10-Q
NoQ10001445499Yes2021-12-310.0155--12-31false0001445499impl:RedeemableConvertiblePreferredStockWarrantsOnAnAsConvertedBasisMember2020-01-012020-03-310001445499us-gaap:IPOMember2021-03-310001445499us-gaap:CommonStockMember2019-12-310001445499impl:SeriesA2RedeemableConvertiblePreferredStockMember2020-01-012020-03-310001445499us-gaap:FairValueInputsLevel2Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2021-03-310001445499us-gaap:AdditionalPaidInCapitalMember2021-03-3100014454992017-09-012017-09-300001445499us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-3100014454992021-01-012021-03-310001445499us-gaap:EmployeeStockOptionMember2020-05-012020-05-310001445499us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001445499impl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2021-03-310001445499us-gaap:SubsequentEventMember2021-04-012021-04-300001445499impl:SeriesC2RedeemableConvertiblePreferredStockMember2020-12-310001445499impl:TwoThousandEightStockIncentivePlanMember2021-01-012021-03-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2020-01-012020-03-310001445499impl:SeriesC1RedeemableConvertiblePreferredStockMember2020-12-310001445499us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001445499impl:ConvertibleNotesMember2020-12-310001445499us-gaap:FairValueInputsLevel3Member2021-03-310001445499us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001445499impl:TermLoanMember2020-11-052020-11-050001445499impl:SeriesC3RedeemableConvertiblePreferredStockMember2020-12-310001445499us-gaap:FairValueInputsLevel1Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2021-03-310001445499impl:SeriesBRedeemableConvertiblePreferredStockMember2021-03-310001445499impl:SeriesA2RedeemableConvertiblePreferredStockMember2021-03-310001445499srt:ChiefExecutiveOfficerMemberus-gaap:EmployeeStockOptionMember2020-05-012020-05-310001445499impl:ConvertiblePromissoryNotesMember2021-01-012021-03-310001445499impl:ConvertibleNotesMemberus-gaap:FairValueInputsLevel2Member2021-03-310001445499us-gaap:CommonStockMemberus-gaap:SubsequentEventMember2021-04-232021-04-230001445499us-gaap:RetainedEarningsMember2020-03-310001445499us-gaap:FairValueInputsLevel1Member2020-12-3100014454992019-12-310001445499us-gaap:FairValueInputsLevel3Member2020-12-310001445499us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001445499impl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2020-12-310001445499impl:ConvertibleNotesMemberus-gaap:FairValueInputsLevel1Member2021-03-310001445499srt:MinimumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-03-310001445499us-gaap:FairValueInputsLevel3Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2021-03-310001445499impl:TermLoanMemberus-gaap:SeriesDPreferredStockMember2020-11-052020-11-050001445499impl:ConvertibleNotesMemberus-gaap:FairValueInputsLevel3Member2021-03-310001445499impl:SeriesDRedeemableConvertiblePreferredStockMember2021-03-310001445499impl:SeriesA1RedeemableConvertiblePreferredStockMember2020-01-012020-03-3100014454992020-01-012020-03-310001445499us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-03-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2021-03-310001445499us-gaap:AdditionalPaidInCapitalMember2020-03-310001445499impl:RedeemableConvertiblePreferredStockWarrantMember2020-12-310001445499us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001445499impl:ConvertibleNotesMember2020-12-310001445499us-gaap:FairValueInputsLevel2Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2020-12-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2019-12-310001445499us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-03-310001445499us-gaap:AdditionalPaidInCapitalMember2019-12-310001445499impl:WarrantToPurchaseCommonStockMemberimpl:AvenueVentureOpportunitiesFundLPMemberus-gaap:SubsequentEventMember2021-04-230001445499impl:ConvertiblePromissoryNotesMember2021-03-310001445499impl:TwoThousandEightStockIncentivePlanMember2021-03-3100014454992017-09-300001445499impl:RedeemableConvertiblePreferredStockWarrantMember2021-03-3100014454992020-01-012020-12-310001445499us-gaap:CommonStockMember2020-03-310001445499us-gaap:RetainedEarningsMember2021-03-310001445499impl:TwoThousandEightStockIncentivePlanMember2020-12-310001445499impl:ConvertibleNotesMember2021-03-310001445499us-gaap:RedeemableConvertiblePreferredStockMemberus-gaap:SubsequentEventMember2021-04-302021-04-300001445499impl:SeriesBRedeemableConvertiblePreferredStockMember2020-12-310001445499impl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2021-01-012021-03-310001445499us-gaap:FairValueInputsLevel1Member2021-03-310001445499impl:StockIncentivePlansMember2021-03-310001445499impl:ConvertibleNotesOnConversionBasisMember2021-01-012021-03-310001445499impl:SeriesA2RedeemableConvertiblePreferredStockMember2020-12-310001445499us-gaap:SubsequentEventMember2021-04-300001445499impl:SeriesA1RedeemableConvertiblePreferredStockMember2021-01-012021-03-310001445499impl:SeriesC3RedeemableConvertiblePreferredStockMember2021-03-310001445499impl:SeriesDRedeemableConvertiblePreferredStockMember2020-12-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2020-03-310001445499us-gaap:CommonStockMember2021-01-012021-03-310001445499us-gaap:IPOMemberus-gaap:SubsequentEventMember2021-04-012021-04-300001445499us-gaap:FairValueInputsLevel2Member2021-03-310001445499us-gaap:FairValueInputsLevel1Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2020-12-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2021-01-012021-03-310001445499us-gaap:RedeemableConvertiblePreferredStockMemberus-gaap:SubsequentEventMember2021-04-300001445499us-gaap:ConvertibleNotesPayableMember2021-03-012021-03-310001445499impl:SeriesC2RedeemableConvertiblePreferredStockMember2021-03-310001445499impl:TermLoanMembersrt:MinimumMemberus-gaap:IPOMember2020-11-052020-11-050001445499us-gaap:CommonStockMember2021-03-310001445499us-gaap:RedeemableConvertiblePreferredStockMember2020-12-310001445499us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001445499impl:TwoThousandEighteenStockIncentivePlanMember2020-12-3100014454992021-03-310001445499srt:MaximumMemberus-gaap:IPOMember2020-11-052020-11-050001445499us-gaap:CommonStockMember2020-12-310001445499us-gaap:AdditionalPaidInCapitalMember2020-12-310001445499impl:TermLoanMember2021-01-012021-03-310001445499us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001445499impl:StockIncentivePlansMember2020-12-310001445499us-gaap:RetainedEarningsMember2021-01-012021-03-310001445499impl:SeriesA1RedeemableConvertiblePreferredStockMember2021-03-310001445499impl:ConvertibleNotesMember2021-03-310001445499impl:TermLoanMember2020-11-050001445499us-gaap:RetainedEarningsMember2019-12-310001445499impl:SeriesA1RedeemableConvertiblePreferredStockMember2020-12-310001445499impl:RedeemableConvertiblePreferredStockWarrantsOnAnAsConvertedBasisMember2021-01-012021-03-3100014454992021-06-0400014454992020-03-3100014454992020-11-050001445499impl:RedeemableConvertiblePreferredStockOnAnAsConvertedBasisMember2021-01-012021-03-310001445499srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-03-310001445499us-gaap:CommonStockMemberimpl:AvenueVentureOpportunitiesFundLPMemberus-gaap:SubsequentEventMember2021-04-230001445499us-gaap:CommonStockMember2020-01-012020-03-310001445499impl:RedeemableConvertiblePreferredStockOnAnAsConvertedBasisMember2020-01-012020-03-310001445499impl:TwoThousandEighteenStockIncentivePlanMember2021-01-012021-03-310001445499us-gaap:RetainedEarningsMember2020-01-012020-03-310001445499impl:SeriesDRedeemableConvertiblePreferredStockMember2021-01-012021-03-310001445499us-gaap:SubsequentEventMemberus-gaap:IPOMember2021-04-232021-04-230001445499impl:ConvertibleNotesMember2021-01-012021-03-310001445499impl:ConvertibleNotesOnConversionBasisMember2020-01-012020-03-3100014454992020-12-310001445499impl:TermLoanMembersrt:MaximumMember2020-11-050001445499impl:SeriesA2RedeemableConvertiblePreferredStockMember2021-01-012021-03-310001445499us-gaap:SubsequentEventMemberus-gaap:IPOMember2021-04-230001445499us-gaap:FairValueInputsLevel3Memberimpl:RedeemableConvertiblePreferredStockWarrantLiabilityMember2020-12-310001445499us-gaap:RetainedEarningsMember2020-12-310001445499us-gaap:CommonStockMemberus-gaap:SubsequentEventMemberimpl:AvenueVentureOpportunitiesFundLPMember2021-04-232021-04-230001445499us-gaap:FairValueInputsLevel2Member2020-12-310001445499impl:TwoThousandEighteenStockIncentivePlanMember2021-03-310001445499impl:SeriesC1RedeemableConvertiblePreferredStockMember2021-03-310001445499impl:SeriesA2RedeemableConvertiblePreferredStockMemberus-gaap:SubsequentEventMember2021-04-012021-04-30xbrli:pureutr:sqftxbrli:sharesiso4217:USDxbrli:sharesiso4217:USDimpl:Segment

