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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

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 001-38935

ATRECA, INC.

(Exact name of registrant as specified in its charter)

Delaware

27-3723255

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

835 Industrial Road, Suite 400,

San Carlos, CA 94070

(Address of principal executive offices)

(Zip Code)

(650)-595-2595

(Registrant’s telephone number, including area code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

BCEL

The Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of August 8, 2022, the registrant had 31,875,995 shares of Class A common stock, $0.0001 par value per share and 6,715,441 shares of Class B common stock, $0.0001 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION 

Item 1.

Condensed Financial Statements (Unaudited)

Condensed Balance Sheets

3

Condensed Statements of Operations

4

Condensed Statements of Loss and Comprehensive Loss

5

Condensed Statements of Stockholders’ Equity

6

Condensed Statements of Cash Flows

8

Notes to Unaudited Condensed Financial Statements

10

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II. OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

80

Table of Contents

PART I --- FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Atreca, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)

June 30, 

December 31, 

    

2022

    

2021

    

(unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$

26,446

$

94,746

Investments

75,286

22,287

Prepaid expenses and other current assets

7,907

5,337

Total current assets

109,639

122,370

Property and equipment, net

40,801

43,015

Operating lease right-of-use assets

36,893

Long-term investments

31,042

Deposits and other

3,497

3,630

Total assets

$

190,830

$

200,057

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable

$

2,041

$

3,352

Accrued expenses

7,885

11,555

Operating lease liabilities, current portion

3,327

Other current liabilities

216

1,992

Total current liabilities

13,469

16,899

Deferred rent

28,229

Operating lease liabilities, net of current portion

62,158

Total liabilities

75,627

45,128

Commitment and contingencies (Note 9)

Stockholders’ equity

Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both June 30, 2022 and December 31, 2021; 31,875,995 and 31,043,356 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

3

3

Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both June 30, 2022 and December 31, 2021; 6,715,441 shares issued and outstanding as of both June 30, 2022 and December 31, 2021

1

1

Additional paid-in capital

528,380

514,794

Accumulated other comprehensive loss

(661)

(102)

Accumulated deficit

(412,520)

(359,767)

Total stockholders’ equity

115,203

154,929

Total liabilities and stockholders’ equity

$

190,830

$

200,057

See accompanying notes to the unaudited condensed financial statements.

- 3 -

Table of Contents

Atreca, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Expenses

Research and development

$

19,953

$

19,036

$

37,017

$

37,424

General and administrative

8,077

8,031

16,683

15,852

Total expenses

28,030

27,067

53,700

53,276

Interest and other income (expense)

Other income

349

750

693

Interest income

153

56

197

147

Interest expense

(1)

(2)

Loss on disposal of property and equipment

(11)

(11)

Loss before income tax expense

(27,877)

(26,674)

(52,753)

(52,449)

Income tax expense

(1)

(1)

Net loss

$

(27,877)

$

(26,675)

$

(52,753)

$

(52,450)

Net loss per share, basic and diluted

$

(0.72)

$

(0.72)

$

(1.38)

$

(1.42)

Weighted-average shares used in computing net loss per share, basic and diluted

38,591,436

36,893,827

38,288,831

36,867,592

See accompanying notes to the unaudited condensed financial statements.

- 4 -

Table of Contents

Atreca, Inc.

Condensed Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net loss

$

(27,877)

$

(26,675)

$

(52,753)

$

(52,450)

Other comprehensive loss:

Unrealized loss on available-for-sale debt securities

(191)

(34)

(559)

(42)

Comprehensive loss

$

(28,068)

$

(26,709)

$

(53,312)

$

(52,492)

See accompanying notes to the unaudited condensed financial statements.

- 5 -

Table of Contents

Atreca, Inc.

