thor-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

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: 001-38756

 

SYNTHORX, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-4709185

(State of incorporation)

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

 

11099 N. Torrey Pines Road, Suite 190

La Jolla, California

92037

(Address of principal executive offices)

(Zip Code)

(858) 750-4789

(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 per share

 

THOR

 

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  

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of July 31, 2019 was 32,266,004.

 

 

 

 


SYNTHORX, INC.

QUARTERLY REPORT on FORM 10-Q

Table of Contents

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

Condensed Balance Sheets

 

1

 

 

Condensed Statements of Operations

 

2

 

 

Condensed Statements of Comprehensive Loss

 

3

 

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Statements of Cash Flows

 

5

 

 

Notes to Condensed Financial Statements

 

6

Item 2.

 

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

 

15

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20

Item 4.

 

Controls and Procedures

 

20

 

 

 

PART II—OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

22

Item 1A.

 

Risk Factors

 

22

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

66

Item 3.

 

Defaults Upon Senior Securities

 

66

Item 4.

 

Mine Safety Disclosures

 

66

Item 5.

 

Other Information

 

66

Item 6.

 

Exhibits

 

67

 

 

 

SIGNATURES

 

68

 

 

 

 


PART IFINANCIAL INFORMATION

ITEM 1.

Financial Statements.

SYNTHORX, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,534

 

 

$

188,356

 

Investment securities, available-for-sale

 

 

141,644

 

 

 

 

Prepaid expenses and other current assets (including related party

   amounts of $0 and $28, respectively)

 

 

3,554

 

 

 

1,688

 

Total current assets

 

 

168,732

 

 

 

190,044

 

Operating lease right-of-use asset (including related party

   amounts of $2,013 and $0, respectively)

 

 

3,003

 

 

 

 

Property and equipment, net

 

 

1,628

 

 

 

1,382

 

Other assets

 

 

30

 

 

 

80

 

Total assets

 

$

173,393

 

 

$

191,506

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

884

 

 

$

2,228

 

Accrued liabilities (including related party amounts of $274 and $123,

   respectively)

 

 

6,122

 

 

 

4,814

 

Lease liability, current (including related party amounts of $151 and $0,

   respectively)

 

 

403

 

 

 

 

Total current liabilities

 

 

7,409

 

 

 

7,042

 

Lease liability, noncurrent (including related party amounts of $1,974 and $0,

   respectively)

 

 

2,818

 

 

 

 

Deferred rent (including related party amounts of $0 and $72,

   respectively)

 

 

 

 

 

104

 

Total liabilities

 

 

10,227

 

 

 

7,146

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; authorized shares 200,000,000

   at June 30, 2019 and December 31, 2018, respectively;

   issued shares — 32,263,757 and 32,103,953 at June 30, 2019 and

   December 31, 2018, respectively; outstanding shares— 31,711,124

   and 31,394,830 at June 30, 2019 and December 31, 2018, respectively

 

 

32

 

 

 

31

 

Additional paid-in capital

 

 

255,605

 

 

 

253,807

 

Accumulated deficit

 

 

(92,699

)

 

 

(69,478

)

Accumulated other comprehensive income

 

 

228

 

 

 

 

Total stockholders’ equity

 

 

163,166

 

 

 

184,360

 

Total liabilities and stockholders’ equity

 

$

173,393

 

 

$

191,506

 

 

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

1


SYNTHORX, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (includes related party amounts of $358, $229, $598, and $499, respectively)

 

$

10,425

 

 

$

3,387

 

 

$

19,989

 

 

$

5,152

 

General and administrative (includes related party amounts of $76, $71, $158, and $136, respectively)

 

 

3,040

 

 

 

602

 

 

 

5,395

 

 

 

1,027

 

Total operating expenses

 

 

13,465

 

 

 

3,989

 

 

 

25,384

 

 

 

6,179

 

Loss from operations

 

 

(13,465

)

 

 

(3,989

)

 

 

(25,384

)

 

 

(6,179

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Change in fair value of preferred stock purchase right liability

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Interest income, net

 

 

1,095

 

 

 

 

 

 

2,163

 

 

 

 

Net loss

 

$

(12,370

)

 

$

(4,003

)

 

$

(23,221

)

 

$

(6,193

)

Net loss per common share, basic and diluted

 

$

(0.39

)

 

$

(4.21

)

 

$

(0.74

)

 

