cbio-10q_20180331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2018

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: 000-51173

 

Catalyst Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

56-2020050

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

611 Gateway Blvd.

South San Francisco, California

94080

(Address of Principal Executive Offices)

(Zip Code)

(650) 266-8674

(Registrant’s Telephone Number, Including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

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 April 30, 2018, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 11,935,169.

 

 

 

 


CATALYST BIOSCIENCES, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page No.

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements:

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2018 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

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

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II. OTHER INFORMATION

 

26

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

26

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

26

 

 

 

 

 

Item 5.

 

Other Information

 

26

 

 

 

 

 

Item 6.

 

Exhibits

 

26

 

 

 

 

 

Exhibit Index

 

27

 

 

 

 

 

Signatures

 

28

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Catalyst Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

126,550

 

 

$

14,472

 

Short-term investments

 

 

16,968

 

 

 

17,971

 

Restricted cash

 

 

175

 

 

 

5,333

 

Prepaid and other current assets

 

 

1,740

 

 

 

1,333

 

Total current assets

 

 

145,433

 

 

 

39,109

 

Deposits, noncurrent

 

 

128

 

 

 

128

 

Property and equipment, net

 

 

325

 

 

 

276

 

Total assets

 

$

145,886

 

 

$

39,513

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,437

 

 

$

747

 

Accrued compensation

 

 

511

 

 

 

1,366

 

Other accrued liabilities

 

 

952

 

 

 

1,322

 

Deferred revenue, current portion

 

 

 

 

 

212

 

Deferred rent, current portion

 

 

 

 

 

7

 

Redeemable convertible notes

 

 

 

 

 

5,085

 

Total current liabilities

 

 

2,900

 

 

 

8,739

 

Deferred rent, noncurrent portion

 

 

135

 

 

 

 

Total liabilities

 

 

3,035

 

 

 

8,739

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized; 0 and 3,680 shares issued

   and outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized; 11,935,081 and

  6,081,230 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

12

 

 

 

6

 

Additional paid-in capital

 

 

321,172

 

 

 

204,262

 

Accumulated other comprehensive income (loss)

 

 

(4

)

 

 

 

Accumulated deficit

 

 

(178,329

)

 

 

(173,494

)

Total stockholders’ equity

 

 

142,851

 

 

 

30,774

 

Total liabilities and stockholders’ equity

 

$

145,886

 

 

$

39,513

 

 

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

 

 

3


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Contract revenue

 

$

6

 

 

$

271

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,771

 

 

 

2,061

 

General and administrative

 

 

2,914

 

 

 

2,381

 

Total operating expenses

 

 

6,685

 

 

 

4,442

 

Loss from operations

 

 

(6,679

)

 

 

(4,171

)

Interest and other income, net

 

 

1,637

 

 

 

33

 

Net loss

 

$

(5,042

)

 

$

(4,138

)

Net loss per share attributable to common stockholders, basic and

   diluted

 

$

(0.56

)

 

$

(4.57

)

Shares used to compute net loss per share attributable to common

   stockholders, basic and diluted

 

 

8,989,669

 

 

 

906,048

 

 

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

 

 

4


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(5,042

)

 

$

(4,138

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

(4

)

 

 

1

 

Total comprehensive loss

 

$

(5,046

)

 

$

(4,137

)

 

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

 

 

5


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2017

 

 

3,680

 

 

$

 

 

 

6,081,230

 

 

$

6

 

 

$

204,262

 

 

$

 

 

$

(173,494

)

 

$

30,774

 

Opening balance adjustment - adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

207

 

 

 

207

 

Balance at January 1, 2018

 

 

3,680

 

 

$

 

 

 

6,081,230

 

 

$

6

 

 

$

204,262

 

 

$

 

 

$

(173,287

)

 

$

30,981

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

606

 

 

 

 

 

 

 

 

 

606

 

Issuance of common stock for follow-on offering, net of issuance costs

 

 

 

 

 

 

 

 

3,382,352

 

 

 

4

 

 

 

106,758

 

 

 

 

 

 

 

 

 

106,762

 

Issuance of common stock upon exercise of warrants

 

 

 

 

 

 

 

 

1,735,419

 

 

 

2

 

 

 

9,543

 

 

 

 

 

 

 

 

 

9,545

 

Conversion of preferred stock to common stock

 