Condensed Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Accumulated

Additional

Other

Total

Three Months Ended June 30, 2021

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at March 31, 2021

36,890,970

$

4

$

497,561

$

50

$

(276,216)

$

221,399

Issuance of common stock upon exercise of options

3,444

31

31

Stock-based compensation

3,882

3,882

Unrealized loss on available-for-sale debt securities

(34)

(34)

Net loss

(26,675)

(26,675)

Balances at June 30, 2021

36,894,414

$

4

$

501,474

$

16

$

(302,891)

$

198,603

Accumulated

Additional

Other

Total

Three Months Ended June 30, 2022

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at March 31, 2022

38,591,436

$

4

$

522,893

$

(470)

$

(384,643)

$

137,784

Stock-based compensation

5,487

5,487

Unrealized loss on available-for-sale debt securities

(191)

(191)

Net loss

(27,877)

(27,877)

Balances at June 30, 2022

38,591,436

$

4

$

528,380

$

(661)

$

(412,520)

$

115,203

See accompanying notes to the unaudited condensed financial statements.

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Atreca, Inc.

Condensed Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Accumulated

Additional

Other

Total

Six Months Ended June 30, 2021

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at December 31, 2020

36,804,603

$

4

$

492,436

$

58

$

(250,441)

$

242,057

Issuance of common stock upon exercise of options

46,793

272

272

Issuance of common stock under the Employee Stock Purchase Plan

43,018

484

484

Stock-based compensation

8,282

8,282

Unrealized loss on available-for-sale debt securities

(42)

(42)

Net loss

(52,450)

(52,450)

Balances at June 30, 2021

36,894,414

$

4

$

501,474

$

16

$

(302,891)

$

198,603

Accumulated

Additional

Other

Total

Six Months Ended June 30, 2022

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at December 31, 2021

37,758,797

$

4

$

514,794

$

(102)

$

(359,767)

$

154,929

Issuance of common stock through "at-the-market" offering, net of underwriter discount and issuance costs

700,000

3,509

3,509

Issuance of common stock upon exercise of options

16,666

76

76

Issuance of common stock under the Employee Stock Purchase Plan

115,973

177

177

Stock-based compensation

9,824

9,824

Unrealized loss on available-for-sale debt securities

(559)

(559)

Net loss

(52,753)

(52,753)

Balances at June 30, 2022

38,591,436

$

4

$

528,380

$

(661)

$

(412,520)

$

115,203

See accompanying notes to the unaudited condensed financial statements.

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Atreca, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2022

    

2021

Cash Flows from Operating Activities

Net loss

$

(52,753)

$

(52,450)

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

Depreciation and amortization

2,719

1,764

Amortization of operating right-of-use asset

785

Loss on disposal of property and equipment

11

Stock-based compensation

9,824

8,282

Amortization of discount or premium on available-for-sale securities

118

936

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(2,995)

(1,477)

Accounts payable

(1,298)

392

Accrued expenses

(3,692)

(1,763)

Other current liabilities

(59)

(730)

Deferred rent

16,274

Operating lease liabilities

(1,577)

Net cash used in operating activities

(48,928)

(28,761)

Cash Flows from Investing Activities

Purchase of property and equipment

(496)

(28,961)

Purchase of investments

(51,585)

(14,921)

Proceeds from maturities of investments

28,951

104,531

Net cash provided by (used in) investing activities

(23,130)

60,649

Cash Flows from Financing Activities

Proceeds from the issuance of common stock under the Employee Stock Purchase Plan

177

484

Proceeds from exercise of stock options

76

272

Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs

3,509

Principal payments on capital lease obligations

(4)

(24)

Net cash provided by financing activities

3,758

732

Net change in cash, cash equivalents and restricted cash

(68,300)

32,620

Cash, cash equivalents and restricted cash, beginning of period

96,204

62,441

Cash, cash equivalents and restricted cash, end of period

$

27,904

$

95,061

See accompanying notes to the unaudited condensed financial statements.

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Atreca, Inc.

Condensed Statements of Cash Flows (continued)

(in thousands)

(unaudited)

Six Months Ended June 30, 

    

2022

    

2021

  

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

$

1

Cash paid for income taxes

$

$

1

Supplemental Schedule of Non-Cash Investing and Financing Activities

Purchases of property and equipment included in accounts payable and accrued liabilities

$

42

$

5,394

See accompanying notes to the unaudited condensed financial statements.