$

(6.54

)

Weighted average common shares outstanding, basic and diluted

 

 

31,561,445

 

 

 

951,066

 

 

 

31,496,114

 

 

 

946,854

 

 

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

2


SYNTHORX, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(12,370

)

 

$

(4,003

)

 

$

(23,221

)

 

$

(6,193

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investment securities

 

 

192

 

 

 

 

 

 

228

 

 

 

 

Comprehensive loss

 

$

(12,178

)

 

$

(4,003

)

 

$

(22,993

)

 

$

(6,193

)

 

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

3


SYNTHORX, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY(DEFICIT)

(in thousands, except share data)

(Unaudited)

 

 

Six Months Ended June 30, 2019

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at December, 31 2018

 

 

 

 

$

 

 

 

31,394,830

 

 

$

31

 

 

$

253,807

 

 

$

(69,478

)

 

$

 

 

$

184,360

 

Exercise of common stock options and vesting of early exercised common stock options

 

 

 

 

 

 

 

 

289,864

 

 

 

1

 

 

 

279

 

 

 

 

 

 

 

 

 

280

 

Share issuance under employee stock purchase plan

 

 

 

 

 

 

 

 

26,430

 

 

 

 

 

 

247

 

 

 

 

 

 

 

 

 

247

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,272

 

 

 

 

 

 

 

 

 

1,272

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

228

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,221

)

 

 

 

 

 

(23,221

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

31,711,124

 

 

$

32

 

 

$

255,605

 

 

$

(92,699

)

 

$

228

 

 

$

163,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at March 31, 2019

 

 

 

 

$

 

 

 

31,442,454

 

 

$

31

 

 

$

254,442

 

 

$

(80,329

)

 

$

36

 

 

$

174,180

 

Exercise of common stock options and vesting of early exercised common stock options

 

 

 

 

 

 

 

 

242,240

 

 

 

1

 

 

 

228

 

 

 

 

 

 

 

 

 

229

 

Share issuance under employee stock purchase plan

 

 

 

 

 

 

 

 

26,430

 

 

 

 

 

 

247

 

 

 

 

 

 

 

 

 

247

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

688

 

 

 

 

 

 

 

 

 

688

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

192

 

 

 

192

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,370

)

 

 

 

 

 

(12,370

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

31,711,124

 

 

$

32

 

 

$

255,605

 

 

$

(92,699

)

 

$

228

 

 

$

163,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance at December 31, 2017

 

 

7,253,898

 

 

$

16,103

 

 

 

935,723

 

 

$

1

 

 

$

340

 

 

$

(12,869

)

 

$

 

 

$

(12,528

)

Issuance of Series C preferred stock, net of $292 of issuance costs

 

 

8,118,108

 

 

 

21,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options and vesting of founder shares

 

 

 

 

 

 

 

 

15,346

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88

 

 

 

 

 

 

 

 

 

88

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,193

)

 

 

 

 

 

(6,193

)

Balance at June 30, 2018

 

 

15,372,006

 

 

$

37,494

 

 

 

951,069

 

 

$

1

 

 

$

429

 

 

$

(19,062

)

 

$

 

 

$

(18,632

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance at March 31, 2018

 

 

7,253,898

 

 

$

16,103

 

 

 

951,069

 

 

$

1

 

 

$

367

 

 

$

(15,059

)

 

$

 

 

$

(14,691

)

Issuance of Series C preferred stock, net of $292 of issuance costs

 

 

8,118,108

 

 

 

21,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options and vesting of founder shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62

 

 

 

 

 

 

 

 

 

62

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,003

)

 

 

 

 

 

(4,003

)

Balance at June 30, 2018

 

 

15,372,006

 

 

$

37,494

 

 

 

951,069

 

 

$

1

 

 

$

429

 

 

$

(19,062

)

 

$

 

 

$

(18,632

)

 

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

4


SYNTHORX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(23,221

)

 

$

(6,193

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,272

 

 

 

88

 

(Amortization of premiums) and accretion of discounts on investment

   securities, net

 

 

(1,220

)

 

 

 

Depreciation

 

 

194

 

 

 

91

 

Change in fair value of purchase right liability

 

 

 

 

 

14

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,894

)

 

 

(120

)

Prepaid expenses and other current assets—related parties

 

 

28

 

 

 

(88

)

Accounts payable and accrued liabilities

 

 

(5

)

 

 

