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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: 001-41201

 

CinCor Pharma, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

36-4931245

(State or other jurisdiction of

incorporation or organization)

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

230 Third Avenue, Waltham, MA 02451

02451

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (844) 531-1834

 

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, $0.00001 par value per share

 

CINC

 

The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

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 ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of May 10, 2022, the registrant had 37,709,912 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Financial Statements (Unaudited)

3

 

Condensed Balance Sheets – March 31,2022 (Unaudited) and December 31, 2021

3

 

Condensed Statements of Operations – Three Months Ended March 31, 2022 and 2021 (Unaudited)

4

 

Condensed Statements of Comprehensive Loss - Three Months Ended March 31, 2022 and 2021 (Unaudited)

5

 

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) – Three Months Ended March 31, 2022 and 2021 (Unaudited)

6

 

Condensed Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021 (Unaudited)

7

 

Condensed Notes to Consolidated Financial Statements

8

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

28

 

 

 

PART II.

OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

Signatures

31

 

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

 

This Quarterly Report on Form 10-Q of CinCor Pharma, Inc., or CinCor or the Company, contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any express or implied statements that do not relate to historical or current facts or matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “seeks,” “endeavor,” “potential,” “continue” or the negative of these terms or other comparable terminology.

 

Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements include, without limitation, statements about the following:

 

the timing, progress and results of our preclinical studies and clinical trials of baxdrostat (CIN-107) and any future product candidates, including statements regarding the timing of our planned IND submissions, initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the timing of any submission of filings for regulatory approval of, and our ability to obtain and maintain regulatory approvals for, baxdrostat and any future product candidates;
our ability to identify patients with the diseases treated by our product candidate and to enroll these patients in our clinical trials;

i


 

our expectations regarding the size of the patient populations, market acceptance and opportunity for and clinical utility of baxdrostat and any future product candidates, if approved for commercial use;
business disruptions affecting the initiation, patient enrollment, development and operation of our clinical trials, including a public health emergency, such as the COVID-19 pandemic, or geopolitical events, including the ongoing military conflict between Russia and Ukraine, and related sanctions against Russia;
our expectations regarding the scope of any approved indication for baxdrostat or any future product candidate;
our ability to successfully commercialize baxdrostat or any future product candidate, if approved;
our expectations regarding the potential market size and the rate and degree of market acceptance for baxdrostat or any future product candidates that we develop;
the effects of competition with respect to baxdrostat or any future product candidates, as well as innovations by current and future competitors in our industry;
our ability to fund our working capital requirements;
our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual property rights covering baxdrostat;
our financial performance and our ability to effectively manage our anticipated growth; and
our ability to obtain additional funding for our operations.

 

You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results under “Item 1A. Risk Factors” in the Annual Report on Form 10-K, the supplemental risk factors under “Item II 1.A. Risk Factors” in this Quarterly Report on Form 10-Q, as well as our other reports filed with the Securities and Exchange Commission. We may announce material business and financial information to our investors using our investor relations website (www.cincor.com/investor-relations). We therefore encourage investors and others interested in CinCor to review the information that we make available from time to time on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.

 

This Quarterly Report on Form 10-Q includes trademarks, tradenames and service marks, certain of which belong to us and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this Quarterly Report on Form 10-Q appear without the ®, ™ and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that we will not assert our rights or that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law.

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

CinCor Pharma, Inc.

Condensed Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,601,746

 

 

$

136,605,613

 

Marketable securities

 

 

149,558,341

 

 

 

 

Prepaid research and development contracts

 

 

5,679,642

 

 

 

1,769,074

 

Prepaid expense and other current assets

 

 

1,808,348

 

 

 

2,731,953

 

Total current assets

 

 

321,648,077

 

 

 

141,106,640

 

Total assets

 

$

321,648,077

 

 

$

141,106,640

 

 

 

 

 

 

 

 

Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,369,258

 

 

$

642,143

 

Related-party accounts payable

 

 

 

 

 

7,323

 

Warrant derivative liabilities

 

 

 

 

 

10,636,921

 

Accrued legal expense

 

 

253,084

 

 

 

2,104,766

 

Accrued research and development contracts

 

 

301,394

 

 

 

1,751,530

 

Accrued expenses and other liabilities

 

 

761,980

 

 

 

1,406,506

 

Total current liabilities

 

 

5,685,716

 

 

 

16,549,189

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock:

 

 

 

 

 

 