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Notes to Unaudited Interim Condensed Financial Statements

1.            Business

Nature of Business

Atreca, Inc. (the “Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception date”), and is located in San Carlos, California. The Company is a biopharmaceutical company utilizing its differentiated platform to discover and develop novel antibody-based immunotherapeutics to treat a range of solid tumor types. The Company's lead product candidate, ATRC-101, is a monoclonal antibody in clinical development with a novel mechanism of action and target derived from an antibody identified using its discovery platform. In April 2022, the Company announced its next clinical candidate, ATRC-301. ATRC-301 is an antibody drug conjugate (“ADC”) that selectively targets a novel, membrane-proximal epitope on erythropoietin-producing hepatocellular receptor A2. The Company operates in a single segment. Since inception, the Company has been primarily engaged in research and development, raising capital, building its management team and building its intellectual property portfolio.

2.           Summary of Significant Accounting Policies

Basis of Presentation

The condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expenses in the condensed financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the condensed financial statements include estimated useful lives of property and equipment, impairment of long-lived assets, accrued expenses, valuation of deferred income tax assets, fair value of warrants issued to purchasers of shares of common stock and fair value of options granted under the Company's stock option plan.

Unaudited Interim Condensed Financial Statements

The accompanying condensed financial statements are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of June 30, 2022 and its results of operations for the three and six months ended June 30, 2022 and 2021, and statements of cash flows for the six months ended June 30, 2022 and 2021. The financial data and the other financial information contained in these notes to the condensed financial statements related to the three-month and six-month periods ended June 30, 2022 and 2021 are also unaudited. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date.

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Other Income

Other income is comprised of amounts earned from services performed under service agreements. The Company follows the provisions of Accounting Standards Update 2014-09 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). The guidance provides a unified model to determine how income is recognized.

In determining the appropriate amount of other income to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes other income when (or as) the Company satisfies each performance obligation.

The Company generally allocates the transaction price to distinct performance obligations at their stand-alone selling prices, determined by their estimated costs plus some margin. Performance obligations are generally delivered over time and recognized based upon observable inputs as the related research services are performed, which are recorded as research and development expenses. Amounts due under service agreements are generally billed monthly as services are delivered and do not generally result in contract liabilities or assets.

In February 2020, the Company entered into an agreement with an external partner for a research project to identify the antigenic targets of select antibodies discovered by the Company with potential utility in oncology. The nonrefundable upfront payment from this agreement was classified as a contract liability and the Company fully recognized the amount as other income over the service period of 18 months.

In March 2022, the Company entered into an agreement with a third party for the assignment of certain non-core intellectual property. The initial consideration was classified as other income and recognized upon completion of the assignment. The agreement provides for additional consideration in the event of commercial exploitation of the intellectual property. The term of the agreement extends to the date of expiration of the last to expire of any of the assigned patents. The Company recorded no receivables under service and license agreements as of June 30, 2022 and December 31, 2021. The Company recorded no contract liabilities as of both June 30, 2022 and December 31, 2021.

Collaborations

Historically, we have entered into a number of discovery collaborations as we developed our discovery platform. These collaborations have generally focused on identifying novel antibodies in areas of significant unmet medical need.

In July 2020, the Company entered into a Collaboration and License Agreement with Xencor, Inc. (“Xencor Agreement”), to research, develop and commercialize novel CD3 bispecific antibodies as potential therapeutics in oncology. Under the Xencor Agreement, the Company and Xencor, Inc. will engage in a three-year research program in which the Company will provide antibodies against novel tumor targets through its discovery platform from which Xencor, Inc. will engineer XmAb bispecific antibodies that also bind to the CD3 receptor on T cells. Up to two joint programs are eligible to be mutually selected for further development and commercialization, with each partner sharing 50% of costs and profits. Each company has the option to lead development, regulatory and commercialization activities for one of the joint programs. In addition, the Xencor Agreement allows each partner the option to pursue up to two programs independently, with a mid-to high-single digit percent royalty payable on net sales to the other partner.

