10-Q
0001584751false--12-31Q10001584751tlis:TwoThousandTwentyOneEmployeeStockPurchasePlanMember2021-01-012021-03-310001584751us-gaap:RetainedEarningsMember2021-12-310001584751us-gaap:ConvertiblePreferredStockMember2021-01-012021-03-310001584751us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001584751us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001584751us-gaap:CommonStockMember2020-12-310001584751tlis:ConversionIntoCommonStockMembertlis:SeriesOneConvertiblePreferredStockMember2022-01-012022-03-310001584751us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001584751us-gaap:OverAllotmentOptionMemberus-gaap:CommonStockMember2021-02-172021-02-170001584751tlis:NIHMember2022-01-012022-03-310001584751us-gaap:GrantMember2022-01-012022-03-310001584751us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-03-310001584751us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001584751tlis:Series1ConvertiblePreferredStockMember2022-05-050001584751tlis:TwoThousandTwentyOneEmployeeStockPurchasePlanMember2022-03-310001584751us-gaap:ConvertiblePreferredStockMemberus-gaap:IPOMember2022-03-310001584751tlis:SeriesTwoNonVotingConvertiblePreferredStockMember2022-03-310001584751us-gaap:AccountingStandardsUpdate202006Member2022-03-310001584751us-gaap:RestrictedStockMember2021-12-310001584751us-gaap:FairValueMeasurementsRecurringMember2021-12-310001584751tlis:RADxInitiativeMember2021-07-012021-07-310001584751tlis:SeriesTwoNonVotingConvertiblePreferredStockMember2022-01-012022-03-3100015847512021-01-012021-03-3100015847512021-01-012021-12-310001584751us-gaap:ConvertiblePreferredStockMember2021-12-310001584751us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-03-3100015847512020-12-310001584751tlis:RADxInitiativeMember2021-01-012021-03-310001584751tlis:Series1ConvertiblePreferredStockMember2021-12-3100015847512022-03-310001584751us-gaap:CommonStockMember2021-02-172021-02-170001584751us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001584751tlis:Series1ConvertiblePreferredStockMember2022-03-310001584751us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001584751us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-12-310001584751us-gaap:PreferredStockMembertlis:SeriesOneConvertiblePreferredStockMember2021-03-310001584751us-gaap:ProductMember2021-01-012021-03-310001584751us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001584751us-gaap:LetterOfCreditMember2022-01-310001584751us-gaap:CommonStockMember2021-12-310001584751us-gaap:CommonStockMemberus-gaap:IPOMember2021-02-170001584751us-gaap:AdditionalPaidInCapitalMember2022-03-310001584751tlis:NIHMember2022-04-300001584751us-gaap:RestrictedStockMember2022-01-012022-03-310001584751us-gaap:PreferredStockMembertlis:SeriesOneConvertiblePreferredStockMember2022-03-3100015847512021-02-280001584751tlis:SeriesTwoNonVotingConvertiblePreferredStockMembersrt:MaximumMember2022-01-012022-03-310001584751tlis:MajorityShareholderTheBakerFundsSixOfficersAndTwoMembersOfBoardOfDirectorsMember2021-01-012021-03-310001584751us-gaap:IPOMembertlis:SeriesOneConvertiblePreferredStockMember2021-02-172021-02-170001584751us-gaap:ProductMember2022-01-012022-03-310001584751us-gaap:PerformanceSharesMembersrt:ChiefExecutiveOfficerMember2022-01-012022-03-310001584751us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001584751tlis:SeriesOneConvertiblePreferredStockMember2021-01-012021-03-310001584751us-gaap:RetainedEarningsMember2022-03-310001584751tlis:RADxInitiativeMember2022-01-012022-03-310001584751tlis:TwoThousandTwentyOneEmployeeStockPurchasePlanMember2022-01-012022-03-310001584751us-gaap:AdditionalPaidInCapitalMember2021-03-310001584751tlis:NIHMember2021-01-012021-03-310001584751tlis:SeriesOneConvertiblePreferredStockMember2021-12-310001584751tlis:ConversionIntoSeries2NonVotingConvertiblePreferredStockMembertlis:SeriesOneConvertiblePreferredStockMember2022-01-012022-03-310001584751us-gaap:ConvertiblePreferredStockMember2020-12-310001584751us-gaap:StandbyLettersOfCreditMember2021-12-310001584751tlis:SeriesTwoNonVotingConvertiblePreferredStockMember2021-12-310001584751us-gaap:RetainedEarningsMember2020-12-310001584751us-gaap:ConvertiblePreferredStockMember2021-02-172021-02-1700015847512022-01-012022-03-310001584751tlis:SeriesOneConvertiblePreferredStockMember2022-01-012022-03-310001584751tlis:RedwoodCityCaliforniaMembertlis:LaboratoryAndOfficeSpaceMember2022-03-310001584751tlis:UnvestedRestrictedStockUnitsMember2022-01-012022-03-310001584751us-gaap:CommonStockMember2022-03-3100015847512021-03-310001584751us-gaap:FairValueMeasurementsRecurringMember2022-03-310001584751tlis:RADxInitiativeMember2021-10-012021-10-310001584751us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001584751tlis:TwentyTwentyOneInducementPlanMember2021-11-300001584751us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001584751us-gaap:EmployeeStockOptionMember2022-03-310001584751us-gaap:CommonStockMember2022-05-050001584751tlis:LaboratoryAndOfficeSpaceMemberstpr:IL2021-01-310001584751us-gaap:RetainedEarningsMember2022-01-012022-03-310001584751us-gaap:PerformanceSharesMember2022-03-3100015847512021-12-310001584751us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-12-310001584751us-gaap:PreferredStockMembertlis:SeriesOneConvertiblePreferredStockMember2021-01-012021-03-310001584751us-gaap:LetterOfCreditMembertlis:RedwoodCityCaliforniaMember2022-01-3100015847512021-02-012021-02-280001584751us-gaap:GrantMember2021-01-012021-03-310001584751us-gaap:ConvertiblePreferredStockMember2022-01-012022-03-310001584751us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001584751us-gaap:CommonStockMemberus-gaap:IPOMember2021-02-172021-02-170001584751us-gaap:PreferredStockMembertlis:SeriesOneConvertiblePreferredStockMember2021-12-310001584751us-gaap:AdditionalPaidInCapitalMember2020-12-310001584751tlis:RedwoodCityCaliforniaMembertlis:LaboratoryAndOfficeSpaceMember2022-01-012022-03-310001584751us-gaap:CommonStockMember2021-01-012021-03-310001584751us-gaap:RetainedEarningsMember2021-03-310001584751srt:MinimumMember2022-01-012022-03-310001584751us-gaap:RestrictedStockMember2022-03-310001584751us-gaap:RetainedEarningsMember2021-01-012021-03-310001584751tlis:SeriesOneConvertiblePreferredStockMember2022-03-310001584751us-gaap:CommonStockMember2021-03-310001584751us-gaap:CommonStockMember2022-01-012022-03-310001584751us-gaap:AdditionalPaidInCapitalMember2021-12-3100015847512022-05-05xbrli:purexbrli:sharestlis:Optioniso4217:USDxbrli:sharestlis:Segmentiso4217:USD