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from              to             

Commission File Number 001-40353

 

IMPEL NEUROPHARMA, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

26-3058238

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

201 Elliott Avenue West, Suite 260

Seattle, WA 98119

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (206) 568-1466

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IMPL

The Nasdaq Stock Market

 

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    YES  ☒    NO  ☐

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

 

Large accelerated filer

 

 

 

Accelerated filer

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  

The number of shares of Registrant’s Common Stock outstanding as of June 4, 2021 was 22,276,271.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

 


 

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements concerning our business strategy and plans, future operating results and financial position, as well as our objectives and expectations for our future operations, are forward-looking statements.

 

In some cases, you can identify forward-looking statements by such terminology as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements about:

 

our ability to obtain and maintain regulatory approval of TRUDHESA and our other product candidates, and any related restrictions, limitations or warnings in the label of any approved product;
our ability to successfully formulate and execute on our commercialization strategy for TRUDHESA, if approved by the FDA;
the timing or likelihood of regulatory filings and approvals;
the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;
the success, cost and timing of our development activities, preclinical studies and clinical trials;
the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval;
our plans relating to the future development and manufacturing of our product candidates, including plans for future development of our POD devices and plans to address additional indications for which we may pursue regulatory approval;
future agreements with third parties in connection with preclinical and clinical development as well as the manufacture and commercialization of our product candidates, if approved for commercial use;
our ability to attract customers for any approved products;
the effect of litigation, complaints or adverse publicity on our business;
our ability to establish and expand our sales force to address effectively the new indications, geographies and types of organizations we intend to target;
our ability to forecast and maintain an adequate rate of revenue growth and appropriately plan our expenses;
our liquidity and working capital requirements;
our ability to attract and retain qualified employees and key personnel;
our ability to protect and enhance our brand and intellectual property;
the costs related to defending intellectual property infringement and other claims;
privacy, data security, and data protection laws, actual or perceived privacy or data breaches or other data security incidents, or the loss of data;
future regulatory, judicial, and legislative changes in our industry;
future arrangements with, or investments in, other entities or associations, products, services or technologies;
our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and

the increased expenses and administrative workload associated with being a public company.

 


 

Table of Contents

 

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

4

 

 

Condensed Consolidated Balance Sheets

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

 

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit

6

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

Notes to the Condensed Consolidated Financial Statements

8

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

 

 

PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

EXHIBIT INDEX

67

SIGNATURES

69

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Impel” and the “Company” refer to Impel Neuropharma, Inc. and its consolidated subsidiary. Impel, Impel Neuropharma, Inc., the Impel logo and other trade names, trademarks or service marks of Impel are the property of Impel Neuropharma, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

 

IMPEL NEUROPHARMA, INC.

Condensed Consolidated Balance Sheet

(In thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,
2021

 

 

December 31,
2020

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

4,467

 

 

$

7,095

 

Prepaid expenses and other current assets

 

 

1,792

 

 

 

1,077

 

Total current assets

 

 

6,259

 

 

 

8,172

 

Property and equipment, net

 

 

3,512

 

 

 

3,700

 

Other assets

 

 

1,711

 

 

 

187

 

Total assets

 

$

11,482

 

 

$

12,059

 

Liabilities, redeemable convertible preferred stock and
   stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,425

 

 

$

4,314

 

Accrued liabilities

 

 

2,625

 

 

 

3,173

 

Current portion of term debt

 

 

1,667

 

 

 

417

 

Redeemable convertible preferred stock warrant liabilities

 

 

2,677

 

 

 

2,622

 

Total current liabilities

 

$

13,394

 

 

$

10,526

 

Convertible notes at fair value

 

 

8,366

 

 

 

 

Long-term debt

 

 

6,963

 

 

 

7,994

 

Total liabilities

 

$

28,723

 

 

$

18,520

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.001 par value; 204,198,489 shares authorized at March 31, 2021 and December 31, 2020; 202,009,981 shares issued and outstanding at March 31, 2021 and December 31, 2020; aggregate liquidation preference of $128,922 at March 31, 2021 and December 31, 2020

 

$

127,168

 

 

$

127,039

 

Stockholders’ deficit:

 

 

 

 

 

 

Common stock, $0.001 par value; 266,833,885 shares authorized at March 31, 2021 and December 31, 2020; 763,573 and 755,478 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

5,144

 

 

 

4,762

 

Accumulated deficit

 

 

(149,553

)

 

 

(138,262

)

Total stockholders’ deficit

 

$

(144,409

)

 

$

(133,500

)

Total liabilities, redeemable convertible preferred stock and
   stockholders’ deficit

 

$

11,482

 

 

$

12,059

 

 

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

4


 

IMPEL NEUROPHARMA, INC.

Condensed Consolidated Statement of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

4,098

 

 

$

6,354

 

General and administrative

 

 

5,771

 

 

 

3,452

 

Total operating expenses

 

 

9,869

 

 

 

9,805

 

Loss from operations

 

$

(9,869

)

 

$

(9,805

)

Interest income (expense), net

 

 

(298

)

 

 

33

 

Other expense, net

 

 

(1,124

)

 

 

14

 

Loss before income taxes

 

$

(11,291

)

 

$

(9,758

)

Provision for income taxes

 

 

 

 

 

1

 

Net loss and comprehensive loss

 

$

(11,291

)

 

$

(9,759

)

Accretion on redeemable convertible preferred stock

 

 

129

 

 

 

128

 

Net loss attributable to common stockholders

 

$

(11,420

)

 

$

(9,887

)

Net loss per share attributable to common stockholders, basic and diluted

 

 

(15

)

 

 

(27

)

Weighted-average shares used in computing net loss per share attributable to common
   stockholders, basic and diluted

 

 

756,986

 

 

 

360,808

 

 

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

5


 

IMPEL NEUROPHARMA, INC.

