Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 11, 2023

August 31, 2021falseNovember 30, 20230001815776July 31, 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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, 2023

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: 001-40532

 

GRAPHITE BIO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-4867570

( State or other jurisdiction of

incorporation or organization)

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

201 Haskins Way, Suite 210

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 484-0886

 

 

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

 

GRPH

 

The Nasdaq Global Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 5, 2023, the registrant had 58,102,949 shares of common stock, $0.00001 par value per share, outstanding.

 

 


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”), including its section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or 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. Forward-looking statements in this Form 10-Q may include, but are not limited to, statements about:

our plans and expectations regarding strategic alternatives that could significantly impact our future operations and financial position, and the timing and success of such process;
the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;
the timing and likelihood of, and our ability to obtain and maintain, regulatory clearance of our Investigational New Drug (“IND”) applications for and regulatory approval of our product candidates;
estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional funding before we can expect to generate any revenue from product sales;
our ability to establish or maintain licenses, collaborations, partnerships or strategic relationships;
our ability to create and maintain a pipeline of product candidates;
our ability to advance any product candidate into, and successfully complete clinical trials;
our ability to obtain and maintain intellectual property protection for our current and future product candidates, the duration of such protection and our ability to operate our business without infringing on the intellectual property rights of others;
other implementation and effects of the restructuring initiative that we announced in February 2023 and any future restructuring plans that we may pursue;
our expectations regarding use of our cash, cash equivalents and investments in marketable securities;
our financial performance;
our ability to retain and recruit key personnel;
our competitive position and development of and projections relating to our competitors or our industry, including in gene editing and gene therapy;
the impacts of the ongoing COVID-19 pandemic and macroeconomic factors that could impact our business, such as supply chain and inflationary pressures and the effects of the Russian invasion of Ukraine on the global economy, on our business or operations
the impact of laws and regulations in the United States and foreign countries on various aspects of our operations, including our regulatory and clinical strategy; and
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

In some cases, forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.

The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q.

 


 

This Form 10-Q may include statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified the information contained in such sources.

We use various trademarks and trade names in our business, including without limitation our corporate name and logo. All other trademarks or trade names referred to in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q 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.

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

 

Condensed Balance Sheets

1

Condensed Statements of Operations and Comprehensive Loss

2

Condensed Statements of Stockholders’ Equity

3

Condensed Statements of Cash Flows

5

Notes to Condensed Financial Statements

6

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

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

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

 

i


 

Graphite Bio, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,811

 

 

$

47,730

 

Investments in marketable securities, current

 

 

194,285

 

 

 

220,499

 

Prepaid expenses and other current assets

 

 

6,211

 

 

 

7,136

 

Total current assets

 

 

270,307

 

 

 

275,365

 

Restricted cash

 

 

1,716

 

 

 

1,716

 

Investments in marketable securities, non-current

 

 

 

 

 

15,322

 

Property and equipment, net

 

 

33,070

 

 

 

22,630

 

Operating lease right-of-use assets

 

 

4,014

 

 

 

5,580

 

Other assets

 

 

889

 

 

 

1,289

 

Total assets

 

$

309,996

 

 

$

321,902

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,992

 

 

$

2,608

 

Accrued compensation

 

 

1,314

 

 

 

3,799

 

Accrued research costs

 

 

596

 

 

 

720

 

Accrued expenses and other current liabilities

 

 

7,317

 

 

 

1,871

 

Operating lease liabilities, current

 

 

3,122

 

 

 

4,045

 

Total current liabilities

 

 

14,341

 

 

 

13,043

 

Operating lease liabilities, non-current

 

 

1,419

 

 

 

1,749

 

Other long- term liabilities

 

 

18,012

 

 

 

10,819

 

Total liabilities

 

 

33,772

 

 

 

25,611

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.00001 par value, 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; and no shares issued and outstanding as of March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.00001 par value, 300,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 58,194,818 and 58,221,760 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

543,029

 

 

 

539,741

 

Accumulated other comprehensive loss

 

 

(469

)

 

 

(1,048

)

Accumulated deficit

 

 

(266,337

)

 

 

(242,403

)

Total stockholders’ equity

 

 

276,224

 

 

 

296,291

 

Total liabilities and stockholders’ equity

 

$

309,996

 

 

$

321,902

 

 

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

1


 

Graphite Bio, Inc.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

 

2023

 

 

2022

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

$

16,244

 

 