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2022

OR

 

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

For the transition period from

Commission File Number: 001-40047

 

Talis Biomedical Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

 

46-3122255

(I.R.S. Employer

Identification No.)

230 Constitution Drive

Menlo Park, California

 

94025

(Address of principal executive offices)

 

(Zip Code)

 Registrant’s telephone number, including area code:

 

(650) 433-3000

 

 

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, $0.0001 par value per share

 

TLIS

 

The Nasdaq Stock Market LLC

 

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

As of May 5, 2022, there were 56,482,594 shares of the Registrant’s common stock and preferred stock outstanding, consisting of 26,618,920 shares of common stock and 29,863,674 shares of Series 1 convertible preferred stock, which is a voting common stock equivalent, subject to certain limitations.


Table of Contents

 

 

 

Page

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

1

 

Summary of Risk Factors

3

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements

4

 

Condensed Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021

4

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 (unaudited)

5

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (deficit) for the Three Months Ended March 31, 2022 and 2021 (unaudited)

6

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)

7

 

Notes to Condensed Financial Statements (unaudited)

8

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 3.

Defaults Upon Senior Securities

73

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76


 

i


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

our expectations regarding our revenue, expenses and other operating results;
the timing or outcome of any of our domestic and international regulatory submissions;
our planned regulatory clearance pathways;
our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;
our efforts and ability to scale-up manufacturing capabilities at a low-cost;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenues, expenses, reimbursement rates and needs for additional financing;
impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;
our ability to maintain and utilize our sales force and acquire customers;
our expectations regarding our sales models;
the costs and success of our marketing efforts, and our ability to promote our brand;
our ability to increase demand for our products and services, obtain and maintain favorable coverage and reimbursement determinations from third-party payers and expand geographically;
our efforts to successfully develop and commercialize our products and services, including our ability to successfully conduct clinical trials and studies;
our ability to successfully develop additional revenue opportunities and expand our product and service offerings, including our recently launched offerings and any third-party products that we may sell;
the performance of our third-party suppliers and manufacturers;
our ability to effectively manage our growth, including our ability to retain and recruit personnel, and maintain our culture;
our ability to compete effectively with existing competitors and new market entrants;
the impact on our business of economic or political events or trends;
the size and growth potential of the markets for our products and services, and our ability to serve those markets; and
the rate and degree of market acceptance of our products and services.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this Quarterly Report in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should carefully read

1


this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

2


Summary of Risk Factors

 

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part II, Item 1A of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should carefully consider the risks and uncertainties described under “Risk Factors” in Part II, Item 1A of this Quarterly Report as part of your evaluation of an investment in our common stock.

