glto-10q_20210331.htm

 

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, 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: 001-39655

 

GALECTO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

37-1957007

(State or other jurisdiction of

incorporation or organization)

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

Ole Maaloes Vej 3

DK-2200 Copenhagen N

Denmark

N/A

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (+45) 70 70 52 10

 

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, par value $0.00001 per share

 

GLTO

 

The Nasdaq Global Select 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 29, 2021, the registrant had 25,261,832 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Convertible Preferred Stock and Changes in Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Interim Condensed Consolidated Financial Statements

8

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

 

 

 


i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing,” “goal,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:

 

the success, cost and timing of our product development activities and planned initiation and completion of clinical trials of our lead product candidate, GB0139, including our ability to enroll patients in our ongoing Phase 2b clinical trial of GB0139 at anticipated rates and our ability to complete such trial with fewer dosage groups, as well as our other current product candidates and any future product candidates;

 

our ability to modify the protocol of our Phase 2b clinical trial of GB0139 to the satisfaction of the U.S. Food and Drug Administration, or FDA, or other regulatory agencies based on the interim unblinded analysis of the data conducted by a data safety monitoring board

 

the success, cost and timing of our product development activities and planned initiation and completion of our clinical trials;

 

our need to raise additional funding before we can expect to generate any revenues from product sales;

 

our ability to obtain regulatory approval for our current or future product candidates that we may identify or develop, including our expectation that the FDA or other regulatory agencies would agree with our belief that our Phase 2b clinical trial of GB0139 is registrational;

 

our ability to ensure adequate supply of our current or future product candidates;

 

our ability to maintain third-party relationships necessary to conduct our business;

 

our heavy dependence upon the success of our research to generate and advance additional product candidates;

 

our ability to establish an adequate safety or efficacy profile for our current or future product candidates that we may pursue;

 

the implementation of our strategic plans for our business, our current or future product candidates we may develop and our technology;

 

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

the rate and degree of market acceptance and clinical utility for our current or future product candidates we may develop;

 

our estimates about the size of our market opportunity;

 

our ability to use the capital we have raised in ways that increase the value of your investment;

 

our expectations related to the use the capital we have raised, and estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

our ability to maintain and establish collaborations;

 

our financial performance and liquidity;

 

our ability to effectively manage our potential growth;

 

developments relating to our competitors and our industry, including the impact of government regulation;

 

our ability to retain the continued service of our key professionals and consultants and to identify, hire and retain additional qualified professionals;

 

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations and those of our collaborators, service providers and other vendors;

 

our ability to maintain adequate internal controls over financial reporting; and

 

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

 

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the reasons described elsewhere in this Quarterly Report on Form 10-Q and those set forth in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

ii


 

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

 

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Galecto,” and the “Company” refer to Galecto, Inc. and, where appropriate, its consolidated subsidiaries.

 

Trademarks

 

We have applied for various trademarks that we use in connection with the operation of our business. This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GALECTO, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

(unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,253

 

 

$

163,582

 

Marketable securities

 

 

36,081

 

 

 

 

Prepaid expenses and other current assets

 

 

6,568

 

 

 

5,713

 

Total current assets

 

 

116,902

 

 

 

169,295

 

Marketable securities, long-term

 

 

38,576

 

 

 

 

Other assets, noncurrent

 

 

1,116

 

 

 

1,162

 

Operating lease right-of-use asset

 

 

933

 

 

 

885

 

Property and equipment, net

 

 

63

 

 

 

 

Tax credit receivable, noncurrent

 

 

868

 

 

 

 

Restricted cash

 

 

197

 

 

 

254

 

Total assets

 

$

158,655

 

 

$

171,596

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,782

 

 

$

2,851

 

Accrued expenses and other current liabilities

 

 

3,758

 

 

 

2,715

 

Total current liabilities

 

 

5,540

 

 

 

5,566

 

Operating lease liabilities, noncurrent

 

 

544

 

 

 

541

 

Total liabilities

 

 

6,084

 

 

 

6,107

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized

     at March 31, 2021 and December 31, 2020; no shares issued or outstanding

    as of March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, par value of $0.00001 per share; 300,000,000 shares authorized

     at March 31, 2021 and December 31, 2020; 25,261,832 shares issued and

     outstanding at March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Additional paid-in capital

 

 

270,206

 

 

 

269,175

 

Accumulated deficit

 

 

(117,705

)

 

 

(104,360

)

Accumulated other comprehensive income (loss)

 

 

70

 

 

 

674

 

Total stockholders’ equity

 

 

152,571

 

 

 

165,489

 

Total liabilities and stockholders' equity

 

$

158,655

 

 

$

171,596

 

See accompanying notes to the condensed consolidated financial statements.

