00016404552022FYtrue150,57295,52938,97083,0377,68912,261197,231190,8273,7214,882—41,6578,59611,8773,0023,453212,550252,6962,0951,67417,14513,4674,1503,6951786223,56818,8985,8709,99329,43828,891——0.0010.001160,000160,00051,69451,26551,69451,2655151476,530465,865677238292,792241,873183,112223,805212,550252,69682,00026,907103,27388,97930,96928,984134,242117,96352,24291,0561,45819950,78490,8571351550,91990,8720.990.991.821.8251,67651,67649,93149,93150,91990,87243922151,35891,09341,72942362,27017151,001211,2943,156330,21830,2215,750660,63260,6384031,2681,268227—11,47711,47722122190,87290,87251,26551465,865238241,873223,80571392392358—10,27310,27343943950,91950,91951,69451476,530677292,792183,11250,91990,87210,27311,4772,0872,827903921103—4,6177,3314514904213293,7801,443—1,93138718928,87783,49424,928130,272109,32570,13191937383,47860,514—90,8264421,21844292,04455,04351,96496,799148,763151,84296,79914——504,6684,896178Nature of Business
Jounce Therapeutics, Inc. (the “Company”) is a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients. The Company is subject to a number of risks similar to those of other clinical-stage companies, including the need to develop commercially viable products; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its products.
As of December 31, 2022, the Company had cash, cash equivalents, and investments of $189.5 million. The Company expects that its existing cash, cash equivalents and investments will enable it to fund its expected operating expenses and capital expenditure requirements for at least 12 months from March 10, 2023, the filing date of this Annual Report on Form 10-K. The Company expects to finance its future cash needs through a combination of equity or debt financings, collaborations, licensing arrangements and strategic alliances.
189.512Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”). These consolidated financial statements include the accounts of Jounce Therapeutics, Inc. and its wholly-owned subsidiary, Jounce Mass Securities, Inc. All intercompany transactions and balances have been eliminated in consolidation.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s chief executive officer, views the Company’s operations and manages its business as a single operating segment. The Company operates only in the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, estimates related to revenue recognized, accrued expenses, stock-based compensation expense and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
•Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Cash Equivalents
Cash equivalents are highly-liquid investments that are readily convertible into cash with original maturities of three months or less when purchased. These assets include investment in money market funds that invests in U.S. Treasury obligations.
Investments
Short-term investments consist of investments with maturities greater than ninety days and less than one year from the balance sheet date. Long-term investments consist of investments with maturities of greater than one year that are not expected to be used to fund current operations. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value. Realized gains and losses, amortization and accretion of discounts and premiums are included in “Other income, net”. Unrealized gains and losses on available-for-sale securities are included in “Other comprehensive income” as a component of stockholders’ equity until realized.
Property and Equipment
Property and equipment is recorded at cost and consists of laboratory equipment, furniture and office equipment, computer equipment, leasehold improvements. The Company capitalizes property and equipment that is acquired for research and development activities and that has alternate future use. Expenditures for maintenance and repairs are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Leasehold improvements are depreciated over the lesser of their useful life or the term of the lease. Depreciation is calculated over the estimated useful lives of the assets using the straight-line method.
Impairment of Long-lived Assets
The Company reviews its property and equipment whenever events or changes in circumstances indicate that the carrying value of certain assets might not be recoverable and recognizes an impairment loss when it is probable that an asset’s realizable value is less than the carrying value.
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not recognize leases with terms of one year or less on the balance sheet. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, and in a similar economic environment.
The Company subsequently measures its lease liability at the present value of remaining lease payments, discounted using the IBR for the lease. The right-of-use asset is subsequently measured at the amount of the lease liability, adjusted for prepaid or accrued lease payments and the remaining balance of lease incentives received. The Company recognizes operating lease expense on a straight-line basis over the lease term.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the assessment, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the standalone selling price, which may include reimbursement rates for personnel costs, development timelines and probabilities of regulatory success. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less.
Arrangements that include upfront payments may require deferral of revenue recognition to a future period until obligations under these arrangements are fulfilled. The event-based milestone payments represent variable consideration, and the Company uses the “most-likely amount” method to estimate this variable consideration. Given the high degree of uncertainty around the occurrence of these events, the Company determined the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. Revenue will be recognized from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. See Note 3, “License and Collaboration Revenue”, for further information on the Company’s application of ASC 606.
Research and Development Expenses
Expenditures relating to research and development are expensed as incurred. Research and development expenses include external expenses incurred under arrangements with third parties, academic and non-profit institutions and consultants; salaries and personnel-related costs, including non-cash stock-based compensation expense; license fees to acquire in-process technology and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs. Non‑refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
As part of the process of preparing the consolidated financial statements, the Company is required to estimate its accrued research and development expenses as of each balance sheet date. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. This process involves reviewing open contracts and purchase orders, communicating with internal personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company periodically confirms the accuracy of its estimates with its service providers and makes adjustments if necessary. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The financial terms of agreements with these service providers are subject to negotiation, vary from contract-to-contract and may result in uneven payment flows. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.
Intellectual Property Expenses
The Company expenses costs associated with intellectual property-related matters as incurred and classifies such costs as general and administrative expenses within the consolidated statements of operations and comprehensive loss.
Stock-based Compensation
The Company accounts for stock-based payments in accordance with ASC Topic 718, Compensation—Stock Compensation. This guidance requires all stock-based payments to employees, including grants of employee stock options and restricted stock units (“RSUs”), to be recognized as expense in the consolidated statements of operations and comprehensive loss based on their grant date fair values. For stock options granted to employees and to members of the Company’s board of directors for their services on the board of directors, the Company estimates the grant date fair value of each stock option using the Black-Scholes option-pricing model. For RSUs granted to employees, the Company estimates the grant date fair value of each award using intrinsic value, which is based on the value of the underlying common stock less any purchase price. For stock-based payments subject to service-based vesting conditions, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock-based payment on a straight-line basis over the requisite service period.
The Black‑Scholes option pricing model requires the input of certain subjective assumptions, including (i) the calculation of expected term of the stock-based payment, (ii) the risk‑free interest rate, (iii) the expected stock price volatility and (iv) the expected dividend yield. The Company uses the simplified method as proscribed by SEC Staff Accounting Bulletin No. 107 to calculate the expected term for stock options granted to employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The Company determines the risk‑free interest rate based on a treasury instrument whose term is consistent with the expected term of the stock options. Because there had been no public market for the Company’s common stock prior to the Company’s initial public offering (“IPO”), there is a lack of Company‑specific historical and implied volatility data. Accordingly, the Company bases its estimates of expected volatility based on a combination of the Company’s own historical volatility and historical volatility of a group of publicly-traded companies with similar characteristics to itself, including stage of product development and therapeutic focus within the life sciences industry. Historical volatility is calculated over a period of time commensurate with the expected term of the stock-based payment. The Company uses an assumed dividend yield of zero as the Company has never paid dividends on its common stock, nor does it expect to pay dividends on its common stock in the foreseeable future. The Company accounts for forfeitures of all stock-based payments when such forfeitures occur.
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740, Income Taxes, which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors, including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.
Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss for all periods presented consists of unrealized losses and gains on available-for-sale securities.
Net Loss per Share
Basic net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options and RSUs that have been issued but are not yet vested. Diluted net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period. The potentially dilutive shares of common stock resulting from the assumed exercise of outstanding stock options and the assumed vesting of RSUs are determined under the treasury stock method.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash, cash equivalents and investments. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. At times, the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. As of December 31, 2022, the Company had not experienced losses on these accounts and management believe the Company is not exposed to significant risk on such accounts. The Company’s cash equivalents and investments are comprised of money market funds that are invested in U.S. Treasury obligations, corporate debt securities, U.S. Treasury obligations and government agency securities. Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality.
The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
Recent Accounting Pronouncements, Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and it establishes additional disclosure requirements related to credit risks. For available-for-sale debt securities with expected credit losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, with early adoption permitted. Accordingly, the Company will adopt this standard effective January 1, 2023. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.Basis of Presentation and ConsolidationThe accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”).These consolidated financial statements include the accounts of Jounce Therapeutics, Inc. and its wholly-owned subsidiary, Jounce Mass Securities, Inc. All intercompany transactions and balances have been eliminated in consolidation.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s chief executive officer, views the Company’s operations and manages its business as a single operating segment. The Company operates only in the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, estimates related to revenue recognized, accrued expenses, stock-based compensation expense and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
•Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Cash Equivalents
Cash equivalents are highly-liquid investments that are readily convertible into cash with original maturities of three months or less when purchased. These assets include investment in money market funds that invests in U.S. Treasury obligations.
Investments
Short-term investments consist of investments with maturities greater than ninety days and less than one year from the balance sheet date. Long-term investments consist of investments with maturities of greater than one year that are not expected to be used to fund current operations. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value. Realized gains and losses, amortization and accretion of discounts and premiums are included in “Other income, net”. Unrealized gains and losses on available-for-sale securities are included in “Other comprehensive income” as a component of stockholders’ equity until realized.
Property and Equipment
Property and equipment is recorded at cost and consists of laboratory equipment, furniture and office equipment, computer equipment, leasehold improvements. The Company capitalizes property and equipment that is acquired for research and development activities and that has alternate future use. Expenditures for maintenance and repairs are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Leasehold improvements are depreciated over the lesser of their useful life or the term of the lease. Depreciation is calculated over the estimated useful lives of the assets using the straight-line method.
Impairment of Long-lived AssetsThe Company reviews its property and equipment whenever events or changes in circumstances indicate that the carrying value of certain assets might not be recoverable and recognizes an impairment loss when it is probable that an asset’s realizable value is less than the carrying value.
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not recognize leases with terms of one year or less on the balance sheet. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, and in a similar economic environment.
The Company subsequently measures its lease liability at the present value of remaining lease payments, discounted using the IBR for the lease. The right-of-use asset is subsequently measured at the amount of the lease liability, adjusted for prepaid or accrued lease payments and the remaining balance of lease incentives received. The Company recognizes operating lease expense on a straight-line basis over the lease term.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the assessment, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the standalone selling price, which may include reimbursement rates for personnel costs, development timelines and probabilities of regulatory success. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less.
Arrangements that include upfront payments may require deferral of revenue recognition to a future period until obligations under these arrangements are fulfilled. The event-based milestone payments represent variable consideration, and the Company uses the “most-likely amount” method to estimate this variable consideration. Given the high degree of uncertainty around the occurrence of these events, the Company determined the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. Revenue will be recognized from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.
Research and Development Expenses
Expenditures relating to research and development are expensed as incurred. Research and development expenses include external expenses incurred under arrangements with third parties, academic and non-profit institutions and consultants; salaries and personnel-related costs, including non-cash stock-based compensation expense; license fees to acquire in-process technology and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs. Non‑refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
As part of the process of preparing the consolidated financial statements, the Company is required to estimate its accrued research and development expenses as of each balance sheet date. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. This process involves reviewing open contracts and purchase orders, communicating with internal personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company periodically confirms the accuracy of its estimates with its service providers and makes adjustments if necessary. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The financial terms of agreements with these service providers are subject to negotiation, vary from contract-to-contract and may result in uneven payment flows. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.
Intellectual Property Expenses
The Company expenses costs associated with intellectual property-related matters as incurred and classifies such costs as general and administrative expenses within the consolidated statements of operations and comprehensive loss.
Stock-based Compensation
The Company accounts for stock-based payments in accordance with ASC Topic 718, Compensation—Stock Compensation. This guidance requires all stock-based payments to employees, including grants of employee stock options and restricted stock units (“RSUs”), to be recognized as expense in the consolidated statements of operations and comprehensive loss based on their grant date fair values. For stock options granted to employees and to members of the Company’s board of directors for their services on the board of directors, the Company estimates the grant date fair value of each stock option using the Black-Scholes option-pricing model. For RSUs granted to employees, the Company estimates the grant date fair value of each award using intrinsic value, which is based on the value of the underlying common stock less any purchase price. For stock-based payments subject to service-based vesting conditions, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock-based payment on a straight-line basis over the requisite service period.
The Black‑Scholes option pricing model requires the input of certain subjective assumptions, including (i) the calculation of expected term of the stock-based payment, (ii) the risk‑free interest rate, (iii) the expected stock price volatility and (iv) the expected dividend yield. The Company uses the simplified method as proscribed by SEC Staff Accounting Bulletin No. 107 to calculate the expected term for stock options granted to employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The Company determines the risk‑free interest rate based on a treasury instrument whose term is consistent with the expected term of the stock options. Because there had been no public market for the Company’s common stock prior to the Company’s initial public offering (“IPO”), there is a lack of Company‑specific historical and implied volatility data. Accordingly, the Company bases its estimates of expected volatility based on a combination of the Company’s own historical volatility and historical volatility of a group of publicly-traded companies with similar characteristics to itself, including stage of product development and therapeutic focus within the life sciences industry. Historical volatility is calculated over a period of time commensurate with the expected term of the stock-based payment. The Company uses an assumed dividend yield of zero as the Company has never paid dividends on its common stock, nor does it expect to pay dividends on its common stock in the foreseeable future. The Company accounts for forfeitures of all stock-based payments when such forfeitures occur.
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740, Income Taxes, which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors, including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.
Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss for all periods presented consists of unrealized losses and gains on available-for-sale securities.
