10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from ___ to ___

Commission File Number: 001-39219

 

Revolution Medicines, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2029180

(State or other jurisdiction of

incorporation or organization)

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

700 Saginaw Drive

Redwood City, CA

94063

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 481-6801

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock $0.0001 Par Value per Share

 

RVMD

 

The Nasdaq Stock Market LLC

(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, 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 May 4, 2022, the registrant had 74,245,139 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

Special Note Regarding Forward Looking Statements

ii

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

 

Signatures

79

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

the scope, progress, results and costs of developing our product candidates or any other future product candidates, and conducting preclinical studies and clinical trials;
the scope, progress, results and costs related to the research and development of our pipeline;
the timing of and costs involved in obtaining and maintaining regulatory approval for any of current or future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;
our expectations regarding the potential market size and size of the potential patient populations for our product candidates and any future product candidates, if approved for commercial use;
our ability to maintain existing and establish new collaborations, licensing or other arrangements and the financial terms of any such agreements, including our collaboration with Sanofi;
our commercialization, marketing and manufacturing capabilities and expectations;
the rate and degree of market acceptance of our product candidates, as well as the pricing and reimbursement of our product candidates, if approved;
the implementation of our business model and strategic plans for our business, product candidates and technology, including additional indications for which we may pursue;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected term of patent protection;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;
developments and projections relating to our competitors and our industry, including competing therapies and procedures;
regulatory and legal developments in the United States and foreign countries;
the performance of our third-party suppliers and manufacturers;
our ability to attract and retain key scientific or management personnel;
our expectations regarding our ability to obtain, maintain, enforce and defend our intellectual property protection for our product candidates; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”

ii


 

We have based these forward-looking statements largely on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (https://ir.revmed.com), Securities and Exchange Commission (SEC) filings, webcasts, press releases and conference calls. We use these mediums, including our website, to communicate with our members and public about our company, our products and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

97,667

 

 

$

108,497

 

Marketable securities

 

 

421,087

 

 

 

468,557

 

Accounts receivable

 

 

5,383

 

 

 

5,929

 

Prepaid expenses and other current assets

 

 

10,206

 

 

 

6,790

 

Total current assets

 

 

534,343

 

 

 

589,773

 

Property and equipment, net

 

 

13,056

 

 

 

11,544

 

Operating lease right-of-use asset

 

 

58,570

 

 

 

59,692

 

Intangible assets, net

 

 

59,609

 

 

 

59,876

 

Goodwill

 

 

14,608

 

 

 

14,608

 

Restricted cash

 

 

1,737

 

 

 

1,737

 

Other noncurrent assets

 

 

851

 

 

 

758

 

Total assets

 

$

682,774

 

 

$

737,988

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

14,174

 

 

$

14,057

 

Accrued expenses and other current liabilities

 

 

25,520

 

 

 

27,721

 

Operating lease liability, current

 

 

6,331

 

 

 

6,214

 

Deferred revenue, current

 

 

11,433

 

 

 

12,358

 

Total current liabilities

 

 

57,458

 

 

 

60,350

 

Deferred revenue, noncurrent

 

 

5,662

 

 

 

6,573

 

Deferred tax liability

 

 

7,444

 

 

 

7,444

 

Operating lease liability, noncurrent

 

 

59,583

 

 

 

60,419

 

Other noncurrent liabilities

 

 

1,634

 

 

 

634

 

Total liabilities

 

 

131,781

 

 

 

135,420

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized at
   March 31, 2022 and December 31, 2021, respectively;
zero shares
   issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized at
   March 31, 2022 and December 31, 2021, respectively;
74,227,672 and 74,142,619
   shares issued and outstanding at March 31, 2022 and December 31, 2021,
   respectively

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

1,062,552

 

 

 

1,055,572

 

Accumulated other comprehensive income

 

 

(1,284

)

 

 

(376

)

Accumulated deficit

 

 

(510,283

)

 

 

(452,636

)

Total stockholders' equity

 

 

550,993

 

 

 

602,568

 

Total liabilities and stockholders' equity

 

$

682,774

 

 

$

737,988

 

 

 

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

1


 

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenue:

 

 

 

 

 

 

 

Collaboration revenue

 

$

7,578

 

 

$

10,131

 

 

