SEC Filing | Olema Oncology

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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


☐	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.)
780 Brannan Street San Francisco, CA	94103
(Address of principal executive offices)	(Zip Code)

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

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 August 4, 2023, the number of outstanding shares of the Registrant’s common stock was 41,352,381.

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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 Stockholders’ Equity		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		100
Item 3. Defaults Upon Senior Securities		100
Item 4. Mine Safety Disclosures		100
Item 5. Other Information		100
Item 6. Exhibits		101

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Olema Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except for share amounts)


		June 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	34,958	$	23,702
Marketable securities		132,486		180,719
Prepaid expenses and other current assets		4,065		4,478
Total current assets		171,509		208,899
Property and equipment, net		1,273		1,480
Operating lease right-of-use assets		1,938		2,495
Other assets and long-term deposits		2,904		2,771
Total assets	$	177,624	$	215,645

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,625	$	374
Operating lease liabilities, current		798		1,015
Accrued and other current liabilities		12,408		15,160
Total current liabilities		14,831		16,549
Operating lease liabilities, net of current portion		1,210		1,550
Total liabilities		16,041		18,099
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022; no shares issued and outstanding as of June 30, 2023 and December 31, 2022.		—		—
Common stock, $0.0001 par value; 490,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 41,324,416 and 40,601,648 shares issued as of June 30, 2023 and December 31, 2022, respectively; 41,122,482 and 40,287,097 shares outstanding as of June 30, 2023 and December 31, 2022, respectively.		3		3
Additional paid-in capital		419,456		408,333
Accumulated other comprehensive loss		(518)		(1,813)
Accumulated deficit		(257,358)		(208,977)
Total stockholders’ equity		161,583		197,546
Total liabilities and stockholders’ equity	$	177,624	$	215,645

See accompanying notes to the condensed consolidated financial statements.

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Olema Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except for share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Operating expenses:
Research and development	$	17,989	$	27,054	$	40,815	$	43,063
General and administrative		3,612		6,239		10,388		13,484
Total operating expenses		21,601		33,293		51,203		56,547
Loss from operations		(21,601)		(33,293)		(51,203)		(56,547)
Other income (expense):
Interest income		1,550		415		2,855		633
Other (expense) income		(44)		20		(33)		26
Total other income		1,506		435		2,822		659
Net loss	$	(20,095)	$	(32,858)	$	(48,381)	$	(55,888)
Net loss per share, basic and diluted	$	(0.49)	$	(0.82)	$	(1.20)	$	(1.40)
Weighted average shares used to compute net loss per share, basic and diluted		40,720,294		39,918,219		40,470,041		39,876,650


	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Net loss	$	(20,095)	$	(32,858)	$	(48,381)	$	(55,888)
Other comprehensive loss:
Net unrealized gain (loss) on marketable securities		460		(772)		1,295		(2,249)
Total comprehensive loss	$	(19,635)	$	(33,630)	$	(47,086)	$	(58,137)

See accompanying notes to the condensed consolidated financial statements.

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Olema Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(Amounts in thousands, except for share amounts)


							Accumulated
				Additional			Other			Total
	Common Stock			Paid-in			Comprehensive	Accumulated		Stockholders'
	Shares	Amount		Capital			Loss (Gain)	Deficit		Equity
Balances at March 31, 2023	40,438,320	$	3	$	413,213	$	(978)	$	(237,263)	$	174,975
Vesting of early exercised stock options	6,990		—		30		—		—		30
Vesting of restricted stock awards	49,319		—		—		—		—		—
Exercise of stock options	357,312		—		1,332		—		—		1,332
Issuance of shares under the employee stock purchase plan	270,541		—		711		—		—		711
Stock-based compensation expense	—		—		4,040		—		—		4,040
Employee stock purchase plan expense	—		—		130		—		—		130
Net unrealized gain on marketable securities	—		—		—		460		—		460
Net loss	—		—		—		—		(20,095)		(20,095)
Balances at June 30, 2023	41,122,482	$	3	$	419,456	$	(518)	$	(257,358)	$	161,583