Net Loss per ShareBasic net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options and RSUs that have been issued but are not yet vested. Diluted net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period. The potentially dilutive shares of common stock resulting from the assumed exercise of outstanding stock options and the assumed vesting of RSUs are determined under the treasury stock method.Concentrations of Credit Risk and Off-Balance Sheet RiskFinancial instruments that potentially expose the Company to concentrations of credit risk primarily consist of cash, cash equivalents and investments. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. At times, the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. As of December 31, 2022, the Company had not experienced losses on these accounts and management believe the Company is not exposed to significant risk on such accounts. The Company’s cash equivalents and investments are comprised of money market funds that are invested in U.S. Treasury obligations, corporate debt securities, U.S. Treasury obligations and government agency securities. Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality.The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.Recent Accounting Pronouncements, Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and it establishes additional disclosure requirements related to credit risks. For available-for-sale debt securities with expected credit losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, with early adoption permitted. Accordingly, the Company will adopt this standard effective January 1, 2023. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.License and Collaboration Revenue
Gilead Agreements
On August 31, 2020, the Company and Gilead Sciences, Inc. (“Gilead”) entered into an exclusive license agreement (the “Gilead License Agreement”) to license the Company’s GS-1811, formerly JTX-1811, program to Gilead, which became effective on October 16, 2020. Concurrently with the Gilead License Agreement, the Company and Gilead entered into a Stock Purchase Agreement and a Registration Rights Agreement. Pursuant to the Gilead License Agreement, which was determined to be a contract with a customer within the scope of ASC 606, the Company granted to Gilead a worldwide and exclusive license to develop, manufacture and commercialize GS-1811 and certain derivatives thereof (the “Licensed Products”). Gilead paid the Company a one-time, non-refundable upfront payment of $85.0 million in October 2020. The Company continued to develop GS-1811 during the initial development term, which included conducting activities defined within the agreement to advance GS-1811 through the clearance of an investigational new drug application (“IND”), which occurred in June 2021, after which the program transitioned to Gilead.
The Company assessed the promises under the Gilead License Agreement and concluded that the (i) delivery of a worldwide and exclusive license to develop, manufacture and commercialize GS-1811 (the “GS-1811 License”) and (ii) provision of certain research transition activities, specifically outlined within the Gilead License Agreement, related to the advancement of GS-1811 through the clearance of an IND and transition of the GS-1811 program to Gilead (the “Research and Transition Services”) are capable of being distinct and distinct within the context of the Gilead License Agreement. Based upon this evaluation, the Company concluded that its promise to deliver the GS-1811 License and promise to perform Research and Transition Services represented separate performance obligations in the Gilead License Agreement.
The Company also evaluated as possible variable consideration the milestones and royalties discussed above. With respect to clinical development and regulatory milestones, based upon the high degree of uncertainty and risk associated with these potential payments, the Company concluded that all such amounts should be fully constrained and are not included in the initial transaction price as the Company cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As for royalties and sales milestones, the Company determined that the royalties and milestones relate solely to the GS-1811 License, which is a license of IP. Accordingly, the Company did not include any potential royalty or sales milestone amounts in the initial transaction price.
The Company allocated the transaction price to each performance obligation on a relative estimated standalone selling price basis. The Company developed the estimated standalone selling price for the GS-1811 License based on the present value of expected future cash flows associated with the license and related clinical development and regulatory milestones. In developing such estimate, the Company applied judgement in determining the timing needed to develop the Licensed Product, the probability of success, and the discount rate. The Company developed the estimated standalone selling price for the Research and Transition Services obligation based on the nature of the services to be performed and the Company’s best estimate of the length of time required to perform the services necessary to achieve clearance of an IND for the GS-1811 program.
The Company determined that the GS-1811 License was a functional license as the underlying IP has significant standalone functionality. In addition, the Company determined that October 16, 2020 represents (i) the date at which the Company made available the IP to Gilead and (ii) the beginning of the period during which Gilead is able to use and benefit from its right to use the IP. Based upon these considerations, the Company recognized the entirety of the initial transaction price allocated to the GS-1811 License performance obligation during the year ended December 31, 2020.
Further, the Company determined the input method under ASC 606 is the most appropriate method of revenue recognition for the Research and Transition Services performance obligation. The method of measuring progress towards delivery of the services incorporated actual internal and external costs incurred, relative to total internal and external costs expected to be incurred to satisfy the performance obligation. The period over which total costs were estimated reflected the Company’s best estimate of the period over which it would perform the Research and Transition Services to achieve clearance of an IND application of the GS-1811 program and transition the program to Gilead.
On October 31, 2022, the Company and Gilead entered into a letter agreement (the “2022 Letter Agreement”) to deem a $15.0 million clinical development and regulatory milestone under the Gilead Licensed Agreement earned. The Company determined that the 2022 Letter Agreement did not change the scope of performance obligations under the Gilead License Agreement as the $15.0 million milestone existed under the original agreement. The 2022 Letter Agreement is considered a contract modification accounted for as part of the Gilead License Agreement. Revenue was recognized upon contract execution.
In addition, on December 27, 2022, the Company and Gilead entered into the Asset Purchase and License Amendment Agreement (the “Gilead Purchase Agreement”), pursuant to which the Company sold its intellectual property (“IP”) related to GS-1811 to Gilead for $67.0 million and transferred to Gilead certain patents and know-how related to licensed products under the Gilead License Agreement. The purchase price represented consideration for the net present value of Gilead’s remaining financial obligations under the Gilead License Agreement, including any potential milestone payments and royalties, and agreement to cancel all future milestones and royalties under the Gilead License Agreement. The Company assessed the promises under the Gilead Purchase Agreement and determined that the transfer of all IP and know-how to Gilead for GS-1811 was the only distinct performance obligation in the contract modification and was satisfied upon contract execution.
During the year ended December 31, 2022, the Company recognized $82.0 million of license revenue — related party, $15.0 million of which related to the achievement of a clinical and development milestone under the 2022 Letter Agreement and Gilead License Agreement and $67.0 million of which related to the sale of GS-1811 under the Gilead Purchase Agreement. During the year ended December 31, 2021, the Company recognized $26.9 million of license and collaboration revenue — related party under the Gilead License Agreement, $25.0 million of which related to the achievement of a clinical development and regulatory milestone for FDA clearance of the IND for GS-1811 and $1.9 million of which related to the completion of research and transition services.
85.015.015.067.082.015.067.026.925.01.9Fair Value Measurements
The Company measures the fair value of money market funds, U.S. Treasuries and government agency securities based on quoted prices in active markets for identical securities. Investments also include corporate debt securities which are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.
Assets measured at fair value on a recurring basis as of December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Money market funds, included in cash equivalents | $ | 150,572 | | | $ | 150,572 | | | $ | — | | | $ | — | |
| Investments: | | | | | | | |
| Corporate debt securities | 15,016 | | | — | | | 15,016 | | | — | |
| U.S. Treasuries | 16,183 | | | 16,183 | | | — | | | — | |
| Government agency securities | 7,771 | | | — | | | 7,771 | | | — | |
| Totals | $ | 189,542 | | | $ | 166,755 | | | $ | 22,787 | | | $ | — | |
Assets measured at fair value on a recurring basis as of December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Money market funds, included in cash equivalents | $ | 95,529 | | | $ | 95,529 | | | $ | — | | | $ | — | |
| Investments: | | | | | | | |
| Corporate debt securities | 86,470 | | | — | | | 86,470 | | | — | |
| U.S. Treasuries | 30,271 | | | 30,271 | | | — | | | — | |
| Government agency securities | 7,953 | | | — | | | 7,953 | | | — | |
| Totals | $ | 220,223 | | | $ | 125,800 | | | $ | 94,423 | | | $ | — | |
There were no changes in valuation techniques during the years ended December 31, 2022 or 2021. There were no liabilities measured at fair value on a recurring basis as of December 31, 2022 or 2021.
