Attached files

file filename
EX-32.1 - EX-32.1 - Spring Bank Pharmaceuticals, Inc.sbph-ex321_7.htm
EX-31.2 - EX-31.2 - Spring Bank Pharmaceuticals, Inc.sbph-ex312_6.htm
EX-31.1 - EX-31.1 - Spring Bank Pharmaceuticals, Inc.sbph-ex311_8.htm

 

 

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 September 30, 2017

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: 001-37718

 

Spring Bank Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

52-2386345

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

86 South Street

Hopkinton, MA

01748

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (508) 473-5993

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      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

  (Do not check if a smaller reporting company)

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 7(a)(2)(B) of the Securities 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 October 31, 2017, the registrant had 12,951,033 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Spring Bank Pharmaceuticals, Inc.

 

INDEX

 

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “design,” “expect,” “seek,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.

These forward-looking statements include, but are not limited to, statements about:

 

our ongoing and planned preclinical studies and clinical trials;

 

preclinical study data and clinical trial data and the timing of results of our ongoing clinical studies and/or trials;

 

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

 

our plans to seek and enter into clinical trial collaborations and other broader collaborations;

 

our commercialization, marketing and manufacturing capabilities and strategy; and

 

our estimates regarding prospects, strategies, expenses, operating capital requirements, results of operations and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results or events to differ materially from the forward-looking statements that we make include, but are not limited to, the following:

Our business currently depends substantially on the success of clinical trials for inarigivir soproxil (formerly known as SB 9200), which we refer to as inarigivir, which is still under development. If we are unable to obtain regulatory approval for, or successfully commercialize, inarigivir, our business will be materially harmed.

We are very early in our development efforts and our product candidates may not be successful in later stage clinical trials.  Results obtained in our preclinical studies and clinical trials are not necessarily indicative of results to be obtained in future clinical trials.  As a result, our product candidates may never be approved as marketable therapeutics.

We will need additional funding to complete the development of our product candidates and before we can expect to become profitable from the sales of our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We rely, and expect to continue to rely, on third parties to conduct our clinical trials and to manufacture our product candidates for preclinical and clinical testing. These third parties may not perform satisfactorily, which could delay our product development activities.

If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

We may not be able to retain key executives or to attract, retain and motivate key personnel.  If we are unable to retain such key personnel, it could have a material adverse impact on our business and prospects.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. You should also read carefully the factors described in the section “Risk Factors” of this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

2


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

     Cash and cash equivalents

 

$

17,539

 

 

$

10,684

 

     Marketable securities

 

 

34,640

 

 

 

14,046

 

     Prepaid expenses and other current assets

 

 

850

 

 

 

840

 

Total current assets

 

 

53,029

 

 

 

25,570

 

     Marketable securities, long-term

 

 

 

 

 

752

 

     Property and equipment, net

 

 

534

 

 

 

522

 

     Restricted cash

 

 

250

 

 

 

 

     Other assets

 

 

35

 

 

 

35

 

Total

 

$

53,848

 

 

$

26,879

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

     Accounts payable

 

$

1,773

 

 

$

1,519

 

     Accrued expenses and other current liabilities

 

 

2,312

 

 

 

1,982

 

Total current liabilities

 

 

4,085

 

 

 

3,501

 

     Warrant liabilities

 

 

17,807

 

 

 

6,333

 

     Other long-term liabilities

 

 

32

 

 

 

27

 

Total liabilities

 

 

21,924

 

 

 

9,861

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value—authorized, 10,000,000 shares at September 30,

     2017 and December 31, 2016; no shares issued or outstanding at September 30, 2017

     and December 31, 2016

 

 

 

 

 

 

Common stock, $0.0001 par value—authorized, 200,000,000 shares at September 30,

     2017 and December 31, 2016; 12,697,038 and 9,416,238 shares issued and outstanding

     at September 30, 2017 and December 31, 2016, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

109,682

 

 

 

68,559

 

Accumulated deficit

 

 

(77,752

)

 

 

(51,535

)

Other comprehensive loss

 

 

(7

)

 

 

(7

)

Total stockholders’ equity

 

 

31,924

 

 

 

17,018

 

Total

 

$

53,848

 

 

$

26,879

 

 

See accompanying notes to consolidated financial statements.

