10-Q
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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, 2023

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: 001-40227

 

FINCH THERAPEUTICS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-3433558

(State or other jurisdiction of

incorporation or organization)

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

 

 

75 State Street, Suite 100

Boston, Massachusetts

02109

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 229-6499

 

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, $0.001 par value per share

 

FNCH

 

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of November 2, 2023 there were 1,605,763 outstanding shares of the registrant’s common stock, par value $0.001 per share.

 

 

 


 

 

 

FINCH THERAPEUTICS GROUP, INC.

FORM 10-Q

For the quarterly period ended September 30, 2023

 

Table of Contents

 

Page

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ii

 

SPECIAL NOTE REGARDING COMPANY REFERENCES

ii

 

SPECIAL NOTE REGARDING TRADEMARKS

ii

 

 

 

PART I.

FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

2

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022

3

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 5.

Other Information

26

Item 6.

Exhibits

26

 

Signatures

27

 

 

 

 

 

 

i


 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our expectations with respect to our microbiome technology and related portfolio of intellectual property and microbiome assets, and our objectives to realize the value of our intellectual property estate through licensing our technology to collaboration partners and enforcing our patent rights against infringing technologies;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our expectations and projections regarding the sufficiency of our cash on hand to fund our operating expenses and capital expenditure requirements;
our ability to fund our working capital requirements and to service any debt obligations we may incur;
our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual property rights covering product candidates developed using our microbiome technology;
our financial performance; and
our ability to obtain additional funding for our operations.

These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and in any other reports we file with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

You should read 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. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in our forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law. We qualify all of our forward-looking statements by these cautionary statements.

 

SPECIAL NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “FTG,” the “Company,” “we,” “us” and “our” refer to Finch Therapeutics Group, Inc., and its subsidiaries.

SPECIAL NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

ii


 

 

 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Balance Sheets

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

 

 

 

SEPTEMBER 30,
2023

 

 

DECEMBER 31,
2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,779

 

 

$

71,038

 

Accounts receivable

 

 

 

 

 

144

 

Prepaid expenses and other current assets

 

 

1,140

 

 

 

3,369

 

Total current assets

 

 

29,919

 

 

 

74,551

 

Property and equipment, net

 

 

637

 

 

 

15,936

 

Operating right-of-use assets

 

 

26,589

 

 

 

32,752

 

In-process research and development

 

 

 

 

 

32,900

 

Restricted cash, non-current

 

 

2,348

 

 

 

2,568

 

Other assets

 

 

 

 

 

4,232

 

TOTAL ASSETS

 

$

59,493

 

 

$

162,939

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

357

 

 

$

1,097

 

Accrued expenses and other current liabilities

 

 

2,551

 

 

 

10,161

 

Operating lease liabilities, current

 

 

1,971

 

 

 

3,431

 

Total current liabilities

 

 

4,879

 

 

 

14,689

 

Deferred tax liability

 

 

 

 

 

3,461

 

Loan payable, non-current

 

 

 

 

 

14,653

 

Operating lease liabilities, non-current

 

 

28,801

 

 

 

34,255

 

Other liabilities

 

 

 

 

 

170

 

Total liabilities

 

 

33,680

 

 

 

67,228

 

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

 

 

 

 

Preferred stock (undesignated), $0.001 par value; 10,000,000 shares authorized and no 
  shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized as of September 30, 2023 and
    December 31, 2022;
1,605,034 and 1,601,717 * shares issued and outstanding as of
    September 30, 2023 and December 31, 2022, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

373,165

 

 

 

371,350

 

Accumulated deficit

 

 

(347,354

)

 

 

(275,641

)

Total stockholders’ equity

 

 

25,813

 

 

 

95,711

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

59,493

 

 

$

162,939

 

* Adjusted for the 1-for-30 reverse stock split

 

See notes to unaudited condensed consolidated financial statements.