							Accumulated
				Additional			Other			Total
	Common Stock			Paid-in			Comprehensive	Accumulated		Stockholders'
	Shares	Amount		Capital			Loss (Gain)	Deficit		Equity
Balances at December 31, 2022	40,287,097	$	3	$	408,333	$	(1,813)	$	(208,977)	$	197,546
Vesting of early exercised stock options	13,980		—		60		—		—		60
Vesting of restricted stock awards	98,637		—		—		—		—		—
Exercise of stock options	452,227		—		1,552		—		—		1,552
Issuance of shares under the employee stock purchase plan	270,541		—		711		—		—		711
Stock-based compensation expense	—		—		8,555		—		—		8,555
Employee stock purchase plan expense	—		—		245		—		—		245
Net unrealized gain on marketable securities	—		—		—		1,295		—		1,295
Net loss	—		—		—		—		(48,381)		(48,381)
Balances at June 30, 2023	41,122,482	$	3	$	419,456	$	(518)	$	(257,358)	$	161,583


							Accumulated
				Additional			Other			Total
	Common Stock			Paid-in			Comprehensive	Accumulated		Stockholders'
	Shares	Amount		Capital			Loss	Deficit		Equity
Balances at March 31, 2022	39,869,325	$	3	$	393,933	$	(1,626)	$	(127,220)	$	265,090
Vesting of early exercised stock options	6,990		—		31		—		—		31
Vesting of restricted stock awards	49,319		—		—		—		—		—
Exercise of stock options	17,934		—		7		—		—		7
Issuance of shares under the employee stock purchase plan	30,891		—		57		—		—		57
Stock-based compensation expense	—		—		4,623		—		—		4,623
Employee stock purchase plan expense	—		—		105		—		—		105
Net unrealized loss on marketable securities	—		—		—		(772)		—		(772)
Net loss	—		—		—		—		(32,858)		(32,858)
Balances at June 30, 2022	39,974,459	$	3	$	398,756	$	(2,398)	$	(160,078)	$	236,283


							Accumulated
				Additional			Other			Total
	Common Stock			Paid-in			Comprehensive	Accumulated		Stockholders'
	Shares	Amount		Capital			Loss	Deficit		Equity
Balances at December 31, 2021	39,797,263	$	3	$	388,904	$	(149)	$	(104,190)	$	284,568
Vesting of early exercised stock options	13,979		—		62		—		—		62
Vesting of restricted stock awards	98,637		—		—		—		—		—
Exercise of stock options	33,689		—		40		—		—		40
Issuance of shares under the employee stock purchase plan	30,891		—		57		—		—		57
Stock-based compensation expense	—		—		9,497		—		—		9,497
Employee stock purchase plan expense	—		—		196		—		—		196
Net unrealized loss on marketable securities	—		—		—		(2,249)		—		(2,249)
Net loss	—		—		—		—		(55,888)		(55,888)
Balances at June 30, 2022	39,974,459	$	3	$	398,756	$	(2,398)	$	(160,078)	$	236,283

See accompanying notes to the condensed consolidated financial statements.

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Olema Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(Amounts in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(48,381)	$	(55,888)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		199		169
Loss on sale of equipment		8		—
Non-cash lease expense		653		648
Non-cash interest income on marketable securities		(1,972)		(26)
Stock-based compensation expense, including employee stock purchase plan expense		8,800		9,693
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		413		204
Other assets and long-term deposits		(133)		(542)
Accounts payable		1,251		97
Accrued and other current liabilities		(2,692)		1,915
Operating lease liabilities		(653)		(632)
Net cash used in operating activities		(42,507)		(44,362)
Cash flows from investing activities:
Purchase of equipment		—		(51)
Maturities of marketable securities		126,260		205,750
Purchases of marketable securities		(74,760)		(150,720)
Net cash provided by investing activities		51,500		54,979
Cash flows from financing activities:
Proceeds from exercise of stock options		1,552		40
Proceeds from issuance of common stock under employee stock purchase plan		711		57
Net cash provided by financing activities		2,263		97
Net increase in cash and cash equivalents		11,256		10,714
Cash and cash equivalents at beginning of period		23,702		13,812
Cash and cash equivalents at end of period	$	34,958	$	24,526

