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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

OR

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

For transition period from                      to                     .

Commission File Number: 001-31918

Graphic

IDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

04-3072298

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

505 Eagleview Blvd., Suite 212

Exton, Pennsylvania

(Address of principal executive offices)

19341

(Zip code)

(484) 348-1600

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IDRA

Nasdaq Capital Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Common Stock, par value $.001 per share

    

52,798,295

Class

Outstanding as of November 8, 2021

Table of Contents

IDERA PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

    

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Condensed Balance Sheets as of September 30, 2021 and December 31, 2020

1

Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

2

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

3

Condensed Statements of Redeemable Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020

4

Notes to Condensed Financial Statements

6

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Item 5.

Other Information

33

PART II — OTHER INFORMATION

Item 1A.

Risk Factors

34

Item 6.

Exhibits

36

Signatures

37

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to “Idera,” the “Company,” “we,” “us,” and “our” refer to Idera Pharmaceuticals, Inc.

IMO® and Idera® are our trademarks. All other trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

i

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included or incorporated in this report regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we will actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These important factors include those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021 (the “2020 Form 10-K), in this Quarterly Report on Form 10-Q, and in our other disclosures and filings with the SEC. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.

In addition, any forward-looking statements represent our estimates only as of the date that this Quarterly Report on Form 10-Q is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. All forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof and are expressly qualified in their entirety by this cautionary notice. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

ii

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

IDERA PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

(UNAUDITED)

    

September 30, 

    

December 31, 

 

(In thousands)

2021

2020*

 

ASSETS

Current assets:

Cash and cash equivalents

$

36,602

$

33,229

Short-term investments

 

 

4,499

Prepaid expenses and other current assets

 

1,697

 

3,627

Total current assets

 

38,299

 

41,355

Property and equipment, net

 

27

 

44

Operating lease right-of-use assets

784

930

Other assets

 

70

 

70

Total assets

$

39,180

$

42,399

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Accounts payable

$

276

$

329

Accrued expenses

 

5,085

 

6,072

Operating lease liability

205

191

Other current liability

435

Total current liabilities

 

5,566

 

7,027

Warrant liability, long-term

6,983

Future tranche right liability, long-term

118,803

Operating lease liability, net of current portion

603

758

Total liabilities

 

6,169

 

133,571

Commitments and contingencies (Note 13)

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

Series B1 redeemable convertible preferred stock (Note 7); Designated — 278 shares, Issued and outstanding — 0 and 24 shares at September 30, 2021 and December 31, 2020, respectively

Stockholders’ equity (deficit):

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share

 

 

Common stock, $0.001 par value, Authorized — 140,000 shares; Issued and outstanding — 52,777 and 38,291 at September 30, 2021 and December 31, 2020, respectively

 

53

 

38

Additional paid-in capital

 

764,300

 

742,342

Accumulated deficit

 

(731,342)

 

(833,552)

Total stockholders’ equity (deficit)

 

33,011

 

(91,172)

Total liabilities and stockholders’ equity (deficit)

$

39,180

$

42,399

* The condensed balance sheet at December 31, 2020 has been derived from the audited financial statements at that date.

The accompanying notes are an integral part of these financial statements

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands, except per share amounts)

    

2021

    

2020

    

2021

    

2020

 

Operating expenses:

Research and development

$

3,507

$

4,766

$

14,271

$

19,655

General and administrative

 

2,331

 

2,718

 

7,959

 

8,992

Restructuring costs

130

1,322

Total operating expenses

 

5,968

 

7,484

 

23,552

 

28,647

Loss from operations

 

(5,968)

 

(7,484)

 

(23,552)

 

(28,647)

Other income (expense):

Interest income

 

2

 

9

 

7

 

161

Interest expense

 

 

 

(7)

 

Warrant revaluation gain (loss)

(683)

6,983

(495)

Future tranche right revaluation gain (loss)

(12,350)

118,803

(6,988)

Foreign currency exchange (loss) gain

 

1

 

(44)

 

(24)

 

8

Net income / (loss)

$

(5,965)

$

(20,552)

$

102,210

$

(35,961)

Net income (loss) applicable to common stockholders (Note 12)

— Basic

$

(5,965)

$

(20,552)

$

100,574

$

(35,961)