 

(3,680

)

 

 

 

 

 

736,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised for common stock

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of redeemable convertible notes to common stock

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,042

)

 

 

(5,042

)

Balance at March 31, 2018

 

 

 

 

$

 

 

 

11,935,081

 

 

$

12

 

 

$

321,172

 

 

$

(4

)

 

$

(178,329

)

 

$

142,851

 

 

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

 

 

6


 

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(5,042

)

 

$

(4,138

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

606

 

 

 

120

 

Depreciation and amortization

 

 

33

 

 

 

48

 

Loss on disposal of assets

 

 

116

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(407

)

 

 

(279

)

Accounts payable

 

 

690

 

 

 

62

 

Accrued compensation and other accrued liabilities

 

 

(1,225

)

 

 

(26

)

Deferred rent

 

 

128

 

 

 

(8

)

Deferred revenue

 

 

(6

)

 

 

(71

)

Net cash flows used in operating activities

 

 

(5,107

)

 

 

(4,292

)

Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities of short-term investments

 

 

13,937

 

 

 

6,801

 

Purchase of investments

 

 

(12,936

)

 

 

 

Purchases of property and equipment

 

 

(198

)

 

 

(3

)

Net cash flows provided by investing activities

 

 

803

 

 

 

6,798

 

Financing Activities

 

 

 

 

 

 

 

 

Payments for the redemption of redeemable convertible notes

 

 

(5,082

)

 

 

(6,752

)

Proceeds from issuance of common stock, net of issuance costs

 

 

106,761

 

 

 

1,782

 

Proceeds from exercise of warrants

 

 

9,545

 

 

 

 

Net cash flow provided by (used in) financing activities

 

 

111,224

 

 

 

(4,970

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

106,920

 

 

 

(2,464

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

19,805

 

 

 

29,857

 

Cash, cash equivalents and restricted cash at end of the period(a)

 

$

126,725

 

 

$

27,393

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Adoption of ASC 606

 

 

207

 

 

 

 

Conversion of redeemable convertible notes to common stock

 

 

3

 

 

 

 

Unrealized Gain/Loss on investments

 

 

4

 

 

 

1

 

 

(a) The following table provides a reconciliation of cash and restricted cash to amounts reported within the condensed consolidated balance sheets:

 

Cash and cash equivalents

 

$

126,550

 

 

$

14,533

 

Restricted cash

 

 

175

 

 

 

12,860

 

Total cash and restricted cash

 

$

126,725

 

 

$

27,393

 

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

 

7


 

 

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

1.

Nature of Operations

Catalyst Biosciences, Inc. and its subsidiary (the “Company” or “Catalyst”) is a clinical-stage biotechnology company focused on developing novel medicines to address hematology indications, including the treatment of hemophilia. Its facilities are in South San Francisco, California and it operates in one segment. Prior to August 20, 2015, the name of the Company was Targacept, Inc. (“Targacept”). On August 20, 2015, Targacept completed its business combination with Catalyst (the “Merger”).

Based on the current status of its research and development plans, the Company believes that its existing cash, cash equivalents and short-term investments as of March 31, 2018 will be sufficient to fund its cash requirements for at least the next 12 months from the date of the filing of this quarterly report. If, at any time, the Company’s prospects for financing its research and development programs decline, the Company may decide to reduce research and development expenses by delaying, discontinuing or reducing its funding of one or more of its research or development programs. Alternatively, the Company might raise funds through strategic collaborations, public or private financings or other arrangements. Such funding, if needed, may not be available on favorable terms, or at all.  

2.

Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. These interim results and cash flows for any interim period are not necessarily indicative of the results to be expected for the full year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“Annual Report”).

The Company’s significant accounting policies are included in “Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 – Summary of Significant Accounting Policies” in the Company’s Annual Report. As discussed in our Annual Report, the Company adopted the new revenue standards in the first quarter of 2018, using the modified retrospective method through a cumulative adjustment to equity, there have been no other significant changes to these accounting policies during the first three months of 2018.

Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective method through a cumulative adjustment to equity, which resulted in an immaterial $0.2 million increase to our opening balance of accumulated deficit as of January 1, 2018. The Company enters into collaboration arrangements that may include the receipt of payments for up-front license fees, success-based milestone payments, full time equivalent based payments for research services, product supplies, and royalties on any future sales of commercialized products that result from the collaborations.  

