10-Q
000false0--12-310Q10000156482400http://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrent0001564824us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:RetainedEarningsMember2023-03-310001564824allk:SanCarlosLeaseAgreementMember2019-12-310001564824us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824allk:TimeBasedRestrictedStockUnitsMember2023-01-012023-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001564824allk:AtTheMarketEquityOfferingMember2022-08-040001564824us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:AdditionalPaidInCapitalMember2023-12-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001564824us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:InvestmentsMember2024-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:AdditionalPaidInCapitalMember2024-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:AdditionalPaidInCapitalMember2022-12-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-3100015648242023-12-310001564824us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2023-12-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001564824allk:TwoThousandEighteenEmployeeStockPurchasePlanMember2024-01-012024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:CommonStockMember2022-12-310001564824srt:MaximumMemberallk:TwoThousandAndEighteenEquityIncentivePlansMember2018-07-012018-07-3100015648242024-05-030001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMemberallk:AtTheMarketOfferingProgram1Member2023-01-012023-03-310001564824us-gaap:FairValueMeasurementsRecurringMember2024-03-3100015648242023-01-012023-03-310001564824us-gaap:CommonStockMember2024-03-310001564824us-gaap:ConstructionInProgressMember2023-12-310001564824allk:PerformanceBasedRestrictedStockUnitsMember2024-03-310001564824us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2024-03-310001564824allk:SanCarlosLeaseAgreementMember2019-12-012019-12-310001564824us-gaap:FurnitureAndFixturesMember2023-12-310001564824allk:RightOfUseAssetMember2024-01-012024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:InvestmentsMember2024-03-310001564824allk:TwoThousandEighteenEmployeeStockPurchasePlanMember2024-03-310001564824us-gaap:AdditionalPaidInCapitalMember2023-03-310001564824us-gaap:IndemnificationGuaranteeMember2024-03-310001564824us-gaap:EquipmentMember2024-03-310001564824allk:TwoThousandEighteenEmployeeStockPurchasePlanMember2018-07-310001564824allk:PerformanceBasedRestrictedStockUnitsMember2023-12-310001564824allk:SanCarlosLeaseAgreementMember2024-03-310001564824allk:UnvestedPerformanceStockUnitMember2023-01-012023-03-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001564824us-gaap:RetainedEarningsMemberallk:AtTheMarketOfferingProgram1Member2023-01-012023-03-3100015648242023-03-310001564824us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001564824us-gaap:CommonStockMember2023-12-310001564824us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-310001564824allk:TimeBasedRestrictedStockUnitsMember2023-12-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824allk:UnvestedPerformanceStockUnitMember2024-01-012024-03-310001564824us-gaap:CommonStockMember2023-01-012023-03-310001564824allk:DefinedContributionPlanUnderSection401KPlanMember2024-01-012024-03-310001564824us-gaap:CommonStockMember2024-01-012024-03-310001564824us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001564824us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-03-310001564824us-gaap:RetainedEarningsMember2023-12-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2024-03-310001564824us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824srt:MaximumMemberallk:DefinedContributionPlanUnderSection401KPlanMember2024-01-012024-03-310001564824allk:AtTheMarketEquityOfferingMember2024-03-310001564824allk:TimeBasedRestrictedStockUnitsMember2024-01-012024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2023-12-310001564824us-gaap:LeaseholdImprovementsMember2024-03-310001564824srt:MaximumMember2024-03-310001564824us-gaap:EmployeeStockMember2024-01-012024-03-310001564824allk:TwoThousandAndTwelveEquityIncentivePlanMembersrt:MaximumMember2018-07-012018-07-310001564824us-gaap:EquipmentMember2023-12-310001564824us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2024-03-310001564824us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001564824allk:TwoThousandAndEighteenEquityIncentivePlansMember2024-01-012024-03-310001564824us-gaap:RetainedEarningsMember2023-01-012023-03-310001564824us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001564824allk:AtTheMarketEquityOfferingMember2023-01-012023-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:RetainedEarningsMember2022-12-310001564824allk:PerformanceBasedRestrictedStockUnitsMember2024-01-012024-03-310001564824us-gaap:AdditionalPaidInCapitalMemberallk:AtTheMarketOfferingProgram1Member2023-01-012023-03-310001564824us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:InvestmentsMember2023-12-310001564824us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2023-12-310001564824allk:SanCarlosLeaseAgreementMember2023-03-270001564824us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:ConstructionInProgressMember2024-03-310001564824allk:CapitalizedSoftwareMember2023-12-310001564824allk:AtTheMarketEquityOfferingMember2024-01-012024-03-310001564824allk:TimeBasedRestrictedStockUnitsMember2024-03-310001564824us-gaap:EmployeeStockMember2023-01-012023-03-310001564824allk:SanCarlosLeaseAgreementMember2024-01-012024-03-3100015648242022-12-310001564824us-gaap:RetainedEarningsMember2024-01-012024-03-310001564824allk:TwoThousandEighteenEmployeeStockPurchasePlanMember2018-07-012018-07-310001564824allk:CapitalizedSoftwareMember2024-03-310001564824us-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:CommonStockMember2023-03-310001564824allk:AtTheMarketEquityOfferingMember2023-03-310001564824srt:MaximumMemberallk:SanCarlosLeaseAgreementMember2019-12-310001564824us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2023-12-310001564824us-gaap:RetainedEarningsMember2024-03-3100015648242024-01-012024-03-310001564824us-gaap:LeaseholdImprovementsMember2024-01-012024-03-310001564824us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824allk:SanCarlosLeaseAgreementMember2023-12-310001564824us-gaap:CommonStockMemberallk:AtTheMarketOfferingProgram1Member2023-01-012023-03-310001564824us-gaap:FurnitureAndFixturesMember2024-01-012024-03-3100015648242024-03-310001564824us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001564824allk:TwoThousandAndEighteenEquityIncentivePlansMember2018-07-310001564824us-gaap:FurnitureAndFixturesMember2024-03-310001564824us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2024-03-310001564824us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824allk:TwoThousandAndEighteenEquityIncentivePlansMember2018-07-012018-07-310001564824allk:AtTheMarketOfferingProgram1Member2023-01-012023-03-310001564824allk:TwoThousandAndTwelveEquityIncentivePlanMember2018-07-012018-07-310001564824us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001564824allk:TwoThousandEighteenEmployeeStockPurchasePlanMember2023-01-012023-03-310001564824us-gaap:LeaseholdImprovementsMember2023-12-310001564824allk:DefinedContributionPlanUnderSection401KPlanMember2023-01-012023-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:InvestmentsMember2023-12-310001564824us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001564824us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001564824allk:AtTheMarketEquityOfferingMember2022-08-042022-08-04xbrli:pureallk:Segmentutr:sqftxbrli:sharesiso4217:USDxbrli:sharesiso4217:USD

