Non-accelerated 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Table of Contents

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 September 30, 2021

OR

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

For the transition period from _______ to _______

Commission File Number: 001-39712

OLEMA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

30-0409740

(State or other jurisdiction of

incorporation or organization)

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

512 2nd Street, 4th Floor

San Francisco, CA

94107

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 243-5555

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

Title of Each Class of Securities Registered

Trading Symbol

Name of Each Exchange on which Securities are Registered

Common Stock, par value $0.0001 per share

OLMA

The Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of November 5, 2021, the registrant had 40,287,641 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Table of Contents

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

Page

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations and Comprehensive Loss

4

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

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

Item 4. Controls and Procedures

33

PART II. OTHER INFORMATION

34

Item 1. Legal Proceedings

34

Item 1A. Risk Factors

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

101

Item 3. Defaults Upon Senior Securities

101

Item 4. Mine Safety Disclosures

101

Item 5. Other Information

101

Item 6. Exhibits

102

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Olema Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except per share amounts)

September 30, 

December 31, 

2021

2020

Assets

Current assets:

Cash and cash equivalents

    

$

25,597

    

$

338,549

Marketable securities

280,357

Prepaid expenses and other current assets

 

2,326

 

3,588

Total current assets

 

308,280

 

342,137

Property and equipment, net

 

975

 

75

Other assets

 

540

 

510

Total assets

$

309,795

$

342,722

Liabilities and stockholders equity

Current liabilities:

Accounts payable

$

306

$

719

Other current liabilities

8,595

 

3,866

Total current liabilities

8,901

 

4,585

Total liabilities

8,901

 

4,585

Commitments and contingencies (Note 11)

Stockholders equity:

Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of September 30, 2021 and December 31, 2020; no shares issued and outstanding as of September 30, 2021 and December 31, 2020.

Common stock, $0.0001 par value; 490,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 40,277,390 and 40,169,738 shares issued as of September 30, 2021 and December 31, 2020, respectively; 39,681,298 and 39,308,238 shares outstanding as of September 30, 2021 and December 31, 2020, respectively.

3

 

3

Additional paid-in capital

383,428

 

371,228

Accumulated other comprehensive income

15

Accumulated deficit

(82,552)

 

(33,094)

Total stockholders equity

300,894

 

338,137

Total liabilities and stockholders equity

$

309,795

$

342,722

See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents

Olema Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2021

    

2020

2021

    

2020

Operating expenses:

Research and development

    

$

12,523

    

$

4,673

    

$

35,125

    

$

7,415

General and administrative

 

5,239

3,195

 

14,609

 

3,982

Total operating expenses

 

17,762

7,868

 

49,734

 

11,397

Loss from operations

 

(17,762)

(7,868)

 

(49,734)

 

(11,397)

Other income (expense):

 

  

 

 

  

Interest income

 

105

23

 

333

 

59

Interest expense

 

 

 

(653)

Other income (expense)

(56)

1

(57)

1

Total other income (expense), net

 

49

24

 

276

 

(593)

Net loss

$

(17,713)

$

(7,844)

$

(49,458)

$

(11,990)

Repurchase and retirement of Series A and Series A-1 convertible preferred stock

(1,869)

(1,869)

Net loss attributable to common stockholders

$

(17,713)

$

(9,713)

$

(49,458)

$

(13,859)

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

$

(0.45)

$

(3.71)

$

(1.25)

$

(5.29)

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

 

39,607,745

2,617,543

 

39,450,655

 

2,617,543

Three Months Ended September 30, 

Nine Months Ended September 30, 

2021

    

2020

2021

    

2020

Net loss

$

(17,713)

$

(7,844)

$

(49,458)

$

(11,990)

Other comprehensive income:

Net unrealized gain on marketable securities

29

15

Total comprehensive loss

$

(17,684)

$

(7,844)

$

(49,443)

$

(11,990)

See accompanying notes to the condensed consolidated financial statements.

