lrmr-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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 001-36510

LARIMAR THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

20-3857670

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

Three Bala Plaza East, Suite 506

Bala Cynwyd, PA 19004

(Address of principal executive offices, including zip code)

Registrant’s Telephone Number, Including Area Code: (844) 511-9056

 

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

LRMR

The Nasdaq Global 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, a 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

 

Emerging growth company

Smaller reporting company

 

 

 

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 31, 2020, there were 15,356,206 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about us and our subsidiaries. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “could,” “should,” “projects,” “plans,” “goal,” “targets,” “potential,” “estimates,” “pro forma,” “seeks,” “intends” or “anticipates” or the negative thereof or comparable terminology. Forward-looking statements include, but are not limited to, statements concerning:

 

our estimates regarding future results of operations, financial position, research and development costs, capital requirements and our needs for additional financing;

 

how long we can continue to fund our operations with our existing cash, cash equivalents and marketable debt securities;

 

our ability to optimize and scale CTI-1601 or any other product candidate’s manufacturing process and to manufacture sufficient quantities of clinical and, if approved, commercial supplies of CTI-1601;

 

our ability to realize any value from CTI-1601 and any other product candidate we may develop in the future in light of inherent risks and difficulties involved in successfully bringing product candidates to market and the risk that products will not achieve broad market acceptance;

 

delays or changes in our anticipated clinical timelines, including as a result of patient recruitment, changes in clinical protocols and milestones for CTI-1601, including those associated with COVID-19;

 

uncertainties in obtaining successful clinical results for CTI-1601 or any other product candidate that we may develop in the future and unexpected costs that may result therefrom;

 

our ability to comply with regulatory requirements applicable to our business and other regulatory developments in the United States and foreign countries;

 

the uncertainties associated with the clinical development and regulatory approval for CTI-1601 or any other product candidate that we may develop in the future, including potential delays in the commencement, enrollment and completion of clinical trials;

 

the difficulties and expenses associated with obtaining and maintaining regulatory approval for CTI‑1601 or any other product candidate we may develop in the future, and the indication and labeling under any such approval;

 

the size and growth of the potential markets for CTI-1601 or any other product candidate that we may develop in the future, the rate and degree of market acceptance of CTI-1601 or any other product candidate that we may develop in the future and our ability to serve those markets;

 

the success of competing therapies and products that are or become available;

 

our ability to obtain and maintain patent protection and defend our intellectual property rights against third-parties;

 

the performance of third-parties upon which we depend, including third-party contract research organizations, or CROs, and third-party suppliers, manufacturers, group purchasing organizations, distributors, and logistics providers;

 

our ability to maintain our relationships, and contracts with our key vendors and commercial partners;

 

our ability to recruit or retain key scientific, technical, commercial, and management personnel or to retain our executive officers;

 


 

 

our ability to comply with stringent U.S. and foreign government regulations in the manufacturing of CTI-1601 or other product candidates we develop, including good manufacturing practice compliance and other relevant regulatory authorities;

 

our ability to maintain proper functionality and security of our internal computer and information systems and prevent or avoid cyber-attacks, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption; and

 

the extent to which health epidemics and other outbreaks of communicable diseases, including the recent outbreak COVID-19, disrupt our operations, the operations of third parties on which we rely or the operations of regulatory agencies we interact with in the development of CTI-1601.

You should assume that the information appearing in this report is accurate as its date only. Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Current Report on Form 8-K/A filed on June 26, 2020, New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor 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. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements after the date of this report for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

 

 


 

Larimar Therapeutics, Inc.

INDEX

 

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

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

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Management’s Evaluation of our Disclosure Controls and Procedures

 

31

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A.

 

Risk Factors

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

35

 

 

 

 

 

Signatures

 

36

 

On May 28, 2020, Larimar Therapeutics, Inc. (formerly known as Zafgen, Inc.) (“Larimar”), completed its reverse merger with Chondrial Therapeutics, Inc. (“Chondrial”), in accordance with the terms of the Agreement and Plan of Merger, dated as of December 17, 2019, as amended, by and among Larimar, Chondrial, a wholly-owned subsidiary of Larimar, Zordich Merger Sub, Inc. (“Merger Sub”) and Chondrial Holdings, LLC (“Holdings”), the sole stockholder of Chondrial ( the “Merger Agreement”), pursuant to which Merger Sub merged with and into Chondrial, with Chondrial surviving as a wholly owned subsidiary of Larimar (the “Merger”).