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

 

For the transition period from ________ to _________

 

Commission File Number: 001-38582

 

Allakos Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-4798831

(State or other jurisdiction of

incorporation or organization)

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

825 Industrial Road, Suite 500

San Carlos, California

94070

(Address of principal executive offices)

(Zip Code)

 

 

(650) 597-5002

Registrant’s telephone number, including area code

 

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.001

ALLK

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of May 3, 2024, the registrant had 88,544,474 shares of common stock outstanding.

 


 

ALLAKOS INC.

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

Balance Sheets

2

Statements of Operations and Comprehensive Loss

3

 

Statements of Stockholders’ Equity

4

Statements of Cash Flows

5

Notes to Unaudited Interim Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

allakos inc.

balance sheets

(in thousands, except per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,060

 

 

$

66,440

 

Investments

 

 

96,192

 

 

 

104,354

 

Prepaid expenses and other current assets

 

 

8,382

 

 

 

9,095

 

Total current assets

 

 

147,634

 

 

 

179,889

 

Property and equipment, net

 

 

17,364

 

 

 

33,369

 

Operating lease right-of-use assets

 

 

10,577

 

 

 

24,136

 

Other long-term assets

 

 

1,737

 

 

 

6,216

 

Total assets

 

$

177,312

 

 

$

243,610

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

15,748

 

 

$

1,764

 

Accrued expenses and other current liabilities

 

 

20,173

 

 

 

34,814

 

Total current liabilities

 

 

35,921

 

 

 

36,578

 

Operating lease liabilities, net of current portion

 

 

37,408

 

 

 

38,215

 

Total liabilities

 

 

73,329

 

 

 

74,793

 

Contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value per share; 20,000 shares
   authorized as of March 31, 2024 and December 31, 2023;
   
no shares issued and outstanding as of March 31, 2024
   and December 31, 2023

 

 

 

 

 

 

Common stock, $0.001 par value per share; 200,000 shares
   authorized as of March 31, 2024 and December 31, 2023;
   
88,544 and 87,750 shares issued and outstanding as of
   March 31, 2024 and December 31, 2023, respectively

 

 

89

 

 

 

88

 

Additional paid-in capital

 

 

1,293,497

 

 

 

1,287,156

 

Accumulated other comprehensive gain (loss)

 

 

20

 

 

 

50

 

Accumulated deficit

 

 

(1,189,623

)

 

 

(1,118,477

)

Total stockholders’ equity

 

 

103,983

 

 

 

168,817

 

Total liabilities and stockholders’ equity

 

$

177,312

 

 

$

243,610

 

 

See accompanying notes to unaudited interim financial statements

 

2


 

Allakos Inc.

Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Operating expenses

 

 

 

 

 

 

Research and development

 

$

34,824

 

 

$

33,078

 

General and administrative

 

 

10,898

 

 

 

11,968

 

Impairment of long-lived assets

 

 

27,347

 

 

 

 

Total operating expenses

 

 

73,069

 

 

 

45,046

 

Loss from operations

 

 

(73,069

)

 

 

(45,046

)

Interest income

 

 

1,995

 

 

 

2,678

 

Other expense, net

 

 

(72

)

 

 

(36

)

Net loss

 

 

(71,146

)

 

 

(42,404

)

Unrealized gain (loss) on investments

 

 

(30

)

 

 

296

 

Comprehensive loss

 

$

(71,176

)

 

$

(42,108

)

Net loss per common share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.81

)

 

$

(0.49

)

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

 

88,042

 

 

 

85,845

 

 

See accompanying notes to unaudited interim financial statements

 

3


 

Allakos Inc.

Statements of STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Gain (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

 

87,750

 

 

$

88

 

 

$

1,287,156

 

 

$

50

 

 

$

(1,118,477

)

 

$

168,817

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,210

 

 

 

 

 

 

 

 

 

6,210

 

Issuance of common stock upon exercise of stock options

 

 

26

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

26

 

Issuance of common stock upon 2018 ESPP purchase

 

 

98

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

106

 

Issuance of common stock upon vesting of restricted stock units

 

 

670

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

(30

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,146

)

 

 

(71,146

)

Balance at March 31, 2024

 

 

88,544

 

 

$

89

 

 

$

1,293,497

 

 

$

20

 

 

$

(1,189,623

)

 

$

103,983

 

 

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Gain (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

85,387

 

 

$

85

 

 

$

1,243,408

 

 

$

(284

)

 

$

(932,776

)

 

$

310,433

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,665

 

 

 

 

 

 

 

 

 

10,665

 

Issuance of common stock upon exercise of stock options

 

 

6

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

26

 

Issuance of common stock upon 2018 ESPP purchase

 

 

144

 

 

 

 

 

 

442

 

 

 

 

 

 

 

 

 

442

 

Issuance of common stock upon vesting of restricted stock units

 

 

881

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Issuance of common stock under the ATM Offering, net of issuance costs

 

 

142

 

 

 

 

 

 

990

 

 

 

 

 

 

 

 

 

990

 

Unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

296

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,404

)

 

 

(42,404

)

Balance at March 31, 2023

 

 

86,560

 

 

$

86

 

 

$

1,255,530

 

 

$

12

 

 

$

(975,180

)

 

$

280,448

 

 

See accompanying notes to unaudited interim financial statements

 

4


 

Allakos Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(71,146

)

 

$

(42,404

)

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

 

 

 

 

 

 

Impairment of long-lived assets

 

 

27,347

 

 

 

 

Depreciation and amortization

 

 

1,072

 

 

 

1,524

 

Stock-based compensation

 

 

6,210

 

 

 

10,665

 

Net accretion of premiums and discounts on investments

 

 

(962

)

 

 

(1,474

)

Noncash lease expense

 

 

1,149

 

 

 

474

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

774

 

 

 

(1,195

)

Other long-term assets

 

 

4,479

 

 

 

3,227

 

Accounts payable

 

 

13,984

 

 

 

4,385

 

Accrued expenses and other current liabilities

 

 

(14,641

)

 

 

(4,475

)

Operating lease liabilities, net of current portion

 

 

(807

)

 

 

(866

)

Net cash used in operating activities

 

 

(32,541

)

 

 

(30,139

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments

 

 

(34,367

)

 

 

(49,415

)

Proceeds from maturities of investments

 

 

43,400

 

 

 

85,000

 

Purchases of property and equipment

 

 

(4

)

 

 

(267

)

Net cash provided by investing activities

 

 

9,029

 

 

 

35,318

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

990

 

Proceeds from exercise of stock options

 

 

26

 

 

 

26

 

Proceeds from issuance of common stock under the 2018 ESPP

 

 

106

 

 

 

442

 

Net cash provided by financing activities

 

 

132

 

 

 

1,458

 

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

 

 

(23,380

)

 

 

6,637

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

67,912

 

 

 

88,689

 

Cash, cash equivalents and restricted cash, end of period

 

$

44,532

 

 

$

95,326

 

Supplemental disclosures

 

 

 

 

 

 

Noncash investing and financing items:

 

 

 

 

 

 

Noncash adjustments to right-of-use assets upon lease amendment

 

$

 

 

$

(5,617

)

 

See accompanying notes to unaudited interim financial statements

 

5


 

ALLAKOS INC.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

1. Organization and Business

Allakos Inc. (“Allakos” or the “Company”) was incorporated in the State of Delaware in March 2012. Allakos is a clinical stage biopharmaceutical company focused on developing therapeutics which target immunomodulatory receptors present on immune effector cells involved in allergic, inflammatory and proliferative diseases. Our most advanced product candidate is AK006 which targets mast cells. Inappropriately activated mast cells have been identified as key drivers in a number of severe diseases affecting the gastrointestinal tract, eyes, skin, lungs and other organs. The Company’s primary activities to date have included establishing its facilities, recruiting personnel, conducting research and development of its product candidates and raising capital. The Company’s operations are located in San Carlos, California. The Company operates in one reportable segment.

