cbio-10q_20180930.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 September 30, 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. Suite 710

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

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 October 29, 2018, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 11,942,729.

 

 

 

 


CATALYST BIOSCIENCES, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page No.

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

 

Item 1.

 

Financial Statements:

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2018 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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

 

28

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

 

 

PART II. OTHER INFORMATION

 

29

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

50

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

50

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

50

 

 

 

 

 

Item 5.

 

Other Information

 

50

 

 

 

 

 

Item 6.

 

Exhibits

 

50

 

 

 

 

 

Exhibit Index

 

51

 

 

 

 

 

Signatures

 

52

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Catalyst Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,998

 

 

$

14,472

 

Short-term investments

 

 

93,223

 

 

 

17,971

 

Restricted cash

 

 

50

 

 

 

5,333

 

Prepaid and other current assets

 

 

3,538

 

 

 

1,333

 

Total current assets

 

 

132,809

 

 

 

39,109

 

Other assets, noncurrent

 

 

352

 

 

 

128

 

Property and equipment, net

 

 

255

 

 

 

276

 

Total assets

 

$

133,416

 

 

$

39,513

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

369

 

 

$

747

 

Accrued compensation

 

 

1,082

 

 

 

1,366

 

Other accrued liabilities

 

 

1,840

 

 

 

1,322

 

Deferred revenue

 

 

 

 

 

212

 

Deferred rent, current portion

 

 

13

 

 

 

7

 

Redeemable convertible notes

 

 

 

 

 

5,085

 

Total current liabilities

 

 

3,304

 

 

 

8,739

 

Deferred rent, noncurrent portion

 

 

161

 

 

 

 

Total liabilities

 

 

3,465

 

 

 

8,739

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized; 11,942,729 and

  6,081,230 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

12

 

 

 

6

 

Additional paid-in capital

 

 

322,468

 

 

 

204,262

 

Accumulated other comprehensive loss

 

 

(24

)

 

 

 

Accumulated deficit

 

 

(192,505

)

 

 

(173,494

)

Total stockholders’ equity

 

 

129,951

 

 

 

30,774

 

Total liabilities and stockholders’ equity

 

$

133,416

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Contract revenue

 

$

 

 

$

318

 

 

$

6

 

 

$

700

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,575

 

 

 

3,805

 

 

 

13,235

 

 

 

9,286

 

General and administrative

 

 

2,770

 

 

 

2,391

 

 

 

8,909

 

 

 

7,407

 

Total operating expenses

 

 

8,345

 

 

 

6,196

 

 

 

22,144

 

 

 

16,693

 

Loss from operations

 

 

(8,345

)

 

 

(5,878

)

 

 

(22,138

)

 

 

(15,993

)

Interest and other income, net

 

 

651

 

 

 

85

 

 

 

2,920

 

 

 

185

 

Net loss

 

$

(7,694

)

 

$

(5,793

)

 

$

(19,218

)

 

$

(15,808

)

Deemed dividend for convertible preferred stock beneficial conversion feature

 

 

 

 

 

 

 

 

 

 

 

(3,951

)

Net loss attributable to common stockholders

 

$

(7,694

)

 

$

(5,793

)

 

$

(19,218

)

 

$

(19,759

)

Net loss per share attributable to common stockholders, basic and

   diluted

 

$

(0.64

)

 

$

(1.34

)

 

$

(1.75

)

 

$

(6.49

)

Shares used to compute net loss per share attributable to common

   stockholders, basic and diluted

 

 

11,942,729

 

 

 

4,310,561

 

 

 

10,967,750

 

 

 

3,043,919

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(7,694

)

 

$

(5,793

)

 

$

(19,218

)

 

$

(15,808

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

 

(28

)

 

 

4

 

 

 

(24

)

 

 

5

 

Total comprehensive loss

 

$

(7,722

)

 

$

(5,789

)

 

$

(19,242

)

 

$

(15,803

)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,866

 

 

 

 

 

 

 

 

 

1,866

 

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

 

 

 

 

 

 

 

 

7,707

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

36

 

Conversion of redeemable convertible notes to common stock

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,218

)

 

 

(19,218

)

Balance at September 30, 2018

 

 

 

 

$

 

 

 

11,942,729

 

 

$

12

 

 

$

322,468

 

 

$

(24

)

 

$

(192,505

)

 

$

129,951

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(19,218

)