 

 

3


 

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In Thousands, Except Share and Per Share Data)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Grant revenue

 

$

 

 

$

 

 

$

 

 

$

352

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,221

 

 

 

2,723

 

 

 

9,152

 

 

 

11,247

 

General and administrative

 

 

1,968

 

 

 

1,452

 

 

 

5,811

 

 

 

4,136

 

Total operating expenses

 

 

5,189

 

 

 

4,175

 

 

 

14,963

 

 

 

15,383

 

Loss from operations

 

 

(5,189

)

 

 

(4,175

)

 

 

(14,963

)

 

 

(15,031

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

141

 

 

 

27

 

 

 

220

 

 

 

65

 

Change in fair value of warrant liabilities

 

 

(5,780

)

 

 

 

 

 

(11,474

)

 

 

 

Net loss

 

 

(10,828

)

 

 

(4,148

)

 

 

(26,217

)

 

 

(14,966

)

Unrealized (loss) gain on marketable securities

 

 

(10

)

 

 

(3

)

 

 

(7

)

 

 

18

 

Comprehensive loss

 

$

(10,838

)

 

$

(4,151

)

 

$

(26,224

)

 

$

(14,948

)

Net loss per common share – basic and diluted

 

$

(0.85

)

 

$

(0.53

)

 

$

(2.48

)

 

$

(2.18

)

Weighted-average number of shares outstanding – basic and diluted

 

 

12,696,986

 

 

 

7,759,630

 

 

 

10,555,461

 

 

 

6,856,876

 

 

See accompanying notes to consolidated financial statements.

 

 

4


 

SPRING BANK PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,217

)

 

$

(14,966

)

Adjustments for:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

115

 

 

 

87

 

Change in fair value of warrant liabilities

 

 

11,474

 

 

 

 

Non-cash investment income (losses)

 

 

(50

)

 

 

28

 

Non-cash stock-based compensation

 

 

1,483

 

 

 

1,015

 

Non-cash issuance of common stock and warrants connected to license agreement

 

 

 

 

 

2,780

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(10

)

 

 

(746

)

Other assets

 

 

 

 

 

(35

)

Accounts payable

 

 

254

 

 

 

148

 

Accrued expenses and other liabilities

 

 

311

 

 

 

(19

)

Net cash used in operating activities

 

 

(12,640

)

 

 

(11,708

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(34,397

)

 

 

(6,693

)

Proceeds from sale of marketable securities

 

 

14,605

 

 

 

4,894

 

Purchases of property and equipment

 

 

(127

)

 

 

(156

)

Net cash used in investing activities

 

 

(19,919

)

 

 

(1,955

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

42,500

 

 

 

11,339

 

Payment of finance costs related to issuance of common stock

 

 

(2,928

)

 

 

(2,128

)

Proceeds from exercise of warrants

 

 

 

 

 

5,342

 

Proceeds from exercise of stock options

 

 

92

 

 

 

95

 

Cash provided by financing activities

 

 

39,664

 

 

 

14,648

 

Net increase in cash, cash equivalents and restricted cash

 

 

7,105

 

 

 

985

 

Cash and cash equivalents, beginning of period

 

 

10,684

 

 

 

4,347

 

Cash, cash equivalents and restricted cash, end of period

 

$

17,789

 

 

$

5,332

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

1

 

 

$

1

 

Cash paid for interest

 

$

 

 

$

 

Supplemental disclosures of noncash financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock warrants in connection with initial public offering

 

$

 

 

$

218

 

 

See accompanying notes to consolidated financial statements.

 

 

5


 

Spring Bank Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

 

 

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Spring Bank Pharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company engaged in the discovery and development of a novel class of therapeutics using a proprietary small molecule nucleic acid hybrid (“SMNH”) chemistry platform. The Company is developing its most advanced SMNH product candidate, inarigivir soproxil (“inarigivir”) (formerly known as SB 9200), for the treatment of viral diseases. Since inception in 2002 and prior to its initial public offering (“IPO”) in May 2016, the Company built its technology platform and product candidate pipeline using a semi-virtual business model, supported by grants and direct funding from the United States National Institutes of Health (“NIH”) as well as through private financings. In September 2015, the Company formed a wholly owned subsidiary, Sperovie Biosciences, Inc. and in December 2016, the Company formed a wholly owned subsidiary, SBP Securities Corporation.

