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 June 30, 2023

OR

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

 

Commission File Number: 001-40881

 

Pyxis Oncology, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

83-1160910

(State or other jurisdiction of

incorporation or organization)

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

321 Harrison Avenue

Boston, Massachusetts

02118

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 221-9059

 

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 $0.001 per share

 

PYXS

 

Nasdaq Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of August 10, 2023, the registrant had 39,526,842 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

Summary Risk Factors

1

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2023 and 2022

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2023 and 2022

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

19

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

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

83

Item 6.

Exhibits

84

Signatures

85

i


 

SUMMARY RISK FACTORS

You should consider carefully the risks described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. References to “Pyxis Oncology,” the “Company,” “we,” “us,” and “our” in this section titled “Summary Risk Factors” refer to Pyxis Oncology, Inc. and its wholly owned subsidiary. A summary of the risks that could materially and adversely affect our business, financial condition, operating results and prospects include the following:

We are a clinical stage biopharmaceutical company with a limited operating history and have incurred significant losses since our inception. We expect to incur losses over at least the next several years and may never achieve or maintain profitability.
We will require substantial additional capital to finance our operations, obtain regulatory approval for our product candidates, and commercialize our product candidates. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and product development programs or future commercialization efforts.
We are heavily dependent on the success of PYX-201 and PYX-106, which are in the early stages of development, and if PYX-201 and/or PYX-106 are not successful in clinical trials or do not receive regulatory approval or licensure or are not successfully commercialized, our business will be materially and adversely affected.
We may be unable to complete pending strategic acquisitions or successfully integrate strategic acquisitions which could adversely affect our business and financial condition.
Our product candidates may fail in development or suffer delays that materially and adversely affect their commercial viability. If we or our existing or future collaborators are unable to initiate and complete clinical development of, obtain regulatory approval or licensure for or commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.
Our preclinical studies and clinical trials may fail to demonstrate adequately the safety, purity and potency of any of our product candidates, which would prevent or delay development, regulatory approval or licensure and commercialization.
Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approval or licensure or commercialize these programs on a timely basis or at all.
We face competition from entities that have developed or may develop product candidates for cancer, including companies developing novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or if their technologies are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected.
Clinical testing and product development is a lengthy and expensive process with an uncertain outcome. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the clinical testing and the development and commercialization of our product candidates.
The regulatory licensure and approval processes of the FDA and other comparable regulatory authorities are lengthy, time-consuming and inherently unpredictable and, if we are ultimately unable to obtain marketing licensure or approval for our product candidates, our business will be substantially harmed.
If we fail to attract and retain qualified senior management and key scientific personnel, our business may be materially and adversely affected.

 

1


 

We rely on third parties to manufacture our product candidates. Any failure by a third party manufacturer to produce acceptable raw materials or product candidates for us or to obtain authorization from the FDA or comparable foreign regulatory authorities relating thereto may delay or impair our ability to initiate or complete our clinical trials, obtain regulatory licensure or approvals or commercialize approved products.
If we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, or if our patents are insufficient to protect our product candidates for an adequate amount of time, or if we are unable to obtain adequate protection for our proprietary know-how, we may not be able to compete effectively in our markets.
If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates or we could lose certain rights to grant sublicenses.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach our University of Chicago, Pfizer Inc., or Pfizer, or Biosion USA, Inc., or Biosion, license agreements or any of the other agreements under which we acquired, or will acquire, intellectual property rights covering our product candidates, we could lose the ability to continue the development and commercialization of the related product candidate(s).
We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, a disruption of our business operations, including our clinical trials, harm to our reputation, and other adverse effects on our business or prospects.
Our internal computer systems, or those of any of our existing or future contract research organizations, or CROs, manufacturers, other contractors, consultants, or collaborators, may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of or destruction of our proprietary and confidential data, employee data or personal data, which could result in additional costs, significant liabilities, harm to our reputation and material disruption of our operations.
If the market opportunities for any product that we develop are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PYXIS ONCOLOGY, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,898