$

18,246

 

 

General and administrative

 

 

7,623

 

 

 

7,712

 

 

Restructuring costs

 

 

2,583

 

 

 

 

 

Total operating expenses

 

 

26,450

 

 

 

25,958

 

 

Loss from operations

 

 

(26,450

)

 

 

(25,958

)

 

Other income (expense), net:

 

 

 

 

 

 

 

Interest income, net

 

 

2,587

 

 

 

123

 

 

Loss on disposal of assets

 

 

(71

)

 

 

 

 

Total other income, net

 

 

2,516

 

 

 

123

 

 

Net loss

 

$

(23,934

)

 

$

(25,835

)

 

Unrealized gain (loss) on investments in marketable securities

 

 

579

 

 

 

(309

)

 

Comprehensive loss

 

$

(23,355

)

 

$

(26,144

)

 

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

 

$

(0.43

)

 

$

(0.48

)

 

Weighted-average shares used in computing net loss per share—basic and diluted

 

 

55,864,475

 

 

 

54,005,299

 

 

 

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

 

2


 

Graphite Bio, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

58,221,760

 

 

$

1

 

 

$

539,741

 

 

$

(1,048

)

 

$

(242,403

)

 

$

296,291

 

Vesting of early exercised shares

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Repurchase of unvested early exercised shares

 

 

(26,942

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,263

 

 

 

 

 

 

 

 

 

3,263

 

Unrealized gain on investments in marketable securities

 

 

 

 

 

 

 

 

 

 

 

579

 

 

 

 

 

 

579

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,934

)

 

 

(23,934

)

Balance at March 31, 2023

 

 

58,194,818

 

 

$

1

 

 

$

543,029

 

 

$

(469

)

 

$

(266,337

)

 

$

276,224

 

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

3


 

Graphite Bio, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

58,010,823

 

 

$

1

 

 

$

525,400

 

 

$

 

 

$

(141,351

)

 

$

384,050

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,342

 

 

 

 

 

 

 

 

 

3,342

 

Vesting of early exercised shares

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

51

 

Unrealized loss on investments in marketable securities

 

 

 

 

 

 

 

 

 

 

 

(309

)

 

 

 

 

 

(309

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,835

)

 

 

(25,835

)

Balance at March 31, 2022

 

 

58,010,823

 

 

$

1

 

 

$

528,793

 

 

$

(309

)

 

$

(167,186

)

 

$

361,299

 

 

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

4


 

Graphite Bio, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

 

(23,934

)

 

$

 

(25,835

)

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

 

 

 

 

 

 

 

 

Net amortization of premiums and discounts on investments in marketable securities

 

 

 

(1,562

)

 

 

 

45

 

Depreciation and amortization

 

 

 

654

 

 

 

 

440

 

Noncash lease expense

 

 

 

1,566

 

 

 

 

1,452

 

Stock-based compensation expense

 

 

 

3,263

 

 

 

 

3,342

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets and other assets

 

 

 

1,457

 

 

 

 

(71

)

Accounts payable

 

 

 

(591

)

 

 

 

582

 

Accrued compensation

 

 

 

(2,485

)

 

 

 

(1,666

)

Accrued research costs

 

 

 

(124

)

 

 

 

1,246

 

Accrued expenses and other current liabilities and other liabilities

 

 

 

1,935

 

 

 

 

323

 

Operating lease liabilities

 

 

 

(1,253

)

 

 

 

(1,098

)

Net cash used in operating activities

 

 

 

(21,074

)

 

 

 

(21,240

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

(383

)

 

 

 

(3,273

)

Purchases of investments in marketable securities

 

 

 

(28,129

)

 

 

 

(167,393

)

Proceeds from maturities of marketable securities

 

 

 

71,675

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

 

43,163

 

 

 

 

(170,666

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchase of unvested early exercised shares

 

 

 

(8

)

 

 

 

 

Net cash used in financing activities

 

 

 

(8

)

 

 

 

 

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

 

 

 

22,081

 

 

 

 

(191,906

)

Cash, cash equivalents and restricted cash, at beginning of period

 

 

 

49,446

 

 

 

 

378,692

 

Cash, cash equivalents and restricted cash, at end of period

 

$

 

71,527

 

 

$

 

186,786

 

Reconciliation of cash, cash equivalents and restricted cash to statement of financial position:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

69,811

 

 

 

 

185,070

 

Restricted cash

 

 

 

1,716

 

 

 

 

1,716

 

Cash, cash equivalents and restricted cash in statement of financial position

 

$

 

71,527

 

 

$

 

186,786

 

Supplemental disclosures of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

 

(4,655

)

 

$

 

(109

)

Lessor funded lease incentive additions included in property and equipment

 

$

 

7,193

 

 

$

 

 

Vesting of early exercised stock options

 

$

 

25

 

 

$

 

51

 

 

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

 


 

Graphite Bio, Inc.