 

The Company’s success is dependent upon its ability to successfully complete clinical development and obtain regulatory approval of its product candidates, successfully commercialize approved products, generate revenue, and, ultimately, attain profitable operations. The Company’s operations to date have been limited to financing and staffing the Company and the development of inarigivir, SB 11285 and the Company’s other product candidates.

Basis of Presentation and Liquidity

The accompanying consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”).

Prior to and in connection with the Company completing its IPO in May 2016, the Company effected a 1-for-4 reverse stock split of its common stock on March 8, 2016. All share and per share amounts and the number of shares of common stock set forth in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

The accompanying interim financial statements as of September 30, 2017 and for the nine months ended September 30, 2017 and 2016, and related interim information contained within the notes to the financial statements, are unaudited. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of September 30, 2017, results of operations for the nine months ended September 30, 2017 and 2016, and its cash flows for the nine months ended September 30, 2017 and 2016. These interim financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”) on February 14, 2017. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results expected for the full fiscal year or any interim period.

As of September 30, 2017, the Company had an accumulated deficit of $77.8 million and $52.2 million in cash, cash equivalents and marketable securities.

The Company expects to continue to incur significant and increasing losses for the foreseeable future. The Company anticipates that its expenses will increase significantly as it continues to develop inarigivir, SB 11285 and its other product candidates.  The Company does not have any committed external source of funds. As a result, the Company will need additional financing to support its continuing operations.  Adequate additional funds may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish valuable rights to its technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to the Company.

 


6


 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sperovie Biosciences, Inc. and SBP Securities Corporation. Sperovie Biosciences, Inc. had operations consisting mainly of legal fees associated with intellectual property activities as of September 30, 2017. SBP Securities Corporation had assets primarily related to investments in marketable securities and operations consisting primarily of interest income as of September 30, 2017. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates relied upon in preparing the accompanying financial statements related to the fair value of common stock and warrant liabilities, accounting for stock-based compensation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents are stated at fair value and include short-term, highly liquid investments with remaining maturities of 90 days or less at the date of purchase.

Restricted cash consists of $250,000 and is held as collateral for the Company’s credit card program. There were no restricted cash as of December 31, 2016.

Included in cash and cash equivalents as of September 30, 2017 and December 31, 2016 are money market fund investments of $15,164,000 and $9,507,000, respectively, which are reported at fair value (Note 5).           

Concentration of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. Substantially all of the Company’s cash is held at financial institutions that management believes to be of high-credit quality. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

The Company’s one source of revenue during the three and nine months ended September 30, 2016 was grants from the NIH, representing 100% of total revenue for such periods. The Company did not have any sources of revenue for the three and nine months ended September 30, 2017.

Investments in Marketable Securities

The Company invests excess cash balances in short-term and long-term marketable securities. The Company classifies investments in marketable securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. At each balance sheet date presented, all investments in securities are classified as available-for-sale. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary,” including the intention to sell and, if so, marks the investment to market through a charge to the Company’s consolidated statements of operations and comprehensive loss.

 


7


 

Property and Equipment, Net

Property and equipment are recorded at cost. Costs associated with maintenance and repairs are expensed as incurred. Depreciation and amortization are provided using the straight-line method over the estimated useful lives:

 

Asset Category

 

Useful Life

Equipment

 

5-7 years

Furniture and fixtures

 

5 years

Leasehold improvements

 

Lesser of 10 years or the remaining

term of the respective lease

 

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, an impairment loss is recorded for the difference between the carrying value and fair value of the asset. Through September 30, 2017, no such impairment has occurred.

Deferred Rent

The Company’s operating leases include rent escalation payment terms and other incentives received from landlords. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense over the term of the lease, which is recorded in accrued expenses and other current liabilities. The Company had deferred aggregate rent for its research and development facility in Milford, Massachusetts and its headquarters in Hopkinton, Massachusetts of $35,000 and $35,000 as of September 30, 2017 and December 31, 2016, respectively.

Revenue Recognition

The Company recognizes revenue when all of the following criteria are met: there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery has occurred or services have been rendered and collection of the related receivable is reasonably assured. Generally, these criteria were met and revenue from grants from the NIH, which subsidized certain of the Company’s research projects, as efforts were expended and as eligible project costs were incurred.