Condensed Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share data)

(Unaudited)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance — December 31, 2020

 

 

202,009,981

 

 

$

127,039

 

 

 

 

755,478

 

 

$

 

 

$

4,762

 

 

$

(138,262

)

 

$

(133,500

)

Accretion to redemption value on redeemable
   convertible preferred stock

 

 

 

 

 

129

 

 

 

 

 

 

 

 

 

 

(129

)

 

 

 

 

 

(129

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

493

 

 

 

 

 

 

493

 

Issuance of common stock upon the exercise of stock
   options

 

 

 

 

 

 

 

 

 

8,095

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,291

)

 

 

(11,291

)

Balance — March 31, 2021

 

$

202,009,981

 

 

$

127,168

 

 

 

$

763,573

 

 

$

 

 

$

5,144

 

 

$

(149,553

)

 

$

(144,409

)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance — December 31, 2019

 

 

201,335,862

 

 

$

125,647

 

 

 

 

360,115

 

 

$

 

 

$

760

 

 

$

(92,464

)

 

$

(91,704

)

Accretion to redemption value on redeemable
   convertible preferred stock

 

 

 

 

 

129

 

 

 

 

 

 

 

 

 

 

(128

)

 

 

 

 

 

(128

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

298

 

 

 

 

 

 

298

 

Issuance of common stock upon the exercise of stock
   options

 

 

 

 

 

 

 

 

 

3,569

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,759

)

 

 

(9,759

)

Balance — March 31, 2020

 

$

201,335,862

 

 

$

125,776

 

 

 

$

363,684

 

 

$

 

 

$

938

 

 

$

(102,223

)

 

$

(101,285

)

 

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

6


 

IMPEL NEUROPHARMA, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(11,291

)

 

$

(9,759

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

250

 

 

 

219

 

Stock-based compensation

 

 

493

 

 

 

298

 

Change in fair value of redeemable convertible preferred stock warrant
   liabilities

 

 

55

 

 

 

(44

)

Noncash Interest

 

 

27

 

 

 

 

Amortization of debt discount

 

 

219

 

 

 

 

Change in fair value of convertible notes

 

 

839

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(715

)

 

 

(238

)

Other assets

 

 

 

 

 

(187

)

Accounts payable

 

 

1,277

 

 

 

105

 

Accrued liabilities

 

 

(1,064

)

 

 

(1,025

)

Net cash used in operating activities

 

$

(9,910

)

 

$

(10,631

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(27

)

 

 

(418

)

Net cash used in investing activities

 

$

(27

)

 

$

(418

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of deferred offering costs

 

 

(209

)

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

18

 

 

 

8

 

Proceeds from issuance of redeemable convertible preferred stock upon the exercise of
   redeemable convertible preferred stock warrants

 

 

7,500

 

 

 

 

Net cash provided by financing activities

 

$

7,309

 

 

$

8

 

Net decrease in cash

 

 

(2,628

)

 

 

(11,041

)

Cash — Beginning of period

 

 

7,095

 

 

 

37,001

 

Cash — End of period

 

$

4,467

 

 

$

25,959

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Accretion on preferred stock

 

$

129

 

 

$

128

 

Property and equipment included in accounts payable and accrued liabilities

 

$

35

 

 

$

222

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

1,315

 

 

$

 

 

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

7


 

IMPEL NEUROPHARMA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

Impel Neuropharma, Inc., or the Company, is a late-stage pharmaceutical company focused on the development and commercialization of transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. The Company’s strategy is to pair its proprietary Precision Olfactory Delivery, or POD, upper nasal delivery technology with well-understood therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within its target diseases. The Company was incorporated under the laws of the State of Delaware on July 24, 2008, maintains its headquarters and principal operations in Seattle, Washington, and performs certain of its research and development activities in Australia.

Initial Public Offering

On April 22, 2021, the Company’s Registration Statement on Form S-1 relating to its initial public offering, or IPO, was declared effective by the Securities and Exchange Commission, or the SEC, and the shares of its common stock began trading on the Nasdaq Global Select Market on April 23, 2021.  The IPO closed on April [27], 2021, pursuant to which the Company issued and sold 5,333,334 shares of its common stock at a public offering price of $15.00 per share. The Company received net proceeds of approximately [$71.4] million from the IPO, after deducting underwriting discounts and commissions of $5.6 million and offering costs of $3.0 million. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 12,605,800 shares of common stock. In addition, the warrant held by Avenue Venture Opportunities Fund, L.P., or Avenue, was exchanged for 107,663 shares of common stock and warrants to purchase 1,987,348 shares of redeemable convertible preferred stock automatically converted into warrants to purchase 1,987,348 shares of common stock. Such warrants were then net exercised into 52,974 shares of common stock. The convertible notes issued in March 2021 for an aggregate principal amount of $7.5 million (see Note 6) were also converted into 559,585 shares of common stock at a 10% discount of the IPO price.

