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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2021

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: 001-38662

 

SUTRO BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

47-0926186

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

310 Utah Avenue, Suite 150

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 392-8412

Not Applicable:

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

STRO

 

The Nasdaq Stock Market LLC

(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, 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  

As of April 29, 2021, the registrant had 46,112,952 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Comprehensive Loss

3

 

Condensed Statements of Stockholders’ Equity

4

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 3.

Defaults Upon Senior Securities

88

Item 4.

Mine Safety Disclosures

88

Item 5.

Other Information

88

Item 6.

Exhibits

89

Signatures

 

90

 

 

 

 

 

i

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Sutro Biopharma, Inc.

Condensed Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,818

 

 

$

206,152

 

Marketable securities

 

 

164,455

 

 

 

120,341

 

Investment in equity securities

 

 

30,955

 

 

 

41,644

 

Accounts receivable

 

 

7,227

 

 

 

5,559

 

Prepaid expenses and other current assets

 

 

7,546

 

 

 

4,486

 

Total current assets

 

 

266,001

 

 

 

378,182

 

Property and equipment, net

 

 

14,829

 

 

 

12,935

 

Marketable securities, non-current

 

 

74,615

 

 

 

 

Other non-current assets

 

 

2,211

 

 

 

2,122

 

Restricted cash

 

 

872

 

 

 

872

 

Total assets

 

$

358,528

 

 

$

394,111

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,891

 

 

$

5,544

 

Accrued compensation

 

 

4,496

 

 

 

8,823

 

Deferred revenue—current

 

 

12,088

 

 

 

14,603

 

Other current liabilities

 

 

185

 

 

 

627

 

Total current liabilities

 

 

22,660

 

 

 

29,597

 

Deferred revenue, non-current

 

 

822

 

 

 

6,100

 

Deferred rent

 

 

2,390

 

 

 

1,340

 

Debt—non-current

 

 

24,680

 

 

 

24,545

 

Other noncurrent liabilities

 

 

638

 

 

 

481

 

Total liabilities

 

 

51,190

 

 

 

62,063

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value — 10,000,000 shares authorized

   as of March 31, 2021 and December 31, 2020; 0 shares issued and

   outstanding as of March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value — 300,000,000 shares authorized

   as of March 31, 2021 and December 31, 2020; 46,103,606 and

  45,752,116 shares issued and outstanding as of March 31, 2021

  and December 31, 2020, respectively

 

 

46

 

 

 

46

 

Additional paid-in-capital

 

 

565,524

 

 

 

559,746

 

Accumulated other comprehensive income

 

 

 

 

 

129

 

Accumulated deficit

 

 

(258,232

)

 

 

(227,873

)

Total stockholders’ equity

 

 

307,338

 

 

 

332,048

 

Total Liabilities and Stockholders’ Equity

 

$

358,528

 

 

$

394,111

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

1

 


Sutro Biopharma, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues (including amounts from related parties

   of $0 during the three months ended March 31,

   2021, and $2,813 during the three months

   ended March 31, 2020

 

$

14,660

 

 

$

7,152

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

22,562

 

 

 

17,619

 

General and administrative

 

 

11,107

 

 

 

8,713

 

Total operating expenses

 

 

33,669

 

 

 

26,332

 

Loss from operations

 

 

(19,009

)

 

 

(19,180

)

Interest income

 

 

197

 

 

 

641

 

Unrealized loss on equity securities

 

 

(10,689

)

 

 

 

Interest and other expense, net

 

 

(858

)

 

 

(1,056

)

Net loss

 

$

(30,359

)

 

$

(19,595

)

Net loss per share, basic and diluted

 

$

(0.66

)

 

$

(0.84

)

Weighted-average shares used in computing

   basic and diluted net loss per share

 

 

45,907,590

 

 

 

23,197,971

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

2


Sutro Biopharma, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(30,359

)

 

$

(19,595

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(129

)

 

 

(137

)

Comprehensive loss

 

$

(30,488

)

 

$

(19,732

)

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

3


Sutro Biopharma, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

 

 

$

 

 

 

45,752,116

 

 

$

46

 

 

$

559,746

 

 

$

129

 

 

$

(227,873

)

 

$

332,048

 

Exercise of common stock options

 

 

 

 

 

 

 

 

129,161

 

 

 

 

 

 

1,360

 

 

 

 

 

 

 

 

 

1,360

 

Issuance of common stock under Employee Stock

   Purchase Plan

 

 

 

 

 

 

 

 

93,346

 

 

 

 

 

 

873

 

 

 

 

 

 

 

 

 

873

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

147,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock transaction associated with taxes withheld

   on restricted stock units

 

 

 

 

 

 

 

 

(18,366

)

 

 

 

 

 

(407

)

 

 

 

 

 

 

 

 

(407

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,952

 

 

 

 

 

 

 

 

 

3,952

 

Net unrealized loss on available-for- sale

   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(129

)

 

 

 

 

 

(129

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,359

)

 

 

(30,359

)

Balances at March 31, 2021

 

 

 

 