— Diluted

$

(5,965)

$

(20,552)

$

(23,576)

$

(35,961)

Net income (loss) per share applicable to common stockholders (Note 12)

— Basic

$

(0.11)

$

(0.59)

$

2.10

$

(1.09)

— Diluted

$

(0.11)

$

(0.59)

$

(0.46)

$

(1.09)

Weighted-average number of common shares used in computing net income (loss) per share applicable to common stockholders

— Basic

52,740

35,091

 

47,990

 

32,999

— Diluted

52,740

35,091

 

51,613

 

32,999

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

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended

September 30, 

(In thousands)

    

2021

    

2020

 

Cash Flows from Operating Activities:

Net income (loss)

$

102,210

$

(35,961)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Stock-based compensation

 

1,990

 

2,273

Warrant liability revaluation gain

(6,983)

495

Future tranche right liability revaluation gain

(118,803)

6,988

Issuance of common stock for services rendered

130

 

170

Accretion of discounts on short-term investments

(1)

 

(43)

Depreciation and amortization expense

 

17

 

52

Changes in operating assets and liabilities:

 

Prepaid expenses and other assets

1,930

 

1,215

Accounts payable, accrued expenses, and other liabilities

(1,040)

 

(1,391)

Other

5

10

Net cash used in operating activities

 

(20,545)

 

(26,192)

Cash Flows from Investing Activities:

Purchases of available-for-sale securities

 

 

(12,180)

Proceeds from maturity of available-for-sale securities

 

4,500

 

8,350

Purchases of property and equipment

 

 

(7)

Net cash provided by (used in) investing activities

 

4,500

 

(3,837)

Cash Flows from Financing Activities:

Proceeds from common stock financings, net

 

19,534

12,258

Proceeds from employee stock purchases

 

48

 

84

Proceeds from exercise of common stock options and warrants

 

271

Payments on seller-financed purchases

(435)

 

Net cash provided by financing activities

 

19,418

 

12,342

Net increase (decrease) in cash and cash equivalents

 

3,373

 

(17,687)

Cash and cash equivalent, beginning of period

 

33,229

 

40,019

Cash and cash equivalents, end of period

$

36,602

$

22,332

Supplemental disclosure of cash flow information:

Cash paid for interest

$

5

$

Supplemental disclosure of non-cash financing and investing activities:

Offering costs in accounts payable and accrued expenses

$

$

91

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

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

For the Nine Months Ended September 30, 2020

Series B1 Preferred

Common Stock

Additional

Total

Number of

$0.01 Par

Number of

$0.001 Par

Paid-In

Accumulated

Stockholders’

(In thousands)

Shares

 

Value

 

Shares

 

Value

 

Capital

 

Deficit

 

Deficit

Balance, December 31, 2019

 

24

$

29,672

$

30

$

709,692

$

(720,890)

$

(11,168)

Sale of common stock, net of issuance costs

 

 

854

1

1,405

1,406

Issuance of common stock under employee stock purchase plan

 

 

19

25

25

Issuance of common stock under equity incentive plan (vesting of restricted stock units)

48

Issuance of common stock for services rendered

 

 

14

26

26

Stock-based compensation

 

 

750

750

Net income

 

8,817

8,817

Balance, March 31, 2020

 

24

$

30,607

$

31

$

711,898

$

(712,073)

$

(144)

Sale of common stock, net of issuance costs

 

 

3,607

3

5,821

5,824

Issuance of common stock under employee stock purchase plan

 

 

21

29

29

Issuance of common stock for services rendered

 

 

56

72

72

Stock-based compensation

 

 

754

754

Net loss

 

(24,226)

(24,226)

Balance, June 30, 2020

 

24

$

34,291

$

34

$

718,574

$

(736,299)

$

(17,691)

Sale of common stock and prefunded warrants, net of issuance costs

 

868

1

4,936

4,937

Issuance of common stock under employee stock purchase plan

 

19

30

30

Issuance of common stock for services rendered

 

41

72

72

Stock-based compensation

 

769

769

Net loss

 

(20,552)

(20,552)

Balance, September 30, 2020

 

24

$

35,219

$

35

$

724,381

$

(756,851)

$

(32,435)

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IDERA PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

(UNAUDITED)