Total revenue

 

 

7,578

 

 

 

10,131

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

56,490

 

 

 

40,858

 

 

General and administrative

 

 

9,037

 

 

 

6,670

 

 

Total operating expenses

 

 

65,527

 

 

 

47,528

 

 

Loss from operations

 

 

(57,949

)

 

 

(37,397

)

 

Other income (expense), net:

 

 

 

 

 

 

 

Interest income

 

 

302

 

 

 

233

 

 

Interest expense

 

 

 

 

 

(12

)

 

Total other income, net

 

 

302

 

 

 

221

 

 

Loss before income taxes

 

 

(57,647

)

 

 

(37,176

)

 

Benefit from income taxes

 

 

 

 

 

 

 

Net loss

 

$

(57,647

)

 

$

(37,176

)

 

Net loss per share attributable to common stockholders - basic and diluted

 

$

(0.78

)

 

$

(0.53

)

 

Weighted-average common shares used to compute net loss per share, basic and diluted

 

 

74,162,363

 

 

 

70,420,076

 

 

 

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

2


 

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Net loss

 

$

(57,647

)

 

$

(37,176

)

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

      Unrealized gain (loss) on investments, net

 

 

(908

)

 

 

(53

)

 

Total comprehensive loss

 

$

(58,555

)

 

$

(37,229

)

 

 

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

3


 

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income/ (Loss)

 

 

Deficit

 

 

Equity/(Deficit)

 

Balance at December 31, 2021

 

 

74,142,619

 

 

$

8

 

 

$

1,055,572

 

 

$

(376

)

 

$

(452,636

)

 

$

602,568

 

Issuance of common stock pursuant to stock option exercises

 

 

58,122

 

 

 

 

 

 

305

 

 

 

 

 

 

 

 

 

305

 

Issuance of common stock related to vesting of restricted stock units

 

 

26,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,644

 

 

 

 

 

 

 

 

 

6,644

 

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(908

)

 

 

 

 

 

(908

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57,647

)

 

 

(57,647

)

Balance at March 31, 2022

 

 

74,227,672

 

 

$

8

 

 

$

1,062,552

 

 

$

(1,284

)

 

$

(510,283

)

 

$

550,993

 

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

 

4


 

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity/(Deficit)

 

Balance at December 31, 2020

 

 

66,599,748

 

 

$

7

 

 

$

740,098

 

 

$

116

 

 

$

(265,545

)

 

$

474,676

 

Issuance of common stock upon initial public offering, net of offering costs of $18,855

 

 

6,666,666

 

 

 

1

 

 

 

281,144

 

 

 

 

 

 

 

 

 

281,145

 

Issuance of common stock pursuant to stock option exercises

 

 

166,897

 

 

 

 

 

 

555

 

 

 

 

 

 

 

 

 

555

 

Issuance of common stock related to vesting of restricted stock units

 

 

1,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

46

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,387

 

 

 

 

 

 

 

 

 

3,387

 

Net unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

(53

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,176

)

 

 

(37,176

)

Balance at March 31, 2021

 

 

73,435,109

 

 

$

8

 

 

$

1,025,230

 

 

$

63

 

 

$

(302,721

)

 

$

722,580

 

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

 

5


 

REVOLUTION MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(57,647

)

 

$

(37,176

)

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

 

 

 

 

 

 

      Loss on disposal of fixed assets

 

19

 

 

 

 

Amortization of intangible assets

 

 

267

 

 

 

267

 

Stock-based compensation expense

 

 

6,644

 

 

 

3,387

 

Depreciation and amortization

 

 

901

 

 

 

671

 

Net amortization of premium on marketable securities

 

 

648

 

 

 

534

 

Amortization of operating lease right-of-use asset

 

 

1,122

 

 

 

740

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

546

 

 

 

(1,171

)

Prepaid expenses and other current assets

 

 

(3,416

)

 

 

(1,257

)

Accounts payable

 

 

(492

)

 

 

(2,131

)

Accrued expenses and other current liabilities

 

 

(2,114

)

 

 

1,200

 

Deferred revenue

 

 

(1,836

)

 

 

(2,493

)

Operating lease liability

 

 

(719

)

 

 

(670

)

Other noncurrent assets

 

 

(114

)

 

 

 