Notes to Condensed Financial Statements

(unaudited)

1.
Description of Business, Organization and Liquidity

Organization and Business

Graphite Bio, Inc. (the “Company”) is a clinical-stage, next-generation gene editing company harnessing high-efficiency targeted gene integration to develop a new class of therapies to potentially cure a wide range of serious and life-threatening diseases. The Company’s precision gene editing approach aims to achieve one of medicine’s most elusive goals: to precisely “find & replace” any gene in the genome. The Company has a next-generation gene editing approach designed to allow the Company to precisely correct mutations, replace entire disease-causing genes with normal genes, or insert new genes into predetermined, safe locations.

In January 2023, the Company announced a voluntary pause of its Phase 1/2 CEDAR study of nulabeglogene autogedtemcel (nula-cel), the Company’s lead product candidate for sickle cell disease (SCD), due to a serious adverse event in the first patient dosed, which the Company concluded is likely related to study treatment. Nula-cel was designed to provide a highly differentiated approach with the potential to directly correct the mutation that causes SCD and restore normal adult hemoglobin (HgbA) expression.

In February 2023, the Company announced its decision to discontinue the development of nula-cel and initiate a process to explore strategic alternatives. As a result of this decision, the Company announced a corporate restructuring that will result in an approximately 50% reduction in workforce. The Company also disclosed its intention to continue research activities associated with its early-stage non-genotoxic conditioning program, with the goal of advancing toward one or more potential development candidates.

From its inception in 2017, the Company’s primary activities have been to perform research and development, undertake preclinical studies and enable manufacturing activities in support of its product development efforts, organize and staff the Company, establish its intellectual property portfolio, and raise capital to support and expand such activities.

The Company was incorporated in Ontario, Canada in June 2017 as Longbow Therapeutics Inc., and was reincorporated in the State of Delaware in October 2019. In February 2020, the Company changed its name to Integral Medicines, Inc., and again in August 2020, changed the name to Graphite Bio, Inc. Research and development of the Company’s initial technology ceased at the end of 2018, and the Company did not have any significant operations or any research and development activities in 2019. In March 2020, the Company identified new gene editing technology which the Company sought to further develop, and the Company licensed the related intellectual property rights from The Board of Trustees of the Leland Stanford Junior University (“Stanford”) in December 2020 (Note 6).

Liquidity Matters

The Company has incurred significant operating losses since inception and has primarily relied on private equity and convertible debt financings to fund its operations. As of March 31, 2023, the Company had an accumulated deficit of $266.3 million. The Company expects to continue to incur substantial losses, and its transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support its cost structure. The Company may never achieve profitability, and unless and until then, the Company will need to continue to raise additional capital. Management expects that the existing cash, cash equivalents, and marketable securities of $264.1 million as of March 31, 2023 will be sufficient to fund the Company’s current operating plan for at least the next 12 months from the date of issuance of these unaudited condensed financial statements.

On July 21, 2022, the Company filed a shelf registration statement on Form S-3 (the “2022 Shelf”) with the SEC in relation to the registration of up to an aggregate offering price of $300.0 million of common stock, preferred stock, debt securities, warrants and units or any combination thereof. The Company also simultaneously entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (the “Sales Agent”), to provide for the offering, issuance and sale by the Company of up to an aggregate of $75.0 million of its common stock from time to time in “at-the-market” offerings under the 2022 Shelf and subject to the limitations thereof (the “Sales Agreement”). The Company will pay to the Sales Agent cash commissions of up to 3.0 percent of the gross proceeds of sales of common stock under the Sales Agreement. The Company has not issued any shares or received any proceeds from any offerings under the 2022 Shelf through May 11, 2023.