For the Nine Months Ended September 30, 2021

Series B1 Preferred

Common Stock

Additional

Total

Number of

$0.01 Par

Number of

$0.001 Par

Paid-In

Accumulated

Stockholders’

(In thousands)

Shares

 

Value

 

Shares

 

Value

 

Capital

 

Deficit

 

Equity (Deficit)

Balance, December 31, 2020

 

24

$

38,291

$

38

$

742,342

$

(833,552)

$

(91,172)

Sale of common stock, net of issuance costs

 

 

3,195

3

16,258

16,261

Conversion of Series B1 preferred stock

(14)

1,415

1

(1)

Issuance of common stock under employee stock purchase plan

 

 

8

 

 

28

 

 

28

Issuance of common stock under equity incentive plan (vesting of restricted stock units)

 

237

 

 

 

 

Issuance of common stock upon exercise of common stock options and warrants

 

3,375

4

267

271

Issuance of common stock for services rendered

 

 

16

 

 

67

 

 

67

Stock-based compensation

 

 

 

 

1,111

 

 

1,111

Net income

 

 

 

 

115,738

 

115,738

Balance, March 31, 2021

10

$

46,537

$

46

$

760,072

$

(717,814)

$

42,304

Sale of common stock, net of issuance costs

2,076

2

2,510

2,512

Conversion of Series B1 preferred stock

(10)

953

1

(1)

Issuance of common stock under employee stock purchase plan

6

6

6

Issuance of common stock upon exercise of common stock options and warrants

2,496

3

(3)

Issuance of common stock for services rendered

47

63

63

Stock-based compensation

404

404

Net loss

(7,563)

(7,563)

Balance, June 30, 2021

$

52,115

$

52

$

763,051

$

(725,377)

$

37,726

Sale of common stock, net of issuance costs

647

1

760

761

Issuance of common stock under employee stock purchase plan

 

15

14

14

Stock-based compensation

475

475

Net loss

(5,965)

(5,965)

Balance, September 30, 2021

 

$

52,777

$

53

$

764,300

$

(731,342)

$

33,011

The accompanying notes are an integral part of these financial statements

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IDERA PHARMACEUTICALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2021

Note 1. Business and Organization

Business Overview

Idera Pharmaceuticals, Inc. (“Idera” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development, and ultimately the commercialization, of drug candidates for rare disease indications characterized by small, well-defined patient populations with serious unmet medical needs. The Company’s current focus is to identify and potentially acquire rights to novel development or commercial stage rare disease programs, as well as on its Toll-like receptor (“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. The Company believes it can develop and commercialize targeted therapies on its own. The Company has in the past and may in the future explore collaborative alliances to support development and commercialization of any of its drug candidates.

Reduction-in-Force

In April 2021, following the announcement that the Company’s ILLUMINATE-301 trial did not meet its primary endpoint of objective response rate (“ORR”), the Company implemented a reduction-in-force which affected approximately 50% of its workforce through September 30, 2021. 17 positions were eliminated, primarily in the area of research and development. The decision was made in order to align the Company’s workforce with its needs in light of the outcome of ILLUMINATE-301’s ORR endpoint, its ongoing ILLUMINATE development program and other business development activities focused on identifying new portfolio opportunities.

In connection with these actions, the Company incurred and paid termination costs for the reduction in workforce, which includes severance, benefits and related costs, of approximately $1.2 million and $0.1 million during the second and third quarter of 2021, respectively.

Liquidity and Financial Condition

As of September 30, 2021, the Company had an accumulated deficit of $731.3 million and a cash and cash equivalents balance of $36.6 million. The Company expects to incur substantial operating losses in future periods and will require additional capital as it seeks to advance tilsotolimod and/or acquire and advance any new drug candidates through development to commercialization. The Company does not expect to generate product revenue, sales-based milestones, or royalties until the Company successfully completes development of and obtains marketing approval for tilsotolimod or any other future drug candidates, either alone or in collaboration with third parties, which the Company expects will take a number of years, if at all. To commercialize tilsotolimod and any other future drug candidates, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding, and history of operating losses.