 

$

(15,808

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,866

 

 

 

556

 

Depreciation and amortization

 

 

106

 

 

 

132

 

Loss on disposal of assets

 

 

116

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

 

(2,429

)

 

 

89

 

Accounts payable

 

 

(378

)

 

 

623

 

Accrued compensation and other accrued liabilities

 

 

234

 

 

 

614

 

Deferred rent

 

 

167

 

 

 

(29

)

Deferred revenue

 

 

(6

)

 

 

200

 

Net cash flows used in operating activities

 

 

(19,542

)

 

 

(13,623

)

Investing Activities

 

 

 

 

 

 

 

 

Proceeds from maturities of short-term investments

 

 

60,337

 

 

 

6,800

 

Purchase of short-term investments

 

 

(135,612

)

 

 

(16,474

)

Purchases of property and equipment

 

 

(201

)

 

 

(3

)

Net cash flows used in investing activities

 

 

(75,476

)

 

 

(9,677

)

Financing Activities

 

 

 

 

 

 

 

 

Payments for the redemption of redeemable convertible notes

 

 

(5,082

)

 

 

(13,915

)

Proceeds from issuance of common stock, net of issuance costs

 

 

106,762

 

 

 

5,336

 

Proceeds from issuance of preferred stock, common stock and warrants for follow-on offering, net of issuance costs

 

 

 

 

 

18,563

 

Proceeds from exercise of stock options

 

 

36

 

 

 

 

Proceeds from exercise of warrants

 

 

9,545

 

 

 

159

 

Net cash flow provided by financing activities

 

 

111,261

 

 

 

10,143

 

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

 

 

16,243

 

 

 

(13,157

)

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)

 

$

36,048

 

 

$

16,700

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Deemed dividend for convertible preferred stock beneficial conversion feature

 

 

 

 

 

3,951

 

Adoption of ASC 606

 

 

207

 

 

 

 

Conversion of redeemable convertible notes to common stock

 

 

3

 

 

 

 

Unrealized (loss) gain on investments

 

 

(24

)

 

 

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

 

$

35,998

 

 

$

10,973

 

Restricted cash

 

 

50

 

 

 

5,727

 

Total cash and restricted cash

 

$

36,048

 

 

$

16,700

 

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 September 30, 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 nine months of 2018.

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective method through a cumulative adjustment to equity, which resulted in an immaterial $0.2 million decrease 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 nine months ended September 30, 2017, by decreasing the Company’s cash flows provided by financing activities by $13.9 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, which includes provisions to accounting for equity investments, financial liabilities under the fair value option and presentation and disclosure requirements for financial instruments. The amended guidance requires equity securities, except for those accounted for under the equity method of accounting, with determinable fair values to be measured at fair value with changes in fair value recognized in net income (loss). 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, as the Company only has debt securities.

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. 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 is 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. In July 2018, the FASB issued ASU No. 2018-11, which provides entities with an additional transition method to adopt Topic 842. ASU 2016-02 will be effective for the Company beginning in the first quarter of 2019. Using the new transition method, the Company initially applies the new lease standard at the adoption date, versus at the beginning of the earliest period presented, and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

9


Catalyst Biosciences, Inc.

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

 

The Company expects to elect this transition method at the adoption date of January 1, 2019. The Company continues to assess the effect the guidance will have on its existing accounting policies and the Consolidated Financial Statements, and expects there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which is expected to be material. Refer to Note 10 — Commitments and Contingencies for information about the Company’s lease obligations.

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 nine months ended September 30, 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 September 30, 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 September 30, 2018 and December 31, 2017 (in thousands):

 

 

 

September 30, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

22,213

 

 

$

 

 

$

 

 

$

22,213

 

U.S. government agency securities(2)

 

 

93,223

 

 

 

 

 

 

 

 

 

93,223

 

Agency securities(1)

 

 

 

 

 

13,648

 

 

 

 

 

 

 

13,648

 

Restricted cash (money market funds)

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total financial assets

 

$

115,486

 

 

$

13,648

 

 

$

 

 

$

129,134

 

 

(1)

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

(2)

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):

 

September 30, 2018

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

Money market funds (cash equivalents)

 

$

22,213

 

 

$

 

 

$

 

 

$

22,213

 

U.S. government agency securities

 

 

93,246

 

 

 

 

 

 

 

(23

)

 

 

93,223

 

Agency securities

 

 

13,649

 

 

 

 

 

 

(1

)

 

 

13,648

 

Restricted cash (money market funds)

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total financial assets

 

$

129,158

 

 

$

 

 

$

(24

)

 

$

129,134

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

$

35,861

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93,223

 

Restricted cash (money market funds)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

129,134

 

 

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, which matured on February 19, 2018. The Notes did not bear interest. The principal amount of the Notes were 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. 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 September 30, 2018.