Liquidity Matters

Since inception, the Company has incurred net losses and negative cash flows from operations. During the three months ended March 31, 2024, the Company incurred a net loss of $71.1 million. At March 31, 2024, the Company had an accumulated deficit of $1,189.6 million and does not expect to experience positive cash flows from operating activities in the foreseeable future. The Company has financed its operations to date primarily through the sale of common stock. Management expects to incur additional operating losses in the future as the Company continues to further develop, seek regulatory approval for and, if approved, commence commercialization of its product candidates.

On January 16, 2024, the Company announced that due to unfavorable clinical trial results associated with the use of lirentelimab in its Phase 2 atopic dermatitis and Phase 2b chronic spontaneous urticaria trials, that the Company would halt lirentelimab-related activities across clinical, manufacturing, research and administrative functions. Accordingly, the Company’s Board of Directors approved a reorganization plan to reduce operating costs and better align our workforce with our current clinical development plans of our business (the “2024 Reorganization Plan”). Under the 2024 Reorganization Plan, the Company’s workforce was reduced by approximately 50% primarily during the first quarter of 2024.

The Company had $139.3 million of cash, cash equivalents and marketable securities at March 31, 2024. Management believes that this amount is sufficient to fund the Company’s operations for at least the next 12 months from the issuance date of these financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes.

The interim balance sheet as of March 31, 2024, the statements of operations and comprehensive loss, statements of stockholders’ equity for the three months ended March 31, 2024 and 2023 and statements of cash flows for the three months ended March 31, 2024 and 2023 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position as of March 31, 2024 and its results of operations and comprehensive loss for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023. Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with U.S. GAAP have been omitted. The financial data and the other financial information disclosed in these notes to the interim financial statements are also unaudited. The results of operations for any interim period are not necessarily indicative of the results to be expected for the entire year or for any other future annual or interim period. These interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2024.

Use of Estimates

Management uses significant judgment when making estimates related to common stock valuation and related stock-based compensation expense, accrued research and development expense, valuation of long-lived assets and lease-related assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be 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. Actual results could differ from those estimates under different assumptions or conditions, and those differences could be material to the financial position and results of operations.

 

6


 

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to credit risk principally consist of cash, cash equivalents and investments. These financial instruments are currently held in accounts in varying amounts at four separate financial institutions that management believes possess high credit quality. Amounts on deposit with these financial institutions have and will continue to exceed federally-insured limits. The Company has not experienced any losses on its cash deposits. Additionally, the Company’s investment policy limits its investments to certain types of securities issued by or backed by the U.S. government and its agencies.

The Company is subject to a number of risks similar to that of other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future clinical trials, its reliance on third-parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitive developments, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, protection of proprietary technology, and the need to secure and maintain adequate manufacturing arrangements with third-parties. If the Company does not successfully commercialize or partner its product candidates, it will be unable to generate product revenue or achieve profitability.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s balance sheets and which, in aggregate, represent the amounts reported in the accompanying statements of cash flows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

43,060

 

 

$

66,440

 

Restricted cash in other long-term assets

 

 

1,472

 

 

 

1,472

 

Total

 

$

44,532

 

 

$

67,912

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

93,854

 

 

$

87,217

 

Restricted cash in other long-term assets

 

 

1,472

 

 

 

1,472

 

Total

 

$

95,326

 

 

$

88,689

 

 

Restricted cash at March 31, 2024 represents $1.5 million in security deposits for the lease of the Company’s facility in San Carlos, California. The security deposit is in the form of a letter of credit secured by restricted cash and is recorded in other long-term assets on the Company’s balance sheets.

Investments

The Company invests in marketable securities, primarily securities issued by the U.S. government and its agencies. The Company’s investments are considered available-for-sale and are classified as current assets even when the stated maturities of the underlying securities exceed one year from the date of the current balance sheet being reported. This classification reflects management’s ability and intent to utilize proceeds from the sale of such investments to fund ongoing operations. Unrealized gains and losses are excluded from earnings and are reported as a component of accumulated other comprehensive gain (loss) unless the decline in fair value of the investments is attributable to expected credit losses and if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. The cost of securities sold is determined using the specific-identification method. Interest earned and adjustments for the amortization of premiums and discounts on investments are included in interest income on the statements of operations and comprehensive loss. Realized gains and losses on the sale of investments are included in other expense, net, on the statements of operations and comprehensive loss.

Valuation of Long-lived Assets

Long-lived assets, including property and equipment and finite-lived intangible assets, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of the long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have recorded impairment charges during the quarter

 

7


 

ended March 31, 2024. For a further description of the impairment, see Note 5 – Impairment of Long-Lived Assets in the accompanying notes.

