2022 or December 31, 2021, related to the Zai License Agreement.

Note 6. 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 months ended March 31, 2022 and 2021 (in thousands, except share and per share data):

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net Loss

 

$

(58,218

)

 

$

(30,497

)

Weighted-average shares used in computing net loss per share

 

 

29,805,961

 

 

 

27,786,538

 

Net loss per share, basic and diluted

 

$

(1.95

)

 

$

(1.10

)

 

The Company’s potentially dilutive securities, which consist of stock options, 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.

Common Stock Equivalents

As of March 31, 2022 and 2021, stock options to purchase 5,923,147 and 5,171,914 shares of common stock, respectively, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact.

9


 

 

Note 7. 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 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. As of March 31, 2022, there were 2,357,970 options outstanding under the 2009 Plan.

In May 2019, the Company’s 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 Securities and Exchange Commission ("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, restricted stock units ("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 of common stock that may be issued under the 2019 Plan 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 March 31, 2022, there were 1,591,887 common shares available for issuance and 3,565,177 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. 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, 2021

 

 

5,323,162

 

 

$

50.04

 

 

 

7.7

 

 

$

431,456

 

Granted

 

 

703,685

 

 

 

112.16

 

 

 

 

 

 

 

Exercised

 

 

(60,700

)

 

 

21.13

 

 

 

 

 

 

 

Forfeited

 

 

(43,000

)

 

 

106.51

 

 

 

 

 

 

 

Outstanding as of March 31, 2022

 

 

5,923,147

 

 

$

57.31

 

 

 

7.7

 

 

$

414,748

 

Options vested and expected to vest as of
   March 31, 2022

 

 

5,923,147

 

 

$

57.31

 

 

 

7.7

 

 

$

414,748

 

Options exercisable as of March 31, 2022

 

 

3,552,230

 

 

$

26.12

 

 

 

6.9

 

 

$

358,298

 

 

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 March 31, 2022.

As of March 31, 2022, there was $131.0 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.17 years.

10


 

Stock-based Compensation Expense

Stock-based compensation expense is classified in the statements of operations for the three months ended March 31, 2022 and 2021 as follows (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

General and administrative

 

$

6,106

 

 

$

3,741

 

Research and development

 

 

4,530

 

 

 

2,081

 

Total stock-based compensation expense

 

$

10,636

 

 

$

5,822

 

 

Note 8. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets as of March 31, 2022 and December 31, 2021 that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

Fair Value Measurement

 

 

 

at March 31, 2022 Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

132,808

 

 

$

 

 

$

 

 

$

132,808

 

Commercial paper

 

 

26,878

 

 

 

 

 

 

 

 

 

26,878

 

US government agencies

 

 

9,287

 

 

 

 

 

 

 

 

 

9,287

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

 

108,509

 

 

 

 

 

 

 

 

 

108,509

 

Corporate debt securities

 

 

 

 

 

49,227

 

 

 

 

 

 

49,227

 

Commercial paper

 

 

 

 

 

109,248

 

 

 

 

 

 

109,248

 

Total

 

$

277,482