Series A redeemable convertible preferred stock,
   $
0.00001 par value, 0 and 35,714,282 shares authorized and
   outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

47,173,259

 

Series B redeemable redeemable convertible preferred stock,
   $
0.00001 par value, 0 and 35,716,249 shares authorized and
   outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

141,101,202

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

Common stock, $0.00001 par value per share; 95,000,000 and 13,731,321 shares
 authorized, and
37,709,912 and 2,557,341 outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

378

 

 

 

26

 

Additional paid-in capital

 

 

410,679,566

 

 

 

13,986,033

 

Accumulated deficit

 

 

(94,399,972

)

 

 

(77,703,069

)

Accumulated other comprehensive loss

 

 

(317,611

)

 

 

 

Total stockholders’ equity (deficit)

 

 

315,962,361

 

 

 

(63,717,010

)

Total liabilities, redeemable convertible preferred stock, and
   stockholders’ equity (deficit)

 

$

321,648,077

 

 

$

141,106,640

 

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

 

3


 

CinCor Pharma, Inc.

Condensed Statements of Operations (Unaudited)

 

 

For the Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

$

9,674,475

 

 

$

3,489,430

 

 

General and administrative

 

 

4,029,870

 

 

 

923,565

 

 

Total operating expenses

 

 

13,704,345

 

 

 

4,412,995

 

 

Loss from operations

 

 

(13,704,345

)

 

 

(4,412,995

)

 

Other (income) expense:

 

 

 

 

 

 

 

Interest income

 

 

(51,448

)

 

 

(4,413

)

 

Change in fair value of warrant derivative liabilities

 

 

3,044,006

 

 

 

1,209,829

 

 

Total other expense, net

 

 

2,992,558

 

 

 

1,205,416

 

 

Net loss

 

$

(16,696,903

)

 

$

(5,618,411

)

 

 

 

 

 

 

 

 

 

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

 

$

(0.50

)

 

$

(4.49

)

 

Weighted average number of common shares used in
   computing net loss per share attributable to common
   stockholders, basic and diluted

 

 

33,433,596

 

 

 

1,250,000

 

 

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

 

4


 

CinCor Pharma, Inc.

Condensed Statements of Comprehensive Loss (Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

Net loss

 

$

(16,696,903

)

 

$

(5,618,411

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized losses on available-for-sale securities

 

 

(317,611

)

 

 

-

 

Comprehensive loss

 

$

(17,014,514

)

 

$

(5,618,411

)

 

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

5


 

CinCor Pharma, Inc.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

 

 

 

Redeemable Convertible Preferred Stock

 

 

 

For the Three Months Ended March 31, 2022

 

 

 

 

 

 

 

Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

Series A Redeembable Convertible Preferred Stock

 

 

 

Series B Redeembable Convertible Preferred Stock

 

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Other Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Deficit

 

Balance at January 1, 2022

 

 

35,714,282

 

 

 

$

47,173,259

 

 

 

 

35,716,249

 

 

 

$

141,101,202

 

 

 

 

2,557,341

 

 

$

26

 

 

$

13,986,033

 

 

$

(77,703,069

)

 

$

-

 

 

$

(63,717,010

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock initial public offering, net of discounts and issuance costs of $19,420,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,290,813

 

 

 

133

 

 

 

193,550,593

 

 

 

 

 

 

 

 

 

193,550,726

 

Conversion of redeemable convertible preferred stock into common stock upon initial public offering

 

 

(35,714,282

)

 

 

 

(47,173,259

)

 

 

 

(35,716,249

)

 

 

 

(141,101,202

)

 

 

 

21,008,970

 

 

 

210

 

 

 

188,274,133

 

 

 

 

 

 

 

 

 

188,274,343

 

Automatic conversion of the Roche warrants into common stock upon initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

852,788

 

 

 

9

 

 

 

13,644,599

 

 

 

 

 

 

 

 

 

13,644,608

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,224,208

 

 

 

 

 

 

 

 

 

1,224,208

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(317,611

)

 

 

(317,611

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,696,903

)

 

 

 

 

 

(16,696,903

)

Balance at March 31, 2022

 

 

-

 

 

 

$

-

 

 

 

 

-

 

 

 

$

-

 

 

 

 

37,709,912

 

 

$

378

 

 

$

410,679,566

 

 

$

(94,399,972

)

 

$

(317,611

)

 

$

315,962,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2021

 

 

 

Redeemable Convertible Preferred Stock

 

 

 