 

For accounting purposes, the Merger is treated as a “reverse asset acquisition” under generally acceptable accounting principles in the United States (“U.S. GAAP”) and Chondrial is considered the accounting acquirer. Accordingly, Chondrial’s historical results of operations replace Larimar’s historical results of operations for all periods prior to the Merger and, for all periods following the Merger, the results of operations of the combined company are included in the Company’s financial statements.

 

 

Unless the context otherwise requires, references to the “Company,” the “combined company” “we,” “our” or “us” in this report refer to Larimar Therapeutics, Inc. and its subsidiaries, references to “Larimar” refer to the Company following the completion of the Merger, and references to “Zafgen” refer to the Company prior to the completion of the Merger.

2


 

PART I-FINANCIAL INFORMATION

Item 1.

Financial Statements

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,308

 

 

$

1,009

 

Marketable debt securities

 

 

1,001

 

 

 

 

Prepaid expenses and other current assets

 

 

5,507

 

 

 

3,741

 

Total current assets

 

 

107,816

 

 

 

4,750

 

Property and equipment, net

 

 

630

 

 

 

274

 

Operating lease right-of-use assets

 

 

4,094

 

 

 

87

 

Restricted cash

 

 

1,339

 

 

 

 

Other assets

 

 

78

 

 

 

90

 

Total assets

 

$

113,957

 

 

$

5,201

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,269

 

 

$

3,539

 

Accrued expenses

 

 

3,384

 

 

 

2,259

 

Operating lease liabilities, current

 

 

525

 

 

 

97

 

Total current liabilities

 

 

5,178

 

 

 

5,895

 

Operating lease liabilities

 

 

6,138

 

 

 

 

Total liabilities

 

 

11,316

 

 

 

5,895

 

Commitments and contingencies (See Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock; $0.001 par value per share; 5,000,000 shares authorized

   as of September 30, 2020 and December 31, 2019; no shares issued and

   outstanding as of September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value per share; 115,000,000 shares

   authorized as of September 30, 2020 and December 31, 2019;

   15,356,206 and 6,091,250 shares issued and outstanding as of

   September 30, 2020 and December 31, 2019, respectively

 

 

15

 

 

 

6

 

Additional paid-in capital

 

 

154,038

 

 

 

22,432

 

Accumulated deficit

 

 

(51,410

)

 

 

(23,132

)

Accumulated other comprehensive loss

 

 

(2

)

 

 

 

Total stockholders’ equity (deficit)

 

 

102,641

 

 

 

(694

)

Total liabilities and stockholders’ equity (deficit)

 

$

113,957

 

 

$

5,201

 

 

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

 

3


 

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

6,919

 

 

$

8,034

 

 

$

20,833

 

 

$

15,384

 

General and administrative

 

 

3,416

 

 

 

594

 

 

 

7,575

 

 

 

1,672

 

Total operating expenses

 

 

10,335

 

 

 

8,628

 

 

 

28,408

 

 

 

17,056

 

Loss from operations

 

 

(10,335

)

 

 

(8,628

)

 

 

(28,408

)

 

 

(17,056

)

Other income, net

 

 

61

 

 

 

 

 

 

130

 

 

 

 

Net loss

 

$

(10,274

)

 

$

(8,628

)

 

$

(28,278

)

 

$

(17,056

)

Net loss per share, basic and diluted

 

$

(0.64

)

 

$

(1.42

)

 

$

(2.69

)

 

$

(2.80

)

Weighted average common shares outstanding, basic and diluted

 

 

15,984,609

 

 

 

6,091,250

 

 

 

10,505,826

 

 

 

6,091,250

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(10,274

)

 

$

(8,628

)

 

$

(28,278

)

 

$

(17,056

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable debt securities

 

 

1

 

 

 

 

 

 

(2

)

 

 

 

Total other comprehensive loss

 

 

1

 

 

 

 

 

 

(2

)

 

 

 

Total comprehensive loss

 

$

(10,273

)

 

$

(8,628

)

 

$

(28,280

)

 

$

(17,056

)

 

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


4


 

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances as of December 31, 2019

 

 

6,091,250

 

 

$

6

 

 

$

22,432

 

 

$

(23,132

)

 

$

 

 

$

(694

)

Capital contributions from related party

 

 

 

 

 

 

 

 

9,595

 

 

 

 

 

 

 

 

 

9,595

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,674

)

 

 

 

 

 

(6,674

)

Balances as of March 31, 2020

 

 

6,091,250

 

 

 

6

 

 

 

32,056

 

 

 

(29,806

)

 

 

 

 

 

2,256

 

Capital contributions from related party

 

 

 

 

 

 

 

 

8,400

 

 

 

 

 

 

 

 

 

8,400

 

Merger with Zafgen Inc.

 

 

3,124,337

 

 

 

3

 

 

 

37,116

 

 

 

 

 

 

 

 

 

37,119

 

Private Placement of common shares and pre-funded warrants, net of transaction costs

 

 

6,140,619

 

 

 

6

 

 

 

75,344

 

 

 

 

 

 

 

 

 

75,350

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

752

 

 

 

 

 

 

 

 

 

752

 

Unrealized loss on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,330

)

 

 

 

 

 

(11,330

)

Balances as of June 30, 2020

 

 

15,356,206

 

 

 

15

 

 

 

153,668

 

 

 

(41,136

)

 

 

(3

)

 

 

112,544

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

370

 

 

 

 

 

 

 

 

 

370

 

Unrealized gain on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,274

)

 

 

 

 

 

(10,274

)

Balances as of September 30, 2020

 

 

15,356,206

 

 

$

15

 

 

$

154,038

 

 

$

(51,410

)

 

$

(2

)

 

$

102,641

 

 

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

 

5


 

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY (DEFICIT) – CONTINUED

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances as of December 31, 2018

 

 

6,091,250

 

 

$

6

 

 

$

2,908

 

 

$

 

 

$

 

 

$

2,914

 

Capital contributions from related party

 

 

 

 

 

 

 

 

3,000

 

 

 

 

 

 

 

 

 

3,000

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,724

)

 

 

 

 

 

(4,724

)

Balances as of March 31, 2019

 

 

6,091,250

 

 

 

6

 

 

 

5,942

 

 

 

(4,724

)

 

 

 

 

 

1,224

 

Capital contributions from related party

 

 

 

 

 

 

 

 

2,990

 

 

 

 

 

 

 

 

 

2,990

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

33

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,704

)

 

 

 

 

 

(3,704

)

Balances as of June 30, 2019

 

 

6,091,250

 

 

 

6

 

 

 

8,965

 

 

 

(8,428

)

 

 

 

 

 

543

 

Capital contributions from related party

 

 

 

 

 

 

 

 

9,949

 

 

 

 

 

 

 

 

 

9,949

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

33

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,628

)

 

 

 

 

 

(8,628

)

Balances as of September 30, 2019

 

 

6,091,250

 

 

$

6

 

 

$

18,947

 

 

$

(17,056

)

 

$

 

 

$

1,897

 

 

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

 

 

 

6


 

LARIMAR THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,278

)

 

$

(17,056

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,151

 

 

 

100

 

Depreciation expense

 

 

105

 

 

 

58

 

Amortization of premium on marketable securities

 

 

11

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,840

)

 

 

(1,656

)

Accounts payable

 

 

(4,193

)

 

 

2,204

 

Accrued expenses

 

 

713

 

 

 

1,615

 

Right-of-use assets

 

 

247

 

 

 

59

 

Operating lease liabilities

 

 

(281

)

 

 

(48

)

Other assets

 

 

23

 

 

 

(64

)

Net cash used in operating activities:

 

 

(32,342

)

 

 

(14,788

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(63

)

 

 

(33

)

Cash, cash equivalents, and restricted cash acquired in connection with the Merger

 

 

41,934

 

 

 

 

Merger transaction costs

 

 

(1,236

)

 

 

 

Net cash provided by (used in) investing activities

 

 

40,635

 

 

 

(33

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Capital contribution from related party

 

 

17,995

 

 

 

15,940

 

Proceeds from sale of common stock and prefunded warrants, net of issuance costs

 

 

75,350

 

 

 

 

Net cash provided by financing activities

 

 

93,345

 

 

 

15,940

 

Net increase in cash, cash equivalents and restricted cash

 

 

101,638

 

 

 

1,119

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

1,009

 

 

 

4,396

 

Cash, cash equivalents and restricted cash at end of period

 

$

102,647

 

 

$

5,515

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Fair value of net assets acquired in the Merger, including $1.0 million of marketable debt securities and excluding cash acquired

 

$

(4,815

)

 

$

 

Leased assets obtained in exchange for new operating lease liabilities

 

$

448

 

 

$

 

Merger transaction costs included in accounts payable and accrued expenses

 

$

60

 

 

$

 

 

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

7


 

LARIMAR THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Organization, Nature of the Business, COVID-19 Risk and Basis of Presentation

Larimar Therapeutics, Inc., together with its subsidiaries (the “Company” or “Larimar”), is a clinical stage biopharmaceutical company leveraging its proprietary knowledge to develop a therapeutic treatment for mitochondrial disorders which currently have no cure. The Company has focused on Friedreich’s Ataxia, which is a progressive disease that affects multiple body systems, particularly the brain and heart. CTI-1601, the Company’s lead product candidate in Phase 1 clinical development, utilizes a cell penetrant peptide to deliver frataxin, the protein deficient in Friedreich’s Ataxia, to the mitochondria where it is believed to be processed into mature frataxin and becomes active in mitochondrial metabolism.

The Company is subject to risks and uncertainties common to pre-commercialization companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations, failure to secure regulatory approval for CTI-1601 or any other product candidates and the ability to secure additional capital to fund operations. Drug candidates currently under development will require extensive nonclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The extent of the effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the financial effect of the pandemic at this time, if the pandemic remains uncontained, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. The financial statements do not reflect any adjustments as a result of the pandemic.

The pandemic resulted in the temporary stoppage of the Company’s Phase 1 clinical trials studying CTI-1601 in patients with Friedreich’s Ataxia after the completion of two cohorts. In July 2020, the Company resumed its Phase 1 clinical trials of CTI-1601. The Company is conducting these clinical trials at one clinical trial site. Because Friedreich’s Ataxia is a rare disease, there are a limited number of patients in close proximity to the clinical trial site and clinical trial patients travel from throughout the United States to the clinical trial site to participate. After dosing, patients remain in isolation in the clinical research unit for a period of time. The travel advisories and risk of infection related to COVID-19 have presented increased risks to patients traveling to the Company’s clinical trial site for dosing and the Company expects to incur additional clinical trial costs to safely transport and isolate patients participating in the trial. While top line results from the ongoing Phase 1 clinical trials were originally expected by the end of 2020, the delay in the clinical trial timeline caused by the ongoing impact of COVID-19 resulted in top line results now being expected in the first half of 2021. The Company may experience additional delays in clinical trial timelines as a result of additional travel and hospital restrictions related to the COVID-19 pandemic which may be imposed, including as a result of resurgences of COVID-19 cases in certain geographic areas.

Merger with Zafgen

On December 17, 2019, Zafgen, Inc. (“Zafgen”), Chondrial Therapeutics Inc. (“Chondrial”), Zordich Merger Sub, Inc. (“Merger Sub”) and Chondrial Holdings, LLC (“Holdings”), the sole stockholder of Chondrial, entered into an Agreement and Plan of Merger, as amended on March 9, 2020 (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Chondrial, with Chondrial surviving as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”).

The transaction was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Under this method of accounting, Chondrial was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that,

8


 

immediately following the Merger: (1) former shareholders of Chondrial own a substantial majority of the voting rights of the combined company; (2) the majority of the board of directors of the combined company is composed of directors designated by Chondrial under the terms of the merger agreement; and (3) existing members of Chondrial management constitute the management of the combined company. Because Chondrial has been determined to be the accounting acquirer in the Merger, but not the legal acquirer, the Merger is deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. As a result, the historical financial statements of Chondrial are the historical financial statements of the combined company. As the Merger has been accounted for as an asset acquisition, goodwill has not been recorded within the condensed combined balance sheet.

The Merger was completed on May 28, 2020 pursuant to the terms of the Merger Agreement. In addition, immediately prior to the closing of the Merger, Zafgen effected a 1-for-12 reverse stock split (the “Reverse Stock Split”) of Zafgen’s common stock, par value $0.001 per share (the “Zafgen Common Stock”). At the effective time of the Merger (the “Effective Time”), each share of Chondrial’s common stock, par value $0.001 per share (“Chondrial Common Stock”), outstanding immediately prior to the Effective Time was converted into the right to receive shares of Zafgen Common Stock based on an exchange ratio set forth in the Merger Agreement. At the Effective Time following the Reverse Stock Split, the exchange ratio was determined to be 60,912.5005 shares of Zafgen Common Stock for each share of Chondrial Common Stock (the “Exchange Ratio”). At the closing of the Merger on May 28, 2020, Zafgen issued an aggregate of 6,091,250 shares of its common stock to Holdings (the “Merger Shares”), based on the Exchange Ratio after giving effect to the Reverse Stock Split described below. Holdings subsequently distributed the Merger Shares to its members.

In addition, all outstanding options exercisable for common units of Holdings became options exercisable for the shares of common stock of Zafgen based on the conversion factor discussed within the Merger Agreement. In connection with the Merger, Zafgen changed its name to Larimar Therapeutics, Inc. Following the closing of the Merger, Chondrial Therapeutics, Inc. became a wholly-owned subsidiary of the Company. As used herein, the words “the Company” refers to, for periods following the Merger, Larimar, together with its subsidiaries, and for periods prior to the Merger, Chondrial Therapeutics Inc., and its direct and indirect subsidiaries, as applicable.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Larimar and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP. Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the Exchange Ratio.

Reverse Stock Split

On May 28, 2020, immediately prior to the closing of the Merger, Zafgen effected the Reverse Stock Split. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split. Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the Exchange Ratio.

Going Concern Assessment

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of the issuance date of these condensed consolidated financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its forecasted operating expenses and capital expenditure requirements for at least the next twelve months from the issuance date of these financial statements.

Since its inception, the Company has incurred significant operating losses and negative cash flows from operations. The Company has not yet commercialized any products and does not expect to generate revenue from the commercial sale of any products for several years, if at all. The Company expects that its research and development and general and administrative expenses will continue to increase and, as a result, will need additional capital to fund its future operations, which it may raise through a combination of equity offerings, debt financings,

9


 

other third-party funding, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements.

The Company has funded its operations to date primarily with proceeds from sales of common stock, prefunded warrants for the purchase of common stock and contributions from Holdings. In 2020, the Company completed the Merger and acquired $42.9 million of cash, cash equivalents, restricted cash and marketable debt securities that were held by Zafgen immediately prior to the Merger. The Company also raised $75.4 million, net of offering costs, through a private offering of common stock and prefunded warrants to purchase shares of common stock in connection with and immediately after the closing of the Merger. In addition, in 2020, prior to the Merger, the Company received $18.0 million in capital contributions from Holdings. In August 2020, the Company entered

into an Equity Distribution Agreement (the “ATM Agreement”) with Piper Sandler & Co. (“Piper Sandler”), in

connection with the establishment of an “at-the-market” offering program under which the Company may sell up to

an aggregate of $50,000,000 of shares of its common stock from time to time through Piper Sandler, as sales agent. As of September 30, 2020, no shares of common stock have been sold under the Agreement.

If the Company is unable to obtain future funding when needed, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or pre‑commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

2.

Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of December 31, 2019 was derived from the Company’s audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Current Report on Form 8-K/A filed on June 26, 2020. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of September 30, 2020 and condensed consolidated results of operations and cash flows for the three and nine months ended September 30, 2020 and 2019 have been made. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development expense, valuation of stock-based awards and valuation of leases. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.

Concentrations of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains cash balances in various operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits. The Company has not experienced losses related to its cash and cash equivalents.

The Company is highly dependent on third-party manufacturers to supply products for research and development activities in its programs. The Company relies and expects to continue to rely on a small number of

10


 

manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or in the supply of active pharmaceutical ingredients and formulated drugs.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consisted of money market funds as of September 30, 2020. As of December 31, 2019, the Company did not have cash equivalents.

Marketable debt securities

Marketable debt securities consist of debt investments with original maturities greater than ninety days. The Company classifies its marketable debt securities as available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. When the fair value is below the amortized cost the amount of the expected credit loss is estimated. The credit-related impairment amount is recognized in net income; the remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive income in stockholders’ equity. Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is recorded in net income.

Segment Information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s focus is on the research, development and commercialization of novel therapeutics for the treatment of rare diseases.

Research and Development Costs

Costs associated with internal research and development and external research and development services, including drug development and nonclinical studies, are expensed as incurred. Research and development expenses include costs for salaries, employee benefits, subcontractors, facility-related expenses, depreciation, stock-based compensation, third-party license fees, laboratory supplies, and external costs of outside vendors engaged to conduct discovery, nonclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials, and other costs. The Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such prepaid expenses are recognized as an expense when the goods have been delivered or the related services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered.

Upfront payments, milestone payments and annual maintenance fees under license agreements are currently expensed in the period in which they are incurred.

Patent Costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Stock-Based Compensation

The Company measures all stock-based awards granted to employees, non-employee consultants and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Typically, the Company issues awards with only service-based and market-based vesting conditions and records the expense for these awards using the straight-line method. The Company accounts for forfeitures as they occur.

11


 

The Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Prior to May 28, 2020, the Company had been a private company and lacked company-specific historical and implied volatility information for its common stock. Therefore, the Company estimates its expected common stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield considers the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Basic shares outstanding includes the weighted average effect of the Company’s prefunded warrants issued in June 2020, the exercise of which requires little or no consideration for the delivery of shares of common stock. Basic and diluted weighted average shares of common stock outstanding for the three and nine months ended September 30, 2020 includes the weighted average effect of 628,403 prefunded warrants for the purchase of shares of common stock, which were issued in June 2020, and for which the remaining unfunded exercise price is $0.01 per share.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted common shares, as determined using the treasury stock method. For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is antidilutive.

12


 

The Company excluded the following common stock equivalents, outstanding as of September 30, 2020 and 2019, from the computation of diluted net loss per share for the three and nine months ended September 30, 2020 and 2019 because they had an anti-dilutive impact due to the net loss incurred for the periods:

 

 

 

As of September 30,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

1,954,802

 

 

 

 

Unvested restricted common stock

 

 

2,782

 

 

 

 

 

 

 

1,957,584

 

 

 

 

 

Prior to the Merger the Company did not have options to purchase common stock or unvested restricted common stock to exclude from the calculation of earnings per share as all outstanding options were for common units of Holdings that upon the Merger converted into options exercisable for the shares of common stock of the Company.

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company adopted the standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements. This standard became effective for the Company on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s disclosures.

 

3.

Merger Accounting

On May 28, 2020, the Company completed its merger with Zafgen. Based on the Exchange Ratio, immediately following the Merger, former Zafgen stockholders, Zafgen option holders and other persons holding securities or other rights directly or indirectly convertible, exercisable or exchangeable for Zafgen Common Stock (collectively, the “Zafgen Securityholders”) owned approximately 34% of the outstanding capital stock of the combined company, and Holdings, the former Chondrial stockholder, owned approximately 66% of the outstanding capital stock of the combined company. At the closing of the Merger, all shares of Chondrial Common Stock were exchanged for an aggregate of 6,091,250 shares of Zafgen Common Stock, after giving effect to the Reverse Stock Split.

In addition, pursuant to the terms of the Merger Agreement, the Company assumed all outstanding stock options to purchase shares of Zafgen common stock at the closing of the Merger. At the closing of the Merger, such stock options became options to purchase an aggregate of 328,770 shares of the Company’s common stock after giving effect to the Reverse Stock Split.

13


 

The total purchase price paid in the Merger has been allocated to the tangible and intangible assets acquired and liabilities assumed of Zafgen based on their fair values as of the completion of the Merger. Transaction costs primarily included bank fees and professional fees associated with legal counsel, auditors and printers. The following summarizes the purchase price paid in the Merger (in thousands, except share and per share amounts):

 

Number of shares of the combined organization owned by Zafgen stockholders(1)

 

 

3,124,337

 

Multiplied by the fair value per share of Zafgen common stock(2)

 

$

11.88

 

Fair value of consideration issued in effect of the Merger

 

$

37,119

 

Transaction costs

 

$

1,715

 

Purchase price:

 

$

38,834

 

 

 

(1)

The number of shares of 3,124,337 represents the historical 37,492,044 shares of Zafgen common stock outstanding immediately prior to the closing of the Merger, adjusted for the Reverse Stock Split.

 

(2)

Based on the last reported sale price of Zafgen common stock on the Nasdaq Global Market on May 28, 2020, the closing date of the Merger, and after giving effect to the Reverse Stock Split.

The allocation of the purchase price for the Merger was based on estimates of the fair value of the net assets acquired, which was then adjusted for the difference between the purchase price and the fair value of the assets acquired. The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired (in thousands):

 

Cash and cash equivalents

 

$

40,595

 

Marketable debt securities

 

 

1,014

 

Other current and noncurrent assets

 

 

357

 

Property and equipment, net

 

 

398

 

Restricted cash

 

 

1,339

 

Right-of-use asset

 

 

3,806

 

Current liabilities

 

 

(2,685

)

Lease liability, net of current portion

 

 

(5,990

)

Purchase price

 

$

38,834

 

 

4.

Fair Value Measurements and Marketable Debt Securities

Fair Value Measurements

The Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 are measured in accordance with the standards of ASC 820, Fair Value Measurements and Disclosures, which establishes a three-level valuation hierarchy for measuring fair value and expands financial statement disclosures about fair value measurements. The valuation hierarchy is based on upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

Level – 1

Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 

Level – 2

Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

 

Level – 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts payable and accrued liabilities. For accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of September 30, 2020 and December 31, 2019 were considered representative of their fair values due to their short term to maturity.

14


 

The following tables summarize the Company’s cash equivalents and marketable debt securities as of September 30, 2020. There were no cash equivalents and marketable debt securities as of December 31, 2019:

 

 

 

September 30, 2020

 

 

 

Total

 

 

Quoted

Prices in

Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Money market funds

 

$

913

 

 

$

913

 

 

$

 

 

$

 

             Total cash equivalents

 

 

913

 

 

 

913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Corporate bonds

 

 

1,001

 

 

 

 

 

 

1,001

 

 

 

 

              Total marketable debt securities

 

 

1,001

 

 

 

 

 

 

1,001

 

 

 

 

   Total cash equivalents and marketable debt securities

 

$

1,914

 

 

$

913

 

 

$

1,001

 

 

$

 

Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities as of September 30, 2020. There were no marketable debt securities as of December 31, 2019:

 

 

 

September 30, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Corporate bonds (due within 1 year)

 

$

1,003

 

 

$

 

 

$

(2

)

 

$

1,001

 

 

 

$

1,003

 

 

$

 

 

$

(2

)

 

$

1,001

 

As of September 30, 2020, the Company did not have an allowance for credit losses. All investments with unrealized losses at September 30, 2020 have been in a loss position for less than twelve months or the loss is not material and were temporary in nature. The Company does not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis.

5.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Prepaid research and development expenses

 

$

4,481

 

 

$

3,099

 

Payroll tax receivable

 

 

34

 

 

 

76

 

Capitalized transaction costs

 

 

 

 

 

419

 

Research and development tax credit sale receivable

 

 

 

 

 

82

 

Other prepaid expenses and other assets

 

 

992

 

 

 

65

 

 

 

$

5,507

 

 

$

3,741

 

 

Capitalized transaction costs as of December 31, 2019 consists of capitalized legal and proxy fees incurred by the Company, related to the Merger. These costs were included in the purchase price allocation when accounting for the Merger.

15


 

6.