SEC Filing | Athira Pharma

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2022


☐	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: 001-39503

Athira Pharma, Inc.

(Exact name of registrant as specified in its charter)


Delaware	45-3368487
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

18706 North Creek Parkway, Suite 104

Bothell, Washington 98011

(Address of principal executive offices)

(425) 620-8501

(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, $0.0001 par value per share	ATHA	The Nasdaq Stock Market LLC
		(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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

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

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

As of August 8, 2022, there were 37,817,724 shares of registrant’s common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 3.	Defaults Upon Senior Securities	92
Item 4.	Mine Safety Disclosures	92
Item 5.	Other Information	92
Item 6.	Exhibits	93
Signatures		94

This report includes our trademarks and registered trademarks, including Athira, Athira Pharma, the Athira logo, and other trademarks or service marks of Athira. Each other trademark, trade name or service mark appearing in this report belongs to its holder.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report captioned “Risk Factors.” The following is a summary of the principal risks we face:

•

We are a late clinical-stage biopharmaceutical company with a limited operating history.

•

Our ability to generate revenue and achieve profitability depends significantly on our ability to achieve a number of objectives.

•

Our development of fosgonimeton may never lead to a marketable product.

•

Our approach to targeting brain growth factors through the use of small molecules is based on a novel therapeutic approach, which exposes us to unforeseen risks. We have limited data from our Phase 1a/1b and Phase 2 clinical trials to date, and we cannot be certain that future trials will yield data in support of the safety, efficacy, and tolerability of our product candidates.

•

We have concentrated our research and development efforts on the treatment of central nervous system and peripheral degenerative disorders, a field that has seen very limited success in product development.

•

An independent special committee of our board of directors engaged in a review of papers co-authored by our former chief executive officer in connection with her doctoral research at Washington State University. The special committee’s findings included that (i) our former chief executive officer altered images in her 2011 doctoral dissertation and at least four research papers that she co-authored while a graduate student at Washington State University, and published from 2011 to 2014, (ii) that we cited challenged research papers in certain communications and applications, and (iii) that WSU’s dihexa patent, exclusively licensed to us, incorporated certain of these altered images. Washington State University has undertaken a review of claims of potential research misconduct involving our former chief executive officer’s doctoral research at Washington State University. We cannot predict when WSU’s investigation will be completed or what conclusions WSU will reach.

•

Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of early, smaller-scale preclinical studies and clinical trials with a single or few clinical trial sites may not be predictive of eventual safety or effectiveness in large-scale pivotal clinical trials across multiple clinical trial sites. We may encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials on the expected timelines, if at all.

•

If we experience delays or difficulties in the enrollment and/or retention of patients in clinical trials, our regulatory submissions or receipt of necessary marketing approvals could be delayed or prevented.

•

The loss of any of our key personnel could significantly harm our business, results of operations and competitive position.

•

We face significant competition, and if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer, or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

•

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

•

The continuing effects of the novel coronavirus disease, or COVID-19, pandemic could adversely impact our business, including our nonclinical studies and clinical trials.

•

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

•

We will require substantial additional funding to finance our operations, complete the development and commercialization of fosgonimeton, and evaluate other and future product candidates. If we are unable to raise this funding when needed, we may be forced to delay, reduce, or eliminate our product development programs or other operations.

•

The regulatory approval processes of the U.S. Food and Drug Administration and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be able to

commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.

•

We rely on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

•

Even if approved, our product candidates may not achieve adequate market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

•

We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators.

•

Our success depends on our ability to protect our intellectual property and our proprietary technologies.

•

If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical product candidates would be adversely affected.

•

The market price of our common stock has been and may continue to be volatile, which could result in substantial losses for investors.

•

We and certain of our directors and executive officers have been named as defendants in lawsuits that could result in substantial costs and divert management’s attention.

•

Actions by activist stockholders have in the past been, and may in the future be, disruptive and could cause uncertainty about the strategic direction of our business.

Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Athira Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	June 30, 2022			December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	95,057		$	110,537
Short-term investments		157,347			143,222
Unbilled grant receivable		—			2,336
Prepaid expenses and other current assets		3,456			4,704
Total current assets		255,860			260,799
Restricted cash		210			—
Property and equipment, net		4,294			3,757
Operating lease right-of-use asset		1,648			1,460
Long-term investments		29,844			65,936
Other long-term assets		155			56
Total assets	$	292,011		$	332,008
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	605		$	567
Accrued liabilities		8,780			8,437
Current operating lease liability		307			288
Total current liabilities		9,692			9,292
Operating lease liability, less current portion		1,754			1,632
Total liabilities		11,446			10,924
Stockholders' equity:
Common stock, $0.0001 par value; 900,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively; 37,817,724 and 37,379,077 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		4			4
Additional paid-in capital		423,696			417,363
Accumulated other comprehensive loss		(1,925	)		(388	)
Accumulated deficit		(141,210	)		(95,895	)
Total stockholders' equity		280,565			321,084
Total liabilities and stockholders' equity	$	292,011		$	332,008

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

Athira Pharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	14,803		$	12,024		$	29,263		$	19,469
General and administrative		8,766			4,613			17,693			7,949
Total operating expenses		23,569			16,637			46,956			27,418
Loss from operations		(23,569	)		(16,637	)		(46,956	)		(27,418	)
Grant income		(1,259	)		2,589			975			4,420
Other income, net		493			74			666			158
Net loss	$	(24,335	)	$	(13,974	)	$	(45,315	)	$	(22,840	)
Unrealized (loss) gain on available-for-sale securities		(469	)		9			(1,537	)		4
Comprehensive loss attributable to common stockholders	$	(24,804	)	$	(13,965	)	$	(46,852	)	$	(22,836	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.65	)	$	(0.38	)	$	(1.20	)	$	(0.63	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		37,667,971			37,214,602			37,630,856			36,499,004

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

Athira Pharma, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2022 and 2021

(in thousands, except share amounts)

(Unaudited)


							Accumulated
	Common Stock				Additional Paid-In		Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance as of January 1, 2021		32,485,784	$	3	$	315,288	$	33		$	(41,042	)	$	274,282
Issuance of common stock upon exercise of common stock options and vesting of restricted stock units		64,527		—		70		—			—			70
Proceeds from follow-on public offering, net of underwriters' discounts and commissions and issuance costs		4,600,000		1		96,761		—			—			96,762
Stock-based compensation		—		—		974		—			—			974
Unrealized loss on available-for-sale securities		—		—		—		(5	)		—			(5	)
Net loss		—		—		—		—			(8,866	)		(8,866	)
Balance as of March 31, 2021		37,150,311	$	4	$	413,093	$	28		$	(49,908	)	$	363,217
Issuance of common stock upon exercise of common stock options		85,593		—		119		—			—			119
Issuance of common stock under employee stock purchase plan		15,867		—		229		—			—			229
Stock-based compensation		—		—		1,109		—			—			1,109
Unrealized gain on available-for-sale securities		—		—		—		9			—			9
Net loss		—		—		—		—			(13,974	)		(13,974	)
Balance as of June 30, 2021		37,251,771	$	4	$	414,550	$	37		$	(63,882	)	$	350,709

							Accumulated
	Common Stock				Additional Paid-In		Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance as of January 1, 2022		37,379,077	$	4	$	417,363	$	(388	)	$	(95,895	)	$	321,084
Issuance of common stock upon exercise of common stock options		244,981		—		210		—			—			210
Stock-based compensation		—		—		2,731		—			—			2,731
Unrealized loss on available-for-sale securities		—		—		—		(1,068	)		—			(1,068	)
Net loss		—		—		—		—			(20,980	)		(20,980	)
Balance as of March 31, 2022		37,624,058	$	4	$	420,304	$	(1,456	)	$	(116,875	)	$	301,977
Issuance of common stock upon exercise of common stock options and vesting of restricted stock units		163,387		—		83		—			—			83
Issuance of common stock under employee stock purchase plan		30,279		—		214		—			—			214
Stock-based compensation		—		—		3,095		—			—			3,095
Unrealized loss on available-for-sale securities		—		—		—		(469	)		—			(469	)
Net loss		—		—		—		—			(24,335	)		(24,335	)
Balance as of June 30, 2022		37,817,724	$	4	$	423,696	$	(1,925	)	$	(141,210	)	$	280,565