1,172

 

Accounts payable and accrued liabilities—related parties

 

 

151

 

 

 

(275

)

Deferred rent - related parties

 

 

 

 

 

44

 

Operating lease right-of-use assets and liabilities, net

 

 

74

 

 

 

 

Operating lease right-of-use assets and liabilities, net—related parties

 

 

40

 

 

 

 

Other assets

 

 

50

 

 

 

 

Net cash used in operating activities

 

 

(24,531

)

 

 

(5,267

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of investment securities

 

 

(169,446

)

 

 

 

Proceeds from maturities of investment securities

 

 

29,250

 

 

 

 

Purchases of property and equipment

 

 

(440

)

 

 

(337

)

Net cash used in investing activities

 

 

(140,636

)

 

 

(337

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock and Series C preferred stock purchase right liability, net of issuance costs

 

 

 

 

 

26,255

 

Proceeds from exercise of common stock options and stock issuances under the employee stock purchase plan

 

 

345

 

 

 

1

 

Net cash provided by financing activities

 

 

345

 

 

 

26,256

 

Net (decrease) increase in cash and cash equivalents

 

 

(164,822

)

 

 

20,652

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

 

188,356

 

 

 

3,661

 

End of period

 

$

23,534

 

 

$

24,313

 

 

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

5


SYNTHORX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Synthorx, Inc. (the “Company”) was incorporated in the state of Delaware in January 2014 and is based in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on prolonging and improving the lives of people with cancer and autoimmune disorders. The Company’s platform technology expands the genetic code by adding a new DNA base pair and is designed to create optimized biologics, which the Company refers to as Synthorins.

The Company has incurred significant operating losses since inception and expects to incur operating losses for the foreseeable future as it pursues the clinical and preclinical development of its programs and product candidates. As the Company continues to incur losses, its transition to profitability will depend on the successful development, approval and commercialization of its product candidates and on the achievement of sufficient revenues to support its cost structure. The Company may never achieve profitability, and unless and until it does, will need to continue to raise additional capital to fund its operations.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2019. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses and the valuation of equity awards. These estimates and assumptions are based on current facts, historical experience and various other factors 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 and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates.

Reverse Stock Split

On November 26, 2018, the Company effected a 1-for-1.60224 reverse stock split of its common stock. The par value and the authorized shares of the common stock were not adjusted as a result of the reverse stock split. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities at the date of acquisition of three months or less to be cash equivalents. These investments may include money market funds, U.S. Government agencies, corporate debt securities and commercial paper.

 

 

6


SYNTHORX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS Continued

(Unaudited)

 

Marketable Securities

Investments with maturities at the date of acquisition of more than three months are considered marketable securities. The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. The Company has classified its investment holdings as available-for-sale, as the sale of such securities may be required prior to maturity to implement management strategies. The Company’s investment policy sets minimum credit quality criteria and maximum maturity limits on its investments to provide for safety of principle, liquidity and a reasonable rate of return. Available-for-sale securities are recorded at fair value, based on current market valuations. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income (loss) until realized. Realized gains and losses are included in non-operating other income (expense) on the statement of operations and are derived using the specific identification method for determining the cost of the securities sold. During the periods presented, no realized gains or losses were recorded on the sale or maturity of the Company’s marketable securities and no impairments to reduce the value of an available-for-sale equity security were taken. See Note 5 for further discussion.

Research and Development Expenses

All research and development costs are expensed in the period incurred. Research and development expenses primarily consist of services provided by contract organizations for clinical and preclinical development, salaries and related expenses for personnel, including stock-based compensation expense, outside service providers, facilities costs, fees paid to consultants and other professional services, license fees, depreciation and supplies used in research and development. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the related goods or services are received.

Stock-Based Compensation

Stock options issued pursuant to the Company’s 2018 Equity Incentive Plan (the “2018 Plan”) and 2014 Equity Incentive Plan (the “2014 Plan”) and option features associated with the rights to purchase shares pursuant to the Company’s 2018 Employee Stock Purchase Plan (the “ESPP”) are valued using the Black-Scholes option pricing model on the date of grant or subscription period. This option pricing model involves a number of estimates, including the expected term of an award or subscription period, the anticipated stock volatility and risk-free interest rates. Stock-based compensation expense is recognized using the straight-line method and is based on the value of the portion of stock awards that are ultimately expected to vest or the number of shares estimated to be issued pursuant to the ESPP.