Stockholders' (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

Series A Redeembable Convertible Preferred Stock

 

 

 

Series B Redeembable Convertible Preferred Stock

 

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Other Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

 

Amount

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income/(Loss)

 

 

Deficit

 

Balance at January 1, 2021

 

 

35,714,282

 

 

 

$

47,173,259

 

 

 

 

 

 

 

$

 

 

 

 

1,250,000

 

 

$

13

 

 

$

69,330

 

 

$

(27,333,995

)

 

 

 

 

$

(27,264,652

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,389,955

 

 

 

 

 

 

 

 

 

1,389,955

 

Net and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,618,411

)

 

 

 

 

 

(5,618,411

)

Balance at March 31, 2021

 

 

35,714,282

 

 

 

$

47,173,259

 

 

 

 

-

 

 

 

$

-

 

 

 

 

1,250,000

 

 

$

13

 

 

$

1,459,285

 

 

$

(32,952,406

)

 

$

-

 

 

$

(31,493,108

)

 

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

6


 

CinCor Pharma, Inc.

Condensed Statements of Cash Flows (Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

Net loss

 

$

(16,696,903

)

 

$

(5,618,411

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

1,224,208

 

 

 

1,389,955

 

Change in fair value of warrant derivative liabilities

 

 

3,044,006

 

 

 

1,209,829

 

Accretion of discounts on available for sale securities

 

 

(36,761

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid research and development contracts

 

 

(3,910,570

)

 

 

(786,839

)

Prepaid expenses and other current assets

 

 

(1,701,769

)

 

 

(16,957

)

Accounts payable

 

 

3,690,008

 

 

 

(833,097

)

Related-party accounts payable

 

 

(7,323

)

 

 

(80,466

)

Accrued expenses and other liabilities

 

 

(3,317,678

)

 

 

(1,038,422

)

Net cash used in operating activities

 

 

(17,712,782

)

 

 

(5,774,408

)

Investing activities:

 

 

 

 

 

 

Purchases of investment securities

 

 

(159,839,191

)

 

 

 

Maturities of investment securities

 

 

10,000,000

 

 

 

 

Net cash used in investing activities

 

 

(149,839,191

)

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public offering

 

 

197,767,310

 

 

 

 

Issuance costs in initial public offering

 

 

(2,219,204

)

 

 

 

Net cash provided by financing activities

 

 

195,548,106

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

27,996,133

 

 

 

(5,774,408

)

Cash and cash equivalents at beginning of period

 

 

136,605,613

 

 

 

26,078,064

 

Cash and cash equivalents at end of period (1)

 

$

164,601,746

 

 

$

20,303,656

 

 

 

 

 

 

 

 

Supplemental disclosures for non-cash financing activities

 

 

 

 

 

 

Conversion of redeemable convertible preferred stock into common stock upon initial public offering

 

$

188,274,133

 

 

$

 

Automatic conversion of the Roche warrants into common stock upon initial public offering

 

 

13,644,608

 

 

 

 

 

 

 

 

 

 

 

(1) Cash and cash equivalents excludes marketable securities of $149.6 million. Cash, cash equivalents and marketable securities at March 31, 2022 was $314.2 million.

 

 

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

 

7


 

CinCor Pharma, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Organization and Operations

CinCor Pharma, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on developing its lead clinical candidate, baxdrostat (CIN-107), for the treatment of hypertension and other cardio-renal diseases. Baxdrostat is a highly selective, oral small molecule inhibitor of aldosterone synthase, the enzyme responsible for the synthesis of aldosterone in the adrenal gland. The Company is conducting multiple Phase 2 clinical trials using baxdrostat in differing populations of patients, all of whom are hypertensive.

The Company was incorporated in March 2018 and founded as a subsidiary of CinRx Pharma, LLC (“CinRx”), a biotechnology company focused on developing novel therapeutics. In May 2019, the Company entered into an agreement with F. Hoffmann-La Roche Ltd and Hoffmann La-Roche Inc. (collectively, “Roche”) for an exclusive, worldwide, royalty-bearing license to certain Roche technology to research, develop, manufacture, and commercialize a novel aldosterone synthase inhibitor compound, baxdrostat, for any and all diseases and conditions. In connection with the in-licensing transaction with Roche, the Company was spun out as an independent company.