 

4


 

Galecto, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

$

9,990

 

 

$

4,707

 

General and administrative

 

 

3,562

 

 

 

1,123

 

Total operating expenses

 

 

13,552

 

 

 

5,830

 

Loss from operations

 

 

(13,552

)

 

 

(5,830

)

Other income (expense), net

 

 

 

 

 

 

 

 

Interest income, net

 

 

39

 

 

 

 

Foreign exchange transaction gain, net

 

 

168

 

 

 

156

 

Total other income (expense), net

 

 

207

 

 

 

156

 

Net loss

 

 

(13,345

)

 

 

(5,674

)

Net loss per common share, basic and diluted

 

$

(0.53

)

 

$

(21.83

)

Weighted-average number of shares used in computing net loss

   per common share, basic and diluted

 

 

25,261,832

 

 

 

259,966

 

Other comprehensive loss

 

 

 

 

 

 

 

 

Net loss

 

 

(13,345

)

 

 

(5,674

)

Currency translation loss

 

 

(524

)

 

 

(210

)

Unrealized loss on marketable securities

 

 

(80

)

 

 

 

Total comprehensive loss

 

$

(13,949

)

 

$

(5,884

)

 

See accompanying notes to the condensed consolidated financial statements.

 

5


 

 

Galecto, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Changes in Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Series B

Convertible

Preferred

Stock

 

 

Series C

Convertible

Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 31, 2019

 

 

684,068

 

 

$

13,414

 

 

 

4,125,056

 

 

$

106,205

 

 

 

 

259,966

 

 

 

 

 

$

826

 

 

$

(69,523

)

 

$

(2,451

)

 

$

(71,148

)

Currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(210

)

 

 

(210

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,674

)

 

 

 

 

 

(5,674

)

Balance at March 31, 2020

 

 

684,068

 

 

$

13,414

 

 

 

4,125,056

 

 

$

106,205

 

 

 

 

259,966

 

 

$

 

 

$

826

 

 

$

(75,197

)

 

$

(2,661

)

 

$

(77,032

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,261,832

 

 

$

 

 

$

269,175

 

 

$

(104,360

)

 

$

674

 

 

$

165,489

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,031

 

 

 

 

 

 

 

 

 

1,031

 

Currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(524

)

 

 

(524

)

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

(80

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,345

)

 

 

 

 

 

(13,345

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

25,261,832

 

 

$

 

 

$

270,206

 

 

$

(117,705

)

 

$

70

 

 

$

152,571

 

 

See accompanying notes to the condensed consolidated financial statements.

 

6


 

GALECTO, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,345

)

 

$

(5,674

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

2

 

 

 

 

Stock-based compensation

 

 

1,031

 

 

 

 

Non-cash interest expense

 

 

(92

)

 

 

 

Amortization of right of use lease asset

 

 

97

 

 

 

25

 

Accretion of lease liability

 

 

19

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(855

)

 

 

309

 

Accounts payable

 

 

(1,069

)

 

 

(1,717

)

Accrued expenses and other current liabilities

 

 

1,002

 

 

 

(890

)

Other assets, noncurrent

 

 

(822

)

 

 

 

Operating lease liabilities

 

 

(119

)

 

 

(31

)

Net cash used in operating activities

 

 

(14,151

)

 

 

(7,978

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(74,566

)

 

 

 

Purchases of property and equipment

 

 

(65

)

 

 

 

Net cash used in investing activities

 

 

(74,631

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of Series C preferred stock, net

 

 

 

 

 

39,668

 

Net cash provided by financing activities

 

 

 

 

 

39,668

 

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

 

 

(88,782

)

 

 

31,690

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(604

)

 

 

(210

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

163,836

 

 

 

11,525

 

Cash, cash equivalents and restricted cash, end of period

 

$

74,450

 

 

$

43,005

 

Components of cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

74,253

 

 

 

42,779

 

Restricted cash

 

 

197

 

 

 

226

 

Total cash, cash equivalents and restricted cash

 

$

74,450

 

 

$

43,005

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

38

 

 

$

 

Supplemental disclosures of noncash activities:

 

 

 

 

 

 

 

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

161

 

 

$

 

 

See accompanying notes to the condensed consolidated financial statements.

7


GALECTO, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

1. DESCRIPTION OF BUSINESS, ORGANIZATION AND LIQUIDITY

Business and Organization

Galecto, Inc., together with its consolidated subsidiaries, or the Company or Galecto, is a clinical-stage biotechnology company developing therapeutics that are designed to target the biological processes that lie at the heart of fibrosis and impact a broad range of fibrotic and related diseases, including cancer. The Company’s initial focus is on the development of small-molecule inhibitors of galectin-3 and lysyl oxidase-like 2, or LOXL2, which play key roles in regulating fibrosis and cancer.

As of March 31, 2021, the Company’s wholly owned subsidiaries were PharmAkea, Inc. or PharmAkea, Galecto Securities Corporation and Galecto Biotech AB, a Swedish company. Galecto Biotech ApS, a Danish operating company, was Galecto Biotech AB’s wholly owned subsidiary.

Risks and uncertainties

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

Liquidity and management plans

The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying interim condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, and related interim information contained within the notes to the condensed consolidated financial statements, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of March 31, 2021, results of operations, statement of convertible preferred stock and stockholders’ equity and its cash flows for the three months ended March 31, 2021 and 2020. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021. The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year or any interim period. All intercompany balances and transactions have been eliminated.

Since inception, the Company has devoted substantially all its efforts to business planning, research and development,

recruiting management and technical staff and raising capital and has financed its operations primarily through the issuance of redeemable convertible preferred shares, debt financings and, most recently, the Company’s initial public offering, or IPO.

As of March 31, 2021, the Company had an accumulated deficit of $117.7 million, from recurring losses since inception in 2011. The Company has incurred recurring losses and has no sales as no products have obtained the necessary regulatory approval in order to market products. The Company expects to continue to incur losses as a result of costs and expenses related to the Company’s clinical development and corporate general and administrative activities. The Company had negative cash flows from operating activities during the three months ended March 31, 2021 and 2020 of $14.2 million and $8.0 million, respectively, and current projections

8


indicate that the Company will have continued negative cash flows for the foreseeable future as it continues to develop its product candidates. Net losses incurred for the three months ended March 31, 2021 and 2020 amounted to $13.3 million and $5.7 million, respectively.

At March 31, 2021, the Company’s cash, cash equivalents and marketable securities amounted to $148.9 million and current assets amounted to $116.9 million and current liabilities amounted to $5.5 million. At December 31, 2020, the Company’s cash and cash equivalents amounted to $163.6 million, current assets amounted to $169.3 million and current liabilities amounted to $5.6 million.

In the future, the Company will consider the following ways to fund its operations including: (1) raising additional capital through equity and/ or debt financings; (2) new commercial relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future.

Coronavirus pandemic

The coronavirus disease 2019, or COVID-19, pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny and other measures. The outbreak and government measures taken in response have also had a significant impact, both directly and indirectly, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the outbreak and its effects on the Company’s business and operations are uncertain.

In response to the impact of COVID-19, the Company has implemented certain measures intended to help the Company manage its impact and position the Company to resume operations quickly and efficiently once these restrictions are lifted, such as executing a work-from-home strategy for administrative functions and operations. The Company continues to monitor the impact of COVID-19 and assess its strategy accordingly.

Despite the Company’s implementation of such measures, the actual and perceived impact of the COVID-19 pandemic is changing daily, and its ultimate effect on the Company cannot be predicted. As a result, there can be no assurance that the Company will not experience additional negative impacts associated with COVID-19, which could be significant. The COVID-19 pandemic may negatively impact the Company’s business, financial condition and results of operations by decreasing or delaying the enrollment of patients in the Company’s clinical trials or otherwise causing interruptions or delays in the Company’s programs and services.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act, or CARES Act. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions include removing certain limitations on the utilization of net operating losses, increasing the loss carryback period for certain losses to five years, increasing the ability to deduct interest expense, and deferring social security payments, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act of 2017. The Company does not believe the CARES Act will have a material impact on its financial position and results of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Other than noted below, there have been no changes to the significant accounting policies as disclosed in Note 2 to the Company’s annual consolidated financial statements for the year ended December 31, 2020 included in the Annual Report on Form 10-K filed with the SEC on March 29, 2021.

Investments in Marketable Securities

The Company invests excess cash balances in short-term and long-term marketable debt securities. The Company classifies investments in marketable debt securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase and re-evaluates classification at each balance sheet date. All investments in marketable debt securities at each balance sheet date presented, are generally considered as available-for-sale. Marketable debt securities with maturities of twelve months or less are classified as short-term investments and marketable debt securities with maturities greater than twelve months are classified based on their availability for use in current operations. The Company reports available-for-sale debt securities at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value), net of applicable taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined

9


using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary,” including the intention to sell and, if so, marks the investment to market through a charge to the Company’s condensed consolidated statements of operations and comprehensive loss.

Property and Equipment, Net

Property and equipment are recorded at cost. Costs associated with maintenance and repairs are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives:

Asset Category

 

Useful Life

Equipment

 

5-7 years

Furniture and fixtures

 

5 years

Leasehold improvements

 

Lesser of 10 years or the remaining

term of the respective lease

Recently issued accounting standards

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The ASU 2016-13 guidance became effective as of January 1, 2020, and must be adopted using a modified retrospective approach, with certain exceptions. This guidance is effective for public business entities that meet the definition of a Securities and Exchange Commission filer, excluding eligible smaller reporting companies for fiscal years beginning after December 15, 2019. For all other entities, including emerging growth companies, it is effective for fiscal years beginning after December 15, 2022. The Company has not yet adopted ASU 2016-13 and is currently assessing the potential impact of adopting ASU 2016-13 on its financial statements and financial statement disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12. ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, including emerging growth companies, it is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact that the new accounting standard will have on the financial statements and disclosures.

3. INVESTMENTS

Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

The following table summarizes the Company’s interest-bearing investments, by category, as of March 31, 2021 (in thousands):

 

 

 

March 31,

 

Investments - Current:

 

2021

 

Debt securities - available-for-sale

 

$

36,081

 

Total

 

$

36,081

 

Investments - Noncurrent:

 

 

 

 

Debt securities - available-for-sale

 

$

38,576

 

Total

 

$

38,576

 

10


 

A summary of the Company’s available-for-sale investments as of March 31, 2021 consisted of the following (in thousands):

 

 

At March 31, 2021

 

 

 

Cost

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

Investments - Current:

 

Basis

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

36,097

 

 

$

 

 

$

(16

)

 

$

36,081

 

Total

 

$

36,097

 

 

$

 

 

$

(16

)

 

$

36,081

 

Investments - Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

38,640

 

 

$

 

 

$

(64

)

 

$

38,576

 

Total

 

$

38,640

 

 

$

 

 

$

(64

)

 

$

38,576

 

The amortized cost and fair value of the Company’s available-for-sale investments, by contract maturity, as of March 31, 2021 consisted of the following (in thousands):

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

36,097

 

 

$

36,081

 

Due after one year through five years

 

 

38,640

 

 

 

38,576

 

Total

 

$

74,737

 

 

$

74,657

 

 

The Company had no marketable securities as of December 31, 2020.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment as of March 31, 2021 consisted of the following (in thousands):

 

 

March 31,

 

 

 

2021

 

Equipment

 

$

65

 

Total property and equipment

 

 

65

 

Less: accumulated depreciation

 

 

(2

)

Property and equipment, net

 

$

63

 

Depreciation expense for the three months ended March 31, 2021 was $2,000. The Company had no property and equipment as of December 31, 2020.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its debt securities within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs.