 

 

$

179,293

 

Marketable debt securities, short-term

 

 

116,765

 

 

 

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Prepaid expenses and other current assets

 

 

5,169

 

 

 

5,847

 

Total current assets

 

 

149,304

 

 

 

186,612

 

Property and equipment, net

 

 

12,643

 

 

 

11,165

 

Operating lease right-of-use assets

 

 

13,283

 

 

 

13,602

 

Total assets

 

$

175,230

 

 

$

211,379

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,305

 

 

$

7,097

 

Accrued expenses and other current liabilities

 

 

7,393

 

 

 

24,537

 

Operating lease liabilities, current portion

 

 

527

 

 

 

 

Total current liabilities

 

 

9,225

 

 

 

31,634

 

Operating lease liabilities, net of current portion

 

 

20,730

 

 

 

18,921

 

Total liabilities

 

 

29,955

 

 

 

50,555

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.001 per share, 10,000,000 shares authorized; zero shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value per share; 190,000,000 shares authorized; 39,414,292 and 35,110,016 shares issued as of June 30, 2023 and December 31, 2022, respectively, 39,376,941 and 34,958,730 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

39

 

 

 

34

 

Additional paid-in capital

 

 

392,900

 

 

 

373,225

 

Accumulated other comprehensive loss

 

 

(85

)

 

 

 

Accumulated deficit

 

 

(247,579

)

 

 

(212,435

)

Total stockholders’ equity

 

 

145,275

 

 

 

160,824

 

Total liabilities and stockholders’ equity

 

$

175,230

 

 

$

211,379

 

 

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

3


 

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,391

 

 

$

17,170

 

 

$

23,292

 

 

$

37,241

 

General and administrative

 

 

6,730

 

 

 

8,556

 

 

 

15,783

 

 

 

19,874

 

Total operating expenses

 

 

18,121

 

 

 

25,726

 

 

 

39,075

 

 

 

57,115

 

Loss from operations

 

 

(18,121

)

 

 

(25,726

)

 

 

(39,075

)

 

 

(57,115

)

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and investment income

 

 

1,656

 

 

 

164

 

 

 

3,329

 

 

 

173

 

Sublease income

 

 

564

 

 

 

 

 

 

602

 

 

 

 

Total other income, net

 

 

2,220

 

 

 

164

 

 

 

3,931

 

 

 

173

 

Net loss

 

$

(15,901

)

 

$

(25,562

)

 

$

(35,144

)

 

$

(56,942

)

Net loss per common share - basic and diluted

 

$

(0.41

)

 

$

(0.79

)

 

$

(0.95

)

 

$

(1.76

)

Weighted average shares of common stock outstanding - basic and diluted

 

 

38,389,123

 

 

 

32,451,610

 

 

 

36,878,787

 

 

 

32,384,522

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on marketable debt securities

 

 

(781

)

 

 

 

 

 

(85

)

 

 

 

Other comprehensive loss

 

 

(781

)

 

 

 

 

 

(85

)

 

 

 

Comprehensive loss

 

$

(16,682

)

 

$

(25,562

)

 

$

(35,229

)

 

$

(56,942

)

 

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

4


 

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income/(Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

34,958,730

 

 

$

34

 

 

$

373,225

 

 

$

 

 

$

(212,435

)

 

$

160,824

 

Issuance of common stock to Pfizer Inc. (Refer to Note 6)

 

 

1,811,594

 

 

 

2

 

 

 

4,998

 

 

 

 

 

 

 

 

 

5,000

 

Vesting of restricted common stock

 

 

148,047

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,884

 

 

 

 

 

 

 

 

 

4,884

 

Net unrealized gains/(losses) on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

696

 

 

 

 

 

 

696

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,243

)

 

 

(19,243

)

Balance at March 31, 2023

 

 

36,918,371

 

 

$

37

 

 