Assets measured at fair value on a recurring basis as of December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Money market funds, included in cash equivalents | $ | 150,572 | | | $ | 150,572 | | | $ | — | | | $ | — | |
| Investments: | | | | | | | |
| Corporate debt securities | 15,016 | | | — | | | 15,016 | | | — | |
| U.S. Treasuries | 16,183 | | | 16,183 | | | — | | | — | |
| Government agency securities | 7,771 | | | — | | | 7,771 | | | — | |
| Totals | $ | 189,542 | | | $ | 166,755 | | | $ | 22,787 | | | $ | — | |
Assets measured at fair value on a recurring basis as of December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Money market funds, included in cash equivalents | $ | 95,529 | | | $ | 95,529 | | | $ | — | | | $ | — | |
| Investments: | | | | | | | |
| Corporate debt securities | 86,470 | | | — | | | 86,470 | | | — | |
| U.S. Treasuries | 30,271 | | | 30,271 | | | — | | | — | |
| Government agency securities | 7,953 | | | — | | | 7,953 | | | — | |
| Totals | $ | 220,223 | | | $ | 125,800 | | | $ | 94,423 | | | $ | — | |
150,572150,572——15,016—15,016—16,18316,183——7,771—7,771—189,542166,75522,787—95,52995,529——86,470—86,470—30,27130,271——7,953—7,953—220,223125,80094,423—nonoInvestments
Short-term investments consist of investments with maturities greater than ninety days and less than one year from the balance sheet date. Long-term investments consist of investments with maturities of greater than one year that are not expected to be used to fund current operations. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value. Realized gains and losses, amortization and accretion of discounts and premiums are included in other income, net. Unrealized gains and losses on available-for-sale securities are included in other comprehensive income as a component of stockholders’ equity until realized.
Cash equivalents, short-term investments and long-term investments as of December 31, 2022 were comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| Cash equivalents and short-term investments: | | | | | | | |
| Money market funds, included in cash equivalents | $ | 150,572 | | | $ | — | | | $ | — | | | $ | 150,572 | |
| Corporate debt securities | 15,173 | | | — | | | (157) | | | 15,016 | |
| U.S. Treasuries | 16,532 | | | — | | | (349) | | | 16,183 | |
| Government agency securities | 7,942 | | | — | | | (171) | | | 7,771 | |
| Total cash equivalents and short-term investments | 190,219 | | | — | | | (677) | | | 189,542 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total cash equivalents and investments | $ | 190,219 | | | $ | — | | | $ | (677) | | | $ | 189,542 | |
Cash equivalents, short-term investments and long-term investments as of December 31, 2021 were comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| Cash equivalents and short-term investments: | | | | | | | |
| Money market funds, included in cash equivalents | $ | 95,529 | | | $ | — | | | $ | — | | | $ | 95,529 | |
| Corporate debt securities | 69,316 | | | — | | | (34) | | | 69,282 | |
| U.S. Treasuries | 13,777 | | | — | | | (22) | | | 13,755 | |
| | | | | | | |
| Total cash equivalents and short-term investments | 178,622 | | | — | | | (56) | | | 178,566 | |
| Long-term investments: | | | | | | | |
| Corporate debt securities | 17,276 | | | — | | | (88) | | | 17,188 | |
| U.S. Treasuries | 16,580 | | | — | | | (64) | | | 16,516 | |
| Government agency securities | 7,983 | | | — | | | (30) | | | 7,953 | |
| Total long-term investments | 41,839 | | | — | | | (182) | | | 41,657 | |
| Total cash equivalents and investments | $ | 220,461 | | | $ | — | | | $ | (238) | | | $ | 220,223 | |
As of December 31, 2022, there were no securities that were in an unrealized loss position for less than twelve months. As of December 31, 2021, the aggregate fair value of securities that were in an unrealized loss position for less than twelve months was $86.7 million. As of December 31, 2022 and 2021, the aggregate fair value of securities that were in an unrealized loss position for more than twelve months was $39.0 million and $4.8 million, respectively. As of December 31, 2022, the Company did not intend to sell, and would not be more likely than not required to sell, the securities in an unrealized loss position before recovery of their amortized cost bases. Furthermore, the Company determined that there was no material change in the credit risk of these securities. As a result, the Company determined it did not hold any securities with any other-than-temporary impairment as of December 31, 2022.
There were no realized gains and losses on available-for-sale securities during the year ended December 31, 2022 and 2021
Cash equivalents, short-term investments and long-term investments as of December 31, 2022 were comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| Cash equivalents and short-term investments: | | | | | | | |
| Money market funds, included in cash equivalents | $ | 150,572 | | | $ | — | | | $ | — | | | $ | 150,572 | |
| Corporate debt securities | 15,173 | | | — | | | (157) | | | 15,016 | |
| U.S. Treasuries | 16,532 | | | — | | | (349) | | | 16,183 | |
| Government agency securities | 7,942 | | | — | | | (171) | | | 7,771 | |
| Total cash equivalents and short-term investments | 190,219 | | | — | | | (677) | | | 189,542 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total cash equivalents and investments | $ | 190,219 | | | $ | — | | | $ | (677) | | | $ | 189,542 | |
Cash equivalents, short-term investments and long-term investments as of December 31, 2021 were comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| Cash equivalents and short-term investments: | | | | | | | |
| Money market funds, included in cash equivalents | $ | 95,529 | | | $ | — | | | $ | — | | | $ | 95,529 | |
| Corporate debt securities | 69,316 | | | — | | | (34) | | | 69,282 | |
| U.S. Treasuries | 13,777 | | | — | | | (22) | | | 13,755 | |
| | | | | | | |
| Total cash equivalents and short-term investments | 178,622 | | | — | | | (56) | | | 178,566 | |
| Long-term investments: | | | | | | | |
| Corporate debt securities | 17,276 | | | — | | | (88) | | | 17,188 | |
| U.S. Treasuries | 16,580 | | | — | | | (64) | | | 16,516 | |
| Government agency securities | 7,983 | | | — | | | (30) | | | 7,953 | |
| Total long-term investments | 41,839 | | | — | | | (182) | | | 41,657 | |
| Total cash equivalents and investments | $ | 220,461 | | | $ | — | | | $ | (238) | | | $ | 220,223 | |
150,572——150,57215,173—15715,01616,532—34916,1837,942—1717,771190,219—677189,542190,219—677189,54295,529——95,52969,316—3469,28213,777—2213,755178,622—56178,56617,276—8817,18816,580—6416,5167,983—307,95341,839—18241,657220,461—238220,223no86.739.04.8nonoRestricted Cash
As of both December 31, 2022 and 2021, the Company maintained non-current restricted cash of $1.3 million. This amount is included within “Other non-current assets” in the accompanying consolidated balance sheets and is comprised solely of a security deposit required pursuant to the lease for the Company’s corporate headquarters.