Operating Leases

The Company accounts for its leases in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). Right-of-use assets represent the Company’s right to use an underlying asset over the lease term and include any lease payments made prior to the lease commencement date and are reduced by lease incentives. Lease liabilities represent the present value of the total lease payments over the lease term, calculated using the Company’s incremental borrowing rate. In determining the Company’s incremental borrowing rate, consideration is given to the term of the lease and the Company’s credit risk. The Company recognizes options to extend a lease when it is reasonably certain that it will exercise such extension. The Company does not recognize options to terminate a lease when it is reasonably certain that it will not exercise such early termination options. Lease expense is recognized on a straight-line basis over the expected lease term.

Accrued Research and Development Expense

Service agreements with contract development and manufacturing organizations (“CDMOs”), clinical contract research organizations (“CROs”) and clinical investigative sites comprise a significant component of the Company’s research and development activities. External costs for these vendors are recognized as the services are incurred. The Company accrues for expenses resulting from obligations under agreements with its third-parties for which the timing of payments does not match the periods over which the materials or services are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CDMOs, clinical CROs, clinical investigative sites and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services.

The Company makes judgements and estimates in determining the accrual balance in each reporting period. In the event advance payments are made to a CDMO, clinical CRO, clinical investigative site or other outside service provider, the payments are recorded within prepaid expenses and other current assets or other long-term assets, as appropriate, and subsequently recognized as research and development expense when the associated services have been performed. As actual costs become known, the Company adjusts its liabilities and assets. Inputs, such as the extent of services received and the duration of services to be performed, may vary from the Company’s estimates, which will result in adjustments to research and development expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations. The Company’s historical estimates have not been materially different from actual amounts recorded.

Research and Development Expense

Research and development costs are expensed as incurred. Research and development costs include, among others, consulting costs, salaries, benefits, travel, stock-based compensation, laboratory supplies and other non-capital equipment utilized for in-house research, allocation of facilities and overhead costs and external costs paid to third-parties that conduct research and development activities on the Company’s behalf. Costs to terminate commitments with third-party suppliers performing research and development activities and amounts incurred in connection with license agreements, including milestone payments, are also included in research and development expense.

Advance payments for goods or services to be rendered in the future for use in research and development activities are deferred and included in prepaid expenses and other current assets or other long-term assets, as appropriate. The deferred amounts are expensed as the related goods are delivered or the services are performed.

Comprehensive Loss

Comprehensive loss is defined as the change in stockholders’ equity during a period from transactions and other events and circumstances from non-owner sources. The differences between net loss and comprehensive loss for the three months ended March 31, 2024 and 2023 are a result of unrealized gains and losses on the Company’s investments in marketable securities included in current assets on the Company’s balance sheets.

Net Loss per Share

The Company calculates basic net loss per share by dividing the net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. The Company calculates diluted net loss per share after giving

 

8


 

consideration to all potentially dilutive securities outstanding during the period using the treasury-stock and if-converted methods, except where the effect of including such securities would be anti-dilutive. Because the Company has reported net losses since inception, the effect from potentially dilutive securities would have been anti-dilutive and therefore has been excluded from the calculation of diluted net loss per share.

Basic and diluted net loss per share was calculated as follows (in thousands, except per share data):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(71,146

)

 

$

(42,404

)

Denominator:

 

 

 

 

 

 

Weighted-average shares of common stock outstanding,
   basic and diluted

 

 

88,042

 

 

 

85,845

 

Net loss per share, basic and diluted

 

$

(0.81

)

 

$

(0.49

)

The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Options to purchase common stock

 

 

13,293

 

 

 

6,830

 

Unvested restricted stock units

 

 

7,292

 

 

 

6,142

 

Unvested performance stock units

 

 

 

 

 

3,062

 

Shares issuable under employee stock purchase plans

 

 

71

 

 

 

59

 

Total

 

 

20,656

 

 

 

16,093

 

Recently Issued and Adopted Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires entities to expand their existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. This authoritative guidance will be effective for us in fiscal year 2025, with early adoption permitted. The Company is currently evaluating the impact of the ASU, but does not expect any material impacts upon adoption.

3. Fair Value Measurements

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The Company’s financial assets measured at fair value on a recurring basis were as follows (in thousands):

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

42,823

 

 

$

 

 

$

 

 

$

42,823

 

Total cash equivalents

 

 

42,823

 

 

 

 

 

 

 

 

 

42,823

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

76,603

 

 

 

 

 

 

 

 

 

76,603

 

U.S. government agency bonds

 

 

19,589

 

 

 

 

 

 

 

 

 

19,589

 

Total short-term marketable securities

 

 

96,192

 

 

 

 

 

 

 

 

 

96,192

 

Total cash equivalents and short-term
   marketable securities

 

$

139,015

 

 

$

 

 

$

 

 

$

139,015

 

 

 

9


 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

67,070

 

 

$

 

 

$

 

 

$

67,070

 

Total cash equivalents

 

 

67,070

 

 

 

 

 

 

 

 

 

67,070

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

96,705

 

 

 

 

 

 

 

 

 

96,705

 

U.S. government agency bonds

 

 

7,649

 

 

 

 

 

 

 

 

 

7,649

 

Total short-term marketable securities

 

 

104,354

 

 

 

 

 

 

 

 

 

104,354

 

Total cash equivalents and short-term
   marketable securities

 

$

171,424

 

 

$

 

 

$

 

 

$

171,424

 

 

The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between levels during the three months ended March 31, 2024 and 2023.