4

Table of Contents

Olema Pharmaceuticals, Inc.

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

(In thousands)

Accumulated

Convertible

Additional

Other

Total

Preferred Stock

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income (Loss)

Deficit

    

Equity

Balances at June 30, 2021

$

39,552,588

$

3

$

378,934

$

(14)

$

(64,839)

$

314,084

Vesting of early exercised stock options

 

 

 

58,639

 

 

280

 

 

280

Vesting of restricted stock awards

 

 

 

49,318

 

 

 

 

Exercise of stock options

20,753

57

57

Issuance of shares under the employee stock purchase plan

Stock-based compensation expense

 

 

 

 

 

4,125

 

 

4,125

Employee stock purchase plan expense

 

 

 

 

 

32

 

 

32

Net unrealized gain on marketable securities

29

29

Net loss

(17,713)

(17,713)

Balances at September 30, 2021

 

 

$

 

39,681,298

 

$

3

 

$

383,428

 

$

15

$

(82,552)

 

$

300,894

Accumulated

Convertible

Additional

Other

Total

Preferred Stock

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balances at December 31, 2020

$

39,308,238

$

3

$

371,228

$

$

(33,094)

$

338,137

Vesting of early exercised stock options

 

 

 

72,618

 

 

341

 

 

341

Vesting of restricted stock awards

 

 

 

192,790

 

 

 

 

Exercise of stock options

83,767

187

187

Issuance of shares under the employee stock purchase plan

23,885

386

386

Stock-based compensation expense

 

 

 

 

 

11,140

 

 

11,140

Employee stock purchase plan expense

 

 

 

 

 

146

 

 

146

Net unrealized gain on marketable securities

15

15

Net loss

(49,458)

(49,458)

Balances at September 30, 2021

 

 

$

 

39,681,298

 

$

3

 

$

383,428

 

$

15

$

(82,552)

 

$

300,894

Convertible

Additional

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Deficit

Balances at June 30, 2020

16,067,762

$

63,004

2,593,316

$

$

956

$

(14,908)

$

(13,952)

Issuance costs of Series B convertible stock

(12)

Repurchase and retirement of Series A and Series A-1 convertible preferred stock

(206,821)

(420)

(1,658)

(211)

(1,869)

Issuance of Series C convertible preferred stock, net of issuance costs of $1,637

7,904,135

85,801

Exercise of stock options

239,055

120

120

Vesting of restricted stock awards

26,901

Stock-based compensation expense

582

582

Net loss

(7,844)

(7,844)

Balances at September 30, 2020

23,765,075

$

148,373

2,859,272

$

$

$

(22,963)

$

(22,963)

Convertible

Additional

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Deficit

Balances at December 31, 2019

4,628,215

$

9,348

2,593,316

$

$

168

$

(10,762)

$

(10,594)

Beneficial conversion option recognized upon issuance of 2020 convertible notes

1,054

1,054

Beneficial conversion option recognized upon repurchase of 2020 convertible notes on settlement date

(2,568)

(2,568)

Extinguishment of 2020 convertible notes

2,148

2,148

Issuance of Series B convertible stock, net of issuance costs of $256

10,801,277

50,637

Issuance of Series B convertible preferred stock in connection with the conversion of convertible notes

638,270

3,007

Repurchase and retirement of Series A and Series A-1 convertible preferred stock

(206,821)

(420)

(1,658)

(211)

(1,869)

Issuance of Series C convertible preferred stock, net of issuance costs of $1,637

7,904,135

85,801

Exercise of stock options

239,055

120

120

Vesting of restricted stock awards

26,901

Stock-based compensation expense

736

736

Net loss

(11,990)

(11,990)

Balances at September 30, 2020

23,765,075

$

148,373

2,859,272

$

$

$

(22,963)

$

(22,963)

See accompanying notes to the condensed consolidated financial statements.

