Nature of Business, Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited interim condensed financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, 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. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to state fairly the Company’s financial position as of September 30, 2021 and as of December 31, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. While management believes that the disclosures presented are adequate to mitigate the risk of the information being misleading, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of expenses in the condensed financial statements and accompanying notes. Significant items subject to such estimates and assumptions include stock-based compensation, net embedded derivative liability bifurcated from the Credit Agreement and certain research and development accruals. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.

Revenue

Revenue

The Company entered into the License Agreement with Ji Xing during the three months ended September 30, 2021, as further described in Note 8, License and Collaboration Agreements. The License Agreement provides for Ji Xing to develop and commercialize certain Company products in exchange for payments by the licensee that include a non-refundable, up-front license fee, development and sales-based milestone payments, as well as royalties on net sales of licensed products. In connection with the License Agreement, the Company adopted revenue policies under the guidance of ASC 606, Revenue from Contracts with Customers, to recognize revenue based on the transfer of control of promised goods or services in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods and services. Revenue is recognized when the Company transfers control of a good or service to the customer in an amount that reflects the transaction price allocated to the distinct goods or services. U.S. GAAP provides a five-step model for recognizing revenue from contracts with customers:

1.Identify the contract with the customer

2.Identify the performance obligations within the contract

3.Determine the transaction price

4.Allocate the transaction price to the performance obligations

5.Recognize revenue when (or as) the performance obligations are satisfied

License Revenue — The Company recognizes license revenue when the licensee has the ability to direct the use of and benefit from the licensed intellectual property.

Royalty Revenue —The Company recognizes royalty revenue from licensees based on third-party sales of licensed products and is recorded when the related third-party product sale occurs.

Development and Sales Milestone Revenue —The Company recognizes development and sales-based milestone revenue when the development and sales milestones occur.

Deferred Financing Costs

Loan Commitment Fees, Debt Issuance and Discount Costs

As described in Note 7, Long-term Debt, the Company entered into a term loan credit facility with OrbiMed during the three months ended September 30, 2021. The Company capitalizes initial loan commitment fees that are directly associated with

obtaining access to capital under its term loan credit facility. Loan commitment fees related to undrawn tranches are recorded in other assets on the Company's condensed balance sheet and are amortized using a straight-line method over the term of the loan commitment. Debt issuance and discount costs that are attributable to the specific tranches drawn on the term loan credit facility are recorded as a reduction of the carrying amount of the debt liability incurred and are amortized to interest expense using the effective interest method over the repayment term. If the Company draws down on the term loan credit facility, it will reclassify the capitalized loan commitment fees on a pro-rata basis to debt issuance and discount costs that reduce the carrying amount of the debt liability.

Non-Marketable Equity Investment

In connection with the License Agreement described in Note 8, License and Collaboration Agreements, the Company received 397,562 senior common shares from Ji Xing valued at $0.4 million as of September 30, 2021 (the Investment). The Investment was recorded at fair value and will be subject to impairment analysis on a periodic basis. The impairment analysis would involve an assessment of both qualitative and quantitative factors, which may include regulatory approval of the investee's product or technology, as well as the investee’s financial metrics, such as subsequent rounds of financing that may indicate the Investment is impaired. If the Investment is considered impaired, the Company will recognize an impairment through other income (expense), net in the statements of operations and establish a new carrying value for the Investment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB) under its accounting standards codifications (ASC) or other standard setting bodies and are adopted by the Company as of the specified effective date, unless otherwise discussed below.

ASU 2020-10 — In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updated various codification topics by clarifying or improving disclosure requirements to align with the Securities and Exchange Commission’s (SEC’s) regulations. The amendments in ASU 2020-10 are effective for annual periods beginning after December 15, 2020, for public business entities. The Company adopted ASU 2020-10 on January 1, 2021 and its adoption did not have a material effect on the Company’s financial statements and related disclosures.

ASU 2016-13 — In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard introduced the expected credit loss methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendment in ASU 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized costs basis. The guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those years, for public business entities. The Company adopted ASU 2016-13 on January 1, 2021 and its adoption did not have a material effect on the Company's financial statements and related disclosures.

Fair Value Measurements

The Company assesses the fair value of financial instruments as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering

such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used 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 model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3    Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.