Research and Development Costs

Research and development expenses consist primarily of costs incurred for the Company’s research activities, including discovery efforts, and the development of product candidates, which include:

 

expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical activities and clinical trials on the Company’s behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in the Company’s preclinical and clinical trials;

 

salaries, benefits and other related costs, including stock-based compensation expense, for personnel in the Company’s research and development functions;

 

costs of outside consultants, including their fees, stock-based compensation and related travel expenses;

 

the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

 

costs related to compliance with regulatory requirements; and

 

facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

The Company expenses research and development costs as incurred. The Company recognizes external development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its vendors and its clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in the Company’s consolidated financial statements as prepaid or accrued research and development expenses.

8


 

Warrants

The Company reviews the terms of all warrants issued and classifies the warrants as a component of permanent equity if they are freestanding financial instruments that are legally detachable and separately exercisable, contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. Warrants that meet these criteria are initially recorded at their grant date fair value and are not subsequently remeasured. Warrants that do not meet this criteria are classified as liabilities and remeasured to their fair value at each reporting period.

Stock-Based Compensation

The Company accounts for all stock-based payment awards granted to employees and nonemployees using a fair value method. The Company’s stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is generally the vesting period, on a straight-line basis. The measurement date for nonemployee awards is the date the services are completed, resulting in periodic adjustments to stock-based compensation during the vesting period for changes in the fair value of the awards. Stock-based compensation costs for nonemployees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation expense is classified in the accompanying consolidated statements of operations and comprehensive loss based on the department to which the related services are provided.

Financial Instruments

The Company’s financial instruments consist of cash equivalents, marketable securities, accounts payable and liability classified warrants. The carrying amounts of cash and cash equivalents and accounts payable approximate their fair value due to the short-term nature of those financial instruments. The fair value of the marketable securities and liability classified warrants are remeasured to fair value each reporting period as described in Note 5.

Fair Value Measurements

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s assets and liabilities measured at fair value on a recurring basis include cash equivalents, marketable securities and warrant liabilities.

 


9


 

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as if-converted method, for convertible securities, if inclusion of these instruments is dilutive. As of September 30, 2017 and December 31, 2016, both methods are equivalent. Common stock, preferred stock and warrant issuances are described further in Note 7.

Income Taxes

Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company assesses its income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the consolidated financial statements. The Company classifies interest and penalties associated with such uncertain tax positions as a component of interest expense. As of September 30, 2017 and December 31, 2016, the Company has not identified any material uncertain tax positions.

Guarantees and Indemnifications

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.

The Company leases office space in Hopkinton, Massachusetts and research and development space in Milford, Massachusetts, under non-cancelable operating leases. The Company has standard indemnification arrangements under these leases that require it to indemnify the landlords against liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or nonperformance under the Company’s lease.

Through September 30, 2017, the Company had not experienced any losses related to these indemnification obligations and no material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

Segment Information

Operating segments are identified as components of an enterprise about which separate and discrete financial information is available for evaluation by the chief operating decision maker, the Company’s chief executive officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment and does not track expenses on a program-by-program basis.

Recently Issued Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which includes provisions intended to clarify how entities present restricted cash and restricted cash equivalents in the statement of cash flows. Companies must show the change in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard is applied retrospectively and is effective for our annual periods beginning after December 15, 2017, and for interim periods within those annual periods, with early adoption permitted. The Company elected early adoption of this standard as of September 30, 2017, the first period in which the Company had restricted cash.  The adoption of this standard has resulted in the presentation of the change in cash, cash equivalents and restricted cash on the statement of cash flows in the periods presented.


10


 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) to require changes to several areas of employee stock-based compensation payment accounting in an effort to simplify stock-based compensation reporting. The update revises requirements in the following areas: minimum statutory withholding, accounting for income taxes, forfeitures, and intrinsic value accounting for private entities. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within each annual reporting period. The Company adopted this standard on January 1, 2017. The update revises requirements in the following areas:  minimum statutory withholding, accounting for income taxes, and forfeitures. Prior to adoption, the Company applied a 0% forfeiture rate to stock-based compensation, resulting in no cumulative effect adjustment to the opening period. Upon adoption of this standard, the Company’s accounting policy is to recognize forfeitures as they occur.