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The Company evaluated the Xencor Agreement under the provisions of Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers and all related amendments (collectively, “ASC 606”) and ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606. The Company concluded that Xencor, Inc. is not a customer as there are no distinct units of account that are reflective of a vendor-customer relationship or exchange of consideration for the research activities.

For the cost-sharing related to the research program, the Company will follow the presentation and disclosure guidance of ASC 808, Collaboration Agreements. The Company had $74,000 of payable and $25,000 of receivable under the research cost-sharing provision recorded in accrued expenses and prepaid and other current assets, respectively, on the accompanying condensed balance sheets as of June 30, 2022 and December 31, 2021, respectively.

In-Licensing Arrangements – Development

In April 2022, the Company entered into an Option and License Agreement (the “Option and License Agreement”), by and between the Company and Zymeworks Inc (“Zymeworks”). The Company received a license under certain of Zymeworks’ proprietary drug conjugate patents and know-how to perform preclinical research and development of ADCs. The aggregate consideration for the research license is $5.0 million. The Company also received an option to obtain an exclusive license to research, develop, manufacture, and commercialize certain ADCs for additional license fees and royalties. Unless earlier terminated or extended, the term of the research license and the commercial option is two years from the effective date.

The Company will be required to use commercially reasonable efforts to develop and commercialize at least one licensed product and the Company will pay to Zymeworks an option exercise fee, and lump sum payments upon the achievement of certain development and regulatory milestones and commercial milestones. In addition, with respect to each licensed product, the Company will pay tiered royalties on net sales of licensed products at single-digit royalty rates.

The research license fee of $5.0 million was expensed to research and development expense during the quarter ended June 30, 2022 in accordance with the Company's research and development expense policy.

Employee Retention Credit

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, as amended by the further legislation, provides an employee retention credit (“ERC”) to eligible employers, which is a refundable tax credit against certain employment taxes. In calendar 2021, the ERC was equal to 70% of qualified wages paid to employees up to $10,000 of qualified wages per employee for each of the first, second and third calendar quarters of 2021. The Company has determined that its aggregate eligible refundable credit for 2021 is $2.9 million. During the quarter ended June 30, 2022, the Company filed the requisite claims for the eligible 2021 ERC.

The Company classified the ERC amounts as a reduction to payroll expense. During the three and six months ended June 30, 2022, the Company recorded $2.4 million and $0.5 million related to the ERC within research and development expense and G&A expense, respectively, on the Company’s condensed statement of operations and comprehensive loss. As of June 30, 2022, the Company has a $2.9 million receivable balance from the United States government related to the CARES Act, which is recorded as other receivables in “Prepaid expenses and other current assets” on the Company’s condensed balance sheet.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all cash balances and highly liquid investments purchased with an original maturity of three months or less.

The Company maintained restricted cash of $1.5 million as of both June 30, 2022 and December 31, 2021. This amount as of June 30, 2022 and December 31, 2021 is included in deposits and other in the accompanying condensed balance sheets and is comprised solely of letters of credit required pursuant to leases for Company facilities.

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The Company’s reconciliation of cash and cash equivalents and restricted cash reported within the condensed balance sheets that sum to the total of the same amounts shown in the condensed statements of cash flows were as follows (in thousands):

    

June 30, 

    

December 31, 

2022

    

2021

Cash and cash equivalents

$

26,446

$

94,746

Restricted cash

1,458

1,458

Cash, cash equivalents and restricted cash shown in the condensed statements of cash flows

$

27,904

$

96,204

Investments

The Company considers securities purchased with original maturities greater than three months to be investments. The Company’s policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates. The Company’s intent is to convert all investments into cash to be used for operations and has classified them as available for sale. For purposes of determining realized gains and losses, the cost of debt securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Leases

The Company determines if an arrangement is, or contains, a lease at inception. The Company measures lease liabilities based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit discount rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. Options in the lease terms to extend or terminate the lease are not reflected in the lease liabilities unless it is reasonably certain that any such option will be exercised.