The following table provides a reconciliation of cash, cash equivalents and restricted cash that sums to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2022 | | Year Ended
December 31, 2021 |
| | Beginning of Period | | End of Period | | Beginning of Period | | End of Period |
| Cash and cash equivalents | $ | 95,529 | | | $ | 150,572 | | | $ | 147,493 | | | $ | 95,529 | |
| Restricted cash | 1,270 | | | 1,270 | | | 1,270 | | | 1,270 | |
| Cash, cash equivalents and restricted cash | $ | 96,799 | | | $ | 151,842 | | | $ | 148,763 | | | $ | 96,799 | |
1.31.3
The following table provides a reconciliation of cash, cash equivalents and restricted cash that sums to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2022 | | Year Ended
December 31, 2021 |
| | Beginning of Period | | End of Period | | Beginning of Period | | End of Period |
| Cash and cash equivalents | $ | 95,529 | | | $ | 150,572 | | | $ | 147,493 | | | $ | 95,529 | |
| Restricted cash | 1,270 | | | 1,270 | | | 1,270 | | | 1,270 | |
| Cash, cash equivalents and restricted cash | $ | 96,799 | | | $ | 151,842 | | | $ | 148,763 | | | $ | 96,799 | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash that sums to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2022 | | Year Ended
December 31, 2021 |
| | Beginning of Period | | End of Period | | Beginning of Period | | End of Period |
| Cash and cash equivalents | $ | 95,529 | | | $ | 150,572 | | | $ | 147,493 | | | $ | 95,529 | |
| Restricted cash | 1,270 | | | 1,270 | | | 1,270 | | | 1,270 | |
| Cash, cash equivalents and restricted cash | $ | 96,799 | | | $ | 151,842 | | | $ | 148,763 | | | $ | 96,799 | |
95,529150,572147,49395,5291,2701,2701,2701,27096,799151,842148,76396,799Property and Equipment, Net
Property and equipment, net as of December 31, 2022 and 2021 was comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Estimated Useful Life (in Years) | | December 31, |
| | | 2022 | | 2021 |
| Laboratory equipment | 5 | | $ | 11,620 | | | $ | 11,616 | |
| Furniture and office equipment | 4 | | 1,086 | | | 1,086 | |
| Computer equipment | 3 | | 1,649 | | | 1,641 | |
| Leasehold improvements | Shorter of useful life or remaining lease term | | 8,769 | | | 8,609 | |
| | | | | |
| Total property and equipment, gross | | | 23,124 | | | 22,952 | |
| Less: accumulated depreciation | | | (19,403) | | | (18,070) | |
| Total property and equipment, net | | | $ | 3,721 | | | $ | 4,882 | |
Depreciation expense for the years ended December 31, 2022 and 2021 was $2.1 million and $2.8 million, respectively.
Property and equipment, net as of December 31, 2022 and 2021 was comprised as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | Estimated Useful Life (in Years) | | December 31, |
| | | 2022 | | 2021 |
| Laboratory equipment | 5 | | $ | 11,620 | | | $ | 11,616 | |
| Furniture and office equipment | 4 | | 1,086 | | | 1,086 | |
| Computer equipment | 3 | | 1,649 | | | 1,641 | |
| Leasehold improvements | Shorter of useful life or remaining lease term | | 8,769 | | | 8,609 | |
| | | | | |
| Total property and equipment, gross | | | 23,124 | | | 22,952 | |
| Less: accumulated depreciation | | | (19,403) | | | (18,070) | |
| Total property and equipment, net | | | $ | 3,721 | | | $ | 4,882 | |
Accrued expenses as of December 31, 2022 and 2021 were comprised as follows (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Employee compensation and benefits | $ | 6,204 | | | $ | 6,844 | |
| External research and professional services | 10,496 | | | 6,252 | |
| Lab consumables and other | 445 | | | 371 | |
| Total accrued expenses | $ | 17,145 | | | $ | 13,467 | |
Accrued expenses as of December 31, 2022 and 2021 were comprised as follows (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Employee compensation and benefits | $ | 6,204 | | | $ | 6,844 | |
| External research and professional services | 10,496 | | | 6,252 | |
| Lab consumables and other | 445 | | | 371 | |
| Total accrued expenses | $ | 17,145 | | | $ | 13,467 | |
6,2046,84410,4966,25244537117,14513,467Common Stock and Preferred Stock
Common Stock
The Company is authorized to issue 160,000,000 shares of common stock. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by the board of directors.
On December 17, 2019, the Company entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”) pursuant to which the Company could offer and sell shares of its common stock with an aggregate offering price of up to $50.0 million under an “at the market” offering program (the “2019 ATM Offering”). The Sales Agreement provided that Cowen will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. During the first quarter of 2021, the Company sold an aggregate of 3,156,200 shares at an average price of $9.87 per share for net proceeds of $30.2 million, which completed the sale of all available amounts under the 2019 ATM Offering.
In addition, during the first quarter of 2021, the Company completed a follow-on public offering of its common stock, selling an aggregate of 5,750,000 shares of common stock at a public offering price of $11.25 per share for net proceeds of $60.6 million, after deducting underwriting discounts and commissions and offering fees.
On November 4, 2021, the Company entered into a new Sales Agreement with Cowen (the “2021 Sales Agreement”), pursuant to which the Company may offer and sell shares of our common stock with an aggregate offering price of up to $75.0 million under an ATM offering program (the “2021 ATM Offering”). The 2021 Sales Agreement provides that Cowen will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the 2021 ATM Offering. No sales were made under the 2021 ATM Offering during the year ended December 31, 2022 and 2021.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of undesignated preferred stock in one or more series. As of December 31, 2022, no shares of preferred stock were issued or outstanding.
Shares Reserved for Future Issuance
As of December 31, 2022 and 2021, the Company had reserved for future issuance the following number of shares of common stock (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | | |
| Shares reserved for vesting of restricted stock units | 997 | | | 833 | |
| Shares reserved for exercises of outstanding stock options | 8,533 | | | 7,629 | |
| Shares reserved for future issuances under the 2017 Stock Option and Incentive Plan | 1,802 | | | 1,258 | |
| Total shares reserved for future issuance | 11,332 | | | 9,720 | |
160,000,000one50.03.03,156,2009.8730.25,750,00011.2560.675.03.05,000,000
As of December 31, 2022 and 2021, the Company had reserved for future issuance the following number of shares of common stock (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | | |
| Shares reserved for vesting of restricted stock units | 997 | | | 833 | |
| Shares reserved for exercises of outstanding stock options | 8,533 | | | 7,629 | |
| Shares reserved for future issuances under the 2017 Stock Option and Incentive Plan | 1,802 | | | 1,258 | |
| Total shares reserved for future issuance | 11,332 | | | 9,720 | |
2013 Stock Option and Grant Plan
In February 2013, the board of directors adopted and the Company’s stockholders approved the 2013 Stock Option and Grant Plan (the “2013 Plan”), as amended and restated, under which it could grant incentive stock options (“ISOs”), non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to eligible employees, officers, directors, and consultants. The 2013 Plan was subsequently amended in January 2015, April 2015, July 2015, March 2016 and October 2016 to allow for the issuance of additional shares of common stock.
2017 Stock Option and Incentive Plan
In January 2017, the board of directors adopted and the Company’s stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”), which became effective immediately prior to the effectiveness of the Company’s IPO. Upon the adoption of the 2017 Plan, no further awards will be granted under the 2013 Plan.
