kalv-10q_20191031.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 October 31, 2019

OR

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

For the transition period from                      to                     .

Commission File No. 001-36830

 

KALVISTA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-0915291

(State or other jurisdiction of incorporation or organization)

 

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

55 Cambridge Parkway

Suite 901E

Cambridge, Massachusetts

 

02142

(Address of principal executive offices)

 

(Zip Code)

857-999-0075

(Registrant’s telephone number, including area code)

 

     n/a

Former name, former address and former fiscal year, if changed since last report

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

KALV

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, 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 November 30, 2019 the registrant had 17,834,126 shares of common stock, $0.001 par value per share, issued and outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows

4

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

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

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

 

 

 

Item 4.

Controls and Procedures

18

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

19

 

 

 

Item 1A.

Risk Factors

19

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

 

 

 

Item 3.

Defaults Upon Senior Securities

19

 

 

 

Item 4.

Mine Safety Disclosures

19

 

 

 

Item 5.

Other Information

19

 

 

 

Item 6.

Exhibits

20

 

 

 

Signatures

21

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

 

October 31,

 

 

April 30,

 

 

 

2019

 

 

2019

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,719

 

 

$

32,006

 

Marketable securities

 

 

71,742

 

 

 

68,805

 

Research and development tax credit receivable

 

 

11,814

 

 

 

11,315

 

Prepaid expenses and other current assets

 

 

2,617

 

 

 

3,420

 

Total current assets

 

 

107,892

 

 

 

115,546

 

Right of use assets

 

 

1,634

 

 

 

 

Property and equipment, net

 

 

2,365

 

 

 

2,413

 

Other assets

 

 

173

 

 

 

173

 

Total assets

 

$

112,064

 

 

$

118,132

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,238

 

 

$

2,860

 

Accrued expenses

 

 

5,029

 

 

 

5,647

 

Deferred revenue - current portion

 

 

2,601

 

 

 

9,545

 

Lease liability - current portion

 

 

602

 

 

 

 

Total current liabilities

 

 

10,470

 

 

 

18,052

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue - net of current portion

 

 

2,754

 

 

 

3,342

 

Lease liability - net of current portion

 

 

1,053

 

 

 

 

Total long-term liabilities

 

 

3,807

 

 

 

3,342

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 authorized

 

 

 

 

 

 

 

 

Shares issued and outstanding: 17,834,126 at October 31, 2019 and 17,277,750 at April 30, 2019

 

 

18

 

 

 

17

 

Additional paid-in capital

 

 

204,950

 

 

 

191,123

 

Accumulated deficit

 

 

(105,717

)

 

 

(92,476

)

Accumulated other comprehensive loss

 

 

(1,464

)

 

 

(1,926

)

Total stockholders’ equity

 

 

97,787

 

 

 

96,738

 

Total liabilities and stockholders’ equity

 

$

112,064

 

 

$

118,132

 

 

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

 

 

1


 

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

3,920

 

 

$

5,592

 

 

$

7,289

 

 

$

9,311

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

9,789

 

 

 

7,876

 

 

 

19,476

 

 

 

16,232

 

General and administrative

 

 

3,420

 

 

 

2,609

 

 

 

6,665

 

 

 

4,979

 

Total operating expenses

 

 

13,209

 

 

 

10,485

 

 

 

26,141

 

 

 

21,211

 

Operating loss

 

 

(9,289

)

 

 

(4,893

)

 

 

(18,852

)

 

 

(11,900

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

505

 

 

204

 

 

 

1,095

 

 

293

 

Foreign currency exchange gain (loss)

 

 

560

 

 

 

(231

)

 

 

108

 

 

 

(165

)

Other income

 

 

2,321

 

 

 

1,616

 

 

 

4,408

 

 

 

3,438

 

Total other income

 

 

3,386

 

 

 

1,589

 

 

 

5,611

 

 

 

3,566

 

Net loss

 

$

(5,903

)

 

$

(3,304

)

 

$

(13,241

)

 

$

(8,334

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

495

 

 

 

193

 

 

 

406

 

 

 

(1,127

)

Unrealized holding gains on available-for-sale securities

 

 

28

 

 

 

 

 

 

56

 

 

 

 

Other comprehensive income (loss)

 

 

523

 

 

 

193

 

 

 

462

 

 

 

(1,127

)

Comprehensive loss

 

$

(5,380

)

 

$

(3,111

)

 

$

(12,779

)

 

$

(9,461

)

Net loss per share to common stockholders, basic and diluted

 

$

(0.33

)

 

$

(0.22

)

 