The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, possible failure of preclinical studies or clinical trials, the need to obtain marketing approval for its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and the ability to secure additional capital to fund operations. 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 and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Initial Public Offering and Liquidity

On January 11, 2022, the Company completed an initial public offering (the "IPO") of its common stock pursuant to which the Company issued and sold 13,290,813 shares of common stock at a price to the public of $16.00 per share. The aggregate net proceeds from the IPO were approximately $193.6 million after deducting underwriting discounts and commissions of $14.9 million and offering expenses of approximately $4.5 million. Upon completion of the IPO, all outstanding shares of Series A and Series B redeemable convertible preferred stock converted to 21,008,970 shares of common stock at a ratio of 3.4:1. In addition, the IPO also resulted in the automatic net exercise of the three outstanding warrants to purchase common stock issued to Roche for an aggregate of 852,788 shares of common stock (collectively, the “Roche Warrants”).

The Company incurred significant losses from operations and had negative cash flows from operating activities for the three months ended March 31, 2022 and 2021, and since inception. The Company’s current operating plan indicates it will continue to incur losses from operations and generate negative cash flows from operating activities, given ongoing expenditures related to extensive research and development and the Company’s lack of revenue-generating activities at this point in the Company’s life cycle.

The Company expects that its existing cash, cash equivalents and marketable securities is sufficient to fund its operating expenses and capital expenditure requirements through 2024, including its ongoing and currently planned Phase 2 and Phase 3 clinical programs. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to fund its operations.

If the Company is unable to obtain future funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed financial statements have been prepared in accordance with U.S. Securities and Exchange Commission (“SEC”) regulations and include all of the information and disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”) for interim financial reporting, and, in the opinion of management include all adjustments necessary for a fair presentation of the condensed financial statements for each period presented. All adjustments are normal and

8


 

recurring in nature. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). These unaudited condensed financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021 in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2022. The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. The Company’s condensed financial statements are stated in U.S. Dollars.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment. All the assets and operations of the Company’s sole operating segment are located in the United States.

Use of Estimates

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these condensed financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates have been or are used in the following areas, among others: prepaid research and development contracts, fair value of the Company's common stock prior to the IPO, fair value of warrant derivative liabilities, stock compensation expense and income taxes.

Prior to its IPO, the Company utilized estimates and assumptions in determining the fair value of its common stock. The Company has granted stock options at exercise prices that represented the fair value of its common stock on grant date. The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock prior to its IPO. Each valuation methodology includes estimates and assumptions that require the Company's judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of redeemable convertible preferred stock, the superior rights and preferences of the redeemable convertible preferred stock senior to the Company's common stock at the time, and a probability analysis of various liquidity events at that time, such as a public offering or sale of the Company, under differing scenarios. Changes to the key assumptions used in the valuations could have resulted in different fair values of common stock at each valuation date.

The Company's results and business operations can also be affected or disrupted by economic, political, legislative, health concerns, such as the COVID-19 pandemic, regulatory, legal actions and geopolitical events, such as the ongoing military conflict between Ukraine and Russia and the related sanctions against Russia. Economic conditions, such as recessionary trends, inflation, interest, changes in regulatory laws and monetary exchange rates, and government fiscal policies, can also have a significant effect on operations. While the Company maintains reserves for anticipated liabilities, the Company could be affected by civil, criminal, regulatory, or administrative actions, claims, or proceedings. The extent to which the Company’s business can be impacted by future events is highly uncertain and cannot be predicted at this time.

Concentration of Credit Risk and Other Risks and Uncertainties

The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents, which consist of money market funds that invest primarily in short­ term U.S. government securities and short term marketable securities that are primarily invested in fixed income securities.

The Company has not yet generated any revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biotechnology companies that devote substantially all of their efforts to research and development and clinical trials and do not yet have commercial products. The Company expects to continue incurring losses for the foreseeable future.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held primarily in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.

 

9


 

Marketable Securities

The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each condensed balance sheet date. The Company classified all of its marketable securities at December 31, 2021 as “available-for-sale” pursuant to ASC Topic 320, Investments – Debt and Equity Securities. Investments not classified as cash equivalents are presented as either short-term or long-term investments based on both their maturities as well as the time period the Company intends to hold such securities. Available-for-sale securities are maintained by an investment manager and primarily consist of fixed income securities. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in other comprehensive loss as a component of stockholders’ equity (deficit) until realized. Any premium or discount arising at purchase is amortized or accreted to interest income over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other (income) expense, net. There were no material realized gains or losses on marketable securities recognized for three months ended March 31, 2022 or 2021.