4. Investments

All investments were considered available-for-sale at March 31, 2024. The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s investments by major security type at March 31, 2024 and December 31, 2023 are summarized in the table below (in thousands):

 

 

 

March 31, 2024

 

 

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries classified as investments

 

$

76,612

 

 

$

1

 

 

$

(10

)

 

$

76,603

 

U.S. government agency bonds

 

 

19,595

 

 

 

 

 

 

(6

)

 

 

19,589

 

Total available-for-sale securities

 

$

96,207

 

 

$

1

 

 

$

(16

)

 

$

96,192

 

 

 

 

December 31, 2023

 

 

 

Amortized
Cost Basis

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries classified as investments

 

$

96,688

 

 

$

39

 

 

$

(22

)

 

$

96,705

 

U.S. government agency bonds

 

 

7,652

 

 

 

 

 

 

(3

)

 

 

7,649

 

Total available-for-sale securities

 

$

104,340

 

 

$

39

 

 

$

(25

)

 

$

104,354

 

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. As of March 31, 2024 and December 31, 2023, the aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months was $81.0 million and $53.7 million, respectively. These securities had remaining maturities of less than one year. The Company has the intent and ability to hold such securities until recovery and has determined that there has been no material change to their credit risk. As a result, the Company determined it did not hold any investments with a credit loss at March 31, 2024 and December 31, 2023.

There were no material realized gains or losses recognized on the sale or maturity of available-for-sale securities during the three months ended March 31, 2024 and 2023, and as a result, there were no material reclassifications out of accumulated other comprehensive gain (loss) for the same periods.

5. Impairment of Long-Lived Assets

During the three months ended March 31, 2024, as a result of the significant sustained decline observed in the Company’s stock price and related market capitalization following our decision to halt the development of lirentelimab, the Company performed an impairment assessment of long-lived assets. The Company determined that the long-lived assets held and used did not have identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. Therefore, the Company evaluated its long-lived assets for impairment on an entity-wide level. The Company concluded that the carrying value of the entity-wide asset group was not recoverable as it exceeded the future net undiscounted cash flows. To measure, allocate and recognize the impairment loss, the Company determined individual fair values of its long-lived assets. The Company utilized the income approach for estimating the fair value of

 

10


 

right of use assets and related leasehold improvements by estimating the potential cash flows from a hypothetical fully-furnished sublease and applying a discount rate. The cost replacement method was used to estimate the fair value of laboratory and office equipment, capitalized software, and assets to be placed into service or in the process of construction. These represented level 3 nonrecurring fair value measurements. Based on this analysis, the Company recorded a $27.3 million charge to Impairment of long-lived assets in the Statement of Operations and Comprehensive Loss for the quarter ended March 31, 2024, of which $12.4 million was attributed to right-of-use assets, $13.9 million to leasehold improvements, and $1.0 million to furniture. No impairment was recognized on the remaining long-lived assets as their carrying values were not in excess of their fair values.

6. Balance Sheet Components and Supplemental Disclosures

Property and Equipment, Net

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Laboratory equipment

 

$

6,993

 

 

$

6,993

 

Furniture and office equipment

 

 

2,941

 

 

 

3,947

 

Leasehold improvements

 

 

18,454

 

 

 

32,386

 

Capitalized software

 

 

4,382

 

 

 

4,382

 

Construction-in-progress

 

 

73

 

 

 

69

 

 

 

32,843

 

 

 

47,777

 

Less accumulated depreciation

 

 

(15,479

)

 

 

(14,408

)

Property and equipment, net

 

$

17,364

 

 

$

33,369

 

Depreciation and amortization expense for the three months ended March 31, 2024 and 2023 was $1.1 million and $1.5 million, respectively. As discussed in Note 5 – Impairment of Long-Lived Assets, the Company recognized long-lived asset impairment charges of $13.9 million for its leasehold improvements and $1.0 million on furniture as an adjustment to their gross values during the three months ended March 31, 2024.

Accrued Expenses and Other Current Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued contract research and development expense

 

$

13,213

 

 

$

22,262

 

Accrued compensation and benefits expense

 

 

2,894

 

 

 

8,674

 

Current portion of operating lease liabilities

 

 

3,022

 

 

 

3,250

 

Other current liabilities

 

 

1,044

 

 

 

628

 

Total

 

$

20,173

 

 

$

34,814

 

 

7. Leases

Operating Leases

The Company’s lease obligations primarily relate to leased office and laboratory space under a noncancelable operating lease. In accordance with ASC 842, the Company has performed an evaluation of its other contracts with vendors and has determined that, except for the leases described below, none of its other contracts contain a material lease.