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management currently anticipates that the Company’s balance of cash and cash equivalents on hand as of September 30, 2021 is sufficient to enable the Company to continue as a going concern through the one-year period subsequent to the filing date of this Quarterly Report on Form 10-Q. The Company has and will continue to evaluate available alternatives to extend its operations beyond this date, which include raising additional capital through the LPC Agreement (Note 8) and ATM Agreement (Note 8) or additional financing or strategic transactions. Additionally, management’s plans may include the possible deferral of certain operating expenses unless additional capital is received. Management’s operating plan, which underlies the analysis of the Company’s ability to continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary from the operating plan.

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Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements included herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation of interim period results have been included. Interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. For further information, refer to the financial statements and footnotes thereto included in the Company’s 2020 Form 10-K.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at September 30, 2021 consisted of cash and money market funds. Cash and cash equivalents at December 31, 2020 consisted of cash and cash equivalents and short-term investments.

Financial Instruments

The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note 3. The Company is required to disclose the estimated fair values of its financial instruments. As of September 30, 2021, the Company’s financial instruments consisted of cash and cash equivalents. As of December 31, 2020, the Company’s financial instruments consisted of cash, cash equivalents, short-term investments, receivables and warrant and future tranche right liabilities. The estimated fair values of these financial instruments approximate their carrying values. As of September 30, 2021, the Company did not have any derivatives, hedging instruments or other similar financial instruments.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash, cash equivalents, and short-term investments. The Company’s credit risk is managed by investing in highly rated money market instruments, U.S. treasury bills, corporate bonds, commercial paper and/or other debt securities. Due to these factors, no significant additional credit risk is believed by management to be inherent in the Company’s assets. As of September 30, 2021, all the Company’s cash and cash equivalents were held at two financial institutions.

Operating Lease Right-of-use Assets and Lease Liability

The Company accounts for leases under ASC Topic 842, Leases. Operating leases are included in “Operating lease right-of-use assets” within the Company’s condensed balance sheets and represent the Company’s right to use an underlying asset for the lease term. The Company’s related obligation to make lease payments are included in “Operating lease liability” and “Operating lease liability, net of current portion” within the Company’s condensed balance sheets. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The ROU assets are tested for impairment according to ASC Topic 360, Property, Plant, and Equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. 

As of September 30, 2021 and December 31, 2020, the Company’s operating lease ROU assets and corresponding short-term and long-term lease liabilities primarily relate to its existing Exton, PA facility operating lease which expires on May 31, 2025.

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Note 2. Summary of Significant Accounting Policies (Continued)

Warrant Liability

The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) and/or ASC Topic 815, Derivatives and Hedging (ASC 815), depending on the specific terms of the warrant agreement. Freestanding warrants for shares that are potentially redeemable, whereby the Company may be required to transfer assets (e.g. cash or other assets) outside of its control, are classified as liabilities. Liability-classified warrants are recorded at their estimated fair values at each reporting period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-classified warrants are recorded in Warrant Revaluation (Loss) Gain in the Company’s condensed statements of operations. Equity-classified warrants are recorded within additional paid-in capital at the time of issuance and not subject to remeasurement. During the three months ended March 31, 2021, all the Company’s liability-classified warrants terminated and, accordingly, the liability balance was derecognized. For additional discussion on warrants, see Note 8.

Future Tranche Right Liability

On December 23, 2019, the Company entered into a Securities Purchase Agreement (the “December 2019 Securities Purchase Agreement”) with institutional investors affiliated with Baker Brothers (as defined below), an existing stockholder (see Note 11). As more fully described in Note 7, the December 2019 Securities Purchase Agreement contained call options on redeemable preferred shares with warrants (conditionally exercisable for shares that are puttable). The Company determined that these call options represented freestanding financial instruments and accounted for the options as liabilities (“Future Tranche Right Liability”) under ASC 480, which requires the measurement and recognition of the fair value of the liability at the time of issuance and at each reporting period. Any change in fair value is recognized in Future Tranche Right Liability Revaluation Gain (Loss) in the Company’s condensed statements of operations. During the three months ended March 31, 2021, the liability-classified call options provided for under the December 2019 Securities Purchase Agreement terminated and, accordingly, the liability balance was derecognized. For additional discussion on the Future Tranche Right Liability, see Note 7.

Preferred Stock

The Company applies ASC 480 when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.