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

Athira Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2022			2021
Operating activities
Net loss	$	(45,315	)	$	(22,840	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		5,826			2,083
Depreciation expense		375			230
Non-cash lease expense		92			68
Amortization of premiums and accretion of discounts on available-for-sale securities, net		149			226
Changes in operating assets and liabilities:
Unbilled grant receivable		2,336			(1,289	)
Prepaid expenses and other current assets		1,149			3,217
Accounts payable and accrued liabilities		365			3,318
Operating lease liability		(139	)		365
Net cash used in operating activities		(35,162	)		(14,622	)
Investing activities
Purchases of available-for-sale securities		(51,670	)		(173,563	)
Maturities of available-for-sale securities		71,951			152,740
Proceeds from sales of available-for-sale securities		—			9,988
Purchases of property and equipment		(896	)		(418	)
Net cash provided by (used in) investing activities		19,385			(11,253	)
Financing activities
Proceeds from exercise of common stock options		507			189
Proceeds from public offering, net of issuance costs		—			96,762
Net cash provided by financing activities		507			96,951
Net (decrease) increase in cash, cash equivalents and restricted cash		(15,270	)		71,076
Cash, cash equivalents and restricted cash, beginning of period		110,537			60,625
Cash, cash equivalents and restricted cash, end of period	$	95,267		$	131,701
Supplemental disclosures of cash flow information:
Right-of-use asset obtained in exchange for new operating lease liability	$	—		$	680

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

ATHIRA PHARMA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Organization

Athira Pharma, Inc. (the “Company”) was incorporated as M3 Biotechnology, Inc. in the state of Washington on March 31, 2011 and reincorporated in the state of Delaware on October 27, 2015. In April 2019, the Company changed its name to Athira Pharma, Inc. The Company currently has office and laboratory space in Bothell and Seattle, Washington. The Company is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and stop neurodegeneration.

Liquidity and Capital Resources

Since the Company’s inception, it has funded its operations primarily with proceeds from the sale and issuance of common stock, convertible preferred stock, common stock warrants, and convertible notes, and to a lesser extent from grant income and stock option exercises. From the Company’s inception through June 30, 2022, it has raised aggregate net cash proceeds of $407.4 million primarily from the issuance of its common stock, convertible preferred stock, common stock warrants, and convertible notes. As of June 30, 2022, the Company had $282.2 million in cash, cash equivalents and investments and had not generated positive cash flows from operations. Since the Company’s inception, it has devoted substantially all of its resources to its research and development efforts such as small molecule compound discovery, nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

Based upon the Company’s current operating plan, it estimates that its $282.2 million of cash, cash equivalents and investments at June 30, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements through at least the 12 months following the date of this report.

2. Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). During the third quarter of 2020, the Company incorporated Athira Pharma Australia PTY LTD in Australia and since its creation, the Australian subsidiary’s financial position and results of operations are consolidated in the accompanying unaudited condensed consolidated financial statements. Certain prior period amounts have been reclassified to conform to current period presentation.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated balance sheet as of June 30, 2022, and condensed consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, are unaudited. The balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2021. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2022, and the condensed consolidated results of its operations and its cash flows for the three and six months ended June 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2022 and 2021 are also unaudited. The condensed consolidated results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other period. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021 included in its Annual Report on Form 10-K filed with the SEC on March 28, 2022.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash, cash equivalents, restricted cash, investments, accounts payable and accrued expenses approximate their fair values due to the short-term nature of those amounts.

Restricted Cash

Restricted cash consists of collateral pledged in connection with the Company's corporate credit cards. The table below reconciles the balances of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets to the balances of cash, cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows.


	June 30,		December 31,
	2022		2021
Cash and cash equivalents	$	95,057	$	110,537
Restricted cash		210		—
Cash, cash equivalents and restricted cash	$	95,267	$	110,537

Grant Income

In December 2020, the Company accepted a grant from the National Institute on Aging (“NIA”) of the National Institutes of Health (“NIH”) to support its ACT-AD Phase 2 clinical trial for fosgonimeton (then-named ATH-1017), the Company’s lead therapeutic candidate being developed for the treatment of individuals with mild-to-moderate Alzheimer’s disease. Under the terms of the agreement, the Company may potentially receive $7.8 million with the potential for an additional $7.4 million, up to an aggregate of $15.2 million. The Company recognizes income related to the NIH grant in the accompanying condensed consolidated statements of operations and comprehensive loss as qualifying expenses under the grant agreement are incurred.