5

Table of Contents

Olema Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2021

    

2020

Cash flows from operating activities:

Net loss

$

(49,458)

$

(11,990)

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

 

 

Depreciation and amortization expense

 

90

 

7

Non-cash interest expense

 

 

641

Premium amortization and discount accretion on marketable securities, net

220

Stock-based compensation expense, including employee stock purchase plan expense

 

11,286

 

736

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets and other assets

 

1,232

 

(1,321)

Accounts payable

(527)

(839)

Other current liabilities

 

5,070

 

1,913

Net cash used in operating activities

 

(32,087)

 

(10,853)

Cash flows from investing activities:

 

 

Purchase of equipment

 

(876)

 

(5)

Maturities of marketable securities

186,449

Purchases of marketable securities

(467,011)

Net cash used in investing activities

 

(281,438)

 

(5)

Cash flows from financing activities:

 

 

Proceeds from exercise of stock options

187

640

Proceeds from issuance of common stock under employee stock purchase plan

386

Proceeds from the issuance of convertible notes

 

 

3,000

Proceeds from issuance of Series B convertible preferred stock, net of issuance costs

 

 

50,637

Proceeds from issuance of Series C convertible preferred stock, net of issuance costs

87,427

Repurchase of shares of Series A and Series A-1 convertible preferred stock

(2,289)

Proceeds from the settlement of non-recourse notes

88

Payments of costs related to initial public offering

(889)

Net cash provided by financing activities

 

573

 

138,614

Net (decrease) increase in cash and cash equivalents

 

(312,952)

 

127,756

Cash and cash equivalents at beginning of period

 

338,549

 

68

Cash and cash equivalents at end of period

 

$

25,597

$

127,824

Supplemental disclosure of non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable

$

114

$

Conversion of convertible notes into Series B convertible preferred stock

$

$

3,007

Deferred offering costs included in other current liabilities

$

$

587

Series C convertible preferred stock issuance costs included in other current liabilities

$

$

1,626

Vesting of early exercised stock options

$

341

$

10

See accompanying notes to the condensed consolidated financial statements.

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Olema Pharmaceuticals, Inc.

Notes to condensed consolidated financial statements

(Unaudited)

1.

Nature of the Business and Basis of Presentation

Olema Pharmaceuticals Inc. (“Olema” or the “Company”) is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of next-generation targeted therapies for women’s cancers. The Company is initially focused on developing therapies for the treatment of breast cancer. The Company’s wholly owned, lead product candidate, OP-1250, is a novel oral therapy with combined activity as both a complete estrogen receptor (“ER”) antagonist (“CERAN”) and a selective ER degrader (“SERD”). The Company is currently evaluating OP-1250 in a Phase 1/2 dose escalation and expansion trial for the treatment of recurrent, locally advanced or metastatic estrogen receptor-positive (“ER+”), human epidermal growth factor receptor 2-negative (“HER2-”) breast cancer.

The Company is located in San Francisco, California and was incorporated in Delaware on August 7, 2006 under the legal name of CombiThera, Inc. and on March 25, 2009 was renamed Olema Pharmaceuticals, Inc. The Company’s principal operations are based in San Francisco, California, and it operates in one business segment and therefore has only one reportable segment. The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, successful discovery and development of its product candidates, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations, the impact of COVID-19, the ability to secure additional capital to fund operations and commercial success of its product candidates. OP-1250 and any future product candidates the Company may develop will require extensive nonclinical 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 product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Initial Public Offering

In November 2020, the Company completed the initial public offering of its common stock (“IPO”). In connection with its IPO, the Company issued and sold 12,650,000 shares of its common stock, at a price to the public of $19.00 per share. As a result of the IPO, the Company received $220.6 million in net proceeds, after deducting underwriting discounts and commissions and offering costs of $19.8 million.

Upon the closing of the IPO, 23,765,075 shares of outstanding convertible preferred stock were automatically converted into 23,765,075 shares of common stock with the related carrying value of $148.3 million reclassified to common stock and additional paid-in capital. In connection with the IPO, the Company amended and restated its amended and restated certificate of incorporation to change the authorized capital stock to 490,000,000 shares designated as common stock and 10,000,000 shares designated as preferred stock, all with a par value of $0.0001 per share.