Other noncurrent liabilities

 

 

1,031

 

 

 

853

 

Net cash used in operating activities

 

 

(55,160

)

 

 

(37,246

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(111,818

)

 

 

(114,038

)

Maturities of marketable securities

 

 

157,732

 

 

 

119,926

 

Purchases of property and equipment

 

 

(1,889

)

 

 

(3,579

)

Net cash provided by investing activities

 

 

44,025

 

 

 

2,309

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

281,709

 

Proceeds from issuance of common stock under equity incentive plans

 

 

305

 

 

 

555

 

Net cash provided by financing activities

 

 

305

 

 

 

282,264

 

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

 

 

(10,830

)

 

 

247,327

 

Cash, cash equivalents and restricted cash - beginning of period

 

 

110,234

 

 

 

105,352

 

Cash, cash equivalents and restricted cash - end of period

 

$

99,404

 

 

$

352,679

 

Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets

 

 

 

 

 

 

Cash and cash equivalents

 

 

97,667

 

 

 

351,595

 

Restricted cash

 

 

1,737

 

 

 

1,084

 

Cash, cash equivalents and restricted cash - end of period

 

$

99,404

 

 

$

352,679

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Vesting of early exercised options and restricted stock

 

$

31

 

 

$

46

 

Purchases of property and equipment in accounts payable and accrued expenses and other current liabilities

 

 

1,672

 

 

 

882

 

Unpaid deferred offering costs

 

 

89

 

 

 

564

 

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

6


 

REVOLUTION MEDICINES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1.
Organization

Revolution Medicines, Inc. (the Company) is a clinical-stage precision oncology company focused on developing targeted therapies to inhibit frontier targets in RAS-addicted cancers. The Company was founded in October 2014 and is headquartered in Redwood City, California.

Liquidity

The Company has incurred net operating losses in each year since inception. As of March 31, 2022, the Company had an accumulated deficit of $510.3 million. Management believes that its existing cash, cash equivalents and marketable securities will enable the Company to fund its planned operations for at least 12 months following the issuance date of these condensed consolidated financial statements. The Company has been able to fund its operations through the issuance and sale of common stock and redeemable convertible preferred stock in addition to upfront payments and research and development cost reimbursement received under the Company’s collaboration agreement with Genzyme Corporation, an affiliate of Sanofi. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and payments the Company may receive under the Sanofi collaboration agreement or future collaboration agreements, if any. There can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending should additional capital not become available could have a material adverse effect on the Company’s ability to achieve its business objectives.

Public offerings

In February 2020, the Company closed its initial public offering (IPO), and issued 16,100,000 shares of its common stock (including the exercise in full by the underwriters of their option to purchase an additional 2,100,000 shares of common stock) at a price to the public of $17.00 per share for net proceeds of $250.7 million, after deducting underwriting discounts and commissions of $19.2 million and expenses of $3.8 million.

In July 2020, the Company issued and sold 6,900,000 shares of its common stock in an underwritten public offering (including the exercise in full by the underwriters of their option to purchase an additional 900,000 shares of the Company’s common stock) at a price of $26.00 per share for net proceeds of $167.8 million, after deducting underwriting discounts and commissions of $10.8 million and expenses of $0.8 million.

In February 2021, the Company issued and sold 6,666,666 shares of its common stock in an underwritten public offering (including the exercise in full by the underwriters of their option to purchase an additional 869,565 shares of the Company’s common stock) at a price of $45.00 per share for net proceeds of $281.1 million, after deducting underwriting discounts and commissions of $18.0 million and expenses of $0.9 million.

In November 2021, the Company entered into a sales agreement with Cowen and Company, LLC (Cowen) to sell shares of its common stock, from time to time, with aggregate gross proceeds of up to $250 million, through an at-the-market equity offering program (ATM). In 2021, the Company sold an aggregate of 339,302 shares of common stock under the ATM resulting in gross proceeds of $10.4 million. After deducting commissions and expenses of $0.3 million, net proceeds to the Company were $10.1 million. During the three months ended March 31, 2022, the Company did not issue shares of the Company’s common stock under the ATM.