The 2017 Plan provides for the grant of ISOs, non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2017 Plan. The terms of awards, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2017 Plan.
The Company initially registered 1,753,758 shares of common stock under the 2017 Plan, which was comprised of (i) 1,510,000 shares of common stock reserved for issuance under the 2017 Plan, plus (ii) 243,758 shares of common stock originally reserved for issuance under the 2013 Plan that became available for issuance under the 2017 Plan upon the completion of the Company’s IPO. The 2017 Plan also provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2017 Plan on January 1, 2018 and each January 1st thereafter. The number of shares added each year will be equal to the lesser of (i) 4% of the outstanding shares on the immediately preceding December 31st or (ii) such amount as determined by the compensation committee of the board of directors. Effective January 1, 2021 and 2022, 1,669,162 and 2,050,601 additional shares, respectively, were automatically added to the shares authorized for issuance under the 2017 Plan.
As of December 31, 2022, there were 1,801,878 shares available for future issuance under the 2017 Plan.
Inducement Stock Options
The Company may grant, upon approval by the compensation committee of the board of directors, awards, including options to purchase shares of common stock, as an inducement to employment in accordance with Nasdaq Listing Rule 5635(c)(4). The securities are issued pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, relating to transactions by an issuer not involving any public offering. These options are subject to substantially the same terms as options issued pursuant to the 2017 Plan. During the second quarter of 2021, the Company granted an option to purchase 225,000 shares of common stock as an inducement award.
2017 Employee Stock Purchase Plan
In January 2017, the board of directors adopted and the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which became effective upon the closing of the Company’s IPO. The Company initially reserved 302,000 shares of common stock for future issuance under the 2017 ESPP. The 2017 ESPP also provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2017 ESPP on January 1, 2018 and each January 1st thereafter through January 1, 2027. The number of shares added each year will be equal to the lesser of (i) 1% of the outstanding shares on the immediately preceding December 31st, (ii) 603,000 shares or (iii) such amount as determined by the Compensation Committee of the board of directors. Effective January 1, 2021 and 2022, 417,290 and 512,650 additional shares, respectively, were automatically added to the shares authorized for issuance under the 2017 ESPP. No offering periods under the 2017 ESPP had been initiated as of December 31, 2022.
Stock-based Compensation Expense
Total stock-based compensation expense recognized in the consolidated statements of operations and comprehensive (loss) income for the years ended December 31, 2022 and 2021 was as follows (in thousands):
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 |
| Research and development | $ | 5,168 | | | $ | 5,560 | |
| General and administrative | 5,105 | | | 5,917 | |
| Total stock-based compensation expense | $ | 10,273 | | | $ | 11,477 | |
RSU Activity
The Company has also granted RSUs to its employees under the 2017 Plan. The following table summarizes RSU activity for the year ended December 31, 2022 (in thousands, except per share amounts):
| | | | | | | | | | | |
| | RSUs | | Weighted-Average Grant Date Fair Value per Share |
| Unvested as of December 31, 2021 | 833 | | | $ | 9.13 | |
| Issued | 685 | | | $ | 7.11 | |
| Vested | (358) | | | $ | 8.15 | |
| Cancelled | (163) | | | $ | 8.27 | |
| Unvested as of December 31, 2022 | 997 | | | $ | 8.23 | |
The aggregate fair value of RSUs vested during the year ended December 31, 2022, based upon the fair values of the stock underlying the RSUs on the day of vesting, was $2.7 million. The aggregate fair value of RSUs vested during the year ended December 31, 2021, based upon the fair values of the stock underlying the RSUs on the day of vesting, was $1.5 million.
As of December 31, 2022, there was unrecognized stock-based compensation expense related to unvested RSUs of $4.4 million, which the Company expects to recognize over a weighted-average period of approximately 1.5 years.
Stock Option Activity
The fair value of stock options granted to employees and directors during the years ended December 31, 2022 and 2021 was calculated on the date of grant using the following weighted-average assumptions:
| | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Risk-free interest rate | 2.1 | % | | 0.8 | % | | |
| Expected dividend yield | — | % | | — | % | | |
| Expected term (in years) | 6.0 | | 6.0 | | |
| Expected volatility | 81.0 | % | | 81.9 | % | | |
Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted to employees and directors during the years ended December 31, 2022 and 2021 was $4.47 and $7.05 per share, respectively.
The following table summarizes changes in stock option activity during the year ended December 31, 2022 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2021 | 7,629 | | | $ | 8.87 | | | 6.4 | | $ | 16,881 | |
| Granted | 1,795 | | | $ | 6.42 | | | | | |
| Exercised | (71) | | | $ | 5.49 | | | | | |
| Cancelled | (820) | | | $ | 9.02 | | | | | |
| Outstanding at December 31, 2022 | 8,533 | | | $ | 8.37 | | | 6.0 | | $ | 434 | |
| Exercisable at December 31, 2022 | 6,033 | | | $ | 8.68 | | | 4.9 | | $ | 423 | |
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was $0.1 million and $3.0 million, respectively.
As of December 31, 2022, there was unrecognized stock-based compensation expense related to unvested stock options of $11.6 million, which the Company expects to recognize over a weighted-average period of approximately 2.4 years.