$

(0.75

)

 

$

(0.64

)

Weighted average common shares outstanding, basic and diluted

 

 

17,823,302

 

 

 

15,108,272

 

 

 

17,656,150

 

 

 

12,954,083

 

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

 

 

 


2


 

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

Six Months Ended October 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at May 1, 2019

 

17,277,750

 

 

$

17

 

 

$

191,123

 

 

$

(92,476

)

 

$

(1,926

)

 

$

96,738

 

Issuance of common stock, net of issuance costs

 

527,221

 

 

 

1

 

 

 

11,421

 

 

 

 

 

 

 

 

 

11,422

 

Issuance of common stock from equity incentive plans

 

10,522

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

32

 

Stock-based compensation expense

 

 

 

 

 

 

 

1,074

 

 

 

 

 

 

 

 

 

1,074

 

Net loss

 

 

 

 

 

 

 

 

 

 

(7,338

)

 

 

 

 

 

(7,338

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(89

)

 

 

(89

)

Unrealized holding gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

28

 

Balance at July 31, 2019

 

17,815,493

 

 

 

18

 

 

 

203,650

 

 

 

(99,814

)

 

 

(1,987

)

 

 

101,867

 

Issuance of common stock from exercise of stock options

 

18,633

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

138

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

1,162

 

 

 

 

 

 

 

 

 

1,162

 

Net loss

 

 

 

 

 

 

 

 

 

 

(5,903

)

 

 

 

 

 

(5,903

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

495

 

 

 

495

 

Unrealized holding gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

28

 

Balance at October 31, 2019

 

17,834,126

 

 

$

18

 

 

$

204,950

 

 

$

(105,717

)

 

$

(1,464

)

 

$

97,787

 

 

 

Six Months Ended October 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 1, 2018

 

10,799,895

 

 

$

11

 

 

$

100,011

 

 

$

(71,660

)

 

$

(1,109

)

 

$

27,253

 

Cash received pursant to common stock subscription agreement

 

 

 

 

 

 

 

5,000

 

 

 

 

 

 

 

 

 

5,000

 

Stock-based compensation expense

 

 

 

 

 

 

 

347

 

 

 

 

 

 

 

 

 

347

 

Net loss

 

 

 

 

 

 

 

 

 

 

(5,030

)

 

 

 

 

 

(5,030

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,320

)

 

 

(1,320

)

Unrealized holding gains from available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2018

 

10,799,895

 

 

 

11

 

 

 

105,358

 

 

 

(76,690

)

 

 

(2,429

)

 

 

26,250

 

Issuance of common stock

 

6,378,320

 

 

 

6

 

 

 

82,805

 

 

 

 

 

 

 

 

 

82,811

 

Issuance of common stock from exercise of stock options

 

4,452

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Issuance of commone stock from vesting of performance stock units

 

42,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

976

 

 

 

 

 

 

 

 

 

976

 

Net loss

 

 

 

 

 

 

 

 

 

 

(3,304

)

 

 

 

 

 

(3,304

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

193

 

 

 

193

 

Balance at October 31, 2018

 

17,225,167

 

 

$

17

 

 

$

189,164

 

 

$

(79,994

)

 

$

(2,236

)

 

$

106,951

 

 

3


 

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

 

Six Months Ended

 

 

October 31,

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net loss

$

(13,241

)

 

$

(8,334

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

248

 

 

 

153

 

Stock-based compensation expense

 

2,236

 

 

 

1,323

 

Realized (gain) loss from available for sale securities

 

(129

)

 

 

 

Amortization of right of use assets

 

273

 

 

 

 

Amortization of discount/premium on available for sale securities

 

79

 

 

 

 

Foreign currency remeasurement (gain) loss

 

(81

)

 

 

226

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Research and development tax credit receivable

 

(577

)

 

 

(692

)

Prepaid expenses and other current assets

 

785

 

 

 

(517

)

Accounts payable

 

(558

)

 

 

2,088

 

Accrued expenses

 

(564

)

 

 

66

 

Lease obligations

 

(271

)

 

 

 

Deferred revenue

 

(7,289

)

 

 

(9,311

)

Net cash used in operating activities

 

(19,089

)

 

 

(14,998

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Acquisition of property and equipment

 

(212

)

 

 

(786

)

Purchases of available for sale securities

 

(42,561

)

 

 

 

Sales and maturities of available for sale securities

 

39,729

 

 

 

 

Net cash used in investing activities

 

(3,044

)

 

 

(786

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Capital lease principal payments

 

(54

)

 

 

(104

)

Issuance of common stock from equity incentive plans

 

170

 

 

 

25

 

Issuance of common stock, net of $123 of offering expenses

 

11,422

 

 

 

87,811

 

Net cash from financing activities

 

11,538

 

 

 

87,732

 

Effect of exchange rate changes on cash and cash equivalents

 

308

 

 

 

(1,887

)

Net (decrease) increase in cash and cash equivalents

 

(10,287

)

 

 

70,061

 

Cash and cash equivalents at beginning of period

 

32,006

 

 

 

51,055

 

Cash and cash equivalents at end of period

$

21,719

 

 

$

121,116

 

 

 

 

 

 

 

 

 

 

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

 

 

4


 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

 

1.