The update requires the Company to recognize the income tax effect of awards in the income statement when the awards vest or are settled. It also allows the Company to repurchase more of an employee’s shares than it could prior to the update for tax withholding purposes without triggering a liability. The income tax related items had no effect on the current period presentation and the Company maintains a full valuation allowance against its deferred tax assets.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which amends the guidance for revenue recognition to replace numerous industry-specific requirements. ASC 606 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASC 606 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in ASC 606 are effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. In July 2015, the FASB approved the deferral of adoption by one year. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Until the Company expects material revenue to be recognized, the adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC Subtopic 825-10, Financial Instruments - Overall, and includes updates on certain aspects of recognition, measurement, presentation and disclosure of financial instruments and applies to all entities that hold financial assets or owe financial liabilities. The new standard is effective for the Company for the annual period beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard may have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the current leasing guidance and upon adoption, will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for the Company for the annual period beginning after December 15, 2018, and can be early adopted by applying a modified retrospective approach for leases existing at, and entered into after, the beginning of the earliest comparable period presented in the financial statements. The Company is currently evaluating the impact that the adoption of this standard may have on its consolidated financial statements.

In September 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC Topic 230, Statement of Cash Flows, and includes provisions intended to reduce diversity in practice and provides guidance on eight specific statements of cash flows classification issues. The new standard is effective for the Company for the annual period ending after December 15, 2017, and for annual and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard may have on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard may have on its consolidated financial statements.

 

11


 

 

2. NET LOSS PER SHARE

The following table summarizes the computation of basic and diluted net loss per share of the Company for such periods (in thousands, except share and per share data):

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(10,828

)

 

$

(4,148

)

 

$

(26,217

)

 

$

(14,966

)

Weighted-average number of common shares-basic and diluted

 

 

12,696,986

 

 

 

7,759,630

 

 

 

10,555,461

 

 

 

6,856,876

 

Net loss per common share-basic and diluted

 

$

(0.85

)

 

$

(0.53

)

 

$

(2.48

)

 

$

(2.18

)

 

Diluted net loss per common share is the same as basic net loss per common share for all periods presented.

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported:

 

 

 

For the Three and Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Common stock warrants

 

 

1,798,084

 

 

 

153,347

 

Stock options

 

 

977,565

 

 

 

718,065

 

 

 

3. INVESTMENTS

 

Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

 

The following table summarizes the Company’s investments, by category, as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

September 30,

 

 

December 31,

 

Investments - Current:

 

2017

 

 

2016

 

Debt securities - available for sale

 

$

34,640

 

 

$

14,046

 

Total

 

$

34,640

 

 

$

14,046

 

 

 

 

 

 

 

 

 

 

Investments - Noncurrent:

 

 

 

 

 

 

 

 

Debt securities - available for sale

 

$

 

 

$

752

 

Total

 

$

 

 

$

752

 

12


 

A summary of the Company’s available-for-sale classified investments consisted of the following (in thousands):

 

 

 

At September 30, 2017

 

 

 

Cost

Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Investments - Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

14,345

 

 

$

 

 

$

 

 

$

14,345

 

Corporate bonds

 

 

18,309

 

 

 

 

 

 

(7

)

 

 

18,302

 

United States treasury securities

 

 

1,993

 

 

 

 

 

 

 

 

 

1,993

 

Total

 

$

34,647

 

 

$

 

 

$

(7

)

 

$

34,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

Cost

Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Investments - Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency bonds

 

$

452

 

 

$

 

 

$

 

 

$

452

 

Commercial paper

 

 

2,947

 

 

 

 

 

 

 

 

 

2,947

 

Corporate bonds

 

 

8,499

 

 

 

 

 

 

(7

)

 

 

8,492

 

United States treasury securities

 

 

2,155

 

 

 

 

 

 

 

 

 

2,155

 

Total

 

$

14,053

 

 

$

 

 

$

(7

)

 

$

14,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments - Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

752

 

 

 

 

 

 

 

 

 

752

 

Total

 

$

752

 

 

$

 

 

$

 

 

$

752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amortized cost and fair value of the Company’s available-for-sale investments, by contract maturity, as of September 30, 2017 consisted of the following (in thousands):

 

 

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

34,647

 

 

$

34,640

 

Due after one year through two years

 

 

 

 

 

 

Total

 

$

34,647

 

 

$

34,640

 

 

 

4. PROPERTY AND EQUIPMENT, NET

Property and equipment as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Equipment

 

$

683

 

 

$

576

 

Furniture and fixtures

 

 

144

 

 

 

140

 

Leasehold improvements

 

 

149

 

 

 

133

 

Total property and equipment

 

 

976

 

 

 

849

 

Less: accumulated depreciation and amortization

 

 

(442

)

 

 

(327

)

Property and equipment, net

 

$

534

 

 

$

522

 

 

Depreciation and amortization expense for the three and nine months ended September 30, 2017 was $39,000 and $115,000, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2016 was $30,000 and $87,000, respectively.