Accretion of redeemable convertible preferred stock includes the accretion of the Company's Series B redeemable convertible preferred stock to its stated value. The carrying value of the Series B redeemable convertible preferred stock is accreted to redemption value using the effective interest method, from the date of issuance to the earliest date the holders can demand redemption or until the redeemable convertible preferred stock cease to be outstanding.

Income Taxes

In accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis.  For the three and nine months ended September 30, 2021 and 2020, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses. The Company has not recorded its net deferred tax asset as of either September 30, 2021 or December 31, 2020 because it maintained a full valuation allowance against all deferred tax assets as of these dates as management has determined that it is not more likely than not that the Company will realize these future tax benefits. As of September 30, 2021 and December 31, 2020, the Company had no uncertain tax positions.

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Note 2. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that the Company has or will adopt as of a specified date. Unless otherwise noted, as of September 30, 2021, management does not believe that any other recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have, a material impact on the Company’s present or future financial statements.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the guidance on an issuer’s accounting for convertible instruments and contracts in its own equity. The Company adopted ASU 2020-06 in the first quarter of 2021. The adoption of this ASU did not have a material effect on the Company’s financial statements.

COVID-19

While the Company is not aware of a material impact from the continuation of the coronavirus ("COVID-19") pandemic through September 30, 2021, the full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations, and financial condition, including expenses and manufacturing, clinical trials, and research and development costs, depends on future developments that are highly uncertain at this time.

Note 3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company applies the guidance in ASC Topic 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis.  Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability, or
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2, and 3 during the nine months ended September 30, 2021.

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Note 3. Fair Value Measurements (Continued)

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at September 30, 2021 and December 31, 2020 categorized by the level of inputs used in the valuation of each asset and liability.

 

September 30, 2021

 

(In thousands)

Total

Level 1

Level 2

Level 3

 

Assets

Cash

$

250

$

250

$

$

Cash equivalents – money market funds

36,352

36,352

Total assets

$

36,602

$

36,602

$

$

December 31, 2020

(In thousands)

Total

Level 1

Level 2

Level 3

Assets

Cash

$

250

$

250

$

$

Cash equivalents – money market funds

32,979

32,979

Short-term investments – commercial paper

3,499

 

3,499

 

Short-term investments – US treasury bills

 

1,000

 

 

1,000

 

Total assets

$

37,728

$

33,229

$

4,499

$

Liabilities

Warrant liability

$

6,983

$

$

$

6,983

Future tranche right liability

118,803

118,803

Total liabilities

$

125,786

$

$

$

125,786

The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of commercial paper and U.S. treasury bills whose fair value may not represent actual transactions of identical securities. The fair value of commercial paper is generally determined based on the relationship between the investment’s discount rate and the discount rates of the same issuer’s commercial paper available in the market which may not be actively traded daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as Level 2.

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

Warrant Liability and Future Tranche Right Liability

The reconciliation of the Company's warrant and future tranche right liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

Future

Warrant

Tranche Right

(In thousands)

Liability

Liability

Balance, December 31, 2020

 

$

6,983

$

118,803

Change in the fair value of liability (1)

 

 

(6,983)

 

(118,803)

Balance, September 30, 2021

 

$

$

(1)During the nine months ended September 30, 2021, the Company’s liability-classified warrants and future tranche rights terminated, and accordingly, the liabilities were derecognized.

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Note 4. Investments

The Company’s available-for-sale investments at fair value consisted of the following as of December 31, 2020:

December 31, 2020

 

Gross

Gross

Estimated

 

Unrealized

Unrealized

Fair

 

(In thousands)

    

Cost

    

(Losses)

    

Gains

    

Value

 

Short-term investments – commercial paper

$

3,499

$

$

$

3,499

Short-term investments – US treasury bills

 

1,000

 

 

 

1,000

Total short-term investments

$

4,499

$

$

$

4,499

The Company had no realized gains or losses from the sale of investments in available-for-sale securities during each of the nine months ended September 30, 2021 and 2020. In accordance with ASU 2016-13, if the fair value of the Company’s investments in available-for-sale debt securities is less than the amortized cost, the Company records (i) an allowance for credit losses with a corresponding charge to net income (loss) for any credit-related impairment, with subsequent improvements in expected credit losses recognized as a reversal of the allowance, and/or (ii) any non-credit impairment loss to other comprehensive income (loss).