 


11


 

A summary of the assets that are measured at fair value as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

 

 

Fair Value Measurement at

March 31, 2021

 

Assets:

 

Carrying

Value

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market funds(1)

 

$

66,637

 

 

$

66,637

 

 

$

 

 

$

 

Debt securities

 

 

74,657

 

 

 

 

 

 

74,657

 

 

 

 

Total

 

$

141,294

 

 

$

66,637

 

 

$

74,657

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at

December 31, 2020

 

Assets:

 

Carrying

Value

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market funds(1)

 

$

142,904

 

 

 

142,904

 

 

 

 

 

 

 

Total

 

$

142,904

 

 

$

142,904

 

 

$

 

 

$

 

 

(1)

Money market funds with maturities of 90 days or less at the date of purchase are included within cash and cash equivalents in the accompanying condensed consolidated balance sheets and are recognized at fair value.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Contract research and development costs

 

$

3,792

 

 

$

1,620

 

Prepaid insurance costs

 

 

1,166

 

 

 

1,642

 

Research and development tax credit receivable

 

 

868

 

 

 

1,808

 

Value-added tax refund receivable

 

 

310

 

 

 

401

 

Other

 

 

432

 

 

 

242

 

Total prepaid expenses and other current assets

 

$

6,568

 

 

$

5,713

 

 

7. LEASES

The Company is party to four operating leases for office and laboratory space. The Company’s finance leases are immaterial both individually and in the aggregate. The Company has elected to apply the short-term lease exception to all leases of one year or less. Rent expense for the three months ended March 31, 2021 and 2020 was $98,000 and $42,000, respectively.

The Company has an operating lease for its corporate headquarters in Copenhagen, Denmark for office space that expires in October 2021 and has a renewal option which expires in October 2024. In June 2020, the Company amended the related lease agreement to include an additional 1,300 square feet of office space. The Company also has a lease agreement for office space in London, United Kingdom, that expires August 2022 and has a renewal option and a lease agreement for office space in Gothenburg, Sweden, that expires in September 2022. In January 2021, the Company entered into an operating lease agreement in Stevenage, United Kingdom, for laboratory space.

12


Quantitative information regarding the Company’s leases for the three months ended March 31, 2021 and 2020 is as follows:

 

 

 

March 31,

 

Lease Cost

 

2021

 

 

2020

 

Operating lease cost (in thousands)

 

$

119

 

 

$

31

 

Other Information

 

 

 

 

 

 

 

 

Operating cash flows paid for amounts included

   in the measurement of lease liabilities (in thousands)

 

$

119

 

 

$

31

 

Operating lease liabilities arising from obtaining

   right-of-use assets (in thousands)

 

$

161

 

 

$

 

Weighted average remaining lease term (years)

 

 

2.6

 

 

 

4.2

 

Weighted average discount rate

 

8.0%

 

 

8.0%

 

As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Future lease payments under noncancelable leases are as follows at March 31, 2021 (in thousands):

 

 

 

Operating

 

Future Lease Payments

 

Leases

 

2021 (excluding the period ended March 31, 2021)

 

$

370

 

2022

 

 

380

 

2023

 

 

200

 

2024

 

 

116

 

2025

 

 

 

Total lease payments

 

 

1,066

 

Less: imputed interest

 

 

(107

)

Total lease liabilities

 

$

959

 

 

In April 2021, the Company entered into an operating lease agreement for its corporate headquarters in Copenhagen, Denmark, for office space, which will supersede the Company’s existing lease agreement. The lease agreement expires in January 2025 and additional lease payments of $286,000 are not included in the future lease payments above.

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Contract research and development costs

 

$

1,982

 

 

$

967

 

Employee compensation costs

 

 

904

 

 

 

1,031

 

Lease liabilities

 

 

415

 

 

 

374

 

Other liabilities

 

 

457

 

 

 

343

 

Total accrued expenses and other current liabilities

 

$

3,758

 

 

$

2,715

 

 

9. COMMITMENTS AND CONTINGENCIES

The Company’s commitments and contingencies are disclosed in Note 8 of the audited consolidated financial statements as of and for the year ended December 31, 2020, filed with the SEC on March 29, 2021. There have been no material changes to the Company’s commitments and contingencies since the date of such financial statements. Further, the Company’s commitments related to lease agreements are disclosed in Note 7 to our unaudited interim condensed consolidated financial statements.

 


13


 

10. STOCK-BASED COMPENSATION

Employee equity plan

In March 2020, the Company replaced the 2013 Option Program, or (“2013 Plan”), with its 2020 Stock Option and Grant Plan, or (“2020 Plan”). The 2020 Plan initially allowed the Company to award up to 1,740,325 options and the 304,142 outstanding options granted under the 2013 Plan were transferred to the 2020 Plan. Each vested option will entitle the option holder to purchase a single common share in the Company. Holders of stock options shall be entitled to exercise the vested portion of the stock option during the time period as determined by the Board, provided that a qualified exit, as defined in the 2020 Plan, has occurred. If a qualified exit, as defined in the 2020 Plan, occurs then all of the holders unvested options shall vest immediately. Options that are not exercised during the exercise period will automatically be forfeited. Stock options generally vest over a three-year or four-year period and expire ten years from the grant date. In September 2020, the Company allowed an addition 839,494 options to be awarded under the 2020 Plan.

In October 2020, the Board approved the 2020 Equity Incentive Plan or (“2020 Equity Plan”). The 2020 Equity Plan allowed the Company to award up to 1,625,858 options and the 2,512,427 outstanding options granted under the 2020 Plan were transferred to the 2020 Equity Plan and no further options were available to be issued under the 2020 Plan. The 2020 Equity Plan will cumulatively increase by 5 percent of the number of shares of common stock issued and outstanding on January 1st each year. At March 31, 2021, the Company had 1,925,949 options available for future grant under the 2020 Equity Plan.

The following table sets forth the activity for the Company’s stock options during the periods presented:

 

 

 

Number

of Options

 

 

Weighted-

average

exercise

price per

share

 

 

Weighted-

average

remaining

contractual

term

(in years)

 

 

Aggregate

intrinsic

value

 

Outstanding at December 31, 2019

 

 

304,142

 

 

$

5.58

 

 

 

 

 

 

 

Granted

 

 

2,235,285

 

 

 

4.67

 

 

 

 

 

 

 

Exercised

 

 

(1,016

)

 

 

1.95

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

2,538,411

 

 

$

4.67

 

 

 

8.8

 

 

$

20,009,769

 

Granted

 

 

936,000

 

 

 

12.89

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

3,474,411

 

 

$

6.88

 

 

 

8.9

 

 

$

5,392,883

 

Vested and expected to vest at March 31, 2021

 

 

3,170,269

 

 

$

7.03

 

 

 

9.4

 

 

$

5,185,488

 

Exercisable at March 31, 2021

 

 

800,778

 

 

$

3.38

 

 

 

6.7

 

 

$

2,227,144

 

The weighted-average grant date fair value of all stock options granted for the three months ended March 31, 2021 was $9.52. The intrinsic value at March 31, 2021 was based on the closing price of the Company’s common stock on that date of $6.08 per share.

 

Stock-based compensation

The grant date fair value of stock options vested during the three months ended March 31, 2021 was $0.2 million. Total unrecognized compensation expense related to unvested options granted under the Company’s stock-based compensation plan was $14.4 million at March 31, 2021, which is expected to be recognized over a weighted average period of 3.5 years. The Company recorded stock-based compensation expense related to the issuance of stock as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

Research and development

 

$

407

 

General and administrative

 

 

624

 

Total stock-based compensation

 

$

1,031

 

There was no stock-based compensation expense during the three months ended March 31, 2020.

14


The fair values of the options granted were estimated based on the Black-Scholes model, using the following assumptions:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2021

 

 

Risk-free interest rate

 

 

0.5

%

 

Expected term (in years)

 

 

6.1

 

 

Expected volatility

 

 

90.5

%

 

Expected dividend yield

 

 

 

 

 

11. NET LOSS PER SHARE

Basic and diluted net loss per share is calculated as follows (in thousands except share and per share amounts):

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(13,345

)

 

$

(5,674

)

Net loss per common share, basic and diluted

 

$

(0.53

)

 

$

(21.83

)

Weighted-average number of shares used in computing

   net loss per common share, basic and diluted

 

 

25,261,832

 

 

 

259,966

 

 

The following outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Stock options to purchase common stock

 

 

3,474,411

 

 

 

304,142