The Company measures right-of-use assets at the lease commencement date based on the corresponding lease liabilities adjusted for (i) prepayments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) certain tenant incentives under the lease. The Company evaluates the recoverability of the right-of-use assets for possible impairment in accordance with the long-lived assets policy. The Company has elected not to recognize right-of-use assets or lease liabilities for leases with an initial lease term of twelve months or less.

The Company’s lease agreements do not contain residual value guarantees or covenants. Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including COVID-19, dependence on key individuals, competition from similar services and larger companies, volatility of the industry, ability to obtain regulatory clearance, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company and general economic conditions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, investments and other receivables. Cash and cash equivalents are held at three financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at June 30, 2022 and December 31, 2021. Additionally, cash and cash equivalents and investments are maintained at brokerage firms for which amounts are

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insured by the Securities Investor Protection Corporation subject to legal limits. The Company has not experienced any losses on its deposits to date.

The Company does not require collateral or other security for other receivables; however, credit risk is mitigated by the Company’s ongoing evaluations of its debtors’ credit worthiness.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits, consultant fees, stock-based compensation, certain facility costs, legal costs and other costs associated with preclinical and clinical development.

A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers in connection with preclinical and clinical development activities and contract manufacturing organizations in connection with the production of materials for clinical trials. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Stock-Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the underlying shares at the date of grant. The Company accounts for stock option grants using the fair value method. The fair value of options is calculated using the Black-Scholes option pricing model. For restricted stock units, fair value is based on the closing price of the Company’s Class A common stock on the grant date. Stock-based compensation is recognized as the underlying options vest using the straight-line attribution approach, and forfeitures are recorded as they occur.

Emerging Growth Company Status

The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, the Company’s condensed financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that the Company is no longer an EGC.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016 02 and subsequent amendments to the initial guidance under ASU 2017-13, ASU 2018-10, ASU 2018-11, and ASU 2019-01 (collectively, “Topic 842”), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company adopted the new lease accounting standard on January 1, 2022, using the modified retrospective transition method. The Company implemented processes, and internal controls to enable the preparation of financial information. The adoption of this standard had a material impact on the Company’s condensed balance sheet, with the recognition of right-of-use assets and corresponding lease liabilities in the amounts of $37.7 million and $67.1 million respectively, and the derecognition of approximately $10.9 million of deferred rent and $19.1 million of tenant improvement incentives. The adoption of this standard did not have a material impact on the Company’s condensed statements of operations or cash flows. The

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Company provided detailed right-of-use asset and liability disclosures as required by the new standard in the notes to the Company’s condensed financial statements under Note 8 Leases. The Company adopted the transitional provisions allowed under ASU 2018-11 and as such, the condensed balance sheets and condensed statements of operations for prior periods are not comparable in the year of adoption of ASU 2016-02.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-02 which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. The amendment replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. For available-for-sale debt securities, credit losses should be recorded through an allowance for credit losses. Topic 326 is effective for the Company as of January 1, 2023. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its financial statements and related disclosures.

3.           Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities, which qualify as financial instruments under FASB ASC 820, Fair Value Measurements and Disclosures, approximates their carrying value represented in the condensed balance sheets. The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):

June 30, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

22,134

$

$

$

22,134

Certificates of deposit

1,414

1,414

U.S. Treasury securities

73,872

73,872

Total

$

97,420

$

$

$

97,420

December 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

90,251

$

$

$

90,251

Certificates of deposit

1,672

1,672

Corporate debt securities

6,089

6,089

U.S. Treasury securities

45,568

45,568

Total

$

137,491

$

6,089

$

$

143,580

The Company utilized the market approach and Level 1 valuation inputs to value its money market funds, certificates of deposit, and U.S. government treasury securities because published fair market values were readily available. The Company measured the fair value of corporate debt securities using Level 2 valuation inputs, which are based on quoted prices and market observable data of similar instruments. As of both June 30, 2022 and December 31, 2021, the remaining contractual maturity of all marketable securities was less than two years.

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4.           Cash, Cash Equivalents and Investments

The fair value and the amortized cost of cash, cash equivalents and available-for-sale investments by major security type consist of the following (in thousands):

Gross

Gross

Estimated

Cash and

 

Amortized

Unrealized

Unrealized

Fair

Cash

Short-term

Long-term

 

June 30, 2022

    

Cost

    

Gains

    

Losses

    

Value

    

Equivalents

Investment

Investment

 

Cash, cash equivalents and money market funds

$

26,446

$

$

$

26,446

$

26,446

$

$

Available-for-sale:

U.S. Treasury securities

 

74,523

(651)

73,872

73,872

Certificates of deposit

1,424

 

 

(10)

 

1,414

 

 

1,414

Total

$

102,393

$

$

(661)

$

101,732

$

26,446

$

75,286

$

Gross

Gross

Estimated

Cash and

 

Amortized

Unrealized

Unrealized

Fair

Cash

Short-term

Long-term

 

December 31, 2021

    

Cost

    

Gains

    

Losses

    

Value

    

Equivalents

Investment

Investment

 

Cash, cash equivalents and money market funds

$

94,746

$

$

$

94,746

$

94,746

$

$

Available-for-sale:

U.S. Treasury securities

 

45,665

(97)

45,568

15,015

30,554

Corporate debt securities

6,093

(4)

6,089

6,089

Certificates of deposit

1,673

 

 

(1)

 

1,672

 

 

1,184

488

Total

$

148,177

$

$

(102)

$

148,075

$

94,746

$

22,287

$

31,042

The Company evaluated the securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It is not more likely than not that the Company will be required to sell the securities, and the Company has no intention to do so prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of June 30, 2022.

5.           Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

    

June 30,

December 31,

    

2022

    

2021

    

Vendor prepayments and deposits

$

2,462

$

2,681

Prepaid insurance

2,007

1,531

Prepaid facility maintenance fee

 

318

 

807

Other receivables

 

2,979

 

Interest receivables and other current assets

141

318

Total prepaid expenses and other current assets

$

7,907

$

5,337

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6.           Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

June 30, 

    

December 31, 

    

2022

    

2021

 

Laboratory equipment

$

13,559

$

13,128

Furniture and fixtures

 

1,929

 

1,897

Computer hardware and software

 

1,438

 

1,433

Leasehold improvements

 

37,908

 

37,871

 

54,834

 

54,329

Less accumulated depreciation and amortization

 

(14,033)

 

(11,314)

Total property and equipment, net

$

40,801

$

43,015

Depreciation and amortization expense was $1.4 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively and $2.7 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively.

7.           Accrued Expenses

Accrued expenses consist of the following (in thousands):

    

June 30, 

    

December 31,

2022

    

2021

Compensation and related benefits

$

2,853

$

4,866

Research license fees

3,000

Contract research fees

1,374

5,521

Professional fees

104

189

Accrued cease-use liabilities

475

Other

554

504

Total accrued expenses

$

7,885

$

11,555

8.           Leases

The Company leases its office facilities under non-cancellable operating lease agreements that expire at various dates through April 2033. Under the terms of the leases, the Company is responsible for certain insurance, property taxes and maintenance expenses. The office facilities lease agreements contain scheduled increases over the lease term. The Company was not party to any finance leases as of June 30, 2022.

The Company vacated its former office space in September 2021, prior to the expiration of the lease in March 2022. The remaining rent payable, deferred rent and associated prepaid rent for the former office space were expensed in full on September 30, 2021 and resulted in a charge of $1.5 million, recorded as a general and administrative operating expense in the Company’s condensed statement of operations. The associated cease-use liability was settled by March 2022 and the lease was terminated.

The Company's future lease payments as of June 30, 2022, which are presented as current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the Company's condensed balance sheets (in thousands, except weighted-average data) are as follows:

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Operating