 

 

 


13


 

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its commercial paper and fixed income securities within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs.

A summary of the assets and liabilities that are measured at fair value as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

 

 

 

 

 

 

Fair Value Measurement at

September 30, 2017

 

 

 

Carrying

Value

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

15,164

 

 

$

15,164

 

 

$

 

 

$

 

Fixed income securities

 

 

34,640

 

 

 

 

 

 

34,640

 

 

 

 

Total

 

$

49,804

 

 

$

15,164

 

 

$

34,640

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

17,807

 

 

$

 

 

$

 

 

$

17,807

 

Total

 

$

17,807

 

 

$

 

 

$

 

 

$

17,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at

December 31, 2016

 

Assets:

 

Carrying

Value

 

 

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)

 

$

9,507

 

 

$

9,507

 

 

$

 

 

$

 

Fixed income securities

 

 

14,798

 

 

 

 

 

 

14,798

 

 

 

 

Total

 

$

24,305

 

 

$

9,507

 

 

$

14,798

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

6,333

 

 

$

 

 

$

 

 

$

6,333

 

Total

 

$

6,333

 

 

$

 

 

$

 

 

$

6,333

 

 

(1)

Money market funds are included within cash and cash equivalents in the accompanying consolidated balance sheets are recognized at fair value.

The following table reflects the change in the Company’s Level 3 liabilities, which consists of the warrants issued in a private placement in November 2016 (see Note 7), for the period ended September 30, 2017 (in thousands):

 

 

 

November Private

Placement Warrants

 

Balance at December 31, 2015

 

$

 

     Issuance of warrants

 

 

8,275

 

     Change in fair value

 

 

(1,942

)

Balance at December 31, 2016

 

 

6,333

 

     Change in fair value

 

 

11,474

 

Balance at September 30, 2017

 

$

17,807

 

 

 

14


 

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Clinical

 

$

1,159

 

 

$

738

 

Compensation and benefits

 

 

750

 

 

 

901

 

Accounting and legal

 

 

281

 

 

 

279

 

Other

 

 

122

 

 

 

64

 

Total accrued expenses

 

$

2,312

 

 

$

1,982

 

 

 

 

7. STOCKHOLDERS’ EQUITY

Common and Preferred Stock

Effective February 1, 2016, the Company amended and restated its license agreement with BioHEP Technologies Ltd. (“BioHEP”). In connection with the amendment and restatement, the Company issued 125,000 shares of its common stock to BioHEP and granted to BioHEP a warrant to purchase an additional 125,000 shares of its common stock at an exercise price of $16.00 per share, which warrant will expire on August 1, 2018. The fair value of the common stock as of the date of issuance, $2.0 million, was expensed as research and development costs.

In May 2016, the Company issued and sold in its IPO an aggregate of 944,900 shares of its common stock at $12.00 per share, which included 24,900 shares that represented the exercise of an option to purchase additional shares granted to the underwriters in connection with the IPO.  The offering resulted in $8.2 million of net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon the closing of the Company’s IPO, the Company filed an amended and restated certificate of incorporation, which authorized the Company to issue 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. In connection with the closing of the IPO, the Company received approximately $5.3 million in proceeds upon the exercise of previously issued warrants to purchase 641,743 shares of common stock of the Company.

Upon the closing of the Company’s IPO, all outstanding shares of the Company’s preferred stock automatically converted into 250,000 shares of the Company’s common stock.

In November 2016, the Company entered into a definitive agreement with respect to the private placement of 1,644,737 shares of common stock and warrants to purchase 1,644,737 shares of common stock (the “November Private Placement Warrants”) to a group of accredited investors (the “November Private Placement”). These investors paid $9.12 for each share of common stock and warrant to purchase one share of common stock. The November Private Placement Warrants are exercisable at an exercise price of $10.79 per share and expire on November 23, 2021. The Company completed the November Private Placement on November 23, 2016, resulting in $13.7 million in net proceeds to the Company, after deducting placement agent fees and other offering expenses payable by the Company.

