APPLIED THERAPEUTICS, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10Q and the audited financial information and the notes thereto included in the Annual Report. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under "Special Note Regarding Forward-Looking Statements" and under "Item 1A. Risk Factors" in this report, and in other reports we file with theSEC , that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a clinical-stage biopharmaceutical company developing a pipeline of novel product candidates against validated molecular targets in indications of high unmet medical need. We focus on molecules and pathways whose role in the disease process is well known based on prior research, but have previously failed to yield successful products due to poor efficacy and tolerability. Our unique approach to drug development leverages recent technological advances to design improved drugs, employs early use of biomarkers to confirm biological activity and focuses on potential use of expedited regulatory pathways. Our first molecular target is aldose reductase, or AR, an enzyme that converts glucose to sorbitol under oxidative stress conditions, and is implicated in multiple diseases. Prior attempts to inhibit this enzyme were hindered by nonselective, nonspecific inhibition, which resulted in limited efficacy and significant off-target safety effects. The detrimental consequences of AR activation have been well established by decades of prior research. Our AR program currently includes three small molecules, which are all potent and selective inhibitors of AR, but are engineered to have unique tissue permeability profiles to target different disease states, including diabetic complications, heart disease and a rare pediatric metabolic disease. Using similar strategies to our AR inhibitors, or ARI, program, we have also developed a program targeting selective inhibition of phosphatidylinositol 3-kinase, or PI3K, subunits that produced an early-stage oncology pipeline. The result of this unique multifaceted approach to drug development is a portfolio of highly specific and selective product candidates that we believe are significantly de-risked and can move quickly through the development process. We plan to initiate our clinical program in these indications in 2020 and 2021. AT-007 is a novel central nervous system, or CNS, penetrant ARI that we are developing for the treatment of galactosemia, a devastating rare pediatric metabolic disease that affects how the body processes a simple sugar called galactose, and for which there is no known cure or approved treatment available. InMay 2019 , theU.S. Food and Drug Administration , or FDA, granted orphan drug designation to AT-007 for the treatment of galactosemia. We initiated a Phase 1/2 study of AT-007 in galactosemia inJune 2019 . The study is a double-blind placebo-controlled trial evaluating safety and pharmacokinetics of AT-007 in healthy volunteers, as well as safety, pharmacokinetics and biomarker effects in adult galactosemia patients over 28 days of once daily oral dosing. The key biomarker outcome of the study was reduction in galactitol, an aberrant toxic metabolite of galactose, formed by AR in galactosemia patients. InJanuary 2020 , we announced positive topline results. AT-007 treatment resulted in a statistically significant and robust reduction in plasma galactitol versus placebo in adult galactosemia patients. Reductions in galactitol were dose dependent, with higher concentrations of AT-007 resulting in a greater magnitude of reduction in galactitol. At the highest dose tested (20mg/kg), AT-007 significantly reduced plasma galactitol 45-54% from baseline versus placebo (with a p value of less than 0.01). Galactitol reduction was rapid and sustained over time. No substantial change from baseline was observed in placebo treated patients. AT-007 was well tolerated, with no drug-related adverse events noted to date in galactosemia patients or in the 72 healthy volunteers treated in Part 1 of the trial. OnApril 21, 2020 , the Company announced full results of the ACTION-Galactosemia study. As previously announced, once-daily 20mg/kg AT-007 reduced galactitol levels by approximately 50% in galactosemia patients. Reduction in galactitol levels was rapid (within 6 days of consecutive AT-007 treatment) and sustained throughout the treatment period of 27 days. Reduction in galactitol from baseline was statistically significant at the 20mg/kg vs placebo (p<0.01). The lower dose tested, 5mg/kg, demonstrated a similar trend in reducing galactitol levels approximately 20% from baseline (p=NS from placebo). Reduction in galactitol did not result in derangement of other metabolites in the galactose pathway, such as galactose and gal-1p. As no drug-related adverse events were seen at the once-daily 20mg/kg dose, a once-daily 40mg/kg dose was subsequently studied in healthy volunteers and is ongoing in 24
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galactosemia patients. The 40mg/kg dose was safe and well tolerated. Evaluation of once-daily 40mg/kg AT-007 in galactosemia patients remains ongoing. No drug-related adverse events were reported at any dose of AT-007 in ACTION-Galactosemia.
A 90-day safety extension study for ACTION-Galactosemia is ongoing. The extension study is open to patients from the core study and to new adult galactosemia patients.
On
InMay 2020 the Company met with the FDA to discuss the ongoing galactosemia development program. Specifically, the design of the galactosemia pediatric study was discussed and feedback from FDA was subsequently incorporated into the pediatric study protocol. The study is designed similarly to ACTION-Galactosemia with a bio-marker based endpoint of galactitol reduction. We continue to work with the FDA to finalize the study protocol, and we expect to commence the trial as planned in Q2 of this year. Both the adult extension study and the pediatric study are designed to incorporate primarily home health visits in order to limit travel and risk of exposure to Covid-19. The Company is also engaged in preclinical work on AT-007 in another pediatric rare disease, called PMM2-CDG. PMM2-CDG is a glycosylation disorder caused by deficiencies in the enzyme phosphomannomutase 2, which leads to CNS symptoms similar to galactosemia, including low IQ, tremor, and speech and motor problems. Aldose Reductase is over-activated in this disease as a compensatory consequence of PMM2 deficiency, and a CNS penetrant ARI may be a compelling clinical option. Initial data in fibroblast cell lines derived from PMM2-CDG patients demonstrates that AT-007 treatment increases phosphomannomutase 2 activity. We may pursue clinical development in this indication in the future. We are also working on a rare disease caused by Sorbitol Dehydrogenase deficiency, called SORD. Aldose Reductase is the first enzyme in the polyol pathway, converting glucose to sorbitol. AR is then followed by Sorbitol Dehydrogenase, which converts sorbitol to fructose. Patients with SORD build up very high levels of sorbitol in their cells and tissues as a result of the enzyme deficiency, which results in tissue toxicities such as peripheral neuropathy. Recent research in drosophila and cell models of SORD demonstrates that treatment with an ARI that blocks sorbitol production may provide benefit in this disease. The Company is working with researchers to explore potential benefit in SORD models of disease, and may initiate a clinical development program. Intellectual property applications have previously been filed related to both PMM2-CDG and SORD. AT-001 is a novel ARI with broad systemic exposure and peripheral nerve permeability that we are developing for the treatment of diabetic cardiomyopathy, or DbCM, a fatal fibrosis of the heart, for which no treatments are available. We completed a Phase 1/2 clinical trial evaluating AT-001 in approximately 120 patients with type 2 diabetes, in which no drug-related adverse effects or tolerability issues were observed. InSeptember 2019 , we announced the initiation of a Phase 3 registrational trial for AT-001 in DbCM. The study, called ARISE-HF, will investigate AT-001's ability to improve or prevent the decline of functional capacity in patients with DbCM at high risk of progression to overt heart failure. OnApril 2 , the Company announced that a Covid-19 IND had been opened with the FDA for AT-001. AT-001 investigator-initiated trials were initiated at Mt. Sinai andNYU to address acute lung inflammation and cardiomyopathy in critical Covid-19 patients. The company also announced that the drug was being provided free of charge through "Named Patient" Emergency INDs at multiple hospitals across the US in critical Covid-19 patients. Covid-19 can cause significant cardiac morbidities, including cardiomyopathy. AT-001, has been shown to prevent oxidative damage to cardiomyocytes, and decrease oxidative-induced damage. In severe cases, Covid-19 infection can lead to development of Acute Respiratory Distress Syndrome (ARDS) and Acute lung Inflammation/Injury (ALI) resulting from inflammatory response. In an animal model of sepsis-induced ALI, Aldose Reductase inhibition was shown to have a beneficial effect and attenuate severity of disease by reducing cytokines (such as IL-6), neutrophil infiltration into the lungs, and activation of lung inflammatory endothelial cells. The company will make a decision as to 25
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whether to pursue further clinical development of AT-001 in Covid-19 based on the results of these pilot studies and individual patient results.
InMarch 2020 the Company hired a Chief Commercial Officer, and build-out of commercial infrastructure commenced. As such, we expect commercial expenditures to increase in 2020 as we prepare for potential galactosemia commercial launch, including additional costs related to marketing, market access, market research and sales and forecasting, as well as an increase in compensation expense related to several new hires in connection with the build-out. Since inception in 2016, our operations have focused on developing our product candidates, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials. We do not have any product candidates approved for sale and have not generated any revenue.
