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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 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: 001-39594

 

 

Spruce Biosciences, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

81-2154263

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2001 Junipero Serra Boulevard, Suite 640

Daly City, California

94014

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (415) 655-4168

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

SPRB

 

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, 2021, the registrant had 23,377,517 shares of common stock, $0.0001 par value per share, outstanding.

 

 


Table of Contents

 

 

Table of Contents

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Unaudited Condensed Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020:

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

Condensed Statement of Stockholders’ Equity

3

 

Condensed Statement of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

4

 

Condensed Statements of Cash Flows

5

 

Notes to the Condensed Financial Statements

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

 

Signatures

76

 

 


Table of Contents

 

 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESSES

We face risks and uncertainties associated with our business, many of which are beyond our control. Some of the material risks associated with our business include the following:

 

We have a limited operating history, have incurred significant net losses since our inception, and anticipate that we will continue to incur significant net losses for the foreseeable future. We expect these losses to increase as we continue our clinical development of, and seek regulatory approvals for, tildacerfont and any future product candidates.

 

We will need substantial additional financing to develop tildacerfont and any future product candidates and implement our operating plans. If we fail to obtain additional financing, we may be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

We currently depend entirely on the success of tildacerfont, which is our only product candidate. If we are unable to advance tildacerfont in clinical development, obtain regulatory approval, and ultimately commercialize tildacerfont, or experience significant delays in doing so, our business will be materially harmed.

 

Our clinical trials may fail to adequately demonstrate the safety and efficacy of tildacerfont, which could prevent or delay regulatory approval and commercialization.

 

Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue, and adversely affect our commercial prospects.

 

The U.S. Food and Drug Administration, or FDA, and comparable foreign regulatory authorities may require us to initiate one or more additional clinical trials for tildacerfont in adult patients with classic congenital adrenal hyperplasia, or CAH, including a Phase 3 clinical trial or trials. The estimated timing or scope of any such future clinical trials is not currently ascertainable. Even if regulatory approvals are obtained, we may never be able to successfully commercialize tildacerfont.

 

Preclinical and clinical drug development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of tildacerfont and any future product candidates.

 

Our business has been and could continue to be adversely affected by the evolving and ongoing COVID-19 global pandemic in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations. The COVID-19 pandemic could adversely affect our operations, as well as the business or operations of our manufacturers, clinical research organizations, or CROs, or other third parties with whom we conduct business.

 

Tildacerfont is, and any future product candidates will be, subject to extensive regulation and compliance obligations, which are costly and time-consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize tildacerfont and any future product candidates.

 

If the market opportunities for tildacerfont and any future product candidates are smaller than we believe they are, our future revenue may be adversely affected, and our business may suffer.

 

We may not be successful in our efforts to expand our pipeline by identifying additional indications and formulations for which to investigate tildacerfont in the future. We may expend our limited resources to pursue a particular indication or formulation for tildacerfont and fail to capitalize on product candidates, indications, or formulations that may be more profitable or for which there is a greater likelihood of success.

 

We currently have no marketing and sales organization and have yet to commercialize a product. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell tildacerfont and any future product candidates, we may not be able to generate product revenues.

 

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize tildacerfont.

 

If we are unable to obtain and maintain sufficient intellectual property protection for tildacerfont, any future product candidates, and other proprietary technologies we develop, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize tildacerfont, if approved, and any future product candidates, and other proprietary technologies if approved, may be adversely affected.

 

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

 

 


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SPRUCE BIOSCIENCES, INC.