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 did 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 Company elected to accrete the entire debt discount as interest expense immediately after the Merger.

11


Catalyst Biosciences, Inc.

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

 

In addition, 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 September 30, 2018, there was no derivative liability and as of 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.

6.

Stock Based Compensation

2018 Omnibus Incentive Plan

In June 2018, stockholders of the Company approved the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”). The 2018 Plan had previously been approved by the Company’s Board of Directors (the “Board”) and the Compensation Committee of the Board, subject to stockholder approval. The 2018 Plan became effective on June 13, 2018 and provided an additional 1,500,000 stock options, following receipt of the requisite stockholder approval. The 2018 Plan replaces the Company’s 2015 Stock Incentive Plan, as amended (the “2015 Plan”). All awards outstanding under the 2015 Plan will remain in effect in accordance with their respective terms.

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

 

 

564,050

 

 

$

13.43

 

 

 

 

 

Options exercised

 

 

(7,707

)

 

$

4.63

 

 

 

 

 

Options expired

 

 

(15,667

)

 

$

158.94

 

 

 

 

 

Options canceled/forfeited

 

 

(43,315

)

 

$

7.76

 

 

 

 

 

Outstanding — September 30, 2018

 

 

1,319,102

 

 

$

12.10

 

 

 

8.92

 

Exercisable — September 30, 2018

 

 

344,273

 

 

$

19.48

 

 

 

8.06

 

 

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 5.97 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 nine months ended September 30, 2018 and 2017:

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Employee Stock Options:

 

 

 

 

 

 

 

 

Risk-free interest rate

 

 

2.66

%

 

 

2.02

%

Expected term (in years)

 

 

5.97

 

 

 

5.99

 

Dividend yield

 

 

 

 

 

 

Volatility

 

 

93.60

%

 

 

110.42

%

Weighted-average fair value of stock options granted

 

$

10.28

 

 

$

3.79

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

161

 

 

$

62

 

 

$

413

 

 

$

97

 

General and administrative(1)

 

 

541

 

 

 

263

 

 

 

1,445

 

 

 

459

 

Total stock-based compensation

 

$

702

 

 

$

325

 

 

$

1,858

 

 

$

556

 

 

 

(1)

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

As of September 30, 2018, 1,349,818 shares of common stock were available for future grant and 1,319,102 options to purchase shares of common stock were outstanding. As of September 30, 2018, the Company had unrecognized employee stock-based compensation expense of $6.9 million, related to unvested stock awards, which is expected to be recognized over an estimated weighted-average period of 2.91 years.

2018 Employee Stock Purchase Plan

In June 2018, the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (the “ESPP”). The 2018 ESPP had previously been approved by the Board and the Compensation Committee of the Board, subject to stockholder approval which became effective as of June 13, 2018. Under the ESPP, employees meeting certain specific employment qualifications are eligible to participate and can purchase shares of common stock semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The ESPP permits eligible employees to purchase shares of common stock through payroll deductions for up to 15% of qualified compensation.

A total of 120,000 shares of common stock may be granted in accordance with the terms of the ESPP. As of September 30, 2018, no shares of common stock have been issued to employees participating in the ESPP and 120,000 shares are available for issuance under the ESPP. Compensation expense, representing the discount to the quoted market price, for the ESPP was immaterial as of September 30, 2018.

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 right 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 a percentage of all net profits it receives from collaboration products if ISU Abxis makes an optional milestone payment to Catalyst.

Contract revenue of $0 and $0.3 million for the three months ended September 30, 2018 and 2017 and $0 and $0.7 million for the nine months ended September 30, 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 received $0 and $0.9 million for the nine months ended September 30, 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 September 30, 2018 and December 31, 2017, respectively.

13


Catalyst Biosciences, Inc.

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

 

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- and nine-months ended September 30, 2018 and 2017 (in thousands, except share and per share data):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017