2. Summary of Significant Accounting Policies

Basis of Presentation

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

6


 

Unaudited Interim Condensed Financial Statements

The interim condensed balance sheet as of March 31, 2023 and the condensed statements of operations and comprehensive loss and stockholders’ equity for the three months ended March 31, 2023 and 2022 and the condensed statements of cash flows for the three months ended March 31, 2023 and 2022 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of March 31, 2023 and its results of operations and cash flows for the three months ended March 31, 2023 and 2022. The financial data and the other financial information disclosed in these notes to the financial statements related to the three month periods are also unaudited. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. These condensed financial statements should be read in conjunction with the Company's audited financial statements and the related notes thereto for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the SEC.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed financial statements for the three months ended March 31, 2023 are consistent with those discussed in Note 2 to the condensed financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, except as noted below and within the “Adopted and Recently Issued Accounting Pronouncements” section.

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, the disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates estimates and assumptions, including but not limited to those related to the fair value of the marketable securities, stock-based compensation expense, accruals for research and development costs, lease assets and liabilities, the valuation of deferred tax assets, and uncertain income tax positions. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. As of March 31, 2023 and December 31, 2022, cash and cash equivalents consisted of cash, money market funds, and commercial paper.

Restricted Cash

Restricted cash of $1.7 million as of March 31, 2023 and December 31, 2022 represented security deposits in the form of letters of credit issued in connection with the leases of the Company’s headquarters (Notes 6 and 8).

Marketable Securities

The Company’s marketable securities are accounted for as available-for-sale and recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive gain (loss).

The Company reviews its investment portfolio to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Operating Leases

The Company accounts for its operating leases by recording right-of-use assets and lease liabilities on the Company’s condensed balance sheets in accordance with Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). Right-of-use assets represent the Company’s right to use an underlying asset over the lease term and include any lease payments made prior to the lease commencement date and are reduced by lease incentives. Lease liabilities represent the present value of the total lease payments over the lease term, calculated using the Company’s incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. The Company recognizes options to extend a lease when it is reasonably certain that it will exercise such extension. The Company does not recognize options to terminate a lease when it is reasonably certain that it will not exercise such early termination options. Lease expense is recognized on a straight-line basis over the expected lease term.

7


 

Adopted and Recently Issued Accounting Pronouncements

The Company is a smaller reporting company and an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Thus, the Company has elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) the Company is no longer an emerging growth company or (ii) the Company affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. However as described below, the Company early adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies to the extent early adoption is permitted.

3. Fair Value Measurements

Assets and liabilities recorded at fair value on a recurring basis in the condensed balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized 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.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. The Company recognizes transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs.

As of March 31, 2023 and December 31, 2022, Level 1 securities consist of U.S. Treasury and money market funds, for which the carrying amounts are based on the quoted market prices in active markets.

As of March 31, 2023 and December 31, 2022, Level 2 securities consist of highly rated commercial paper, U.S. agency securities, and asset-backed securities, for which fair value is determined through the use of models or other valuation methodologies. The Company had an immaterial amount of unrealized gains on its Level 2 securities as of March 31, 2023 and December 31, 2022.

During the periods presented, the Company did not have any Level 3 securities.

8


 

The following tables set forth the financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022 (in thousands):

 

 

March 31, 2023

 

 

 

Total Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

65,819

 

 

$

65,819

 

 

$

 

 

$

 

Commercial paper (1)

 

 

3,992

 

 

 

 

 

 

3,992

 

 

 

 

Total cash equivalents

 

 

69,811

 

 

 

65,819

 

 

 

3,992

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries(2)

 

 

25,814

 

 

 

25,814

 

 

 

 

 

 

 

Commercial paper(2)

 

 

112,910

 

 

 

 

 

 

112,910

 

 

 

 

U.S. agency securities(2)

 

 

53,628

 

 

 

 

 

 

53,628

 

 

 

 

Asset-backed securities(2)

 

 

1,933

 

 

 

 

 

 

1,933

 

 

 

 

Total marketable securities

 

 

194,285

 

 

 

25,814

 

 

 

168,471

 

 

 

 

Total cash equivalents and marketable securities

 

$

264,096

 

 

$

91,633

 

 

$

172,463

 

 

$

 

 

 

 

December 31, 2022

 

 

 

Total Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

45,739

 

 

$

45,739

 

 

$

 

 

$

 

Commercial paper (1)

 

 

1,991

 

 

 

 

 

 

1,991

 

 

 

 

Total cash equivalents

 

 

47,730

 

 

 

45,739

 

 

 

1,991

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries(2)

 

 

65,391

 

 

 

65,391