CONDENSED BALANCE SHEETS

(unaudited)

(in thousands, except share amounts)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,278

 

 

$

157,150

 

Short-term investments

 

 

30,945

 

 

 

 

Prepaid expenses

 

 

1,799

 

 

 

2,971

 

Other current assets

 

 

347

 

 

 

276

 

Total current assets

 

 

111,369

 

 

 

160,397

 

Restricted cash

 

 

216

 

 

 

216

 

Right-of-use assets

 

 

1,638

 

 

 

1,793

 

Long-term investments

 

 

29,768

 

 

 

 

Other assets

 

 

457

 

 

 

477

 

Total assets

 

$

143,448

 

 

$

162,883

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,113

 

 

$

3,628

 

Term loan, current portion

 

 

 

 

 

2,554

 

Accrued expenses and other current liabilities

 

 

4,894

 

 

 

2,496

 

Accrued compensation and benefits

 

 

973

 

 

 

1,085

 

Total current liabilities

 

 

6,980

 

 

 

9,763

 

Term loan, net of current portion

 

 

4,855

 

 

 

1,922

 

Lease liability, net of current portion

 

 

1,478

 

 

 

1,653

 

Other liabilities

 

 

29

 

 

 

118

 

Total liabilities

 

 

13,342

 

 

 

13,456

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized, and no shares issued

and outstanding as of June 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.0001 par value, 200,000,000 shares authorized, 23,370,070 and 23,260,399 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

3

 

 

 

2

 

Additional paid-in capital

 

 

212,634

 

 

 

210,266

 

Accumulated other comprehensive loss

 

 

(29

)

 

 

 

Accumulated deficit

 

 

(82,502

)

 

 

(60,841

)

Total stockholders’ equity

 

 

130,106

 

 

 

149,427

 

Total liabilities and stockholders’ equity

 

$

143,448

 

 

$

162,883

 

 

See accompanying notes to the condensed financial statements.

1


Table of Contents

 

SPRUCE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

9,119

 

 

$

5,662

 

 

$

15,833

 

 

$

10,272

 

General and administrative

 

 

2,595

 

 

 

727

 

 

 

5,698

 

 

 

1,250

 

Total operating expenses

 

 

11,714

 

 

 

6,389

 

 

 

21,531

 

 

 

11,522

 

Loss from operations

 

 

(11,714

)

 

 

(6,389

)

 

 

(21,531

)

 

 

(11,522

)

Interest expense

 

 

(80

)

 

 

(92

)

 

 

(169

)

 

 

(166

)

Other income, net

 

 

20

 

 

 

35

 

 

 

39

 

 

 

74

 

Net loss

 

$

(11,774

)

 

$

(6,446

)

 

$

(21,661

)

 

$

(11,614

)

Unrealized loss on available for sale securities

 

 

(29

)

 

 

-

 

 

 

(29

)

 

 

-

 

Comprehensive loss

 

$

(11,803

)

 

$

(6,446

)

 

$

(21,690

)

 

$

(11,614

)

Net loss per share, basic and diluted

 

$

(0.50

)

 

$

(8.43

)

 

$

(0.93

)

 

$

(15.15

)

Weighted-average shares of common stock outstanding, basic and

   diluted

 

 

23,329,756

 

 

 

764,408

 

 

 

23,306,708

 

 

 

766,534

 

 

See accompanying notes to the condensed financial statements.

 

 

2


Table of Contents

 

 

SPRUCE BIOSCIENCES, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance as of January 1, 2021

 

 

23,260,399

 

 

$

2

 

 

$

210,266

 

 

$

 

 

$

(60,841

)

 

$

149,427

 

Exercise of stock options

 

 

99,544

 

 

 

1

 

 

 

142

 

 

 

 

 

 

 

 

 

143

 

Issuance of common stock related to employee stock purchase plan

 

 

10,127

 

 

 

 

 

 

96

 

 

 

 

 

 

 

 

 

96

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,130

 

 

 

 

 

 

 

 

 

2,130

 

Unrealized loss on available for sale securities

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

 

(29

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,661

)

 

 

(21,661

)

Balance as of June 30, 2021

 

 

23,370,070

 

 

$

3

 

 

$

212,634

 

 

$

(29

)

 

$

(82,502

)

 

$

130,106

 

 

See accompanying notes to the condensed financial statements.

 

 

3


Table of Contents

 

 

SPRUCE BIOSCIENCES, INC.