 

In June 2017, the Company issued and sold in an underwritten public offering an aggregate of 3,269,219 shares of its common stock at $13.00 per share, which included 384,604 shares pursuant to the exercise of an option to purchase additional shares granted to the underwriters in connection with the offering. The offering resulted in $39.6 million of net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

 

In August 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which the Company may offer and sell, from time to time through Cantor, shares of the Company’s common stock having an aggregate offering price of up to $50.0 million. The Company will pay Cantor a commission rate equal to 3.0% of the aggregate gross proceeds from each sale.

Warrants

In connection with the amendment and restatement of a license agreement with BioHEP, the Company issued a warrant to purchase 125,000 shares of the Company’s common stock to BioHEP (the “BioHEP Warrant”), effective February 1, 2016. The Company evaluated the terms of the warrant and concluded that it should be equity-classified. The fair value of the warrant, $0.8 million, was estimated on the issuance date using a Black Scholes pricing model based on the following assumptions: an expected term of two and a half years, expected stock price volatility of 71%, a risk free rate of 1.01%, and a dividend yield of 0%. The fair value was expensed as research and development costs.

15


 

In connection with the Company’s IPO, the Company issued to the sole book-running manager for the IPO a warrant to purchase 27,600 shares of common stock in May 2016 and a warrant to purchase 747 shares of common stock in June 2016 (together, the “IPO Warrants”). The IPO Warrants are exercisable at an exercise price of $15.00 per share and expire on May 5, 2021. The Company evaluated the terms of the IPO Warrants and concluded that they should be equity-classified. The fair value of the May 2016 IPO Warrants was estimated on the applicable issuance dates using a Black Scholes pricing model based on the following assumptions: an expected term of 4.99 years; expected stock price volatility of 87%; a risk free rate of 1.20%; and a dividend yield of 0%. The fair value of the June 2016 IPO Warrants was estimated on the applicable issuance dates using a Black Scholes pricing model based on the following assumptions: an expected term of 4.92 years; expected stock price volatility of 87%; a risk free rate of 1.23%; and a dividend yield of 0%. The aggregate fair value of the IPO Warrants was $0.2 million.

The Company received approximately $5.3 million in proceeds upon the exercise of warrants to purchase 641,743 shares of its common stock of the Company, which were exercised in connection with the closing of the IPO. Upon the closing of the Company’s IPO, all of the outstanding warrants that were not exercised, except the BioHEP warrant and the IPO Warrants, terminated in accordance with their original terms.

In connection with the November Private Placement, the Company issued the November Private Placement Warrants to purchase 1,644,737 shares of common stock in November 2016 to a group of accredited investors. The November Private Placement Warrants are exercisable at an exercise price of $10.79 per share and expire on November 23, 2021. The Company evaluated the terms of these warrants and concluded that they are liability-classified. In November 2016, the Company recorded the fair value of these warrants of approximately $8.3 million using a Black Scholes pricing model. The Company must recognize any change in the value of the warrant liability each reporting period in the statement of operations. As of December 31, 2016 and September 30, 2017, the fair value of the November Private Placement Warrants was approximately $6.3 million and $17.8 million, respectively (see Note 5).

A summary of the Black Scholes pricing model assumptions used to record the fair value of the warrants is as follows:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Risk-free interest rate

 

 

1.8

%

 

 

1.9

%

Expected term (in years)

 

 

4.1

 

 

 

4.9

 

Expected volatility

 

 

70.0

%

 

 

65.5

%

Expected dividend yield

 

 

0

%

 

 

0

%

The following table summarizes the warrant activity for the year ended December 31, 2016 and for the nine months ended September 30, 2017:

 

 

 

Warrants

 

Outstanding at December 31, 2015

 

 

1,181,776

 

     Grants

 

 

1,798,084

 

     Exercises

 

 

(641,743

)

     Expirations/cancellations

 

 

(540,033

)

Outstanding at December 31, 2016

 

 

1,798,084

 

     Grants

 

 

 

     Exercises

 

 

 

     Expirations/cancellations

 

 

 

Outstanding at September 30, 2017

 

 

1,798,084

 

 

2014 Stock Incentive Plan

In April 2014, the Company’s Board of Directors approved the 2014 Stock Incentive Plan (the “2014 Plan”). The Company’s 2014 Plan provides for the issuance of common stock, stock options and other stock-based awards to employees, officers, directors, consultants, and advisors. As of September 30, 2017, the Board had authorized 750,000 shares of common stock to be issued under the 2014 Plan. The Company’s 2015 Stock Incentive Plan (the “2015 Plan”) became effective immediately prior to the closing of the Company’s IPO on May 11, 2016. Upon the effectiveness of the 2015 Plan, 116,863 shares of common stock that remained available for grant under the 2014 Plan became available for grant under the 2015 Plan, and no further awards were available to be issued under the 2014 Plan.

 

 

16


 

2015 Stock Incentive Plan

The 2015 Plan provides for the issuance of common stock, stock options and other stock-based awards to employees, officers, directors, consultants and advisors of the Company. The number of shares reserved for issuance under the 2015 Plan is the sum of 750,000 shares of common stock, plus the number of shares equal to the sum of (i) 116,863 shares of common stock, which was the number of shares reserved for issuance under the 2014 Plan that remained available for grant under the 2014 Plan immediately prior to the closing of the Company’s IPO, and (ii) the number of shares of common stock subject to outstanding awards under the 2014 Plan that expire, terminate or are otherwise surrendered, cancelled or forfeited. The exercise price of stock options cannot be less than the fair value of the common stock on the date of grant. Stock options awarded under the 2015 Plan expire 10 years after the grant date, unless the Board sets a shorter term. As of September 30, 2017, the Company had 472,087 shares available for issuance under the 2015 Plan.

The following table summarizes the option activity for the nine months ended September 30, 2017, under the 2014 Plan and the 2015 Plan (collectively the “Plans”):

 

 

 

Options

 

 

Weighted-Average

Exercise Price

Per Share

 

 

Aggregate

Intrinsic

Value

 

Options outstanding at December 31, 2015

 

 

610,481

 

 

$

11.99

 

 

$

 

     Granted

 

 

128,334

 

 

 

10.41

 

 

 

 

     Exercised

 

 

(10,247

)

 

 

9.28

 

 

 

29,550

 

     Cancelled

 

 

(24,253

)

 

 

9.89

 

 

 

 

Outstanding at December 31, 2016

 

 

704,315

 

 

$

11.82

 

 

 

 

     Granted

 

 

286,500

 

 

 

8.20

 

 

 

 

     Exercised

 

 

(10,000

)

 

 

9.28

 

 

 

11,228

 

     Cancelled

 

 

(3,250

)

 

 

12.44

 

 

 

 

Options outstanding at September 30, 2017

 

 

977,565

 

 

$

10.78

 

 

$

5,923,320

 

Options exercisable at September 30, 2017

 

 

390,417

 

 

$

11.67

 

 

$

2,019,924

 

 

As of September 30, 2017, all options granted are expected to vest and the weighted-average remaining contractual life of all options is 8.4 years. The weighted-average fair value of all stock options granted for the nine months ended September 30, 2017 was $5.67.  Intrinsic value at September 30, 2017 is based on the closing price of the Company’s common stock of $16.84 per share.

Prior to the Company’s IPO on May 11, 2016, the Board determined the estimated fair value of the Company’s common stock on the date of grant based on a number of objective and subjective factors, including third party valuations. Since the IPO, the fair value of the Company’s common stock on the date of the grant is based on the closing price per share of the common stock on the NASDAQ Capital Market on the date of grant. The computation of expected volatility is based on the historical volatilities of peer companies. The peer companies include organizations that are in the same industry, with similar size and stage of growth. The Company estimates that the expected life of the options granted using the simplified method allowable under the SEC’s Staff Accounting Bulletin No. 107, Share Based Payments. The interest rate is based on the U.S. Treasury bill rates for U.S. treasury bills with terms commensurate with the expected term of the option grants on the grant date of the option. The Company accounts for stock option forfeitures when they occur.

There were no stock options granted prior to 2015. The assumptions the Company used to determine the fair value of stock options granted to employees and directors in 2017 and 2016 are as follows, presented on a weighted-average basis.

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Risk-free interest rate

 

 

2.0

%

 

 

1.4

%

Expected term (in years)

 

 

6.0

 

 

 

6.1

 

Expected volatility

 

 

79.8

%

 

 

77.6

%

Expected dividend yield

 

 

0

%

 

 

0

%

17


 

The following table summarizes the stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016, under the Plans (in thousands):

 

 

 

For the Three Months Ended September 30,