Initial Public Offering
OnMay 16, 2019 , the Company completed an initial public offering, or IPO, in which the Company issued and sold 4,000,000 shares of its common stock at a public offering price of$10.00 per share, for aggregate gross proceeds of$40.0 million . The Company received approximately$34.6 million in net proceeds after deducting underwriting discounts and commissions and offering costs. The shares began trading on The Nasdaq Global Market onMay 14, 2019 . Upon completion of the IPO, all of our outstanding shares of convertible preferred stock, converted into 7,538,671 shares of our common stock. Prior to the completion of the IPO, the Company primarily funded its operations with proceeds from the sale of convertible preferred stock. We have incurred significant operating losses since inception in 2016. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was$12.4 million for the three months endedMarch 31, 2020 . As ofMarch 31, 2020 , we had an accumulated deficit of$79.1 million . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities. Furthermore, we expect to incur additional costs associated with operating as a public company that we did not previously incur or had previously incurred at lower rates as a private company, including significant legal, accounting, investor relations and other expenses. As ofMarch 31, 2020 , we had cash and cash equivalents and short-term investments of$154.3 million .
OnNovember 7, 2019 , we entered into a securities purchase agreement for the Private Placement with the Purchasers. Pursuant to the securities purchase agreement, the Purchasers purchased 1,380,344 shares of our common stock. The purchase price for each share was$14.50 , with net proceeds of approximately$18 million . The closing of the purchase and sale of the securities occurred onNovember 12, 2019 .
InJanuary 2020 , we issued and sold 2,741,489 shares of our common stock at a public offering price of$45.50 per share, with an additional 411,223 shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares in the Secondary Public Offering. We received aggregate net proceeds, net of underwriting discounts and commissions and estimated offering expenses of$134.1 million .
Components of Our Results of Operations
Revenue
Since inception, we have not generated any revenue and do not expect to generate
any revenue from the sale of products in the near future. If our development
efforts for our product candidates are successful and result in regulatory
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approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
· employeerelated expenses, including salaries, related benefits and stockbased
compensation expense for employees engaged in research and development
functions;
· fees paid to consultants for services directly related to our product
development and regulatory efforts;
· expenses incurred under agreements with contract research organizations, or
CROs, as well as contract manufacturing organizations, or CMOs, and consultants
that conduct and provide supplies for our preclinical studies and clinical
trials;
· costs associated with preclinical activities and development activities;
· costs associated with our technology and our intellectual property portfolio;
and
· costs related to compliance with regulatory requirements.
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses. Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical development for our product candidates and continue to discover and develop additional product candidates. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of laterstage clinical trials. Historically, we have incurred research and development expenses that primarily relate to the development of AT001, AT007, and our ARI program. As we advance our product candidates, we expect to allocate our direct external research and development costs across each of the indications or product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stockbased compensation, for personnel in our
executive and finance functions. General and administrative expenses also
include professional fees for legal, accounting, auditing, tax and consulting
services; travel expenses; and facilityrelated expenses, which include
allocated expenses for rent and maintenance of facilities and other operating
costs.
We expect that our general and administrative expenses will increase in the
future as we increase our general and administrative headcount to support our
continued research and development and potential commercialization of our
product candidates. We also expect to incur increased expenses associated with
being a public company, including costs of accounting, audit, legal, regulatory
and tax compliance services; director and officer insurance costs; and investor
and public relations costs.
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Other Income (Expense), Net
Other income (expense), net consists of interest income (expense), net, and other expenses. Interest income (expense), net consists primarily of our interest income on our cash and cash equivalents and marketable securities. Other expense consists primarily of realized gains and losses on sales of marketable securities.
Results of Operations
Three Months Ended
The following table summarizes our results of operations for the three months
ended
(Unaudited)
Three Months Ended
March 31,
(in thousands) 2020 2019
Operating expenses:
Research and development $ 7,271 $ 6,874
General and administrative 5,196 1,855
Total operating expenses 12,467 8,729
Loss from operations (12,467) (8,729)
Other (expense) income, net:
Interest income (expense), net 122 (1)
Loss on extinguishment of debt - -
Other expense (24) -
Other (expense) income, net 98 (1)
Net loss $ (12,369) $ (8,730) Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended
March 31,
(in thousands) 2020 2019 Increase
Clinical and pre-clinical $ 5,162 $ 4,333 $829
Drug manufacturing and formulation 616 1,635 (1,019)
Personnel expenses 782 625 157
Stock-based compensation 642 147 495
Regulatory and other 69 134 (65)
Total research and development expenses $ 7,271 $ 6,874 $ 397
Research and development expenses for the three months ended March 31, 2020 were
$7.3 million , compared to $6.9 million for the three months ended March 31,
2019 . For the three months ended March 31, 2020 , the increase of $0.4 million
was primarily related to the increase in clinical and pre-clinical expenses of
$0.8 million for the advancement of clinical trials, increase in
personnel-related costs of $0.2 million and $0.5 million increase in stock-based
compensation expense due to an increase in headcount, which were offset by the
decrease in drug manufacturing and formulation expenses of $1.0 million and
decrease in regulatory and other expenses of $0.1 million .
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General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended
March 31,
(in thousands) 2020 2019 Increase
Personnel expenses $ 610 $ 259 $ 351
Stock-based compensation 689 178 511
Legal and professional fees 2,182 921 1,261
Other expenses 1,715 497 1,218
Total general and administrative expenses $ 5,196 $ 1,855 $ 3,341
General and administrative expenses were $5.2 million for the three months ended
March 31, 2020 , compared to $1.9 million for the three months ended March 31,
2019 . For the three months ended March 31, 2020 , the increase of $3.3 million
was primarily related to the increase in personnel expenses and stock-based
compensation of $0.4 million and $0.5 million , respectively, due to the increase
in headcount, including the hiring of the chief financial officer and chief
accounting officer, $1.3 million related to an increase in legal and
professional fees due to increased costs associated with being a public company,
and $1.2 million in other expenses relating to increased costs of insurance,
rent, and other office expenses.
Interest Income (Expense), Net
Interest income was$0.1 million for the three months endedMarch 31, 2020 , as compared to$1,000 expense for the three months endedMarch 31, 2019 . The change was primarily related to interest income from the Company's marketable securities of$0.1 million for the three months endedMarch 31, 2020 , which did not exist for the three months endedMarch 31, 2019 .
Other Expense
Other expense was$24,000 for the three months endedMarch 31, 2020 , compared to zero for the three months endedMarch 31, 2019 . The change was primarily related to the realized loss of$25,000 related to loss on foreign exchange transactions that did not exist during the three months endedMarch 31, 2019 , offset by other income of$1,000 .
Liquidity and Capital Resources
Since our inception throughMarch 31, 2020 , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. We expect our existing cash and cash equivalents and short-term investments of$154.3 million as ofMarch 31, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q. 29 Table of Contents Cash Flows The following table summarizes our cash flows for each of the periods presented: Three Months Ended March 31, (in thousands) 2020 2019 Net cash used in operating activities$ (18,855) $
(7,002)
Net cash used in investing activities (41,711)
-
Net cash provided by financing activities 134,219
2,940
Net increase (decrease) in cash and cash equivalents
Operating Activities Net cash used in operating activities for the three months endedMarch 31, 2020 , was$18.9 million . For the three months endedMarch 31, 2020 , the increase was primarily due to our net losses of$12.4 million from clinical and pre-clinical expenses, an increase in prepaid expenses of$2.1 million and a decrease in accounts payable of$7.2 million , which is partially offset by an increase in accrued expenses and other current liabilities of$1.5 million ,$1.3 million in non-cash stock-based compensation expense, and$0.1 million in amortization of operating lease right-of-use assets. Net cash used in operating activities for three months endedMarch 31, 2019 , was$7.0 million and was primarily due to our net loss of$8.7 million from drug manufacturing and formulation expenses, an increase in prepaid expenses of$0.5 million , and a decrease of$0.4 million in accounts payable, which are partially offset by increases$2.3 million in accrued expenses and other current liabilities and$0.3 million in non-cash stock-based compensation expense.
Investing Activities
Net cash used in investing activities for the three months endedMarch 31, 2020 was$41.7 million relating to our purchase of available-for-sale securities for$41.7 million .
During the three months ended
Financing Activities
During the three months endedMarch 31, 2020 , net cash provided by financing activities was$134.2 million , primarily from the cash proceeds from the secondary offering of$134.1 million and$0.1 million from the exercise of stock options for common stock under the Equity Incentive Plan. During the three months endedMarch 31, 2019 , net cash provided by financing activities was$2.9 million , primarily from the cash proceeds from the issuance of Series B Preferred Stock resulting in$3.1 million cash proceeds offset by payment of initial public offering costs of$0.2 million .
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. We expect that our expenses will increase significantly if and as we:
· continue the ongoing and planned development of our product candidates;
· initiate, conduct and complete any ongoing, anticipated or future preclinical
studies and clinical trials for our current and future product candidates;
· seek marketing approvals for any product candidates that successfully complete
clinical trials;
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· establish a sales, marketing, manufacturing and distribution infrastructure to
commercialize any current or future product candidate for which we may obtain
marketing approval;
· seek to discover and develop additional product candidates;
· continue to build a portfolio of product candidates through the acquisition or
inlicense of drugs, product candidates or technologies;
· maintain, protect and expand our intellectual property portfolio;
· hire additional clinical, regulatory and scientific personnel; and
· add operational, financial and management information systems and personnel,
including personnel to support our product development and planned future
commercialization efforts.
Furthermore, we have and expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:
· the initiation, scope, progress, timing, costs and results of our ongoing and
planned clinical trials for our product candidates;
· the outcome, timing and cost of meeting regulatory requirements established by
the FDA and other comparable foreign regulatory authorities;
· the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
· the cost of defending potential intellectual property disputes, including
patent infringement actions;
· the achievement of milestones or occurrence of other developments that trigger
payments under the Columbia Agreements or other agreements we may enter into;
· the extent to which we are obligated to reimburse, or entitled to reimbursement
of, clinical trial costs under future collaboration agreements, if any;
· the effect of competing technological and market developments;
· the cost and timing of completion of clinical or commercialscale manufacturing
activities;
· the costs of operating as a public company;
· the extent to which we inlicense or acquire other products and technologies;
· our ability to establish and maintain collaborations on favorable terms, if at
all;
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· the cost of establishing sales, marketing and distribution capabilities for our
product candidates in regions where we choose to commercialize our product
candidates, if approved; and
· the initiation, progress, timing and results of the commercialization our
product candidates, if approved, for commercial sale.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through offerings of securities, private equity financing, debt financings, collaborations or other strategic transactions. The terms of financing may adversely affect the holdings or the rights of our stockholders. Funding may not be available to us on acceptable terms, or at all. If we are unable to obtain funding, we may be required to delay, limit, reduce or terminate some or all of our research and product development, product portfolio expansion or future commercialization efforts. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as ofMarch 31, 2020 : Payments Due By Period Less Than More Than (in thousands) Total 1 Year 1 to 3 Years 4 to 5 Years 5 Years Operating lease commitments(1)$ 2,228 $ 465 $ 1,466 $ 297 $ - Total$ 2,228 $ 465 $ 1,466 $ 297 $ -
--------------------------------------------------------------------------------
(1) Represents future minimum lease payments under our operating lease for office
space.
Except as disclosed in the table above, we have no longterm debt or capital leases and no material noncancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchaseorder basis. We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the preceding table as the amount and timing of such payments are not known. We may incur potential contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we may be required to make under the 2016 and 2019 Columbia Agreements pursuant to which we have inlicensed certain intellectual property. Due to the uncertainty of the achievement and timing of the events requiring payment under this agreement, the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table above.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We 32
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evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K other than what is noted below. StockBased Compensation
We account for our stockbased compensation as expense in the statements of operations based on the awards' grant date fair values. We account for forfeitures as they occur by reversing any expense recognized for unvested awards.
We estimate the fair value of options granted using the BlackScholes option pricing model. The BlackScholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the riskfree interest rate and (d) expected dividends. Due to a historical lack of a public market for our common stock and a lack of companyspecific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to us, including stage of product development and life science industry focus. We use the simplified method as allowed by theSEC Staff Accounting Bulletin No. 107, ShareBased Payment, to calculate the expected term for options granted as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The riskfree interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock. The fair value of stockbased payments is recognized as expense over the requisite service period which is generally the vesting period.
Determination of the Fair Value of Common Stock
As there was no public market for our common stock prior to the IPO onMay 16, 2019 , the estimated fair value of our common stock prior toMay 16, 2019 had been determined by our board of directors, with input from management, considering third party valuations of our common stock as well as our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third party valuation through the date of the option grant. These third party valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of PrivatelyHeldCompany Equity Securities Issued as Compensation.
In addition to considering the results of these third party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
· the prices at which we sold shares of preferred stock and the superior rights
and preferences of the preferred stock relative to our common stock at the time
of each grant;
· the progress of our research and development programs, including the status and
results of preclinical studies for our product candidates;
· our stage of development and commercialization and our business strategy;
· external market conditions affecting the biotechnology industry and trends
within the biotechnology industry;
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· our financial position, including cash on hand, and our historical and
forecasted performance and operating results;
· the lack of an active public market for our common stock and our preferred
stock;
· the likelihood of achieving a liquidity event, such as an initial public
offering, or sale of our company in light of prevailing market conditions; and
· the analysis of initial public offerings and the market performance of similar
companies in the biotechnology industry.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stockbased compensation expense could have been materially different.
Options Granted
The intrinsic value of all outstanding options as ofMarch 31, 2020 was$104.5 million , based on the fair value of our common stock of$32.69 per share, of which approximately$61.1 million related to vested options and approximately$43.4 million related to unvested options.
OffBalance Sheet Arrangements
We have not entered into any offbalance sheet arrangements and do not have any holdings in variable interest entities.
Recently Issued Accounting Pronouncements
Refer to Note 1, in the accompanying notes to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10Q for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
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