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, palazestrant (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”). It is currently being evaluated as a single agent in an ongoing Phase 2 clinical study, and in Phase 1b/2 clinical studies in combination with palbociclib, ribociclib, and alpelisib, in patients with recurrent, locally advanced or metastatic estrogen receptor-positive (“ER+”), human epidermal growth factor receptor 2 negative (“HER2-”) breast cancer. We expect to initiate in the fourth quarter of 2023 Olema’s first pivotal Phase 3 clinical trial, called OPERA-01, testing palazestrant as a monotherapy in second- and third-line metastatic 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 has operations in Cambridge, Massachusetts. Olema Oncology Australia Pty Ltd was incorporated on January 6, 2021, and is a wholly-owned subsidiary of the Company (collectively with Olema Pharmaceuticals, Inc., referred to as “Olema” or the “Company” herein). 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 geopolitical and macroeconomic events, such as the COVID-19 pandemic, ongoing conflict between Ukraine and Russia and related sanctions, recent and potential future bank failures and financial instability, the ability to secure additional capital to fund operations and commercial success of its product candidates. Palazestrant 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.

Liquidity

The Company had $167.4 million of cash, cash equivalents and marketable securities at June 30, 2023, which management believes is sufficient to fund its operating expenses and capital expenditure requirements into the second quarter of 2025.

Impact of Geopolitical and Macroeconomic Events

Global economic and business activities continue to face widespread geopolitical and macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, bank failures and related financial market risks and instability, recession risks, as well as potential disruptions from the Russia-Ukraine conflict, which has resulted in volatility in the U.S. and global financial markets and which has led to, and may continue to lead to, additional disruptions to trade, commerce, pricing stability, credit availability and supply chain continuity globally. The extent of the impact of these factors on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted. Any continued or renewed

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disruption resulting from these factors could negatively impact the Company’s business. The Company continues to monitor the impact of these geopolitical and macroeconomic factors on its results of operations, financial condition and cash flows.

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 States (“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. All intercompany balances and transactions have been eliminated upon consolidation.

Unaudited Interim Financial Information

The interim condensed consolidated balance sheet as of June 30, 2023, and the statements of operations and comprehensive loss, and stockholders’ equity for the three and six months ended June 30, 2023 and 2022, and the statements of cash flows for the six months ended June 30, 2023 and 2022 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 six-month periods are also unaudited. The results of operations presented in these unaudited condensed consolidated financial statements 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 consolidated balance sheet as of December 31, 2022 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 consolidated financial statements included in the Company’s Form 10-K as filed with the SEC on March 9, 2023 (the “Annual Report”).

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, stock-based compensation assumptions, including the fair value of common stock. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various 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 as of June 30, 2023, and December 31, 2022. Cash and cash equivalents consisted of cash on deposit with U.S. banks, including the Company’s bank account for its Australia subsidiary, denominated in U.S. dollars and Australian dollars and investments in interest bearing money market funds.

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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 net loss 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.

The Company periodically assesses its available-for-sale marketable securities for other-than-temporary impairment. For debt securities in an unrealized loss position, the Company first considers its intent to sell, or whether it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis. If either of these criteria are met, the amortized cost basis of such debt securities is written down to fair value through other expense.

For debt securities in an unrealized loss position that do not meet the aforementioned criteria, the Company assesses whether the decline in the fair value of such debt securities has resulted from credit losses or other factors. The Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the securities, among other factors. If this assessment indicates that a credit loss may exist, the Company then compares the present value of cash flows expected to be collected from such securities to their amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through other expense, limited by the amount that the fair value is less than the amortized cost basis. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive loss. The Company has not recorded any impairments for its marketable securities.