The table below summarizes the total stock-based compensation expense included in the Company’s condensed statements of operations for stock options and shares subject to purchase under the ESPP for the periods presented (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research and development

 

$

81

 

 

$

33

 

 

$

481

 

 

$

49

 

General and administrative

 

 

607

 

 

 

29

 

 

 

791

 

 

 

39

 

 

 

$

688

 

 

$

62

 

 

$

1,272

 

 

$

88

 

 

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires leases to be recognized on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

A modified retrospective transition approach is required for ASU 2016-02, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019, and used the effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. Further, the Company

7


SYNTHORX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS Continued

(Unaudited)

 

elected the ‘package of practical expedients’ which does not require the Company to reassess its prior conclusions about lease identification, lease classification and initial direct costs under the new standard. On adoption, the Company recognized operating liabilities associated with leases of $3.3 million and corresponding ROU assets of $3.2 million, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. See Note 8 for further discussion.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The amendments relate to disclosures regarding unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty and are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the timing and impact of the adoption of this guidance on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the timing and impact of the adoption of this guidance on the Company’s consolidated financial statements.

3. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common share equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of this calculation, convertible preferred stock, stock options, employee stock purchase rights, and unvested common stock subject to repurchase are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at June 30, 2019 and 2018, convertible preferred stock, stock options, employee stock purchase rights, and unvested common stock subject to repurchase totaling approximately 4,800,000 shares and 17,500,000 shares, respectively, were excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive.

4. Fair Value Measurements

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:

Observable inputs such as quoted prices in active markets.

 

Level 2:

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

 

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

8


SYNTHORX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS Continued

(Unaudited)

 

The carrying amounts of the Company’s prepaid expenses and other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short nature of these instruments. The Company’s investments, which may include money market funds and available-for-sale investment securities consisting of U.S. Treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises, are measured at fair value in accordance with the fair value hierarchy.

Assets measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018, consisted of the following (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using:

 

 

 

Balance at

June 30,

2019

 

 

Quoted

Prices in

Active

Markets

for Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market funds(1)

 

$

23,532

 

 

$

23,532

 

 

$

 

 

$

 

Government-sponsored enterprise securities

 

 

9,005

 

 

 

9,005

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

97,859

 

 

 

 

 

 

97,859

 

 

 

 

Corporate debt securities

 

 

34,780

 

 

 

 

 

 

34,780

 

 

 

 

Total

 

$

165,176

 

 

$

32,537

 

 

$

132,639

 

 

$

-

 

 

 

(1)

Included within cash and cash equivalents on the Company’s condensed balance sheet.

 

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using:

 

 

 

Balance at

December 31,

2018

 

 

Quoted

Prices in

Active

Markets

for Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Money market funds(1)

 

$

185,203

 

 

$

185,203

 

 

$

 

 

$

 

Total

 

$

185,203

 

 

$

185,203

 

 

$

 

 

$

 

 

 

(1)

Included within cash and cash equivalents on the Company’s condensed balance sheet.

The Company determines the fair value of commercial paper and corporate bonds with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or prices for similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company validates the valuations received from its primary pricing vendors for its level 2 securities by examining the inputs used in that vendor’s pricing process and determines whether they are reasonable and observable. The Company also compares those valuations to recent reported trades for those securities. The Company did not adjust any of the valuations received from these independent third parties with respect to any of its level 2 securities at June 30, 2019 and no transfers between levels occurred during the either of the reporting periods presented.

5. Investments in Marketable Securities

The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. In accordance with the Company’s investment policy, it has invested funds in marketable securities at June 30, 2019. The Company had no investments in marketable securities at December 31, 2018.

9


SYNTHORX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS Continued

(Unaudited)

 

The cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available-for-sale investments by types and classes of security at June 30, 2019 consisted of the following (in thousands):

 

 

 

 

 

June 30, 2019

 

 

 

Maturity

(in years)

 

Amortized

Cost Basis

 

 

Other-than-

temporary

Impairments

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Fair

Value

 

Commercial paper

 

1 year or less

 

$

97,704

 

 

$

 

 

$

155

 

 

$

 

 

$

97,859

 

Corporate debt securities

 

1 year or less

 

 

34,712

 

 

 

 

 

 

68

 

 

 

 

 

 

34,780

 

Government-sponsored enterprise securities

 

1 year or less