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

 


8


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

Accounting Pronouncements Recently Adopted

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company adopted ASU 2016-18 effective January 1, 2018, using a retrospective transition method to each period presented. The adoption of this ASU changed previously reported amounts in the condensed consolidated statement of cash flows for the three months ended March 31, 2017, by decreasing the Company’s cash flows from financing activities by $6.8 million as compared to previously reported amounts for the prior year period.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard is intended to reduce current diversity in practice. The Company adopted ASU 2016-15 effective January 1, 2018, and this guidance did not have an impact on the Company’s financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Topic 825-10), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Subsequently, in February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Topic 825-10), which clarifies certain aspects of ASU 2016-01 over certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The Company adopted ASU 2016-01 and 2018-03 effective January 1, 2018, and this guidance did not have a material impact on the Company’s financial statements.  

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, (collectively, the “new revenue standards”). The Company adopted the new revenue standards effective January 1, 2018, using the modified retrospective method through a cumulative adjustment to equity. While the Company has identified that the most significant change relates to its accounting for collaboration arrangements with multiple deliverables, in particular, the ISU Abxis agreement. Under the old guidance, such deliverables and consideration must be accounted for under a single unit of accounting along with other arrangement deliverables and consideration that does not have stand-alone value and are recognized as revenue over the estimated period that the performance obligations are to be performed. Under the current new standard however, the total arrangement consideration is allocated to each performance obligation based on its estimated stand-alone selling price and revenue is recognized as each performance obligation is satisfied. As a result, revenue for this transaction may be recorded in an earlier period than under the old guidance, resulting in a $0.2 million increase to the Company’s opening balance of accumulated deficit as of January 1, 2018.

Adopting ASU No. 2014-09, Revenue from Contracts with Customers, or the new revenue standard, involved new estimates and judgments related to the estimates of stand-alone selling prices and the allocation of discounts and variable consideration in allocating the transaction price. The Company recognized revenue earlier under the current new standard and may have more variability due to significant estimates involved under the new accounting guidance.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which replaces the existing guidance for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 will be effective for the Company beginning in the first quarter of 2019, using a modified retrospective method to adopt the new standard and early adoption is permitted. The Company is currently evaluating the impact of adopting the new lease standard on its consolidated financial statements.

 


9


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

3.

Fair Value Measurements

For a description of the fair value hierarchy and the Company’s fair value methodology, see “Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 – Summary of Significant Accounting Policies” in the Company’s Annual Report. There were no significant changes in these methodologies during the three months ended March 31, 2018.

Liabilities that are measured at fair value consist of the derivative liability associated with the redeemable convertible notes (see Note 5) and are valued using Level 3 inputs. There were no transfers in or out of Level 1, 2 or 3 during the periods presented. As of March 31, 2018 there was no derivative liability and as of December 31, 2017 the fair value of the derivative liability was immaterial.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

March 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

126,526

 

 

$

 

 

$

 

 

$

126,526

 

U.S. government agency securities(3)

 

 

16,968

 

 

 

 

 

 

 

 

 

 

16,968

 

Restricted cash (money market funds)(2)

 

 

175

 

 

 

 

 

 

 

 

 

175

 

Total financial assets

 

$

143,669

 

 

$

 

 

$

 

 

$

143,669

 

 

(1)

Included in cash and cash equivalents on accompanying condensed consolidated balance sheets.

(2)

0.2 million of restricted cash serves as collateral for the Company’s corporate credit card and deposit for its old facility lease.

(3)

Included in short-term investments on accompanying condensed consolidated balance sheets and are classified as available-for-sale securities.         

 

 

 

December 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

14,334

 

 

$

 

 

$

 

 

$

14,334

 

U.S. government agency securities(3)

 

 

16,471

 

 

 

 

 

 

 

 

 

16,471

 

Restricted cash (money market funds)(2)

 

 

5,333

 

 

 

 

 

 

 

 

 

5,333

 

Agency securities(3)

 

 

 

 

 

1,500

 

 

 

 

 

 

1,500

 

Total financial assets

 

$

36,138

 

 

$

1,500

 

 

$

 

 

$

37,638

 

 

(1)

Included in cash and cash equivalents on accompanying condensed consolidated balance sheets.