$

 

 

 

46,103,606

 

 

$

46

 

 

$

565,524

 

 

$

 

 

$

(258,232

)

 

$

307,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2019

 

 

 

 

$

 

 

 

23,098,969

 

 

$

23

 

 

$

293,346

 

 

$

165

 

 

$

(195,745

)

 

$

97,789

 

Exercise of common stock options

 

 

 

 

 

 

 

 

12,937

 

 

 

 

 

 

56

 

 

 

 

 

 

 

 

 

56

 

Issuance of common stock under Employee Stock

   Purchase Plan

 

 

 

 

 

 

 

 

74,465

 

 

 

 

 

 

646

 

 

 

 

 

 

 

 

 

646

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

41,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,707

 

 

 

 

 

 

 

 

 

2,707

 

Issuance of common stock warrants in connection

   with debt refinancing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

619

 

 

 

 

 

 

 

 

 

619

 

Net unrealized loss on available-for- sale

   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(137

)

 

 

 

 

 

(137

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,595

)

 

 

(19,595

)

Balances at March 31, 2020

 

 

 

 

$

 

 

 

23,227,421

 

 

$

23

 

 

$

297,374

 

 

$

28

 

 

$

(215,340

)

 

$

82,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

4


Sutro Biopharma, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(30,359

)

 

$

(19,595

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,291

 

 

 

1,099

 

Amortization of premium (accretion of discount) on marketable securities

 

 

496

 

 

 

(41

)

Stock-based compensation

 

 

3,952

 

 

 

2,707

 

Unrealized loss on equity securities

 

 

10,689

 

 

 

 

Remeasurement of liability awards

 

 

(11

)

 

 

7

 

Other

 

 

39

 

 

 

(19

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,668

)

 

 

(2,781

)

Prepaid expenses and other assets

 

 

(3,060

)

 

 

1,417

 

Accounts payable

 

 

(462

)

 

 

 

Accrued compensation

 

 

(4,327

)

 

 

(3,073

)

Other liabilities

 

 

(267

)

 

 

(745

)

Deferred rent

 

 

1,050

 

 

 

(36

)

Deferred revenue

 

 

(7,793

)

 

 

2,326

 

Net cash used in operating activities

 

 

(30,430

)

 

 

(18,734

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(164,604

)

 

 

(3,600

)

Maturities of marketable securities

 

 

40,250

 

 

 

37,500

 

Sales of marketable securities

 

 

5,000

 

 

 

8,500

 

Purchases of equipment and leasehold improvements

 

 

(2,376

)

 

 

(763

)

Net cash (used in) provided by investing activities

 

 

(121,730

)

 

 

41,637

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from debt refinancing

 

 

 

 

 

25,000

 

Payment of debt

 

 

 

 

 

(10,000

)

Proceeds from exercise of common stock options

 

 

1,360

 

 

 

56

 

Taxes paid related to net shares settlement of restricted stock units

 

 

(407

)

 

 

 

Proceeds from employee stock purchase plan

 

 

873

 

 

 

646

 

Net cash provided by financing activities

 

 

1,826

 

 

 

15,702

 

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

 

 

(150,334

)

 

 

38,605

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

207,024

 

 

 

4,975

 

Cash, cash equivalents and restricted cash at end of period

 

$

56,690

 

 

$

43,580

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

331

 

 

$

134

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Purchases of equipment included in accounts payable

 

$

809

 

 

$

255

 

Embedded interest associated with program fees

 

$

231

 

 

$

600

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

5


Sutro Biopharma, Inc.

Notes to Unaudited Interim Condensed Financial Statements

1. Organization and Principal Activities

Description of Business

Sutro Biopharma, Inc. (the “Company”), is a clinical stage drug discovery, development and manufacturing company focused on leveraging its integrated cell-free protein synthesis and site-specific conjugation platform, XpressCF®, to create a broad variety of optimally designed, next-generation protein therapeutics, initially for cancer and autoimmune disorders. The Company was incorporated on April 21, 2003 and is headquartered in South San Francisco, California.

The Company operates in one business segment, the development of biopharmaceutical products.

Liquidity

The Company has incurred significant losses and has negative cash flows from operations. As of March 31, 2021, the Company had an accumulated deficit of $258.2 million. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development and other operational activities.

As of March 31, 2021, the Company had unrestricted cash, cash equivalents and marketable securities of $294.9 million, which is available to fund future operations. The Company will need to raise additional capital to support the completion of its research and development activities and to support its operations.

The Company believes that its unrestricted cash, cash equivalents and marketable securities as of March 31, 2021 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of its financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed financial statements of the Company are unaudited. These interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2020 condensed balance sheet was derived from the audited financial statements as of that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s condensed balance sheets and the amounts of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining research and development periods under collaboration arrangements, stock-based compensation expense, valuation of marketable securities, impairment of long-lived assets, income taxes and certain accrued liabilities. Actual results could differ from such estimates or assumptions.

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 revenue, expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international customers, suppliers, service providers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from such estimates or assumptions.