We rely on a significant number of third-party manufacturers and suppliers for our instrument and cartridges, which reliance has created and may continue to create delays due to the complexity of our manufacturing lines and supply chain, as well as exposure to manufacturing and supply limitations or interruptions and quality and quantity issues.
If the EUA for the Talis One COVID-19 Test System is revoked or the emergency declaration is terminated, we will be unable to sell this product in the near future and will be required to pursue 510(k) clearance or other marketing authorization, which will likely be a lengthy and expensive process.
We may be unable to validate our manufacturing for the Talis One instrument and cartridges at scale, which may impact our ability to start and/or complete our post-authorization clinical evaluation study required by the EUA for the Talis One COVID-19 Test System, as well as impact our ability to support our research and development pipeline.
If we change the design of the Talis One instrument and/or cartridge to improve manufacturability at scale, we may need to obtain new FDA authorization for our Talis One COVID-19 Test System.
The EUA for our Talis One COVID-19 Test System may be revoked or may terminate at the conclusion of the public health emergency, and we may not be able to obtain marketing authorization for additional assays, which would adversely affect our business, financial condition and results of operations.
We have no or limited experience in developing, marketing and commercializing diagnostic platforms and tests, and we are continuing to evaluate the sales model for the Talis One system which may make it difficult to evaluate the success of our business and to assess our future viability.
We have commenced selling the Antigen Tests and are investigating other third-party product opportunities to generate revenue which could divert focus from commercializing our own product, the Talis One system.
The COVID-19 pandemic has and could continue to materially adversely affect our business, financial condition and results of operations.
If our products do not perform as expected, including due to errors, defects or reliability issues, our reputation and market acceptance of our products could be harmed, and our operating results, reputation and business will suffer.
We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.
Our commercial success could be compromised if our customers do not receive coverage and adequate reimbursement for our products.
Modifications to our marketed products may require new EUAs, 510(k) clearances, PMA approvals, or other marketing authorizations, or may require us to cease marketing or recall the modified products until clearances, approvals or other marketing authorizations are obtained. If we are not able to obtain, maintain, defend or enforce patent and other intellectual property protection for products, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
Some of our intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.
We have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.
We may need to raise additional capital to fund our existing operations, further develop our diagnostic platform, commercialize new products and expand our operations.

 

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Talis Biomedical Corporation

Condensed Balance Sheets

(in thousands, except for shares and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

187,586

 

 

$

232,545

 

Accounts receivable, net

 

 

2,599

 

 

 

183

 

Inventory

 

 

3,499

 

 

 

 

Prepaid expenses and other current assets

 

 

7,138

 

 

 

3,387

 

Total current assets

 

 

200,822

 

 

 

236,115

 

Property and equipment, net

 

 

10,765

 

 

 

10,528

 

Operating lease right-of-use-assets

 

 

12,693

 

 

 

12,907

 

Other long-term assets

 

 

6,307

 

 

 

6,278

 

Total assets

 

$

230,587

 

 

$

265,828

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,263

 

 

$

5,122

 

Accrued compensation

 

 

4,889

 

 

 

6,369

 

Accrued liabilities

 

 

3,496

 

 

 

6,383

 

Operating lease liabilities, current portion

 

 

1,628

 

 

 

1,232

 

Total current liabilities

 

 

15,276

 

 

 

19,106

 

Operating lease liabilities, long-term portion

 

 

12,526

 

 

 

12,745

 

Total liabilities

 

$

27,802

 

 

$

31,851

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Series 1 convertible preferred stock, $0.0001 par value—60,000,000 shares authorized and 29,863,674 shares issued and outstanding as of March 31, 2022 and December 31, 2021; aggregate liquidation preference of $3 as of March 31, 2022 and December 31, 2021

 

 

3

 

 

 

3

 

Common stock, $0.0001 par value; 200,000,000 shares authorized as of
March 31, 2022 and December 31, 2021;
26,618,920 and 26,408,031 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

600,772

 

 

 

598,913

 

Accumulated deficit

 

 

(397,993

)

 

 

(364,942

)

Total stockholders’ equity

 

 

202,785

 

 

 

233,977

 

Total liabilities and stockholders’ equity

 

$

230,587

 

 

$

265,828

 

 

 

See accompanying notes to the unaudited condensed financial statements

4


Talis Biomedical Corporation

Condensed Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except for share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

Grant revenue

 

$

874

 

 

$

7,000

 

Product revenue, net

 

 

2,313

 

 

 

 

Total revenue, net

 

 

3,187

 

 

 

7,000

 

Cost of product sold

 

 

3,521

 

 

 

 

Gross profit (loss)

 

 

(334

)

 

 

7,000

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

20,703

 

 

 

60,193

 

Selling, general and administrative

 

 

11,930

 

 

 

7,327

 

Total operating expenses

 

 

32,633

 

 

 

67,520

 

Loss from operations

 

 

(32,967

)

 

 

(60,520

)

Other income (expense), net

 

 

(84

)

 

 

28

 

Net loss and comprehensive loss

 