2019 San Carlos Lease

In December 2019, the Company entered into an operating lease agreement for office and laboratory space in San Carlos, California (the “2019 San Carlos Lease”). The contractual term of the 2019 San Carlos Lease is 10.25 years from August 2021 until October 2031. The 2019 San Carlos Lease provides rent abatements and includes a one-time option to extend the lease term for five years. This option to extend the lease term was not determined to be reasonably certain and therefore has not been included in the Company’s calculation of the associated operating lease liability under ASC 842.

 

11


 

The 2019 San Carlos Lease includes monthly base rent amounts escalating over the term of the lease. In addition, the lessor provided for a tenant improvement allowance of up to $14.4 million, which was fully utilized and is recorded in lease obligations.

On March 27, 2023, the Company entered into an amendment for the 2019 San Carlos Lease, whereby rentable square feet was adjusted to 95,692 square feet and lease payments were reduced by approximately 2.5% per month, effective from January 1, 2022 through the end of the lease term. The Company accounted for these changes as a modification under ASC 842 and the operating right-of-use asset and lease liability were remeasured during the first quarter of 2023 utilizing an estimated incremental borrowing rate of 10.5%. Our estimated incremental borrowing rate was based on our estimated rate of interest for a fully collateralized borrowing over a similar term as the remaining lease payments while incorporating our credit risk. As a result of the modification, the right-of-use asset and lease liability decreased by approximately $5.6 million. No gain or loss was recognized upon the modification. As discussed in Note 5 – Impairment of Long-Lived Assets, the Company recognized long-lived asset impairment charges of $12.4 million on the right-of-use assets relating to the 2019 San Carlos Lease during the three months ended March 31, 2024.

Classification of Operating Leases

The 2019 San Carlos Lease required a security deposit of $1.5 million, which the Company satisfied by establishing a letter of credit secured by restricted cash. As of March 31, 2024 and December 31, 2023, a security deposit of $1.5 million for the 2019 San Carlos Lease was recorded as restricted cash in other long-term assets on the Company’s balance sheets.

Classification of the Company’s operating lease liabilities included on the Company’s balance sheets at March 31, 2024 and December 31, 2023 was as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Operating lease liabilities

 

 

 

 

 

 

Current portion included in accrued expenses and
   other current liabilities

 

$

3,022

 

 

$

3,250

 

Operating lease liabilities, net of current portion

 

 

37,408

 

 

 

38,215

 

Total operating lease liabilities

 

$

40,430

 

 

$

41,465

 

The components of lease costs included in operating expenses in the Company’s statements of operations and comprehensive loss were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Operating lease costs

 

$

1,468

 

 

$

1,469

 

Variable costs

 

 

797

 

 

 

939

 

Total lease costs

 

$

2,265

 

 

$

2,408

 

Variable costs included in the table above represent amounts the Company pays related to property taxes, insurance, maintenance and repair costs.

Cash paid for amounts included in the measurement of the Company’s operating lease liabilities and presented within cash used in operating activities in the statements of cash flows was $1.8 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively.

 

12


 

Operating Lease Obligations

Future lease payments required under operating leases included on the Company’s balance sheet at March 31, 2024 are as follows (in thousands):

 

Fiscal Year Ending December 31,

 

 

 

2024 (remaining 9 months)

 

$

5,324

 

2025

 

 

7,287

 

2026

 

 

7,506

 

2027

 

 

7,731

 

2028

 

 

7,963

 

Thereafter

 

 

23,871

 

Total future lease payments

 

 

59,682

 

Less:

 

 

 

Present value adjustment

 

 

19,252

 

Operating lease liabilities

 

$

40,430

 

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date. As of March 31, 2024, the weighted-average remaining lease term of the Company’s leases was 7.6 years and the weighted-average discount rate used to determine the operating lease liabilities included on the balance sheet was 10.5%.

As of March 31, 2024, the Company was not party to any lease agreements containing material residual value guarantees or material restrictive covenants.

8. Contingencies

Indemnification Agreements

The Company has entered into indemnification agreements with certain directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no such matters have arisen and the Company does not believe that the outcome of any claims under indemnification arrangements will have a material adverse effect on its financial positions, results of operations or cash flows. Accordingly, the Company has not recorded a liability related to such indemnifications at March 31, 2024.

 

9. Stockholders’ Equity

“At-the-Market” Equity Offering

On August 4, 2022, the Company entered into a sales agreement (the “2022 Sales Agreement”) with Cowen and Company, LLC (“Cowen”). Pursuant to the 2022 Sales Agreement, the Company may sell, from time to time, up to an aggregate of $75.0 million in gross sales proceeds of its common stock through an “at-the-market” offering (“ATM Offering”) as defined under the Securities Act. The Company will pay a commission equal to 3% of the gross proceeds from the sale of shares of its common stock under the 2022 Sales Agreement. The $75.0 million of common stock that may be offered, issued and sold in the ATM Offering is included in the $250.0 million of securities that may be offered, issued and sold by the Company under its registration statement on Form S-3 (File No. 333-265085). The Company expects to use the net proceeds from sales under the 2022 Sales Agreement for general corporate purposes.