Reverse Stock Split

In April 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse split of shares of the Company’s common stock on an one-for-16.37332 basis, which was effected on April 16, 2021 (the “Reverse Stock Split”). The number of authorized shares and the par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the Company’s outstanding redeemable convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. All references to common stock and options to purchase common stock share data, per share data and related information contained in the condensed consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Liquidity and Capital Resources

The Company raised $71.4 million in net proceeds from its IPO in April 2021 and from the Company’s inception through March 31, 2021, it raised an aggregate of $142.5 million in gross cash proceeds from the sale and issuance of redeemable convertible preferred stock, convertible notes, debt and warrants. The Company had a cash balance of $4.5 million as of March 31, 2021.

 

Based upon the Company’s current operating plan, it estimates that its cash as of March 31, 2021, combined with the net proceeds from its IPO, are together sufficient for the Company to fund operating, investing, and financing cash flow needs for at least one year from the issuance date of these interim financial statements. Additionally, given the completion of the IPO, the Company has $10.0 million of available capacity on the Avenue debt facility through December 31, 2021 (see Note 6).  In the event of an FDA approval, the Company will be required to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to reduce operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs or planned product launch plans. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

8


 

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The condensed consolidated financial statements include the operations of Impel Neuropharma, Inc., and its wholly owned Australian subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.

The condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ deficit and cash flows for the three months ended March 31, 2021 and 2020 are unaudited. These unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of March 31, 2021 and its results of operations and cash flows for the three months ended March 31, 2021 and 2020. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the prospectus dated April 23, 2021 that forms a part of the Company's Registration Statement on Form S-1 (File No. 333-254999), as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness. In particular, management makes estimates with respect to the fair values of common stock, redeemable convertible preferred stock warrant liabilities, stock-based compensation expense, convertible debt and income taxes. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.

Segments

The Company’s chief operating decision maker is its Chief Executive Officer. The Chief Executive Officer reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the Company’s resources. Accordingly, the Company has determined that it operates in one segment.

Cash

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. At March 31, 2021 and December 31, 2020, cash consisted of cash in bank deposits held at financial institutions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company’s cash is deposited with high credit quality financial institutions. At times such deposits may be in excess of the Federal Depository Insurance Corporation insured limits.

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

9


 

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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.

The carrying amounts reflected in the accompanying consolidated balance sheets for cash, other current assets, accounts payable, and accrued liabilities approximate their fair values, due to their short-term nature.

Convertible Notes

In March 2021, the Company issued convertible promissory notes to various investors for an aggregate amount of $7.5 million. As permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825"), the Company has elected the fair value option for recognition of the convertible notes. The Company elected the fair value option to allow the Company to eliminate the burden of complying with the requirements for derivative accounting. Under the fair value option, the convertible notes are remeasured at fair value in each reporting period until their conversion in April 2021, with changes in the fair value recognized in the Company’s condensed consolidated statement of operations as other (expense) income, net. Accrued interest on the convertible notes is recorded in interest (expense) income, net.

Deferred Offering Costs

The Company has deferred offering costs consisting of legal, accounting and other fees and costs directly attributable to the Company’s IPO. The deferred offering costs will be offset against the proceeds received upon the completion of the IPO. As of March 31, 2021, $1.5 million of deferred offering costs were included in other assets on the condensed consolidated balance sheet. There were no deferred offering costs as of December 31, 2020.

Redeemable Convertible Preferred Stock Warrant Liabilities

Freestanding warrants to purchase shares of the Company’s redeemable convertible preferred stock are accounted for as liabilities at fair value, because the shares underlying the warrants contain contingent redemption features outside the control of the Company. Warrants classified as liabilities are recorded on the Company’s condensed consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other (expense) income, net in the accompanying condensed consolidated statements of operations. The Company will continue to adjust the liability for changes in the fair value of these warrants until the earlier of the exercise of the warrants, the expiration of the warrants, or until such time as the warrants are no longer considered liability instruments.

Research and Development

Research and development costs are expensed as incurred and consist primarily of salaries, benefits and other staff-related costs, including associated stock-based compensation, laboratory supplies, nonclinical and clinical studies and trials and related clinical manufacturing costs, costs related to manufacturing preparation, fees paid to other entities that conduct certain research and development activities on the Company’s behalf. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed. Such payments are evaluated for current or long-term classification based on when such services are expected to be received.

Advance Payments for Research and Development Services and Accruals

As part of the process of preparing its condensed consolidated financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts.