(2)

$5.2 million of restricted cash in the Indenture serves as full collateral for the redeemable convertible notes and $0.1 million of restricted cash serves as collateral for the Company’s corporate credit card and deposit for its facility lease.  

(3)

Included in short-term investments on accompanying condensed consolidated balance sheets and are classified as available-for-sale securities.

10


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

4.

Financial Instruments

Cash equivalents, restricted cash and short-term investments which are classified as available-for-sale securities, consisted of the following (in thousands):

 

March 31, 2018

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Money market funds (cash equivalents)

 

$

126,526

 

 

$

 

 

$

 

 

$

126,526

 

U.S. government agency securities

 

 

16,972

 

 

 

 

 

 

(4

)

 

 

16,968

 

Restricted cash (money market funds)

 

 

175

 

 

 

 

 

 

 

 

 

175

 

Total financial assets

 

$

143,673

 

 

$

 

 

$

(4

)

 

$

143,669

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

126,526

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,968

 

Restricted cash (money market funds)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

143,669

 

 

December 31, 2017

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Money market funds (cash equivalents)

 

$

14,334

 

 

$

 

 

$

 

 

$

14,334

 

U.S. government agency securities

 

 

16,474

 

 

 

 

 

 

(3

)

 

 

16,471

 

Restricted cash (money market funds)

 

 

5,330

 

 

 

3

 

 

 

 

 

 

5,333

 

Agency securities

 

 

1,500

 

 

 

 

 

 

 

 

 

1,500

 

Total financial assets

 

$

37,638

 

 

$

3

 

 

$

(3

)

 

$

37,638

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

14,334

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,971

 

Restricted cash (money market funds)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37,638

 

 

There have been no material realized gains or losses on available-for-sale securities for the periods presented. The carrying amounts of cash, accounts receivable, other receivables, accounts payable, other payables and redeemable convertible notes approximate their fair values due to the short-term maturity of these instruments.

 

5.

Redeemable Convertible Notes

On August 19, 2015, immediately prior to the Merger, the Company issued to Targacept stockholders non-interest bearing redeemable convertible notes (the “Notes”) in the aggregate principal amount of $37.0 million. The Notes do not bear interest. The principal amount of the Notes is convertible, at the option of each noteholder, into cash or into shares of the Company’s common stock at a conversion rate of $137.85 per share, and are payable in cash, if not previously redeemed or converted, at maturity on February 19, 2018, the 30-month anniversary of the closing of the issuance of the Notes.

In connection with the issuance of the Notes, on August 19, 2015, Targacept entered into an indenture (the “Indenture”) with American Stock Transfer & Trust Company, LLC, as trustee, and an escrow agreement with American Stock Transfer & Trust Company, LLC and Delaware Trust Company, LLC, as escrow agent, under which $37.0 million, which represented the initial principal amount of the Notes, was deposited in a segregated escrow account for the benefit of the holders of the Notes in order to facilitate the payment of the notes upon redemption or at maturity (the amount of such deposit together with interest accrued and capitalized thereon, the “Escrow Funds”). The Notes were the Company’s secured obligation, and the Indenture does not limit its other indebtedness, secured or unsecured.

The conversion to common stock feature of the Notes was determined to be a derivative liability requiring bifurcation and separate accounting. The fair value of such conversion feature at issuance was determined to be $1.5 million. The bifurcation of the derivative liability from the estimated fair value of the Notes of $37.1 million at issuance resulted in a debt discount of $1.4 million. The Company elected to accrete the entire debt discount as interest expense immediately after the Merger. In addition,

11


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

changes in the fair value of the derivative liability were being recorded within interest and other income in the consolidated statements of operations. The Company remeasured the derivative liability to fair value until the earlier of the conversion, redemption or maturity of the redeemable convertible notes.

As of March 31, 2018, there was no derivative liability and December 31, 2017, the fair value of the derivative liability was immaterial. The estimated reporting date fair value-based measurement of the derivative liability was calculated using the Black-Scholes valuation model.

The Company recognized no interest expense for the three months ended March 31, 2018 and 2017, related to the amortization of the debt discount on the Company’s consolidated statement of operations as the redeemable convertible notes are immediately fully redeemable at the option of the holders and the entire debt discount was accreted immediately after the Merger.

On February 19, 2018, the Notes matured and the remaining Notes were repaid in full with cash from the restricted cash indenture and an immaterial amount were converted to common stock. The Company has no outstanding Notes remaining as of March 31, 2018.