 

7


 

2.
Summary of significant accounting policies

Basis of presentation

The condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (GAAP) and applicable rules of the Securities and Exchange Commission (SEC) regarding interim financial reporting and, in the opinion of management, include all normal and recurring adjustments which are necessary to state fairly the Company's financial position and results of operations for the reported periods. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. The condensed consolidated financial statements for the periods ended March 31, 2022 and March 31, 2021 include the accounts of the Company and its wholly owned subsidiary, Warp Drive Bio, Inc. (Warp Drive). All intercompany balances and transactions have been eliminated in consolidation. The functional and reporting currency of the Company and its subsidiary is the U.S. dollar.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical accruals, valuation of in-process research and development and developed technologies, income taxes, useful lives of property and equipment and intangible assets, impairment of goodwill and intangibles, the incremental borrowing rate for determining operating lease assets and liabilities and stock-based compensation. The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, financial condition and results of operations is highly uncertain and subject to change. The Company considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and there was not a material impact to the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2022. Actual results could materially differ from the Company’s estimates, and there may be changes to the estimates in future periods.

Concentration of credit risk and other risks and uncertainties

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and marketable securities. The Company’s cash is held by two financial institutions in the United States, which management believes to be of high credit quality. The Company invests in money market funds, U.S. government debt securities, U.S. government agency bonds, commercial paper and corporate bonds. The Company has not experienced any losses on its deposits of cash and cash equivalents.
 

The Company is subject to credit risk as its receivable and collaboration revenue are entirely related to its collaboration agreement with Sanofi. See Note 8, “Sanofi collaboration agreement.”
 

The Company’s clinical trial sites may be affected by the COVID-19 outbreak due to prioritization of hospital resources toward the COVID-19 outbreak, travel or quarantine restrictions imposed by governments, and the inability to access sites for initiation and patient monitoring and enrollment. As a result, patient screening, new patient enrollment, monitoring and data collection may be affected or delayed. The Company is aware that several clinical sites involved in its clinical studies temporarily stopped or delayed enrolling new patients, with exemptions if appropriate, and it is possible that these or other clinical sites may be similarly affected in the future. These developments may delay the Company’s clinical trial timelines. Some of the Company’s third-party manufacturers which it uses for the supply of materials for product candidates or other materials necessary to manufacture product to conduct preclinical tests and clinical trials and contract research organizations may be impacted by COVID-19, and should they experience disruptions, such as temporary closures or suspension of services, the Company would likely experience delays in advancing clinical trials.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), under its ASC or other standard setting bodies, and adopted by the Company as of the specified effective date, unless otherwise discussed below.
 

 

8


 


Recently adopted accounting pronouncements

 

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs (ASU 2020-08). ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early application is not permitted. All entities should apply ASU 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company adopted the standard for the fiscal year beginning on January 1, 2022 and concluded that adoption of the standard did not have a material impact on its consolidated financial statements.

 

In October 2020, FASB issued ASU 2020-10, Codification Improvements (ASU 2020-10). ASU 2020-10 updates various codification topics by clarifying or improving disclosure requirements to align with the SEC's regulations. The amendments are effective for the Company for fiscal years beginning after December 15, 2021, including interim period within those fiscal years. Early adoption is permitted. Adoption shall be applied retrospectively. The Company adopted the standard for the fiscal year beginning on January 1, 2022 and concluded that adoption of the standard did not have a material impact on its consolidated financial statements.

 

3.
Fair value measurements

The carrying amounts of the Company’s certain financial instruments, including cash equivalents, accounts payable and accrued expenses and other current liabilities approximate fair value due to their relatively short maturities and market interest rates, if applicable. Refer to Note 4 regarding the fair value of the Company’s available-for-sale securities.

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; 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.

9


 

The following table presents information about the Company’s financial assets that are measured at fair value and indicates the fair value hierarchy of the valuation:

 

 

 

March 31, 2022

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

17,159

 

 

$

17,159

 

 

$

 

 

$

 

Commercial paper (1, 2)

 

 

226,974

 

 

 

 

 

 

226,974

 

 

 

 

U.S. government and agency securities (1,2)

 

 

164,751

 

 

 

 

 

 

164,751

 

 

 

 

Corporate bonds (2)

 

 

110,563

 

 

 

 

 

 

110,563

 

 

 

 

Total

 

$

519,447

 

 

$

17,159

 

 

$

502,288

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

57,134

 

 

$

57,134