The Company

KalVista Pharmaceuticals, Inc. (“KalVista” or the “Company”) is a clinical stage pharmaceutical company focused on the discovery, development and commercialization of small molecule protease inhibitors for diseases with significant unmet need. The Company’s first product candidates are inhibitors of plasma kallikrein being developed for two indications: hereditary angioedema (“HAE”) and diabetic macular edema (“DME”). The Company applies its insights into the chemistry of proteases and, with current programs, the biology of the plasma kallikrein system, to develop small molecule inhibitors with high selectivity, potency and bioavailability that it believes will make them successful treatments for disease.

 

KalVista has created a structurally diverse portfolio of oral plasma kallikrein inhibitors and advanced multiple drug candidates into clinical trials in order to create best-in-class oral therapies for both HAE and DME. KVD900, the Company’s most advanced HAE drug candidate, is being developed as a potential on-demand therapy for HAE attacks and is in an ongoing Phase 2 clinical trial that is expected to complete enrollment in 2019 and provide data in 2020. KVD900 recently received Fast Track designation from the U.S. Food and Drug Administration (“FDA”), supporting the Company’s belief in the high level of unmet need in HAE and providing a potentially expedited path to drug approval.

 

In the case of DME, the Company has completed enrollment in a Phase 2 clinical trial of KVD001, an intravitreally administered plasma kallikrein inhibitor, and anticipates providing data in the fourth quarter of 2019. The Company also is continuing to work on formulation refinement and other activities for its next orally-delivered plasma kallikrein inhibitor, KVD824. The Company has completed a first-in-human study for this program that the Company believes shows the potential for development either as a prophylaxis for HAE or as the first orally-delivered therapy for DME. The Company continues to expect to announce further development plans for this program in the first half of 2020 following selection of the indication for later stage development.

 

The Company’s headquarters is located in Cambridge, Massachusetts, with research activities located in Porton Down, United Kingdom and Boston, Massachusetts.

 

The Company has devoted substantially all of its efforts to research and development, including clinical trials of its product candidates. The Company has not completed the development of any product candidates. Pharmaceutical drug product candidates, like those being developed by the Company, require approvals from the FDA or foreign regulatory agencies prior to commercial sales. There can be no assurance that any product candidates will receive the necessary approvals and any failure to receive approval or delay in approval may have a material adverse impact on the Company’s business and financial results. The Company has not yet commenced commercial operations. The Company is subject to a number of risks and uncertainties similar to those of other life science companies developing new products, including, among others, the risks related to the necessity to obtain adequate additional financing, to successfully develop product candidates, to obtain regulatory approval of product candidates, to comply with government regulations, to successfully commercialize its potential products, to the protection of proprietary technology and to the dependence on key individuals.

The Company has funded operations primarily through the issuance and sale of capital stock and the option agreement with Merck Sharp & Dohme Corp. (the “Merck Option Agreement”). As of October 31, 2019, the Company had an accumulated deficit of $105.7 million and $93.4 million of cash, cash equivalents and marketable securities. To date, the Company has not generated any product sales and revenues and does not have any products that have been approved for commercialization. The Company does not expect to generate significant revenue unless and until it obtains regulatory approval for, and commercializes, one of its current or future product candidates. The Company anticipates that it will continue to incur losses for the foreseeable future, and it expects those losses to increase as it continues the development of, and seeks regulatory approvals for, product candidates, and begins to commercialize any approved products. The Company is subject to all of the risks inherent in the development of new therapeutic products, and it may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business. The Company currently anticipates that, based upon its operating plans and existing capital resources, it has sufficient funding to operate for at least the next twelve months.

Until such time, if ever, as the Company can generate substantial revenues, it expects to finance its cash needs through a combination of equity or debt financings, collaborations, strategic partnerships and licensing arrangements. To the extent that additional capital is raised through the sale of stock or convertible debt securities, the ownership interest of existing stockholders may be diluted, and the terms of these newly issued securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing, if available, may involve agreements that include increased fixed payment obligations and covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, selling or licensing intellectual property rights and other operating restrictions that could adversely impact its ability to conduct business. Additional fundraising through collaborations, strategic partnerships or licensing arrangements

5


 

with third parties may require the Company to relinquish valuable rights to product candidates, including other technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable. If the Company is unable to raise additional funds when needed, it may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and commercialize other product candidates even if it would otherwise prefer to develop and commercialize such product candidates internally.

2.

Summary of Significant Accounting Policies

Principles of Consolidation: The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. There were no adjustments other than normal recurring adjustments. These unaudited interim condensed consolidated financial results are not necessarily indicative of the results to be expected for the year ending April 30, 2020, or for any other future annual or interim period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended April 30, 2019.

Segment Reporting: The Company’s Chief Operating Decision Maker, the CEO, manages the Company’s operations as a single operating segment for the purposes of assessing performance and making operating decisions.

Net Loss per Share: Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of share options and awards.

 

 Potential dilutive common share equivalents consist of:

 

 

October 31,

 

 

 

2019

 

 

2018

 

Stock options and awards

 

 

2,274,648

 

 

 

1,745,942

 

In computing diluted earnings per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. As a result, there is no difference between the Company’s basic and diluted loss per share for the periods presented.

Fair Value Measurement: The Company classifies fair value measurements using a three level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1, quoted market prices in active markets for identical assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level 1, such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data; and Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. These fair values are obtained from independent pricing services which utilize Level 1 and Level 2 inputs.

The following table summarizes the cash and cash equivalents and marketable securities measured at fair value on a recurring basis as of October 31, 2019:

6


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

October 31, 2019

 

Cash equivalents

$

3

 

 

$

 

 

$

 

 

$

3

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

58,152

 

 

 

 

 

 

58,152

 

U.S. government agency securities

 

 

 

 

 

13,590

 

 

 

 

 

 

13,590

 

 

$

3

 

 

$

71,742

 

 

$

 

 

$

71,745

 

 

Recently Adopted Accounting Pronouncements:

The Company adopted ASC 842, Leases (“ASC 842”), using the modified retrospective approach with cumulative effect adjustment, effective May 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of its existing leases as of the transition date, and the treatment of initial direct costs. In addition, the Company elected the practical expedient not to apply the recognition requirements in the lease standard to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to account for each separate lease component of a contract and its associated non-lease components as a single lease component.

The adoption had a material impact on the consolidated balance sheet related to the recognition of a transition adjustment on May 1, 2019 of a right of use asset of $1.9 million and lease liability of $1.9 million for an operating lease and the derecognition of deferred rent originally accounted for under legacy guidance. The adoption did not have a material impact on the consolidated statement of operations. Refer to Note 6, Leases for further information on the adoption of this standard and the Company’s accounting for leases.

 

Impact of Adopting ASC 842 on the Financial Statements

 

May 1, 2019

 

 

 

 

 

 

May 1, 2019

 

 

Prior to ASC 842

 

 

ASC 842 Adjustment

 

 

As Adjusted

 

Consolidated Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Right of use assets - operating leases

$

 

 

$

1,913

 

 

$

1,913

 

Deferred rent, current portion

$

19

 

 

$

(19

)

 

$

 

Current operating lease liabilities

$

 

 

$

569

 

 

$

569

 

Non-current operating lease liabilities

$

 

 

$

1,363

 

 

$

1,363

 

 

 

3.       Marketable Securities

The objectives of the Company’s investment policy are to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. The Company invests its excess cash in securities issued by high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of its credit exposure. The Company has not realized any significant losses from its investments.

 

The Company classifies all of its debt securities as available for sale. Unrealized gains and losses on debt securities are recognized in comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are included in interest and other income in the consolidated statements of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a trade date basis.

 

The following tables summarize the fair value of the Company’s investments by type:

 

7


 

 

October 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate debt securities

$

57,676

 

 

$

479

 

 

$

(3

)

 

$

58,152

 

Obligation of the U.S. Government and its agencies

 

13,556

 

 

 

35

 

 

 

(1

)

 

 

13,590

 

Total investments

$

71,232

 

 

$

514

 

 

$

(4

)

 

$

71,742

 

 

 

 

April 30, 2019

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

56,083

 

 

$

405

 

 

$

(1

)

 

$

56,487

 

Obligation of the U.S. Government and its agencies

 

12,282

 

 

 

36

 

 

 

 

 

 

12,318

 

Total investments

$

68,365

 

 

$

441

 

 

$

(1

)

 

$

68,805

 

 

The following table summarizes the scheduled maturity for the Company’s investments at October 31, 2019:

 

 

October 31, 2019

 

Maturing in one year or less

$

35,070

 

Maturing after one year through two years

 

23,340

 

Maturing after two years

 

13,332

 

Total investments

$

71,742

 

4.

Accrued Expenses

Accrued expenses consisted of the following as of October 31, 2019 and April 30, 2019 (in thousands):

 

 

 

October 31,

 

 

April 30,

 

 

 

2019

 

 

2019

 

Compensation expense

 

$

1,264

 

 

$

1,949

 

Research expense

 

 

3,166

 

 

 

3,065

 

Professional fees

 

 

383

 

 

 

186

 

Other expenses

 

 

216

 

 

 

447

 

 

 

$

5,029

 

 

$

5,647

 

 

 

5.

Commitments and Contingencies

Clinical Studies: The Company enters into contractual agreements with contract research organizations in connection with preclinical studies and clinical trials. Amounts due under these agreements are invoiced to the Company on predetermined schedules during the course of the studies and clinical trials and are not refundable regardless of the outcome. The Company has contractual obligations related to the expected future costs to be incurred to complete the ongoing preclinical studies and clinical trials. The remaining commitments, which have cancellation provisions, total $4.6 million at October 31, 2019.

Contingencies: From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable and that such expenditures can be reasonably estimated. There are no contingent liabilities requiring accrual at October 31, 2019.

As a result of the terms of grant income received in prior years, upon successful regulatory approval and following the first commercial sale of certain products, the Company will be required to pay royalty fees of up to $1.0 million within 90 days of the first commercial sale of the product subject to certain limitations, and follow on payments depending upon commercial success and type of product. Given the stage of development of the current pipeline of products it is not possible to predict with certainty the amount or timing of any such liability.

6.

Leases

8


 

The Company has a lease agreement for approximately 2,700 square feet of space for its headquarters located in Cambridge, Massachusetts that commenced in September 2017 for a term of five years.

The Company has a lease agreement for approximately 8,800 square feet of office and research laboratory space located in Porton Down, United Kingdom that commenced in July 2018 for a term of ten years. The Company has the right to terminate the lease agreement on or after April 30, 2021. It is not likely that the Company will terminate the lease at that time, therefore the entire lease term is included in its calculation of the lease liability.

The Company is also party to several operating leases for office and laboratory space as well as certain lab equipment. Total rent expense was $378,000 and $334,000 for the six months ended October 31, 2019 and 2018, respectively and is reflected in general and administrative expenses and research and development expenses as determined by the underlying activities.

The Company identified and assessed the following significant assumptions in calculating the lease liability:

Incremental borrowing rate – The Company’s lease agreements do not provide an implicit rate. The Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term and economic environment.

Lease and non-lease components – The Company has elected the practical expedient which allows non-lease components to be combined with lease components for all asset classes and will therefore include any fixed additional rent amounts in its lease payments. Any variable lease payments are excluded from the lease liability and are recognized in the period incurred.

The ROU asset of $1.6 million, the current lease liability of $0.6 million and the non-current lease liability of $1.1 million are classified on separate lines on the Condensed Consolidated Balance Sheet.

The following table summarizes operating lease costs included in research and development and general and administrative expense for the six months ended October 31, 2019 (in thousands):

 

Six Months Ended

 

 

October 31, 2019

 

Operating lease costs

$

353

 

Finance lease costs

 

54

 

Short-term lease costs

 

 

Variable lease costs

 

22

 

Total lease costs

$

429

 

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of October 31, 2019 (in thousands):

Fiscal Years

 

Operating Leases

 

2020

 

$

357

 

2021

 

 

625

 

2022

 

 

329

 

2023

 

 

194

 

2024

 

 

97

 

Thereafter

 

 

396

 

Total lease payments

 

 

1,998

 

Less: imputed interest

 

 

(343

)

Total lease liabilities

 

 

1,655

 

Current lease liabilities

 

 

602

 

Long-term lease liabilities

 

$

1,053

 

The following table summarizes the lease term and discount rate as of October 31, 2019:

 

 

October 31, 2019

 

Weighted-average remaining lease term (years)

 

 

 

 

Operating leases

 

4.4

 

Weighted-average discount rate

 

 

 

 

Operating leases

 

 

9.0

%

The following table summarizes the cash paid for amounts included in the measurement of lease liabilities for the six months ended October 31, 2019 (in thousands):

9


 

 

 

October 31, 2019