no1,753,7581,510,000243,75841,669,1622,050,6011,801,878225,000302,0001603,000417,290512,650
Total stock-based compensation expense recognized in the consolidated statements of operations and comprehensive (loss) income for the years ended December 31, 2022 and 2021 was as follows (in thousands):
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 |
| Research and development | $ | 5,168 | | | $ | 5,560 | |
| General and administrative | 5,105 | | | 5,917 | |
| Total stock-based compensation expense | $ | 10,273 | | | $ | 11,477 | |
5,1685,5605,1055,91710,27311,477
The Company has also granted RSUs to its employees under the 2017 Plan. The following table summarizes RSU activity for the year ended December 31, 2022 (in thousands, except per share amounts):
| | | | | | | | | | | |
| | RSUs | | Weighted-Average Grant Date Fair Value per Share |
| Unvested as of December 31, 2021 | 833 | | | $ | 9.13 | |
| Issued | 685 | | | $ | 7.11 | |
| Vested | (358) | | | $ | 8.15 | |
| Cancelled | (163) | | | $ | 8.27 | |
| Unvested as of December 31, 2022 | 997 | | | $ | 8.23 | |
8339.136857.113588.151638.279978.232.71.54.41.5
The fair value of stock options granted to employees and directors during the years ended December 31, 2022 and 2021 was calculated on the date of grant using the following weighted-average assumptions:
| | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Risk-free interest rate | 2.1 | % | | 0.8 | % | | |
| Expected dividend yield | — | % | | — | % | | |
| Expected term (in years) | 6.0 | | 6.0 | | |
| Expected volatility | 81.0 | % | | 81.9 | % | | |
2.10.8——6.06.081.081.94.477.05
The following table summarizes changes in stock option activity during the year ended December 31, 2022 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2021 | 7,629 | | | $ | 8.87 | | | 6.4 | | $ | 16,881 | |
| Granted | 1,795 | | | $ | 6.42 | | | | | |
| Exercised | (71) | | | $ | 5.49 | | | | | |
| Cancelled | (820) | | | $ | 9.02 | | | | | |
| Outstanding at December 31, 2022 | 8,533 | | | $ | 8.37 | | | 6.0 | | $ | 434 | |
| Exercisable at December 31, 2022 | 6,033 | | | $ | 8.68 | | | 4.9 | | $ | 423 | |
The provision for income taxes for the years ended December 31, 2022 and 2021 was comprised as follows (in thousands):
| | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Current taxes: | | | | | |
| Federal | $ | 108 | | | $ | — | | | |
| State | 27 | | | 15 | | | |
| Total current taxes | 135 | | | 15 | | | |
| Deferred taxes: | | | | | |
| Federal | — | | | — | | | |
| State | — | | | — | | | |
| Total deferred taxes | — | | | — | | | |
| Total provision for income taxes | $ | 135 | | | $ | 15 | | | |
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 |
| Income tax computed at federal statutory tax rate | 21.0 | % | | 21.0 | % |
| State taxes, net of federal benefit | 7.9 | % | | 6.9 | % |
| Tax credit carryforwards | 10.3 | % | | 3.5 | % |
| | | |
| Permanent items | (1.8) | % | | (0.7) | % |
| Change in valuation allowance | (36.8) | % | | (30.7) | % |
| Other | (0.9) | % | | — | % |
| Effective tax rate | (0.3) | % | | — | % |
The principal components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were comprised as follows (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 32,902 | | | $ | 45,590 | |
| Tax credit carryforwards | 31,302 | | | 25,327 | |
| Capitalized research and development | 24,878 | | | — | |
| | | |
| | | |
| Operating lease liability | 2,737 | | | 3,739 | |
| Intangibles | 920 | | | 960 | |
| Accrued expenses and other | 1,588 | | | 1,843 | |
| Unrealized loss on available-for-sale securities | 17 | | | 17 | |
| Depreciation | 756 | | | 583 | |
| Stock-based compensation | 5,840 | | | 5,207 | |
| Total deferred tax assets | 100,940 | | | 83,266 | |
| Less: valuation allowance | (98,592) | | | (80,022) | |
| Net deferred tax assets | 2,348 | | | 3,244 | |
| Deferred tax liabilities: | | | |
| | | |
| Operating lease right-of-use asset | (2,348) | | | (3,244) | |
| Depreciation | — | | | — | |
| Total deferred tax liabilities | (2,348) | | | (3,244) | |
| Net deferred taxes | $ | — | | | $ | — | |
As of December 31, 2022, the Company had federal and state net operating loss (“NOL”) carryforwards of $120.4 million and $120.6 million, respectively. Federal NOLs generated through the year ended December 31, 2017 expire at various dates from 2032 through 2037, and federal NOLs of $113.0 million generated in years beginning after December 31, 2017 may be carried forward indefinitely. State NOLs expire at various dates from 2035 through 2041. As of December 31, 2022, the Company had federal research and development tax credit carryforwards of $24.1 million which expire at various dates from 2034 through 2042. In addition, as of December 31, 2022, the Company had state research and development and investment tax credit carryforwards of $9.1 million and $0.1 million, respectively. The state research and development tax credit carryforwards expire at various dates from 2030 through 2037 and the state investment tax credit carryforward indefinitely.
Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which primarily pertain to NOL carryforwards, tax credit carryforwards, the Company’s operating lease liability and stock-based compensation. Management has determined that it is more likely than not that the Company will not realize the benefits of its deferred tax assets, and as a result, a valuation allowance of $98.6 million has been established at December 31, 2022. The increase in the valuation allowance of $18.6 million during the year ended December 31, 2022 was primarily due to capitalization of research and development expense made effective on January 1, 2022 and was part of the Tax Cuts and Jobs Act of 2017 requiring taxpayers to capitalize research and development expenses an amortize them over a five year period, and taxable net income related to increased license revenue under agreements with Gilead during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code of 1986, as amended (“IRC”). This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change.
The Company had no unrecognized tax benefits as of either December 31, 2022 or 2021. During the year ended December 31, 2017, the Company completed a study of its research and development credit carryforwards generated during the years ended December 31, 2016 and 2015. The Company has not conducted a study of its research and development credit carryforwards generated during any subsequent years. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credit carryforwards, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated statements of operations and comprehensive loss if an adjustment were required.
Interest and penalty charges, if any, related to income taxes would be classified as a component of the provision for income taxes in the consolidated statements of operations and comprehensive loss. As of December 31, 2022, the Company has not incurred any material interest or penalty charges.
The Company files income tax returns in the United States federal tax jurisdiction and the Massachusetts state tax jurisdiction. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.
The provision for income taxes for the years ended December 31, 2022 and 2021 was comprised as follows (in thousands):
| | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | |
| Current taxes: | | | | | |
| Federal | $ | 108 | | | $ | — | | | |
| State | 27 | | | 15 | | | |
| Total current taxes | 135 | | | 15 | | | |
| Deferred taxes: | | | | | |
| Federal | — | | | — | | | |
| State | — | | | — | | | |
| Total deferred taxes | — | | | — | | | |
| Total provision for income taxes | $ | 135 | | | $ | 15 | | | |
108—271513515——————13515
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 |
| Income tax computed at federal statutory tax rate | 21.0 | % | | 21.0 | % |
| State taxes, net of federal benefit | 7.9 | % | | 6.9 | % |
| Tax credit carryforwards | 10.3 | % | | 3.5 | % |
| | | |
| Permanent items | (1.8) | % | | (0.7) | % |
| Change in valuation allowance | (36.8) | % | | (30.7) | % |
| Other | (0.9) | % | | — | % |
| Effective tax rate | (0.3) | % | | — | % |
21.021.07.96.910.33.51.80.736.830.70.9—0.3—
The principal components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were comprised as follows (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 32,902 | | | $ | 45,590 | |
| Tax credit carryforwards | 31,302 | | | 25,327 | |
| Capitalized research and development | 24,878 | | | — | |
| | | |
| | | |
| Operating lease liability | 2,737 | | | 3,739 | |
| Intangibles | 920 | | | 960 | |
| Accrued expenses and other | 1,588 | | | 1,843 | |
| Unrealized loss on available-for-sale securities | 17 | | | 17 | |
| Depreciation | 756 | | | 583 | |
| Stock-based compensation | 5,840 | | | 5,207 | |
| Total deferred tax assets | 100,940 | | | 83,266 | |
| Less: valuation allowance | (98,592) | | | (80,022) | |
| Net deferred tax assets | 2,348 | | | 3,244 | |
| Deferred tax liabilities: | | | |
| | | |
| Operating lease right-of-use asset | (2,348) | | | (3,244) | |
| Depreciation | — | | | — | |
| Total deferred tax liabilities | (2,348) | | | (3,244) | |
| Net deferred taxes | $ | — | | | $ | — | |
32,90245,59031,30225,32724,878—2,7373,7399209601,5881,84317177565835,8405,207100,94083,26698,59280,0222,3483,2442,3483,244——2,3483,244——120.4120.6113.024.19.10.198.618.6nononoRelated-party TransactionsIn August 2020, the Company entered into the Gilead License Agreement and Stock Purchase Agreement under which it received a non-refundable upfront payment of $85.0 million and cash consideration of $35.0 million for Gilead’s purchase of 5,539,727 shares of the Company’s common stock. During the year ended December 31, 2022, the Company recognized $82.0 million in revenue under agreements with Gilead and had no reimbursable expenses due from Gilead. During the year ended December 31, 2021, the Company recognized $26.9 million in revenue under these arrangements and recorded less than $0.1 million of reimbursement expenses due from Gilead within prepaid expenses and other current assets in the accompanying consolidated balance sheets.85.035.05,539,72782.026.90.1Commitments and Contingencies
Corporate Headquarters Lease
In November 2016, the Company entered into an operating lease agreement (the “Corporate Headquarters Lease”) to occupy 51,000 square feet of laboratory and office space in Cambridge, Massachusetts. This facility serves as the Company’s corporate headquarters. The lease term began on November 1, 2016 and extends to March 31, 2025. The Company has the option to extend the lease term for one consecutive five-year period, at the market rate, by giving the landlord written notice of its election to exercise the extension at least twelve months prior to the original expiration of the lease term. The Company provided the landlord with a security deposit in the form of a letter of credit in the amount of $1.3 million, which is recorded as restricted cash and included within “Other non-current assets” in the consolidated balance sheets. The Corporate Headquarters Lease also provided the Company with a tenant improvement allowance of $0.5 million. Leasehold improvements related to this facility are being amortized over the shorter of their useful life or the lease term.