No shares were sold during the three months ended March 31, 2024 through the Company's ATM Offering. During the three months ended March 31, 2023, the Company sold 0.1 million shares of its common stock at an average price of $7.20 per share through its ATM Offering, resulting in proceeds of $1.0 million net of commissions. Under the ATM Offering, $74.0 million of common stock remain available for future sales as of March 31, 2024; however, the Company is not obligated to make any sales under this program.

 

13


 

10. Stock-Based Compensation

Total stock-based compensation expense recognized is as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

1,273

 

 

$

4,675

 

General and administrative

 

 

4,937

 

 

 

5,990

 

Total

 

$

6,210

 

 

$

10,665

 

No income tax benefits for stock-based compensation expense have been recognized for the three months ended March 31, 2024 and 2023 as a result of the Company’s full valuation allowance applied to net deferred tax assets and net operating loss carryforwards.

Equity Incentive Plans

In July 2018, the Board of Directors adopted the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights, performance units and performance shares. The number of shares of common stock that may be issued under the 2018 Plan will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2019, equal to the least of (i) 5,000,000 shares, (ii) 5% of the outstanding shares of common stock as of the last day of the preceding fiscal year or (iii) such other amount as the Board of Directors may determine. Stock options and RSUs granted under the 2018 Plan generally vest over four years and expire no more than 10 years from the date of grant.

Following the Company’s initial public offering and upon the effectiveness of the 2018 Plan, the Company’s 2012 Equity Incentive Plan, as amended, (the “2012 Plan”), terminated and no further awards will be granted thereunder. All outstanding awards under the 2012 Plan will continue to be governed by their existing terms. Any shares subject to awards granted under the 2012 Plan that, on or after the termination of the 2012 Plan, expire or terminate and shares previously issued pursuant to awards granted under the 2012 Plan that, on or after the termination of the 2012 Plan, are forfeited or repurchased by the Company will be transferred into the 2018 Plan. As of March 31, 2024, the maximum number of shares that may be added to the 2018 Plan pursuant to the preceding sentence is 2,520,969 shares.

Prior to its termination, the 2012 Plan provided for the grant of stock options, stock appreciation rights, restricted stock and RSUs to employees, directors and consultants. Stock options granted under the 2012 Plan generally vest over four years and expire no more than 10 years from the date of grant.

Stock Options

The following weighted-average assumptions were used to calculate the fair value of stock options granted during the periods indicated:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Risk-free interest rate

 

 

4.28

%

 

 

3.65

%

Expected volatility

 

 

101.27

%

 

 

95.86

%

Expected dividend yield

 

 

 

 

 

 

Expected term (in years)

 

 

5.41

 

 

 

6.08

 

 

 

14


 

The Company’s stock option activity during the three months ended March 31, 2024 is summarized as follows (number of shares in thousands):

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

Options

 

 

Exercise

 

 

 

Outstanding

 

 

Price

 

Balance at December 31, 2023

 

 

7,968

 

 

$

10.85

 

Granted

 

 

5,674

 

 

$

1.25

 

Exercised

 

 

(26

)

 

$

0.97

 

Expired

 

 

(1

)

 

$

82.85

 

Forfeited

 

 

(322

)

 

$

14.87

 

Balance at March 31, 2024

 

 

13,293

 

 

$

6.67

 

Options exercisable

 

 

4,728

 

 

$

13.15

 

Options vested and expected to vest

 

 

12,752

 

 

$

6.86

 

As of March 31, 2024, total unrecognized stock-based compensation expense relating to unvested stock options was $17.0 million. This amount is expected to be recognized over a weighted-average period of 2.8 years.

Time-based RSUs

RSU activity under the 2018 Plan during the three months ended March 31, 2024 is summarized as follows (in thousands, except per share data):

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Balance at December 31, 2023

 

 

5,621

 

 

$

10.16

 

Granted

 

 

3,719

 

 

$

1.25

 

Vested

 

 

(670

)

 

$

11.47

 

Forfeited

 

 

(1,378

)

 

$

10.45

 

Balance at March 31, 2024

 

 

7,292

 

 

$

5.44

 

The weighted-average fair value of RSUs granted during the three months ended March 31, 2024 and 2023 was $1.25 and $7.20, respectively.

As of March 31, 2024, total unrecognized stock-based compensation expense relating to unvested RSUs was $35.4 million and the weighted-average remaining vesting period was 2.3 years.

Performance-based Restricted Stock Units (“PSUs”)

PSU activity under the 2018 Plan during the three months ended March 31, 2024 is summarized as follows (in thousands, except per share data):

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Balance at December 31, 2023

 

 

2,845

 

 

$

6.30

 

Forfeited/cancelled

 

 

(2,845

)

 

$

6.30

 

Balance at March 31, 2024