During the three months ended June 30, 2022, the Company reversed $1.3 million of grant income previously recorded in the three months ended March 31, 2022 as the Company must obtain additional approvals from the NIH to carryover unused budgets to the second and final years of the grants. There can be no guarantees such approvals will be made and income will be recognized when and if approvals are granted. During the three months ended June 30, 2021, the Company recognized grant income of $2.6 million. During the six months ended June 30, 2022 and 2021, the Company recognized grant income of $1.0 million and $4.4 million, respectively, in connection with the NIH grant. As of June 30, 2022, the Company received cash in excess of amounts reimbursable of $1.3 million, which is included in accrued liabilities on the condensed consolidated balance sheets. Such amounts require additional approval from the NIH to be recognized as grant income in the future. If approval is not granted, such amounts must be returned to the NIH. If approval is granted, such amounts will be recognized in future periods. As of December 31, 2021, the Company incurred qualifying expenses in excess of cash received of $2.3 million, which is included in unbilled grant receivable on the condensed consolidated balance sheets. The Company received cash of $2.3 million and $4.6 million related to the NIH grant during the three and six months ended June 30, 2022, respectively.

Short-term and Long-term Investments

The Company generally invests its excess cash in investment grade short- to intermediate-term fixed income securities. Such investments are included in cash and cash equivalents, short-term investments, and long-term investments on the consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss. Realized gains and losses on the sale of these securities are recognized in net loss.

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the investments, duration and severity of the decline in value, and our strategy and intentions for holding the investment.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates include those used for fair value of assets and liabilities, accrued liabilities, valuation allowance for deferred tax assets, and stock-based compensation. Management evaluates related assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Research and Development Expenses

Research and development expenses consist primarily of direct and indirect costs incurred for research activities, including development of the pipeline from the Company’s proprietary drug discovery platform (“ATH platform”), the Company’s drug discovery efforts and the development of its product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain the Company’s research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, and facilities and other expenses consisting of direct and allocated expenses for rent and depreciation and lab consumables.

Research and development costs are expensed as incurred. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company adjusts the amounts recorded accordingly. The Company has not experienced any material differences between accrued or prepaid costs and actual costs since inception.

Leases

The Company adopted Accounting Standards Codification (“ASC”) Topic 842 - Leases effective January 1, 2020. The Company determines if an arrangement contains a lease at inception. The Company performed an evaluation of contracts in accordance with ASC 842 and has determined it has an operating lease agreement for the laboratory and office facilities that the Company occupies. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for the Company’s use. Operating lease liabilities are based on the present value of the future minimum lease payments over the lease term. ROU assets are measured at the amount of the lease liability, adjusted for any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As the Company’s leases generally do not provide an implicit interest rate, the present value of the future minimum lease payments is determined using the Company’s incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate the Company would incur on its future lease payments over a similar term and is based on the information available to the Company at the lease commencement date, discussed in more detail below.

The Company’s leases contain options to extend the leases; lease terms are adjusted for these options only when it is reasonably certain the Company will exercise these options. The Company’s lease agreements do not contain residual value guarantees or covenants.

The Company has made a policy election regarding its real estate leases not to separate non-lease components from lease components, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease expense. The Company’s lease includes variable non-lease components, such as common-area maintenance costs. The Company has elected not to record on the balance sheet a lease that has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise. The Company accounts for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

Lease expense is recognized within operating expenses on a straight-line basis over the terms of the lease. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the term of the lease.

Stock-based Compensation

The Company measures compensation expense for all stock-based payments to employees, officers and directors based on the estimated fair value of the award at the grant date. For stock options, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The grant date fair value of restricted stock units is based upon the fair market value of the Company’s common stock based on its closing price as reported on the date of grant on the Nasdaq Global Select Market. Compensation expense is recognized over the requisite service period on a straight-line basis. Forfeitures are recognized as they occur.

The Company records compensation expense for stock option and restricted stock unit grants subject to performance-based milestone vesting over the remaining implicit service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Segments

The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing therapeutics. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (a) no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act, unless early adoption is permitted. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Credit Losses (Topic 326) as clarified in ASU 2019-04, ASU 2019-05, and ASU 2020-02. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. The ASU will become effective beginning January 1, 2023, with early adoption permitted. The Company is currently evaluating the potential impacts of the ASU on its financial condition, results of operations, cash flows and financial statement disclosures.

Although there were several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of these have had or will have material impact on its condensed consolidated financial statements.

3. Fair Value

The Company has certain assets and liabilities that are measured at fair value on a recurring basis according to a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3—Inputs are generally unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques, including probability-based simulation methodologies.

The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to be market data, which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following tables reflect the Company’s financial asset balances measured on a recurring basis (in thousands):


	June 30, 2022
	Level	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
Money market fund	1	$	9	$	—	$	—		$	9
Commercial paper	2		79,191		—		(13	)		79,178
Total cash equivalents		$	79,200	$	—	$	(13	)	$	79,187