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, dependence on key individuals or sole-source suppliers, and geopolitical and macroeconomic factors.

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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.

Leases

The Company adopted Accounting Standard Update (“ASU”) 2016-12, Leases, Topic 842, (“Topic 842”) as of January 1, 2021. Under Topic 842, lessees are required to recognize for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the condensed consolidated statements of operations and comprehensive loss.

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on the facts and circumstances present in that arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements that contain a lease, the Company (i) identifies lease and non-lease components, (ii) determines the consideration in the contract, (iii) determines whether the lease is an operating or finance lease; and (iv) recognizes lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses the incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

Most leases include options to renew and, or terminate the lease, which can impact the lease term. The exercise of these options is at the Company’s discretion. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. For any lease modification, the Company reassesses the lease classification, remeasures the related lease liability using an updated discount rate that reflects the modified lease term, and adjusts the related ROU asset under the lease modification guidance under Topic 842.

The Company has operating leases for its research and development and office facilities. Fixed lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within our condensed consolidated statements of operations and comprehensive loss.

The Company elected to not apply the recognition requirements of Topic 842 to short-term leases with terms of 12 months or less. Additional information and disclosures required by Topic 842 are contained in Note 11 “Lease” in the Annual Report.

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 and contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), in 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

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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 and other current assets. Such amounts are recognized as an expense as the goods are delivered or the related services are performed.

Costs incurred in obtaining technology licenses that do not meet the definition of a business are charged immediately to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future uses.

Reimbursements of certain costs associated with research activities performed under the agreement with Novartis Institutes for BioMedical Research, Inc. (“Novartis”) are recorded as a reduction of research and development expenses and as a receivable due from Novartis, which is recorded under prepaid expenses and other current assets in the accompanying condensed consolidated financial statements, as described in Note 10, Commitments and Contingencies – Clinical Collaboration and Supply Agreement.

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, unvested performance-based restricted stock unit awards, contingently issuable common stock related to the 2020 Employee Stock Purchase Plan (the “ESPP”) 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.

Recent Accounting Pronouncements

There were no new accounting pronouncements that were relevant to the Company as of and for the six months ended June 30, 2023.

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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.


		June 30, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets
Cash	$	6,123	$	—	$	—	$	6,123
Money market funds		28,919		—		—		28,919
Commercial paper		—		67,314		—		67,314
U.S. government treasury bills		36,074		—		—		36,074
Government-sponsored enterprise securities		—		29,098		—		29,098
Total	$	71,116	$	96,412	$	—	$	167,528


	June 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
(in thousands)	Cost		Gains		Losses		Fair Value
Financial Assets
Cash and cash equivalents	$	35,042	$	—	$	—	$	35,042
Short-term marketable securities (<12 months to maturity)		133,004		16		(534)		132,486
Total	$	168,046	$	16	$	(534)	$	167,528

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 June 30, 2023, the Company does not have any marketable securities with maturities beyond one year.

The Company periodically reviews its available-for-sale marketable securities for other-than-temporary impairment. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period and its intent to sell. For debt securities, the Company also considers whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses.

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There were 14 marketable securities that have been in a consecutive loss position for more than 12 months as of June 30, 2023. These marketable securities had $0.5 million unrealized losses with a fair value of $39.0 million as of June 30, 2023. The Company does not believe that the total unrealized losses of $0.5 million as of June 30, 2023 are credit-related but are rather a reflection of current market yields and/or current marketplace bid/ask spreads. During the three and six months ended June 30, 2023, the Company did not recognize any other-than-temporary impairment loss. As of June 30, 2023, there was no allowance for losses on available-for-sale debt securities attributable to credit risk.

As of June 30, 2023, all of the Company’s cash and cash equivalents consisted of cash on deposit with U.S. banks denominated in U. S. dollars and Australian dollars.