The Company recorded a right-of-use asset and a corresponding lease liability on the consolidated balance sheets as of December 31, 2022 and 2021. As there is no rate implicit in the Corporate Headquarters Lease, the Company estimated its incremental borrowing rate based upon a synthetic credit rating and yield curve analysis. Based upon this analysis, the Company calculated a discount rate of 8.0% for the Corporate Headquarters Lease.
As of December 31, 2022, the future minimum lease payments due under the operating lease for the Company’s corporate headquarters are as follows (in thousands):
| | | | | |
| Amount |
| 2023 | $ | 4,802 | |
| 2024 | 4,938 | |
| 2025 | 1,252 | |
| |
| Total remaining minimum rental payments | 10,992 | |
| Less: effect of discounting | (972) | |
| Total lease liability | $ | 10,020 | |
The Company recorded operating lease expense for the Corporate Headquarters Lease of $4.3 million for the year ended December 31, 2022 and $4.3 million for the year ended December 31, 2021. As of December 31, 2022, the remaining lease term of the Corporate Headquarters Lease was 2.3 years. The Company presents changes in its right-of-use asset and lease liability on a combined net basis within “Other liabilities” in the consolidated statements of cash flows.
License and Collaboration Agreements
The Company has entered into various license agreements for certain technology. The Company could be required to make aggregate technical, clinical development and regulatory milestone payments of up to $7.5 million and low single-digit royalty payments based on a percentage of net sales of licensed products. As of December 31, 2022, the Company had made $1.0 million in aggregate milestone payments under these license agreements. The Company may cancel these agreements at any time by providing 30 to 90 days’ notice to the licensors, and all payments not previously due would no longer be owed.
The Company has also entered into collaboration agreements with various third parties for research services and access to proprietary technology platforms. Under these collaboration agreements, the Company could be required to make aggregate technical, clinical development and regulatory milestones payments ranging from $12.5 million to $12.9 million per product candidate and low single-digit royalty payments based on a percentage of net sales on a product-by-product basis. As of December 31, 2022, the Company had made $1.8 million in aggregate milestone payments under these collaboration agreements.
51,000onefive-yeartwelve months1.30.58.0
As of December 31, 2022, the future minimum lease payments due under the operating lease for the Company’s corporate headquarters are as follows (in thousands):
| | | | | |
| Amount |
| 2023 | $ | 4,802 | |
| 2024 | 4,938 | |
| 2025 | 1,252 | |
| |
| Total remaining minimum rental payments | 10,992 | |
| Less: effect of discounting | (972) | |
| Total lease liability | $ | 10,020 | |
4,8024,9381,25210,99297210,0204.34.32.37.51.0309012.512.91.8401(k) Savings PlanThe Company has a defined-contribution savings plan under Section 401(k) of the IRC (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. Beginning on January 1, 2018, the Company matches 50% of an employee’s 401(k) contributions up to a maximum of 6% of the participant’s salary, subject to employer match limitations under the IRC. As such, the Company made $0.8 million and $0.7 million in contributions to the 401(k) Plan for the years ended December 31, 2022 and 2021, respectively.5060.80.7Net Loss per Share
The following weighted-average amounts were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive (in thousands):
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| Outstanding stock options | 8,566 | | | 7,388 | | | |
| | | | | |
| Unvested RSUs | 988 | | | 791 | | | |
| Total | 9,554 | | | 8,179 | | | |
The following weighted-average amounts were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive (in thousands):
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| Outstanding stock options | 8,566 | | | 7,388 | | | |
| | | | | |
| Unvested RSUs | 988 | | | 791 | | | |
| Total | 9,554 | | | 8,179 | | | |
8,5667,3889887919,5548,179Subsequent Events
On February 22, 2023, the Company announced that it was reducing its workforce by approximately 57% of its current headcount to preserve its cash resources. The workforce reduction will take place during the first quarter of 2023. As a result of these actions, the Company expects to incur one-time non recurring restructuring costs, primarily consisting of salary payable during applicable notice periods and severance, non-cash stock-based compensation expense, and other benefits.
On February 23, 2023, the Company and Redx Pharma plc (“Redx”) issued an announcement disclosing the agreed terms of a proposed all share merger transaction for the entire issued and to be issued share capital of Redx to be effected by means of a court sanctioned scheme of arrangement (“Scheme”) under Part 26 of the U.K. Company Act 2006, immediately preceded by a merger transaction between RM Special Holdings 3, LLC, an entity controlled by Redmile, and the Company and one of its wholly-owned subsidiaries. Under the terms of the Business Combination, immediately following completion of the Business Combination, including conversion of the convertible loan notes held by shareholders of Redx, Redx shareholders are expected to own, on a fully diluted basis based on the parties’ share capital as of February 22, 2023, approximately 63% and Jounce shareholders are expected to own approximately 37% of the share capital of the combined group. Completion of the Business Combination is subject to certain closing conditions, including, among others, (i) the approval of the Scheme by a majority in number of Redx’s shareholders present and voting (and entitled to vote) at the meeting(s) of Redx’s shareholders, representing not less than 75 percent in value of the Redx shares held by such shareholders (or the relevant class or classes thereof), (ii) the sanction of the Scheme by the High Court of Justice of England and Wales, (iii) the approval of the issuance of common stock by the Company’s stockholders in connection with the Business Combination, and (iv) the Scheme becoming effective no later than July 31, 2023, which date may be extended by mutual agreement of the parties. Subject to the approval of the Company’s stockholders, the Company intends to conduct a 5:1 reverse stock split of our common stock in conjunction with the Business Combination. The completion of the Business Combination is expected in the second quarter of 2023. There is no assurance that the Business Combination will be consummated on the proposed terms, timing or at all.
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