10


 

The Company’s objective is to reflect the appropriate research and development expenses in its condensed consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines advance payments for research and development services and accrual estimates through discussion with applicable personnel and outside service providers as to the progress of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its advance payments and accrued expenses as of each balance sheet date in its condensed consolidated financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through March 31, 2021, there had been no material adjustments to the Company’s prior period estimates of advance payments and accruals for research and development expenses. The Company’s research and development advance payments and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for stock options and restricted stock unit awards on a straight-line basis over the requisite service period. The Company’s stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes-Merton option pricing model. This model utilizes as inputs the estimated fair value of the underlying common stock at the measurement date, the estimated term of the stock options (weighted-average period of time that the options granted are expected to be outstanding), risk-free interest rates, expected dividends, and the expected volatility of the Company’s common stock. The Company has elected to recognize forfeitures of share-based payment awards as they occur.

The Company recognizes stock-based compensation expense for stock options granted to nonemployees based on the estimated fair value of the award as it is more readily measurable than the fair value of the services received.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Comprehensive Loss

Comprehensive loss represents the change in the Company’s stockholders’ deficit from all sources other than investments by or distributions to stockholders. The Company has no items of other comprehensive loss; as such, net loss equals comprehensive loss.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases, or Topic 842, which supersedes the guidance in former ASC 840, Leases. This standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. In May 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which deferred the effective dates for non-public entities. Therefore, this standard is effective for annual reporting periods, and interim periods within those years, for public entities beginning after December 15, 2018 and for private entities beginning after December 15, 2021. Originally, a modified retrospective transition approach was required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued guidance to permit an alternative transition method for Topic 842, which allows transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities may elect to apply either approach. There are also a number of optional practical expedients that entities may elect to apply. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements. The Company expects to record a material right-of-use asset and lease liability in connection with adopting this standard on January 1, 2022.

11


 

Recently Adopted Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, or ASU 2020-06, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company early adopted this standard on January 1, 2021 and the adoption of the standard did not have a significant impact on its consolidated financial statements.  

3. Fair Value Measurements

The following table summarizes the fair value of the Company’s financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock warrant liabilities

 

$

 

 

$

 

 

$

2,677

 

 

$

2,677

 

Convertible notes

 

$

 

 

$

 

 

$

8,366

 

 

$

8,366

 

Total financial liabilities

 

$

 

 

$

 

 

$

11,043

 

 

$

11,043

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock warrant liabilities

 

$

 

 

$

 

 

$

2,622

 

 

$

2,622

 

Total financial liabilities

 

$

 

 

$

 

 

$

2,622

 

 

$

2,622

 

 

The carrying value of the Company’s term loan (see Note 6) approximates the fair value as the term loan was recently issued in November 2020.

The following table summarizes the change in the fair value of the redeemable convertible preferred stock warrant liabilities for the three months ended March 31, 2021 (in thousands):

 

Beginning balance as of December 31, 2020

$

2,622

 

Losses from changes in fair value

 

55

 

Ending balance as of March 31, 2021

$

2,677

 

 

The following table summarizes the change in the fair value of the convertible notes for the three months ended March 31, 2021 (in thousands):

 

Beginning balance as of December 31, 2020

$

 

Issuance of convertible notes

 

7,500

 

Interest

 

27

 

Losses from changes in fair value

 

839

 

Ending balance as of March 31, 2021

$

8,366

 

 

Fair values of the Company’s redeemable convertible preferred stock warrant liabilities and convertible notes are based on significant inputs not observed in the market, and thus represent a Level 3 measurement. Refer to Note 6 and Note 7 for the valuation techniques and assumptions used in estimating the fair value of the convertible notes and warrants, respectively.

12


 

4. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

 

 

 

March 31,
2021

 

 

December 31,
2020

 

Refundable clinical deposits

 

$

825

 

 

$

627

 

Tax refund receivable

 

 

229

 

 

 

229

 

Prepaid insurance

 

 

178

 

 

 

47

 

Other prepaids and current assets

 

 

560

 

 

 

129

 

Total prepaid expenses and other current assets

 

$

1,792

 

 

$

1,077

 

 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

March 31,
2021

 

 

December 31,
2020

 

Accrued professional services

 

$

1,079

 

 

$

192

 

Accrued compensation

 

 

1,274

 

 

 

2,393

 

Accrued other liabilities

 

 

195

 

 

 

333

 

Accrued construction in progress

 

 

77

 

 

 

255

 

Total accrued liabilities

 

$

2,625

 

 

$

3,173

 

 

5. Commitments and Contingencies

Operating Leases

The Company leases office and laboratory space in Seattle, Washington.

In September 2017, the Company entered into a non-cancelable operating lease for 11,256 square feet of office and laboratory space. Rent is payable monthly, increasing by approximately 3% each year. As of March 31, 2021, the remaining future minimum lease payments were $1.0 million through the expiration date of August 31, 2022.

Rent expense for the three months ended March 31, 2021 and 2020 was $174,000 and $150,000, respectively.

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company intends to enter into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

13


 

COVID-19

In March 2020, the COVID-19 disease was declared a pandemic by the World Health Organization. Management continues to evaluate the potential impacts of the COVID-19 pandemic on the development of its product candidates, and business. The Company is working closely with its manufacturing vendors to maintain adequate product supply and with healthcare providers as future studies are planned to mitigate risk to patients while adhering to regulatory, institutional and government guidance and policies. The Company remains committed to its development plans and acknowledges the potential risk for delays in the product supply chain and in anticipated timelines for its preclinical studies and clinical trials.