4. Property and Equipment, net

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


	June 30,		December 31,
	2023		2022
Lab equipment	$	1,958	$	2,002
Computer equipment		59		59
Property and equipment, gross		2,017		2,061
Less: Accumulated depreciation		(744)		(581)
Property and equipment, net	$	1,273	$	1,480

5.	Prepaid Expenses and Other Current Assets

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


	June 30,		December 31,
	2023		2022
Reimbursable research and development costs from a collaboration partner	$	1,825	$	1,387
Prepaid insurance		804		1,738
Research and development tax incentive credit receivable		401		—
Prepaid subscriptions and licenses		295		399
Prepaid clinical development costs		282		506
Interest receivable		221		319
Other		237		129
Total	$	4,065	$	4,478

6.	Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2023		2022
Accrued research and development related costs	$	9,026	$	9,105
Accrued employee bonuses		1,926		4,518
Accrued professional fees		982		1,091
Accrued payroll related costs		362		296
Accrued taxes		91		68
Early exercise of unvested stock options		21		82
Total	$	12,408	$	15,160

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7. Stock-Based Compensation

In 2014, the Company’s Board of Directors (the “Board”) and stockholders approved and adopted the Company’s 2014 Stock Plan (the “2014 Plan”). The 2014 Plan permitted the grant of options and restricted stock awards (including restricted stock purchase rights and restricted stock bonus awards). The 2014 Plan was terminated on the date the Company’s 2020 Equity Incentive Plan (the “2020 Plan”), which is described below, became effective, and since that date, no additional awards have been or will be made pursuant to the 2014 Plan. However, any outstanding awards granted under the 2014 Plan will remain outstanding, subject to the terms of the 2014 Plan award agreements, until such outstanding options are exercised or until any awards terminate or expire by their terms.

In 2020, the Board and the Company’s stockholders approved and adopted the 2020 Plan. The 2020 Plan permits the grant of options, restricted stock awards, stock appreciation rights, restricted stock unit awards, performance awards, and other awards. The maximum number of shares of common stock that may be issued under the 2020 Plan will not exceed 6,494,510 shares of the Company’s common stock, which is the sum of (i) 2,152,080 new shares, plus (ii) an additional number of shares not to exceed 4,342,430 shares, consisting of any shares of the Company’s common stock subject to outstanding stock options or other stock awards granted under the 2014 Plan that, on or after the 2020 Plan becomes effective, terminate or expire prior to exercise or settlement; are not issued because the award is settled in cash; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2020 Plan automatically increases on January 1 of each year for a period of ten years, beginning on January 1, 2021 and continuing through January 1, 2030, in an amount equal to the lesser of (1) 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s Board of Directors no later than December 31 of the immediately preceding year.

In 2022, the Board approved and adopted the Company’s 2022 Inducement Plan (the “2022 Inducement Plan”). Under the 2022 Inducement Plan, initially 2,000,000 shares of common stock were reserved for issuance. The 2022 Inducement Plan permits the grant of options, restricted stock awards, stock appreciation rights, restricted stock unit awards, performance awards, and other awards.

The exercise price for each option and stock appreciation right shall be established at the discretion of the Board, provided that the exercise price of a stock option will not be less than 100% of the fair market value of the Company’s common stock on the date of grant. Specific vesting for stock options and stock appreciation rights is service related and determined in each award agreement, where stock options and stock appreciation rights are fully vested at the grant date or follow a graded vesting schedule. Stock options and stock appreciation rights granted under the plans generally expire ten years after the date of grant.

Stock Option Valuation

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company lacks company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies in addition to its own historical volatility. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to nonemployees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is 0% since the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

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The assumptions that the Company used to determine the estimated grant-date fair value of stock options granted to employees and directors under the 2020 Plan and the 2022 Inducement Plan were as follows, presented as a weighted average:


	Six Months Ended June 30,
	2023		2022
Risk-free interest rate		3.52%		1.81%
Expected term (in years)		6.02		6.02
Expected volatility		86.88%		79.33%
Expected dividend yield		—		—

Stock Option Activity

The following table summarizes the stock option activity under the 2014 Plan, the 2020 Plan and the 2022 Inducement Plan:


				Weighted
		Weighted		Average
		Average		Remaining
	Number of	Exercise		Contractual	Aggregate
	Shares	Price		Term	Intrinsic Value
				(in years)	(in thousands)
Outstanding as of December 31, 2022	8,384,858	$	8.59	8.30	$	262
Granted	2,234,718		4.98	—		—
Exercised(1)	(483,411)		3.77	—		—
Forfeited	(859,447)		5.62	—		—
Outstanding as of June 30, 2023(2)	9,276,718	$	8.26	7.98	$	31,572

Options vested and exercisable as of June 30, 2023	4,203,758	$	10.05	7.18	$	13,179
Options expected to vest as of June 30, 2023	5,072,960	$	6.77	8.63	$	18,305

(1)	Exercised amount includes vesting of early-exercised options and shares returned for taxes withheld for exercise and net transactions.

(2)	Balance as of June 30, 2023 includes 4,660 unvested early-exercised stock options.

Early Exercise of Stock Options

The terms of the 2014 Plan permit certain option holders to exercise options before their options are vested, subject to certain limitations. The early exercised options are subject to the same vesting provisions in the original stock option awards. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment, at the price paid by the purchaser. Such shares are not deemed to be outstanding for accounting purposes until they vest and are therefore excluded from shares outstanding and from basic and diluted net loss per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature. A liability is recognized related to the cash proceeds of the unvested options and is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses. Accordingly, the Company has recorded the unvested portion of the exercise proceeds of less than $0.1 million in other current liabilities as of June 30, 2023.

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Restricted Stock Awards

The following table summarizes the restricted stock activity under the 2014 Plan during the six months ended June 30, 2023:


	Number of Shares	Grant Date Fair Value
Unvested restricted stock as of December 31, 2022	295,911	$	2.40
Granted	—		—
Vested	(98,637)		2.40
Forfeited	—		—
Unvested restricted stock as of June 30, 2023	197,274	$	2.40

Performance-Based Restricted Stock Unit Awards

In November 2022, the Company granted to certain employees 710,000 shares of performance-based restricted stock unit awards (the “PSUs”) under the 2020 Plan as consideration for services subject to performance conditions with a fair value based on the closing price of the underlying common stock on the date of grant. Pursuant to the terms of the PSUs, 65% of each PSU vests upon certification by the Compensation Committee of the Company of achieving a pre-determined performance goal by June 30, 2024, and 35% of each PSU vests upon certification by the Compensation Committee of the Company of achieving a pre-determined performance goal by June 30, 2024.

Expense recognition for PSUs commences when it is determined that attainment of the performance goal is probable or met. As of June 30, 2023, it was determined that the performance goals were not yet met, and therefore, the Company recorded zero stock-based compensation expense related to the PSUs for the three and six months ended June 30, 2023.

2020 Employee Stock Purchase Plan

In 2020, the Board and the Company’s stockholders approved and adopted the ESPP. The ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to 15% of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of the common stock purchased under the ESPP is equal to the lesser of (i) 85% of the fair market value of a share of the Company’s common stock on the first day of an offering; or (ii) 85% of the fair market value of a share of the Company’s common stock on the date of purchase. Each offering period is not to exceed 27 months and will include one or more purchase periods (each a “Purchase Period”) as approved by the Board in the offering. The current offering period will consist of two (2) six-month Purchase Periods during which payroll deductions of the participants are accumulated under the ESPP. A total of 430,416 shares of common stock were initially reserved for issuance pursuant to the ESPP.

The ESPP is a compensatory plan as defined by the authoritative guidance for stock-based compensation. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock offered under the ESPP. Stock-based compensation expense related to the ESPP was $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively.

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Stock-Based Compensation Expense

Stock-based compensation expense related to awards granted under the 2014 Plan, the 2020 Plan, the ESPP and the 2022 Inducement Plan was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Research and development	$	2,969	$	3,211	$	6,057	$	6,278
General and administrative		1,201		1,517		2,743