6.

Stock Based Compensation

The following table summarizes stock option activity under the Company’s equity incentive plans and related information: 

 

 

Number of Shares

Underlying

Outstanding Options

 

 

Weighted-

Average Exercise

Price

 

 

Weighted-Average

Remaining

Contractual Term

(Years)

 

Outstanding — December 31, 2017

 

 

821,741

 

 

$

13.69

 

 

 

9.17

 

Options granted

 

 

227,900

 

 

$

14.83

 

 

 

 

 

Options exercised

 

 

(59

)

 

$

4.63

 

 

 

 

 

Options canceled/forfeited

 

 

(23,189

)

 

$

4.46

 

 

 

 

 

Outstanding — March 31, 2018

 

 

1,026,393

 

 

$

14.15

 

 

 

9.03

 

Exercisable — March 31, 2018

 

 

228,386

 

 

$

34.41

 

 

 

7.72

 

Vested and expected to vest — March 31, 2018

 

 

1,026,393

 

 

$

14.15

 

 

 

9.03

 

 

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. Due to its limited history as a public company and limited number of sales of its common stock, the Company estimated its volatility considering a number of factors including the use of the volatility of comparable public companies. The expected term of options granted under the Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined based on the simplified method due to the Company’s limited operating history and is 6.01 years based on the average between the vesting period and the contractual life of the option. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options was estimated using the following weighted-average assumptions for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Employee Stock Options:

 

 

 

 

 

 

 

 

Risk-free interest rate

 

 

2.40

%

 

 

1.57

%

Expected term (in years)

 

 

6.01

 

 

 

6.04

 

Dividend yield

 

 

 

 

 

 

Volatility

 

 

109.32

%

 

 

73.28

%

Weighted-average fair value of stock options granted

 

$

12.34

 

 

$

21.15

 

12


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

Total stock-based compensation recognized was as follows (in thousands):  

 

 

Three Months Ended March 31,

 

 

 

 

2018

 

 

2017

 

 

Research and development

 

$

115

 

 

$

20

 

 

General and administrative(1)

 

 

491

 

 

 

100

 

 

Total stock-based compensation

 

$

606

 

 

$

120

 

 

 

 

(1)

2018 includes $0.1 million in modification stock-based compensation expense related to a Board member’s departure.

As of March 31, 2018, 150,175 shares of common stock were available for future grant and 1,026,393 options to purchase shares of common stock were outstanding. As of March 31, 2018, the Company had unrecognized employee stock-based compensation expense of $5.6 million, related to unvested stock awards, which is expected to be recognized over an estimated weighted-average period of 3.15 years.

7.      Collaborations

ISU Abxis

On September 16, 2013, the Company signed a license and collaboration agreement with ISU Abxis, whereby the Company licensed its proprietary human Factor IX products to ISU Abxis for initial development in South Korea. Under the terms of the agreement, ISU Abxis is responsible for manufacturing, preclinical development activities and clinical development through completion of a proof-of-concept Phase 1/2 study in individuals with hemophilia B. The Company has the sole rights and responsibility for worldwide development, manufacture, and commercialization of Factor IX products after Phase 1/2 development. ISU Abxis may exercise its right of first refusal to acquire commercialization rights in South Korea, in which case they would be entitled to profit sharing on worldwide sales. ISU Abxis’s rights will also terminate if the Company enters into a license agreement with another party to develop, manufacture and commercialize Factor IX products in the United States, European Union or Asia, subject to ISU Abxis’s retained rights in South Korea.

ISU Abxis paid the Company an up-front signing fee of $1.75 million and is obligated to pay to the Company contingent milestone-based payments on the occurrence of certain defined development events, and reimbursement for a portion of the Company’s costs relating to intellectual property filings and maintenance thereof on products. The Company is obligated to pay ISU Abxis potential milestones up to $2.0 million and a percentage of all net profits it receives from collaboration products.

Contract revenue of $0 and $0.3 million for the three months ended March 31, 2018 and 2017, respectively, reflects (i) the amortization of the up-front fee over the estimated period of our performance obligations, which concluded in February 2018, and (ii) milestone payments received from ISU Abxis, which were recognized through February 2018, the estimated remaining period of the Company’s performance obligation under the agreement, of which the Company recorded $0 and $0.2 million for the three months ended March 31, 2018 and 2017, respectively. The adoption of the new revenue standards resulted in a $0.2 million cumulative adjustment to the Company’s opening balance of accumulated deficit as of January 1, 2018.  The deferred revenue balance related to the ISU Abxis collaboration was $0 and $0.2 million as of March 31, 2018 and December 31, 2017, respectively.  

8.

Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the basic and diluted net loss per common share during the three months ended March 31, 2018 and 2017 (in thousands, except share and per share data):

 

 

Three Months Ended March 31,

 

 

 

 

2018

 

 

2017

 

 

Net loss attributable to common stockholders

 

$

(5,042

)

 

$

(4,138

)

 

Weighted-average number of shares used in computing net

   loss per share, basic and diluted

 

 

8,989,669

 

 

 

906,048

 

 

Net loss available for common stockholders per share, basic

  and diluted

 

$

(0.56

)

 

$

(4.57

)

 

 

13


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities on an as-if converted basis that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Options to purchase common stock

 

 

1,026,393

 

 

 

125,495

 

Common stock warrants

 

 

12,039

 

 

 

12,039

 

Redeemable convertible notes

 

 

 

 

 

92,462

 

Total

 

 

1,038,432

 

 

 

229,996

 

 

9.

Stockholders’ Equity

April 2017 Underwritten Public Offering On April 12, 2017, the Company issued and sold in a registered, underwritten public offering an aggregate of (i) 1,470,000 shares of common stock (including 540,000 shares of common stock sold pursuant to the exercise of the Underwriter’s overallotment option), (ii) 13,350 shares of Series A Preferred Stock, each convertible into 200 shares of common stock and (iii) warrants to purchase 2,070,000 shares of common stock at an exercise price of $5.50 per share (including 270,000 sold pursuant to the exercise of the Underwriter’s overallotment option). The net proceeds to the Company, after deducting the underwriting discounts and commissions and offering expenses payable by the Company were approximately $18.6 million.

Series A Convertible Preferred Stock — In connection with the closing on April 12, 2017 of the public offering, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware. The Certificate of Designation describes the rights, preferences and privileges of the shares of Series A Preferred Stock. With certain exceptions, the shares of Series A Preferred Stock rank on par with the shares of the Common Stock, in each case, as to dividend rights and distributions of assets upon liquidation, dissolution or winding up of the Company.

Upon its issuance, the Series A Preferred Stock was not considered a liability or temporary equity and as such the Series A Preferred Stock was recorded in permanent equity on the Company’s balance sheet.

During the three months ended March 31, 2018 and 2017, 3,680 and 0 shares of the Company’s Series A Preferred Stock were converted into 736,000 shares of common stock of the Company. As of March 31, 2018, there were no shares of Series A Preferred Stock issued and outstanding.

Warrants — In connection with the closing on April 12, 2017 of the public offering and the overallotment option, the Company issued warrants to purchase 2,070,000 shares of common stock at an exercise price of $5.50 per share. Upon their issuance, the common stock warrants were determined to be equity instruments under ASC 480 and ASC 815-40. The net proceeds allocated to the warrants on a relative fair value basis resulted in $5.0 million being allocated to the warrants. As of March 31, 2018, the Company has no warrants outstanding associated with this offering.  

The following is a summary of warrant activity for the three months ended March 31, 2018:

 

 

Number of Shares

 

 

Weighted Average

 

 

 

Underlying Warrants

 

 

Exercise Price

 

Outstanding — December 31, 2017

 

 

1,751,708

 

 

$

6.46

 

Exercised

 

 

(1,735,419

)

 

$

5.50

 

Forfeited

 

 

(4,250

)

 

$

5.50

 

Outstanding — March 31, 2018

 

 

12,039

 

 

$

145.11

 

February 2018 Underwritten Public Offering — On February 13, 2018, the Company entered into an underwriting agreement with JonesTrading, in connection with a registered firm commitment underwritten public offering of 2,941,176 shares of common stock, pursuant to a shelf registration statement that was declared effective by the SEC on February 6, 2018. On February 15, 2018, the Company sold 3,382,352 shares of common stock (including 441,176 shares of common stock sold pursuant to the exercise of the underwriters’ overallotment option) at a price to the public of $34.00 per share. The net proceeds to the Company, after deducting the underwriting discounts and commissions and offering expenses payable by the Company were approximately $106.8 million.