$

(33,051

)

 

$

(60,492

)

Net loss per share, basic and diluted

 

$

(1.25

)

 

$

(4.61

)

Weighted average shares used in the calculation of net loss per share, basic and diluted

 

 

26,468,154

 

 

 

13,110,713

 

 

See accompanying notes to the unaudited condensed financial statements

5


Talis Biomedical Corporation

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except for share amounts)

 

 

 

Series 1 Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

29,863,674

 

 

$

3

 

 

 

26,408,031

 

 

$

3

 

 

$

598,913

 

 

$

(364,942

)

 

$

233,977

 

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

65,862

 

 

 

 

 

 

98

 

 

 

 

 

 

98

 

Issuance of Common Stock pursuant to employee stock purchase plan

 

 

 

 

 

 

 

 

145,027

 

 

 

 

 

 

216

 

 

 

 

 

 

216

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,545

 

 

 

 

 

 

1,545

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,051

)

 

 

(33,051

)

Balance at March 31, 2022

 

 

29,863,674

 

 

$

3

 

 

 

26,618,920

 

 

$

3

 

 

$

600,772

 

 

$

(397,993

)

 

$

202,785

 

 

 

 

Convertible
Preferred Stock

 

 

 

Series 1 Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Value

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2020

 

 

53,509,351

 

 

$

290,945

 

 

 

 

 

 

 

 

 

 

2,126,254

 

 

$

 

 

$

64,335

 

 

$

(172,906

)

 

$

(108,571

)

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85,895

 

 

 

 

 

 

131

 

 

 

 

 

 

131

 

Issuance of Common Stock upon initial public offering, net of issuance costs of $21,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,870,000

 

 

 

2

 

 

 

232,546

 

 

 

 

 

 

232,548

 

Conversion of convertible preferred stock into common stock and Series 1 convertible preferred stock upon initial public offering

 

 

(53,509,351

)

 

 

(290,945

)

 

 

 

29,863,674

 

 

 

3

 

 

 

7,555,432

 

 

 

 

 

 

290,942

 

 

 

 

 

 

290,945

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,772

 

 

 

 

 

 

1,772

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,492

)

 

 

(60,492

)

Balance at March 31, 2021

 

 

 

 

$

 

 

 

 

29,863,674

 

 

$

3

 

 

 

25,637,581

 

 

$

2

 

 

$

589,726

 

 

$

(233,398

)

 

$

356,333

 

 

 

See accompanying notes to the unaudited condensed financial statements

6


Talis Biomedical Corporation

Condensed Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(33,051

)

 

$

(60,492

)

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

 

 

 

 

 

 

Stock-based compensation

 

 

1,545

 

 

 

1,772

 

Depreciation and amortization

 

 

363

 

 

 

216

 

Non-cash lease expense

 

 

409

 

 

 

143

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,417

)

 

 

471

 

Inventory

 

 

(3,499

)

 

 

 

Prepaid expenses and other current assets

 

 

(3,748

)

 

 

(342

)

Prepaid research and development

 

 

 

 

 

6,803

 

Other long-term assets

 

 

981

 

 

 

(981

)

Accounts payable

 

 

141

 

 

 

5,821

 

Accrued expenses and other liabilities

 

 

(4,463

)

 

 

24,283

 

Lease liabilities

 

 

(19

)

 

 

(179

)

Net cash used in operating activities

 

$

(43,758

)

 

$

(22,485

)

Investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(507

)

 

 

(698

)

Net cash used in investing activities

 

$

(507

)

 

$

(698

)

Financing activities

 

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

 

 

 

233,348

 

Proceeds from stock option exercises

 

 

98

 

 

 

131

 

Proceeds from stock issuances pursuant to employee stock purchase plan

 

 

216

 

 

 

 

Net cash provided by financing activities

 

$

314

 

 

$

233,479

 

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

 

 

(43,951

)

 

 

210,296

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

233,312

 

 

 

173,133

 

Cash, cash equivalents and restricted cash at end of period

 

$

189,361

 

 

$

383,429

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

94

 

 

$

117

 

Deferred initial public offering costs included in accounts payable and accrued expenses

 

$

 

 

$

802

 

Remeasurement of operating lease right-of-use asset for lease modification

 

$

285

 

 

$

 

 

The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods shown above:

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

187,586

 

 

$

348,012

 

Restricted cash

 

 

 

 

 

34,650

 

Restricted cash – other long-term assets

 

 

1,775

 

 

 

767

 

Total cash, cash equivalents and restricted cash

 

$

189,361

 

 

$

383,429

 

 

See accompanying notes to the unaudited condensed financial statements

7


 

Talis Biomedical Corporation

Notes to Condensed Financial Statements (Unaudited)

1. Organization and nature of business

Talis Biomedical Corporation (the Company) is a molecular diagnostic company focused on advancing health equity and outcomes through the delivery of accurate infectious disease testing in the moment of need, at the point of care. The Company plans to develop and commercialize innovate products on its sample-to-answer Talis One system to enable accurate, low cost, and rapid molecular testing. In November 2021, the U.S. Food and Drug Administration (FDA) granted Emergency Use Authorization (EUA) for use of the Talis One COVID-19 Test System in a variety of healthcare settings. In January 2022, we began to act as an authorized distributor for third-party COVID-19 antigen tests (Antigen Tests). The Company was incorporated in 2013 under the general laws of the State of Delaware and is based in Menlo Park, California (CA) and Chicago, Illinois (IL).

In March 2022, we implemented a reduction in force designed to reduce our operating expenses, preserve cash and align our remaining resources to focus on, among other things, developing internal manufacturing expertise to support the commercial launch of the Talis One system. We incurred $1.0 million of expenses during the three months ended March 31, 2022 related to the reduction in force, substantially all of which consisted of charges related to the staff reduction, including cash expenditures and other costs.

Initial Public Offering

In February 2021, the Company completed an initial public offering (IPO) in which the Company issued and sold 13,800,000 shares of common stock at a public offering price of $16.00 per share, with an additional 2,070,000 shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares. The aggregate proceeds received by the Company from the IPO was $232.5 million after deducting underwriting discounts, commissions and offering expenses of approximately $21.3 million. Upon the closing of the IPO, affiliated preferred shares with a carrying value of $225.4 million were converted into 29,863,674 Series 1 convertible preferred stock. The remaining outstanding convertible preferred shares were converted into 7,555,432 shares of common stock.

Liquidity

The Company has incurred significant losses and negative cash flows since inception, including a net loss of $33.1 million for the three months ended March 31, 2022. As of March 31, 2022, the Company had unrestricted cash and cash equivalents of $187.6 million and $1.8 million of restricted cash held within other long-term assets on the condensed balance sheet.

Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities and commercialization of the Talis One system. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to continue to operationalize the Company’s current technology and to advance the development of its products. The Company expects its existing unrestricted cash and cash equivalents as of March 31, 2022 will be sufficient to fund its operations through at least one year from the date these condensed financial statements are issued. The Company expects to finance its future operations with its existing unrestricted cash and cash equivalents and through strategic financing opportunities that could include, but are not limited to, future offerings of its equity, grant agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders. The Company’s ability to raise additional capital through either the issuance of equity or debt, is dependent on a number of factors including, but not limited to, the demand for the Company, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, these unaudited condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. The results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.

8


 

The condensed balance sheet presented as of December 31, 2021 has been derived from the audited financial statements as of that date. The condensed financial statements and notes as presented do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed financial statements and notes included in this Quarterly Report should be read in conjunction with the financial statements and notes included in the Company’s 2021 Annual Report on Form 10-K (Annual Report) filed with the SEC.

The significant accounting policies used in preparation of these condensed financial statements for the three months ended March 31, 2022 are consistent with those described in our Annual Report.

 

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions, including knowledge about current events and expectations about actions the Company may take in the future, that the Company believes are reasonable under the circumstances. Significant estimates include, but are not limited to, recoverability of long-lived assets, accrued research and development costs, inventory valuation reserves, estimation of variable consideration, stock-based compensation expense, the measurement of right-of-use assets and lease liabilities, allowance for doubtful accounts, and uncertain tax positions. Actual results could vary from the amounts derived from management’s estimates and assumptions.

Reclassifications

The accompanying condensed statements of cash flows for the three month period ended March 31, 2021 reflects the Company's reclassification of grants receivables and unbilled grants receivables to accounts receivable, to conform to the presentation of the current period.

Accounts receivable, net

Accounts receivable include trade receivables, unbilled receivables and grant receivables. The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. The Company considers various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends and specific exposures related to particular customers. Accounts receivable are charged off after all reasonable means to collect the full amount have been exhausted. The Company has an immaterial allowance for doubtful accounts as of March 31, 2022.

Concentration of credit risk and other risks and uncertainties

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, and accounts receivables. The Company’s cash is deposited in accounts at large financial institutions and its cash equivalents are primarily held in prime and U.S. government money market funds. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held.

The Company is subject to risks common to companies in the diagnostics industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, and protection of intellectual property rights.

The extent to which the COVID-19 pandemic will further directly or indirectly impact its business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain and will arise as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, financial condition, results of operations and prospects may be adversely affected.

The Company is dependent on key suppliers for certain manufacturing and research and development activities. An interruption in the supply of these materials could temporarily impact the Company’s ability to commercialize, manufacture inventory and perform research and development, testing and clinical trials related to its products. The Company is also dependent on its manufacturing partners and third party logistic partner that are critical to its ability to supply product to its end customers.

Inventory

Inventory, which consists of finished goods, is valued at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors.

In order to assess the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements compared to current or committed inventory levels. The Company periodically reviews its inventories for shelf life,

9


 

excess or obsolescence and writes-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than the carrying value, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Amounts written-down due to unmarketable inventory are recorded in cost of product sold and a new lower-cost basis for the inventory is established. Excess and obsolete inventory is primarily based on estimated forecasted sales, usage levels, and expiration dates.

Revenue Recognition

Product revenue, net

The Company generates revenues from its sales of third-party antigen tests. The Company obtains control of the product and assumes inventory risk before it is transferred to the customer and therefore reports revenue on the gross amount billed to the customer. The Company has recognized sales from two primary customer types: (i) direct customers including hospitals, urgent care centers, physician, public health and retail clinics, and (ii) sub-distributors.

The Company recognizes revenue under Accounting Standards Codification Topic 606 (ASC 606), Revenue from Contracts with Customers, when a customer obtains control of promised goods or services, with a transaction price that reflects the consideration which the entity expects to receive in exchange for those goods or services. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. If necessary, revenue is recorded net of variable consideration based on the amounts the Company expects to be earned or to be claimed on the related sales. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The returned assets cannot be re-sold and have no value to the Company. The provision for product returns is reflected as a component of net product revenue. The Company reports the product return liability within accrued and other liabilities on the condensed balance sheet.

The Company identifies the contract with a customer and determines the performance obligations and the contract price. The contract price is allocated to the distinct performance obligations in the contract and revenue is recognized when the performance obligations have been satisfied. A performance obligation is considered to be satisfied once the control of a product is transferred to the customer or the service is provided to the customer, meaning the customer has the ability to use and obtain the benefit of the goods or service, generally at product shipment.

The Company recognizes receivables in an amount expected to be collected in a transaction. The Company’s payment terms are generally net 30 days of billing. Contracts do not contain significant financing components based on the typical period of time between delivery of products and collection of contract consideration. Certain types of customers may pay in advance of product delivery. In those instances, payment and delivery typically occur in the same month. The Company invoices its customers upon shipment of product and records its sales upon shipment in accordance with its standard terms and conditions, unless underlying customer contracts specify otherwise. When necessary, the Company invoices and collects sales tax from its customers for sales of products. The Company has elected to exclude sales tax from the measurement of the transaction price.

Contract balances

A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset. Receivables from contracts with customers are included within accounts receivable, net on the condensed balance sheets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with the amount allocated to those performance obligations is reflected as contract liabilities on the condensed balance sheets and is deferred until control of these performance obligations is transferred to the customer. There are no contract liabilities as of March 31, 2022.

Contract costs

Under ASC 606, the Company is required to capitalize incremental costs to obtain customer contracts if the costs relate directly to a contract that can be specifically identified and expect to be recovered. These costs are required to be amortized to expense consistent with the transfer of the goods or services to the customer to which the asset relates. As a practical expedient, the Company recognizes any incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset is one year or less. The Company did not have any capitalized contract costs for the three months ended March 31, 2022.

Costs of product sold

10


 

Costs of product sold include material costs, direct labor, provisions for inventory write-downs and shipping and handling costs incurred. The Company reports product shipment costs within cost of products sold in the accompanying statements of operations.

New accounting pronouncements

Recently adopted accounting standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company early adopted ASU 2016-13 on January 1, 2022 with no impact on its accumulated deficit, current financial position, results of operations and comprehensive loss or cash flows.

3. Fair value measurement

The following table summarizes the Company's financial assets carried at fair value and measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (money market funds)

 

$

175,084

 

 

$

 

 

$

 

 

$

175,084

 

Total assets measured at fair value

 

$

175,084

 

 

$

 

 

$

 

 

$

175,084

 

 

 

 

December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents (money market funds)

 

$

205,071

 

 

$

 

 

$

 

 

$

205,071

 

Total assets measured at fair value

 

$

205,071

 

 

$

 

 

$

 

 

$

205,071

 

 

4. Balance sheet components

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued research and development costs

 

$

1,572

 

 

$

5,303

 

Product refund liability

 

 

840

 

 

 

 

Other liabilities

 

 

1,084

 

 

 

1,080

 

 

 

$

3,496

 

 

$

6,383

 

 

5. Revenue

Product revenue, net

The Company currently operates in one reportable segment. There were no sales to customers outside of the United States during the three months ended March 31, 2022. The Company had one customer that individually comprised over 10% of product revenues, net for the three months ended March 31, 2022.

Grant revenue and receivables

NIH grant

In May 2018, the Company was awarded a grant from the NIH for the Diagnostics via Rapid Enrichment, Identification, and Phenotypic Antibiotic Susceptibility Testing of Pathogens from Blood project. In April 2022, the Company exercised its fourth one-year option under the grant, extending the term through April 2023 with $1.1 million in additional funding available under the

11


 

extension. During the three months ended March 31, 2022, the Company recognized $0.2 million of revenue related to this grant which was unbilled at March 31, 2022. During the three months ended March 31, 2021, no revenue was recognized related to this grant.

NIH Rapid Acceleration of Diagnostics - RADx Initiative contracts

In July 2020, the Company was awarded a subaward grant from the University of Massachusetts Medical School for Phase 1 of the NIH’s RADx initiative and a contract from the NIH directly for Phase 2 of the RADx initiative. The RADx initiative aims to speed the development, validation, and commercialization of innovative, rapid tests that can directly detect COVID-19. In 2021, the Company and the NIH amended the contract for the completion of the RADx initiative, extending the term of the contract to January 30, 2022 and decreased the potential milestone payment from $4.0 million to $2.0 million. The contract expired on January 30, 2022. During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $0.7 million and $7.0 million related to the RADx initiative, respectively.

6. Commitments and contingencies

Operating leases

In January 2021, the Company entered a new operating lease for laboratory and office space in Chicago, IL. The Company received access to the premises and the lease commenced in May 2021. The lease is classified as an operating lease and will continue for an initial term of 11 years, with options to extend the term for two successive five-year periods after the initial expiration date. The Company’s minimum commitment under the new lease is approximately $1.7 million annually with fixed escalations of 2.5% per annum.

In January 2021, the Company entered a new operating lease for laboratory and office space in Redwood City, CA. As of March 31, 2022, the Company did not have access to the space, concluded that the leasehold improvements were lessor owned and determined that the lease had not yet commenced for accounting purposes. The lease will continue for an initial term of 10.5 years, with options to extend the term for two successive five-year periods after the initial expiration date. The Company’s minimum commitment under the new lease is approximately $2.6 million annually with fixed escalations of 3.0% per annum.

The undiscounted future lease payments for operating leases as of March 31, 2022 were as follows (in thousands):

(in thousands)

 

Operating
Leases

 

2022 (remainder)

 

 

1,261

 

2023

 

 

1,644

 

2024

 

 

1,684

 

2025

 

 

1,724

 

2026

 

 

1,766

 

2027 and thereafter

 

 

10,335

 

Total future minimum lease payments

 

 

18,414

 

Less: imputed interest

 

 

(4,260

)

Present value of operating lease liabilities

 

 

14,154

 

Less: current portion of lease liabilities

 

 

(1,628

)

Noncurrent portion of lease liabilities

 

$

12,526

 

 

Standby letter of credit

In January 2022, in conjunction with the Company’s Redwood City, CA operating lease, the Company entered into a standby letter of credit (LOC) in the amount of $1.0 million to secure the lease through its expiration. The Company is required to maintain a cash balance of $1.0 million as collateral for the LOC, which has been classified in other long-term assets on the balance sheet. In exchange, $1.0 million in funds held with the landlord as a long-term deposit in other long-term assets on the balance sheet as of December 31, 2021, was released.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. The Company also provides indemnifications to directors and officers of the Company to the maximum extent permitted under applicable Delaware law. The maximum potential amount of future payments that the Company could be required to make under these indemnification agreements is, in many cases,

12


 

unlimited. As of March 31, 2022, the Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

Unconditional purchase obligations

In the normal course of business, the Company enters into various firm purchase commitments. As of March 31, 2022, these commitments totaled approximately $12.2 million, all of which are expected to be incurred in 2022.

7. Stockholders’ equity

Convertible preferred stock

Upon the closing of the IPO, 42,705,056 affiliated convertible preferred stock with a carrying value of $225.4 million were converted into 29,863,674 Series 1 convertible preferred stock. The remaining 10,804,295 outstanding historical convertible preferred stock were converted into 7,555,432 shares of common stock. As of March 31, 2022 and December 31, 2021, there were no shares of Series 2 non-voting convertible preferred stock outstanding.

The Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock authorized and outstanding have various rights, privileges and features. The Company determined that none of the features required bifurcation from the underlying shares, either because they are clearly and closely related to the underlying shares or because they do not meet the definition of a derivative. The rights, preferences, and privileges of the Company’s Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock are as follows:

Voting

The holders of our Series 1 convertible preferred stock are entitled to one vote per share. Holders of shares of our common stock and Series 1 convertible preferred stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, subject to the limitations described above. The Series 1 convertible preferred stock does not have cumulative voting rights. Holders of our Series 2 non-voting convertible preferred stock have no voting rights except as required by law or as set forth in our amended and restated certificate of incorporation.

Conversion

The Series 1 convertible preferred stock is convertible, at the election of the holder, into Series 2 non-voting convertible preferred stock on a one-for-one basis at any time following the third anniversary of the closing of the IPO. Shares of Series 1 convertible preferred stock automatically convert to common stock on a one-for-one basis at any time at the discretion of the holder, or upon any sale or transfer of such shares of Series 1 convertible preferred stock.

Conversion of the Series 2 non-voting convertible preferred stock is prohibited if the holder exceeds a specified threshold of voting security ownership. The Series 2 non-voting convertible preferred stock is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like; provided that such holder shall not be entitled to convert the Series 2 non-voting convertible preferred in excess of that number of convertible preferred stock which upon giving effect or immediately prior to such conversion would cause the holder to exceed 4.99% ownership or voting power individually or in aggregate with its affiliated holders. The 4.99% can be increased to up to 19.99% by the holders of such shares with 61 days’ notice to the Company. Shares of Series 2 non-voting convertible preferred stock automatically convert to common stock on a one-for-one basis upon any sale or transfer of such shares of Series 2 non-voting convertible preferred stock.

Dividends

The Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock have the right to receive dividends first or simultaneously with payment of dividends on common stock. As of March 31, 2022, no such dividends had been declared or accrued.

Liquidation preference

In the event of any liquidation or dissolution of the Company, holders of the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock are entitled to receive $0.0001 per share prior to the payment of any amount to any holders of our capital stock ranking junior to the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock and thereafter shall participate on an as-if-converted-to-common-stock basis.

Protective provisions

Consent of the holders of a majority of the voting rights of the outstanding Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock is required for any amendment or change of the rights, preferences, privileges, or powers of, or the restrictions provided for the benefit of, the Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock.

13


 

Redemption rights

No shares of Series 1 convertible preferred stock and Series 2 non-voting convertible preferred stock are unilaterally redeemable by either the stockholders or the Company; however, the Company’s amended and restated certificate of incorporation provides that upon any liquidation event such shares shall be entitled to receive the applicable liquidation preference.

Registration rights

In March 2021, the Company entered into a registration rights agreement (the Registration Rights Agreement) with Baker Brothers Life Sciences, L.P. and 667, L.P. (the Baker Funds), holders of the Company’s Series 1 convertible preferred stock and related parties. The obligations of the Company regarding such registration rights include, but are not limited to, file a registration statement with the SEC for the registration of registrable securities, reasonable efforts to cause such registration statement to become effective, keep such registration statement effective for up to 30 days, prepare and file amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and notify each selling holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed. The terms of the registration rights provide for the payment of certain expenses related to the registration of the shares, including a capped reimbursement of legal fees of a single special counsel for the holders of the shares, but do not impose any obligations for the Company to pay additional consideration to the holders in case a registration statement is not declared effective. Under the Registration Rights Agreement, the Baker Funds also have the right to one underwritten offering per calendar year, but no more than two underwritten offerings or block trades in any twelve month period, to effect the sale or distribution of their registrable securities, subject to specified exceptions, conditions and limitations. The Registration Rights Agreement also includes customary indemnification obligations in connection with registrations conducted pursuant to the Registration Rights Agreement.

Common stock

The Company’s February 2021 amended and restated certificate of incorporation authorized the issuance of up 200,000,000 shares of common stock, each having a par value of $0.0001 and entitled to one vote per share. No dividends have been declared or paid during the three months ended March 31, 2022.

 

8. Stock-based compensation

2013 Equity Incentive Plan

The 2013 Equity Incentive Plan (2013 Plan) provides the Board of Directors the discretion to grant stock options and other equity-based awards to employees, directors, and consultants of the Company. The Board of Directors administers the 2013 Plan and has discretion to delegate some or all of the administration of the 2013 Plan to a committee or committees or an officer. To date, the Company has only granted Incentive Stock Options (ISOs) and Non-statutory Stock Options (NSOs) to employees, consultants, and directors. Following the completion of the Company’s IPO no additional shares have been granted under the 2013 Plan. However, the 2013 Plan will continue to govern outstanding equity awards granted thereunder. To the extent outstanding options granted under the 2013 Plan are cancelled, forfeited or otherwise terminated without being exercised and would otherwise have been returned to the share reserve under the 2013 Plan, the number of shares underlying such awards will be available for future grant under the 2021 Equity Incentive Plan.

2021 Equity Incentive Plan

In February 2021, the Board of Directors adopted the 2021 Equity Incentive Plan (2021 Plan), and our stockholders approved the 2021 Plan. The 2021 Plan is a successor to and continuation of the 2013 Plan. To date, the Company has only granted ISOs, NSOs and Restricted Stock Units (RSUs) to employees and directors. Therefore, the below discussion is limited to the terms applicable to ISOs and NSOs (collectively, stock options or options), and RSUs.

2021 Employee Stock Purchase Plan (ESPP)

In February 2021, the Company’s Board of Directors adopted the ESPP, and our stockholders approved the ESPP. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company's common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's Board of Directors. Employees may invest up to 15% of their qualifying gross compensation through payroll deductions. In no event may an employee purchase more than 4,750 shares of common stock during any six-month offering period.

As of March 31, 2022, there were 212,147 shares issued under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. Stock-based compensation expense of $0.1 million related to the ESPP has been recorded for the three months ended March 31, 2022 and 2021.

14


 

2021 Inducement Plan

In November 2021, the Company's Board of Directors adopted the 2021 Inducement Plan (Inducement Plan). The Inducement Plan was adopted without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). Under the Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other awards to individuals not previously employees or non-employee directors of the Company, as an inducement toward entering into employment with the Company. The maximum number of shares of common stock that may be issued under the Inducement Plan is 3,000,000 shares.

Stock options

A summary of stock option activity during the three months ended March 31, 2022 is as follows: