Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2023

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant items subject to such estimates include but are not limited to research and development accruals as well as contingencies.

On an ongoing basis, the Company’s management evaluates its estimates based on historical and anticipated results, trends, and various other assumptions believed to be reasonable. Actual results could differ from those estimates. The results of any changes in accounting estimates are reflected in the financial statements of the period in which the change becomes evident.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents are held in depository and money market accounts and are reported at fair value. The Company’s restricted cash balances consist of cash deposits to collateralize letter of credit obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the consolidated balance sheets to the total amount shown in the consolidated statements of cash flows:

	December 31,
	2023		2022
Cash and cash equivalents	$	39,586	$	24,127
Restricted cash, non-current		745		745
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	40,331	$	24,872

Fair Value Measurements

Accounting Standards Codification, or ASC, Topic 820 “Fair Value Measurements” provides the framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Fair value is defined as the exchange price, or an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, the three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

● Level 1 Quoted prices in active markets for identical assets or liabilities.

● Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.

● Level 3 Significant unobservable inputs that cannot be corroborated by market data.

The carrying amounts of cash and cash equivalents, prepaid expenses and accounts payable approximate their fair values due to the short-term nature of these instruments.

Marketable Debt Securities

The Company classifies investments in marketable debt securities with remaining maturities when purchased of greater than three months as available-for-sale. Investments with a remaining maturity date greater than one year are classified as non-current. The cost of securities sold is based on the specific identification method. Interest earned on securities that are classified as available-for-sale are included in interest and investment income.

The Company records investments at fair value with unrealized gains and losses recorded as a component of other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss until realized. Realized gains and losses are reflected in interest and investment income in the consolidated statements of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a settlement date basis. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves. To determine whether an other-than-temporary impairment exists, the Company considers whether it has the ability and intent to hold the investment until a market price recovery, and whether evidence indicating the recoverability of the cost of the investment outweighs evidence to the contrary. The Company has the ability to hold such securities with an unrealized loss until its forecasted recovery. The Company determined that there was no material change in the credit risk of these investments.

The Company periodically evaluates the need for an allowance for credit losses. This evaluation includes consideration of several qualitative and quantitative factors, including whether it plans to sell the security, whether it is more likely than not it will be required to sell any marketable debt securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss. Factors considered in making these evaluations include quoted market prices, recent financial results, operating trends, and implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the value of the marketable debt security, duration and severity of decline in value and the Company’s strategy and intentions for holding the marketable debt security.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consists principally of cash, cash equivalents, restricted cash, and marketable debt securities.

The Company currently invests its excess cash primarily in money market funds and high quality, investment grade marketable debt securities of corporations. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity.

Property and Equipment, net

Property and equipment, including leasehold improvements, are recorded at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Depreciation begins at the time the asset is placed in service. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. 

The estimated useful lives for significant property and equipment categories are as follows:

Asset Classification	Estimated Useful Life
Computer equipment	3-5 years
Furniture, fixtures and other	5 years
Laboratory equipment	7 years
Leasehold improvements	Shorter of the useful life of asset or the lease term

Leases

The Company enters into contracts in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. Under ASC 842, lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consists of non-cancelable periods and may include options to extend or terminate the lease term, when it is reasonably certain such options will be exercised.

Leases classified as operating leases are included in operating lease right-of-use, or ROU, assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment and finance lease obligations, in our consolidated balance sheet. ROU assets represent the right to use an underlying asset for the lease term. Lease liabilities represent the present value of future lease payments, net of lease incentives, discounted using an incremental borrowing rate, which is a management estimate based on the information available at the commencement date of a lease arrangement. ROU assets and lease liabilities are recognized at the lease commencement date.

The Company has elected to account for the lease and non-lease components for leases as a single component for classes of all underlying assets and allocate all the contract consideration to the lease component only. Lease cost for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses on the statements of operations and comprehensive loss. Variable lease payments are included in lease operating expenses.

The Company recognizes costs associated with lease arrangements having an initial term of 12 months or less, or short-term leases, on a straight-line basis over the lease term; such short-term leases are not recorded on the balance sheet.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable or that the useful life is shorter than originally estimated. When such events occur, the Company compares the carrying amounts of the asset or asset group to the undiscounted expected future cash flows. If this comparison indicates that the asset or asset group is impaired, the amount of impairment is measured as the difference between the carrying value and fair value of the asset or asset group. If the useful life is shorter than originally estimated, the Company will amortize the remaining carrying value over the new shorter useful life. To date, no such impairment loss has been recognized.

Segment Information

The Company identifies its operating segments in accordance with Accounting Standards Codification 280, Segment Reporting, or ASC 280. Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources. Accordingly, the Company has determined it operates and manages its business in a single reportable operating segment.

Goodwill

Goodwill represented the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill has an indefinite useful life. Goodwill was assessed annually for impairment as of December 31, or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment, the Company has the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value; if the conclusion of the qualitative assessment is that there are no indicators of impairment, the Company does not perform a quantitative assessment. Otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined.

Goodwill was evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment. The Company has determined that it operates as one reporting unit and has selected December 31 as the date to perform its annual impairment test.

As of December 31, 2022, the Company elected to forego the qualitative screen and performed a quantitative annual goodwill impairment test for the reporting unit.

As of December 31, 2022, the Company’s stock price and market capitalization declined 60% from December 31, 2021, which reflected the overall decline of similar companies with less than $250 million in market capitalizations, or microcap companies. The life sciences sector, which includes pre-commercialization and therefore net operating loss generating companies, relied heavily on the capital markets to finance their operations and fund pre-clinical and clinical trials for their existing development programs. As a result of a shift in risk appetite in the overall financial markets, the availability of capital for life science sector companies decreased significantly in 2022. The challenging financing conditions had a negative impact on stock prices and respective market capitalizations, particularly for microcap companies. The Company considered the heightened financing risk that impacted the life sciences sector during 2022 to be one of the key macroeconomic factors that led to a sustained decrease in the Company’s stock price and market capitalization leading up to its annual goodwill impairment assessment date in late 2022.

Based upon the results of its 2022 annual goodwill impairment test, the Company recorded a loss on impairment of goodwill of $29.5 million during the year ended December 31, 2022, resulting in full impairment of goodwill.

The following table provides a roll forward of the Company’s goodwill and accumulated impairment losses:

	Goodwill
Goodwill, gross amount as of January 1, 2022	$	29,517
Loss on impairment		(29,517	)
Goodwill as of December 31, 2022	$	-

Research and Development

Research and development expenses consist primarily of third-party costs incurred to develop drug candidates, personnel-related expenses, including salaries, benefits, travel and stock-based compensation expense, depreciation and other allocated overhead costs, which include rent and maintenance of facilities and other supplies. Research and development costs are expensed as incurred.

Before a compound receives regulatory approval, the Company records upfront and milestone payments made to third parties under licensing arrangements as expense provided that there is no alternative future use of the rights in other research and development projects.

Nonrefundable advance payments to vendors for goods or services that will be used or received in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed. Where milestone payments are due to third parties under research and development collaboration arrangements or other contractual agreements, the milestone payment obligations are expensed when the milestone conditions are met and the amount of payment is reasonably estimable. 

Once a compound receives regulatory approval, the Company records any milestone payments in identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life, the Company amortizes the payments on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter.

Certain third-party costs are included as a component of research and development expense. These expenses include fees paid to contract research organizations, or CROs, and other clinical trial costs, contractual services costs and costs for supply of its drug candidates. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts in conjunction with known variable factors such as enrolled patients and site activity. The Company monitors each of these factors and adjusts estimates accordingly.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Interest and Investment Income

Investment income consists primarily of interest income, accretion income earned and amortization expense incurred and realized gains or losses related to our marketable debt securities, interest income related to cash, cash equivalents and restricted cash and dividend income related to money market funds.

Stock-Based Compensation

The Company’s stock-based compensation programs include stock options, restricted stock units, or RSUs, and an employee stock purchase program, or ESPP. The Company accounts for stock-based compensation using the fair value method.

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company recognizes forfeitures at the time forfeitures occur.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility for the Company’s common stock is determined based on an average of the historical volatility of the Company and the historical volatility of a peer-group of similar public companies. The expected term of options granted to employees is calculated using the simplified method, which represents the average of the contractual term of the option and the weighted-average vesting period of the option. The simplified method is used as the Company does not have sufficient appropriate exercise data on which to base its own estimate. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free interest rate is based upon the U.S. Treasury yield curve commensurate with the expected term at the time of grant or remeasurement.

The stock-based compensation expense associated with purchase rights under the ESPP is measured at fair-value using a Black-Scholes option-pricing model at commencement of each offering period and recognized over that offering period. The Black-Scholes option pricing assumptions are similar to those used for stock options with the exception of the expected term of purchase rights for the ESPP which is based on the duration of an offering period.

The fair values of RSUs are based on the fair market value of the Company’s common stock on the date of the grant.

The RSUs are granted to directors pursuant to the Company’s equity plan. Settlement for the RSUs is deferred until the earliest to occur of (i) the director’s termination of service, (ii) death, (iii) disability or (iv) a change in control of the Company. In the event of a change in control of the Company, the RSUs will vest in full.

The fair value of all stock-based awards is recognized as stock-based compensation expense on a straight-line basis over the vesting period, which is typically one to four years for RSUs and four years for stock options.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same way the payroll costs or service payments are classified for the related stock-based award recipients.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense in the consolidated statement of operations and comprehensive loss.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period plus the common equivalent shares for the period including any dilutive effect from unvested restricted common stock, outstanding stock options and potential shares issuable under the ESPP.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or the FASB, issued ASU 2016-13 - Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10 – Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. On January 1, 2023, the Company adopted ASU 2016-13, using a modified retrospective approach. The adoption of this standard did not have an effect on the Company’s consolidated financial position, results of operations, or cash flows.

Recent Accounting Pronouncements Not Yet Adopted

The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Subsequent Events

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. Other than as described in Note 12 and, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.