1


 

 

 

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Operations

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

 

 

 

THREE MONTHS ENDED
SEPTEMBER 30,

 

 

NINE MONTHS ENDED
SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

 

 

$

138

 

 

$

107

 

 

$

853

 

Total revenue

 

 

 

 

 

138

 

 

 

107

 

 

 

853

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

 

 

11,859

 

 

 

7,199

 

 

 

41,312

 

General and administrative

 

 

3,735

 

 

 

9,584

 

 

 

22,229

 

 

 

27,152

 

Impairment of goodwill

 

 

 

 

 

18,057

 

 

 

 

 

 

18,057

 

Impairment of in-process research and development

 

 

 

 

 

 

 

 

32,900

 

 

 

 

Impairment of long-lived assets

 

 

 

 

 

 

 

 

13,141

 

 

 

 

Restructuring

 

 

46

 

 

 

1,270

 

 

 

4,083

 

 

 

2,173

 

Total operating expenses

 

 

3,781

 

 

 

40,770

 

 

 

79,552

 

 

 

88,694

 

Net loss from operations

 

 

(3,781

)

 

 

(40,632

)

 

 

(79,445

)

 

 

(87,841

)

OTHER INCOME, NET:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

392

 

 

 

45

 

 

 

1,237

 

 

 

(7

)

Gain on lease termination

 

 

 

 

 

 

 

 

752

 

 

 

 

Loss on loan extinguishment

 

 

 

 

 

 

 

 

(1,366

)

 

 

 

Gain (loss) on sale and disposal of fixed assets, net

 

 

(22

)

 

 

 

 

 

595

 

 

 

(6

)

Sublease and other income

 

 

995

 

 

 

216

 

 

 

3,053

 

 

 

216

 

Total other income, net

 

 

1,365

 

 

 

261

 

 

 

4,271

 

 

 

203

 

Loss before income taxes

 

 

(2,416

)

 

 

(40,371

)

 

 

(75,174

)

 

 

(87,638

)

Income tax benefit

 

 

 

 

 

 

 

 

3,461

 

 

 

 

Net loss

 

$

(2,416

)

 

$

(40,371

)

 

$

(71,713

)

 

$

(87,638

)

Net loss per share attributable to common stockholders—basic and diluted

 

$

(1.51

)

 

$

(25.38

)

 

$

(44.70

)

 

$

(55.22

)

Weighted-average common stock outstanding—basic and diluted *

 

 

1,604,967

 

 

 

1,590,938

 

 

 

1,604,201

 

 

 

1,587,062

 

* Three and nine months ended September 30, 2022 are adjusted for the 1-for-30 reverse stock split

See notes to unaudited condensed consolidated financial statements.

2


 

 

 

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity

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

 

 

COMMON STOCK
$0.001 PAR VALUE

 

ADDITIONAL
PAID-IN

 

ACCUMULATED

 

TOTAL
STOCKHOLDERS’

 

 

 

SHARES*

 

AMOUNT

 

CAPITAL

 

DEFICIT

 

EQUITY

 

BALANCE, January 1, 2022

 

 

1,583,669

 

$

2

 

$

363,217

 

$

(160,995

)

$

202,224

 

Exercise of common stock options

 

 

680

 

 

 

 

14

 

 

 

 

14

 

Stock-based compensation

 

 

 

 

 

 

2,120

 

 

 

 

2,120

 

Net loss

 

 

 

 

 

 

 

 

(24,567

)

 

(24,567

)

BALANCE, March 31, 2022

 

 

1,584,349

 

$

2

 

$

365,351

 

$

(185,562

)

$

179,791

 

Exercise of common stock options

 

 

3,279

 

 

 

 

61

 

 

 

 

61

 

Issuance of common stock under employee stock purchase plan

 

 

1,825

 

 

 

 

110

 

 

 

 

110

 

Stock-based compensation

 

 

 

 

 

 

1,830

 

 

 

 

1,830

 

Net loss

 

 

 

 

 

 

 

 

(22,700

)

 

(22,700

)

BALANCE, June 30, 2022

 

 

1,589,453

 

$

2

 

$

367,352

 

$

(208,262

)

$

159,092

 

Exercise of common stock options

 

 

1,344

 

 

 

 

44

 

 

 

 

44

 

Vesting of restricted stock units

 

 

3,349

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

2,101

 

 

 

 

2,101

 

Net loss

 

 

 

 

 

 

 

 

(40,371

)

 

(40,371

)

BALANCE, September 30, 2022

 

 

1,594,146

 

$

2

 

$

369,497

 

$

(248,633

)

$

120,866

 

 

 

 

COMMON STOCK
$0.001 PAR VALUE

 

ADDITIONAL
PAID-IN

 

ACCUMULATED

 

TOTAL
STOCKHOLDERS’

 

 

 

SHARES

 

AMOUNT

 

CAPITAL

 

DEFICIT

 

EQUITY

 

BALANCE, January 1, 2023

 

 

1,601,717

 

$

2

 

$

371,350

 

$

(275,641

)

$

95,711

 

Vesting of restricted stock units

 

 

3,044

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

1,180

 

 

 

 

1,180

 

Net loss

 

 

 

 

 

 

 

 

(62,347

)

 

(62,347

)

BALANCE, March 31, 2023

 

 

1,604,761

 

$

2

 

$

372,530

 

$

(337,988

)

$

34,544

 

Stock-based compensation

 

 

 

 

 

 

300

 

 

 

 

300

 

Net loss

 

 

 

 

 

 

 

 

(6,950

)

 

(6,950

)

BALANCE, June 30, 2023

 

 

1,604,761

 

$

2

 

$

372,830

 

$

(344,938

)

$

27,894

 

Vesting of restricted stock units

 

 

273

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

335

 

 

 

 

335

 

Net loss

 

 

 

 

 

 

 

 

(2,416

)

 

(2,416

)

BALANCE, September 30, 2023

 

 

1,605,034

 

$

2

 

$

373,165

 

$

(347,354

)

$

25,813

 

* Adjusted for the 1-for-30 reverse stock split

See notes to unaudited condensed consolidated financial statements.

3


 

 

 

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

NINE MONTHS ENDED
SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS USED IN OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(71,713

)

 

$

(87,638

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,476

 

 

 

4,099

 

Stock-based compensation expense

 

 

1,815

 

 

 

6,051

 

Impairment of in-process research and development

 

 

32,900

 

 

 

 

Impairment of goodwill

 

 

 

 

 

18,057

 

Loss on loan extinguishment

 

 

1,366

 

 

 

 

Impairment of long-lived assets

 

 

13,141

 

 

 

 

Gain on lease termination

 

 

(752

)

 

 

 

(Gain) loss on sale and disposal of property and equipment

 

 

(595

)

 

 

6

 

Non-cash operating lease and interest cost

 

 

2,658

 

 

 

2,003

 

Benefit for deferred income taxes

 

 

(3,461

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

144

 

 

 

494

 

Prepaid expenses and other current assets

 

 

2,229

 

 

 

(4,484

)

Other non-current assets

 

 

4,033

 

 

 

656

 

Accounts payable

 

 

(740

)

 

 

(2,296

)

Accrued expenses and other current liabilities

 

 

(7,610

)

 

 

189

 

Other non-current liabilities

 

 

(50

)

 

 

50

 

Operating lease liabilities

 

 

(2,640

)

 

 

2,234

 

Net cash used in operating activities

 

 

(27,799

)

 

 

(60,579

)

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds on sale of property and equipment

 

 

1,290

 

 

 

 

Purchases of property and equipment

 

 

(14

)

 

 

(2,131

)

Net cash provided by (used in) investing activities

 

 

1,276

 

 

 

(2,131

)

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of stock options and issuances under employee stock purchase plan, net

 

 

 

 

 

229

 

Proceeds from borrowings under loan agreement, net

 

 

 

 

 

14,738

 

Repayment of loan

 

 

(15,000

)

 

 

 

Payment of loan terminal fee obligation and prepayment fee

 

 

(1,155

)

 

 

 

Principal payments on finance lease obligation

 

 

 

 

 

(14

)

Payment of deferred offering costs

 

 

 

 

 

(132

)

Net cash (used in) provided by financing activities

 

 

(16,155

)

 

 

14,821

 

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(42,678

)

 

 

(47,889

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

73,805

 

 

 

135,965

 

Cash, cash equivalents and restricted cash at end of period

 

$

31,127

 

 

$

88,076

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Property and equipment in accounts payable and accrued liabilities

 

$

 

 

$

106

 

Right-of-use assets obtained in exchange for new operating lease liability

 

$

 

 

$

37,094

 

Prepaid rent reclassified to right-of-use assets

 

$

 

 

$

7,736

 

The following table provides a reconciliation of the cash, cash equivalents and restricted cash as of each of the periods shown above:

 

 

AS OF SEPTEMBER 30,

 

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

28,779

 

 

$

85,292

 

Restricted cash

 

 

2,348

 

 

 

2,784

 

Total cash, cash equivalents and restricted cash

 

$

31,127

 

 

$

88,076

 

 

See notes to unaudited condensed consolidated financial statements.

4


 

 

 

FINCH THERAPEUTICS GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Business

Finch Therapeutics Group, Inc. (the “Company” or “FTG”) was incorporated in 2017 as a Delaware corporation. The Company was formed as a result of a merger and recapitalization of Finch Therapeutics, Inc. (“Finch”) and Crestovo Holdings LLC (“Crestovo”) in September 2017 (the “Merger”), in which the former owners of Finch and Crestovo were issued equivalent stakes in the newly formed company, FTG. Crestovo was renamed Finch Therapeutics Holdings LLC in November 2020 (“Finch Holdings”). Finch and Finch Holdings are both wholly-owned subsidiaries of FTG.

The Company is a microbiome technology company with a portfolio of intellectual property and microbiome assets. In January 2023, the Company announced the decision to wind down its development efforts and focus on realizing the value of its intellectual property estate and other assets.

Liquidity and Capital Resources

Management believes that the Company’s cash and cash equivalents of $28.8 million as of September 30, 2023 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months beyond the date of these condensed consolidated financial statements. However, due to the consideration of certain qualitative factors, including the Company's recurring losses from operations incurred since inception, the expectation of continuing operating losses for the foreseeable future, and uncertainty around its ability to successfully realize the full value of its intellectual property estate and other assets, the Company has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company does not currently expect to progress any product candidate through clinical trials or commercial approval and it does not currently expect to generate any revenue from product sales. The Company may never succeed in realizing the value of its intellectual property estate and other assets and, even if it does, it may never generate revenue that is significant or large enough to achieve profitability.

The Company has significantly scaled back its expenses by winding down its development efforts, including by liquidating certain of its assets, terminating vendor contracts and reducing headcount. The Company may need additional funding to support its operating activities as it seeks to realize value from its intellectual property estate and other assets. Until such time, if ever, that the Company can generate substantial revenue, the Company expects to finance its cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. If the Company is unable to obtain funding as needed, it may decide to pursue a dissolution and liquidation.

Reverse Stock Split

On June 9, 2023, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company’s issued and outstanding common stock, par value $0.001, at a ratio of 1-for-30 (the “Reverse Stock Split”). The Reverse Stock Split was reflected on the Nasdaq Global Select Market beginning with the opening of trading on June 12, 2023. Pursuant to the Reverse Stock Split, every 30 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock. The Reverse Stock Split did not change the total number of shares the Company is authorized to issue. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding restricted stock units (“RSU”) and the Company's equity incentive plans were proportionately adjusted. All share and per share amounts of the common stock included in the accompanying financial statements have been retrospectively adjusted to give effect to the Reverse Stock Split for all periods presented.

5


 

 

 

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act of 1933, as amended, published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2023.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022, condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023. The consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements of the Company but does not include all disclosures required by U.S. GAAP.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other accounting standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on the condensed consolidated statements or disclosures.

The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 23, 2023. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2023.

Goodwill and Acquired In-Process Research and Development

Goodwill and in-process research and development (“IPR&D”) are evaluated annually for impairment on October 1, or more frequently if events or changes in circumstances indicate that the asset might be impaired. To conduct impairment tests of goodwill, the fair value of the Company’s single reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of the reporting unit exceeds its fair value.

 

To conduct impairment tests of IPR&D, the fair value of the IPR&D asset is compared to its carrying value. If the carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of the IPR&D asset exceeds its fair value. The Company estimates the fair value of IPR&D assets using discounted cash flow valuation models, which require the use of significant estimates and assumptions, including, but not limited to, estimating the timing of and expected costs to complete in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from completed projects and in-process projects, and developing appropriate discount rates.

 

 

6


 

 

 

In January 2023, the Company made the decision to wind down its development efforts, which management concluded was an impairment indicator requiring the Company to perform an interim impairment test of IPR&D. Management's assessment for the impairment of IPR&D indicated that there are no future cash flow projections associated with its IPR&D asset and the fair value of the IPR&D asset was zero. This resulted in an impairment charge of $32.9 million during the nine months ended September 30, 2023.

Recently Issued Accounting Pronouncements

On January 1, 2023, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

3. FAIR VALUE MEASUREMENTS

The Company has no financial liabilities measured at fair value on a recurring basis. The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

DESCRIPTION

 

SEPTEMBER 30,
2023

 

 

QUOTED
PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL
ASSETS
(LEVEL 1)

 

 

SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)

 

 

SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 3)

 

Money market funds

 

$

1,240

 

 

$

1,240

 

 

$

 

 

$

 

 

DESCRIPTION

 

DECEMBER 31,
2022

 

 

QUOTED
PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL
ASSETS
(LEVEL 1)

 

 

SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)

 

 

SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 3)

 

Money market funds

 

$

69,991

 

 

$

69,991

 

 

$

 

 

$

 

 

There were no transfers between fair value levels during the nine months ended September 30, 2023 and the year ended December 31, 2022. The carrying values of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):

 

 

 

SEPTEMBER 30,
2023

 

 

DECEMBER 31,
2022

 

Lab equipment

 

$

 

 

$

4,146

 

Office furniture and fixtures

 

 

869

 

 

 

1,406

 

Leasehold improvements

 

 

 

 

 

13,972

 

Construction work-in-progress

 

 

 

 

 

316

 

Software

 

 

 

 

 

4,883

 

Computer equipment

 

 

 

 

 

499

 

Total

 

 

869

 

 

 

25,222

 

Less: Accumulated depreciation

 

 

(232

)

 

 

(9,286

)

Property and equipment, net

 

$

637

 

 

$

15,936

 

 

7


 

 

 

 

Depreciation expense was $1.5 million and $4.1 million for the nine months ended September 30, 2023 and 2022, respectively. During the quarter ended March 31, 2023, the Company recorded an impairment charge of $13.1 million to its long-lived assets, as it was determined that certain equipment, leasehold improvements, and software associated with program development would no longer be used following the discontinuation of the Company's Phase 3 clinical trial in CP101 and significant reduction in the Company's workforce, as announced in January 2023. In addition, for the nine months ended September 30, 2023, the Company sold capital equipment, which resulted in a net gain of $0.6 million included in other income (expense) on the condensed consolidated statement of operations.

5. LEASES

Inner Belt Road Lease

In December 2015, the Company entered into a 10-year lease agreement (the "Inner Belt Road Lease") for approximately 25,785 square feet of space for its primary office and laboratory space in Somerville, Massachusetts. The monthly rental payments under the Inner Belt Road Lease, which include base rent charges of $0.1 million, were subject to periodic rent increases through September 2026.

The Inner Belt Road Lease terminated and the Company’s rent obligations ended on June 30, 2023. The landlord agreed to refund the Company for the full amount of the Company’s security deposit, which is included in prepaid expenses and other current assets on the condensed consolidated balance sheet.

The Company's lease expense under the Inner Belt Road Lease was $0.6 million and $0.9 million for each of the nine months ended September 30, 2023 and 2022, respectively.

Hood Lease

On August 3, 2021, the Company entered into a 10-year lease agreement (the “Hood Lease”) with Hood Park LLC, pursuant to which the Company leased approximately 61,139 square feet of office and laboratory space (the “Premises”). The Hood Lease provides the Company with an option to extend the lease for one additional five-year term. The Company’s annual base rent for the Premises started at approximately $4.5 million, and the lease contains annual rent escalations. The Company commenced business operations in the Premises in the second quarter of 2022, which triggered recognition of the lease for accounting purposes. The Company recorded lease expense related to the Hood Lease of $4.2 million and $2.3 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company posted a customary letter of credit in the amount of approximately $2.3 million, subject to decrease on a set schedule, as a security deposit pursuant to the Hood Lease. This is included in restricted cash, non-current on the condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022.

In the third quarter of 2022, the Company entered into a sublease agreement to sublet approximately one third of its leased space under the Hood Lease, which commenced on August 10, 2022, for an initial term of two years, with an option for the Company to extend the sublease for up to one additional year, which was exercised in the fourth quarter of 2022. Additionally, in the fourth quarter of 2022, the Company entered into a second sublease agreement to sublet the remainder of its leased space under the Hood Lease for a three-year term, which commenced on December 15, 2022. For the nine months ended September 30, 2023 and 2022, the Company recognized sublease income of $2.9 million and $0.2 million, respectively, which is presented as other income in the condensed consolidated statements of operations.

 

8


 

 

 

The following table presents the classification of right-of-use assets and operating lease liabilities as of September 30, 2023 and December 31, 2022 (in thousands):

 

 

BALANCE SHEET CLASSIFICATION

 

SEPTEMBER 30, 2023

 

 

DECEMBER 31, 2022

 

ASSETS:

 

 

 

 

 

 

 

Operating lease assets

Operating right-of-use assets

 

$