6


The accompanying unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. The interim results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited financial statements included in the Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the year ended December 31, 2020.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 (Topic 326), Financial Instruments Credit Losses, which requires consideration of a broader range of reasonable and supportable information to developing credit loss estimates. For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including all interim periods within those years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including all interim periods within those years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 will have a material impact on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases (“ASC 842”). ASC 842 supersedes the lease recognition requirements in ASC 840, Leases. ASC 842 clarifies the definition of a lease and requires lessees to recognize right-of-use assets and lease liabilities for all leases, including those classified as operating leases under previous lease accounting guidance. For public entities, ASU 2016-02 was effective for fiscal years beginning after December 15, 2018, including all interim periods within that year.  As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASC 842 will be effective for the Company on January 1, 2022.  Originally, entities were required to adopt ASC 842 using a modified retrospective transition method. However, in July 2018, the FASB issued ASU 2018-11 (Topic 842), Leases: Targeted Improvements, which provides entities with an additional transition method. Under ASU 2018-11, entities have the option of initially applying ASC 842 at the adoption date, rather than at the beginning of the earliest period presented, and recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The Company is currently evaluating the impact of adopting this guidance on the Company’s financial statements. The Company currently expects that its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the total assets and total liabilities that it reports relative to such amounts presented prior to adoption.    

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows.

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

55,818

 

 

$

43,565

 

Restricted cash

 

 

872

 

 

 

15

 

Total cash, cash equivalents, and restricted cash shown in the

   statements of cash flows

 

$

56,690

 

 

$

43,580

 

 

7


 

Investments in Equity Securities

Subsequent to the closing of the initial public offering (“IPO”) of Vaxcyte, Inc. in June 2020, the fair value of Vaxcyte’s common stock became readily determinable.  As a result, beginning June 2020, Vaxcyte common stock held by the Company is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, with any unrealized gains and losses recorded in the Company’s statements of operations.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets and liabilities;

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation and benefits approximate fair value due to the short-term nature of these items.

The fair value of the Company’s outstanding loan (See Note 6) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rate, which is a Level 2 input. The estimated fair value of the Company’s outstanding loan approximates the carrying amount, as the loan bears a floating rate that approximates the market interest rate.

Revenue Recognition

The Company has no products approved for commercial sale and has not generated any revenue from commercial product sales. The total revenue to date has been generated principally from collaboration and license agreements and to a lesser extent, from manufacturing, supply and services and products the Company provides to its collaboration partners.

Collaboration revenue

The Company derives revenue from collaboration arrangements, under which the Company may grant licenses to its collaboration partners to further develop and commercialize its proprietary product candidates. The Company may also perform research and development activities under the collaboration agreements. Consideration under these contracts generally includes a nonrefundable upfront payment, development, regulatory and commercial milestones and other contingent payments, and royalties based on net sales of approved products. Additionally, the collaborations may provide options for the customer to acquire from the Company materials and reagents, clinical product supply or additional research and development services under separate agreements.

The Company assesses which activities in the collaboration agreements are considered distinct performance obligations that should be accounted for separately. The Company develops assumptions that require judgement to determine whether the license to the Company’s intellectual property is distinct from the research and development services or participation in activities under the collaboration agreements.

At the inception of each agreement, the Company determines the arrangement transaction price, which includes variable consideration, based on the assessment of the probability of achievement of future milestones and contingent payments and other potential consideration. The Company recognizes revenue over time by measuring its progress towards the complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer.

8


For arrangements that include multiple performance obligations, the Company allocates the transaction price to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. In instances where SSP is not directly observable, the Company develops assumptions that require judgment to determine the SSP for each performance obligation identified in the contract. These key assumptions may include FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

Upfront Payments: For collaboration arrangements that include a nonrefundable upfront payment, if the license fee and research and development services cannot be accounted for as separate performance obligations, the transaction price is deferred and recognized as revenue over the expected period of performance using a cost-based input methodology. The Company uses judgement to assess the pattern of delivery of the performance obligation.  In addition, amounts paid in advance of services being rendered may result in an associated financing component to the upfront payment.  Accordingly, the interest on such borrowing cost component will be recorded as interest expense and revenue, based on an appropriate borrowing rate applied to the value of services to be performed by the Company over the estimated service performance period.

License Grants: For collaboration arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

Milestone and Contingent Payments: At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s collaborators generally pay milestones and contingent payments subsequent to achievement of the triggering event.

Research and Development Services: For amounts allocated to the Company’s research and development obligations in a collaboration arrangement, the Company recognizes revenue over time using a cost-based input methodology, representing the transfer of goods or services as activities are performed over the term of the agreement.

Materials Supply: The Company provides materials and reagents, clinical materials and services to certain of its collaborators under separate agreements. The consideration for such services is generally based on FTE personnel effort used to manufacture those materials reimbursed at an agreed upon rate in addition to agreed-upon pricing for the provided materials. The amounts billed are recognized as revenue as the performance obligations are met by the Company.

9


3. Fair Value Measurements

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

 

 

 

March 31, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds