mcrb-10q_20150930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x

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

For the quarterly period ended September 30, 2015

OR

o

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: 001-37465

 

 

Seres Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-4326290

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

215 First Street

Cambridge, MA

 

02142

(Address of principal executive offices)

 

(Zip Code)

(617) 945-9626

(Registrant’s telephone number, including area code)

N/A

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

 

 

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  x     No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x     No  o

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of November 6, 2015 there were 39,055,767 shares of Common Stock, $0.001 par value per share, outstanding.

 

 

 

 


Seres Therapeutics, Inc.

INDEX

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

 

4

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014

 

5

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the nine months ended September 30, 2015

 

6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

 

7

Notes to Consolidated Financial Statements

 

8

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

 

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4. Controls and Procedures

 

30

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

31

Item 1A. Risk Factors

 

31

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

 

60

Item 3. Defaults Upon Senior Securities

 

60

Item 4. Mine Safety Disclosures

 

60

Item 5. Other Information

 

60

Item 6. Exhibits

 

61

 

 

 

SIGNATURES

 

62

 

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the following:

 

·

our status as a development-stage company and our expectation to incur losses in the future;

 

·

our future capital needs and our need to raise additional funds;

 

·

our ability to build a pipeline of product candidates and develop and commercialize drugs;

 

·

our unproven approach to therapeutic intervention;

 

·

our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary regulatory approvals;

 

·

our ability to establish our own manufacturing facilities and to receive or manufacture sufficient quantities of our product candidates;

 

·

our ability to protect and enforce our intellectual property rights;

 

·

federal, state, and foreign regulatory requirements, including FDA regulation of our product candidates;

 

·

our ability to obtain and retain key executives and attract and retain qualified personnel; and

 

·

our ability to successfully manage our growth.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

 

3


Part I – Financial Information

SERES THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,702

 

 

$

114,185

 

Investments

 

 

149,641

 

 

 

 

Prepaid expenses and other current assets

 

 

3,020

 

 

 

58

 

Total current assets

 

 

222,363

 

 

 

114,243

 

Property and equipment, net

 

 

4,543

 

 

 

1,264

 

Restricted cash

 

 

139

 

 

 

139

 

Deferred offering costs

 

 

 

 

 

1,684

 

Deferred financing costs

 

 

 

 

 

15

 

Total assets

 

$

227,045

 

 

$

117,345

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

2,089

 

 

 

2,166

 

Accrued expenses and other current liabilities

 

 

2,757

 

 

 

1,737

 

Notes payable, current portion

 

 

 

 

 

1,200

 

Total current liabilities

 

 

4,846

 

 

 

5,103

 

Notes payable, net of discount

 

 

 

 

 

1,304

 

Preferred stock warrant liability

 

 

 

 

 

1,582

 

Total liabilities

 

 

4,846

 

 

 

7,989

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Convertible preferred stock (Series A, A-2, B, C, D and D-1), $0.001 par

   value; 10,000,000 and 24,348,003 shares authorized at September 30, 2015 and

   December 31, 2014, respectively; 0 and 22,866,987 shares issued and

   outstanding at September 30, 2015 and December 31, 2014, respectively;

   aggregate liquidation preference of $0 and $137,283 at September 30, 2015

   and December 31, 2014, respectively

 

 

 

 

 

136,077

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 and 38,000,000 shares

   authorized at September 30, 2015 and December 31, 2014,

   respectively; 39,055,767 and 6,890,250 shares issued and outstanding

   at September 30, 2015 and December 31, 2014 , respectively

 

 

39

 

 

 

7

 

Additional paid-in capital

 

 

285,148

 

 

 

1,104

 

Accumulated other comprehensive loss

 

 

(10

)

 

 

 

Accumulated deficit

 

 

(62,978

)

 

 

(27,832

)

Total stockholders’ equity (deficit)

 

 

222,199

 

 

 

(26,721

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

227,045

 

 

$

117,345

 

 

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

 

 

4


SERES THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

$

9,850

 

 

$

2,466

 

 

$

24,195

 

 

$

5,658

 

General and administrative expenses

 

 

4,711

 

 

 

1,113

 

 

 

10,873

 

 

 

2,211

 

Total operating expenses

 

 

14,561

 

 

 

3,579

 

 

 

35,068

 

 

 

7,869

 

Loss from operations

 

 

(14,561

)

 

 

(3,579

)

 

 

(35,068

)

 

 

(7,869

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(59

)

 

 

(61

)

 

 

(71

)

 

 

(154

)

Revaluation of preferred stock warrant liability

 

 

 

 

 

(521

)

 

 

(7

)

 

 

(504

)

Total other income (expense), net

 

 

(59

)

 

 

(582

)

 

 

(78

)

 

 

(658

)

Net loss

 

$

(14,620

)

 

$

(4,161

)

 

$

(35,146

)

 

$

(8,527

)

Accretion of convertible preferred stock to redemption value

 

 

 

 

 

(461

)

 

 

 

 

 

(1,019

)

Net loss attributable to common stockholders

 

 

(14,620

)

 

 

(4,622

)

 

 

(35,146

)

 

 

(9,546

)

Net loss per share attributable to common stockholders, basic

   and diluted

 

$

(0.38

)

 

$

(0.68

)

 

$

(1.92

)

 

$

(1.42

)

Weighted average common shares outstanding, basic and diluted

 

 

38,980,839

 

 

 

6,767,951

 

 

 

18,292,002

 

 

 

6,731,724

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments, net of tax of $0

 

 

(33

)

 

 

 

 

 

(10

)

 

 

 

Total other comprehensive loss

 

 

(33

)

 

 

 

 

 

(10

)

 

 

 

Comprehensive loss

 

$

(14,653

)

 

$

(4,622

)

 

$

(35,156

)

 

$

(9,546

)

 

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

 

 

 

5


SERES THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands, except share data)

 

 

 

Series A, A-2, B, C, D

and D-1 Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

Income

 

 

Stockholders’

Equity (Deficit)

 

Balance at December 31, 2014

 

 

22,866,987

 

 

$

136,077

 

 

 

6,890,250

 

 

$

7

 

 

$

1,104

 

 

$

(27,832

)

 

$

 

 

$

(26,721

)

Series D convertible preferred stock issuance costs

 

 

 

 

 

(24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

206,720

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Issuance of common stock upon exercise of common stock warrants

 

 

 

 

 

 

 

 

546,672

 

 

 

1

 

 

 

168

 

 

 

 

 

 

 

 

 

169

 

Issuance of common stock upon completion of initial public offering, net of offering costs

 

 

 

 

 

 

 

 

8,545,138

 

 

 

8

 

 

 

139,259

 

 

 

 

 

 

 

 

 

139,267

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,907

 

 

 

 

 

 

 

 

 

6,907

 

Reclassification of preferred stock warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,589

 

 

 

 

 

 

 

 

 

1,589

 

Conversion of convertible preferred stock upon listing of the Company’s common stock on the NASDAQ

 

 

(22,866,987

)

 

 

(136,053

)

 

 

22,866,987

 

 

 

23

 

 

 

136,030

 

 

 

 

 

 

 

 

 

136,053

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,146

)

 

 

 

 

 

(35,146

)

Balance at September 30, 2015

 

 

 

 

$

 

 

 

39,055,767

 

 

$

39

 

 

$

285,148

 

 

$

(62,978

)

 

$

(10

)

 

$

222,199

 

 

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

 

 

 

6


SERES THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(35,146

)

 

$

(8,527

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

6,907

 

 

 

700

 

Depreciation and amortization expense

 

 

394

 

 

 

113

 

Loss from revaluation of preferred stock warrant liability

 

 

7

 

 

 

504

 

Licensing fees paid in common stock warrant

 

 

 

 

 

317

 

Non-cash interest expense

 

 

269

 

 

 

64

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,962

)

 

 

(238

)

Accounts payable

 

 

532

 

 

 

519

 

Accrued expenses and other current liabilities

 

 

724

 

 

 

305

 

Net cash used in operating activities

 

 

(29,275

)

 

 

(6,243

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,126

)

 

 

(627

)

Purchases of investments

 

 

(197,100

)

 

 

 

Maturities of investments

 

 

47,295

 

 

 

 

Changes in restricted cash

 

 

 

 

 

(102

)

Net cash used in investing activities

 

 

(152,931

)

 

 

(729

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

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

 

 

(24

)

 

 

10,558

 

Proceeds from issuance of notes payable

 

 

 

 

 

2,000

 

Proceeds from exercise of stock options and common stock warrants

 

 

260

 

 

 

5

 

Proceeds from issuance of common stock upon completion of initial public offering

 

 

143,015

 

 

 

-

 

Repayment of notes payable

 

 

(2,600

)

 

 

(100

)

Payments of initial public offering costs

 

 

(2,928

)

 

 

(25

)

Net cash provided by financing activities

 

 

137,723

 

 

 

12,438

 

Net (decrease) increase in cash and cash equivalents

 

 

(44,483

)

 

 

5,466

 

Cash and cash equivalents at beginning of period

 

 

114,185

 

 

 

1,654

 

Cash and cash equivalents at end of period

 

$

69,702

 

 

$

7,120

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

162

 

 

$

93

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible preferred stock into common stock upon listing of the

   Company’s common stock on the NASDAQ

 

$

136,053

 

 

$

 

Accretion of convertible preferred stock to redemption value

 

$

 

 

$

1,019

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

97

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

648

 

 

$

 

 

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

 

 

7


SERES THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

(Unaudited)

 

 

1.

Nature of the Business and Basis of Presentation

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the company changed its name to Seres Therapeutics, Inc. The Company is a microbiome therapeutics platform company developing a novel class of biological drugs, which are designed to restore health by repairing the function of a dysbiotic microbiome. The Company’s lead product candidate, SER-109, is intended to prevent further recurrences of Clostridium difficile  infection (“CDI”), a debilitating infection of the colon, and, if approved by the FDA, could be a first-in-field drug. Using its microbiome therapeutics platform, the Company is developing additional product candidates, including SER-262 to prevent an initial recurrence of primary CDI and SER-287 to treat inflammatory bowel disease, including ulcerative colitis, and other product candidates to treat enteric pathogens, such as antibiotic-resistant bacteria. The Company is also conducting research on metabolic diseases, such as early-stage, non-insulin dependent diabetes; other inflammatory diseases, such as Crohn’s disease; and infections related to antibiotic use, cancer chemotherapy and immune suppression.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

On July 1, 2015, the Company completed an initial public offering (“IPO”) of its common stock, and issued and sold 8,545,138 shares of common stock at a price to the public of $18.00 per share, resulting in net proceeds of approximately $139,267 after deducting underwriting discounts and commissions and estimated offering expenses. The shares issued upon closing of the IPO included 1,114,583 shares of the Company’s common stock, which were sold to the underwriters pursuant to the full exercise of their option to purchase additional shares of common stock. Upon the listing of the Company’s common stock on the NASDAQ Global Select Market (“NASDAQ”) on June 26, 2015, all outstanding shares of the Company’s convertible preferred stock automatically converted into 22,866,987 shares of the Company’s common stock. In addition, at this time, the warrant to purchase shares of the Company’s Series A-2 convertible preferred stock was converted into a warrant to purchase shares of the Company’s common stock.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements as of September 30, 2015 and for the three months and nine months ended September 30, 2015 and 2014 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2014 included in the Company’s final prospectus filed under the Securities Act of 1933, as amended, with the SEC pursuant to Rule 424(b)(4) on June 26, 2015.

8


The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position as of September 30, 2015 and consolidated results of operations for the three and nine months ended September 30, 2015 and 2014 and its cash flows for the nine months ended September 30, 2015 and 2014. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2015.

 

 

2.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, corporate bonds and commercial paper purchased with original maturities of less than 90 days from the date of purchase, are stated at fair value.

Restricted Cash

The Company held cash of $139 as of September 30, 2015 and December 31, 2014 in a separate restricted bank account as a security deposit for the lease of the Company’s facilities and as collateral for the Company’s credit card program with Comerica Bank. The Company has classified these deposits as long-term restricted cash on its balance sheet.

Investments

The Company classifies its available-for-sale investments as current assets on the consolidated balance sheet if they mature within one year from the balance sheet date.

The Company classifies all of its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale securities are reported as a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the consolidated statement of operations and comprehensive loss. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary’, the Company reduces the investment to fair value through a charge to the consolidated statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments. The Company has all cash, cash equivalents and investments balances at one accredited financial institution, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including pre-clinical and clinical testing. These programs could be adversely affected by a significant interruption in the supply of such drug substance products.

9


Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

·

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

·

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities. The carrying value of the Company’s outstanding debt as of December 31, 2014 approximates fair value based on the variable interest rate for the borrowings outstanding as well as the short duration of the term of the note. The fair value of the outstanding debt was estimated using a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk, which represents a Level 3 measurement.

The following table presents information about the Company’s assets and liabilities as of September 30, 2015 and December 31, 2014 that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of September 30, 2015 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents

 

$

 

 

$

45,513

 

 

$

 

 

$

45,513

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Bonds

 

$

 

 

$

44,206

 

 

$

 

 

$

44,206

 

Commercial Paper

 

 

 

 

 

83,327

 

 

 

 

 

 

83,327

 

Government Securities

 

 

 

 

 

22,108

 

 

 

 

 

 

22,108

 

 

 

$

 

 

$

195,154

 

 

$

 

 

$

195,154

 

 

 

 

Fair Value Measurements as of December 31, 2014 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for preferred stock warrant

 

$

 

 

$

 

 

$

1,582

 

 

$

1,582

 

 

 

$

 

 

$

 

 

$

1,582

 

 

$

1,582

 

 

As of September 30, 2015, the Company’s cash equivalents, which were invested in money market funds, corporate bonds and commercial paper with original maturities of less than 90 days from the date of purchase, were valued based on Level 2 inputs. The fair value of the Company’s investments, which consisted of corporate bonds, commercial paper and government securities as of September 30, 2015, were determined using Level 2 inputs. During the three and nine months ended September 30, 2015 and 2014, there were no transfers between Level 1, Level 2 and Level 3.

The liability for the preferred stock warrant in the amount of $1,582 in the table above as of December 31, 2014 is comprised of the value of a warrant for the purchase of Series A-2 convertible preferred stock and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. There were no other assets or liabilities measured at a fair value on a recurring basis at September 30, 2015 or December 31, 2014.

In connection with the automatic conversion of the Company’s convertible preferred stock, which occurred upon the listing of the Company’s common stock on the NASDAQ on June 26, 2015, the preferred stock warrant became a warrant to purchase common stock and the liability was remeasured at fair value and reclassified to additional paid-in capital. The fair value of the preferred stock warrant liability at that time was tied to the initial offering price of $18.00 per share of common stock.

10


Deferred Offering Costs

The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs (non-current) until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the financing. As of September 30, 2015 and December 31, 2014 the Company had recorded $0 and $1,684, respectively, of deferred offering costs in contemplation of the IPO. On July 1, 2015, the Company reclassified $3,748 of deferred offering costs to additional paid in capital as a reduction of the proceeds from the IPO.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Laboratory equipment is depreciated over five years. Computer equipment and furniture and office equipment are depreciated over three years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. To date, the Company has not recorded any impairment losses on long-lived assets.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include salaries, stock-based compensation and benefits of employees, third-party license fees and other operational costs related to the Company’s research and development activities, including allocated facility-related expenses, external costs of outside vendors engaged to conduct both pre-clinical studies and clinical trials, contract manufacturing of pre-clinical and clinical product supply and other costs in connection with the development of our manufacturing processes.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other companies. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Accounting for Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options and

11


restricted stock awards with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company measures stock-based awards granted to consultants and non-employees based on the fair value of the award on the date on which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is re-measured using the then-current fair value of the Company’s common stock and updated assumption inputs in the Black-Scholes option-pricing model.

The Company classifies stock-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. 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 non-employees 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 based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Warrant to Purchase Convertible Preferred Stock

The Company classified a warrant to purchase shares of its Series A-2 convertible preferred stock as a liability on its consolidated balance sheets as this warrant was a free-standing financial instrument that could have required the Company to transfer assets upon exercise. The warrant was initially recorded at fair value on the date of grant, and it was subsequently remeasured to fair value at each balance sheet date. Changes in fair value of the warrant were recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss.

In connection with the automatic conversion of the Company’s convertible preferred stock, which occurred upon the listing of the Company’s common stock on the NASDAQ on June 26, 2015, the preferred stock warrant became a warrant to purchase common stock. The Company performed the final mark to market adjustment on the preferred stock warrant using the fair value of the underlying common shares of $18.00 per share on June 26, 2015 and recorded the change in fair value in other income (expense), net

12


in the consolidated statement of operations and comprehensive loss. The preferred stock warrant liability was then reclassified to additional paid-in-capital as it became a warrant to purchase common stock.

On August 17, 2015, Comerica Bank exercised its warrant for the purchase of common stock at an exercise price of $1.78 per share of common stock. The Company received proceeds of $164 in connection with the exercise of the common stock warrant.

Segment Data

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on developing Ecobiotic microbiome therapeutics to treat dysbiosis in the colonic microbiome. No revenue has been generated since inception, and all tangible assets are held in the United States.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the three and nine months ended September 30, 2015, other comprehensive income (loss) consisted of changes in unrealized gains (losses) from available-for-sale investments. There was no difference between net loss and comprehensive loss for the three and nine months ended September 30, 2014.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants and unvested restricted stock. The Company applies the two-class method to calculate its basic and diluted net loss per share attributable to common stockholders, as its convertible preferred stock and common stock are participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company was in a net loss position for each of the periods presented and preferred stockholders do not participate in losses.

The Company’s convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company. Similarly, restricted stock awards granted by the Company entitle the holder of such awards to dividends declared or paid by the board of directors, regardless of whether such awards are unvested, as if such shares were outstanding common shares at the time of the dividend. However, the unvested restricted stock awards are not entitled to share in the residual net assets (deficit) of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

Three and Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

Stock options to purchase common stock

 

 

4,842,496

 

 

 

3,056,805

 

Unvested restricted common stock

 

 

625

 

 

 

78,125

 

Warrants for the purchase of convertible preferred stock

 

 

 

 

 

92,127

 

Warrants for the purchase of common stock

 

 

 

 

 

738,635

 

Convertible preferred stock (as converted to common stock)

 

 

 

 

 

15,309,548

 

 

 

 

4,843,121

 

 

 

19,275,240

 

 

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the  FASB issued ASU No. 2015-14, Revenue from Contracts with

13


Customers (Topic 606): Deferral of the Effective Date,  which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. We are currently evaluating the method of adoption and the potential impact that Topic 606 may have on our financial position and results of operations.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard, but believes its adoption will not have a material impact on its financial statements.

 

 

3.

Investments

As of September 30, 2015, the fair value of available-for-sale investments by type of security was as follows:

 

 

 

September 30, 2015

 

 

 

Amortized

Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

44,288

 

 

$

 

 

$

(82

)

 

$

44,206

 

Commercial paper

 

 

83,254

 

 

 

73

 

 

 

 

 

 

83,327

 

Government securities

 

 

22,107

 

 

 

1

 

 

 

 

 

 

22,108

 

 

 

$

149,649

 

 

$

74

 

 

$

(82

)

 

$

149,641

 

 

Investments with original maturities of less than 90 days are included in cash and cash equivalents on the consolidated balance sheets and are not included in the table above. The Company did not hold any investments as of December 31, 2014.

As of September 30, 2015, the Company’s corporate bonds, commercial paper and government securities had remaining maturities of less than 12 months.

 

 

4.

Property and Equipment, Net

Property and equipment, net consisted of the following:

 

 

 

September 30,

2015

 

 

December 31,

2014

 

Laboratory equipment

 

$

2,700

 

 

$

1,260

 

Computer equipment

 

 

292

 

 

 

115

 

Furniture and office equipment

 

 

236

 

 

 

58

 

Leasehold improvements

 

 

1,856

 

 

 

114

 

Construction in progress

 

 

136

 

 

 

 

 

 

 

5,220

 

 

 

1,547

 

Less: Accumulated depreciation and amortization

 

 

(677

)

 

 

(283

)

 

 

$

4,543

 

 

$

1,264

 

 

Construction in progress at September 30, 2015 was comprised primarily of laboratory equipment purchased in connection with the build-out of laboratory space in one of our Cambridge, Massachusetts facilities.

Depreciation and amortization expense was $182, $394, $47 and $113 for the three and nine months ended September 30, 2015 and 2014, respectively.

 

 

14


5.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

September 30,

2015

 

 

December 31,

2014

 

Development and manufacturing costs

 

$

625

 

 

$

598

 

Payroll and payroll-related costs

 

 

1,382

 

 

 

547

 

Professional fees

 

 

281

 

 

 

314

 

Facility and other

 

 

469

 

 

 

278

 

 

 

$

2,757

 

 

$

1,737

 

 

 

6.

Notes Payable

On September 9, 2013, the Company entered into a loan and security agreement with Comerica Bank (“Comerica”), as amended on December 22, 2014, which provided for borrowings of up to $3,000 through August 2014. On September 9, 2013, the Company received $1,000 from borrowings under the agreement, and from March to August 2014, the Company received $2,000 from additional borrowings under the agreement. Through December 31, 2014, the Company borrowed the full $3,000 available under the loan and security agreement and had made $400 of scheduled principal repayments. During the nine months ended September 30, 2015, the Company made $900 of scheduled principal repayments. Borrowings under the loan and security agreement are collateralized by substantially all of the Company’s assets, except for its intellectual property.

In accordance with the terms of the loan and security agreement, the Company is obligated to make monthly, interest-only payments on any term loans funded under the agreement until August 1, 2014. Thereafter, the Company is obligated to pay 30 consecutive, equal monthly installments of principal and interest from September 1, 2014 through February 1, 2017, the maturity date. Term loans under the loan and security agreement bear interest at an annual rate equal to 3.0% plus the greater of (1) the bank’s prime rate and (2) the LIBOR rate plus 2.5%. As of September 30, 2015, the greater rate was 6.25%. In addition, a final payment of $60 is due upon the earlier of the maturity date, acceleration of the term loans or prepayment of all or part of the term loans. That amount is being recorded as additional interest expense over the term of the loan and security agreement, using the effective interest method.

On September 17, 2015, the Company made a payment of $1,765 to Comerica to satisfy all amounts owed under the loan and security agreement. The extinguishment amount was comprised of $1,700 of outstanding principal and $65 of final fees and accrued interest. Upon payment, Comerica released the Company of all security interests held in the Company’s assets, except for the cash collateral securing the Company’s corporate cards and standby letters of credit, and terminated all loan documents related to the loan and security agreement (other than any indemnification obligations and other provisions which survive termination).

In connection with the extinguishment of the loan and security agreement, the Company recorded a loss on extinguishment of $140, which has been recorded as interest expense in the three and nine months ended September 30, 2015.

Accretion of the debt discount recorded as additional interest expense was $73, $96, $16 and $49 for the three and nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, the unamortized debt discount was $0 and $96, respectively.

 

 

 

7.

Preferred Stock Warrant Liability

In September 2013, the Company issued a warrant to purchase 92,127 shares of Series A-2 convertible preferred stock in connection with its loan and security agreement. The warrant was immediately exercisable at an exercise price of $1.78 per share and has a contractual term of ten years from issuance. The fair value of the warrant at issuance was estimated to be $156 and was recorded as a debt discount and as a preferred stock warrant liability.

The Company classified the warrant to purchase shares of its Series A-2 convertible preferred stock as a liability on its consolidated balance sheets and subsequently re-measured to fair value at each balance sheet date. Changes in fair value of the warrant were recognized as a component of other income (expense), net, in the consolidated statement of operations and comprehensive loss.

The Company recorded losses of $7, $521 and $504 for nine months ended September 30, 2015 and the three and nine months September 30, 2014, respectively, to reflect the change in fair value of this preferred stock warrant.

15


The following assumptions and inputs were used in determining the fair value of the preferred stock warrant liability valued using the Black-Scholes option-pricing model:

 

 

 

Nine Months

Ended September 30,

 

 

 

2015

 

 

2014

 

Risk-free interest rate

 

 

2.40

%

 

 

2.60

%

Expected term (in years)

 

 

8.2

 

 

 

8.9

 

Expected volatility

 

 

91.2

%

 

 

86.0

%

Expected dividend yield

 

 

0

%

 

 

0

%

Fair value of Series A-2 convertible preferred stock

 

$

17.26

 

 

$

7.82

 

 

The following table provides a rollforward of the fair value of the Company’s preferred stock warrant liability:

 

Balance as of December 31, 2014

 

$

1,582

 

Loss on revaluation

 

 

7

 

Reclassification to stockholders’ equity

 

 

(1,589

)

Balance as of September 30, 2015

 

$

 

 

In connection with the automatic conversion of the Company’s convertible preferred stock, which occurred upon the listing of the Company’s common stock on the NASDAQ on June 26, 2015, the preferred stock warrant became a warrant to purchase common stock. The Company performed the final mark to market adjustment on the preferred stock warrant using the fair value of the underlying common shares of $18.00 per share on June 26, 2015 and recorded the change in fair value in other income (expense), net in the consolidated statement of operations and comprehensive loss. The preferred stock warrant liability was then reclassified to additional paid-in-capital as it became a warrant to purchase common stock.

 

On August 17, 2015, Comerica Bank exercised its warrant for the purchase of common stock at an exercise price of $1.78 per share of common stock. The Company received proceeds of $164 in connection with the exercise of the common stock warrant.

 

 

 

8.

Convertible Preferred Stock

As of September 30, 2015, the Company’s Amended and Restated Certificate of Incorporation, as further amended, authorized the Company to issue 10,000,000 shares of preferred stock, $0.001 par value per share.

 

 

 

9.

Stockholders’ Equity

Common Stock

On July 1, 2015, the Company completed an IPO, and issued and sold 8,545,138 shares of common stock at a public offering price of $18.00 per share, resulting in net proceeds of approximately $139,267 after deducting underwriting discounts and commissions and other offering expenses totaling $3,748. The shares issued upon closing of the IPO included 1,114,583 shares of the Company’s common stock, which were sold to the underwriters pursuant to the full exercise of their option to purchase additional shares of common stock. Upon the listing of the Company’s common stock on the NASDAQ on June 26, 2015, all outstanding shares of the Company’s convertible preferred stock automatically converted into 22,866,987 shares of the Company’s common stock.

As of December 31, 2014, the Company’s Amended and Restated Certificate of Incorporation, as further amended, authorized the Company to issue 38,000,000 shares of common stock, $0.001 par value per share. On July 1, 2015, in connection with the closing of the IPO, the Company effected its Restated Certificate of Incorporation, which authorizes the Company to issue 200,000,000 shares of common stock, $0.001 par value per share.

Common Stock Warrant

In June 2014, the Company entered into a research agreement with the Mayo Foundation for Medical Education and Research (“Mayo”) under which the Company acquired a license to intellectual property. In exchange for the license, the Company issued to Mayo a warrant to purchase 454,545 shares of common stock at an exercise price of $0.01 per share, which was immediately exercisable. Upon issuance of the warrant, the Company recorded research and development expense of $317 for the fair value of the

16


warrant, determined using the following assumptions in the Black-Scholes option-pricing model: expected volatility of 86.0%, risk-free interest rate of 2.3%, expected term of seven years (equaling the contractual term of the warrant) and no expected dividends. Because this warrant was indexed to the Company’s stock and could only be settled by gross physical delivery of shares the Company determined that this warrant qualifies for equity classification. This warrant was exercised on April 29, 2015.

The Company also issued to Mayo an additional warrant (the “performance warrant”) to purchase up to 284,090 shares of common stock at an exercise price equal to the per share price at which the Company most recently sold shares of its preferred stock. The performance warrant was exercisable for a number of shares to be determined by the Company’s board of directors from time to time, upon the achievement by Mayo of specified milestones related. The performance warrant provided for termination upon the closing of an initial public offering by the Company. The IPO closed prior to any probable achievement of the specified milestones, therefore, the warrant terminated and the Company did not record any expense for the performance warrant from the date of issuance through the closing of the IPO.

2012 Stock Incentive Plan

The Company’s 2012 Stock Incentive Plan, as amended, (the “2012 Plan”) provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors and consultants of the Company. The 2012 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The Company generally grants stock-based awards with service conditions only (“service-based” awards). Stock options granted generally vest over four years and expire after ten years, although options have been granted with vesting terms less than four years.

2015 Incentive Award Plan

On June 16, 2015, the Company’s stockholders approved the 2015 Incentive Award Plan (the “2015 Plan”), which became effective on June 25, 2015. The 2015 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The number of shares initially reserved for issuance under the 2015 Plan is the sum of (i) 2,200,000 shares of common stock and (ii) the number of shares subject to awards outstanding under the 2012 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company on or after the effective date of the 2015 Plan. In addition, the number of shares of common stock that may be issued under the 2015 Plan is subject to increase on the first day of each calendar year, beginning in 2016 and ending in 2025, equal to the lesser of (i) 4% of the number of shares of the Company’s common stock outstanding on the last day of the preceding applicable calendar year and (ii) an amount determined by the Company’s board of directors.

2015 Employee Stock Purchase Plan

On June 16, 2015, the Company’s stockholders approved the 2015 Employee Stock Purchase Plan (the “ESPP”), which became effective on June 25, 2015. A total of 365,000 shares of common stock were reserved for issuance under the ESPP. In addition, the number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each calendar year, beginning in 2016 and ending in 2025, by an amount equal to the least of (i) 400,000 shares, (ii) 1% of the number of shares of the Company’s common stock outstanding on the last day of the applicable preceding calendar year and (iii) an amount determined by the Company’s board of directors. Offering periods under the ESPP will commence when determined by the plan administrator.

17


Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2014:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

 

Outstanding as of December 31, 2014

 

 

3,579,342

 

 

$

1.38

 

 

 

9.21

 

 

$

59,498

 

Granted

 

 

1,540,124

 

 

 

18.26

 

 

 

 

 

 

 

 

 

Exercised

 

 

(206,720

)

 

 

0.44

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(70,250

)

 

 

5.04

 

 

 

 

 

 

 

 

 

Outstanding as of September 30, 2015

 

 

4,842,496

 

 

$

6.73

 

 

 

8.89

 

 

$

111,830

 

Options exercisable as of September 30, 2015

 

 

1,279,950

 

 

$

0.60

 

 

 

8.26

 

 

$

37,168

 

Options vested and expected to vest as of September 30, 2015

 

 

4,842,496

 

 

$

6.73

 

 

 

8.89

 

 

$

111,830

 

 

The weighted average grant-date fair value of stock options granted during the three and nine months ended September 30, 2015 was $29.25 and $13.00 per share, respectively.

During the nine months ended September 30, 2015, the Company granted performance-based stock options to employees for the purchase of an aggregate of 30,000 shares of common stock with a grant date fair value of $12.89 per share. These stock options are exercisable only upon achievement of specified performance targets. As of September 30, 2015, none of these options were exercisable because none of the specified performance targets had been achieved. Because achievement of the specified performance targets was not deemed probable as of September 30, 2015, the Company did not record any expense for these stock options from the dates of issuance through September 30, 2015.

As of September 30, 2015, there were outstanding unvested service-based stock options held by non-employees for the purchase of 32,125 shares of common stock.

Restricted Common Stock

The Company has granted restricted common stock with time-based vesting conditions. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. The table below summarizes the Company’s restricted stock activity since December 31, 2014:

 

 

 

Number

of Shares

 

 

Weighted

Average Grant

Date Fair Value

 

Unvested restricted common stock as of December 31, 2014

 

 

52,500

 

 

$

0.001

 

Vested

 

 

(51,875

)

 

$

0.001

 

Unvested restricted common stock as of September 30, 2015

 

 

625

 

 

$

0.001

 

 

 

Stock-based Compensation Expense

The Company recorded stock-based compensation expense related to stock options and restricted common stock in the following expense categories of its consolidated statements of operations and comprehensive loss:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Research and development expenses

 

$

1,304

 

 

$

272

 

 

$

3,818

 

 

$

344

 

General and administrative expenses

 

 

1,203

 

 

 

331

 

 

 

3,089

 

 

 

356

 

 

 

$

2,507

 

 

$

603

 

 

$

6,907

 

 

$