Liquidity

The Company had $306.0 million of cash, cash equivalents and marketable securities at September 30 2021, which management believes is sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the filing date of these condensed consolidated financial statements.

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Impact of COVID-19

The extent of the impact of the COVID-19 pandemic on the Company’s business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration of the outbreak and its impact on the Company’s development activities, planned clinical trial enrollment, future trial sites, clinical research organizations (“CROs”), third-party manufacturers, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. During 2020, although the Company modified its operations and practices due to the COVID-19 pandemic and to comply with federal, state and local requirements, its business, operations and development timelines were not material adversely affected. However, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and development timelines and plans in the future, including the resulting impact on its expenditures and capital needs, remains uncertain.

2.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United Stated (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements include the accounts of Olema Pharmaceuticals, Inc. and its wholly-owned subsidiary, Olema Oncology Australia Pty Ltd incorporated on January 6, 2021. All intercompany balances and transactions have been eliminated upon consolidation.

Unaudited Interim Financial Information

The interim condensed consolidated balance sheet as of September 30, 2021, the statements of operations and comprehensive loss, and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated 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 presentation of the Company’s condensed consolidated financial statements included in this report. The financial data and the other information disclosed in these notes to the condensed consolidated financial statements related to the three- and nine-month periods are also unaudited. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K as filed with the SEC on March 17, 2021.

Use of Estimates

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of expenses during the reporting period. Significant areas that require management’s estimates include accruals of research and development expenses, including accrual of research contract costs, share-based compensation assumptions, and fair value of common stock and convertible preferred stock prior to the IPO. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various

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other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase. Cash deposits are all in reputable financial institutions in the United States and as of September 30, 2021 and December 31, 2020, cash and cash equivalents consisted of cash on deposit with U.S. banks denominated in U.S. dollars and investments in interest bearing money market funds.

Marketable Securities

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such designation as of each balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific-identification method. Interest earned on marketable securities is included in interest income.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, and marketable securities. The Company invests in a variety of financial instruments and, by its policy, limits these financial instruments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. The Company’s cash, cash equivalents, and marketable securities are held by financial institutions in the United States that management believes are of high credit quality. Amounts on deposit with individual banking institutions may at times exceed the limits insured by the Federal Deposit Insurance Corporation (“FDIC”); however, the Company has not experienced any losses on such deposits.

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current and potential future product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration (“FDA”) and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company were denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop product candidates. These costs are recorded within research and development expenses in the condensed consolidated statements of operations and include personnel expenses, stock-based compensation expenses, allocated general and administrative expenses, and external costs including fees paid to consultants, CROs and contract manufacturing organizations (“CMOs”), in

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connection with nonclinical studies and clinical trials, and other related clinical trial fees, such as for investigator fees, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed.

Research Contract Costs and Accruals

The Company has from time to time entered into various research and development and other agreements with commercial firms, researchers, universities and others for provisions of goods and services. These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred.

The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the projects, studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss per common share by the weighted average number of common shares outstanding for the period without consideration of common stock equivalents. Diluted net loss per common share is computed by adjusting net loss to reallocate undistributed earnings based on the potential impact of dilutive securities, and by dividing the diluted net loss by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, including unvested early exercised options, unvested restricted stock awards, contingently issuable common stock related to the 2020 Employee Stock Purchase Plan (the “ESPP”), and convertible preferred stock are considered potential dilutive common shares. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The Company’s convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reported a net loss, such losses were not allocated to such securities. In periods in which the Company reported a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss for the three- and nine-month periods ended September 30, 2021 and 2020.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB under its ASC or other standard setting bodies.