6. Debt

Term Loan

On November 5, 2020 the Company entered into a debt and equity financing agreement with Avenue Venture Opportunities Fund, L.P., or Avenue. The agreement provides for a 36-month term loan of up to $20.0 million, of which $10.0 million was funded at close and (b) an additional $10.0 million is available at the Company’s request until December 31, 2021, subject to (i) completion of an underwritten public offering with gross proceeds of at least $75.0 million, or a Qualified Offering, (ii) receipt of FDA approval of TRUDHESA and (iii) approval by Avenue’s investment committee. The term loan bears interest at the higher of the prime rate or 11%.

Under the agreement, Avenue also has the right to invest up to $10.0 million in a private placement concurrent with an IPO (at the IPO price) or special purpose acquisition company, or SPAC, transaction (at the effective price per share), in each case, subject to mutual agreement and Avenue investment committee approval.

Payments for the term loan are interest only for the initial 12 months and can be extended to (i) 24 months upon achieving a qualified IPO with gross proceeds of at least $75.0 million or (ii) 36 months upon achieving the first interest only period extension and FDA approval of TRUDHESA. The term loan will amortize in equal payments of principal from the end of the interest only period to the expiration of the 36-month term on November 1, 2023 and includes a final payment of $450,000 due upon the maturity of the term loan. In connection with the agreement, the Company granted Avenue warrants for the purchase of shares of 1,762,810 shares of Series D redeemable convertible preferred stock, as disclosed in Note 7. Avenue is eligible to receive additional warrants upon the drawdown of the remaining $10.0 million under the agreement.

The Company’s obligations are secured by a security interest in substantially all of the Company’s assets, excluding the. Company’s intellectual property after completion of the Company’s IPO. The agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency and bankruptcy.

The net proceeds from the issuance of the term loan were initially allocated to the warrants at an amount equal to their fair value of $1.5 million and the remainder to the term loan. The Company incurred financing costs of $299,000 which, together with the fair value of the warrants and the final payment, are recorded as a debt discount and are being amortized over the contractual term using the effective interest method. During the three months ended March 31, 2021, the Company recorded interest expense of $491,000.

The term loan consists of the following (in thousands):

 

 

 

March 31,
2021

 

 

December 31,
2020

 

Face value of term loan

 

$

10,000

 

 

$

10,000

 

Final payment

 

 

450

 

 

 

450

 

Unamortized debt discount associated with final payment,
   issuance date warrant fair value, and financing costs

 

 

(1,820

)

 

 

(2,039

)

Total debt, net

 

$

8,630

 

 

$

8,411

 

Less: short-term debt

 

 

1,667

 

 

 

417

 

Long-term debt

 

$

6,963

 

 

$

7,994

 

 

Convertible Promissory Notes

In March 2021, the Company issued unsecured convertible promissory notes to various investors for an aggregate amount of $7.5 million which are accounted for at fair value. The notes bear interest at a rate of 5.0% per annum and mature on the earlier of (a)

14


 

December 31, 2021 and (b) a change of control. The notes are (i) automatically convertible into shares of the Company’s common stock upon the closing of a firm-commitment underwritten public offering, at a per share price of at least $1.0636, resulting in at least $50.0 million in net proceeds, or a Qualified Public Offering, or a SPAC transaction at 90% of the price per share in such transactions, (ii) convertible at the holder’s option or upon a change of control into shares of Series D redeemable convertible preferred stock at the Series D original issuance price, and (iii) convertible at the holder’s option upon a new redeemable convertible preferred stock financing into shares of redeemable preferred stock issued in such financing at 90% of the price per share.

 

The agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency and bankruptcy.

 

Accrued interest on the convertible notes totaled $27,000 during the three months ended March 31, 2021 and is recorded in interest (expense) income, net. On March 31, 2021, the notes were remeasured to their settlement amount at the IPO date excluding accrued interest due to the proximity of the settlement date to the end of the reporting period. The loss on the increase in fair value on the convertible notes totaled $839,000 from their issuance through March 31, 2021 and is classified as other (expense) income, net in the accompanying condensed consolidated statements of operations.

 

The carrying value of the convertible notes of $8.4 million immediately prior to the Company’s IPO subsequently converted into 559,585 shares of common stock upon completion of the IPO.

7. Redeemable Convertible Preferred Stock Warrant Liabilities

The key terms of the outstanding redeemable convertible preferred stock warrant liabilities as of March 31, 2021 and December 31, 2020 are summarized in the following table:

 

 

 

Number of shares as of

 

 

 

 

 

 

Exercisable into:

 

March 31,
2021

 

 

December 31,
2020

 

 

Exercise
Price

 

 

Expiration

Series A-2 redeemable convertible preferred stock

 

 

862,471

 

 

 

862,471

 

 

$

0.4996

 

 

September 30, 2021

Series C-1 redeemable convertible preferred stock

 

 

1,124,877

 

 

 

1,124,877

 

 

 

0.5289

 

 

November 16, 2021

Series D redeemable convertible preferred stock

 

 

1,762,810

 

 

 

1,762,810

 

 

 

0.7091

 

 

October 31, 2021

Total

 

 

3,750,158

 

 

 

3,750,158

 

 

 

 

 

 

 

The fair value of the warrants was determined using an option pricing model. Under this model, the estimated equity value of the Company as of the measurement date is allocated to various classes of financial instruments (such as common and redeemable convertible preferred stock and warrants to purchase redeemable convertible preferred stock) based on their rights and preferences in an assumed liquidity scenario, which was estimated to occur in two years. Other assumptions used included stock volatility ranging from 46.4% to 103.0% during the three months ended March 31, 2021 and 46.0% to 64.1% during the three months ended March 31, 2020, and risk-free interest rates ranging from 0.04% to 0.24% during the three months ended March 31, 2021 and 0.15% to 2.81% during the three months ended March 31, 2020. In April 2021, upon completion of the IPO, the Series A-2 and C-1 redeemable convertible preferred stock warrants were net exercised into 52,974 shares of common stock. The Series D redeemable convertible preferred stock warrants were exchanged for 107,663 shares of common stock.

8. Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock consisted of the following (in thousands, except share amounts):

 

Redeemable Convertible
Preferred Stock

 

Shares Authorized

 

 

Shares Issued and
Outstanding

 

 

Carrying Value at
March 31, 2021

 

 

Carrying Value at
December 31, 2020

 

 

Aggregate
Liquidation
Preference

 

Series A-1

 

 

746,426

 

 

 

746,426

 

 

 

238

 

 

$

238

 

 

$

305

 

Series A-2

 

 

9,869,218

 

 

 

8,805,587

 

 

 

4,147

 

 

 

4,147

 

 

 

4,399

 

Series B

 

 

3,968,775

 

 

 

3,968,775

 

 

 

4,016

 

 

 

3,980

 

 

 

4,421

 

Series C-1

 

 

43,278,699

 

 

 

42,153,822

 

 

 

21,056

 

 

 

20,975

 

 

 

22,297

 

Series C-2

 

 

26,537,826

 

 

 

26,537,826

 

 

 

15,390

 

 

 

15,390

 

 

 

15,000

 

Series C-3

 

 

24,605,790

 

 

 

24,605,790

 

 

 

14,975

 

 

 

14,973

 

 

 

15,000

 

Series D

 

 

95,191,755

 

 

 

95,191,755

 

 

 

67,346

 

 

 

67,336

 

 

 

67,500

 

Total

 

 

204,198,489

 

 

 

202,009,981

 

 

 

127,168

 

 

$

127,039

 

 

$

128,922

 

 

15


 

 

Classification

The Company has classified its redeemable convertible preferred stock as mezzanine equity on the condensed consolidated balance sheets as the shares are contingently redeemable with passage of time or upon deemed liquidation events, such as a change in control. As only the passage of time is required for Series B, C-1, C-2, C-3, and D preferred stock to become redeemable, the Company is accreting the carrying value of the preferred stock shares to their redemption value, using the effective interest method, over the period from issuance to the earliest payment dates. With respect to Series A-1 and A-2, no accretion was recorded during the three months ended March 31, 2021 and 2020, as a deemed liquidation event was not probable. Amounts recorded for the accretion of redeemable convertible preferred stock during the three months ended March 31, 2021 and 2020 were $129,000 and $128,000, respectively. The accretion is recorded as a deemed dividend and a charge to additional paid-in capital.

 

In April 2021, immediately prior to the completion of the IPO (see Note 1), all outstanding shares of redeemable convertible preferred stock were automatically converted into 12,605,800 shares of common stock. Upon conversion into common stock, the carrying value of the redeemable convertible preferred stock of $127.2 million was reclassified to equity. 

9. Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

The Company has reserved the following shares of common stock for issuance, on an as-converted basis, as follows:

 

 

 

March 31,
 2021

 

 

December 31,
 2020

 

Stock incentive plans

 

 

2,778,250

 

 

 

2,786,345

 

Redeemable convertible preferred stock

 

 

12,605,800

 

 

 

12,605,800

 

Convertible notes

 

 

559,585

 

 

 

 

Redeemable convertible preferred stock warrants

 

 

229,034

 

 

 

229,034

 

Total

 

 

16,172,669

 

 

 

15,621,179

 

 

10. Stock Incentive Plan

2008 Plan

In September 2008, the Company’s board of directors adopted the 2008 Stock Incentive Plan, or the 2008 Plan, which provides for the granting of incentive stock options, nonqualified stock options, and restricted stock awards to its employees, directors and consultants. Options granted or shares issued under the 2008 Plan that were outstanding on the date the 2018 Equity Incentive Plan, or the 2018 Plan, became effective will remain subject to the terms of the 2008 Plan. The 2008 Plan terminated in 2018 as it reached its