14


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

10.

Commitments and Contingencies

Pfizer

Pursuant to the termination agreement entered on December 8, 2016, in connection with the termination of a prior license and development agreement, Pfizer granted the Company an exclusive license to Pfizer’s proprietary rights for manufacturing materials and processes that apply to Factor VIIa variants, CB 813a and marzeptacog alfa (activated) (“MarzAA”). Pfizer also transferred to the Company the IND application and documentation related to the development, manufacturing and testing of the Factor VIIa products as well as the orphan drug designation. The Company agreed to make contingent cash payments to Pfizer in an aggregate amount equal to up to $17.5 million, payable upon the achievement of clinical, regulatory and commercial milestones. Following commercialization of any covered product, Pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term. During the three months ended March 31, 2018, the Company paid Pfizer a $1 million milestone payment based on the dosing of the first patient in the ongoing Phase 2 study, recorded as a R&D expense.

Manufacturing Agreements

On May 20, 2016, the Company signed a development and manufacturing services agreement with AGC Biologics, Inc. (“AGC”), formerly known as CMC ICOS Biologics, Inc., pursuant to which AGC will conduct manufacturing development and, and together with AGC the Company has successfully manufactured MarzAA for the Phase 2 portion of a planned Phase 2/3 clinical trial. The Company has agreed to a total of $3.8 million in payments to AGC pursuant to the initial statement of work under the Agreement, subject to completion of applicable work stages. As of March 31, 2018, the Company has $0.6 million in payment obligations to AGC remaining under the initial statement of work for MarzAA.

On February 21, 2018, the Company and AGC entered into a new statement of work under the development and manufacturing services agreement dated May 20, 2016, between the Company and AGC. Under the new statement of work, the Company has engaged AGC for the process transfer and commercial scale cGMP manufacturing of CB 2679d/ISU 304, Catalyst’s highly potent next-generation coagulation FIX variant being developed for the treatment of severe hemophilia B. The Company has agreed to a total of approximately $5.6 million in payments pursuant to the new statement of work, including the commercial scale manufacturing of CB 2679d/ISU 304, subject to completion of applicable work stages. As of March 31, 2018, the Company has $5.6 million in payment obligations to AGC remaining under the initial statement of work for CB 2679d/ISU 304.

Operating Leases

The Company leases office and research space under operating leases that expired in February 2018. In November 2017, we entered into a new office lease agreement to lease approximately 8,606 rentable square feet of space located in South San Francisco, California. The term of the lease is five years and two months, starting February 16, 2018. We relocated our corporate headquarters into this new space in February 2018.

Future minimum lease payments under all non-cancelable operating leases as of March 31, 2018, were as follows (in thousands):

 

 

 

Minimum Lease Payments

 

2018

 

$

310

 

2019

 

 

488

 

2020

 

 

499

 

2021

 

 

510

 

2022

 

 

522

 

2023

 

 

177

 

Total future minimum lease payments

 

$

2,506

 

 


15


Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 

11.     Related Parties

On October 24, 2017 the Company announced a strategic research collaboration with Mosaic Biosciences, Inc. (“Mosaic”) to develop intravitreal anti-complement factor 3 (C3) products for the treatment of dry age-related macular degeneration (“AMD”) and other retinal diseases. According to the agreement the Company and Mosaic will co-fund the research. Dr. Usman, our Chief Executive Officer and a member of our board of directors, and Mr. Lawlor, the chairman of our board of directors, are also members of the board of directors of Mosaic. Expenses related to the collaboration were $0.2 million and $0 for the three months ended March 31, 2018 and 2017, respectively.

12.     Interest and Other Income

The following table shows the detail of interest and other income/(expense), net for the three month periods ended March 31, 2018 and 2017 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Interest income

 

$

285

 

 

$

17

 

Loss on disposal of fixed assets

 

 

(116

)

 

 

 

Other income, net

 

 

1,468

 

 

 

16

 

Total other income/(expense), net

 

$

1,637

 

 

$

33

 

Other income of $1.5 million for the three months ended March 31, 2018, reflects milestone payments received under an agreement associated with neuronal nicotinic receptor (“NNR”) assets sold in 2016.

 

 

 

16


 

ITEM 2.

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