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected to use this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. The Company expects to lose its status as an emerging growth company on December

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31, 2021, when it expects to qualify as a large accelerated filer based on its market capitalization as of June 30, 2021, according to Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As a result, the Company intends to adopt all accounting pronouncements currently deferred under the extended transition period available for emerging growth companies according to public company standards at December 31, 2021. The adoption dates for the new accounting pronouncements disclosed below have been presented as such. Where allowable, the Company has early adopted certain standards as described below.

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard provides guidance on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) by aligning the unit of account guidance between the two topics and clarifying whether certain transactions between collaborative participants should be accounted for as revenue under Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted this guidance effective on January 1, 2021. The adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software (ASC 350-40), to determine which implementation costs to capitalize as assets or expense as incurred. The internal-use software guidance in ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. A customer’s accounting for the hosting component of the arrangement is not affected by this guidance. The amendments in ASU 2018-15 are effective for fiscal years beginning after December 15, 2019 for public entities. For all other entities, the guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Early adoption permitted. The Company early adopted this guidance effective on January 1, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, or ASU No. 2018-11. In issuing ASU No. 2018-11, the FASB is permitting another transition method for ASU 2016-02, which allows the transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. For non-public entities, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years, and early adoption is permitted. The Company expects to adopt this new guidance under ASU 2016-02 as of January 1, 2021 at December 31, 2021 on the Company’s 2021 Form 10-K filing using the modified retrospective approach. The Company will elect the practical expedients upon transition to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company will also elect the practical expedient for lessees to combine lease and non-lease components for all asset classes and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the statements of operations on a straight-line basis over the lease term. The

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Company is in the process of completing its review of its existing lease agreements under Topic 842 and assessment of the impact of adoption of the ASU. The Company anticipates recording a right-of-use asset and lease liability to account for its facility leases and will record a cumulative-effect adjustment in the period of adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those years. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which extends the effective date of the standard for smaller reporting companies to interim and annual periods beginning after December 15, 2022. ASU 2019-11 also expands the scope of the practical expedient that allows entities to exclude the accrued interest component of amortized cost from various disclosures required by ASC 326 to also include certain disclosures required by ASC 320. Entities that elect to apply the practical expedient must disclose the total amount of accrued interest that they exclude from their disclosures of amortized cost. The amendments have the same effective dates as ASU 2016-13 for entities that have not yet adopted that standard. These standards require using a modified retrospective approach with the cumulative effect recognized as an adjustment to retained earnings. A prospective transition approach is required for debt securities that have recognized an other-than-temporary impairment prior to the effective date. The Company expects to adopt the new guidance under ASU 2016-13 as of January 1, 2021 at December 31, 2021 on the Company’s 2021 Form 10-K filing. Though the Company is currently evaluating the effect of these standards it does not expect the impact of the adoption of these standards on the Company’s financial position or results of operations to be material.

3.

Fair Value Measurement

The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities, quoted prices 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 assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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September 30, 2021

(in thousands)

    

Level 1

Level 2

Level 3

Total

Financial Assets

Cash

$

10,874

$

$

$

10,874

Money market funds

14,723

14,723

Corporate bonds

3,019

3,019

Commercial paper

 

198,626

198,626

U.S. government treasury bills

17,001

17,001

Government-sponsored enterprise securities

 

61,711

61,711

Total

$

42,598

$

263,356

$

$

305,954

September 30, 2021

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

(in thousands)

    

Cost

Gains

Losses

Fair Value

Financial Assets

Cash and cash equivalents

$

25,597

$

$

$

25,597

Short-term marketable securities (<12 months to maturity)

245,169

20

(6)

245,183

Long-term marketable securities (>12 months to maturity)

 

35,173

 

4

 

(3)

35,174

Total

$

305,939

$

24

$

(9)

$

305,954

The Company considers its marketable securities with maturities beyond one year as current assets, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of marketable securities to be available-for-sale.

As of December 31, 2020, all of the Company’s cash and cash equivalents consisted of cash on deposit with U.S. banks denominated in U. S. dollars.

4. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

September 30, 

December 31, 

2021

2020

Lab equipment

    

$

1,067

    

$

90

Computer equipment

59

47

Property and equipment, gross

1,126

137

Less: Accumulated depreciation

 

 

(151)

(62)

Property and equipment, net

 

$

975

$

75

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5.

Prepaid Expenses and Other Current Assets

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

September 30, 

December 31, 

2021

2020

Prepaid clinical trial costs

$

1,167

$

1,148

Prepaid insurance

    

318

    

1,663

Prepaid subscriptions and licenses

318

Prepaid research contracts

199

432

Prepaid rent

91

196

Other

 

 

233

149

Total

 

$

2,326

$

3,588

6.

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

September 30, 

December 31, 

(in thousands)

2021

2020

Accrued R&D related costs

$

4,310

$

609

Accrued employee bonuses

2,111

1,222

Accrued professional fees

960

577

Accrued payroll related costs

654

444

Early exercise of unvested stock options

237

578

Accrued taxes

67

198

Other

 

 

256

238

Total

 

$

8,595

$

3,866

7.

Convertible Notes

2020 Convertible Notes

On January 3, 2020 (“issuance date”), the Company issued convertible promissory notes (the “2020 Notes”) in the aggregate principal amount of $3.0 million. The 2020 Notes bore interest at a rate of 1.21% per annum, were unsecured and were due and payable, including accrued interest, on May 2, 2020 (“maturity date”). The Company was not permitted to prepay the outstanding principal and interest without the consent of the note holders. In the event of a default, all unpaid principal and accrued interest would become immediately due.

On the issuance date the Company determined that the conversion option associated with the 2020 Notes met the definition of a beneficial conversion feature (“BCF”) as the fair value of the underlying instrument at the time of issuance exceeded the contractual conversion price. The BCF was recognized at its aggregate intrinsic value of $1.1 million as a debt discount with a corresponding credit to additional paid-in capital in the Company’s balance sheet. The debt discount was amortized over the term of the 2020 Notes through the recognition of interest expense via the effective interest method.

On March 17, 2020 (the “settlement date”), the Company issued and sold 2,545,277 shares of Series B convertible preferred stock at $4.712 per share for gross proceeds of approximately $12.0 million (see Note 8, “Convertible Preferred Stock”). On the settlement date, the principal and accrued interest then outstanding under the 2020 Notes of $3.0 million were converted into 638,270 shares of Series B convertible preferred stock (“March 2020 conversion”).

On the settlement date, the unamortized debt discount on the 2020 Notes was $0.4 million and the intrinsic value of the BCF was $2.6 million representing an increase of $1.5 million from the issuance date of the 2020

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Notes. The March 2020 conversion was accounted for as a debt extinguishment. However, as the note holders were previous investors of the Company, the increase in the intrinsic value of the BCF was deemed to be a capital contribution and therefore not income attributable to common stockholders, and accordingly, the Company recorded the $1.5 million gain on extinguishment of the debt within additional paid-in capital.

8.

Convertible Preferred Stock

As of September 30, 2020, there were 23,765,075 shares of convertible preferred stock outstanding. Upon the closing of the Company’s IPO, each then outstanding share of convertible preferred stock was converted into one share of common stock.

As of September 30, 2021 and December 31, 2020, there was no convertible preferred stock outstanding.

Refer to Note 6 “Convertible Preferred Stock” included in the Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 17, 2021 with the SEC.

9. Stock-Based Compensation

In 2014, the Company’s Board of Directors and stockholders approved and adopted the 2014 Stock Plan (the “2014 Plan”). The 2014 Plan was intended to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The 2014 Plan permitted the grant of options and restricted stock awards (including restricted stock purchase rights and restricted stock bonus awards). The maximum aggregate number of shares that may be subject to awards and sold under the 2014 Plan as of December 31, 2019 was 717,360 shares, which was subsequently increased to 4,842,180 in September 2020.The 2014 Plan was terminated on the dat