$

383,108

 

 

$

696

 

 

$

(231,678

)

 

$

152,163

 

Shares issued pursuant to at-the-market ("ATM") program, net of commission

 

 

1,001,208

 

 

 

1

 

 

 

6,121

 

 

 

 

 

 

 

 

 

6,122

 

Stock options exercised

 

 

20,496

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Vesting of restricted common stock

 

 

1,436,866

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,668

 

 

 

 

 

 

 

 

 

3,668

 

Net unrealized gains/(losses) on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

(781

)

 

 

 

 

 

(781

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,901

)

 

 

(15,901

)

Balance at June 30, 2023

 

 

39,376,941

 

 

$

39

 

 

$

392,900

 

 

$

(85

)

 

$

(247,579

)

 

$

145,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income/(Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

32,222,881

 

 

$

32

 

 

$

352,999

 

 

$

 

 

$

(91,718

)

 

$

261,313

 

Stock options exercised

 

 

51,118

 

 

 

 

 

 

176

 

 

 

 

 

 

 

 

 

176

 

Vesting of restricted common stock

 

 

100,908

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,404

 

 

 

 

 

 

 

 

 

3,404

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,380

)

 

 

(31,380

)

Balance at March 31, 2022

 

 

32,374,907

 

 

$

32

 

 

$

356,580

 

 

$

 

 

$

(123,098

)

 

$

233,514

 

Stock options exercised

 

 

13,720

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Vesting of restricted common stock

 

 

95,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,013

 

 

 

 

 

 

 

 

 

4,013

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,562

)

 

 

(25,562

)

Balance at June 30, 2022

 

 

32,483,883

 

 

$

32

 

 

$

360,594

 

 

$

 

 

$

(148,660

)

 

$

211,966

 

 

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

5


 

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Cash Flows (In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(35,144

)

 

$

(56,942

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

714

 

 

 

317

 

Stock-based compensation

 

 

8,552

 

 

 

7,417

 

Non-cash lease expense

 

 

319

 

 

 

548

 

Accretion of discount on marketable debt securities

 

 

(1,867

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

678

 

 

 

698

 

Accounts payable

 

 

(2,313

)

 

 

(4,131

)

Accrued expenses and other current liabilities

 

 

(11,147

)

 

 

504

 

Operating lease liabilities

 

 

2,336

 

 

 

198

 

Net cash used in operating activities

 

 

(37,872

)

 

 

(51,391

)

Investing activities

 

 

 

 

 

 

Redemption of marketable debt securities

 

 

15,193

 

 

 

 

Purchase of marketable debt securities

 

 

(130,176

)

 

 

 

Purchase of property and equipment

 

 

(6,665

)

 

 

(275

)

Net cash used in investing activities

 

 

(121,648

)

 

 

(275

)

Financing activities

 

 

 

 

 

 

Proceeds from shares issued under ATM, net of commission

 

 

6,122

 

 

 

 

Proceeds from the exercise of stock options

 

 

3

 

 

 

177

 

Net cash provided by financing activities

 

 

6,125

 

 

 

177

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(153,395

)

 

 

(51,489

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

180,765

 

 

 

276,316

 

Cash, cash equivalents and restricted cash at end of period

 

$

27,370

 

 

$

224,827

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash received for interest

 

$

1,407

 

 

$

157

 

Cash paid for taxes

 

$

48

 

 

$

 

Noncash investing and financing activities:

 

 

 

 

 

 

Property and equipment in accounts payable and accrued expenses

 

$

3

 

 

$

 

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

(15,319

)

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,898

 

 

$

223,355

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Total cash, cash equivalents and restricted cash shown in the statement of
   cash flows

 

$

27,370

 

 

$

224,827

 

 

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

6


 

PYXIS ONCOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Nature of Business

Pyxis Oncology, Inc. (the “Company”), a Delaware corporation, was founded in June 2018 and launched its operations in July 2019. The Company is a clinical stage company focused on defeating difficult-to-treat cancers. The Company is efficiently building next-generation therapeutics that hold the potential for mono and combination therapies. The Company's therapeutic candidates are designed to directly kill tumor cells and to address the underlying pathologies created by cancer that enable its uncontrollable proliferation and immune evasion. The Company's antibody-drug conjugates ("ADCs") and immuno-oncology ("IO") programs employ novel and emerging strategies to target a broad range of solid tumors resistant to current standards of care.

The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of assessing performance and allocating resources.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company’s fiscal year ends on December 31 and its first three fiscal quarters end on March 31, June 30 and September 30. The accompanying condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 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”).

In the opinion of management, the unaudited condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair statement of results for the interim periods. The results for the three and six months ended June 30, 2023 are not necessarily indicative of those expected for the year ending December 31, 2023 or for any future period. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023.

Liquidity

As of June 30, 2023, the Company had an accumulated deficit of $247.6 million. The Company has incurred losses and negative cash flows from operations since inception, including net losses of $35.1 million and $56.9 million for the six months ended June 30, 2023 and 2022, respectively.

The Company has not generated any revenue to date and does not anticipate generating any revenues unless and until it successfully completes development and obtains regulatory approval for its current or any future product candidates. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future as the Company continues to expand its research and development programs and develop its product candidates.

The Company currently expects that its existing cash, cash equivalents and short-term investments of $142.7 million as of June 30, 2023 will fund its operating expenses and capital requirements at least twelve months from the date these unaudited consolidated financial statements are issued. Additional funding may be necessary to fund future clinical and preclinical activities.

The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity, convertible or debt financing or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.

 

7


 

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expense, and related disclosures. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, operating leases, assessment of the useful lives of property and equipment, marketable debt securities, and research and development costs, including clinical trial accruals. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes 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 could differ from those estimates and there may be changes to management’s estimates in future periods.

Risks and Uncertainties

The Company is subject to risks common to early-stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, dependence on key suppliers for active ingredients and third-party service providers such as contract research and manufacturing organizations, protection of intellectual property rights and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements.

Concentration of Credit Risks

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents, restricted cash and short-term investments.

The Company invests its excess cash primarily in money market funds and highly liquid U.S. Treasury securities. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity.

Significant Accounting Policies

Other than the new accounting policy for "Investments", detailed below, there have been no other changes to the Company’s significant accounting policies disclosed in “Note 2 – Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023.

Investments

Short-term investments consist of U.S. Treasury securities with original maturities greater than three months. The Company may sell investments at any time for use in current operations even if the investments have not yet reached maturity. As a result, the Company classifies its investments as current assets. All investments have been classified as available-for-sale marketable debt securities. Marketable debt securities are recorded at fair value, with unrealized gains and losses, net of tax, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit) and a component of total comprehensive loss in the condensed consolidated statements of operations and comprehensive loss, until realized. The fair value of these securities is determined based upon quoted market prices or pricing models for similar securities at period end. Premiums paid or discounts received at the time of purchase of marketable securities, are amortized to interest and investment income over the terms of the related securities. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

At each reporting date the Company will evaluate available-for-sale marketable debt securities in an unrealized loss position, using the discounted cash flow model, to determine whether the unrealized loss or any potential credit losses should be recognized in net loss. For available-for-sale marketable debt securities in an unrealized loss position, the Company will assess (i) whether it intends to sell, or (ii) it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If the aforementioned criteria is met, such marketable debt security’s amortized cost basis will be written down to its fair value through earnings along with any existing allowance for credit losses. For available-for-sale marketable debt securities that do not meet this criteria, the Company will evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the severity of the impairment, any changes in interest rates, underlying credit ratings, and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded as an allowance in interest income.

There have been no impairment or credit losses recognized during the periods presented in the accompanying condensed consolidated statements of operations and comprehensive loss.

 

8


 

Recently Adopted Accounting Pronouncements</