CONDENSED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(unaudited)

(in thousands, except share amounts)

 

 

 

 

 

Redeemable Convertible Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Series A

 

 

Series B

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of January 1, 2020

 

 

28,000,000

 

 

$

27,813

 

 

 

 

 

$

 

 

 

 

764,408

 

 

$

1

 

 

$

664

 

 

$

(31,302

)

 

$

(30,637

)

Issuance of Series B redeemable convertible

   preferred stock, net of issuance costs

   of $352

 

 

 

 

 

 

 

 

36,666,665

 

 

 

43,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,166

 

 

 

 

 

 

8

 

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

128

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,614

)

 

 

(11,614

)

Balance as of June 30, 2020

 

 

28,000,000

 

 

$

27,813

 

 

 

36,666,665

 

 

$

43,648

 

 

 

 

771,574

 

 

$

1

 

 

$

800

 

 

$

(42,916

)

 

$

(42,115

)

 

See accompanying notes to the condensed financial statements.

 

 

 

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SPRUCE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(21,661

)

 

$

(11,614

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,130

 

 

 

128

 

Depreciation and amortization

 

 

30

 

 

 

18

 

Amortization of premium on available for sale securities

 

 

3

 

 

 

 

Non-cash lease expense

 

 

155

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,186

 

 

 

(1,150

)

Accounts payable and accrued expenses

 

 

(209

)

 

 

2,256

 

Accrued compensation and benefits

 

 

(112

)

 

 

(398

)

Other assets

 

 

31

 

 

 

36

 

Other liabilities

 

 

(34

)

 

 

68

 

Net cash used in operating activities

 

 

(18,481

)

 

 

(10,656

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(22

)

 

 

(7

)

Purchase of investments

 

 

(60,828

)

 

 

 

Net cash used in investing activities

 

 

(60,850

)

 

 

(7

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

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

   issuance costs

 

 

 

 

 

43,648

 

Payment of deferred offering costs

 

 

 

 

 

(100

)

Proceeds from exercise of stock options

 

 

143

 

 

 

8

 

Proceeds from issuance of common stock related to employee stock purchase plan

 

 

96

 

 

 

 

Proceeds from issuance of long-term debt, net of issuance costs of $10

 

 

4,990

 

 

 

 

Repayment of term loan

 

 

(4,770

)

 

 

 

Net cash provided by financing activities

 

 

459

 

 

 

43,556

 

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

 

 

(78,872

)

 

 

32,893

 

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

 

 

157,366

 

 

 

3,924

 

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

 

$

78,494

 

 

$

36,817

 

Supplemental cash flow data:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

97

 

 

$

95

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

135

 

Property and equipment included in accounts payable

 

$

 

 

$

30

 

 

See accompanying notes to the condensed financial statements.

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SPRUCE BIOSCIENCES, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Principal Activities

Description of Business

Spruce Biosciences, Inc. (the Company) is a late-stage biopharmaceutical company focused on developing and commercializing novel therapies for rare endocrine disorders with significant unmet medical need. The Company is initially developing its wholly-owned product candidate, tildacerfont, as the potential first non-steroidal therapy for patients suffering from classic congenital adrenal hyperplasia (CAH). The Company is also developing tildacerfont for females suffering from polycystic ovary syndrome (PCOS) with adrenal dysfunction  . The Company is located in Daly City, California and was incorporated in the state of Delaware in April 2016.

Initial Public Offering

In October 2020, the Company consummated its initial public offering (IPO) and issued a total of 6,900,000 shares of common stock, which included 900,000 shares of common stock issued pursuant to the exercise of the underwriters’ option to purchase additional shares, at an offering price of $15.00 per share. In aggregate, the Company received net proceeds of $93.4 million, after deducting underwriting discounts, commissions and offering expenses. Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted into 15,492,019 shares of common stock.

Liquidity and Capital Resources

   As of June 30, 2021, the Company had cash, cash equivalents and investments of $139.0 million, which is sufficient to fund its planned operations for a period of at least twelve months following the issuance of the accompanying condensed financial statements.

The Company has incurred significant losses and negative cash flows from operations. During the six months ended June 30, 2021, the Company incurred a net loss of $21.7 million and used $18.6 million of cash in operations. As of June 30, 2021, the Company had an accumulated deficit of $82.5 million and does not expect positive cash flows from operations in the foreseeable future. The Company has funded its operations primarily through the issuance and sale of equity securities and debt.     

The Company anticipates that it will need to raise substantial additional financing in the future to fund its operations. In order to meet these additional cash requirements, the Company may seek to sell additional equity or issue debt, convertible debt or other securities that may result in dilution to its stockholders. If the Company raises additional funds through the issuance of debt or convertible debt securities, these securities could have rights senior to those of its shares of common stock and could contain covenants that restrict its operations. There can be no assurance that the Company will be able to obtain additional equity or debt financing on terms acceptable to it, if at all. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. The Company’s failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on its business, results of operations, and financial condition.

2. Summary of Significant Accounting Policies

Interim Condensed Financial Statements

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and applicable rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The condensed balance sheet as of June 30, 2021, the condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed statement of stockholders’ equity for the six months ended June 30, 2021, the condensed statement of redeemable convertible preferred stock and stockholders’ deficit for the six months ended June 30, 2020, and the condensed statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The interim condensed financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The condensed balance sheet as of December 31, 2020, is derived from the Company’s audited financial statements. The results of operations for the three and six months ended June 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.

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These interim condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 22, 2021 (Annual Report).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses as well as related disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, accrued research and development expenses, valuation of common stock and stock-based compensation and income tax and uncertain tax positions. The Company bases its estimates on its historical experience and on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.

Risks and Uncertainties

Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration (FDA) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current and future product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its financial statements.

The Company is subject to a number of risks similar to other late-stage biopharmaceutical companies including, but not limited to, dependency on the clinical and commercial success of the Company’s product candidate, tildacerfont, ability to obtain regulatory approval of tildacerfont, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, significant competition and untested manufacturing capabilities, and dependence on key individuals and sole source suppliers.

The Company’s business has been and could continue to be adversely affected by the evolving COVID-19 pandemic. For example, the COVID-19 pandemic has resulted in and could result in delays to the Company’s clinical trials for numerous reasons including additional delays or difficulties in enrolling patients, diversion of healthcare resources away from the conduct of clinical trials, interruption or delays in the operations of the FDA or other regulatory authorities, and delays in clinical sites receiving the supplies and materials to conduct our clinical trials. At this time, the extent to which the COVID-19 pandemic impacts the Company’s business will depend on future developments, which are highly uncertain. The Company will continue to evaluate the impact that these events could have on its future operations, financial position, results of operations and cash flows.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2021, as compared to the significant accounting policies described in our Annual Report.

 

Restricted Cash

The Company has cash in a collateral account related to a letter of credit issued on behalf of the Company for the security deposit on the non-cancelable operating lease for an office facility. The collateralized cash in connection with the letter of credit was classified as restricted cash on the balance sheet as of June 30, 2021 and December 31, 2020 based on the terms of the lease agreement, which expires in 2025, unless extended.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed statements of cash flows (in thousands):

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Cash and cash equivalents

 

$

78,278

 

 

$

36,601

 

Restricted cash

 

 

216

 

 

 

216

 

Total cash, cash equivalents and restricted cash

 

$

78,494

 

 

$

36,817

 

 

Emerging Growth Company Status

The Company is an emerging growth company (EGC) as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards

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until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for non-EGC’s electing to use the extended transition period for complying with new or revised accounting standards for fiscal years beginning after December 15, 2019, and for EGC’s for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt this ASU on January 1, 2023. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020 and the Company adopted on January 1, 2021. The adoption did not have any impact on the Company’s condensed financial statements as of and for the six months ended June 30, 2021.

3. Cash Equivalents and Investments

The Company considers all highly liquid investments with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash equivalents consist of amounts invested in money market funds and are stated at fair value.

Investments comprise U.S. treasury securities, commercial paper, and corporate bonds, which are classified as available for sale debt securities.

The following table is a summary of amortized cost, unrealized gains and losses, and fair value (in thousands):

 

 

 

 

June 30, 2021

 

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Money market funds

 

$

62,178

 

 

$

 

 

$

 

 

$

62,178

 

 

Total cash equivalents

 

 

62,178

 

 

 

 

 

 

 

 

 

62,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial papers

 

 

30,945

 

 

 

 

 

 

 

 

 

30,945

 

 

Total short-term investments

 

 

30,945

 

 

 

 

 

 

 

 

 

30,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

11,564

 

 

 

 

 

 

(18

)

 

 

11,546

 

U.S. treasury securities

 

 

18,233

 

 

 

 

 

 

(11

)

 

 

18,222

 

 

Total long-term investments

 

 

29,797

 

 

 

 

 

 

(29

)

 

 

29,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and available for sale securities

 

$

122,920

 

 

$

 

 

$

(29

)

 

$

122,891

 

 

As of June 30, 2021, the weighted-average remaining contractual maturities of available for sale securities was approximately 16 months.

There have been no realized gains or losses on available for sale securities for the periods presented. No available for sale securities held as of June 30, 2021 have been in a continuous unrealized loss position for more than 12 months, and unrealized gains and losses are included in “accumulated other comprehensive loss” within stockholders' equity on the condensed balance sheets. As of June 30, 2021, unrealized losses on available for sale securities are not attributed to credit risk and are considered temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the cost basis of the investment will be recovered. The Company believes it has no other-than-temporary impairments on its securities as it does not intend to sell these securities and does not believe it is more likely than not that it will be required to sell these securities

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before the recovery of their amortized cost basis. To date, the Company has not recorded any impairment charges on securities related to other-than-temporary declines in fair value. The Company’s cash equivalents and short-term investments are due within one year.

4. Fair Value Measurements

The Company measures and reports certain financial instruments as assets at fair value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1—Quoted prices in active markets for identical assets and liabilities;

 

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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; and

 

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

The carrying value of cash and cash equivalents, prepaid expenses, accounts payable, term loan, and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.

The following table summarizes the Company's financial assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

 

June 30, 2021

 

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

 

$

62,178

 

 

$

62,178

 

 

$

 

 

$

 

 

Total cash equivalents

 

 

62,178

 

 

 

62,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

30,945

 

 

 

 

 

 

30,945

 

 

 

 

 

Total short-term investments

 

 

30,945

 

 

 

 

 

 

30,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

11,546

 

 

 

11,546

 

 

 

 

 

 

 

U.S. treasury securities

 

 

18,222

 

 

 

18,222

 

 

 

 

 

 

 

 

Total long-term investments

 

 

29,768

 

 

 

29,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents, short-term investments and long-term investments

 

$

122,891

 

 

$

91,946

 

 

$

30,945

 

 

$

 

 

The Company did not have any financial assets nor liabilities recorded at fair value on a recurring or non-recurring basis as of December 31, 2020.

For Level 1 investments, the Company uses quoted prices in active markets for identical assets to determine the fair value. For Level 2 investments, the Company uses quoted prices for similar assets sourced from certain third-party pricing services. The third-party pricing services generally utilize industry standard valuation models for which all significant inputs are observable, either directly or indirectly, to estimate the price or fair value of the securities. The primary input generally includes reported trades of or quotes on the same or similar securities. The Company does not make additional judgments or assumptions made to the pricing data sourced from the third-party pricing services.

The estimated fair value of the term loan was $5.0 million as of June 30, 2021 and was based on estimated interest rates currently available to the Company for debt with similar terms, a Level 3 input.

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5. Balance Sheet Components

Accrued Expenses and Other Current Liabilities

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

 

 

 

June 30,

2021

 

 

December 31,

2020