Initial Public Offering Costs

Costs directly attributable to the Company’s IPO which were incurred in 2021 were deferred and capitalized as prepaid expenses and other current assets at December 31, 2021. These costs primarily represented legal, underwriting and accounting costs related to the Company’s efforts to raise capital through a public sale of its common stock. Any additional costs incurred during the three months ended March 31, 2022 were deferred until the completion of the IPO, which occurred on January 11, 2022, at which time they were reclassified to additional paid in capital as a reduction of the IPO gross proceeds. At December 31, 2021, the Company had capitalized $2.6 million of deferred IPO costs, as prepaid expenses and other current assets. A total of $4.5 million of IPO issuance costs were incurred through January 11, 2022, which were recorded as a reduction of the IPO gross proceeds.

Redeemable Convertible Preferred Stock

In accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), preferred stock issued with redemption provisions that are outside of the control of the issuer or that contain certain redemption features in a Deemed Liquidation Event (as defined in our Amended and Restated Certificate of Incorporation) is required to be presented outside of stockholders' equity (deficit) on the face of the condensed balance sheet and certain disclosures are required to be included in the notes to the condensed financial statements. If required, changes in fair value are recorded as additional paid in capital and/or accumulated deficit in the condensed balance sheets. Changes in fair value that would reduce the fair value of the redeemable convertible preferred stock below the original issue price are limited so that the value of the shares are not recorded below the original issue price.

Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash and cash equivalents, accounts payable and other current liabilities approximate fair value due to their relatively short maturities. Assets and liabilities recorded at fair value on a recurring basis in the condensed 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. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

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

Where quoted prices are available in an active market, assets or liabilities are classified as Level 1.

 

To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. There were no transfers within the fair value hierarchy in 2022 and 2021.

Research and Development

The Company charges all research and development costs, both internal and external, to expense when incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company. The Company's research and

10


 

development expenses consist primarily of clinical trial expenses, consulting costs and stock-based compensation, and costs associated with required regulatory filings, licenses, and fees.

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations and comprehensive loss based on their fair values. The Company’s stock-based awards are subject only to service-based vesting conditions. The Company estimates the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends.

Prior to its IPO, the Company had based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. The Company believes the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of the Company.

The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees and utilizes the contractual term for options granted to non-employees. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options.

Compensation expense related to awards to employees is calculated on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term.

Derivative Instruments, Including Warrant Derivative Liabilities

The Company accounts for derivatives, specifically freestanding detachable stock purchase warrants, in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). This guidance establishes accounting and reporting principles for derivative instruments, including certain derivative instruments embedded in other contracts.

Net Loss Per Share

The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, redeemable convertible preferred stock prior to the Company's IPO and stock options to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

Income Taxes

Income taxes are recorded in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the condensed financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that some or all the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of March 31, 2022, and December 31, 2021, the Company does not have any significant uncertain tax positions. If the Company were to incur interest and penalties on uncertain tax positions, it would classify them as income tax expense.

The Company files U.S. federal and state income tax returns.

The Company did not record a current or deferred income tax expense or benefit for the three months ended March 31, 2022 and 2021, due to the Company’s net and comprehensive losses and increases in its deferred tax asset valuation allowance.

 

11


 

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the three months ended March 31, 2022, the Company’s only element of other comprehensive loss was unrealized losses on available-for-sale securities. Comprehensive loss for the three months ended March 31, 2021, equaled net loss for the period.

Litigation and Other Contingencies

The Company may be subject to legal proceedings and claims arising from the ordinary course of its business, including contract and employment claims. U.S. GAAP requires that a liability for contingencies be recorded when it is probable that a liability has occurred, and the amount of the liability can be reasonably estimated. In the opinion of management, the aggregate liability, if any, with respect to such ordinary course of business actions will not have a material adverse effect on the financial position or results of operations of the Company.

 

Reverse Stock Split

 

On December 30, 2021, the Company’s Board of Directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 3.4-for-1 reverse stock split of the Company’s common stock, which was effected on December 30, 2021. Stockholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares. The par value of the common stock was not adjusted as a result of the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the appropriate securities agreements. Shares of common stock reserved for issuance upon the conversion of our convertible preferred stock were proportionately reduced and the respective conversion prices were proportionately increased. All common share and per share data have been retrospectively revised including the three months ended March 31, 2021, to reflect the reverse stock split.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

3. Fair Value of Measurements

The following table represents the financial instruments measured at fair value on a recurring basis based on the fair value hierarchy at: